Forget propping up zombie banks (and zombie everything else). And ignore our central bank's war on interest rates.

A good question, which David Goldman at AITimes asks, is whether it's our demographics that ultimately doom us to repeate Japan's two lost decades.

Back during Japan’s lost decade of 1990-2000 (the first lost decade, that is), Japan’s population had just began to age dramatically. In 1990 the elderly dependency ratio stood at 17%, but it had risen to 25% by 2000. As the Japanese aged their appetite for savings grew, and as their stock portfolios and home values crashed, they saved more and more. The more they saved, the worse the economy did. Interest rates of 0.25% or less and spectacular government deficits couldn’t make a dent in the vast shift towards a propensity to save. The result was deflation: falling asset values and a strong yen.

Fast forward to America in 2010, with an elderly dependency ratio of 19%, right around where Japan was in 1990. By 2020, it will rise to 25%, almost as fast as Japan’s.

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There is another deflationary dimension to aging. Old people are creditors, young people are debtors. Inflation is a transfer of wealth to debtors from creditors (debtors pay back debt in cheaper dollars). A country with a preponderance of old people will show strong political pressures against inflation. As Uwe Parpart, Cantor Fitzgerald’s market strategist, pointed out to me in conversation, that’s why the Japanese never objected to deflation. As old people, they benefited.

Bear in mind that the demographics-is-destiny crowd can get things spectacularly wrong. Witness the collapse of the Irish economy, which only a few years ago Malcolm Gladwell was lauding for their ideal dependency ratios. Then they collapsed.

There's also the immigration question mark. It has the potential to keep us young if people will still want to come here. On the other hand, un-skilled immigration is no panacea for growth (see: California). Ultimately, the problem is not really savings or home values or stocks, it's whether the thinning ranks of the young have enough real resources to care for their elderly in a manner they expect to be cared for. Where will the actually supply of care come from?

Another consideration that bodes ominously for us is the unemployment rate. For whatever reason, our base level of unemployment is much higher here than in Japan, where the rate still stands at some ridiculously low level of around 5%. That may be bad news for investors in companies there -- who might like to see more aggressive cost cutting -- but from a broader societal stability standpoint (which is the real basis for all these demographic questions) that low unemployment rate is quite nice.