“Tick…tick….tick….tick….tick….tick…tick…BOOM!.” – The Hives
The US’ economic time bomb is about to go off.
Terms like “perfect storm”, “confluence of events”, etc, come to mind and will be thrown around. Something economically drastic is going to happen. Full Stop. ( It already has in many ways – more below). We always think that the future is going to be a small variation on the previous day. That’s not how it’s going to be. History tells us so.
Let’s think about it – It’s usually cumulative damage that causes the binary event. The slow, steady buildup of plaque in the artery that incites the heart attack. The continual upping the amount of the drug to get the same high that causes the overdose. The slinging of one insult that finally causes us to lose it after the many that came before.
In America, we’re in red blinking, screaming alarm status when it comes to our vital signs- socially, culturally, and financially. Not like these sirens haven’t been sounding for some time, but there’s so much being thrown at us, that we’ve flat out ignored their warning. We humans are not wired for slow moving disasters.
The current environment of ballooning debt, geo-political strife, where we are in the cycle of history, puts us Americans in a perilous position economically. I have hope for the future*, but there will be large shifts coming that will be very unpleasant for many.
(* As alluded to above, there is a cycle occurring and we’ll come back around after remembering fundamentals. It will get “good” again. A good many still love the freedom of ideas that America offers and there’s more ingenuity here than gets publicized. We’ll be good again after this forced and possibly extended rehab).
Below are several factors contributing to what will end up being a revolutionary (Yes, used that word) environment change in the US’ economic and power status. “Doom Porn” is NOT what this is ( again, a hopeful future is achievable). All of this list is easily searchable, so please do so. When Revolutions happen, people fight. They eventually get to peace, and fundamentals return, as does prosperity. This happens in natural ( think Darwin) systems, and even complex ones ( like our financial). There’s a cleansing period that occurs, and it’s often ugly and not fun. BUT it does set things back. Nothing new under the Sun, right? All of this has happened before in similar conditions throughout history. Humans seem hell-bent on making the past rhyme with the future despite our abilities to avoid it.
Take the following examples AND think through the cause/effect relationships they represent, with the trajectory they’ve set us all upon. You may come to a different conclusion than I do, and I’d ( truly, please comment) love to hear that conclusion, and the reasoning.
So, in no particular order:
- US Trade deficit hit record levels in 2021. Think of this as being reliant on other countries to function on a day-to-day basis. We had a record in March of 2022; with a monthly deficit of nearly $110 Billion, which was less than half of that before the COVID 19 pandemic started. Which means, we’re getting worse at making what we need at home. Or put another way, needing a pill supplied by someone else to stay alive.
- Our current National Debt is over $30T. But in reality, it’s much, much more. We have unfunded promises to our Citizens in the form of pensions and healthcare costs. It’s likely double that.
- We’ve printed so much money during the COVID-19 Pandemic, that we’ve caused inflation and supply chain issues. 8.5% in a year level inflation is the highest level since 1981.
- This has driven up the price points of property to unreasonable and unsustainable levels; a bubble. One that will burst in Cities and States that have large debts and are socially unstable as wealth exits for greener pastures and lower taxes ( especially to avoid or dampen what inflation is doing to their wealth).
- The large stock sell offs by Jack, Elon, and MS CEO Satya Nadella, as well as Bezos’ exit from Amazon- were no fluke at the end of 2021. They knew what was coming.
- Consumer debt rose to $15.6 Trillion by the end of 2021. It was a record, and in the last quarter it went up by $333 billion and was at $1T for the entire year – the fastest rate increases since 2003.
- Our collective memories are very very short. We forget that pre-pandemic, the market was very expensive to buy into on a price to earnings comparison. It has only become worse with our monetary policy during the COVID-19 pandemic as money was printed by the Federal Government ( and other Countries Central Banks).
- Our addictions are now monetized. ( Please think through that one, and maybe ask how you might have come across this article?).
- Corporate debt ( of non-financial sectors) has ballooned as well; Somewhere in the $11 Trillion range. This amount is roughly half of the entire US economy. This does make sense in part. With COVID happening, the fight to stay alive for many companies depended on borrowing at the very low ( and still low, historically) interest rates, and then either paying back slowly, deferred, or in some cases not at all. In 2021 alone, the amount companies borrowed went up by $600 Billion to be paid by someone, at some point.
- Wage growth is also contributing to a potential fallout. While wage growth has the optics of being a “good” thing, the pace of it (potentially too fast) and the companies that are able to afford it/gamble on it ( only the larger ones) will have a major impact on small town and Main Street America
- The US’ economic policies (exacerbated by the Pandemic) have helped create the largest wealth gap in our history. Demonizing the “haves” is a time honored tradition in nearly all cultures, no matter if a person has become wealthy by legitimate means and hard work ( which accounts for most of the stories of US wealthy). However, the concentration at the top of the wealth score card grew heavily during the COVID-19 pandemic. The perception of inequality ( even before the pandemic) was not good. These perceptions cause clashes and violent ones. We’ve seen this increase in number and virulence over the last 2 years in particular.
- Over the 2021 holiday season, US consumers spent more than they should have. 45% of the spending was done via a “buy now, pay later” arrangement. These services are becoming more popular, and allow for us to break up purchases over installment payments. The issue with these types of payment agreements, is that already 56% of the shoppers that have utilized them, couldn’t pay off the thing they purchased. This causes late fees, penalties, other interest accumulation. The bills for all of these holiday purchases are coming due. Except, everything a person needs right now, gas, food, etc, ( and everything they don’t), costs more, leaving them cash-strapped and unable to pay for those things they had purchased a few months back.
- Here’s another item that seems to not be talked about quite enough. While “crypto” everything seems to take over the news cycle (whether that be Bitcoin, Dogecoin, Ether, etc.,) the forgotten piece of this, is that the US Dollar is the current Global Reserve Currency. The Gold “standard” of the entire World for quite some time…. Just… not likely anymore. Between Quantitative Easing, printing money, and mass restructuring of debt here at home, we hurt the value of the Dollar globally. From afar, it looks like we’re trying to help those in need, by providing liquidity. But when done at scale, it takes the currency that we’re doing it with and makes it worth less. And that hurts all of those who transact on planet Earth. The main point – the dollar is devaluing due to the large and continuous increase of immense debt. This happens to all currencies across time. The alternative? Fixed Crypto currency availability. There’s a reason, those ( Like Jack Dorsey) and others, are big fans of Crypto currencies. However, with the Dollar devaluing, and Crypto, though brilliant, not tied to anything tangible, and susceptible to being literal zero with an electro-magnetic pulse from the sun. What are our options then? For currencies to work, there has to be trust and strength – right now, it’s difficult to know who (Government or otherwise) has either, let alone both.
- Our memories back to 2008 aren’t solid. We forget about the ensuing consolidation in every power sphere in America. Think about the concentration of tech power right now? I’m guessing you can think of a handful of corporate names that TRULY hold the cards…and that’s it. Mergers and acquisitions have been ripe. There’s a few things driving this, but mainly 2 – we have a generation of owners retiring, and the other? Cheap, cheap money. The power melding happened to US Banks too. Deposits in banks pre-2008 were more spread out, than they are now. When the banks started failing in ’08, what happened? They were swallowed into and created, even larger banks. What happens if one of them fails now? The other issue that people aren’t thinking of is that these large institutions are fast becoming the only entities capable of paying the extreme wages and labor costs to keep up with inflation ( and by doing so, exacerbate the situation). Their sheer scale has created such a competitive advantage, that they continue to amass power because of it. A self-perpetuating cycle. So – few companies, few banks, few politicians really do control it all. When that happens….
- The real and perceived wealth gap that we talked about earlier, continues to grow. This creates social unrest. The folks at the bottom get fed-up; often pushed along by populist leaders, and demand change. This can be non-violent, but as the powder keg fills the likelihood for violence increases ( and even more so when there’s some type of perceived incentive to do so, as in recording it, and putting it on social media). When unrest reaches levels where there’s no going back, a fight will happen over resources. That’s where we’re at. Locally. Globally.
- Going back a number of years, including the worsened economic state brought on by the pandemic, the bottom 60% of American earners had less than $400 in reserve funds to be able to handle an emergency. As we speak, there’s been 8.5% inflation, and 16% loss in S&P500 valuation since the start of the year, and the Nasdaq down more than 25% With the cost of everything going up, and the likely persistence of this trend, we’re going to start seeing payment defaults again, but now, there’s less banks, and companies in which to spread the risk over because of M&A activity and the post 2008 consolidation.
When all of the above considerations are looked at with a very wide lens (including many of which I’ve omitted to bring to note here – the War in Ukraine being near the top, social influence, elected leader ineptitude), we can see that the economic power shift is steering away from the United States. While we’re still a global power and have the world’s reserve currency, but I’d bet for not much longer. I’ve also ignored many ( if not most) of the cultural issues at hand that will likely drive the decline of the US as the financial power at a higher speed. When the culture wars reach a zenith at the same time that the economic picture begins to look unwinnable, there will need to be some type of revolution ( as mentioned at the onset of this article) to bring things back to fundamentals. That moment seems to be fast approaching.
For about a year, and in private, I have been telling friends and family that this economic reckoning was likely going to happen in Spring of 2022. Around the early Fall of 2021, the broad picture of US economic health seemed like it was accelerating in the wrong direction, and quickly ( note: If you don’t believe me in my prediction, ask my wife). What I didn’t know then, was that the geopolitical situation would be as bad as it currently is, likely bringing the prediction to fruition quickly. When you see disaster looming, you want to be wrong. AND I hope I am wrong about this. But in case I’m not….
Andrew L Hamilton 