Which got me thinking about the comment I first came across on Random Roger's site, wherein an article in the WSJ postulated that long-term interest rates might be notably lower than otherwise, due to baby boomer's moving progressively out of the stock market, and into the bond market. Aside from questioning the long-term logic of this from an individual perspective, something I did over here, I began to think about it in a more recent historical context, and conclude - in my opinion - that's it's unlikely to have much effect. Perhaps some, but not much.
I'll use the last decade of noticeably high interest rates as an example: the 1970s. Some of the factors that should have produced lower interest rates in that decade were:
- A low birth rate between 1930 (depression era) and 1945 (WWII), resulting in relatively few 25-45 year olds in the 1970s (25-45 year olds tend to require the most loans, due to family formation, house and car purchases etc.);
- A number of persons aged 50-65; then considered to be prime savings years;
- Infrastructure expenditures of the late 1940, 1950s and early 1960s relating to the re-building of Japan and Europe mostly or fully complete;
- Major American infrastructure expenditures, mostly of the 1950s and 1960s, complete;
- Most of the baby-boomers had not yet reached significant household formation age - a time of major draw on capital markets.
I think in a similar fashion that other factors of today will have a far more significant impact on long-term interest rates than boomers who may - or may not - move capital into the bond markets.
Now this is just my own quick thoughts on this situation - I'd love to hear from others who might point out flaws in my thinking. Also excuse me if the WSJ already brought these up, as I haven't read that original article. Interest rates and inflation - back to the future?
The Confused Capitalist
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