The Baby Boomer Generation

The Bank for International Settlements (BIS) - the central bankers' central bank - published a report in August 2017 exploring the impact that changing demographics will have on economies around the world over the next couple of decades. Their findings are thought provoking. The BIS Working Paper argues that the demographic developments that have taken place over the last 35 years have driven falling real interest rates, inflation and wages and rising inequality within countries.

Between the 1980s and the 2000s, the largest ever positive labour supply shock occurred, resulting from demographic trends and from the inclusion of China and eastern Europe into the World Trade Organization. This led to a shift in manufacturing to Asia, especially China; a stagnation in real wages; a collapse in the power of private sector trade unions; increasing inequality within countries, but less inequality between countries; deflationary pressures; and falling interest rates. This shock is now reversing. As the world ages, real interest rates will rise, inflation and wage growth will pick up and inequality will fall.
— Bank for International Settlements - Working Paper No 656

The BIS forecasts that these demographic changes are now about to reverse. The labour supply shock has likely ended. World population growth is on the slide, from a healthy +2% per annum to below +1% pa, while population growth in the advanced economies will tip into negative territory by 2040. The working age population is also trending lower.

world pop growth.jpg

The impact on stock markets could be dramatic. Baby Boomers are by far the largest cohort of owners of equities in the US. As this cohort of the population reaches retirement age, net buyers of equities will turn into net sellers. Where will the demand come from to replace the wealthiest segment of American society as they sell down their assets to fund their retirement? 

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