The Grey Age of Empire

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The Daily Reckoning Weekend Edition | Sunday, September 18, 2011 The destiny of demography: The Machine Age to the Grey Age and beyond, Remember or respect? Fellow Reckoners write in with thoughts on 9/11, Plus, all this past week's articles for your sans-soucis weekend reading... ................................................................................................. Supercharging our Military... Post 9/11 One tiny, relatively unknown company has discovered a secret technology that's set to supercharge our fighter jets and other military weapons deep into the 21st Century. And starting today, here's how you can tap into the explosive $707 BILLION market for this astonishing discovery. Our world-renowned resource expert, Byron King, explains it all -- including the huge profit potential from this 22-cent penny stock -- in his latest report. Click here for all the details >> Joel Bowman Joel Bowman, from Buenos Aires, Argentina... "We want to really develop these mega trends," Addison explained on a conference call earlier in the week. "These inter-generational shifts, demographic changes, long term cycles and their impact on markets, economies and, ultimately, peoples' lives. We need to be out ahead of the curve on this." Addison sounded urgent. Or maybe "impassioned" is a better word. A few of us were discussing his Apogee Advisory research project on a Skype call. That's the mission of Apogee, he reminded us: to tackle the big picture events and trends that impact our lives...and to do so ahead of time in order that we may prepare for their eventuality. "We need to help readers understand innovation and entrepreneurship and how it all fits together," he continued. "And we need to underscore the associated threats from an aging political structure bent on trying to conserve what's been achieved by these processes, rather than allowing for free market discovery, ingenuity, even -- and perhaps especially -- when that means necessary failures along the way. These are the trends that will shape our future." There was plenty to chew on after the call: Demography, generational shifts, geopolitical super-cycles, the rise and fall of Empires. And from these topics, many offshoots. How, for example, does science fit into all of this? What kinds of disruptive technologies are we now on the verge of discovering? And what of the political environment with which today's intellectual frontiersmen must contend? How are pioneers rewarded or punished for their inquiries and innovations? In many ways, we're just now reaching the present peak of human achievement, able to catch the first glimpse of what lies ahead, what is possible in the short and medium term future. We're "standing on the shoulders of giants," as Newton once put it, looking out over the vast expanse of opportunity in front of us. At the same time, we feel the heavy hand of the state on our shoulder, discouraging risk taking for fear of failure, sheltering us from our own inquisitive nature. It wants creation without destruction, successes without failures, knowledge without lessons and wisdom without experience. Free innovation vs. state control. How will these trends play themselves out? What risks and opportunities will there be along the way? Stay tuned... Today, let's start with something easy, a topic we can wrap our heads around: Life and death. In his essay below, Bill Bonner takes a good hard look at some clear, simple math. Please enjoy... [This week's feature column was originally published on Friday, September 16, 2011.] Destiny is Demography Bill Bonner The San Francisco Federal Reserve bank came out with a gloomy forecast last month. Its analysts said that stocks were likely to earn paltry returns over the next 10 years. The reason cited was simple enough; stockholders don't live forever. 'Demography is destiny,' said Auguste Comte. 'It works the other way around too,' he might have added. If they thought they were going to live longer, America's most ubiquitous age cohort -- the baby boomers -- might continue to buy stocks. Instead, the cold hand of the grave is on their shoulders and on the whole economy. The boomers are retiring at the rate of 10,000 per day over the next 18 years. They will sell stocks to finance their remaining years. Old people have always been a drag on an economy. Migrating tribes left them behind. Eskimos put them out on the ice. Old people generally bowed to their fate with good grace. In times of famine, for example, they stopped eating so the young might live. Mortality has doomed the stock market, says the S.F. Fed. P/E ratios will likely be cut in half. Investors are unlikely to see their stocks return to 2010 levels, says the report, until 2027. And this assumes that US companies will continue to grow profits as they did since 1954. Not very likely. Because democracy, energy, and financial quackery are destiny too. Jointly and severally, they are responsible for the biggest financial debacle in history. This week, Deutsche Bank came out with a report of its own. It, too, is confident that the "Golden Age" -- 1982-2007 -- is over. In its place is a "Grey Age." Instead of the nominal 12.8% gains of the Golden Age, investors have gotten returns of -- 2.8% per annum for the last 4 years. Deutsche Bank expects stock market investors to lose about 10% of their money -- in real terms -- over the next 10 years, while the economy goes through 3 recessions! But what would you expect? Everything droops. For the last 3 or 4 centuries the winning formula for developed economies and their governments has been simple: More energy. More output. More people. More credit. More promises. This formula has been so effective for so long people began to think it was destiny itself. It's not. Instead, it is slave to destiny not its master. By 2007, the slave was put in his place. The business cycle turned sour. Native populations in Europe and Japan are falling. Energy use per person in the developed world has leveled off. Private sector credit is shrinking. So is real private sector output. The feds responded to this challenge as they had to every post-WWII slowdown. They added more -- more money, more credit. The government itself spent more money and used more energy. But the economy did not react in the old manner. An obvious reason: people are no longer as young and sans-soucis as they used to be. A young man's eye may be drawn to fast German cars or slick Italian suits. But an old man can barely see at all. The baby boomers no longer roll their joints; they rub them. And they are no longer the source of an economic boom; now, they are the proximate cause of the bust. But there's more to this new Grey Age than demography. People too are subject to the law of declining marginal utility. They wear out. But so do even the most enduring and impressive economic trends. There were only 450 million people on the planet in 1500. It took 99,000 years to reach that level. Then, over the next 5 centuries -- the population soared 10 times. Today, it is hard to find a parking place in any major city. How was such a big jump in population possible? Destiny was demography. With ready, cheap energy at hand, man could grow more food. And then he could ship it all around the world. And he could put his talents to work making more and better machines...which would vastly increase his output and his standard of living. But the Machine Age ages too. The first tractors appeared more than 100 years ago. They may have increased production 10...20...100 times. Since then, improvements have been incremental, not revolutionary. We have bigger, faster, better tractors -- that use more energy than ever. Meanwhile, energy itself came to be more expensive. When the price of energy rose in the '70s, the "30 glorious years" that followed WWII were soon over. Hourly wage rates stopped increasing and have not gone up since. Yes, there is plenty of energy around. But it is net output that you get from energy that counts, not the raw output. If a gallon of gasoline costs $5...it must produce more than $5 in additional output or the economy gets poorer. As the price rises fewer and fewer new energy apps pay off. Likewise, credit is subject to the law of declining marginal utility too. In 1950, an additional dollar of credit added about 70 cents to GDP. By 2007, the US economy was adding more than $5 of debt to produce a single new dollar's worth of GDP. Now, the feds' new credit inputs produce negative real returns. The jig is up. More no longer works. Regards, Bill Bonner, for The Daily Reckoning Joel's Note: The "hard math of demography," as they called it, is a subject Bill and co-author, Addison Wiggin, addressed at some length in their groundbreaking book, Financial Reckoning Day: Surviving the Soft Depression of the 21st Century. In it, the intrepid pair foretold much of the turmoil that would later come to pass, both in the financial markets and in the Middle East. Interestingly enough, the "hard math" is coming home to roost in the United States too. Look, for example, at the inter-generational friction lighting up the Social Security debate. Retiring baby boomers want back what they paid (by governmental force) into the scheme. Meanwhile, younger generations, themselves struggling with soaring unemployment and diminished job opportunities, are loath to pay into something they've already written off as an economically unsustainable scam. Needless to say, something's gonna give. "It's one of the major themes we'll be exploring in Apogee going forward," explained Addison in a conference call yesterday. Addison's Apogee Advisory seeks to cover the nexus between money and politics, between Wall Street and Washington. How will these trends impact you? How can you prepare yourself? And what, exactly, should you even be looking out for? Check out Addison's latest presentation here for a sneak peak at one particularly unsettling theme already well underway...and what you can do about it.   Only 62 People Know Exactly Why These Four Companies Could Change the World Now you're #63 "on the inside" -- and you're on the verge of raking in lasting wealth. This could go down in history as the story of our era. Click here for all the details >>   ALSO THIS WEEK in The Daily Reckoning... A Raging Case of Bailout Fatigue By Doug Hornig Afton, Virgina I've used the term "outrage fatigue" on numerous occasions as a way of explaining why there has been such a muted outcry from the general population, as the tally of financial atrocities committed against American citizens has exploded. Let's Forget 9/11 By Tom Engelhardt If we have any respect for history or humanity, we should remove 9/11 from our collective consciousness. Let's bag it. I'm talking about the tenth anniversary ceremonies for 9/11, and everything that goes with them: the solemn reading of the names of the dead, the tolling of bells, the honouring of first responders, the gathering of presidents, the dedication of the new memorial, the moments of silence. The works. Blockbuster Anti-Cancer Technology By Patrick Cox Marco Island, Florida The science story with the biggest buzz recently was probably the successful treatment of three leukemia patients by scientists from the University of Pennsylvania. While the leukemia research is important, I don't think that many understand where it fits in the bigger picture of cancer therapy development. I believe, in fact, that there are a half-dozen more- promising therapies. Looking at Uranium...Again By Byron King Pittsburgh, Pennsylvania Uranium is still a "Buy"...maybe now more than ever. The disaster in Japan slammed the uranium sector...and it still has not recovered. But this washout looks like a buying opportunity, as long as you're not in a hurry to make a big gain.   Urgent Profit Alert to Hit Your Inbox on Wednesday... The perfect market STORM could be about to hit this Wednesday. For the biggest early gains, you must be on the inside ASAP. Get all the details on this one-time opportunity -- right here. The Weekly Endnote: And now, we turn the floor over to our Fellow Reckoners... First up, this one from Reckoner J.S. ... Will you please thank Tom Englhardt for his thoughtful piece on "Let's Forget 9/11." He put words to my uncomfortable and sometimes disgusted feeling when watching these ceremonies for 9/11. It takes a lot of courage to see and speak the truth or reality behind the collective delusions running rampant in the American consciousness at this time, as he will be labelled as unpatriotic or even a traitor. I am a former military psychologist that has seen first hand what this insane war on terror has down to our military personal. There is nothing heroic about this made up war that was caused by our government policies and subsequent actions throughout recent history. However, we are the United States so we are never wrong and always just. So sad... And there's this one, from a couple of reckoners... My wife and i wish to thank all of you at DR, and especially Tom, for such thoughtful, accurate, sensible and appropriate essays on the subject of the 9/11 Great Wallowing. None of this fed-sponsored, over-the-top, suffocating propaganda was dumped on us after WW 1, Pearl Harbor, WW 2, Korea, Vietnam or Iraq 1. The breadth and depth of this "patriotic" campaign on Sept. 11th 2011 was frighteningly thorough: memorial marches for military, cops and firemen; church services; any public event; newspapers and TeeVee, on and on, for the week before in moderate intensity then hyper drive for 9/10-9/12. What ever happened to guts, to stoicism in the face of adversity, to acceptance of pain and moving on, to bravery, to excision of cowardice and the quiet bearing of pain and suffering? Of course, not all were in agreement with Mr. Englhardt. We received plenty of hate mail, too. Many were ready and willing to prove the author's point by vehemently disagreeing with it. Here's one of them... Your comments about 9/11 were trivial and not at all true. They must have been penned by an American hater. Surprising, he is a writer in our own country. We need to remember 9/11 now and in the future. We must never forget what Muslims tried to do to America. If I were in charge on 9/12 I would have ordered the arrest and deportation of ALL Muslims, even if they were US citizens. They wish us harm by any method they can think up. We don't need them in our society and if something is not done to rid us of them they WILL, in any manner possible hurt Americans. I think your writer should be deported along with them, since he loves them so much. If your feelings are the same you can cancel my subscription to you news letter. I certainly don't need any more American haters. We have enough of them in our government now. Got something to say? As always, we welcome your thoughts. Email them to the address below and... ...enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning ------------------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com Destiny is Demography Dead Men Don't Spend Why Economic Growth is Not a Sure Thing Central Banks to the Rescue Sarkozy and Merkel Calm the Currency Markets The Daily Reckoning: Now in its 11th year, The Daily Reckoning is the flagship e-letter of Baltimore-based financial research firm and publishing group Agora Financial, a subsidiary of Agora Inc. The Daily Reckoning provides over half a million subscribers with literary economic perspective, global market analysis, and contrarian investment ideas. Published daily in six countries and three languages, each issue delivers a feature-length article by a senior member of our team and a guest essay from one of many leading thinkers and nationally acclaimed columnists. 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