The Western world’s ticking demographic timebomb
Dent, a renowned economic forecaster, says that not only is Western world following Japan’s path into a demographic crisis but also that central banks – especially the Federal Reserve – are repeating all the same mistakes as they did during last global financial crisis.
“If the Fed does cut rates in December, and I’m not sure they will, it will be a 0.25% move and they will never do it again,” he argues. “They dropped the ball by not moving in September, as it would have been a vote of confidence in the economy. Now, like they were in 2008, the danger is that they will be too slow to react to events.”
For Dent the best course the central banks can take now is to let the bubbles in the economy deflate.
“Government’s have pumped money into their economies to keep them going, but the only way they can favour the next generation is to let deleveraging take place,” he says. “This is an artificial economy and we can’t go on this way forever.”
Having successfully predicted its demise in 1989, he says the Western world is set to follow the example of Japan into a deflationary spiral. The key, he says, is demographics.
He says: “Japan were the first baby boomers and the problem they faced – which is now facing the US, UK and Europe with its baby boomers about to hit retirement – is how do you grow an economy that has a shrinking workforce?”
Indeed Dent thinks the West has worse demographics than Japan 10 years ago, especially Germany which he says has “the worst demographics”.
In this environment, for the UK and US in particular, Dent is predicting negative market returns over the next decade and says a safer investment will be into fixed income.
“Now would be a good time to invest more into government and corporate bonds, namely US treasuries where 30-year Treasuries are currently yielding close to 4%,” he says.
He adds: “India is the country I would invest in for the next 40 years. Both it, and other parts of South East Asia have much better demographics, while it is also not commodity or export orientated.”
China meanwhile, he adds, “will fall like an elephant” and given its exposure to oil the long-term outlook for Russia is also not rosy, or in Dent’s own words “it is dead long-term”.
“China has overbuilt all of its infrastructure and it will take a decade to fill all go this capacity,” he says. “The change in the one-child policy also will have zero effect until at least 20 years, until the children start working, for now it is purely inflationary.”