Comments on Kazumasa Iwata “Bubbles and demographics: Is China following Japan and the US?” 22/06/2009, http://www.eastasiaforum.org/2009/06/22/bubbles-and-demographics-is-china-following-japan-and-the-us/
Kazumasa Iwata's observation of the relationship between population aging and long term interest rates is interesting and its implications far reaching.
If this relationship holds into the future, say being true for China's impending population aging, public policies in china must make sure that the expected lowering long term interest rate and the likely increased savings as a result or response by people be channelled into productive capacities or assets.
This is also the lesson learnt from the US assets bubbles and the role long term interest rates and saving and investment imbalance played in that process, as Chairman Bernanke has admitted. And China's size will mean that there would be likely international implications as well.
Hope new financial regulations to be introduced worldwide will provide policy makers with tools to deal with the future financial challenges and the population aging challenges.
Macroeconomics also needs to play a catch-up game to meet the challenges from economic reality with theories that will be able to be applied to deal with real time financial and economic challenges.