23 April 2009

Its not a conspiracy, its demographics!

Goldman rants a lot of sense... its multifactorial, don't beleive any simple explanations..its not commies, Soros, bankers, illuminati, lizard people...its History in action, its human nature, its a sand pile, its stability breeds instability... its the ebb and flow of Imperial dynamicsKN

"The whole policy apparatus of Keynesian economics, the belts and levers and pulleys and stimulators and stabilizers that made up the magic tricks of the International Monetary Fund, has ceased to work. We are in an entirely different sort of crisis. The financial system has crashed because the housing market has crashed, and the housing market has crashed because there aren’t enough American families to buy the houses on offer. Consumer spending has crashed because the retirement funds of the baby boomers were locked up in home equity that has evaporated during the past two years.

Economists like Prof. Johnson are experiencing a dreadful sense of powerlessness. There must be a conspiracy to explain why our policy prescriptions don’t work any more. Perhaps a witch has conjured Satan to sour our cow’s milk, or Goldman Sachs is secretly controlling the government.

Whether or not the government bails out banks, the crisis will continue. One school of thought, represented by San Francisco Federal Reserve Bank President Janet Yellen, insists that the crisis occurred because the government let Lehman Brothers fail last fall. Another school, represented by Prof. Johnson (and New York Times columnist Paul Krugman) believes that the problem is that the government didn’t allow all the other banks to fail. Both schools are wrong. The banking crisis is merely a surface manifestation of a deeper problem. The West failed to produce a new generation large enough to buy the existing housing stock, or fund existing pension programs, or maintain the wealth that the West thought it had. That is why we are poorer, as I show in the current issue ofFirst Things.

It might be so, but I doubt if we had all been good catholics it would have turned out different..
Now, consider this fact: America’s population has risen from 200 million to 300 million since 1970, while the total number of two-parent families with children is the same today as it was when Richard Nixon took office, at 25 million. In 1973, the United States had 36 million housing units with three or more bedrooms, not many more than the number of two-parent families with children—which means that the supply of family homes was roughly in line with the number of families. By 2005, the number of housing units with three or more bedrooms had doubled to 72 million, though America had the same number of two-parent families with children.

The number of two-parent families with children, the kind of household that requires and can afford a large home, has remained essentially stagnant since 1963, according to the Census Bureau. Between 1963 and 2005, to be sure, the total number of what the Census Bureau categorizes as families grew from 47 million to 77 million. But most of the increase is due to families without children, including what are sometimes rather strangely called “one-person families.”

In place of traditional two-parent families with children, America has seen enormous growth in one-parent families and childless families. The number of one-parent families with children has tripled. Dependent children formed half the U.S. population in 1960, and they add up to only 30 percent today. The dependent elderly doubled as a proportion of the population, from 15 percent in 1960 to 30 percent today.

If capital markets derive from the cycle of human life, what happens if the cycle goes wrong? Investors may be unreasonably panicked about the future, and governments can allay this panic by guaranteeing bank deposits, increasing incentives to invest, and so forth. But something different is in play when investors are reasonably panicked. What if there really is something wrong with our future—if the next generation fails to appear in sufficient numbers? The answer is that we get poorer.


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