Here’s an interesting Bloomberg piece on what bond guru Bill Gross is calling ‘financial repression’, but what you can just call ‘low interest rates’ The big story is that the world is still crawling out of a near-depression, and there is not a central banker in the developed world who would dare dream of pushing interest rates to anything above a number you could count out on the fingers of one hand (and seriously, in most countries you could leave out the thumb and index finger as well). In his view – and mine too – that’s going to be the case for at least a decade. Good or bad? Well, that depends on what side of the generational divide you are on. If you are young and starting a business and buying a house, then low rates rock. If you are a baby boomer facing retirement and planning to live off (what might be inadequate) savings, then low rates are a disaster. Not much in between ground there actually.
It is one more pending generational divide between boomers and pretty much every generation that followed them. We already have a couple brewing of course. Younger people already chafe at the thought that they will not be able to retire at the same age and with the same benefits as boomers and pre-boomers. They resent the crappy job market that they inherited. And they know that education for them is much more costly than than it was for earlier generations. For the boomers, well, I don’t know that they are bothering ticking off the ‘not fairs’ so much as just doing the math on their own retirement savings and taking deep breaths. Not every boomer is adequately prepared for retirement, but a chunk of them are not. When writing Economorphics, I was stunned at how easy it was to find data showing that not only had many boomers not saved enough, they also had a ton of debt following them into their golden years. According to an analysis by the Securian Financial Group, 67 percent of pre-retirees in the U.S. plan to carry mortgage debt into retirement, while a study by the Met Life Mature Market Institute found that as of 2013 8 percent of boomers owed more than the value of their homes. The figures are a bit better in Canada (which did not have a housing market collapse) but even so one-quarter of Canadian boomers plan to carry some debt into retirement.
So where does this all lead? Not to boomers living in poverty exactly, but perhaps boomers living without takeout and regular holidays. Not to mention boomers holding on to their jobs just as long as they possibly can. Which may not be as long as they want actually, which suggests to me a decade or more of wrongful dismissal suits ahead – and an unemployment rate for younger people than stays persistently high.