Understanding the fundamental economic or socionomic trend does not require prediction or speculation of possible future events, actions or inactions. The trend is already set in history, already occurring inexorably. It is an economic tsunami unequalled in our lifetime except by its mirror image. The questions are how to protect yourself from it and how to take best advantage of this giant trend.

The enormous global “baby boom” generation passed its age of borrowing and spending and entered its age of de-leveraging, saving, and downsizing. Boomers are in the “winding down” period of their lives. Spending on the things that drive economic growth has slowed and will continue slowing. The big demographic numbers that grew businesses for houses, cars, furniture, major appliances, etc are declining rapidly. This is the trend which is driving socionomics. This downturn, recession, depression or whatever one wants to call it is not temporary.

This is not an ordinary recession or business cycle. We are in a long term deflation and there is no way to stop it. The demographically very large baby boom generation did not have the third and fourth kids like most of their parents. The generation that followed which is now entering their prime spending years is about 50% smaller, and the next generation is smaller still. Population growth is in a steady decline. (see graphs below)

The bubbles of consumption are collapsing; the historically unprecedented hundreds of trillions of dollars of collateralized debt and the quadrillions of non-collateralized debt and derivatives are imploding worldwide. Be very careful and limited with your ETF’s and options because they are tied to the derivative books of giant banks.

The size and cost of government at all levels must be collapsed…we need major reduction of government debt. Spending by government must be cut to the bone. Deficit spending should be out of the question, but it’s not yet. Government at all levels in the U.S. does not yet have that message. These are government supplied statistics, but government bureaucrats and politicians refuse to face the facts because taxes are the source of their power. They are still trying to raise taxes to maintain government budgets and services. It’s not going to happen. Plan for austerity. The massive boomer population is not paying as much in taxes, and will not be, because their income on average is declining rapidly. Furthermore, boomer spending is declining rapidly, so tax revenue on corporate profits and taxes on salaries overall will be declining… for years to come. In this situation, it irreparably harms nations to emigrate people across borders because jobs are declining almost everywhere; immigration is importing a time bomb.

It can be a conscientious, planned and calm process of deflation or it can be like Greece, Libya or Egypt with violence across the country. That is your vote in the next elections. We are watching a carnival gamblers shell game being played by governments and bankers with our money. So, how is the best way to play this game, or to avoid being played? Cash is and will be king, but which cash?

by Bud Bromley on Friday, October 21, 2011 at 7:23pm (published on Bud’s Facebook notes)