The effects of aging

As populations age, western governments are racing against time to deal with the budgetary challenges the rising median age poses according to Moody’s.

Even as questions are being asked about the manner in which western economies are bouncing back from the global economic meltdown, Moody’s said that major sovereign bond issuers, among which are the United States of America, the UK, France and Germany, are in a position of strength and can retain their much-coveted AAA credit ratings. But with this note of positivity came a caveat; as western nations averted the worst of the economic meltdown by diverting funds towards it, it has left itself open to the threats posed by an impending increase in costs it will have to incur

The financial meltdown may have been insulated and perhaps its advances even checked, but it has come at a price. There are long-term challenges to be faced up to irrespective of the funds that have been diverted for this firefighting cause and issues such as solving pension woes and living up to healthcare reform promises will take a massive chunk of money out of budgetary planning, especially given how median ages in these countries are rising all the time. What that means is that soon an older population will have to be looked after even in the face of a depleting workforce.

According to Moody’s, governments previously had a period spread over almost two decades where they could prepare for the effects of this and prepare a plan to combat it. That buffer has now been eroded completely and the stark reality of the situation means that the time to make adjustments is now. As deflation came a-knocking, investors lapped up government bonds like they were going out of fashion so that they could ensure an income stream for themselves. Concomitantly, borrowing costs of governments have reduced dramatically but that does not meant that fiscal challenges, such as the ones sizeable economies are facing, can be swept under the carpet. The onus is on decision-makers to demonstrate to the bond market that they are serious about tackling issues, and a failure to do so could lead to a loss of confidence among investors, an effect that would be disastrously destabilizing.

It’s not just about unsustainable debt levels, the issue is paying off debts yet to be incurred at all and the sheer magnitude of this is not encapsulated by current debt levels. That is just a reflection of current deficits as opposed to the dangers of future deficits, all of this magnified by an aging population. This, in essence, needs a rewiring of the social circuitry to ensure who pays higher taxes and who gets more (or less) benefits.