Baby Boomers go Bust

America's current account deficit has reached inexplicably high levels (6.4% of GDP for the first quarter of 2005) and has brazenly defied the predictions of economists who claim that a dramatic correction is necessary and inevitable. Despite the economic curiosity of this long-term economic imbalance, the most unusual element in the mix is demographic: the Baby Boomers are nearing retirement, so why the hell are they still spending and not saving? America's household saving rate has always been paltry, but the miracle baby boomer generation still has to eat in retirement, right? Apparently they are not as concerned about having financial security in their old age as one might think.

One possible explanation for the everlasting baby boomer spending spree is the insecurity associated with global financial markets. There is a sickness in the world, and it is the inability of developing countries to convince OECD investors that it's OK to give them money, 1998 won't happen again (we promise). The converse is true; capital owners in third world nations are certain that their money is better off in America, despite ridiculously low interest rates and ample opportunity for investment in the home market. This, or course, pushes interest rates down ever lower, until the old-fashioned putting money in the bank is no longer a viable option for investment savvy 50 year-olds.

The solution? Serious fiscal reform that will convince investors that emerging markets are once again fair game. The South African government's sacking of Jacob Zuma was a step in the right direction sending the clear message that corruption will be dealt with and not simply ignored or systematized. On the other hand, Iran's election over the weekend of Mahmoud Ahmadinejad as President, a fundamentalist and conservative who will no doubt support the nationalization policies of the current government, will do little to encourage foreign capital flows into the country. It probably won't help that he incessantly derides America (you know, the country with all the money) as "The Great Satan".