Renowned economists, such as Paul Krugman, would have you believe the sky is falling and that America is headed for another depression. Krugman could not be more hopelessly mistaken. You see, what Mr. Krugman and other economic pundits who share his opinion are misinterpreting, is the reason behind the economic bubble burst of 2008: America's demographic shift. Boomers are not buying, they are selling. They aren't spending, they are saving. The largest generation ever in the history of the United States is redefining America's economy today, just as they did in the previous five decades. But first, lets delve into some of the underlying facts concerning the generations that are responsible for our changing economy.

Baby Boomers
76 million members make up the baby boomer generation. They were born between 1946 and 1964. Beginning on January 1, 2008, the first baby boomers began collecting Social Security. In 2011, the first of the boomers will turn 65 and become eligible for Medicare. By 2030, 84 million boomers will be collecting Social Security, up from 50 million today. Roughly 365 boomers an hour began turning age 62 in 2008.

Generation X
44 million member make up Generation X. They are the children of the boomers. They were born between 1965 and 1977. In 1987,  the first members of this group became taxpayers. The disparity between the Gen X members and the boomers, in terms of population, is 32 million.

Generation Y
76 million members make up Generation Y. They were born between 1978 and 1994. In 1999, the first members of this group became taxpayers. 

Beginning immediately after WW II, families in America planted the seed for what would become the baby boom generation. From 1946 to 1964, some 76 million babies were born, ushering in the greatest expansion America's economy has ever experienced. Businesses expanded or were created to meet the demand of this group for diapers, baby products, toys, autos and housing. This economic boom continued until the boomer bubble burst in September 2008. We will look back at this month and year as the pivotal time in America's history when boomer spending ended. We will also mark this point when America's economy began, what will be a ten year decline.

Why ten years? It has to do with the demographics of the generations succeeding the boomer generation. You see, it will take until the year 2018 for the combination of populations of Gen X and Gen Y to restart the spending engine of America's economy to a level comparable to that of the boomer generation. These generations simply will not have matured enough, until such time, to replace the voracious spending of the boomer generation. There simply will not be enough of a Gen X and Gen Y population around, until then, to meet the current production capacity of manufacturers or acquire the excess supply of housing that will begin to become available until the demise of the boomer generation begins. America will, for the first time since WW II, see its GDP decline and this decline will continue until 2018. The current economy is in correction mode. Unemployment will continue to rise and will then begin to level off sometime in 2012. Real estate will continue to flatline until 2018. Wages will be depressed as demand for jobs exceeds the available supply. Inflation is anybody's guess, but I expect the depressed wage rates will keep inflation in check for some time.

What to do until 2018?
Hold on to your cash! Keep your home if you can. There will be no imminent need to invest in residential or commercial real estate as return on investment will be nil, since prices will be static. The only real estate investments to make will be those which generate immediate positive cash flow. On the whole, stocks will deliver historically low returns, probably in the 2-4% range, depending on the sector. There is no need to rush an investment opportunity. It will be there tomorrow and the next day. Cut costs/expenses to the bare minimum. This is not a time to seek immediate investment returns. Except for the ultra-wealthy, who will be poised to take advantage of depressed pricing and investment values, everyone else needs to fasten their seatbelts. You are in for an eight year downward slope until this economy begins its ascent, which will be gradual but steady. Good luck and keep the faith. This economic downturn is nothing more than a demographic shift. We all knew it was coming. It has finally arrived!