Emerging economies can rescue the west from baby-boomer bust

More than 70 million retired American baby boomers may send stock markets into a tailspin within 20 years, selling their stocks and bonds on a massive scale to finance their living.

The good news, according to finance guru Jeremy Siegel, is that investors from India and China could come to the rescue, buying a huge chunk of these assets and stabilising prices. The bad news is that a protectionist-minded United States may not let them in.

Professor Siegel, a finance academic at the University of Pennsylvania scared an audience at the Milken Institute's Global Conference in Los Angeles last month when he said that as baby boomers in the US, Japan and Europe retired a few years from now, asset prices would tumble by up to 50 per cent, a development that he said was one of the most critical long-term issues facing the world's rich countries.

The Organisation for Economic Co-operation and Development recently warned of rapid changes during the ageing process, due to set in two years from now. It said that 'many governments preferred to ignore the need for reform and try to postpone reforms beyond the next election'.

If the developed world had to rely on itself, 'there will not be enough workers for producing the goods and there are not enough buyers for all these stocks and bonds', said Professor Siegel. The huge shortage of workers, following mass retirement, would force the US to raise its retirement age from 62 to 74 years.

Professor Siegel's predictions mirror worrying scenarios in recent reports, among them a study by McKinsey & Co. The management and consulting firm, in a paper entitled 'How ageing will reduce global wealth', concluded that 'ageing populations in the world's richest nations will exert severe downward pressure on global savings and financial wealth'.