Men and women born just after WWII are soon reaching retirement age. Interest income is important to retirees. They can't depend on volatile markets. They require something fixed, sure, a financial instrument that keeps food on the table, will pay the doctor, dentist, pharmacist, and funeral director.

There is more on the Fed's table than inflation and unemployment and corporate profits. Financial institutions and insurance companies for instance will be looking for yields that accommodate these needs.

Long bonds support fixed income; these yields must not fall if the future of retired voters are to be accommodated. A yield of 5%, in my experience, is insufficient to cover present inflation. How are retirees going to make out? The Fed is not independent from political and cultural forces. They will create a favorable situation for baby boomers. How does that affect stocks?

Stefan Jovanovich replies:

The first retirees in history were the merchants, schoolteachers, ministers, army and navy officers and imperial civil servants who lived into old age in the last third of the 19th century in the United Kingdom. They were the customers for the annuities that British insurance companies began selling in large numbers; they were also the audience for Gilbert and Sullivan.

The insurance companies looked to the bonds issued by the governments, railroads and utilities of the U.K. and the imperial territories, principally India. The recent anxieties about new home sales and re-sales and Congress's eagerness to "fix" the mortgage market suggest that the funding for the promises sold to American retirees is more likely to come from mortgages than bonds.

This does not answer Ken's question, but it may dampen some of the enthusiasm for finding in Great Britain's recent history the analog for America's predicted imperial decline.





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