3 Hidden Reasons The Economy Is Actually A Total Disaster And About To Get Much Worse

If you spend any time watching TV these days, you’ve probably heard pundits claiming that the economy is just fine. You may have heard that inflation and unemployment are down, home prices and the stock market are up, and that everything is rosy. 

Unfortunately, that’s just not true. 

It’s true that some economic indicators are improving, but these pundits are engaged in lies of omission because some of the data they’re citing is measured differently today than it was in the past, and they’re also overlooking other data entirely. 

I get that they’re probably doing this to help prevent panic in the market, but they’re also putting good, hard working Americans in more danger by pushing misinformation. 

So in this article, I’m going to identify and explain the three factors looming in the background that show just how bad things really are. My hope is that you’ll use this information to more effectively prepare for the weakening economy and increase your odds of surviving and thriving through it. 

Despite Claims, Inflation Is Astronomically High And Growing

While inflation may be down slightly from last year, it’s still at historical highs that we haven’t seen since the 1970s. And it’s even worse than it looks when you consider that because the way inflation is reported has changed, the reported numbers of today are not directly comparable to numbers in the past. It’s like comparing apples to oranges. 

You can look at costs of living expenses to see for yourself. For example, prices for food, rent, homes, building materials, clothes, and almost everything else has skyrocketed while wages have remained stagnant. 

The buying power of your dollars has dropped significantly over the past several years. That is an undeniable fact, and it’s going to get a lot worse. 

We can already see the impact in the market. CNBC reports that the number of people living paycheck to paycheck has skyrocketed, as has both consumer and business debt. And while unemployment is down, it doesn’t quite mean what it seems to mean. As Dr. David Phelps noted in a recent article, unemployment goes down right before a major economic downturn because in many households, people who previously didn’t need to work are economically forced to get a job, and in some cases, more than one job. This artificially skews the data, making it look good while the true danger lies just below the surface. 

That’s where we are now. 

At the same time, employers are feeling the pain of these rising costs driven by inflation, and are forced to make cuts—or worse. This might include reducing employee hours, laying off staff, or even going out of business. 

Real Estate Is A Ticking Time Bomb (And It’s Just About To Blow)

While everyone is talking about the state of the residential real estate market, which is absolutely in a bad spot, the commercial real estate market is quietly imploding and almost no one is talking about it. 

Both will have a huge impact on the economy.

On the residential side, home prices have remained relatively stable and while they’ve dropped slightly, are still near record highs. On top of that, many homeowners have historically low interest rates on their current mortgages — in many cases, below 4 percent. This means it often doesn't make financial sense to sell because today’s interest rates, at nearly twice that rate, mean a payment that would be nearly double what a homeowner would have previously paid. But this won’t be like the 2008 crash because demand is still high and lots of sellers are unmotivated to sell due to interest rates, so the market will stagnate.

This is likely to lead to significant layoffs across the real estate industry. This means not just Realtors, but also connected industries, like mortgage, title, home services, and even SaaS for the real estate industry. And those job losses will further dampen the economy. 

But the bigger problem is that as the commercial real estate industry further declines, it will lead to far more damage to the economy, driven both by what’s going on in the economy and by an increasingly home based workforce.

The commercial real estate industry will suffer the same challenges that the residential real estate industry will, with all connected industries being impacted, but that will also damage other parts of the economy as well. As commercial buildings become ghost towns, that often means fewer people patronizing other nearby businesses. And it also means mortgage defaults, leading to losses that banks have to compensate for by charging higher interest rates and tightening credit guidelines. But the problems don’t stop there because this also leads to a decrease in tax revenue, which reduces local services and forces layoffs of government employees. Now, it can be argued that the last part isn’t necessarily a bad thing, but that’s a topic for another article. 

The bottom line is that as the commercial real estate industry collapses, it will have severe and far reaching consequences across the entire economy, and combined with the impact from the residential market, this will be devastating.

Debt Has Become Unsustainable For Many

Both business and consumer debt is through the roof, with consumer debt passing $17 trillion for the first time, and business debt weighing in at $7.80 trillion, surpassing a previous peak at the height of the COVID pandemic. And unfortunately, this is only going to get worse because our economy is unaffordable for most people due to inflation, so many are increasingly relying on credit.

Currently, delinquency on debt, both personal and business, has remained steady, but it continues to climb. This is a serious problem because as people get squeezed from both sides with reduced income caused by a weakening economy and growing expenses caused by increasing debt, the dam will break and the economy will be deluged by delinquencies.

The downstream effect will be disastrous because it snowballs, getting larger as it impacts an increasing number of people. This is true for both businesses and individuals. 

Let’s say a company takes on an increasing level of debt — this means its expenses will absolutely go up, making its budget tighter even if revenue doesn’t decline. But since in most cases, both increasing debt and declining revenue occur around the same time, it’s easy to see how the situation can rapidly spiral out of control. 

This leads to layoffs and other cost cutting measures. These layoffs mean families now have less income, making their budgets tighter, and often, unsustainable. At the same time, these cost cutting measures also impact companies and contractors that serve that company. 

The reality is that most businesses and people don’t have the cash reserves to sustain a reduction in income for very long. In fact, a recent poll shows an astonishing 58% of Americans are already living paycheck to paycheck. 

The smart move right now is to aggressively reduce debt, both business and personal. Especially high interest debt, because that compounds more quickly. This will put you in a financially stronger position and increase your odds of survival.