Money and Metals

Danielle DiMartino writes about the baby boomers and deflation." A reader suggested that immigrants are the obvious solution to the economic vacuum being created by the baby boomers leaving the workforce. Imagine for a moment that there were enough immigrants and young people to offset the number of boomers who will be retiring. If that were the case, would they have the financial wherewithal to fill boomers' shoes?"

"'To think that all the boomers have to do is sell their homes to pay for retirement and health care begets the legitimate question of 'to whom and at what price?'' Pimco's Bill Gross wrote. 'If there are fewer X'ers and Y'ers to unload even their second homes to, rudimentary supply/demand curve analysis suggests prices must adjust downward to facilitate the transfer, incorporating the ability of immigrants and future first-time buyers to afford what now seem to be unaffordable starter homes.'"

"One word is written all over the unfolding demographic picture: deflation. Right now, we're all feeling the faintest of deflationary winds."

"Doug Ingram of Dallas-based Samco Capital Markets explained: 'In mere weeks, gasoline has plunged 65 cents in some areas. In the South, where we use such expressions, we'd say that's downright deflationary.'"

"But it's bigger than an energy bubble. 'What if,' Mr. Ingram asked, 'housing, autos and gasoline all get cheaper? What will housing retreating by 10 to 20 percent and gasoline falling off 26 percent do to inflation?'"

"Deflation, or consistently falling prices, sounds good on the surface. But it's an economic spiral, in which consumers and businesses put off spending indefinitely, on the theory that everything will be cheaper if they just wait until tomorrow."

"In the end, Mr. Gross worried, it is 'too late to have babies, too politically sensitive to import more workers, too daft to recognize that the boomer winter is rapidly approaching and that our assets will not fund our liabilities.'"

"The Bank Credit Analyst suggested: 'Bonds should rally as the market discounts more aggressive Fed easing next year in response to the slowing U.S. economy and receding inflation expectations.' The BCA may be on to something. It was no coincidence that Japanese government bonds outperformed every other asset class in their battle against deflation."