Ask anyone who pays attention to investing and the market how the market is performing so strong, especially with the uncertainty of Trump, and they’ll look at you and say, “I have no idea.” Because no one knows. Anyone who says they know is a liar. Uncertainty at the Executive level of leadership almost always triggers a decline and a panic. Instead, the market keeps going up and up. That, of course, means nothing for the actual economy (you know, your paycheck), but at least the rich are getting richer and we can take comfort in the fact that our labor is increasing their…I’m going to stop before I throw my computer against the wall.
The thing is, everyone knows a crash is coming and almost everyone is surprised it hasn’t happened yet. But no one knows when the crash is coming, so we have this optimistic nihilism in investing where everyone knows they’re going to lose their money at some point, but they’re optimistic that they can make more now than they’ll lose later. They think once they see the signs of collapse, they can take their losses for that day and cash out. Sure, they’ll lose the maximum amount of their wealth, but they’ll still have made a profit and should be able to weather the economic storm.
This strategy means investors and economists are looking for what will trigger the next collapse. Since we have short memories, we think it’ll come from some economic bubble so we’re constantly looking for bubbles. We had the tech bubbles in the late 90s and then the housing bubble in 2007-2008. So, naturally, everyone is looking for a bubble. But no true bubble exists, at least not one that could crash the economy. A bubble forms in a growing economy (which our economy is “growing” if you’re in the right economic bracket). Imagine a tar pit that’s expanding and a bubble begins to form on the top of the tar pit; eventually that bubble will burst. But the pit itself continues to grow and can recover. Bubbles aren’t fun and can harm an economy, but you can recover from them if you’re willing to marry yourself to Lord Maynard Keynes. My suspicion is that the next recession won’t stem from a bubble, but will be something far worse; the next recession will be structural, a part of the hard economy, meaning the economy itself is going to shrink.
Where will this potential shitstorm happen? Likely in construction and retail. I know, I’m so original because it’s not like anyone else has predicted the same thing. It’s not as though Wikipedia has a page dedicated to the Retail Apocalypse or anything. But still, it’s an issue that no one is really paying attention to and it’s a major crisis that we know is coming. It’s like knowing a category 5 hurricane is on its way and no one reports about it in the news and no one is evacuating. The only question is when all this will happen, but it’s likely to happen end of 2018 to beginning of 2019 (or at least see the beginning stages). Again, not original.
We know that billions of dollars in debt is about to come due next year. In fact, $1.9 billion will come due next year, with an industry average of $5 billion over the next 6 years. That may not seem like a huge deal, but consider that Toys-R-Us went bankrupt after it failed to restructure just $400 million of its $5 billion debt. That’s a pretty small amount of debt (relatively speaking) to restructure, but because there’s simply little to no cash flow at the retail level. Multiply this struggles across hundreds of billions of dollars in debt in the retail industry and we’re quickly lining up for a problem.
Consider that in 2006 many sub-prime mortgages began to hit maturity and so rates went up (most under the whole “Pick-A-Rate” model that multiple mortgage companies put into place; really, really, really stupid idea), which triggered the foreclosure crisis of 2007. In that crisis, 1% of the mortgages in the market defaulted and that’s what triggered the crisis. Add to it that retail banks exist in a world where they can’t really refinance because everyone is bearish on retail and we’re seeing the beginnings of a major storm.
The kicker here is that more than 1% of the retail outlets are in trouble and the loss exposure to banks is equal to the loss exposure from the financial crisis. 34% of the retail debt is owed by regional and local banks (small banks) and 15% is owned by national banks. If a Bank of America or Chase Bank takes a $1 billion loss due to the bankruptcy of some retail outlet, that’s a major loss, but they can still keep on going. If a regional bank takes that loss they’re likely to go under. With at least 25% of retail malls predicted to close by 2022 (that’s only 4 years) and at least $100 billion likely to be thrown into bankruptcy within the next two years (and that’s just from Sears Holding and Bon-Ton Stores), it’s difficult to imagine how banks will adjust to the sudden loss exposure.
Oh, but it gets better!
Retail represents approximately 9 million jobs in America. Now, being retail these are 9 million horrible, low-paying, no benefits, really shitty jobs…but they’re still jobs. Some of the largest retail companies, all of which have announced closures or are on the brink of bankruptcy, account for approximately 2 million jobs. By 2022, if figures are correct, we’re looking at a job loss of anywhere from 1-5 million low-paying jobs. The strain this will place on an already overburdened social service system will be enough to cause problems. The jobs lost in 2007 were middle class and the people had savings (meagre savings, but they had them), 401(k)s, and other assets they could leverage, not to mention they could at least get jobs in retail to offset some expenses. Retail employees have none of those provisions and typically live paycheck to one week before their next paycheck. They’re constantly broke and are considered “low skill” labor, so there literally are no other jobs for them to jump to. These are people who when they have no job will literally have nothing left. Tell me, historically, what happens when people have nothing left, no other options? What do they do? Typically they vote for extremist candidates (O hai Trump) or they happily create civil unrest.
Now everyone tries to be an optimist and say that Amazon and other online outlets will pick these people up, but that’s simply not true. Online outlets will need mostly warehouse people, and most current retail employees aren’t located anywhere near a warehouse. Likewise, most warehouses are looking at being automated within the next 5-10 years, so anyone who is lucky enough to get a job at a warehouse will likely find themselves out of a job all the same.
While it’s convenient to blame online shopping for all these problems – and certainly the rise of online shopping is a factor – the biggest factor has been the middleclass squeeze. As the middleclass disappears from the US, their spending power disappears too. The greed of corporations has created an ironic catch 22: They lower wages of laborers to attract shoppers with lower prices, often forgetting that laborers and shoppers are the same people. By cutting wages, they cut their own profits. Their greed and desire for the immediate gain, for profits that quarter, has led them to cut wages when wages didn’t need to be cut. The consequences are that we’re looking down the barrel of a major recession.
What, then, is to be done? If you’re already poor or living paycheck to paycheck or working retail, there’s not a lot that you can do. You don’t have enough money to save up to last through hard times, so there’s not a lot you can do to prepare for any collapse. The best you can do is to try and organize and put pressure on your Congress people. If you’re in a blue state or purple state, this might yield some fruit. A red state, not so much. The other thing is pay attention to primaries and vote in the primaries, vote for candidates that are committed to cutting the wealth gap and have a solution beyond, “Oh just work harder!” But we have to accept that we cannot hope for a better future, we’re going to have to take action and that’ll require organization, protests, marches, and voting whenever you can vote.
Another recession is on the way and it’s likely worse than the last one. There is no bailout that can fix it because forgiving the debt of these companies would only delay the inevitable. Until people can spend money, retail outlets – and all the other sub-industries that support them – will continue to suffer. The greed of the wealthy is without a doubt going to be the end of us.