Thursday, November 9, 2017

The debt tsunami is beginning to break over us


I've said on numerous occasions that the biggest single financial crisis staring us in the face is the level of debt - government, commercial and private.  Bloomberg points out that it's beginning to have a drastic effect on the US retail sector.  (Bold, underlined text is my emphasis.)

In the U.S., retailers announced more than 3,000 store openings in the first three quarters of this year. But chains also said 6,800 would close. And this comes when there’s sky-high consumer confidence, unemployment is historically low and the U.S. economy keeps growing. Those are normally all ingredients for a retail boom, yet more chains are filing for bankruptcy and rated distressed than during the financial crisis ... The root cause is that many of these long-standing chains are overloaded with debt—often from leveraged buyouts led by private equity firms ... The debt coming due, along with America’s over-stored suburbs and the continued gains of online shopping, has all the makings of a disaster. The spillover will likely flow far and wide across the U.S. economy. There will be displaced low-income workers, shrinking local tax bases and investor losses on stocks, bonds and real estate. If today is considered a retail apocalypse, then what’s coming next could truly be scary.

. . .

The ripple effect could also be a direct hit to the industry that is the largest employer of Americans at the low end of the income scale. The most recent government statistics show that salespeople and cashiers in the industry total 8 million.

. . .

Even before the e-commerce boom, the U.S. was considered over-stored—the result of investors pouring money into commercial real estate decades earlier as the suburbs boomed. All those buildings needed to be filled with stores, and that demand got the attention of venture capital. The result was the birth of the big-box era of massive stores in nearly every category—from office suppliers like Staples Inc. to pet retailers such as PetSmart Inc. and Petco Animal Supplies, Inc.

Now that boom is finally going bust. Through the third quarter of this year, 6,752 locations were scheduled to shutter in the U.S., excluding grocery stores and restaurants, according to the International Council of Shopping Centers. That's more than double the 2016 total and is close to surpassing the all-time high of 6,900 in 2008, during the depths of the financial crisis.

There's more at the link, including many very informative charts.  Recommended reading.  (Also, for an overview of just how serious the problem is in the retail sector, see Wikipedia's list of retailers affected by the current problems.  It's mind-bogglingly large.)

Back in July I pointed out that debt is killing us - as a nation, as a society, and as individuals.  It's now killing many of the retail chains on which many of us depend, not just for the goods we need every day, but for jobs, tax revenue for our towns and cities, and many other benefits.  If they go, so do all those goodies.  What's more, many of us are so deep in debt ourselves that the impact of the loss of such goodies will be much worse for us, because we have no reserves with which to afford to replace them.

My advice remains the same as I offered in 2014.  Reduce your personal debt burden (eliminate it entirely if possible), build up reserves, make sure you can continue to earn a living in some way (and if you can't, find ways to exchange your labor or expertise for earnings in kind, to help you keep your head above water).  There's no way we can entirely avoid the debt tsunami that's coming . . . but we can do our best to make sure it doesn't sweep us away.

Peter

4 comments:

Old Bastid said...

How about a few years supply of basic foods? Wheat, rice, and dried beans are boring but keep well. A good cook can turn basic foods into a kick ass meal. I have been out of work for 2 years at a time, but, survived well due to my "pantry" and doing side jobs.

Anonymous said...

Well, heres the contrarian position;

The people who really got screwed the last time around the real estate bubble were the folks who lived and purchased within thier means, made thier monthly nortgage payments and were financially responsible. The jerks who claimed stupid, then couldnt make thier payments got taxpayer bailouts.

If you have $20k it may be smarter to buy preps rather than pay off loans that are going to be bailed out in the end anyway.

Anonymous said...

If you truly believe that the debt bubble will burst soon, and it must burst eventually, then you need to consider the kinds of debt you want to pay off. Secured debt (loans secured by an asset) such as a mortgage or a car loan are much more important to pay off before the bubble bursts. If it all goes to hell, the banks could foreclose on you and you lose the asset.

Unsecured debt, on the other hand, has no security asset other than your credit score.

So, if you believe the debt bubble is bursting within 12 months, pay off the secured debt if you can. But don't sweat the unsecured debt. When it all goes to heck, your credit score is the least of your problems

RocketmanKarl

davidhuntpe said...

Here's another bit of cheerful news. (Not.)

http://www.msn.com/en-us/money/retirement/americas-dollar2-trillion-problem/ar-BBEMPOu