Financial, Economic and Social Mood Update (July 1, 2019)
The topic of this month’s financial blog is one dear to many people – the health (or lack thereof) of their own financial retirement. The pension administrator of my own personal plan recently wrote about the situation not merely with respect to own plan, but for retirement in general in the USA and worldwide. So this is a topic to which most of us can relate.
The biggest challenge for retirement plans today is changing demographics. Human populations in all countries on all continents are ageing. In other words, the current human population demographic is older than it has ever been in recorded history. One the one hand, we are living longer, but on the other hand, birth rates and female fertility rates have fallen to historical lows. This phenomenon translates or can translate into an inverse (or upside down) population pyramid. In other words, too many retired people (or economically inactive people) and not enough younger people (or people who should be economically active and contributing into to the common economic resource). Needless to say, some countries look better and others look worse when it comes to this phenomenon.
In financial terms, this phenomenon translates into a so-called “pension gap,” 75 percent of which is currently attributable to deficits in government-funded public sector pensions (such as social security) and in pension plans for public sector employees (such as national government employees, provincial or state government employees, local or municipal government employees, members of the military, law enforcement personnel, firefighting personnel and for employees of the public education system). The 8 countries with the biggest “pension gaps” had a combined unfunded liability of USD $70 TRILLION in 2015, which is projected to balloon to an astounding USD $435 TRILLION by the year 2050 – a mere 31 years from today. Where do these ballooning ageing populations and unfunded pension gaps exist?
Number one is in the USA, where the gap is forecast to rise to USD $140 TRILLION by the year 2050. 2nd on the list is China, where the gap is forecast to rise to USD $120 TRILLION by 2050. 3rd on the list is India, where the pension gap is forecast to increase to USD $85 TRILLION by the year 2050. 4th on the list is the UK, where the unfunded pension gap is forecast to rise to USD $35 TRILLION by 2050. Number 5 on the list is Japan, where the underfunded pension gap is forecast to rise to USD $25 TRILLION by the year 2050. 6th on the list is Canada, where the pension shortfall is forecast to rise to USD $15 TRILION by 2050. Number 7 on the list is Australia, where the pension deficit is forecast to increase to USD $10 TRILLION and number 8 on the list is the Netherlands, where that figure is predicted to increase to USD $5 TRILLION.
This unhappy picture is likely to translate into much higher taxes in the future as well as into reduced monthly benefits and into reduced healthcare benefits. The entire global economy today produces at least USD $81 TRILLION per year in terms of nominal GDP or as much as USD $135 TRILLION per year in terms of PPP (Purchasing Power Parity) GDP, or Gross Domestic Product. This may appear to equal a large amount of money, but we must remember that everything is “relative.” In other words, how does GDP (or output, or in a simple sense = income) stack up against assets and liabilities?
Global stock market equity stands at about USD $99 TRILLION. In other words, all of the fair market value of all of the substantial corporations in the entire world put together. This wealth exists in the form of cash (liquidity), gold (precious metals), real property, mineral reserves (in the land and under the oceans) and in the form of other physical assets.
The sum of liabilities (actual debt owed plus unfunded liabilities discussed earlier plus contingent liabilities such as financial derivative instruments) is unfortunately much, much higher. The sum of actual worldwide debt (loans) stands at USD $184 TRILLION. Total unfunded liabilities (for the entire world – not merely for the 8 countries listed earlier………..and today, not in 2050) amount to USD $188 TRILLION. Add to this the sum of contingent liabilities or “derivative financial instruments” largely “betted” by global money center banks which equal USD 1,043 TRILLION, and one comes up with an absolutely mind-boggling figure of USD $1,415 TRILLION for combined debt, unfunded liabilities plus contingent liabilities.
Among the likely solutions to this horrendous problem are not merely increased levels of taxation (which are already too high, and which are being paid by those at the top of the economic ladder with rates of confiscation as high as 90 percent in the industrialized world), decreased monthly benefits, decreased healthcare benefits (healthcare is already being “rationed” in the form of socialized medicine = higher volume = lower quality) but in the form of massive currency devaluation. Fiat currency devaluation will visit us in the form of inflation (reduced purchasing power) and ultimately in a much more profound form – in the form of a necessary global economic reset, a global currency reset, or more accurately, in the form a necessary global currency “revaluation” in which the swindled countries of the formerly colonial world may re-emerge to the front of the global pack of countries.
