February, 2016 Archives


70 Is The New 65: Demographics Still Support ‘Lower Rates For Longer’

by Riaan Nel in Global Investments

Demographic spendingIn many of my public presentations I address the impact of demographics on political and economic outcomes.  I am a firm believer in the adage that demographics are destiny.  I am also a believer in the savings glut theory that posits excess savings in the world are depressing interest rates.  This savings glut was also a contributing factor leading to the global financial crisis in 2008.

A recent study by PIMCO has shed some interesting new light on the savings glut phenomenon.  Matthew Tracey and Joachim Fels state the following in their study:

“Is global aging about to end the savings glut?  Some observers think so. More and more baby boomers are reaching retirement age, and they will soon not only save less but also start to dump their accumulated assets to fund retirement … or so the story goes.  If this were true, the consequences for interest rates would be profound… and what we here at PIMCO call The New Neutral might soon be history.  We strongly disagree with that thesis of an imminent demographics-induced savings drought.  Rather, we have argued in recent work that the global excess supply of savings… is not only here to stay but likely to increase further in the coming years…”

Here is a link to the study: https://www.pimco.com/insights/viewpoints/in-depth/70-is-the-new-65-demographics-still-support-lower-rates-for-longer