Ted Gioia is worried about the state of the economy, and the mixed signals from higher levels that are conflicting with data "on the ground".
Are we entering an AI-driven boom time like an out-of-control Monopoly game? Or will we be too broke to eat breakfast?
Let’s try to answer this question—because a lot is at stake in getting the answer right.
I see signs of economic turmoil everywhere in the real world:
- Starbucks sales are down and they are closing 100 stores.
- KFC and Pizza Hut sales are down in the US.
- Dozens of other restaurant chains are closing locations.
- Las Vegas tourism is down sharply and visitors describe it as a ghost town.
- In fact, the entire hotel and hospitality industry is shrinking.
- There are now a half million more homes for sale in the US than home buyers.
- Credit card debt is rising—and is now back at its all-time high.
- US unemployment is the highest it’s been since the pandemic.
- The jobs data was so bad that the person compiling the numbers got fired!
Companies are getting desperate, and they can’t hide it. A friend reports that Pizza Hut sent him a promotion on Tuesday morning, offering a two dollar pizza. He wondered how they could possibly make money on this deal.
And then that same day he got a notice from competitor Papa John’s, also promising a two buck pizza.
Two bucks for a pizza? Really?
This is how businesses respond when customers totally disappear. They will do anything to bring them back. Otherwise they have to shut down.
And this is a reality untouched by promises of an AI boom time. It’s everywhere in the real world where flesh-and-blood people live and work.
Mr. Gioia goes on to note five important points about the so-called AI "boom":
- Half of the gains in the stock market are due to just five stocks.
- These companies are betting everything on the buildout of AI data centers.
- There’s no indication that consumers are willing to pay for this enormous infrastructure.
- The reality is that nobody can afford the proposed AI data center buildout.
- And there are all sorts of other warning signs—energy usage, water consumption, etc.
He concludes:
By any reasonable measure, the current trend is unsustainable. And there’s one thing I know about unsustainable trends—there’s a day of reckoning, and it’s not a happy one for the people who caused it. But, even sadder, they take down a lot of others with them when the bubble bursts.
There's more at the link, including some informative and worrying graphics to illustrate his points.
If you've followed our discussions in these pages over the past few years, you won't be surprised by any of this. Previous administrations have spent us into near-bankruptcy, and papered over the fiscal cracks with almost unlimited treasury bond sales and other measures. Our deficit is so high it's almost impossible to visualize: and as always, excessive debt becomes a drag on the economy as a whole, both for those who caused it and those who simply happen to be in the same country. Sooner or later, our economic chickens will come home to roost, and some (like myself) think that won't be long delayed.
I hope I'm wrong. I really do. It would be wonderful to think that President Trump will be given enough time to stave off the crisis, and do what's needed to begin restoring our economy . . . but I somehow suspect that the damage is already too great. He'll paper over the cracks as best he can, but no matter how good his policies may be, he's not a miracle-worker. (He also contributed to the problem by not controlling deficit spending during his first term of office. He gets a great deal of credit for his current policies, but also a share of the blame for the mess leading up to the present situation.)
Go read Mr. Gioia's whole article. Food for thought.
Peter
11 comments:
The low and average income citizens can,t afford to buy. One motel on my trip to GNP wanted $299 and another wanted $273. Motel 6 in Missoula was $180 and the place was filthy.
Not sure I understand this part:
"He also contributed to the problem by not controlling deficit spending during his first term of office"
While I'll agree that Trump has shown no signs of being a budgetary hawk, the President does not control the Budget. He can veto it, but then every media outlet and leftist in the country (redundancy alert) starts crying about how he's killing old people and starving babies and shutting down medical research and national parks.
He can engage in pressure politics, to try to get the congress to do what he wants, but ultimately, budget bills begin in the house and go through the Senate.
During his first term, he did not have control of the House and Senate. Yes, for the first two years, Republicans held majorities, but many of the Republicans hated him as much as or more than the Democrats and he had no leverage to use.
Plus he spent so much time fending off attacks from both sides, he barely had time to do anything else. I say he did what he could with what he could.
Plus we have the problem of the fact that over 50% of the country receives some sort of government largesse...either through "entitlement" payments or government employment. Any politician that tries to bring that under control is going to be lose the next election bigly.
That's why, while working hard to shrink some of the bloat of government, he's also working hard to convince the rest of the country that A), the cuts aren't going to affect services because he's just removing bloat and fraud; and B) that he's not going to touch those precious entitlements that people feel...well...entitled to.
I happen to agree that it's too little too late. We're beyond the economic tipping point and there's no going back. It's going to take a total collapse and complete re-alignment of budgetary priorities...which will essentially mean, crash - revolution - hope for the best.
it won't be that quick and it will entail years of suffering and misery and that cycle frankly doesn't have a great historical track record. We're much more likely to end up with a dictatorship (or a bunch of small ones) in the end than a functioning republic.
I'm just glad I'm old and the odds are I won't live to see it.
Regarding the $2 pizza thing: that was a promotional deal for a "personal" pizza, which is pretty small. I picked up three and made them last for four meals, but that's because I try to keep my eating under some kind of control.
I hear you, Sailor Curt. I cannot disagree with your thoughts.
HOWEVER, I have grandchildren and thus skin in this card sharps game.
I see Trump as a businessman trying for an orderly bankruptcy of America. One we can try to grow back out of the whole "Kick the can" politics and feeding the mostly useless "safety net" that breeds do nothings and single moms with multiple baby daddies.
But we have rodents chewing up the wiring of our Republic. Screaming that "Children will STARVE" if we cut funds for this or that. Many RICE Bowls will be shattered if we stop this funding or that regulation.
The end result is back robed activists "ruling" that this or that isn't legal (or at least delaying until some other court says otherwise) and our economic bus full of citizens continues to Race towards that Greater Depression Cliff, like Thelma and Louise.
Deep Pantries, gardens, trusted friends and trusted family and faith in God got previous generations through such troubles.
What a load of rubbish
The first five bullet points are basically the same thing – the consumer is migrating to new providers/vacation-venues/stores.
Honestly who gives a crap how Las Vegas fares? The last time I was forced to go there for work I decided to promote someone else to my role so I need never unwilling have to go to Las Vegas again.
The citations on closures in hospitality must have not been read all the way through, as later there was a list of the places with announced expansions. Some chains have up to 3500 additional stores announced for expansion.
What you could have taken away is that some stale brands are giving way to new brands (sometimes owned by common ownership) and some changes in consumer preferences.
And the numbers ignore a decimal place issue that say 27 closures from a pool of 1150 stores is only a 2.3% closure rate, which is not very exciting. Demographics change, leases aren’t renewed, and in many places the citizenry has been stealing more than the store can bear.
The credit card article is a mess. “Credit card debt had remained stable for decades.” it claims while the next sentence states “However, in the years since the pandemic, households largely spent down their excess savings while the cost of living jumped, which sparked a sharp rebound in credit card balances.”
What rubbish – it is either stable or it is dynamically changing. Not both.
While the one single “arguably politically charged/embattled” Fed says delinquencies are suddenly bad, the Equifax data cited says “credit card delinquency rates remain relatively flat.”
Peter you have been had by the media – thoroughly spun into their doom and gloom confusion.
Dig deeper – the extra houses for sale are fueled by people wanting to liquidate their second and third homes, the ones they bought as investments. Often priced very high as of course they bought them to turn a profit, they sit on the market.
That discretionary buyers needing financing are holding back with likely lower interest rates predicted, is playing a role. Cash buyers will have different motivations.
Those who comment “whoa is me, glad I won’t live to see the results….” miss the opportunity to help reform things to avoid the stuff that didn’t work so well. Really much of the mischief happened on these folk’s watch, and shirking the outcome is pretty sad. If you oldsters broke it, at least get active and help to fix it!
Will things stay the same? Never will happen, never has happened either. Pauses/plateaus are only moments of less movement, and because they have no systematic way to maintain their apparent stability, they always break off for change. Often change with a lunch.
Of course AI will go through a Boom and Bust cycle, all new technologies do. I have an MBA and it took me years to understand it was a degree that justified greed. Every business or investor is looking for that rocket growth that will lead to instant billions via stock price. Gone are the days were people were satisfied with small, but consistent growth.
The AI bust will not push us over the edge to financial collapse by itself, it may be the straw that breaks the camel's back, but as noted above there are many logs on the camel already.
While taking a finance class for my MBA I realized the stock market always over reacts. even though it is the standard by which a business is evaluated, it is poor and subjective, prone to manipulation.
Trump was handed a feces sandwhich, which he handed to Biden and got back. Trump, in his second term, is doing some good, but with 50% of people receiving some money from the government, we are on a non-sustainable path.
Trump's tarrifs are also a good idea, but also too late. The citizen pays all taxes. Businesses pass that cost on to the consumer. When we allowed China and other countries to dump goods into our market for cheaper consumer goods we also allowed jobs to leave our country. We allowed the shift from employment to being on the dole.
We need to give up the consumption model of economics. Dropping interest rates to stimulate spending is a way of building up unsustainable debt.
OBTW-how is the Ft. Knox audit going? Bueller? Bueller?
Both can be true at the same time.
Don't forget that our country is made up of a large number of smaller economies.
Just like in 2008, some are doing great and some are doing poorly.
My local economy is booming and growing because the price of gold is up. Salaries are going up because they can't get enough workers. This is a lightly populated rural county yet average household incomes are over $100k (and average house prices under $300k).
On the flip side, many big cities are hurting because companies are leaving, driving salaries lower in a place with high housing costs.
In my opinion, it's not a coincidence that lightly regulated areas are growing and heavily regulated ones shrinking.
Jonathan
The signals on the ground ARE mixed - I have been waiting 7 weeks for an electrician to be available to install a meter panel for my new house construction, the carpenter is now on his third helper - one with zero previous experience, the community radio station I like (WWOZ) is completing a successful campaign to replace the $400,000 it lost when the Federal support was removed, local food bank I volunteer at has not been any busier lately (have had leftover food the last couple of months.)
America's economic house of cards went on far longer than most imagined it could. But what can't continue won't. The only question to ask is if this is the BIG collapse or a preview of coming attractions.
Starbucks has too many stores. They overbuilt. Remember Radio Shack?
When you pay burger flippers $20.00/hour, you're gonna lose money. You're gonna go under. The same goes when you have to pay hotel workers three times what they're worth.
Credit card debt is going through the roof because everything's so expensive and people feel they have to maintain a certain "lifestyle." That fails. They wake up. They stop buying pizzas and Starbucks.
No one's buying houses because they CAN'T AFFORD to buy houses. Instead, whole developments are being built with signs saying "NEW HOMES FOR RENT!" Companies like Blackrock are buying up the inventory to rent out to people who can't afford to rent. Can we spell "Section Eight OK," boys and girls? Your tax dollars end up in Blackrock's pockets.
I could go on and on. Until reality re-enters the building, this will just keep getting worse...
Bust. Too many people are getting money from the feddies, some mostly legitimately like Social Security and Medicare. Others, many illegals and welfare moms, are getting welfare and Medicaid. The payments are approaching $3 trillion per year and the feddies are going broke in a hurry.
Was it Ben Franklin who said that that Republics / Democracies do well until the citizens figure out how to vote themselves money out of the national treasury ?
Trump is hoping on growing the USA out of this problem. Me, I doubt it.
Post a Comment