Thursday, November 5, 2015

Lack of Momentum And The Lag Time Of Attrition

Attrition Is Decay And Decline Over Time
When looking back over history it is hard to argue with the fact that trends can simply run out of steam, lost momentum is not always sudden. Economic policies function under the same laws and because something appears to be working for a while does not guarantee its future success. It is silly to think that everything always collapses at the first sign of pressure and it is logical to allow for a lag-time or delayed reaction to occur. We may be experiencing the effects of attrition slowly eating away with its constant wearing away or grinding down the underpinnings of our economic system and yet to have felt the impact of the quiet and gentle erosion beneath our feet. Today Chase bank in an effort to cut cost shuttered a couple of their branches in my city, one of them was in a very nice building directly across from my office. Actions like these shout volumes as to what is really happening across America and do little to underpin the job market or real estate prices.

What started as the Fed's short-term solution to prop up and stabilize a troubled economy has morphed into business as usual and become accepted as normal. More and more it seems that people have accepted the idea that the economy is evolving and other than that nothing is different in the way it operates. The truth is we are accepting less than spectacular results from an ill-conceived economic policy and placing them in a positive light. Considering the amount of newly printed cash that has been created and poured into the economy our failure to achieve escape velocity should trouble us far more than it has. This could be said about the global economy as well, growth is constrained considering central banks have been more than generous at the same time governments across the world continue to run huge deficits. Clearly austerity has been deemed a dirty word and any country claiming to pursue such policies has done so in word only.

Currently the economy is slowing, not only in America, but across the world. What many people see as a lack of momentum could be something far more disruptive and disturbing, it could be we are beginning to see attrition starting to take its toll. Attrition is defined as "the action or process of gradually reducing the strength or effectiveness of someone or something through sustained attack or pressure." Today real and solid economic growth as traditionally defined is very elusive and has been largely replaced and supplanted by something harder to understand. Growth in both the financial markets and the "virtual part of the economy" made up of items like the internet, smartphones, and other things that create little in the way of tangible growth has become the driver of our lives while demand in many key more conventional areas languish.

Trends in the type of small businesses being created or how they are changing can give us a peek into the future and a hint at what is to come.  Over the years we have seen a substantial change in the nature of new businesses that give a glance into the future and developments that will shape both society and the economy. Years ago small independent doctors began having their practices purchased by bigger groups, than hospital giants, next we had a slew of mortgage companies form, they vanished when housing crashed. Today between the thrift-shops and secondhand stores we have seen the following popping up, tattoo parlors, nail salons, massage parlors, coffeehouses, photography studios, and most of all staffing agencies that provide workers for local businesses. Many of these business start-ups have two things in common and that is little in the way of capital is needed to open their doors, and most have a short unprofitable life span.

Yesterday as I drove across town and saw all the buildings sporting "For Sale" or "Available" signs the term a great waste land came to mind. More and more lately I have found that many of the people requesting to look at commercial space for a new business are clueless or totally unrealistic as to the numbers involved in leasing space and starting a business. Even more disturbing is that in the last two weeks I have seen tenants leasing residential space from me who I know are on a very shaky financial footing, approved for purchases they are totally incapable of handling, one just bought a house, and the other a new car. The gal buying the house has had her utilities turned off several times due to non-payment and the other person has at times been months behind on rent and received food stamps. Both of these transactions signal problems ahead and are proof the Fed is pushing on a string in hopes something will happen to transform our sagging prospects.

Forces that have been at work for sometime have weakened and worn down many real businesses and the new "Uber business" model should raise great concern because it has the potential to steer our economy off the cliff. Watching real businesses with a dozen or more employees closing their doors to be replaced by independent part timers playing by their own rules does not scream "quality growth" and has the potential to have a very debilitating effect on the economy undermining both social stability and communities. The Fed can only move the economy forward so far by way of artificially low interest rates and questionable loan standards before they come back to haunt us. This article was written to make two points, one a lot of what is happening reflects an economy that is crippled and getting weaker, the other to say sometimes it takes longer than we think it should for reality to raise its ugly head.


  1. Yes indeed. Adolph Hitler got that wrong too. I dunno if it is just apocryphal, and he certainly wouldn't have said it in English, but before he attacked the Soviet Union he said sommat like - "The whole structure is rotten to the core. All it needs isone good kick, and the whole structure will collapse." And so it did, 44 years after Hitler and his thousand year Empire had gone belly up.

    1. Two thoughts; To most people the collapse of the Soviet Union came as a complete surprise, and the second, the financial problems that plague America and the world started long before 2008. Back in September of 2012 I wrote an article reflecting on how the economy of today had been greatly shaped by the actions that took place starting around 1979.
      Interest rates, inflation, and debt do matter and are more significant than most people realize. By taking interest rates to nose bleed levels Fed Chairman Paul Volcker brought inflation back under control and in doing so he reset the economic system for decades.

    2. I see the same thing in my town, and it scares me. They are letting some really marginal people borrow lots of money, and there is a lot of frenzied construction. And some of the projects that blew up in '08 still aren't full, but lets build another strip mall just down the road. They are also starting to build giant houses on really weird lots. The financial situation of some of my tenants has also deteriorated. The signs aren't good, and another downturn will mean more ratcheting down of living standards. People I know that have recently applied for SNAP are getting tiny allocations: one got $16 and another got $19. The economy was shipped overseas for fun and profit, and now even the crumbs falling off the table are getting smaller. Its like if you have a bad business idea, or buy a car you really can't afford, then you get the money, but have to eat? Too bad.

    3. Chazz, Thanks for the comment, I only wish you had given a general indication as to what part of the country you are in. You left be a bit curious because this so called "recovery" has been so uneven, thanks again.,