Is the global pension system going to collapse?

Summary

Real Estate Without Borders Episode Summary: "Is the Global Pension System Going to Collapse?" Release Date: March 9, 2025

In this compelling episode of "Real Estate Without Borders," host Dan and co-host Dave delve into the intricate relationship between global demographic trends, the sustainability of pension systems, and the consequent impacts on international real estate markets. Through an engaging dialogue, they explore how aging populations and pension shortfalls are reshaping investment landscapes worldwide, offering both challenges and opportunities for real estate investors.

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1. Introduction: The Critical Intersection of Demographics and Pensions

The episode opens with Dan highlighting the urgent issue of demographic decline intertwined with the potential collapse of pension systems globally. He underscores how countries like Italy and Japan are experiencing shrinking populations, which directly affects their real estate markets. This demographic shift challenges traditional real estate investment assumptions related to market growth, rental demand, and property appreciation.

Notable Quote:

"It's almost like this idea that capitalism's been built on population growth."
— Dan [00:00]

2. Understanding Replacement Rates and Their Implications

Dan and Dave discuss the concept of replacement rates—the number of children per woman needed to sustain a population level. They reveal that countries like the United States (1.6) and Japan (below replacement) are grappling with declining birth rates. This decline poses significant threats to pension systems, which rely on a growing workforce to fund retiree benefits.

Notable Quotes:

"The US is below the replacement, right?"
— Dave [00:57]

"From Japan's aging crisis to Europe's pension funding gaps, as well as US Pension funding gaps..."
— Dan [01:03]

3. The Pension Funding Crisis

The hosts delve deeper into the financial strain on pension systems, citing that major European countries have unfunded pension obligations ranging from 400% to 500% of their GDP. They explain that these systems are unsustainable because there aren't enough workers to support the growing number of retirees.

Notable Quotes:

"400 to 500% of the GDP? Major European countries have unfunded pension obligations."
— Dave [01:35]

"You can't just be like, oh, yeah, sorry, we were wrong... you're boomers."
— Dan [02:09]

4. Personal Perspectives on Pensions and Investments

Through personal anecdotes, Dave shares his experience as a firefighter depending on a pension, highlighting the generational reliance on these systems. Dan emphasizes the importance of personal financial planning over relying solely on state-provided pensions, arguing that government pension funds often fail to outperform individual investments like the S&P 500.

Notable Quotes:

"Your pension would have to be able to outperform you as an investor."
— Dan [11:04]

"Why everybody thinks like their home is an investment in Canada..."
— Dan [09:29]

5. Monetary Policy and Inflation's Role in Pension Systems

The conversation shifts to the role of money supply (M1 and M2) in economic stability and inflation. Dan explains how governments may inflate asset values to alleviate debt burdens, indirectly supporting pension obligations by increasing real estate asset prices.

Detailed Explanation:

• M1 Money Supply: Liquid assets like cash and checking accounts used for everyday transactions.
• M2 Money Supply: Includes M1 plus less liquid assets like savings accounts and small time deposits.

Notable Quotes:

"That's the only thing that creates or destroys inflation is the money supply."
— Dan [05:38]

"M1 is what people use day to day... M2 shows how much money people have stashed away."
— Dave [06:01]

6. Global Fertility Rates and Their Economic Consequences

Dan and Dave present global statistics, revealing that only a handful of countries maintain fertility rates above the replacement level. Most developed nations, including Canada and the US, face declining birth rates, exacerbating the pension crisis and impacting real estate markets.

Notable Quotes:

"The only places above the replacement rate are like Mexico's 2.1."
— Dan [22:44]

"The UN projects that 16% of the world's population will be over 65 by 2035."
— Dave [29:00]

7. Pension Systems as Ponzi Schemes: A Controversial Viewpoint

Dan provocatively likens pension systems to Ponzi schemes, arguing that they rely on continuous inflows from younger generations to fund retiree benefits. Dave counters this by distinguishing government-run pensions from illegal Ponzi schemes, emphasizing their regulated and transparent nature.

Notable Quotes:

"Pensions are a Ponzi scheme."
— Dan [30:07]

"They're legal and transparent... backed by taxation."
— Dave [31:27]

8. Implications for Real Estate Investors

The hosts conclude by stressing the importance for real estate investors to consider demographic trends when evaluating international markets. Countries facing demographic declines may see property values stagnate or decrease, while those leveraging immigration to sustain their workforce may offer more stable investment opportunities.

Notable Quotes:

"When you're looking to buy something globally, look towards markets with younger demographics."
— Dave [34:53]

"If you're in demographic decline, then probably all of your gains are only ever going to come from inflation."
— Dan [26:29]

9. Potential Solutions and Future Outlook

Dan and Dave explore possible solutions to the pension crisis, including increasing the retirement age and boosting immigration to replenish the workforce. They note that while some countries like Denmark and Sweden maintain better pension systems through robust economic policies, many others remain at risk.

Notable Quotes:

"What do the politicians do? They might just say, hey, look, there's no, we have no..."
— Dan [19:38]

"Policymakers are trying to inflate away debt and bring in more workers through immigration."
— Dan [14:43]

10. Closing Thoughts: Navigating an Uncertain Future

In their closing remarks, Dan and Dave emphasize the complexity of the pension and demographic issues, urging listeners to stay informed and consider these factors in their real estate investment strategies. They acknowledge the uncertainty ahead but highlight the necessity of proactive planning in the face of potential economic shifts.

Notable Quotes:

"This is a very, very complex problem to solve."
— Dan [27:58]

"The house prices went to the moon. Rents went to the moon. The economy became a mess."
— Dan [35:09]

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Key Takeaways:

• Demographic Decline: Many developed countries face shrinking populations and declining birth rates, which strain pension systems.
• Pension Sustainability: Unfunded pension obligations are unsustainable, leading to potential government debt accumulation and economic instability.
• Investment Implications: Real estate investors should prioritize markets with younger demographics or those successfully integrating immigration to sustain economic growth.
• Economic Policies: Governments may resort to inflation or increased immigration to manage pension shortfalls, impacting real estate markets through asset value fluctuations.
• Strategic Planning: Investors must remain vigilant of demographic and economic trends to navigate the evolving global real estate landscape effectively.

This episode provides a thorough analysis of how interconnected these global issues are and underscores the importance for investors to consider broader economic and demographic contexts when making international real estate investments.

Transcript

[A]

In today's eye opening episode, we're going to dive deep into one of the most pressing challenges facing real estate investors globally. The intersection of demographic decline, pension system collapse, and the profound implications that this has for property markets worldwide. So we've talked a little bit about countries like Italy and Japan who have seen their populations in decline, and those are also two of the populations or countries where you can find real estate for basically free. So with a lot of populations around the world also slowing or reversing in many developed nations, real estate investors could be facing a similar transformative landscape. Traditional assumptions about market growth, rental demand, and rental appreciation are being challenged by these demographic shifts. You've got countries like China and India actually below the replacement rate and potentially facing decreasing population. And so it's almost like this idea that capitalism's been built on population growth.

[B]

Right. I was gonna say what's. What's the replacement rate in the US right now? I was just trying to pull it up. I think it's 1 point something. 1.6.

[A]

Yeah. I think they're. Yeah. So the US is below the replacement, right? Yeah, yeah. And I mean, if you look at Europe, like, I mean, we can go through a handful of these things. Right. So I think, you know, from Japan's aging crisis to Europe's pension funding gaps, as well as US Pension funding gaps. You know, we're talking a little bit about Chicago, which I think they mentioned on the all in podcast. You know, there's these huge pension issues, and this is one of the things that Trump is obviously trying to. To fix is the entitlement system because the government doesn't have enough money to pay for all of these things. Right.

[B]

So.

[A]

So whether you're.

[B]

Yeah. Like, super. Simply, there's how we have a number here of what, 400 to 500% of the GDP? Major European countries have unfended unfunded pension obligations. So basically, people are expecting these big punch pensions and we don't have any money to pay for it.

[A]

Yeah. Or the countries don't have the people to pay for the obligations that they have. And it's not like you can just. There's a handful of problems here. Right. It's not like you can just stop giving your seniors money. Right, right. You can't just be like, oh, yeah, sorry, we were wrong. Our math was off. You're broke now.

[B]

Good luck.

[A]

Have fun living the rest of your life in poverty. Right. People were counting on this their entire lives. I'm of the opinion personally that people should take care of their own Financial future plan for their own retirement, not depend on the state, et cetera. But it's too late for me to tell all of those people that. Right. And so I also don't think we should just leave them out to draw.

[B]

I know I was a full time firefighter for many years and that's like most. When I left it was, it was especially the older generation, you know, that was their, you're crazy, you're leaving a pension behind. You know. And I was like, oh man, like I have other things you have to tell me in this. But a lot of, a lot of them, that's how they thought, you know, that was their, that was their be all end all to get. Nothing else mattered. They had to save $0 because when they retired they had this tension that was through the gravy train for the rest of their lives, you know, and that's how they thought. And yeah, I mean even, even the stat here I pulled up. So the US population by 2030, one in every five Americans will be over 65 with birth rates down to 1.62 kids per person in 2023.

[A]

Yeah.

[B]

Crazy.

[A]

Yeah, it's funny man. Like I was golfing in, in Palm Springs yesterday and I'm like looking at all what's around this golf course. Dude, don't even ask me. I don't even know. I don't even know that my handicap is whatever. People who don't even know what that is.

[B]

You're like over you. You're shooting over 100 easy now.

[A]

I am, yeah. Yeah. I used to play good golf. Like I was playing 60 rounds a year. Right now I'm playing zero.

[B]

Well, you got kids. I know. I, I went through a big period of. I was a big, big golfer, like minimum four rounds a week. But now I just got too much on my plate again. I went through like a period.

[A]

It's crazy. Yeah. You think you'd be like, you'd have some of it, but no, it's eas from like playing in the, you know, 80s to over 100, no problem.

[B]

Especially. Yeah. Do you bring your clubs down there?

[A]

No, no, I just played out of my father in law's bag.

[B]

Oh yeah, that's a recipe for disaster right there.

[A]

It was okay actually. Yeah, it was good. I don't know, I was surprised. It wasn't as bad as I thought it was going to be. I honestly thought I wasn't going to have fun at all. But anyway, anyway, I'm looking at all these houses around this golf course. I'm like, who owns these houses? Like, and I'm looking and I'm like. And they're not. Like, they're okay. Right. But they're, like, worth, like, a million six.

[B]

Wow.

[A]

And I'm like, who's. Who owns all these? And it's all fricking old people. Boomers. Right. And so I think about this a lot in terms of real estate, especially in the US but also around the world, where. I mean, Canada is a really good example as well. Like, you've got all of these boomers who have so much real estate wealth. I actually, I'm kind of of the opinion that governments are incentivized to pump up their real estate asset values through immigration, through money supply. So basically, like, all right, brother, you.

[B]

Got to give me.

[A]

Yeah, that's basically just, like, money. That's the amount of money in the economy.

[B]

M2 money supply.

[A]

Yeah. And. Well, so there's M1 that's, like, money that's given to the banks, and then M2 is a derivative of that. So, like, that's when the banks basically borrow or create money for you to borrow as, like, a mortgage, as an example. So, you know, by expanding the money supply, the. You know, that's how inflation gets created. Right. That's really the only thing that creates or destroys inflation is the money supply, you know, so, you know, you think back to Covid, the government's basically handing out these, like, stimmy checks, stimulus checks, Right? That's an increase in the amount of money is driving the value of assets and goods up. So my thought is, and I'm curious to get your take, but that the governments are incentivized to make asset prices higher because they know that they can't fulfill their obligation to boomers. And the easier way to alleviate some of that burden is to make the boomers asset rich.

[B]

Fair enough. Well, I mean, I think we're covering that in another episode, but that one tweet about how many. Well, what we do last episode. How many. How many trillion. What's the wealth transfer right now in the trillions, Right? Not billions, trillions. But I wanted to cover this M1 money supply thing, man, because I'm telling. I can guarantee that my followers don't know what an M1 and an M2 money supply is. I think that's kind of a cool thing. Can I cover this for you?

[A]

Yeah, do it.

[B]

Okay. M1 money supply is the cash in hand stuff. So in the most. So it's liquid, it's easy to spend. Money includes, like, physical cash Checking accounts, travelers chat. Okay, so why. It's why it matters. M1 is what people use day to day for. Buying groceries, paying bills, grabbing coffee. It's the most active money in the economy because you spend it instantly. Okay, so example, if you got 50 bucks in cash and 500 in your checking account, that's 550 of your personal M1 money. Nationally, M1 for the US was around 18.7 trillion in late 2024, as per the Fed data. Okay, now no one knew this. Dude, you thought people knew this? This is good stuff, man. I never heard this in my life. All right, M2 money too, you know that I'm using this for the rest of my life though. I'm gonna, I'm gonna.

[A]

Buddy, you know many deals, talking about.

[B]

M. I got, I just got paid. I got a bunch of M1 money coming in. So we're good because it does come in and it gets.

[A]

Gonna go lever up and get myself some M. All right, let me, let me.

[B]

Sorry. What happened there? All right, now so we got, we got M1 money comes in and goes out. All the realtors listening. We only have M1 money, but. But we're gonna get to M2 money. M2 money supply, okay, is the broader saving. Okay, so M2 includes everything in M1, plus less liquid, harder to spend stuff. So savings accounts, let's see here. Similar to savings, but. But bigger balances, often with like check writing options. So small time deposit certificates of deposit under a hundred thousand that you can't touch for a set time without a penalty. Let's see why it matters. M2 shows how much money people have stashed away, not just what they're spending. It's a bigger picture of wealth and potential spending power. But it's not as quick to use as an M1. Maybe don't question. Would M2 be like assets, like real estate?

[A]

Well, it's more like the cash side. So like the debt that's used to buy those assets. So if you look at the.

[B]

What do you mean?

[A]

So it's like you're like. So you have cash as your M1 and then M2 is like the not spendable money. Like it's attached to something, it's stuck in something. Right? So it's like you go buy a mortgage, you used money, right? But you can't really do anything other than it being that mortgage. Right. Fair.

[B]

Okay, okay, so let me, let me explain. We got one more, one more thing to wrap to bring this home for my people. Simple example. Thank you. If you add $2,000 in your savings account to that 550 from M1. Your personal, your M2 is 2550. So nationally the M2 was around 21.5 trillion, as in late 2024. So M1 liquidity, M2 is like bigger sums of money for savings and investments essentially.

[A]

And like. No. Yeah. And again, non cash assets. So like your stocks, I guess real estate probably wouldn't because it's like, it's not easily convertible to cash. So you're more liquid stuff. If you look at, you look at like historic M2 money supply, like just look at that freaking chart, man.

[B]

Dude, what website is this?

[A]

That's the Federal Reserve, obviously.

[B]

Yeah, Fred, Fred.

[A]

They name everything. They, they change everything to like some like, they humanize all of their, like, you know, Fanny, Freddy.

[B]

Yeah, yeah, yeah, I like it.

[A]

Yeah. Ginnie Mae. They all got little cutesy names.

[B]

I'm really glad we cleared that up because you had me on a panic trying to AI chat what M1 and M2 was. So I can keep up here, but dude, I'm pretty much an economist at this point, so let's keep rolling.

[A]

Yeah, yeah, I think you get an honorary degree now. Yeah. So I mean the, like, the interesting part from my perspective that I think, you know, going back to the conversation about us determining whether or not it's better for you, Dave the firefighter, you know, to invest on your own or, or you know, trust the pension. It comes back to kind of like the question of why everybody thinks like their home is an investment in Canada, right? So like most of your like buddies that were firefighters probably, like, they're literally like, when they retire, they have their home and they have their pension. They don't have anything else, literally. So they're then. So your home really isn't necessarily an investment. It is for a lot of people because they suck at investing, right? Most people like, let's go, let's take your base human being on earth. They're shit at saving money and they're shit at investing it, okay? So for them a home is an investment because by committing to a mortgage they got themselves a savings vehicle, right? And so now all of a sudden they're actually going to save money and they're putting it into an asset, which is a house, right? Real estate. But the pension is an interesting one because like, had you not bought the house and took all of the down payment and all of those interest payments and put it into something else, you probably could, could have outperformed the house pretty easily. Had you also taken all of the money that you're paying into your pension? Like, it's not like, it's not like it's free money that, that, you know, it's your money. Like they're taking money off of your checks that you earn to pay into the pension. Right. The. So in, in that regard, your pension would have to be able to outperform you as an investor. Right?

[B]

Right.

[A]

Literally, like the biggest pensions in the world, the problem that they have is they're so big, they have so much money that it's hard for them to generate a meaningful, like, big return. Right? So like CPP, right. CPP didn't outperform the S&P 500. Right. So they're spending billions of dollars paying all of these people to manage all of this money, and they can't Even outperform the 12 or whatever percent if they had to just put in the S&P 500 index fund.

[B]

Right.

[A]

So most, historically, many pension funds have struggled to achieve their target returns of 7 or 8%. And to me, going back to what you said, like, we have your own investments and stuff like that, that's why I think that people need to get away from that shit, man. If you ever want to win, like, if, if you just want to be the same as everybody else, that's cool, totally fine, whatever. But I don't think most people wake up every day and be like, I just want to be the same as everyone else. Right, Right. I don't think so. I don't. Right. Or for those who don't, for sure. Yeah. Yeah. And so if you wanted, if you want to, if you want better results, you have to do better things. Right. And the pension in the House is probably not going to be it for most people, I think.

[B]

Interesting. No, I, I agree. Honestly. 100. I think. But okay, so, so maybe we can cover some of the solutions. You know, I know that we don't have the answer, obviously. Well, maybe you do, dude, on one of your website tabs, I'm sure you got some charts about it, but maybe. What, what is the solution here? Like what? So, okay, household pension entitlements that are unfunded, that are active. It's like, what's the solution? Because it seems like to me, from my perspective, that this whole issue is going to fall on maybe our generation to kind of foot the bill for this issue that's arising right now. Right.

[A]

Well, I mean, math would tell you that you're right, right? Like, math would tell you that, that our entire generation will be responsible for footing the bill in the absence of other people to pay. And so a lot of these pension commitments were made on the assumption that population would continue to grow. Right. Capitalism is really predicated on the faith that growth exists and that we can continue to grow. And that's just appearing to not be the case. What seems to happen in western economies is, and maybe not just western economies, but in first world countries, because it happened in China and it's happening in India now, is as people get pulled out of poverty, as they get more educated and they achieve more wealth, or they're living in maybe a more middle class economy. But it's stressful for them to do that. They have to go work and whatever. They don't have kids. Right. They have fewer and fewer kids. And so because your replacement rate is falling and we can go through this list of all of the countries around the world and their pension mismatches, you basically have too few people paying into the pension. So you have this kind of pay as you go system. Basically, pensions are this pay as you go program. So you and I are paying into the system because we're young, we're still working and somebody else is taking money out of the system. If there's more people taking money out, then there's people paying in, then the math would argue that that's going to run into a problem at some point. Right.

[B]

So, okay, so more people coming into the country, more immigration would lead to more workers, maybe a younger, a younger workforce. But we're seeing, and this is honestly I'm asking you genuinely, because we're seeing tons of immigration to let's say, Canada, for example. Yeah, but I mean, I guess. And Canada is actually in much better shape than a lot of the people on this list, Correct?

[A]

Yeah. So my guess would be that what I actually think is the case is I think that governments, they are concerned about a future risk of a demographic collapse putting too much strain on the pension system. I truly believe that this is something that's on their radar and they are trying to inflate away or inflate the assets, that's probably the easiest way is to cause inflation to inflate away mine and your debt. So if you and I bought a house with a mortgage and then the house goes up in value, our debt relative to the value of that house goes down. Right. So you make money worth less. You make your debt worth less. So that could be one. Because you can do that at the same time as pumping up the boomer assets. So I think Governments are probably incentivized to create inflation for that reason. But I think the other one is, is they're, they're trying to grow their populations to bring in payers into their pension system from other places in the world. Right. And you saw this, Canada is the most notable example of this. I have the chart up on the screen right now. But you know, Canada, our population growth was like 4%. It was like the highest in, in the world for, for a minute there. The only two places that were growing faster was like Syria which basically all these people moved back to Syria after the war, and South Sudan which is like an African country that's way above, you know, it's impoverished and way above the replacement rate from a birth perspective. So read me this list of the top countries whose pension entitlements in Social Security, in social insurance in the EU and EFTA countries as a percentage of the GDP and kind of just give me, give me like because, because I think there's a commonality to be found between a lot of them.

[B]

This is the one starting with Spain. Yeah. So we got, well, Spain. Okay, let's see here. Unfunded entitlements, percent of GDP for Spain is over 500% private funded entitlements. Percentage of GDP is what, like 10%?

[A]

Yeah, not even, I don't even know.

[B]

Like 0.4, something like that. Then we got Austria. Austria unfunded entitlements is let's say like 4, 8, 480% where private funded entitlements are about. Maybe I'll give that one 20% just to be nice. That's, that's generous. Italy, Italy's next at what's that over 400, 450 unfunded entitlements, percentage of the GDP. And then you got same thing, last 10% of private funded entitlements GDP. Netherlands isn't bad. Netherlands was one of the spots. Oh, it's worse.

[A]

No, yeah, no, it's, it's, it's good. They're, they're not, it's not good, but it's better.

[B]

Yeah, yeah. So we'll say what, so that's 420% unfunded entitlements and then you got what, 210% private funded. That's not bad. That was number one, one of, one of, that was one of the best spots to retire. Am I wrong?

[A]

Yeah, I know it was among them. Yeah. And then, but you look at like Greece and France like they, I don't even think they have funded entitlements like, they're literally 100% unfunded and that's 400% of their GDP.

[B]

Well, that's almost the same for top list. Like what? Then you got Slovenia, Romania. It's all the same. They're all around.

[A]

The only ones that really, like, stand out as places that are decent would be like, Sweden and like Switzerland and Iceland.

[B]

Denmark.

[A]

Denmark's doing good too. You're right.

[B]

Denmark's part where the best.

[A]

Yeah, it is.

[B]

Big chart guy.

[A]

You're huge chart guy. So. So, I mean, to me, this is like, this is a bit of a red flag when considering investing in a lot of these markets. Right. And you're seeing, I think, them, like a lot of these countries trying to backfill some of that by growing a population. They can't really grow their economies. European economies are not really in growth mode. The European stock market actually just returned to its 2008 peak. Right. Did you see that chart?

[B]

No, I didn't.

[A]

Yeah, so if you bought stocks 25 years ago in Europe, you just got your money back.

[B]

What a sick turn.

[A]

Yeah. So beautiful place, right. But like some serious economic challenges for that, for that place on earth. And this is. It makes you wonder, right? Like, was this whole idea of like, you know, the version of capitalism where it relied on growth and relied on people going into the middle class and, and making them. Creating a reliance of them on the state. Right. On. On the government to pay for their, their retirement. We're doing the same thing in Canada and very much in the US Was that the right idea? Because now you've got people who, I mean, they aren't working as much. Right. They're the hours that they, Their quality of life's amazing. Right. But. But, you know, not economically productive and they're having a hard time being globally competitive as a result.

[B]

What this. Why don't. Well, I mean, I think it's maybe coming a little bit anyways, but are they gonna, why don't they just limit the amount of pensions that they're offering? Or like, you know, is that something they're already committed?

[A]

I mean. Well, like, imagine. I don't, like, I guess the. Well, I guess the answer to the question is yeah, I mean, they could, they could limit, like, future obligations. And that's probably going to be the answer. Like, that's probably among the solutions that you're, you know, you're, you're thinking about is they, they might just say, hey, look, like, you know, there's no. We have no, there's no. Yeah, but In Canada now, we have actually, we have CPP and we have CPP too. So there's actually two. If you, if you make over a certain amount, you actually have to pay a second level of CPP now. So that, so there are other questions. Yeah, yeah, so, so I mean, let's assume that they did that. That still wouldn't solve the problem. Right. Like if you, if you just said, Dave and Dan, you guys are young, you're not getting a pension anymore, figure it out on your own, you know, be fine. They, you know, like, yeah, probably a lot of people would be pissed off about that, but.

[B]

Right.

[A]

You know, you can't do that to the existing boomers and we can't even afford to pay all of our existing pension obligations. So some people, some people, they, you know, they conspiracies that, you know, the whole pandemic was a, was there to get, kill off some of the boomers, to reduce the pension obligations. Right. Like, these are kind of among the scope of solutions that people are really thinking about right now. So I don't know, man. I honestly don't. This is a very, very complex problem to solve. So this is one of those things though, where I think it is worth as a real estate investor looking at the fertility rate in some of the countries that you're investing in, whether or not the economy has potential to grow or whether or not that economy is in, in demographic, basically demographic decline. Right. And because, you know, one, if it's in demographic decline, then probably all of your gains are only ever going to come from inflation, which means the currency eroding in that country. But the other piece is what is the old age dependency ratio in that country? And that's a key term when you're looking at pension obligations, which is the ratio of people 65 and older. So pension receivers to the working age population, which is everyone below 65, basically. And that's the burden on the working population to support retirees. Actually, one other strategy that I've seen, well, France did this and then there was that huge, huge protests was they tried to move the year, the, the age up, I think from like 65 to 67. Maybe. It wasn't like. Yeah, so they basically try and make it older before you can get your benches. Yeah, yeah.

[B]

I'm looking over like the current global fertility rate for some because we got Europe there.

[A]

Yeah, yeah.

[B]

But I'm curious. Globally.

[A]

Yeah, I think there's a global fertility rate.

[B]

Let's see, I got like a general, I got like some generalizations in terms Of.

[A]

I think we've had this one up here. But yeah, if you go to the list of countries by fertility rate in, in the world.

[B]

Yeah.

[A]

I mean, look at like, yeah.

[B]

India 2.0 and China's at 1.2.

[A]

Yeah. So basically the only places above the replacement rate are like, basically Mexico's 2.1. Yeah.

[B]

Latin America. Latin America and the Caribbean Average is about 2. They have a lot of kids in Mexico. Mexico's 2.1. North America is around us is at 1.62. Canada's at 1.33. I know we've covered this another episode.

[A]

Sorry. It's still fun to cover.

[B]

Australia is 1.6. Papua New guinea is at 3.6, if you're wondering.

[A]

Yeah. So, like, I mean, really the only places where you're seeing population growth from, like, are in more impoverished places. Right. In places without a middle class. Right. Or where you're seeing a disparate, you know, you kind of have like. Yeah. Poverty.

[B]

Yeah. What do you, what do we. What's the, what's the replacement rate gauge in terms of above average sufficient and like extreme extremely low. Do you have that?

[A]

I mean. Well, I think it would just kind of fall out what your replacement rate is. Right. Like, either you're like. I mean, the lowest was. Would sort of be like your lower bound, I think was South Korea and theirs just started ticking up. They were like 0.6 or 0.7. So basically every couple was having half a kid or every or so. Every. Every. Yeah. Statistically every couple was having one kid. I guess it would have been, you know, again, statistically. But you can, like this, it feels like this is going to happen in like, well, this is happening in Canada. Like ours is like 1.6. Right. Like, I don't know. Like, I don't know. A lot of like our peers who are, are having kids, right. Like, really tons of them, like, are just like, either they don't want them or they're planning to push it till they're like in their 40s.

[B]

Right. Or they're only having one, you know.

[A]

Right. Yeah. So I think that this is one of those complex issues where, you know, it's, this is like the, the bane of becoming a middle class country. Right?

[B]

Yeah. Like, okay, so obviously, like North America is shrinking, right? Fewer kids, less or they're bad.

[A]

Like, but it's not because the population's growing. Right. And so why is the population growing? Well, because people are moving there. Right. People are like, think about all of the illegal immigration to the U.S. right? Right. Think about how many people want to move to the US Think about how many people want to move to Canada or did. I mean, they still do, but like, Canada has one of the lowest replacement rates in the world. China is pretty bad too. South Korea, much of Europe is pretty bad from a fertility rate perspective. So what these countries feel like their job is to do and this is really supporting their real estate markets in Europe as well. Right. Like Europe, you're seeing a lot of migration from Africa because it's very close. Right. Like geographically close. You're seeing a lot of migration from Africa into Europe. In Canada, it's a little different. We're getting like, we had, you know, a couple of waves of like a lot of immigration from China. We have a lot of immigration from India now in Canada. But this is how a lot of the countries that we've analyzed on the show as potential places to invest in real estate are growing their economies, growing their populations, growing their real estate markets, their real estate investments. And so you almost have to. Really, the part that scares me a little is like, do we have to take a step back and be like, is this a whole different world now when you've got places like China and India actually in demographic decline? Are we basically like, is the whole world going to look like what we saw happen in Japan or happen in Italy over the, over the last 20 or 30 years? Like now that we don't have more and more people consuming and pushing the value of stuff up?

[B]

Right. What was the. It's Japan. Right? Japan's got the, the crazy. Not Japan. What's the place with the crazy houses for sale that we're gonna do?

[A]

Yeah, it's Japan. Yeah. Yeah, we're gonna do. I, I just, I messaged an expert on, on, on LinkedIn in hopes that we can get an idea of it. Yeah.

[B]

What's, what is an expert in.

[A]

She is an expert in these. In Japanese real estate. But, and, but I want to get a, do a whole episode on those. What do they call the Akitas? What was it?

[B]

Let's get around the pod man.

[A]

For sure. I think we have some recurring guests. I want to know what's going on. Like, I think we're going to do an episode on these. The same ones like these $1 houses in Italy, right?

[B]

That's right. Yeah. We got. Same thing with Australia coming up. Maybe Panama too.

[A]

Yeah, yeah. Australia is definitely, I think Australia would be number one. Gonna have a hilarious recurring guess from Australia to, I guess the other, the only other things that may be Worth noting here is support ratio. Right? Like if you're not getting a pension, you're a supporter of the pension. This is the inverse of the dependency ratio. So this basically measures the number of workers, people paying in per retiree.

[B]

Right.

[A]

The pay as you go system, well, it would vary on a country by country basis. Right. And we could probably come up with an old age dependency ratio by country, to be honest. See if the AI will come up with it. And then you basically come up with this imbalance for the pay as you go system where pension contributions from workers are insufficient to cover pension payouts. So this is like that Chicago one that we were mentioning. Chicago has billions of dollars of unfunded pensions and that's just their municip government pension. Right. Which leads to funding shortfalls and potentially either the. The state has to take on more debt to meet those obligations, which just seems to be the case right now. Right. Like that's a lot of these, these states, cities, etc. Are basically just taking on more and more debt. People are continuing to buy the debt or write the debt. So it's the system still kind of going, but once you have one who, you know, they can't do that anymore, then I think the whole thing comes crumbling down. Right. Like it's sort of. Pension is kind of basically like a Ponzi sch base level.

[B]

I can go over, I can go over this pay as you go, like pension system thing. So, okay. Many countries operate as pay as you go pension systems where current workers contribute funds to current retirees and benefits and imbalance arises due to demographic shifts, obviously aging populations, declining birth rates. We've talked about this. And economic factors like unemployment. Globally, this is a growing concern, obviously. Let's see. The UN projects that 16 of the world's population will be over 65, up from 9% in 2019, draining the pay, pay as you go system. So let's see here. The OECD reports that the public pension spending in its 38 member countries averaged 8% of GDP in 2020, with projections to rise as populations aged. For example, Italy's pay as you go system faces a shortfall due to dependency ratio. So retirees to workers is over 50% with pension spending at 16% of the GDP. Wow. Far exceedingly. Worker contributions around 9% of the GDP from payroll taxes in France.

[A]

Yeah, so, so. Oh yeah. Just to draw the line, like the connection there. It's interesting because, you know, Japan also has one of the highest old age dependency ratios, around 50%, meaning there are two working age people for, for each person age 65 plus. And Italy and Japan both are those countries where you can get a house for like a dollar. Right? So maybe there's a correlate, you know, maybe there's a correlation or a potential future opportunity for me.

[B]

It says here emerging France also is kind of a bit of a pickle, but emerging markets in China, the urban pay as you go pension system is under pressure with shrinking workforce due to the one child policy and a rising retiree population. Estimates suggest a shortfall of trillions by 2035 without reforms.

[A]

That's not far like that 2035 is like 10 years from now, right? That's a lot of. Yeah, there you go. That's some dam realtor math mouth right there. Yeah, you got 10 fingers. So you're good, dude, that's good. Italy and Germany, notably high ratios above 35%. Then if you look at again, some of these countries by contrast African and Middle Eastern nations have lower ratios, often below 10%. Maybe some more first world ones like the UAE, Qatar and several, I guess UAE and Qatar, I think Saudi Arabia as well have low old age dependency ratios due to having younger populations. They've been having kids, right. Which I honestly think a lot of it actually has to do with like the role of religion in, in like the Western world and like the secularization, people getting away, away from you know, like a more, more godless society. Like people don't want to populate the earth with you know, God's children, stuff like that. Right. Like it's true. Like that's just, I think like it shows up. Right. I think that's a big part too that you could probably observe between some of those populations. The one thing I did want to touch on here is a Ponzi scheme because I think pensions are a Ponzi scheme. Ponzi schemes are an investment scam that basically pays existing investors with funds collected from new investors. That's literally what a pension is. Right, Fair enough. The pension funds haven't generated enough profit over their lifetime to actually be able to fund the obligation. And so technically they have to evolve into a Ponzi scheme and take money from me and you, Dave, youth to pay the obligations that they have to our parents. Right? So it's kind of a mess, man, but it's really evolved into that.

[B]

Here's the arguments as to why it's not a Ponzi scheme. All right, So I can fight you on this. They're legal and transparent. Dan. The pay as you go pensions are government Run regulated, openly structured Ponzi schemes obviously are not. They're backed by taxation, and governments can adjust pay as you go systems by rising taxes, cutting benefits, or borrowing to cover shortfalls. Take a Ponzi scheme, right. As I'm reading it, I'm like, wait a minute.

[A]

Yeah, wait a sec. No, it's. It's kind of crazy, man. So it is. Yeah. I don't know. Like, I mean, like, there are. I guess the difference is they are backed by actual assets and government guarantees. But, I mean, is that really legit? Like, government guarantees are like. I mean, they got like, you know, government guarantees haven't been that good. Like, they keep having to borrow money to meet their obligations. I. I'm just saying. Right, so. That's right. Yeah, man. I don't know. Anyway, I think this is a good episode. We didn't, we didn't really touch on that much as to why all of this matters to real estate investors. Why does this matter to real estate investors? So if you're like, again, I think we want to point highlight the economic stability and strength and certainty of a lot of these countries. We have historically used Italy and Japan as good examples. But, you know, you've got, if you've got it basically, you know, basically dozens of countries wanting or like, mathematically looking like they're going to become like Italy and Japan, then you want to, you want to be observant of that. Maybe it'll create opportunity because Italy saw a huge collapse in property values and some of their less desirable markets. And so maybe if, you know, if you're looking to buy property in a less desirable area in Spain or, you know, China or whatever, then you just got to wait.

[B]

Right?

[A]

Right.

[B]

No, I think that's. I think you hit. I had a few points. Just like, obviously, demographics drive, demand, economic stability, interest rates, like, if the imbalance, it could lead to government intervention, you know, like higher taxes, borrowing or spending cuts, more immigration.

[A]

Right. Like, that's, that's been a big one. Like.

[B]

Exactly. Tax implications too.

[A]

You know, that's why Portugal and Spain were doing these golden visa programs. Right? Like they were trying to bring capital and growth and jobs into their countries, but it just backfired because they worked too well, and it worked too well to attract, you know, wealthy people. And it basically, it offset the quality of life of their existing residents. So it's this huge balance of governments basically trying to decide if they want to serve their existing residents or their future residents more. And if, and, and I think the problem is they're not, they're too afraid to just outright say, like, if the Canadian government just said, yo, look, we're broke, we can't pay all the boomers and it's going to be a really bad thing. And so we got to bring in a shit ton of people from all over the world to come and start working in this economy. And, and you know, if you're domestic, Canadian entry level jobs are basically gone because there's always going to be somebody elsewhere in the world to work cheaper than you. Right. Like really. And live in a, live in a first world country and work cheaper than you. And, and this, these are the consequences. If they spelled it out like that, I don't know, I feel like you gotta be honest with people. I feel like there would be, it would be freaking tough. People would be super pissed off, but they'd rather that than exactly that. And now, and now they feel like they've been lied to as well as being pissed off because like, like they weren't told the plan. Right. And you know, I mean, if you're a current politician, you could also just blame it like on the past politicians who made those pension commitments 50, 60 years ago. Right. It's not like you could be like, hey, it's my fault that the pension system's underfunded. I don't know, man, it's a mess.

[B]

Look, I mean it's a. Basically the whole gist of the episode is when you're looking to buy something globally, look towards markets with younger demographics or less, less aging population.

[A]

Yeah. Or pay attention to countries that are using immigration to solve that problem. Because if you look at what happened in Canada when we opened the floodgates on immigration, house prices went fucking bonzos, man. And, and the. Now I got to put an explicit tag on this episode. Shit. But we can swear. Yeah, but the house prices went to the moon. Rents went to the moon. Right. The economy became a mess and there was a lot of civil unrest. People are still pretty angry about it, but. So there, there, there could be another piece to it. Watch how, how politicians are dealing with this issue.

[B]

Right. Interesting. That was a sick episode, to be honest.

[A]

Yeah, it was good. I enjoyed this episode. I would listen to this episode for sure.

[B]

I would listen to this episode. Dude, I think I learned about M1, M2. Money learned about teams M1, M2, M3.

[A]

Aren'T just BMWs for you anymore. You're a next level realtor, man.

[B]

I'm all the way to the top now, man. I'm an economist. That's it. You can read. I read a chart today. It's a good day.

[A]

A couple. Yeah.

[B]

Today it's good. No, that was good.

[A]

We'll leave it there. If you're. If you're listening, please subscribe. Like the show? Leave us a review. Send it to your mom and send it to your. Your politicians so that we, you know, show them that you're watching them. You know, I'm on to you guys.

[B]

Just don't send it to the Mexican prime minister for me so I can stay here. Thanks.

[A]

Okay. Fair. Fair.