sovereign debt crisis and demography

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Why demographics form a large part of the sovereign debt crisis.


  • 1. What Do Ageing Populations Have To Do With The Edward Hugh Sovereign Debt Crisis? Vienna, March 2013 No other force is likely to shape the future of national The real debt cliff is economic health, public finances, and policymaking as looming over the next 10 the irreversible rate at which the worlds population is to 20 years. aging - Standard & Poors 2010 The key factors in this race to the edge will be: Pace of Reform Rates of Economic Growth Rates of InterestCome gather round peopleWherever you roam Andadmit that the waters Aroundyou have grown And accept itthat soon Youll be drenchedto the bone
  • 2. Baseline Case - No ReformFor all sovereigns in the study, burgeoning deficit ratios are expected to push themedian net debt ratio to around 245% of GDP in 2050, from below 40% of GDPcurrently, as the snowball effect of rising interest payments accelerates the negativebudgetary impact. During the same period, the median debt for advancedsovereigns under the "no-policy change" scenario grows almost five-fold to morethan 300% of GDP.S&Ps, 2010Obviously there will bereform,But how much andhow quickly?At present voters dontseem to be too keen. If your time to you Is worth savin Then you better start swimmin Or youll sink like a stone .For the times they are a changin.
  • 3. Viewed In historical terms population structures really arechanging extraordinarily quickly.
  • 4. The Growth Outlook There is an accumulating volume of evidence that as societies age they lose growth momentum. Italy and Japan are two of the oldest societies on earth. Portugal is a typical aging European society. Come mothers and fathers Throughout the land And dont criticize What you cant understand Your sons and your daughters Are beyond your command Your old road is Rapidly agin Structural reforms can help offset some of this, but growth rates look set to fall towards zero and then beyond. Some ecologists have argued for a zero growth society. Will they like the new world when they get to really see it?
  • 5. And while there is muchshaking of heads aboutJapanese debt, the ill-effectsif any of that debt are by nomeans obvious.Paul Krugman Oh Really!!!!
  • 6. Interest Rates Some Countries Are Improving Their Credit Rating Mainly Emerging MarketsWhile Others LargelyDeveloped Economies SeeTheirs Steadily Worsening Come gather round people, throughout the land, and dont criticise what you cant understand, the times they are achangin.
  • 7. What Demographic Revolution? Almost all populations globally are aging. This is a result of both declining fertility and rising life expectancy. In the developed countries the situation becomes acute since fertility falls (often) well blow replacement and stays there for decades.
  • 8. Not All Developed Countries Are Aging At An Equal Rate Some European societies are getting older much more rapidly than others.Most emerging market andless developed economycountries are also aging,but they are still quiteyoung. EMs are normallyolder than LDCs.
  • 9. As far as we are able to understand the issue at this point,population ageing will have major economic impacts and these canbe categorised under four main headings: i) ageing will affect the size of the working age population, and with this thelevel of trend economic growth in one country after another ii) ageing will affect patterns of national saving and borrowing, and withthese the directions and magnitudes of global capital flowsiii) through the saving and borrowing path the process can influence valuesof key assets like housing and equitiesiv) through changes in the dependency ratio, ageing will influence pressureon global sovereign debt, producing significant changes in ranking asbetween developed and emerging economies.
  • 10. Importance Of The Prime Age GroupsThere are basically three important age groups prime borrowers, prime savers, andprime age workers. The proportions between these three groups in any given societyseem key pieces of economic data, yet few studies even consider them.Estimates of the exact age extension of the different groups vary, but 25-40 would be agood rule of thumb measure of the borrowing range, 40 to 55 for the peak savers, and35 to 50 for the prime age workers.Beyond this, the question is an empirical one of measuring and testing to determinemore precise boundaries and frontiers.For every country the proportion of each of these key groups peaks at a given momentin time. Where these actual age brackets lie, and the extent to which they may overlap,is still a subject of some controversy,One of the key points to grasp, is that the proportion the population which is to befound in one of the prime age groups at a given moment in time, is absolutely critical,and much more important for understanding the processes at work than the mere sizeof the working age population.
  • 11. Disruptive Feedback Mechanisms The Spanish Case Spain is suffering from a clear case of self reinforcing problem illnessUnemployment rises Credit is scarceand rieses since the as there is littleeconomy is broken. solventHouse prices fall, and demand, andthe number of bad loans youngrise. educated people leave. With growing numbers of pensions, and ever fewer contributors the pension system becomes unsustainable.
  • 12. What Will The World Look Like After Japan Hits The Wall? The line it is drawn The curse it is cast The slow one now Will later be fast As the present now Will later be past The order is Rapidly fadin And the first one now Will later be last For the times they are a-changin.


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