Southern Europe: Beyond a Demographic Point of No Return

[Chen019]

According to David Goldman, buying bonds from these countries would be a bad itea:

The absence of the devaluation option within the Euro mechanism requires a great deal more theater on the part of feckless and incompetent politicians who made their careers by dispensing borrowed money to their voters.

That is true for the moment, when the elder dependent ratio for Southern Europe stands at around 25%. Between 2020 and 2045, however, the infertility of Southern Europe will catch up with it, and the elder dependent ratio will rise to over 60%–an impossible, unmanageable number. At that point the character of these countries will change radically; they will be overwhelmed with immigrants from North Africa as well as sub-Saharan Africa, who will not have the skills or the habits of civil society to maintain economic life. And their economies will slide into a degree of ruin comparable only to that of classical antiquity. Perhaps the Chinese will operate Greece as a theme park. Spain, which can draw on Latin American immigrants, is likely to be the least badly off…

Why would anyone buy a 30-year bond from any of these countries? By 2041, there won’t be enough taxpayers left to pay the coupons. And that raises a related question: what is time horizon of an equity investment in those countries? Although Standard and Poor’s calculates the duration of equities at somewhere between 20 and 30 years, that is a somewhat dubious estimation of interest sensitivity, not a measure of the horizon of expectations. Markets are notoriously short-sighted. But at some point markets must recognize that companies that have a rapidly-shrinking pool of workers as well as customers are in no position to earn profits. The real demographic crunch will start to hit in the mid-2020s, and it is possible that markets will ignore the inevitable demographic doom until then.

Southern Europe: Beyond a Demographic Point of No Return

[twickster]

We don’t allow threads that are a link (or quote) with no indication from the OP what the point is, so I’m going to close this.

Chen019, if you had a point, let me know what it was and I’ll reopen the thread, perhaps moving it to a different forum.

twickster, MPSIMS moderator