Snarled from the mouth of a Millennial at someone born between 1945 and 1964, the phrase "OK Boomer" (which I only learned last week) comes loaded with issues and innuendo. At its heart is the rift between Baby Boomers and subsequent generations, including to a certain extent Generation Z (born mid-1990s to early 2000s). Feelings of inequality, then disrespect, stem from the recent realisation by the middle class that their prospects in life are poorer, and weaker, than those of their parents.
Economics and employment are precarious, saving for a decent pension nigh impossible, education expensive, housing unaffordable in most metropolitan areas and struggling with way too much debt. To this mix add anger about land, sea, air and even outer space being ruined. The very rich cannot insulate themselves from many of the issues, either. Abigail Disney, 59, heiress to the hugely successful cartoon empire, discussed this in a recent CNBC interview, pointing out that her generation had created the tax structures, decided on public spending and the university system her own (millennial) offspring were grappling with.
Boomers face problems, too, the most pressing today being longevity and negligible or negative interest on savings – the latter yet to hit Britain, although real interest rates have been negative for some time. Bundesbank data published last week showed that German banks are charging 58 per cent of corporate clients and 23 per cent of large retail balances for the privilege of holding their cash. To hue and cry all round, Berliner Volksbank, an archetypal local savings bank, announced it will levy a negative interest rate on all balances over €100,000.
This has been the case in Switzerland for longer, and anecdotal evidence suggests people are sheltering cash by buying chalets. It’s not an option for foreigners because Switzerland operates a two-tier residential market, limited options for foreigners and the bulk reserved for locals – leading to massive price disparity. In Britain, we too have a version of this with a super-prime market while those on full-time average earnings (currently £508 per week gross) face average house prices of almost10 times this (£234,000).
Key interest rates are not only below their historical average, but by some measures are lower than they have ever been. Good quality bonds are eye-wateringly expensive, but look at it this way: What would you pay today for a perpetual Consol with a 4 per cent coupon? A lot, with convexity increasing the closer the risk-free yield gets to zero, plus the expected utility trumps the expected value in assessing demand.
Then, bond bubbles need not burst suddenly; look at the chart of Swiss two-year government bond yields. Gilts still have some room to manoeuvre. What is more likely is that the spread between investment grade and junk widens. This month the UK Treasury has slapped an extra 1 per cent on the rate at which local councils can borrow money from the Public Works Loan Board. This is because they are concerned that in the last fiscal year they spent £1.8bn on retail premises, buying one in five shopping centres sold since 2016.
Then the perennial problem of inheritance tax, not just absolute amounts but what changes might be in the pipeline, including the possibility of having to pay in advance – as the self-employed currently must with income tax.
