Store Closures: Coming to Retailers Near You

At the end of February, the credit rating service, Moody's, announced that the number of credit-stressed retailers has tripled since the end of the Great Recession of 2009.  Further, based on the current trend, Moody's expects a record number of these distressed retailers to close within 5 years; assuming they don't close before that.

The explosion of retailers shutting their doors began in 2015.  Thousands of big-name stores hit the skids starting with the bankruptcy of Radio Shack and the closure of nearly 1800 other locations..  Some claim that the retail closures are a result of the fact that there is just too much retail space in the U.S..  In fact, there is 7 feet by 7 feet of retail space (50 square feet) for every man, woman, and child in the country.  Other factors are the Internet. Sites such as Amazon are killing the traditional brick and mortar stores.  But, that doesn't necessarily explain why McDonald's was forced to close 700 stores in 2015.  I personally believe that people's wages have suffered, and as a result, discretionary spending is a major problem.

Whatever the cause, retailers shutting their doors means a loss of jobs.  It also means a loss of economic growth, which is primarily based on consumer spending.  That could mean that we are heading to another recession in the not-too-distant future. Of course, that assumption is based on the fact that the number of distressed retailers isn't just a trend, but instead, the canary in the coal mine for the economy.  It's only early March 2017, and already 13 major retailers have announced the closure of 1500 stores.  Both Macy's and Sears/K-Mart are on death watch.  And don't be shocked if more find themselves in a similar situation.

In my opinion, the situation is serious for both jobs and the economy. and can't be rectified unless or until wages start growing again.  Note my blog entry "Can Trump Make Wages Great Again?" as referenced below. 
References:

Moody's: Moody's: Number of distressed US retailers triples since the Great Depression Recession; debt levels up: https://www.moodys.com/research/Moodys-Number-of-distressed-US-retailers-triples-since-the-Great--PR_362722

Number of distressed U.S. retailers at highest level since Great Recession: http://www.marketwatch.com/story/number-of-distressed-us-retailers-at-highest-level-since-great-recession-2017-02-27

Store closings are the hottest trend in retail: http://money.cnn.com/2016/02/25/investing/struggling-retailers-sears-best-buy-kohls-store-closings/

All 2015 Store Closings - Stores Closed by U.S. Retail Industry Chains: https://www.thebalance.com/all-store-closings-2891887

These 13 retailers are closing more than 1,500 stores in 2017: http://www.clark.com/major-retailers-closing-2017

Why are Macy's and Sears in distress? - The Washington Post:  https://www.washingtonpost.com/opinions/why-are-macys-and-sears-in-distress/2017/01/11/238461c0-d825-11e6-9f9f-5cdb4b7f8dd7_story.html?utm_term=.a411eb510dcd

Can Trump Make Wages Great Again? http://cuttingthroughthefog.blogspot.com/2017/03/can-trump-make-wages-great-again.html

What Moody's Delay In Downgrading Greece Says

Yesterday, Moody's Investment Service finally downgraded Greece's debt to junk status. To most, this was no surprise. But, to many more, the real question was why it took them so long. And, therein lies a problem.

Since the (1) housing bust and (2) subsequent recession, many experts have been analyzing the events and lending activities that lead up to these two economic disasters. While much of the blame rests with the sub-prime mortgages, themselves, that were forced upon the banks due the 1977 Jimmy Carter-signed law, the Community Re-investment Act, others have looked at the actions of Freddie Mac and of Fannie Mae in their pushing of low interest rate loans to unqualified borrows in order to fulfill the political desire for "everyone" to get a home of their own.

However, the little mentioned culprits in the housing bust were the debt rating agencies like Moody's Investment Service, Fitch, and Standard & Poors. In fact, these supposed watchdogs of debt in the world, happily stood by with their high grade investment ratings on a lot of risky and bundled sub-prime mortgage instruments like those Credit Default Swaps (CDS) being sold by AIG. In essence, these agencies blindly assumed that any debt instrument that was being sold by a triple-A rated company like AIG should have that company's same high debt/risk rating. But, as we know now, AIG was just using this very fact to actively promote the selling of their very dangerous CDS's to investors who were literally being buffaloed by the rating agencies into believing these investments would be safe to hold.

The slowness of Moody's to downgrade the Greek debt situation just shows that these agency's can't be trusted with watching the sheep. The whole world has known for months that Greece is teetering on a default of their debt. Yet, it was only yesterday that they decided to announce what everybody already knew. What good was that? If anyone totally relied on Moody's to steer them straight on what investments to hold, they would have sat stupidly holding Greek bonds and other debt instruments for months while the value of those investments collapsed; waiting for Moody's to finally recognize the risk involved.

Personally, I think it's time that Moody's and the others be downgraded to junk status!

America's Credit Score at Risk

For you and I, it is our credit score -- our FICO score -- that determines whether or not we're credit worthy enough to get a loan or another credit card. People with poor FICO scores will generally pay higher interest rates if they are even able to get a loan.

For an entity like the U.S. Government, the equivalent of the FICO score is the Moody's Investment Rating. Right now, America's investment rating is the highest possible at AAA --- meaning that America is an excellent credit risk. Earlier this week, Moody's Investment Service warned that the United States' high rating is now at risk because of it's massive and unsustainable deficits and it's failure to come out of recession (Click to See Full Story: "Moody's warns nations to cut spending or risk AAA ratings"). This is the second warning issued to the United States by this premier rating's agency in just so many months.

Just as if your personal FICO score was lowered, the United States will have to pay higher interest rates for all the massive debt we've accumulated if we lose that AAA rating. Currently, about 40 cents on every dollar that is collected by the IRS goes to just pay off the interest. If our credit rating is lowered, that amount that goes to interest could be as high or higher than 50 cents on each dollar. That's because the people who hold the debt (such as China) will demand higher rates to offset the higher risk of default on the loans. Increasingly, we are getting to a tipping point where there isn't enough money in our entire economic system to pay off our debt.

As a point of reference we now owe $14 trillion dollars. With 7 billion people in the world, that means that, if we could spread that number across the entire world, each and every living person on this planet would owe approximately $2,000. As it is, our debt is so great that each American citizen owes about $181,000. If that amount took into consideration all other liabilities such as the unfunded portion of Social Security, that number soars to nearly $350,000 in debt per person in America. (Click to see the national debt clock)

When you really think about, if we didn't have our current and future debt, our government could provide the same amount of services with nearly half the same amount of taxes being collected. Or, in other words, without this burden, all businesses and individuals that are currently paying taxes could see a 40% reduction in the taxes. That alone would make our products more competitive in the world market place and we would see a growth in jobs that would be unbelievable. We would actually regain many of the manufacturing jobs that we have lost over the last 40 years.