What really controls the economy? Forget interest rates, forget deficits, forget the Fed, forget IRAQ, forget which party is in office. In fact, forget just about everything that permeates the news. The greatest force that has controlled the long-term trend of the economy for at least the last century doesn't give a fig about any of these side-shows. And just what is this "greatest force" now telling us in 2005? The same thing that it has been telling us for at least the last twenty years - that the onset of a catastrophic Depression, unprecedented in history, has been marching silently and steadily towards us, and that it is now just a few years away.
It has long been suggested (and feared) that the 77 million or so US Baby Boomers will tank the economy big-time as they begin to pull their savings out of Wall Street when they start retiring around 2011. Well, first of all there are not 77 million. There are really over 100 million American Baby Boomers because the birth upswing actually began in the late thirties not the, "traditionally" chosen, erroneous, post war year of 1946. This means that whatever problems they might created just got 30% worse, and true earliest Baby Boomer retirement began around 2001. Secondly, the hard evidence of nearly a century shows that people retiring has never been a force in the overall trend of the economy. Let's get back to basics to see why.
It is a well established economic fact that around 60-70% of the GDP (gross domestic product) is simply consumers spending just about all of their hard-earned income. What many people don't know, or at least don't think about, is that it's more than 90% when national and local government expenditures, first taken in from consumers' incomes as taxes of all kinds, are included. The bottom line is that the consumer is always the greatest force in the economy - and it is overwhelming! It's just a simple, hard economic fact. It is therefore only common-sense that the long-term trend of the economy must be controlled somehow by this absolutely massive consumer spending component. In the short-term (1 to 3 years) many factors, such as war, terrorism, oil and corporate scandal can seriously affect the economy, but they are always side-shows to the much bigger "hidden" picture.
To figure out what is happening in this hidden picture we must look at who we the consumers are with regard to our ability to spend. Obviously, a thousand middle-aged men or women earning and spending $40,000 a year are going to have a vastly different effect on the economy (GDP) than a thousand 15 year-old teenagers spending an allowance of $1000 a year. According to data published by the US Bureau of Labor Statistics the group with the biggest spending by far is the 45-54 year-olds. This makes total sense of course. They are at their peak earnings with huge matching expenditures to support teenage and college kids, their biggest mortgage, their best cars etc. If five year groupings (45-49 in 1920, progressing for logical reasons to 50-54 by 2000) within the 45 to 54 year-olds in the US population is plotted against the Dow Jones Industrial Average (the economy), adjusted for inflation using the CPI (Consumer Price Index) issued by the US government, a breathtaking, near glove-fit correlation covering the best part of a century is revealed. (See the chart within the referenced website). This isn't conjecture. It's a hard economic fact.
The greatest force in the economy can be indisputably demonstrated to be consumer demographics, and within that the 45 to 54 year-olds demographic is just as clearly all-powerful. Things like interest rates, deficits, who is elected, and inflation are followers or consequences of the economy, not the makers of it. The Fed raises or lowers rates because the economy tells it to. Stock market crashes don't cause recessions or depressions. It is the other way around. The DJIA is simply following the 45 to 54 year-olds demographic down to reflecting the new lower value of stocks as the economy declines. For easy to understand, fundamental reasons the economy has followed the big-spending 45-54 year-olds demographic for nearly a century. History shows that the economy always declines when the number of big-spending 45 to 54 year-olds in the population declines, a full 11 to 20 years before they retire. This happened rapidly in the early 1930s, slowly thank goodness in the 1970s, and will happen again from 2013 to 2025, rapidly, relentlessly and catastrophically. This must not be confused with Baby Boomers retiring. They retire 11-20 years after their peak spending years en
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