An Economic Concern

I am not an economist, so I could be totally wrong about this.  Take it with a grain of salt.  Also this is, as typical, one of my fermenting thoughts, so it may not be described clearly enough to make any sense to anyone beyond myself.  If that is the case, please let me know and I will keep working on it.

It seems to me that the stock market is one of the most critical components of our economy.  I know that I am not the only one who does not expect Social Security to be around when we get old -- the system is already broken.  But that is why we invest in the market, we can cash out when we get old and need the money.

But what if that doesn't quite work out?

Just like the baby boom bubble is going to overwhelm Social Security, what if it overwhelms the stock market?  As the boomers retire they want to continue their current lifestyle: "The American way of life can not be compromised."  To do this they are going to have to turn to the stock market and sell off their holdings.  This makes sense and it follows the expected pattern.  Except the boomers never expected to see oil at $130 a barrel, and their plans never began to account for life at $300 a barrel (think $10/gallon gasoline -- which admittedly is painful to think about). 

So what do they do?  I suspect they spend down their investments at a quicker rate.  Sure that means less left in the will for the kids and the charities, but this is their money and they have earned the right to continue their lifestyle.

But who is going to buy what their selling?  There are more boomers selling off their stocks than there are those in employment earning money to buy stocks.  Supply and Demand would suggest that this would push prices down.  Now factor in that those currently in employment are also facing higher prices on everything.  Are they going to put the money towards their retirement or towards the gas tank?  I suspect the latter.  So now you have lots of people desperate to sell off their stocks, and less people (with increasingly tighter budgets) to buy those shares.  Supply and Demand again pushes prices down.

If this pushes stock prices down too much, then it could create a cycle.  The boomers need to then sell yet more of their holdings just to keep up, flooding Wall Street with what used to be bits of paper (not just ones and zeros).

Not a pretty sight.

It would be great to hear that my thought process is misguided, that there is a basic (or even not-so-basic) understanding of economics that I just don't know which makes this discussion moot.

-- Andy