Financial Repression and the Structural Concerns for the Retail Market
FRA co-founder Gordon T. Long is joined by Wolf Richter to discuss the
struggling retail market and its subsequent impact on the U.S economy as a
whole which are a result of the recent financial crisis.
Wolf Richter is the founder of Wolf Street Corp. In his cynical,
tongue-in-cheek manner, he muses on wolfstreet.com
about economic, business, and financial issues, Wall Street shenanigans,
complex entanglements, and other things, debacles, and opportunities that
catch his eye in the US, Europe, Japan, and occasionally China. You can
subscribe to his free emails and keep in touch with Wolf Richter's research
and news through his cynical, tongue-in-cheek manner, he muses on wolfstreet.com about economic, business, and
financial issues.
He has over twenty years of C-level operations experience, including
turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and
his MA in Oklahoma, worked in both states for years, including a decade as
General Manager and COO of a large Ford dealership and its subsidiaries. But
one day, he quit and went to France for seven weeks to open himself up to new
possibilities, which degenerated into a life-altering three-year journey
across 100 countries on all continents, much of it overland. He has written
two books: BIG LIKE: CASCADE INTO AN ODYSSEY and TESTOSTERONE PIT.
Concerns of Financial Repression
Under financial repression the money that you earn does not compensate for
the forward inflation on your investment. This is slowly eating up the
savings of investors and bond holders in a period of low inflation, and is
done so by the central bank to help aid governments and debtors in paying off
the massive pileups of debt. We can expect this trend of financial repression
is to go on for the time being due to the position most corporate firms and
the government is in right now, as most economists believe a slight increase
in interest rates would be catastrophic for the economy.
Retail Space
We are in a booming online retail environment which is not going to slow
down any time soon. The problem with retail space is a structural problem due
to the surge in online shopping. Everywhere we look in urban environments
there are strip malls on every corner of the neighborhood and multiple
outlets for the same retail store exist all across the states. With the drop
in consumption in goods and services, a recession in the goods produced
within the U.S. On a weekly basis we are seeing more and more stores shed
employees and closing stores all across the country in order to cut operation
costs and stay afloat.
"This creation of demand is just smoke and mirrors"
At the same time consumers are growing older, and had planned to live off
their savings However, over the past years due to the shocks to the FIRE
economy we have seen virtually zero growth in their savings. Causing shifts
in their purchasing patterns towards cheaper and more affordable goods, trying
to save on all levels and spend as less as possible. This all stems from
financial repression, there have been no increases in demand but we still see
an immense amount of retail space, creating a false sense of demand to
consumers, showing promise of a improving economy at a time where it is
nearly impossible to thrive.
Transportation Recession
"When you have a transportation recession like this, it tells you
something about the goods produced in the economy in the United States, and
it's not over."
There has been a large increase in stalled transportation vehicles
including trucks and trains which simply have gone out of business due to a
lack of demand in the market. This shows us the effects of the 2008 financial
crisis still linger on heavily even today. The lack of demand and surplus of
supply in many sectors of the economy including retail is continuously
putting the U.S economy in a downward spiral and has kept it on the brinks of
another recession.
"If service economy gives, if it starts to break apart even in a
minor way I think we'll have a recession."
Luckily the service economy is still holding on and showing signs of
improvement and growth. However, if the service economy gives out even in a
minor way, the impact on the rest of us considering the tight situation at
the moment will certainly throw the U.S into another recession within the
coming fiscal year. Factoring the decline in goods produced is a great
concern for the U.S since the goods consumed market is already collapsing.
This causes an alarm for even more concern in the economy, since the
financial crisis even under financial repression we are still seeing a steady
rise in debt. This debt carried over from the financial crisis affects every
major company in the world. When these companies can no longer hold their own
Wolf Richter believes that we will have a real risk for credit default.
The Changing of the credit cycle
"What concerns me the most; the amount of corporate debt, the
amount of government debt and state municipal debt that's out there since the
financial crisis"
Credit rating companies have begun downgrading almost everything, meaning
companies are no longer able to lend, and losing faith in many companies
which can no longer continue doing business. The rise in bankruptcy alone
should be a definitive sign of the turning credit cycle. This is not limited
to any single industry, oil, energy, and retail especially companies are
going bankrupt as their debts and expenses simply cannot keep up with the
demand that is required to keep them running.
"In total there were about 3500 commercial bankruptcies, and
that's up 33% from a year ago"
Right now it is the number of small companies that are making headlines in
failure to overturn their debt into sustainability. So even though there has
been an increase in bankruptcies filed this year there is still a large sum
of debt which is held in majority by the big fish of the sea. This provides
us with further affirmation of the psychological behaviors of consumers in
the economy hinting it to a difficult time for not only continuing to run
business as usual but also for entrepreneurs. As the demand is simply not as
it used to be in the past, and should expect a slow and painful recovery out
of this worldwide debt.
Abstract Written by: Saad Gohir
Video Editor; Sarah Tung
