The document discusses how aging populations will impact sovereign debt crises over the next 10-20 years. Key factors that will determine the severity of this include the pace of reforms, economic growth rates, and interest rates. Under a "no policy change" scenario, median government debt for advanced nations is projected to grow almost five-fold to over 300% of GDP by 2050 due to aging populations and associated costs. Structural reforms may help offset slowing economic growth that tends to accompany population aging but growth rates are expected to fall towards and below zero. Population aging will significantly affect the global economy through impacts on workforce size, saving and borrowing patterns, asset values, and government debt pressures.

1. What Do Ageing Populations Have To Do With The
Edward Hugh Sovereign Debt Crisis?
Vienna, March 2013
“No other force is likely to shape the future of national
The real “debt cliff” is economic health, public finances, and policymaking as
looming over the next 10 the irreversible rate at which the world's population is
to 20 years. aging” - Standard & Poor’s 2010
The key factors in this race
to the edge will be:
• Pace of Reform
• Rates of Economic
Growth
• Rates of Interest
“Come gather 'round people
Wherever you roam And
admit that the waters Around
you have grown And accept it
that soon You'll be drenched
to the bone”

2. Baseline Case - No Reform
“For all sovereigns in the study, burgeoning deficit ratios are expected to push the
median net debt ratio to around 245% of GDP in 2050, from below 40% of GDP
currently, as the snowball effect of rising interest payments accelerates the negative
budgetary impact. During the same period, the median debt for advanced
sovereigns under the "no-policy change" scenario grows almost five-fold to more
than 300% of GDP”.
S&P’s, 2010
Obviously there will be
reform,But how much and
how quickly?
At present voters don’t
seem to be too keen.
“If your time to you Is
worth savin‘ Then you
better start swimmin‘ Or
you'll sink like a stone
…….For the times they are
a changin‘”.

3. Viewed In historical terms population structures really are
changing extraordinarily quickly.

4. The Growth Outlook
There is an accumulating volume of
evidence that as societies age they
lose growth momentum. Italy and
Japan are two of the oldest
societies on earth. Portugal is a
typical aging European society.
“Come mothers and fathers
Throughout the land And don't
criticize What you can't understand
Your sons and your daughters Are
beyond your command Your old
road is Rapidly agin “
Structural reforms can help offset
some of this, but growth rates look
set to fall towards zero and then
beyond. Some ecologists have
argued for a “zero growth” society.
Will they like the new world when
they get to really see it?

5. “And while there is much
shaking of heads about
Japanese debt, the ill-effects
if any of that debt are by no
means obvious.”
Paul Krugman
Oh Really!!!!

6. Interest Rates
Some Countries Are
Improving Their Credit Rating
– Mainly Emerging Markets
While Others – Largely
Developed Economies – See
Their’s Steadily Worsening
“Come gather round people, throughout the land, and don’t criticise what you can’t
understand, the times they are a’changin”.

7. What Demographic Revolution?
Almost all populations globally are aging.
This is a result of both declining fertility
and rising life expectancy. In the
developed countries the situation
becomes acute since fertility falls (often)
well blow replacement and stays there for
decades.

8. Not All Developed Countries Are Aging At An Equal Rate
Some European
societies are getting
older much more
rapidly than others.
Most emerging market and
less developed economy
countries are also aging,
but they are still quite
young. EMs are normally
“older” than LDCs.

9. As far as we are able to understand the issue at this point,
population ageing will have major economic impacts and these can
be categorised under four main headings:
i) ageing will affect the size of the working age population, and with this the
level of trend economic growth in one country after another
ii) ageing will affect patterns of national saving and borrowing, and with
these the directions and magnitudes of global capital flows
iii) through the saving and borrowing path the process can influence values
of key assets like housing and equities
iv) through changes in the dependency ratio, ageing will influence pressure
on global sovereign debt, producing significant changes in ranking as
between developed and emerging economies.

10. Importance Of The Prime Age Groups
There are basically three important age groups – prime borrowers, prime savers, and
prime age workers. The proportions between these three groups in any given society
seem key pieces of economic data, yet few studies even consider them.
Estimates of the exact age extension of the different groups vary, but 25-40 would be a
good rule of thumb measure of the borrowing range, 40 to 55 for the peak savers, and
35 to 50 for the prime age workers.
Beyond this, the question is an empirical one of measuring and testing to determine
more precise boundaries and frontiers.
For every country the proportion of each of these key groups peaks at a given moment
in time. Where these actual age brackets lie, and the extent to which they may overlap,
is still a subject of some controversy,
One of the key points to grasp, is that the proportion the population which is to be
found in one of the ‘prime’ age groups at a given moment in time, is absolutely critical,
and much more important for understanding the processes at work than the mere size
of the working age population.

11. Disruptive Feedback Mechanisms – The Spanish Case
Spain is
suffering from a
clear case of
“self reinforcing
problem” illness
Unemployment rises Credit is scarce
and rieses since the as there is little
economy is “broken”. solvent
House prices fall, and demand, and
the number of bad loans young
rise. educated
people leave.
With growing
numbers of
pensions, and
ever fewer
contributors the
pension system
becomes
unsustainable.

12. What Will The World Look Like After Japan Hits The Wall?
The line it is drawn The curse it is cast The slow one
now Will later be fast As the present now Will later be
past The order is Rapidly fadin‘ And the first one now
Will later be last For the times they are a-changin'.