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Another Threat To Economy: Boomers Cutting Back

Monday, August 16, 2010 - 5:47 AM
From the Wall Street Journal:
America's baby boomers--those born between 1946 and 1964--face a problem that could weigh on the economy for years to come: The longer it takes for the economy to recover, the less money they'll have to spend in retirement.

This is another problem with the Fed's policy of "exceptionally low levels of the federal funds rate for an extended period". Instead of encouraging more spending via loans, it will eventually reduce spending since the ultra low yields will affect the savings of the baby boomers.
2
Ken TuminKen Tumin5,471 posts since
Nov 29, 2009
Rep Points: 125,634
1. Monday, August 16, 2010 - 5:56 PM
A chicken or the egg dilemma.  Baby boomers are less likely to participate in or benefit from low loan rates compared to younger generation groups.  A low rate environment is intended to spur spending via accommodative policy, negatively affecting savings rates.  

Q: Which groups' spending and consumption will have a greater impact on GDP going forward?

A: As population demographics shift away from boomers more economic activity becomes dependent on spenders, not savers, assuming demand for investment capital remains weak.

What's Ben to do? The choice, unfortunately, is clear.
3
CraigPDCraigPD94 posts since
Jun 12, 2010
Rep Points: 336
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