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Amito Sharma's avatar

Thanks for posting the problem index, I have not read the subsequent issues and so cannot comment accurately on the remainder of the research, but what you have set out makes a lot of sense, we know that:

- Countries in East Asia and most of Europe are ageing

- We know the dependency ratio, especially for old age is increasing

- State indebtedness to support this, together with lower rates of consumption, result in slower growing economies

- Having lived in Spain, Singapore and Japan, they are all dealing with things differently, but my question is, is this a problem or just a reality? - We can't continue to grow forever, dealing with the downside is key here. Additionally, how do local people feel about it, for example in Japan, locals would rather do menial jobs (including farming) rather than rely on immigrants (unless its a last resort), which increasingly it is. Additionally, some countries can attract immigrants, especially skilled ones, whilst others can't - Eastern Europe is not an attractive place for skilled workers from Asia for example.

On the contrary, in my index, places like Singapore, Japan and Spain are attractive places and if they want, they can have the labour force of their choice when they want it, but others, don't have that luxury - as an Indian immigrant, perhaps some thought needs to be taken on where we as skilled workers would be willing to move to and whether in future people will be willing to move as much.

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Marshall Yount's avatar

Thanks for reporting on this important demographic issue. It is important and FinTwit and the financial press have been largely ignoring it.

It is my opinion that the retirement of the Boomer generation is at this point driving disinflation/inflation much more than supply chain issues.

If you model the economy as a closed island containing 100 people that trade shells for goods and services. If 20% of those people start saving a big chunk of their income by hiding shells, in the simplified model this will reduce the effective money supply and create a deflationary impulse. This was the regime up until 2017-ish.

Similarly, when that 20% of population stops working and starts trading their hidden shells for living expenses, this increases the effective money in circulation and will create an inflationary impulse.

When Powell says "higher for longer," I believe him and it's not just supply chain snarled inflation. This gigantic demographic shift will increase the inflation rate until the Boomer generation has finished divesting their inventory of shells. The neutral interest rate must be higher than whatever level the Boomers drive the inflation rate to.

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