What's up guys and welcome back to wall street millennial on this channel, we cover everything related to stocks and investing. Perhaps the biggest story in the world of finance and economics. Today is 40-year high inflation and the fed's interest rate height campaign, the most obvious effect of the rate hikes is a dramatic downward re-rating in price earnings multiples. This has caused the nasdaq 100 to lose close to 30 percent of its value, putting it well into a technical bear market, but soon the effects of the rate hikes will go beyond the financial markets and cause seismic changes in the real economy.

Today many economists are sounding the alarm about the record 15.6 trillion dollars of consumer debt in the us consumers loaded up on mortgage auto and credit card debt with rates rising consumers will be crushed by higher interest payments. The skyrocketing debt levels are disproportionately falling on the shoulders of young people. Generation z, which includes 18 to 24 year olds, saw their personal debt increased by 30 in 2021, while millennials recorded a 15 increase. Much of this increase can be attributed to an alliance between fast fashion and buy now pay later lenders who are making it easier than ever to live beyond your means.

These multinational corporations are making hundreds of billions of dollars off the backs of young consumers, who are being saddled with exorbitant levels of debt, often carrying you serious interest rates in this video. We'll look at how the fast fashion industry is exploiting both their consumers and their workers, and this could be the makings of the next financial crisis. Fast fashion refers to discount clothing retailers that change their lineup of inventory on a weekly or even daily basis to keep up with the latest consumer trends. The top fast fashion brands include names like zara, h, m, uniqlo and shane, the average fast fashion, consumer purchases 68 items per year or one every five days after five years, they've accumulated 340 items, which is almost enough for different clothes every single day of the year.

At some point, there's not enough room in your wardrobe and they're too cheap to be worth reselling, so the vast majority end up in landfills. It's almost as if you don't have a washing machine and have to throw away the clothes and buy new ones every day. So why do people buy so much of these cheap clothes? Many researchers and psychologists believe that fast fashion brands exploit the insecurities and social anxieties of the younger generation to entice them into shopping addiction. For example.

Let's say you grew up in a working class family and wore mostly hand-me-downs from your older siblings, so they don't fit very well. The other kids at school may look down on you for being poor. Once you get a job and have even a minimal amount of disposable income, one of the first things on your mind will be to buy new clothes. The fast fashion brands change your lineup of clothes on a weekly or even daily basis.

If you want your fashion to keep up with your social circle, you must constantly buy new clothes to replace your old, outdated ones. This trend has been supercharged in the age of social media, many fast fashion brands partner with tick-tock influencers to post videos about their so-called shopping hauls when they order obscene amounts of clothes from a fast fashion retailer. These tik tok videos are a constant reminder to young people that they need to buy more clothes to keep up with the trends of course, buying the clothes costs money. Once you empty out, your bank account you can't buy anymore, or at least that used to be the case fast fashion brands are increasingly enlisting the services of buy now pay later or bnpl lenders like klarner and zip to extract even more money from the customers.

In many cases, leaving them with negative net worths, their advertisements are geared towards younger audiences and blatantly imply that you can use these services to live beyond your means and buy things you can't afford and that's exactly what young people are now doing. Many of the bnpl providers offer zero interest rates and no fees. Of course, nothing is actually free. The fast fashion retailers pay the bnpl lenders to compensate them for taking on credit risk.

That's because they know that their consumers are credit constrained and will buy more if they have access to debt. The fast fashion, marketing machine is so effective that consumers want to spend more money than they have. The easier access to credit has cost personal loans volume to increase substantially in recent years, more than tripling from 2010 to 2019 in the us, there was a slight decrease in 2020, as consumers used stimulus money to pay down personal debt, but the trend is clearly upwards. The bulk of the increase has come from gen z and millennial consumers, as they are the main targets of the aggressive marketing campaigns, both by the fast fashion brands and the bnpl platforms.

While the bnpl providers claim they only give credit to people who will be able to pay it off, we know this is not always the case in australia. The relevant regulatory body found that 15 percent of bnpl consumers were forced to use high interest rate vehicles, such as credit cards, to make good on their bnpl payments in other similar nations. The numbers are probably similar. If we ever enter into a recession, these numbers will only get higher and, with global central banks, raising interest rates, consumers will be under increasing pressure to handle this credit card debt.

The ratings agency fitch rating says that bnpl is being adopted mostly by near-prime and subprime borrowers, many of whom would be rejected by traditional credit card companies. Basically, most bnpl customers are young people with relatively low incomes and not much credit history. The credit checks for bnpl loans are typically much less rigorous than those of traditional lenders just about anyone can go to h, m and buy two hundred dollars worth of close on four bi-weekly installments of fifty dollars. Apiece and often consumers will use multiple different bnpl providers.

You could have a five hundred dollar balance with the firm klarna afterpay and zip each there's very little communication between them, so each one has no idea how much personal debt you have outstanding. These bnpl companies are all silicon valley, unicorns, with advanced artificial intelligence and machine learning, so they're far safer than the old boring banks right. How could this possibly go wrong? This is eerily similar to the mortgage market leading up to the financial crisis. In 2008, banks were giving subprime mortgages to pretty much anyone who wanted one, regardless of their income, credit, history or net worth it all worked fine.

As long as house prices only went up the moment the housing bubble popped. We all know what happened. Bnpl is a relatively recent phenomenon, with all the big players being founded after the 2008 financial crisis. The only recession they've experienced is a coveted recession which was short-lived and saved by unprecedented government stimulus.

If the recent rate hikes drag us into a recession, it could cause a massive disaster, as many young consumers are already stretched so thin with these risks on the horizon, it's more important than ever to diversify your investment portfolio to meet the increasing needs for diversification, fintech Platforms are stepping up giving people access to investments they would only have dreamed of in the past and one of them. My personal favorite offers a unique asset. That's been long celebrated as a way to store wealth. In fact, the ultra wealthy have been using it for decades, and now 85 percent of wealth managers recommend that modern investors do too, but where previously, it was far out of our price ranges.

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The executives at these fast fashion megacorporations spend most of their time finding every penny of savings that they can extract from their supply chains. Just about all the fast fashion brands outsource their manufacturing to low-cost countries, mostly in southeast asia and south america, because they are making new clothing designs on a weekly basis. Much of the production needs to be done by hand, which is very time consuming and labor. Intensive non-profit human rights organizations have documented widespread human rights abuses, including, but not limited, to physical abuse of workers when quotas are not met not paying for overtime and in some cases not paying the workers at all.

It's gotten so bad that zara sweatshop workers hide secret notes in the clothing saying they have not been paid for the clothes they made. The fast fashion brands almost never employ the sweatshop workers directly. They instead send orders to third-party manufacturing companies effectively outsourcing the dirty work of labor exploitation. This way, the fast fashion executives can reap all the benefits of exploitation while technically not getting their hands dirty, as the industry has gotten more competitive in recent years.

These brands have exploited this arrangement to a near breaking point fast. Fashion brands send their orders to whichever contractor can give them the lowest prices and fastest turnaround times in practice. This means whoever can give their workers the lowest pay force them to work the longest hours and enforce the most draconian punitive incentives to make sure quotas are met. It's nothing personal against the workers.

The factory owners just do what they have to do to win the contracts. This inevitably leads to a race to the bottom. In 2017, a sweatshop contractor in indonesia found itself in hot water. They were exposed for numerous labor violations, including firing female workers when they were found to be pregnant and aggressively harassing labor union members.

Their main customer was uniqlo when they found out about this. Uniqlo almost immediately ceased doing business with them. This might sound like a good thing. Uniqlo doesn't want to do business with a contractor that exploits their workers, but the reality is far more sinister.

The reason the contractor had to resort to such exploitative measures in the first place was to satisfy the cost and efficiency demands of their main customer, the second that these crimes are exposed. Uniqlo will kick them aside like a broken tool and find a new contractor to exploit. This is also they can avoid pr or legal liability. Indonesia does not have national unemployment insurance; instead, they require bylaw that employers give laid off employees severance pay to hold them over.

Until they find new employment, the problem is a contractor went bankrupt and they don't have any money. While the workers made uniqlo clothes, they were not technically employed by uniqlo. The fast fashion conglomerate had no legal obligation to pay the 5.5 million dollars owed. Despite protests and public outcry, the company, which has a market valuation of almost 50 billion dollars, has not paid one penny in compensation to this day.

The founders and executives of the large fast fashion brands have built fortunes collectively worth hundreds of billions of dollars based on a two-pronged exploitation model. On the demand side, they partnered with bnpl providers to saddle their consumers with exorbitant net burdens on the supply side. They created a system to exploit workers under unimaginably draconian conditions. With that being said, it's not all black and white.

The only reason that people are willing to work at the sweatshops is because the other employment opportunities in their communities are even worse. On the bnpl side, the fed printing free money for the past decade has created a desperate search for yield. It's only natural that financial engineers will create new and creative ways to extend credit to more and more risky consumers. It would be naive to expect anything else, at least for the foreseeable future, despite its flaws.

Fast fashion is here to stay, alright, guys that wraps it up for this video. What do you think about fast fashion and buy now pay later? Are they net positive or net negative for society? Let us know in the comments section below, as always. Thank you so much for watching and we'll see in the next one.