Home > Finance and Economy > Worst.. Yet to come ?

Worst.. Yet to come ?

Today I was going through an article published in Economictimes.com that bigger crash is ahead for the global economy within the next two years. That’s the bold prediction from a famous economic forecaster Harry Dent who predicted Japan’s 1990s recession and the present economic crisis (I don’t know, just read in newspaper).

Of late I have been reading many write-ups on current economic recession and mostly contradicting each other’s theory. Hayekian and Keynesian theories are one of them. A Keynesian recession results because of a sudden fall in demand. Pumping enough purchasing power into the economy is a way to come out of this type of recession. A Hayekian recession, however, is caused by misallocation of resources over a long period, driven by unrealistic interest rates, ending in a bust that requires years of structural adjustment. Can’t say on Hayekian, but truly, this recession is not a Keynesian as I believe. Governments across the world have pumped in billions of dollars into their economy, but things have yet to improve.

Coming back to Harry Dent’s theory, it really makes you think a while and you will surely find a firm logic behind that. He said that baby-boomer generation was to cut back on spending, sending financial market and reality sector to a new low. Just to provide a brief on Baby Boom, it was a period (post world war 2) when birth rate increased many folds in Asia, Europe, North America and Australia. In USA alone approximately 76 million babies were born. For more than 25 years before baby boom, it was difficult for people to have children because of Great Depression and World War-2. After World War 2, when numerous economic reforms were introduced, couples who could not afford babies earlier, made up for the lost time. These children when grew, drove world economies differently in different decades. As per Dent, baby boomer’s spending pattern had been responsible for swing in world economy over the last few decades. It was observed that by year 2000, boomers had tended to avoid discussions on their retirement and long term investment and saving planning retirement. And they went on a spending spree. Precisely this was the period when world witnessed the start of great economic boom. Bent says that peak spending age is 46 and boomers have crossed this age and by end of 2010 they will start retiring leaving undue burden of their retirement on their children. Dent believes that this would be the period when world economy would start slipping to a new low, which somehow seems logical too.

I would say that boomers brought in a dramatic social change across the globe which started from west. They showed the world an era of Rock and Roll and a free society. Their style of living and affinity towards consumerism acted as a fuel to boost world economy then. If they could have impacted the world in that way when they were teenagers and young, then this theory of recession that might be aftereffect of their retirement must also stand correct.

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  1. nayanagarwal
    July 8, 2009 at 1:59 am

    This is truely awesome….what a analogy!!! beautiful…Seems like the process is same eveywhere & everything in this world is so damn connected

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