We’re Getting Older and Poorer

America’s money problem is not political. It’s far more sinister.

Finally, somebody has the guts to talk the truth. He didn’t dare do it before the election… too many voters to anger. But now that the results are in and the thoughts and opinions of the American electorate no longer matter… our leaders are free to speak their minds.

Every once in a while, the truth squeaks out.

“This is year two of a 25-year demographic bubble that — wasn’t like anyone couldn’t see it coming,” John Boehner said of Washington’s fiscal woes last week. “10,000 baby boomers, like me, retiring every day; 70,000 a week. It’s 3.5 million this year, and this is just the second year of the 25-year baby boom bubble, and it’s not like there’s money in Social Security or Medicare. This has to be dealt with.”

Yup… somebody needs to do something. The problem, though, is the boomers are a powerful lot. No politician — except maybe a jaded lame ducker — dares mess with the “bulge.” That’s why Boehner can rightfully claim we’ve seen this mess coming for decades, yet nobody bothered to try to fix it.

Now that the great retirement has started, there’s not much that can be done that won’t infuriate at least one segment of the American population. Since there are fewer rich folks and, therefore, fewer voters to anger, we know where Washington’s target lies. Wealthy Americans are in for a rough year.

But the fact is we can tax the wealth right out of the rich, and it still won’t do a lick of good. Our problem is far bigger. Stealing from the rich and giving to the poor won’t cut it. Not with demographics as lopsided as these.

Get this. By the time this year comes to an end, the number of 55-and-older workers will eclipse the number of workers between the ages of 25 and 34. It is a skew that makes the idea of fixing this mess flat-out impossible.

A recent chart from the Fed tells the tale:

View larger chart

This intersection of young and old workers threatens to hammer at the knees of our Ponzi-scheme economy. Without the chance to pilfer the pockets of the nation’s youngest wage earners, everything from the stock market to the mess of federal entitlement programs will collapse.

In a recent report, the Congressional Budget Office took a look at what America’s aging population means for our economy and our tax-and-spend fiscal policy.

The news was not good:

The aging of the baby-boom generation portends a significant and sustained increase in coming years in the share of the population that will receive benefits from Social Security and Medicare and long-term care services financed through Medicaid. Moreover, per-capita spending on health care is likely to continue to grow faster than per-capita spending on other goods and services for many years…

Without significant changes in the laws governing Social Security, Medicare and Medicaid, those factors will boost federal outlays as a percentage of GDP well above the average of the past several decades — a conclusion that applies under any plausible assumptions about future trends in demographics, economic conditions and health care costs.

Now, let me ask you this. How many times over the last few months have you heard any politician utter anything about serious changes to our Big Three entitlement programs? Zip. Zero. Zilch.

The fact is these programs are untouchable. Our leaders refuse to even look at them. It’s a fact Senate Majority Leader Harry Reid reinforced last Wednesday. “We’re not going to mess with Social Security,” he said.

That’s the end of that.

My point here is simple. The markets are acting like we’re at a critical juncture. The herd that drives prices thinks this fiscal cliff mess — no matter how it is resolved — will end in some sort of long-term solution. But we will see nothing of the sort.

What we need is not a policy adjustment. That’s far too easy. Our problem is systemic. Our economy is lopsided, and there is nothing any politician can do about it. The only thing that will fix this mess… is time. And a lot of it.

Our problems will stretch on for generations… not weeks. You portfolio and your investment strategies had better reflect that idea. If not, it’s a slow and steady march to the bottom.

I hope you have the guts to admit it.

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