Chris Tomaras / Straight Talk / March 28, 2009

This morning I’d like to talk to you about  the demographics that will affect the US economy over the next several years. And whether or not a deep recession that we are in will actually turn into a depression. Let me preface my remarks by saying that the structure of our country is changing dramatically right before our eyes to the likes of nothing we have ever seen.

As a backdrop let’s first begin with the Baby Boom which is probably the most significant demographic phenomenon of the 20th century, shaping all aspects of our economic lives. The aging of the 76 million Baby Boomers in this country has major implications not only for the boomers themselves, but for the following generations of workers who must support the boomers as they retire. The big problem is that the torch is being passed to a much smaller generation. As well as being a smaller generation it is a generation that has far fewer high level job candidates. By 2010, 41 million new workers will have entered the workforce, yet a staggering 76million workers will enter retirement. Thus lies the problem.

Understand that from 1980 – 2000, the workforce grew by 44 percent. But from 2000 – 2020, the
workforce will not grow – there will be zero percent growth.

At the same time our nation is becoming much more diverse and by the year 2050, it is expected that "minorities" will represent 40% of the population which means that only 60% of the population will be white, down from 77% in 1990.

I tell you this because never before in American history has the economic success of our minorities been as important to the majority population as it will be in the next decade and beyond.

The "disintegration" of the nuclear family which began in 1970 and the rise in single parent families has, unfortunately, been a major factor in rising child poverty rates; over 20% of young children are currently living in poverty.

We are living in a contracting populous, with a decreasing number of overall jobs and a declining earnings potential while at the same time people are living a lot longer.
These are all factors that have dramatically widened the gap between the haves and the have-nots and is leading to the elimination of our middle class.

Today only 7% of families resemble the stereotypical Ozzie-and-Harriet model of a never-divorced working father and stay-at-home mother. In 1960, only 19% of married mothers with children under age six worked outside the home.
Combined, an almost unbelievable 80% of U.S. families are either dual-income or single-parent households. This has had significant implications for children in these families. Increasingly, a portion of the early education that used to take place at home with the child's mother is being outsourced to a relative or childcare provider. Thus, the need for educationally enriched, high-quality and affordable childcare has never been greater. Remember that these are the young people who will eventually fill the job roles.

I can’t tell you how many times I was told that the baby boomers are retiring and moving to FL so housing prices will never go down.

Just remember this when it comes to baby boomers…..they are not looking to increase their overhead and spend more money. It is just the opposite so when you take them out of the economic equation and you have a smaller generation bringing up the rear that doesn’t bode well for an economy that will have an enormous amount of debt to be paid back. Does this give you any insight into the dilemma as to why we have lowered our standards regarding illegal immigrants who come into the country or does it have more to do with low cost workers who spend money helping the economy?

Keeping this in mind lets discuss what has transpired. 1957 to 1961 was the peak of the births of the baby boomer generation and I include myself and many of you in this same generation. As we grew up we became productive in an expanding era which takes us back to the early 1980s and has been characterized with a long tide of significant earnings and spending growth bringing us to where we are today.

In that time we experienced continuous growth and prosperity and thought nothing of what was described to us as the great depression. That was something that we read about in the history books or was told to us by our grandparents, but was not something that we could actually relate to relative to our own life’s experience.
Suddenly, we are faced with the most incredible turnaround of events imaginable with this extended period of affluence coming to a screeching halt and 76mm baby boomers looking to scale back, with their kids having left the nest. We are in a position where we will spend far less going forward with the need or desire to buy larger homes and cars left in the rear view mirror.

The timing is not exactly the best when it comes to the economy, given that the bubble boom economy that began in the 80s and ran its course in the early 2000s is now causing banks and large financial institutions to go bust right along with many Americans who never imagined a catastrophic scenario like the one we are facing.
In a panic reaction to what is happening, our government is throwing trillions of dollars at will, in an attempt to extinguish this runaway forest fire. The question is, will all of this money put out the fire or just burn up in the process while the fire continues to run wild until it totally destroys us?

All indicators show us in the midst of the deepest recession since the early 1900s with our government trying to spend us out of the problem. Japan went through a similar situation going back to the early 90s and low rates and spending did little to lift them out of their demise. Quite honestly I expect to see an initial improvement or false start in terms of improved economic numbers possibly over the next few months followed by a significant drop off, deepening the recession to a depression as unemployment increases and production, manufacturing and spending decreases.

Remember that depressions follow bubble booms as history has shown us going back to 1929. What we are facing now going back to the 1980s is a bubble boom followed by a bust in technology, housing, emerging markets, commodities and next will be the treasury bond market. Rates are currently at historical lows which will be followed by a bust, with rising rates causing a significant drop in the value of treasury bonds. This will be another disastrous situation as many Americans

We have endured bubble after bubble followed by a bust as the economy deflates. Unfortunately the demographics are such that government cannot create enough money to offset the destruction of credit from these bubbles and if they do we will have such enormous debt and inflation that the entire cycle will begin again with the same negative results.

Our best scenario would be that we see some inflation which would then curb the boom. However this is not likely because of the magnitude of the crisis and the amount of debt that is being created.

Our worst scenario is that we continue to throw trillions of dollars at the problem and nothing happens, stock markets will again panic and the US dollar will crash. A more likely scenario I am sad to say.

And that’s today’s Straight Talk!