From The Greatest Generation to The Liquidation Generation

"Ladies and Gentlemen, step right up...the greatest asset liquidation in human history is just around the corner!!"

The Baby Boomers started retiring 10 years ago. This means they are supposedly going from 100% of working income to perhaps 50% - 60% of their previous income in retirement.

I have already noted how this phenomena will be a 20 - 30 year drag on economic growth, as economies struggle to expand at the same time as the largest demographic cohort in the West is reducing its net yearly expenditures. I have "eye-balled" a net reduction in GDP of about 4% per year by 2030, below what would have been the case but for this phenomena.

"But wait! There is more!!"

The Boomers have most of the wealth in the West, and this is mostly tied up in real estate.

"Rest assured friends!! This is a generation that is not about to take a 40% - 50% reduction in their living standard without a fight! My friends...take a look at our newest financial invention...the reverse mortgage!"

You see, Boomers can take out mortgages against their main assets and live off their equity, hoping to pass away before their equity finally runs out. While this may allow them to add say 10% or so more to their yearly expenditures in retirement, it also leaves a massive problem to their progeny.

In short, when the Boomers pass away, they will be leaving assets to their children and others that already has mass debt pledged against it to banks and other financial institutions.

This will leave their progeny with a difficult decision - do they keep the assets, and assume responsibility for the debt that is secured against it - typically a mortgage - or do they sell the asset, pay of the debt, and distribute the cash to the Boomers' Beneficiaries?

"Most will sell - after all, who want's to take over grandpa's mortgage?!!"

And here is the problem. 

This decision process will be repeated by literally tens of millions of beneficiaries, because the Boomers are borrowing like drunken sailors in order to try to live close to the same level they lived at while they were working.

In Canada, there are already over $200 Billion in reverse mortgages, and we are just getting started. This is close to all the cash that is held in reserve by the Canada Mortgage and Housing Corporation as insurance against mortgages that were placed on homes where there was only a 5% to 10% down payment.

"So here is the rub, friends...as Boomers pass away, and their debt-ridden real estate assets are dumped on the market by their beneficiaries who will not want to take over the Boomer's mortgages, house prices will plummet!!"  

We are not talking about a small amount of real estate here - it might turn out to be 1/4 to 1/3 of all private real estate in the entire country.

"And so, there is More! When this happens, beneficiaries are in for a shock!"

After selling the family home and paying off the mortgages secured against those homes, because everyone else will be doing this, thereby causing prices to fall....there will be almost nothing left for them after the mortgages are paid off!

And so, we are going from The Greatest Generation, to The Liquidation Generation.

For the record - I am a Boomer.

"Approved!"