OK, anything to share the "stealing the shipment" scene from Tank Girl (featuring "Disconnected" by Face to Face, the best song of the 90's). Basically, there's a cliff at the end of the road, and we don't know if she can stop the truck in time. That's where this clip ties into our current economy. Did The Fed wait too long to "hit the brakes" and slow down inflation? Will things slow down but not crash? Will we go off the cliff? "Yes" and "no" and "not sure" are my thoughts to those questions, but we don't know for sure... yet. Anyhow, here are several things that set this coming recession apart from previous ones.
Economic recessions happen. Period. On average, over the life of the United States of America, we've had a recession or depression every 4 to 7 years. I was born in 1966, making me an older member of Generation X. Since Gen Xer's like me were born, we have had recessions that started in 1969, 1973, 1980, 1981, 1990, 2001, 2007, and 2020. That's just fact. At any given time, it is certain that there will be a "next recession," it's just a question of when, and how gnarly it will be.
There's a ton of TALK about a recession coming in the second half of 2023. This talk has been going on for over a year now. Many people are sick of hearing about it. Personally, I think we're heading into a major recession, one that will be more intense that the Great Recession of 2007-2009. That's my opinion. But there are people now saying there will be no recession, that we'll have a "soft landing," and there are people saying we are heading into a worldwide depression. And everything in between. This has often been called "the most anticipated recession in history." And whether we have a recession is still up for argument.
Going on my assumption that there is an economic recession coming, here are several of the things that set this coming 2023 or 2024 recession apart from previous ones.
(One) There is more debt, at every level, than at any time in human history. When the economy slows down, people, businesses, and governments have more trouble paying their bills. When a person or institution can't pay their bills, then whomever they pay that money to, also has trouble paying their bills, and the problem spreads. Here's the U.S. Debt Clock, to get an idea of debt levels in different areas.
(Two) We are at the end of a really extended business cycle. Instead of 4 to 7 years since the last TRUE recession, it's been 14 years since the official end to the Great Recession in 2007-2009. Yes, we had a recession due to the Covid-19 pandemic in 2020 (technically a depression), but so much new money was created and added to the economy, that the 2020 recession was stopped in its tracks, and we all became "Stimulus Ballers"* for a while, spending stimulus, PUA, and PPP checks like on lots of stupid stuff. So that recession didn't play out like a normal recession would have, and in my opinion, the business cycle kept on going.
(Three) The Fed (the Federal Reserve) has been raising interest rates going into this recession, and usually they lower interest rates when the economy begins to slow down. In their attempt to fight inflation (that they largely caused by creating too much money in 2020-2021) The Fed has raised the "overnight" interest rate it charges banks faster than at any time in modern history. They raised the interest rate 10 times since April of 2022, and a total of 5% points. This interest rate for banks causes them, and other non-bank businesses (mortgage loan, car loan, credit card companies, etc) to raise their interest rates as well. This makes it much hard for everyone, average people, banks, businesses, and local, state, and federal governments, to pay their loan payments. Everything on credit costs more, and that just blows, as you all know.
(Four) We have a split, or bifurcated economy, two largely separate economies. There is the everyday "Main Street" or "real world" economy, where businesses create products and services, pay their employees, and people get paychecks or income from a small business, and we all buy things as consumers. But there is also a HUGE financial economy, where money shifts back and forth between huge investment banks, private equity firms, major corporations, and super wealthy individuals that invest, and move money into and out of all of their investments. This economy may be as much as 6 or 7 times the size of the real world economy. So everyday people could be (and in many cases already are) struggling, and yet the stock market could be (and currently is) going up, and Lamborghini, for example, has a two year waiting list for $200,000 to $500,000 cars. This trend has been going on for decades, but the two economies really split after the Great Recession.
(Five) This is a worldwide economic downturn, much of Europe is already in recession, and many other places, even China, are slowing as well. In previous eras, when one country or region went into recession, there were other places doing well. This is a global slowdown. Even the super rich people don't know where to put their money these days.
(Six) Here in the U.S. we have a widely polarized, "us versus them" political climate, as we all know. This means that if a major congressional action is needed to help the economic situation, the two parties will fight, and not agree on anything, for the most part. This is why I don't think we will see stimulus money going to individual people again, like in 2020. The banks and major corporations will get bailed out (and already are in some cases), but not us average humans. There's also a huge populist sentiment in the U.S., both on the Left and the Right, many people that are sick of mainstream politicians altogether. That could come into play at some point in this recession.
(Seven) We have a serious and ongoing banking crisis. Not only did three banks fail earlier this year, but The Fed's own report says 722 other banks are technically insolvent, and could potentially go bankrupt. That's not good. So the banking crisis will rise up again, and it's almost certain that more banks will fail if things get much worse. On the bright side, there are over 4,000 banks in the U.S, so less than a 1/4 of them are in really bad shape.
(Eight) There is more student loan debt than ever ($1.81 trillion, or $1,810,000,000,000) and those payments are set to start getting paid again in September. I think it's safe to say that MOST of the 45 million people with student loans can't really. comfortably, afford to start making those extra payments. And that's now, before the likely recession. Just for the record, back in 2019, a year before the pandemic, about 37%-38% of student loans were not being paid on time. The Nerd Wallet page with that info has been updated to current info, but I read that page myself three years ago.
(Nine) We are in what I believe is the critical mass stage of The Big Transition. This is my name for the multi-decade long transition phase between the fading Industrial Age society, and the emerging Information Age society. This is based on The Third Wave concept, first described by the late futurist Alvin Toffler in his 1980 book by that name. So, for example, the "Retail Apocalypse" is the transition from the Industrial Age goods distribution system, to the growing Information Age goods distribution system, which is made up of Amazon, eBay, thousands of other online stores of all sizes, and lots of shipping to our homes. This also explains the many half full office buildings and the commercial real estate collapse, as we transition to a model with many more work-at-home workers. Basically, every business and institution (including the faltering banking system), need to move from and Industrial Age model to a functional Information Age model. I've written a LOT on this idea, and I think this is the underlying trend that explains much of the craziness in our current world. There's a lot more change that needs to happen, and recessions accelerate the death of the old, and the rise of the new.
(Ten) The commercial real estate crash in malls, many office buildings, retail storefronts, and other areas I mentioned above, will be a huge factor in this recession, much more than in previous recessions. Billions of dollars in commercial real estate loans are coming due in the next couple of years, and those now marginal loans are held mostly by smaller, regional banks, which are already having a tough time.
(Eleven) The residential real estate collapse has many new factors. There are/were many large, corporate residential homeowners, like Blackstone and the high tech iBuyers, who have been selling houses at a loss for months now. There are millions of Airbnb and Verbo rental houses sitting empty right now, rentals have dropped big time, so many of those may be up for sale in coming months or years. The residential real estate crash is much more region focused, with the West coast tech hub cities (San Francisco Bay Area, L.A., Seattle, and Austin), pandemic boom cities (Boise, Nashville, Denver, Salt Lake City, etc.), and the wildly swinging markets of Phoenix and and Las Vegas heading down first. Florida, other Texas cities, and hot southern regions like Atlanta, Charlotte, and Raleigh/Durham/Cary will follow in time. Much of New England and the Midwest didn't go up in price much in the last decade, and will probably not see big declines. Check this video for much more up-to-date info (as of July 2023)
(Twelve) Businesses and major brands have TONS of extra inventory that they can't sell, going into this recession. As most of us know, this is due to the crazy pandemic era. Manufacturers/brands couldn't get enough inventory, do to supply chain issues, after people started buying a lot, fueled by stimmy checks. Then many businesses over-ordered when they finally could get products, and by then, people were running out of money. So a lot of businesses are sitting on tons of extra inventory they can't sell right now. Big discounts coming soon!
(Thirteen) This is the first major recession with widespread internet, YouTube, and social media usage. So EVERYONE can talk about the recession (or lack of one). There's a lot more voices on the current state of the economy, and much more conflicting info than in any recession ever before. There's tons of good information, and tons of misinformation and disinformation, and even the savviest investors are having trouble figuring out who to listen to. I geek out on this kind of stuff, and that's why I'm adding my thoughts to the mix, since I've been blogging about this recession for over 4 years now, believing it will be a time of major change in our lives, and in the world, because of The Big Transition idea I listed above.
These are most, but not all, of the things that will set the suspected 2023 recession apart from other recessions in the past.
* I stole the term "Stimulus Ballers" from Lucky Lopez, check out his car/truck industry YouTube channel.
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