Andy Xie wrote a great article on Japan titled:
Our Next Economic Plague: Japan Disease
Growing old is hard, but watching formerly vibrant economies choke on debt and wither away is downright ugly
Andy’s article is about Japan but a lot in the article is just as applicable to Western Europe.
It is well worth 5 minutes of your time.
The off balance sheet liabilities of a lot of countries are coming into the limelight again as sovereign debt levels have exploded and everyone is worried how even just known debts will be repaid.
It is also a subject that impacts me deeply as my home is in Germany, which will also be hard hit by the its ageing population with it losing 20% of its population by 2060.
In the article Slow motion train wreck ? German demographics I discuss it in more detail.
What worries me is that Western Europe with its pay as you go pension systems will experience immense strain and something will have to give.
Either pensioners will suffer with later retirement, lower pension amounts and no inflation adjustments or tax rates (direct and indirect) will go through the roof.
With young well qualified people being more mobile than past generations the increased taxation option is probably not viable as tax payers will simply leave.
That means that pensioners will be wiped out. A view my brother in law shares from his experience in Eastern Europe.
I really feel sorry for people that have not additionally provided for their retirement, they will be in for a tough time.
Most of my friends that are aware of the problem are already saving twice for retirement, once through the government pension system and a second time privately.
That may be one to the reasons for Germany’s weak consumer spending.
Enough boom and gloom for today especially on a Friday.
Enjoy your weekend.
Tim du Toit is the editor of Eurosharelab. Kindly note that this blog is published for information purposes and is not investment advice. Please refer to our disclaimer.
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