For today’s Solomon Success lesson, we talk about economic cycles and how it affects our wealth. Jason brings on Harry Dent, a three time guest, to talk about some of the tell-tell signs that an economic disaster is about to hit. Harry Dent talks about demographic patterns, China’s ghost cities, Japan’s debt problem and aging population, and much more on today’s Solomon Success show.
Key Takeaways:
1:00 – Today’s lesson is about economic cycles.
5:20 – Every bubble has taken us higher and every crash has taken us lower.
11:05 – When young people can’t afford the real estate anymore, the bubble is over.
12:00 – Harry talks about the gold bubble and some of his predictions.
17:10 – The stimulus is getting less and less effective.
25:15 – The Chinese who moved from rural areas to urban areas in China are almost treated like immigrants and not considered citizens.
29:10 – Harry talks about Japan’s debt problem.
32:40 – The US is a strong economic group and tends not to fall off a steep cliff as fast as Asia and certain European countries do.
“Japan has gone from 60% debt to GDP ratio on their government debt to 250% and it’s still raising”
Mentioned In This Episode:
www.HarryDent.com
The Demographic Cliff by Harry Dent
Transcript
Jason Hartman:
Hi there, it’s Jason Hartman your host and thank you for joining me for another episode of the Solomon Success show with Biblical wisdom for business and investing. Let’s go to today’s lesson and then I’ll come back on and then we’ll have our main portion with our guest relating to that lesson.
Announcer:
One of the things that impacts every person across the globe is economic cycles. The first thing about the economy that most people observe is how it moves in cycles. The economy expands from productivity growth and investment until the growth the point where poor investments no longer perform as expected. When this happens the economy moves into a down cycle. This is a point of extreme importance for people to understand since our financial lively hood will be dramatically impacted by the economic cycles that unfold in the future.
These economic cycles are a large part of what creates wealth and poverty. The reason for this is because bubble markets almost always form as a result of people changing after high-returns. This form of greed investing is typically undertaken by people who have not taken the time to do the diligence to determine whether the fundamentals of the investments they are considering are sound or if the timing of when they’re looking to invest is optimal. In the book of proverbs, King Solomon teaches about wealth and poverty.
In the 21st chapter, King Solomon said, “The plans of the diligent lead surely to advantage, but everyone who is hasty comes surely to poverty. The acquisition of treasures by a lying tongue is a fleeting vapor, the pursuit of death.” What this tells us is we can not seek the short path to wealth and easy month. When anything looks too good to be true, it frequently is. Whenever an investment has high rates of return, it typically has high levels of risk as well. Whenever gains come too easily, we run the risk of becoming lowed into compliancy. This leaves us vulnerable to major disruptions in the market.
One of Jason’s noted guests is Harry Dent the author of many books including The Great Depression Ahead where he outlines how ideographic trends are pointing to a major economic disruption. What Jason and Harry are doing is educating us on the future of economic trends so that we can make informed, diligent, personal and financial decisions. When we understand what is currently happening and the trends are beginning to form. We can adjust our strategy and decisions to ensure that these trends do not catch us by surprise and destroy our financial asset based. Becoming educated is a perpetual process that informed investors continually undertake. It’s also the area that ignorant investors most frequently skip over. Do not fall into the trap of chasing after what looks like quick profits or easy money. Take the time to understand what you’re doing so that each decision is made with diligent confidence.
Jason:
That was today’s lesson. Let’s get to our guest, but before we do that. Please regardless of what platform you’re listening to us on, whether it’ll be iTunes, Stitcher Radio or SoundCloud. Please go write us a review, we’d really appreciate that and check out the free resources at our website SolomonSuccess.com. Here’s today main segment.
Hey, it’s my pleasure to welcome Harry Dent back to the show. He is now a three guest and his new book coming out January 7th is entitled the Demographic Cliff: How to Survive and Prosper During the Great Deflation of 2014-2019. Harry’s resume speaks for itself. He’s been doing this a long time. I first discovered his work in the mid-90s and just really, really fell in love with the idea of predicting the economy through demographics and there’s a lot of talk about China now. China’s got some problems and we’re going to talk about all this stuff around the world, so Harry Dent, welcome back, how are you?
Harry Dent:
Nice to be back, Jason.
Jason:
Well, it’s good to have ya. So, you’re out with some pretty big predictions. DOW 3300, gold 750, tell us what you think.
Harry:
Well, you know, I think the big picture to get and I don’t see why this isn’t more obvious, everytime I’m on places like CNBC and I say well, you know, the next DOW could go up to 16,000-16,500 and crash to 6,000, a little lower, next year and people say oh, that’s crazy. That can’t happen. I said, well, that’s all that’s happened for the last couple of decades. We had a bubble, the tech bubble in the early 2000s and then a big crash in the late 2002 and then we had the emerging markets and real estate bubble and stock bubble again until late 2007 and then it cashed into early 2009. Everybody bubble has taken us higher and every crash has taken us lower. So, that’s all that projection is. If I draw a line, a trend line to the tops in the DOW, we’re going to hit that trend line top in the next few months at a little over 16,000 and then if we go all the way down to the trend line to the bottoms in 2002 and 2009, we would hit a bottom of about 5800 in 2015 or so.
So, it’s just more of the same. It’ll be one thing if this, at least, the last two bubbles were somewhat real. I mean, technologies were moving mainstream, baby boomers went their sweet spot of spending, which I was one of the few people to see in the late 80s and early 90s as well as the down turn in Japan, because like you say, demographics is a predictable thing. The 2003 to 2007 boom was kind of like the last levels of baby boomers, last levels of technology progress, but hey, everybody’s got cellphones and internet now and baby boomers taken their spending in 2007 and then it’s taken all this massive stimulus just to keep our economy growing 2% on average and the truth is these stimulus cycles have seen everything seven quarter, so a little less of two years.
We had QE1, the economy came back for four quarters boom and then three quarters bust and the next thing you know we were in the one quarter recession minus 1.4% and then QE2 came in, we had three quarters of boom, four quarters of bust, seven quarters later we were back at zero growth and that was at the fourth quarter of 2012, so whether we taper or not, it’s probably going to have to taper it at some point, but stimulus only lasts so long unless you up and up the anti, so we’ve had two quarters of growth, the first quarter is almost certain to be good from what we’ve seen. Four quarter maybe, maybe not, and then the first three quarters the next year, we’re probably going to go back to zero again.
So, that’s not going to be good for real estate, it’s not going to be good for stocks, and the fed will probably start to taper here in the third quarter or so or the forth quarter, because the stronger growth just in time for the cycle to drop off anyway, but there’s a lot more problems we see in the world. We see this megaphone pattern in stocks, which says we’re near a peak, you know, the markets have gotten more and more bubbly, real estate, you know, the more we look at this, whose really buying? Well, it’s a lot of hedge funds and pension funds and individual investors. People who get mortgages for purchase young families, that is barely bounced off the bottom, so it’s showing that real people are not buying homes just like everything else.
The feds shoving trillions of dollars in the economy and it goes into stocks and commodities and real estate, it has to go somewhere, so it goes into speculation and you just get one bubble after the next peeks and crash. What we think is, we’re heading for a cycle in 2014 where the whole system breaks down kind of short term again like in 2008 and 2009. So, we see the greatest danger, I think the stock market is likely to peak between mid January and late March, so I’m telling people to be cautious in that arena and of course stocks are starting to peak.
It’s leading indicator for the economy and housing, housing peaks on a wide, so that means watch out on real estate as well and then I think we could see the next major crash in stocks start to set in in the first couple of quarters of next year and, you know, it could take a year and a half to two and a half years for that to work out and stocks, the projection of stocks are going to be below 6,000 before this next crash is over, so nothing to sit through and hold through, if stocks are down that much then, you know, real estate is going to see another major decline as well.
Jason:
Yeah, I want to make the distinction too because we talked about it because so many of our listeners are real estate investors, real estate in the non-linear cyclical high flying bubble markets like California, like New York, etc, that’s a different animal then it is in markets where you’re buying at or below the cost of construction that we talked about, right, or do you want to make some distinction there?
Harry:
Yeah, I mean, stocks kind of go up and down together with about a 75% correlation even around the world, real estate is very local and regional, you know, supply and demand, there’s states where people are migrating or immigrating into the whole different demand patterns that have..
Jason:
Texas.
Harry:
Texas has endless flat lane. I joke as I say you can watch the dog runaway all day in Dallas, you know.
Jason:
I love that.
Harry:
It’s unbelievable how, I mean, there’s no constraints on supply, so Texas has never bobbled up much with the exception of parts of Huston and downtown Austin now is a bubble like South Beach.
Jason:
Yeah, downtown Austin and those high raises, they’re like LA.
Harry:
Texas went up with inflation, it went up with inflation. That’s what real estate is suppose to do, go up with replacement cost and inflation. So, you take from the rocky mountains to the Allegheny mountains on the East Coast. Everywhere there, there weren’t bubble markets like you say, they were more linear. The bubbles happen in coastal cities have happened in Florida, Nevada, Arizona, California were the biggest parts, DC, you know, New York, and so that’s where we always say, you know, the greater the bubble the greater burst.
Now, people actually think the opposite. People that are in these bubble areas and I’ve been to all of them, you know, Tokyo, I’m lectured a lot in California and I was just in Korea and I’ve been to Australia a lot. I mean, I lived in Miami for the three years and then moved to Tampa right in the bubble. I mean, people in bubble areas say, well, real estate can’t go down here because the supply is so limited and we’re so special. That’s exactly what causes the bubbles and then bubbles go burst because they get too expense. Young people buy all the real estate, young people sit in it.
Jason:
You’re right. Yeah, yeah, very good point.
Harry:
So, when the young people can’t afford it anymore the bubble is over.
Jason:
Yeah, good point, very good point. Tell us about gold. I mean 750 prediction is a big down turn, what do you think?
Harry:
Well, that’s just the next stop. I think gold will be both a bubble like everything else, everything is bubbled. Like you say there’s bubble real estate, I mean, you wanna talk about a real estate bubble you are looking at China, you look at emerging markets and look at London and stuff. It’s just unbelievable. This bubble is around the world emerging markets, stock markets, bubbled and burst. China bursted 70% in the last down turn. Emerging markets went down 60% on average more than the US, more than even Europe in some parts and stuff. So, these bubbles are everywhere. Gold is a bubble and we said in the last book, The Great Crash Ahead, gold will probably be the last bubble to burst. Well, it kind of peaked out over 1900 and went sideways for two years and it just keeps dropping like a rock.
So, I think in the next year or two you’re going to see 700 to 750 minimum. I think gold is probably going to bounce a bit more first. It’s really been kind of over sold here and I think down the road we see as the book’s subtitle says 2014-2019 is kind of a difficult period where our commodity cycles are down, our geo-political cycles, and our demographic cycles are all down at the same time. That is the danger period for the economy ahead.
So, we get out six-seven years now from now, I think gold could be back at 250, it could be that low. I think oil could go back to 10-20. None of these are going to stay there, that’s just the bottom and I think, you know, this bubble real estate could go down again. I’m still renting in Tampa, Florida. Tell my wife I’m not even going to think about buying until we see another down turn and at least until sometime in 2015 and then we could see the bargains of a lot and counting.
Jason:
yeah, well, I’ve always thought that renting a high-end home and owning a lot of little cheap houses to rent to other people was the best.
Harry:
Exactly.
Jason:
The best equation ever. The best arbitrage.
Harry:
Real quick Jason, I mean, real estate also is it’s not one industry. Every sector has a different age group and right now apartments, basically buying affordable small homes and renting them out is the sweet spot. The echo boom is in a positive rental cycle in 2017 or 2018. More and more people can’t afford homes or get bank loans, so that’s the best place, but a few years from now, when we see this next real estate down turn, buying affordable starter homes is going to be the sweet spot going up for many years with this generation. So, it goes from apartments that peak in like 26-27, starter homes 31-32, trade up homes 41-42 by age, you know, there’s a first vacation surge in the late 40s and there’s a second one in the late 50s to early to mid 60s, so vacation homes had crashed.
They were the ones that crashed the most. I loved to be buy beach front property and mountain property and stuff a few years from now if we get another crash, because baby boomers will have one more round of vacation home buying, but it’s the echo boomers buying affordable starter homes in the next decade. That’ll be the best part of the real estate market. So, like you say, rent big homes and own a lot of small homes you can buy it at replacement costs or below and rent out at positive cash flow, because where can you get, I mean, you can’t buy bonds anymore and get a decent cash flow. Rental real estate is about the only place you can get it.
Jason:
Yeah, I know. I know it’s the TNA – There’s No Alternative, right or there’s no better alternative, right. Yeah, it’s true and then Harry you also look at that demographic thing of the echo boomers or generation Y, the millennials, they’re saddled with so much student loan debt. I mean, that student loan debt bubble is over a trillion dollars. I mean, is that the next big bubble to pop?
Harry:
Yeah, I mean, there’s no question. Here you got this generation entering the economy and raising numbers just like the Bob Hope generation did in the 1930s in a bad economy. These people are not going to spend as much as baby boomers, they’re not going to burrow as much, they’re going to be a little more conservative about everything and yeah, they’ve got these massive student loans. I mean, education, people talk about health care inflation.
The greatest inflation is coming in education costs. These poor kids now get costs, you know, $200,000 plus just to go to a, you know, $200,000-300,000 to go to an ivy league school and get a great degree, okay, maybe you make $20,000 more a year, is that really – and then these people have to go into debt to get this, it’s very grim and they are facing a falling housing market that nobody has seen in our life time.
They’re facing difficult loans, you know, the baby boomers can burrow and buy with no money down and low interest rates and everything was subsidizes by the government and Fanny Mae and Freddie Mac. I mean, so yeah, this second generation is facing a new normal and it’s going to shape their personality. They’re going to be stronger because of it and more fiscally responsible than the crazy baby boomers. We grew up in the 50s and 60s everything hunky dory and then baby boomers never really safe for retirement.
Jason:
Yeah, it’s amazing because that’s going to keep them renting for a long time isn’t because of the fact that they’re so settled..
Harry:
Yeah, keep them in the work force longer.
Jason:
Right, yeah.
Harry:
Another problem for these echo boomers, this happened in the great depression. Baby boomers will decide, gosh, I can’t retire at 63-65. I don’t have any savings, the economies down, my wages aren’t as good, whatever, I’m going to have to work longer, stay in the work force longer, and it’s going to make it harder for these kids to get good jobs and to pay their darn student loans.
Jason:
Yeah, yeah. It really is. Well, Harry, what about the fed cycles? That was interesting what you said to me before we started recording when you were talking about the fed cycles and how the fed acts. They act in sort of a cyclical fashion, don’t they?
Harry:
Well, yeah, I mean, everybody keeps saying, oh, you know, we’re finally in a sustainable recovery. No, it’s been the same thing over and over again. We went and had this big crash, it took massive amounts of quantitative business. I don’t know anybody, the most progressive, the most liberal economists that would have forecast the fed would have put as much money as the economies did. They didn’t even do this in World War Two to this degree. This is unprecedented and it’s around the world, Japan is doing it, Europe is doing, China is doing it, everybody is just putting massive amounts of money to stop a recession from happening, but stimulus is short term. It’s like any drug, it’s like a cup of coffee. You take it, it wakes you up a little bit, you feel a little better and then it wears off and you actually feel worse.
So, what we’ve notice is a seven quarter cycle that when the economy gets weak and it gets weak every seven quarters, you go back, you know, early 2011 and before that in the, I think it was yeah, mid 2009 and all that, every seven quarters the economy gets weak again, gets zero or below even after massive stimulus, so the government steps in and stimulates strongly again, even stronger, it always take more and more of a drug to have less and less of an effect.
So, once the stimulus starts, you get three to four quarters of growing GDP, you know, 1-2-3% or so and then despite the stimulus, you get a slowing and the stimulus doesn’t work anymore, so every seven quarters, but what it says is we’ve had two quarters of GDP growth since the last low and fourth quarter 2012.
The feds stepped in with QE3 of course and it is a stronger than QE2, as usual, so now we’ve had two quarters of growth, third quarter should be as good or better and some where between the fourth quarter and first quarter next year, this model will say, hey, we’re going to start falling off even if they don’t taper, the stimulus will just fail. I mean, only so many people can refinance and go out, you know, basically stimulus is getting people to purchase something today that they would have purchased tomorrow and it sort of keeps the economy going, that’s why it doesn’t work. It wears off.
Jason:
Right, right. It’s just bringing purchases forward like the cash for clunkers disaster.
Harry:
Yes, the cash for clunkers and same thing with housing.
Jason:
They did it with, what was that, the $7,500 credit, you know, I can’t even remember. It was a few years ago, but if you go buy a house this year, you’ll get a credit. It’s stupid. None of that stuff really works in any real.
Harry:
Yes, all you’re doing is burrowing from the future and then the future comes, no body needs a home and it’s like opps, the economy is weak again. What this cycle would say is that the first, second, and third quarter of next year, again, even if the fed doesn’t taper and they’re probably going to taper sometime in the next few months that the economy is going to go back to zero or so, so that’s enough to help trigger a stock. That’s going to hurt real estate demand if people see a slowing economy. My thing is look, how many cycles of this. How many times can the feds stimulate, save the economy, boost it up, and then it flops over again before people just get it, look, you know, we took Viagra and we didn’t get the results. Something is wrong here and something is wrong here.
The demographic trends are horrible. The debt ratios are unprecedented. We need to weed this stuff out of our economy and that was the great depression was, it was three years of a huge financial detox, but we came screaming out of that down turn. We’re not coming screaming out of this and it’s taking massive stimulus because we’re not restructuring our debt, we’re not letting banks and business fail. The whole foundation of the free market capitalist system is failure.
Without failure, you don’t get innovation. Governments are not allowing anything to fail. They’re not allowing banks to fail, companies to fail, not allowing the economy to slow and restructure, not allowing debt to be leveraged. If they hadn’t given the banks trillions of dollars, the banks would have had either to go under or write down and restructure a lot of loans, which would have reduced the debt burden for households and businesses and would have given us more cash flow. That’s a real stimulus plan. That goes at the heart of problem, instead the governments are giving banks money for free, the banks sit there and say, well, we don’t have to write down loans, the feds keep bailing us out, so we’ll just wait for housing to come back one day and Goldilocks land and never have to write off our loans. Well,that’s not what’s going to happen, but that’s what everybody is doing, because the government is creating that illusion.
Jason:
It’s a silly business plan. The problem is when you have politicians who wanna make, get this instance gratification during their ten year, there’s all kind of mal investment and this is just not like a prudent real way to manage an economy is it?
Harry:
I call it Jason killing the golden goose, basically free market capitalism needs inflation, stimulates massive investment and innovation. It needs deflation, it needs booms, it needs busts. If you don’t deleverage financial debt bubbles, they keep waiting on a 300lb back pack and that’s what Japan has. Japan has grown at zero inflation, zero GDP growth, in fact slightly negative for the last 20 years, because they’re in a coma economy. Why? Endless stimulus. They’re like an emergency room on life support barely alive, because they’re not letting the system flush out the excess, again, how’s the next generation can afford real estate if it doesn’t come down in price?
How are they going to move forward with all these student loans and all these baby boomers have all these massive debt, you know, against real estate that isn’t worth that really will revert, like you say, always to the mean replacement cost. Real estate throughout history always goes back to replacement costs, that’s how it goes up, it doesn’t go up with the economy, it doesn’t go up like stocks with earnings, replacement costs is what drives real estate and real estate has got to go down further.
Jason:
So, construction costs..yeah.
Harry:
And then when it’s there the next generation can’t afford it again and they’ll start buying houses.
Jason:
That means to the listeners if you’re buying real estate for more than, depending on the market, $85 to say $120 per square foot, you’re in that bubble territory where either the price of all those materials needs to go up or you just have to keep having the speculative kind of scenario where you get mal investment and the great fool will come along after you no matter what I pay, some greater fool will come along and pay more, that’s the greater fool theory, but that’s a speculative dangerous game rather than a prudent long term cash flow game on sensible property.
So, I couldn’t agree more Harry, it’s a very good point. Talks to us for a moment before you go about China. I mean, I remember back in the late 80s there was this xenophobe was sweeping our country it seemed like. Everybody thought Japan was going to take over, they bought Rockefeller Center, they were buying movie studios, they were buying up every piece of trophy real estate in the country and it turns out, not so much. Now, maybe, maybe China has taken their place.
Harry:
Well, you know, a few people like Sir John Templeton saw the great boom in the 90s like we did, but no body saw the collapse of Japan. In the late 80s we were saying Japan was going to have a 12-14 year major down turn, their demographics is peaking. They got the biggest real estate bubble in the world back then, it’s going to burst, and people thought we were crazy. This is inevitable. It’s the same in China. China’s demographics peaking now. They have kind of plateau for a decade.
Now, China is an emerging country. Most emerging countries have positive demographic trends out for decades. Some of them for several decades. China is the first to peak because of its one child policy, but at the same time they’ve been shoving people. I mean, the trend in all emerging countries is for people to move from rural areas to urban areas where they earn 3 times as much money and become whole new consumers and stuff, but China has been shoving people by boat loads and they have moved 215 million people in the last decade from rural areas to urban.
It’s the biggest social dislocation ever. They are building massive housing, they’ve got 25% of houses in cities are vacant, hooked up the electricity, not using them. Got whole cities like Ordos and this new (#24:39?) city that are built for a million people that are just empty. The great mall of America and China. The largest mall twice as large as the great mall in Minnesota, you know the great American mall. Totally empty, but here’s the kicker, here’s what I think no body sees.
In Chinese cities, there are 53% urban now. 31% of the people in these cities, 221 million people out of 700 million are not registered urban citizens. They’re like illegal Mexicans, literally, illegal Mexican immigrants in the United States. They don’t have access to services, they’re not considered citizens. They’re considered citizens back in their rural providence that they moved from, but if the world economy slows down, as we’re seeing, as the export machine and the over building machine in China is forced to slow down, these are the people with no skills sitting in cities fresh off the farm, they’re going to lose their jobs first and you know what I think they’re going to do? I think they’re going to do the same thing illegal Mexicans are doing. People don’t realize, illegal Mexicans now are moving back to Mexico faster than Mexicans are moving to the US anymore.
We have negative immigration and it’s only going to get worse and I think these underclass in these cities, these rural citizens a lot of met to move back to rural areas where they can be a citizen, can get services, and most of all can survive on the land. How are these people are going to survive when unemployment goes up in China? I mean, they’ve overbuilt real estate and infrastructures more than any country ever and South East Asia had a major crash because of this and China has out done them 2 to 1 for twice as long. So, China bubble is going to burst. It’s a question of when and it’s going to be the hardest landing of this century.
Jason:
China has ghost cities. I mean, it’s mind blogging. It really is.
Harry:
A million! Ordos is built for a million people and they have 70,000 people living in it.
Jason:
That must be so weird. It must be like living in a Twilight Zone episode where you wake up and..
Harry:
Who do you have a barbeque with? Who do you buy stuff from? I mean, it’s crazy. No body there.
Jason:
It’s really crazy. Hey, but explain one thing for the people who may not be that familiar with your work. Just explain the concept Harry if you of peaking demographics. You talked about how China has peaking demographics and that means, I think, people are at certain age where they’re spending working and all is well, but not replacing themselves, right?
Harry:
Yeah, but the most fundamental concept is the family life cycle of spending. We enter, in the United States for example, we enter the work force at an average age of 20. We earn and spend more money, get married at 26, have our kids on average at 28, buy our first home at 31, buy our trade up home, our largest home at 41, spending the most money including furnishings and furniture at 46, buy the most cars at 53, but at the peak of spending in the United States and for most developed countries is right around 46. So, from 20 to 46, now that’s 26 years.
The baby boom generation, the largest generation in history went through that accelerated cycle. All the housing outside of apartments, all of the owned housing is bought between age 27 and 41, so that’s why housing did so well and we had such a bubble. It was just unbelievable demand from baby boomers against limited supply especially in coastal areas. So, that’s why we had the bubble. The boom, 46 year lag on the baby boom birth index. 1983 to 2007, something we saw decades ago, we had a boom and from 2008 to 2023 the economy would slow down because it would be less people moving their peak spending, buying houses, and of course, buying houses is where people burrow the most money, so burrowing accelerates from age 27 and 41 and slows down.
So, demographics can tell you from cradle to grade and macro to micro, total spending, total burrowing, total investing, all these sorts of things, what’s going to happen in the future? Economists don’t even look at it. All they look at is the replacement rate and the United States is close to replacing ourselves so we go side ways. Most southern central European countries, East Asian countries are not even close to replacing themselves and they’re just going to basically shrink for decades, shrink! I mean, how is the country going to grow when its work force and its population is actually shrinking. These are all things you can see, that’s the point. This is a piece of cake. Economists don’t even look at it.
Jason:
Yeah, it really is, it really. You know, we talked about Japan. Is Japan going to default on their debt? I mean, they’ve got a huge debt problem too.
Harry:
Yeah, at some point they’re going, I mean, a country like the US probably can’t because of the reserve currency, but yeah, Japan has gone from 60% debt to GDP ratio on their government debt to 250% and it’s still raising because they’re just trying to stimulate their way out of a bad demographic decline and they’re not allowing private debt to deleverage and they’re only increasing government debt to stimulate the economy like we’re doing. It is an absolute disaster. The only reason they haven’t defaulted already is because they have, unlike us, where 50% of our bonds are still bought by foreign and stuff, their internal system, their pension plans, their banks, their government buy all their bonds, their populous doesn’t, only 7% are foreign.
I mean, they’ve basically kept interest rates below 1%, even lower than ours and if interest rates just rose to historical standards in Japan, which is 5-6% they would be bankrupt over night. The interest on their debt would be more than the entire government revenue, so yeah, Japan is going to default at some point. They have positive demographics from an echo boom right now. Their stimulating even harder, so I don’t see Japan triggering this next down turn, but there is a down turn and they get hit as John Mauldin said, they’re like a bug looking for a windshield. They have the fastest aging society in the world and the highest debt. I mean, it’s just debt.
Jason:
And the longest living. They live the longest in terms of age too, which is actually a problem.
Harry:
84. Their live expectancy is 84. It is actually a problem for them, yeah.
Jason:
Harry, I know you gotta go. Give out your website if you would.
Harry:
Yeah, the best place to go www.HarryDent.com. We have a free daily newsletter called survive and prosper. It’s great content. It’s just a way for people to get to know us and learn more about what we think of current events and new research that comes out and etc and that’s what I recommend and just go to your website and all you gotta do is put in your email address, you’re on.
Jason:
Just another quickie, thank you for that, so it’s HarryDent.com and another quickie, anything you want to mentioned just real fast about Europe because the huge mess there and I just kind of closing concept is, I mean, thing are so problematic around the world. You look at so many countries they’re in such a pickle, that’s an understatement, kind of a folksy way to say it, but is the US really that bad when you comparatively, I mean, it’s just a global economy fiasco, but maybe we’re in a better position than anybody else or a least bad position, you know, type of thing.
Harry:
No, no. That’s exactly it. The demographics, everybody goes off this cliff in the developed world, but some countries just go more sideways and then don’t decline as steep. Here’s the thing abut Europe, Europe is already in deep trouble and they haven’t gone off their cliff yet. Japan did it first in the 90s and then the US in 2008. Again, we forecast all of that ahead of time. Much of Europe goes off that same downward demographic cliff starting in 2014 next year, including Germany, Austria, Switzerland, England, these are the strongest countries over there.
The weakest are already in depressions and they’re aging even faster, but Germany is suppose to hold up Europe and Germany is going to age unbelievable faster, already covering over commercial and residential real estate development and turning a back into parts to hide the demographic decline, so there’s part of the world like Southern Europe, Central Europe, East Asia including China, but Japan, Singapore, South Korea, Taiwan, all those strong countries go off very steep cliffs over time.
US, Northern Europe like Scandinavia, England, France go more sideways over time and Australia and New Zealand. So, there’s stronger and weaker countries and yes, we’re in the stronger group where at least get to go sideways over coming decades and don’t just fall. I mean, Japan and Europe, European countries are going to shrink 30-40-50%, it’s just absolutely unprecedented.
Jason:
You can not, there’s nothing you can do about that.
Harry:
Let me give this a thought for people in real estate down the road. What happens when there’s more people dying, which means you become a seller than young people buying and why Japan real estate not turned around after 22 years of decline even when the next young generation came along, because you got more people dying than buying and you got more adult diapers being sold than baby diapers.
Jason:
Yeah, that’s a crazy scenario. You know, the people go away, but the properties are still there. That’s not good for prices, right.
Harry:
Yeah, that’s the flaw. Those are homes that down need to be built because they just got vacated by a dead person.
Jason:
Yeah, absolutely. Supply and demand. Well, Harry Dent, thank you so much for joining us today. You can order the new book coming out January 7th on amazon. You can pre-order it and it’s called The Demographic Cliff and HarryDent.com. Thanks for coming back to the show third time. It was awesome.
Harry:
Okay, thank you Jason.
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