Who Wins from Deflation?

Harry S. Dent | Friday, November 9, 2012 >>


We wrapped up our bi-annual Demographics School conference yesterday. Exciting stuff. It was a great pleasure to meet and talk to subscribers.

One of our major themes over the two days was deflation… a subject most people find difficult to come to terms with. Those who spent time with us yesterday and Wednesday now better grasp our point that deflation is the only thing that can save us. Not the Fed. Not the new president. Just the economy following its natural cycles.

That’s why, today, I want to share with you some of what I told delegates over the last 72 hours… that young people and our economy will WIN from deflation.

The thing is, governments and central banks around the world are fighting deflation like it’s a dangerous terrorist. Since it set in in late 2008 (courtesy of the banking crisis), they’ve been fighting it harder than anything they have ever fought.

Ben Bernanke in particular knows how painful deflation can be from studying The Great Depression extensively. It looks like this…

Massive bank and business failures. Painfully high unemployment rates. Stocks, real estate and almost all assets falling in value.

Of course, that wreaks havoc in established businesses and political institutions. But most of all it hurts the aging generation that benefited so much from the boom and debt bubble. They were the ones who got to enjoy rising incomes and borrowing capacity… increasing real estate, stocks and commodities prices.

Now they’re the ones to suffer the consequences.

It always happens that way. Existing businesses, political factions and older workers/retirees get hit worse than ever in the deflationary crises (or depressions) that have followed every major debt and asset bubble in history. Every one! 1835 to 1843. 1873 to 1877. 1930 to 1942. The victims have been the same.

And with Ben and his posse firmly in the Baby Boomer camp – and being in the unfortunate position of Fed employees – they’re determined to fight off the inevitable with everything they’ve got.

They’re idiots (no disrespect intended).

Such crises deleverage debt, deflate assets and the overall cost of living and, paradoxically, create a higher standard of living for the younger generation. This, in turn, creates economic growth again for decades to come.

That’s precisely how we move from the Winter to the Spring Season in our economy. No pain, no gain.

What the Young Gain From the Pain

The Echo Boomers in the U.S., born between 1976 and 2007, see the price of buying a home come down 50% to 65%. They see mortgage rates go from as much as 8% down to as little as 3%.

They see the spiraling inflation in health care and education suddenly tamed… the overall cost of living, including food and energy, brought down as commodity prices collapse around the world.

They see stocks go down to very low levels again, creating those once-in-a-lifetime investment opportunities… the kind they can use to build their kids’ education plans and their retirement for decades to come.

Without a doubt, young people win during deflation, as they should because they’re the ones who will drive the economy in the next boom cycle.

Nature, the economy and parents/grandparents always ultimately favor the young. After all, they are the future.

Despite all the Fed’s stubborn resistance, the economy will not see a resumption of growth until the Echo Boom generation has fully entered the workforce and has enough mass, with its growing family life cycle of earning, borrowing and spending, to more than offset the continued aging and decline of the Baby Boom generation.

I expect this shift into the next Spring boom to start by 2023. And it will last well into the 2050s.

But it will not be as strong, nor as bubble-like and dynamic, as the Baby Boom expansion from 1983 through 2007. The Echo Boomer generation simply doesn’t have the birth and immigration rates its predecessor had.

This means it will be the first generation in most developed countries to not be larger than the generation before it.

None of which will matter until the Winter Season does its job, as it did in the 1930s. It must take $20 trillion-plus of private debt off of the backs of consumers and businesses. It must make real estate and the cost of living affordable again.

And for this to happen, the Fed and central banks must get the hell out of the way.

As I told attendees at Demographic School, what lies ahead will be painful and right now our research is most geared towards helping aging Baby Boomers and businesses protect their assets and capital in the Great Depression of the 2010s!

Just don’t lose sight of the prize at the end of this dark road…

Harry

P.S. Those of you who couldn’t attend Demographics School can still discover all the secrets we revealed… but only for a limited time. The audio of Demographics School will be available until 11:59pm on Monday, November 12. Pre-order your copy now.

 

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Categories: Deflation

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.