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Speaker 1: Welcome to the Bloomberg p m L Podcast. I'm pim Fox.

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Speaker 1: Along with my co host Lisa A. Bramowitz. Each day

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Speaker 1: we bring you the most important, noteworthy, and useful interviews

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Speaker 1: for you and your money, whether you're at the grocery

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Speaker 1: store or the trading floor. Find the Bloomberg p m

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Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com.

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Speaker 1: It was a choppy response to the consumer price Index

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Speaker 1: as well as the retail sales number. Uh. Here to

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Speaker 1: kind of have us shape our idea of how to

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Speaker 1: view these two numbers is Peter Sheer, head of macro

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Speaker 1: strategy at Academy Securities based in Connecticut. Peter, thank you

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Speaker 1: so much for joining us. So Uh, the initial response

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Speaker 1: was to sell stocks, sell bonds, gold Who knows? People

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Speaker 1: just wringing their hands. What don't you ache of this?

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Speaker 1: I mean, was this a good report given the CPI

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Speaker 1: accelerating fast more than people expected, or was it a

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Speaker 1: bad report given the retail sales coming in in an

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Speaker 1: underwhelming way. I think it is a bad report. Um.

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Speaker 1: I think this retail sales is very problematic, and when

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Speaker 1: I look back at some of the recent data we had,

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Speaker 1: I think it was the Richmond said, the New York said,

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Speaker 1: a lot of the regional feds have missed on their reports.

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Speaker 1: I look at the city Economic Surprise Index that's been

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Speaker 1: turning down. So the one thing that helps this market

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Speaker 1: through all this volatility is this real belief that the

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Speaker 1: fundamentals are okay. I'm wondering if this is going to

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Speaker 1: call it some of that into question. So Pete, what's

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Speaker 1: the trade? I think you continue to sell risk. We

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Speaker 1: bounced off that low on Friday. We have an opportunity

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Speaker 1: to take off some risks. I think you want to

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Speaker 1: be careful here. It's still very volatile, it's still very

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Speaker 1: uncertain what's going on. And if there is anything that

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Speaker 1: starts to show weakness in the economy or some of

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Speaker 1: the trade negotiations start turning bad, I think there's just

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Speaker 1: some more downside and going back to those glows. Okay,

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Speaker 1: So what risk do you sell? Do you sell riskier

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Speaker 1: credit in the US? Do you sell emerging markets? Do

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Speaker 1: you sell stocks? I think you saw a little bit

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Speaker 1: of stocks here. I think emerging markets. I would not

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Speaker 1: be selling high yield here, although people are selling that

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Speaker 1: again today, only because I think that has become a

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Speaker 1: very crowded short position. For some reason, people in the

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Speaker 1: credit markets state high yield. If you're a macro player,

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Speaker 1: you hate high yield. Everyone's kind of stixated on high

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Speaker 1: yield as a short, and it's very costly to short

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Speaker 1: that right now. So I think there's better opportunities, So

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Speaker 1: I'd be probably shorting some em and more likely even

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Speaker 1: some US equities of here. So with emerging markets, how

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Speaker 1: should people be trying to either go short UH emerging

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Speaker 1: markets or should they just sell? Because I was looking

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Speaker 1: this morning at UH spreads, extra yield over benchmarks on

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Speaker 1: high yield bonds in the US versus high old bonds

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Speaker 1: and emerging markets, and right now you're getting no premium

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Speaker 1: whatsoever for going into emerging markets high yield bonds or

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Speaker 1: US high old bonds. How do people play that? I

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Speaker 1: think you could take a look at something like e

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Speaker 1: m B, which is a emerging market bond ets. It's

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Speaker 1: not going to quite capture what you're looking at there,

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Speaker 1: but I think close enough. And I think that's what

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Speaker 1: people are going to start doing, is they're gonna look

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Speaker 1: at high heels and say, wow, my high heeld bonds

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Speaker 1: are down three points or four points and my e

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Speaker 1: M bonds only down one point, Maybe I should sell those.

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Speaker 1: So I think that is a relative value transformation that

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Speaker 1: tends to occur. So, Peter, why you're not fixing it

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Speaker 1: on the consumer Price Index? It's been so volatile. They

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Speaker 1: have told us, you know, time and time again to

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Speaker 1: focus on PC. Anyways, it's one number and of anything.

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Speaker 1: If I really want to fixate on this, you start

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Speaker 1: getting nervous that we're seeing from signs of stagflation. Right,

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Speaker 1: we're finally creating inflation without the underlying growth. Maybe there

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Speaker 1: that needs to be Again, it's premature to look at

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Speaker 1: it like that, but I think we're gonna start testing

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Speaker 1: this whole economic fundamental is great theory in the next

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Speaker 1: week or so in terms of data. So what does

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Speaker 1: this do for the FED? I mean, right now the

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Speaker 1: market is pricing chance of a March rate hike. Does

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Speaker 1: this mean that they have more ammunition to increase rates

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Speaker 1: faster because of some inflationary pressure, or does that mean

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Speaker 1: that they're going to hold back because there's sort of

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Speaker 1: a questionable dynamic underlying the growth story. My view is

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Speaker 1: that they will hike in March. I think that's still

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Speaker 1: on the table, and you know the CPI lets them

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Speaker 1: do that, but I think they will give us some

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Speaker 1: cautionary tales that they want to watch what's going on

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Speaker 1: with the consumer. You know, this is now not just

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Speaker 1: this month number is bad, but they revised down last month.

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Speaker 1: You've seen an uptick and credit card delinquencies. You've also

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Speaker 1: seen all these bizarre stories. To me, I in mind

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Speaker 1: of people not being allowed to buy bitcoin on their

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Speaker 1: credit cards, which cause into questions who is buying bitcoin

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Speaker 1: on credit cards? So I think they're going to be

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Speaker 1: cautious and say, hey, we've risen rates a lot, let's

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Speaker 1: see what this does to the consumer. Pete, what about

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Speaker 1: stag inflation? What would have to happen for you to

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Speaker 1: make that a headline for you? I think we need

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Speaker 1: to really believe that inflation is here, and I just

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Speaker 1: questioned that. And we're starting to see, you know, things

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Speaker 1: like oil rolled over a little bit, so a lot

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Speaker 1: of the inflationary pressures that were there. I think we'll

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Speaker 1: go down. We will see maybe there are going to

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Speaker 1: be all these way chikes related to tax reform and

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Speaker 1: that could help and really drive some pressure. But right

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Speaker 1: now we're just seeing more one time bonuses rather than

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Speaker 1: big wage increases and there's no inflation number that would

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Speaker 1: get you to change your mind. Yeah, I think it's

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Speaker 1: discontinues in its persistent. I would become concerned then that

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Speaker 1: we really created inflation, and hopefully, if we've created that,

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Speaker 1: these bad retail sales numbers will be an anomaly. So

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Speaker 1: I guess I'm looking for probably another month or so

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Speaker 1: that starts confirming or at least the sneaking suspicion that

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Speaker 1: inflation has increased while growth is flowing. All right, well,

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Speaker 1: we're gonna check in with you then. Of course. Peter

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Speaker 1: Cheer is the head of macro strategy at Academy Securities.

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Speaker 1: He's based in Connecticut, giving this giving us his thoughts

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Speaker 1: about inflation, but also really sparing uh no effort when

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Speaker 1: he looks at those retail sales numbers. The future of

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Speaker 1: infrastructure in the United States calls for experts to give

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Speaker 1: us their thoughts, advice, and their experience. Walter Kempsis is

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Speaker 1: economist and chief strategist for U Sports, Airports and Global

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Speaker 1: Infrastructure Group of j A L. That's Jones lang Lassalle

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Speaker 1: and they're based in Chicago. Walter, thank you very much

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Speaker 1: for being here. Maybe just tell people a little bit

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Speaker 1: about your background and that you are currently advising the

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Speaker 1: U s Department of Commerce their Advisory Committee on Supply

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Speaker 1: Chain Competitiveness, as well as the Department of Transportations Task

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Speaker 1: Force on Infrastructure Valuation. Maybe just give us a little

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Speaker 1: bit of a hint of your background and how you're

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Speaker 1: applying that to the President's effort to improve the infrastructure

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Speaker 1: quality in the United States. Thank you. I'm a former

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Speaker 1: investment banker who got pulled into a marine engineering firm

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Speaker 1: Mofitta Nickel to help the financial community as they were

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Speaker 1: trying to initially invest in infrastructure about twelve fifteen years ago. UH.

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Speaker 1: That role eventually morphed into planning the infrastructure, and I've

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Speaker 1: worked with the number of port authorities around the country

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Speaker 1: in strategic development plans, making sure they had the capacity

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Speaker 1: in advance of the freight coming in. And as a

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Speaker 1: result of that work, um I was asked to join

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Speaker 1: the Department of Commerce uh Advisory Committee on Supply Chain Competitiveness,

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Speaker 1: which is comprised of port authorities, railroads are big importers

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Speaker 1: and big exporters, as well as a few, uh you know,

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Speaker 1: advisory experts like myself. So Walter. Since you talk with

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Speaker 1: US ports and airports and other infrastructure groups, what's their

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Speaker 1: outlook and how much money is going to get unleashed

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Speaker 1: by some sort of infrastructure spending program and what can

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Speaker 1: we glean from the budget the President Trump put out

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Speaker 1: earlier this week that most people said it was dead

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Speaker 1: on arrival. Is there anything any details that we can

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Speaker 1: hang on to? Okay, I mean, just if you're just

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Speaker 1: looking at the ports sector. On the water side of

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Speaker 1: the ports, uh, the American Association Port Authorities estimates about

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Speaker 1: sixty six billion dollars, you know, to raise bridges, to

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Speaker 1: drudge channels, to strengthen key walls, and buy bigger equipment

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Speaker 1: to handle the bigger ships. The what they don't have

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Speaker 1: an estimate for is on the land side, because you know,

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Speaker 1: as the volumes have grown in this country, the economy,

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Speaker 1: the population, the number of of paved miles have not

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Speaker 1: kept pace. And in the major ports cities we see

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Speaker 1: a lot of congestion, such as in Los Angeles Long

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Speaker 1: Beach as well as New York. Uh. You can add

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Speaker 1: other cities to that, but that's the part where the

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Speaker 1: estimated cost doesn't exist. But I would put that number

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Speaker 1: at twice what we need for the for the waterside um.

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Speaker 1: In terms of the plan itself, I think people need

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Speaker 1: to understand that this is not supposed to be an

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Speaker 1: Eisenhower interstate program. We've already built our interstate. We've built

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Speaker 1: the core infrastructure. But this is supposed to be a

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Speaker 1: means to repair and upgrade all of our infrastructure, including transportation, energy,

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Speaker 1: and the water supply. You know. And ever since the

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Speaker 1: Eisenhower era, responsibility has shifted the states and local governments, uh,

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Speaker 1: you know, to not only direct the infrastructure investments, but

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Speaker 1: also as a means to reduce the incentives to use

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Speaker 1: free federal money and I say free in quotes, but

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Speaker 1: free federal money to generate jobs building roads to nowhere.

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Speaker 1: So the whole idea here is to target about two

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Speaker 1: billion dollars as seed capital, which, along with other actions

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Speaker 1: such as a shock clock on on permit approval time,

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Speaker 1: will make it a lot easier for private capital to

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Speaker 1: invest um. The other part of the program also includes

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Speaker 1: loosening the federal loan programs such as TIFFIA, WI, A

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Speaker 1: RIFF and the other you know alphabet soup of programs

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Speaker 1: that exist that currently um, you know, our structure to

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Speaker 1: help somebody, you know, do the upfront capital expenditures but

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Speaker 1: be able to wait a number of years before generating

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Speaker 1: the revenue necessary for debt repayment. The problem with these

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Speaker 1: programs is they've been extremely stingy, and loans generally don't

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Speaker 1: get approved, So there is an effort to loosen that, uh,

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Speaker 1: in order to unleash the federal support that's available already. Walter,

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Speaker 1: is there a project that you could use as a showcase,

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Speaker 1: and I mean you as collectively of the industry that

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Speaker 1: could be used as a showcase in order to demonstrate

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Speaker 1: both the politicians and to the electorate that these programs

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Speaker 1: can work. That then would foster even greater incentive and

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Speaker 1: desire to accomplish these things, because it seems as though

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Speaker 1: we don't have a specific objective and that makes it

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Speaker 1: even more challenging. Yeah, I completely agree with you. Um

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Speaker 1: you know where one of the things that the program

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Speaker 1: falls short on is to tie all of this this

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Speaker 1: effort into some kind of national economic objective. And the

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Speaker 1: simplest one, and this relates to the efforts for free

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Speaker 1: trade agreement renegotiations, is to support exports. Most of our

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Speaker 1: infrastructure investment in the last twenty thirty years has gone

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Speaker 1: towards the import side of the trade flows. And when

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Speaker 1: you look at it, you know, volume wise, the US

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Speaker 1: trade deficit is practically zero. But we import high value

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Speaker 1: per Ton goods and we export low value per Ton goods.

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Speaker 1: So on a dollar basis, we run a very large

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Speaker 1: trade deficit, averaging half a trillion a year for the

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Speaker 1: last you know, five ten years. So the money would

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Speaker 1: naturally be attracted to where there is a high value

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Speaker 1: per Ton, there's more pricing power and earned there's more

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Speaker 1: return available. If we tied the infrastructure program to something

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Speaker 1: like supporting exports, uh, then I think things would work

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Speaker 1: a little bit better. And part of the problem is

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Speaker 1: that as jobs have left the US, jobs in the

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Speaker 1: export oriented industries haven't taken up the slack in the

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Speaker 1: labor markets. So if we do renegotiate the trade agreements

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Speaker 1: and opener markets to US exports, we will need to

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Speaker 1: invest in infrastructure to support that. So just to be

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Speaker 1: really clear, what is that spending that needs to support exports? Yeah? Um,

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Speaker 1: the first off, it would be on the Mississippi Waterway.

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Speaker 1: Most of that was built in the nineties. Uh, you know,

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Speaker 1: during the great depression. That infrastructure is now uh seventy

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Speaker 1: five years or older. The Soybean Transportation Coalition has done

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Speaker 1: to report a couple of them now and they've pointed

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Speaker 1: out that roughly three fourths of our Mississippi Waterway infrastructures

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Speaker 1: over seventy five years of age. And the way it

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Speaker 1: works with the dams and the locks is that they're

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Speaker 1: built with the fifty year life cycle, and every twenty

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Speaker 1: five years you inspected and try to retrofit it a

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Speaker 1: little bit and get another twenty five years out of it.

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Speaker 1: But when you hit seventy five years, that's it. You're done.

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Speaker 1: You need to replace it, just like we're doing with

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Speaker 1: the bridges in New York. You know, perhaps a little late,

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Speaker 1: but yeah, that Mississippi Waterway infrastructure when it breaks down.

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Speaker 1: When a lock breaks down, miles of barges back up

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Speaker 1: on either side because they can't traverse the step in

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Speaker 1: the river, and oftentimes we have two three D print

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Speaker 1: apart because it just doesn't exist anymore. Walter Kemsies, thank

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Speaker 1: you so much for your insights. We'll have to have

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Speaker 1: you back. Walter Kemsie's economist and chief strategist for US

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Speaker 1: Ports Airports and Global Infrastructure Group at j L L.

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Speaker 1: Jones Langless Sality, Chicago, joining us by phone the shares

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Speaker 1: of Marriott International. They're hired by a little bit more

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Speaker 1: than one percent right now. The company will report results

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Speaker 1: after the close of trading today. Based in Bethesda, Maryland,

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Speaker 1: home to Bloomberg and one oh five point seven FM

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Speaker 1: HD two and here to tell us about the company

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Speaker 1: and more in the hospitality industry is Mike Belisario, equity

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Speaker 1: analyst at Baird. Mike, what can you tell us about

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Speaker 1: Marriott and the I guess it's the years since they

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Speaker 1: acquired the Star Wars brand. What are they going to

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Speaker 1: post in terms of savings and asset sales? Good morning,

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Speaker 1: things for having me UM. I think you're going to

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Speaker 1: hear a lot from Marriott that we heard from Hyatt,

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Speaker 1: from Tuney, from Hilton this morning. Really strong fourth quarter

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Speaker 1: guidance for that is pretty much in line with UM.

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Speaker 1: The results that they posted for fully, I mean specifically

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Speaker 1: for Marriott, it's been fifteen sixteen months since they've closed

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Speaker 1: the transaction. Investors are really focused on the synergies. A

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Speaker 1: lot of those have been realized assets sales here or there,

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Speaker 1: that's important. A lot of the heavy lifting has been done.

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Speaker 1: I think the thing people are really focused on is

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Speaker 1: all the extra benefit that Marriott being bigger, having more

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Speaker 1: negotiating power can pass to its owners, especially in a

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Speaker 1: tough operating environment like today. So, Mike, I'm wondering just

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Speaker 1: about the tourism industry in general. We had heard reports,

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Speaker 1: given some of the talk of the current presidential administration

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Speaker 1: about UH foreigners and immigrants and all of that, that

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Speaker 1: it had would have a dampening effect on tourism. Did

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Speaker 1: we see any of that from Hilton's results? We did,

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Speaker 1: and we've seen that broadly in the data. Inbound international

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Speaker 1: travel to the US was down a bit. In Hilton

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Speaker 1: this morning thinks it's inbound travel was down about four percent,

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Speaker 1: But that only makes up call it, you know, five

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Speaker 1: ish percent of their total business. You know. Some of

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Speaker 1: that is the you know, the political backlash if if

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Speaker 1: you're someone overseas and you might not want to come

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Speaker 1: to the US because you don't like what you're hearing,

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Speaker 1: that's possible. Some of it is also the US dollar.

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Speaker 1: It just was more expensive throughout seventeen to come to

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Speaker 1: the US. Flip side too, we don't talk about it enough.

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Speaker 1: Is the domestic traveler, the US traveler not going on

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Speaker 1: vacation to Florida or southern California, But because it's so

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Speaker 1: cheap to go to Europe or Japan, for example, more

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Speaker 1: US citizens going abroad too. So that's also an impact

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Speaker 1: in the numbers that people don't talk a lot about.

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Speaker 1: But yes, there there was an impact in seventeen. We're

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Speaker 1: still seeing it on the inbound international travel side. So

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Speaker 1: of the big hospitality companies which are most exposed to

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Speaker 1: that trend of domestic tourists from the US is going

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Speaker 1: international and not as many inbound tourists in the US. Actually,

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Speaker 1: the biggest beneficiary come on a percentage basis, would be

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Speaker 1: Highatt because a larger percentage of their portfolio is overseas Hilton,

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Speaker 1: Marriott and high Att. Hilton is the most domestic focused. Um.

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Speaker 1: The way to think about it too is where where

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Speaker 1: do people come to the US To go to New York,

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Speaker 1: They go to San Francisco, Los Angeles. So anyone that

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Speaker 1: has urban market gateway market exposure, if you're an owner

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Speaker 1: of hotels in those markets, which a lot of the

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Speaker 1: reeds are, those companies are also disproportionately impacted. But you know,

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Speaker 1: Marriott's brand, Hilton's brand in the US overseas, if you

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Speaker 1: can capture that same traveler that was maybe going to

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Speaker 1: travel to the Marriott in Orlando, but they're going to

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Speaker 1: the Marriott in Prague, that's kind of a win win

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Speaker 1: for Marriott in its eyes. So does this mean that

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Speaker 1: Mike that expansion for these growth markets in Asia and Europe,

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Speaker 1: would that be key to achieving some of these profit targets. Absolutely,

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Speaker 1: Roughly half of the big brand's pipelines is outside of

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Speaker 1: the United States. We can't zoom out these big global

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Speaker 1: hotel companies. They're very focused in the US and in

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Speaker 1: North America. There's a lot of white space still uh

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Speaker 1: in Europe, in Asia, Pacific and even in Africa, so

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Speaker 1: a lot of the growth is coming from there. You're

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Speaker 1: just also working off a smaller base. But yeah, that's

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Speaker 1: that's where they're focusing a lot of their efforts to

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Speaker 1: kind of capture both of the inbound and outbound travel,

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Speaker 1: but particularly from China. We've actually seen the dollar week

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Speaker 1: in this year a little bit. Does that matter or

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Speaker 1: in the scheme of things, is it such a minimal

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Speaker 1: weakening that it's not going to change the trend that

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Speaker 1: we saw in it matters that actually came up on

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Speaker 1: Hilton's conference call. It's hard to tell on a week

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Speaker 1: to week, month to month basis. I think over rolling

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Speaker 1: twelve month periods it's important. Um And on the margin,

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Speaker 1: it does cause people to either say yes or no,

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Speaker 1: I want to go to the U S or yes

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Speaker 1: or no, I want to go to London instead of Japan,

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Speaker 1: for example. Um And there's also a lag to booking.

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Speaker 1: If you're a leisure traveler, you're more price sensitive and

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Speaker 1: you're sometimes booking three to six months out. So if

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Speaker 1: there is a weakening or strengthening of the dollar, you're

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Speaker 1: not necessarily going to see it now. It might not

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Speaker 1: be until June or July or August, for example, when

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Speaker 1: we actually see the impact of what happened to the

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Speaker 1: dollar today. Mike Belisario, thank you so much for joining us.

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Speaker 1: Really interesting insights. Mike Belisario is senior equity research analyst

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Speaker 1: at Baird, coming to us from Chicago. The New York

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Speaker 1: Fed put out a report this week taking a look

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Speaker 1: at consumer debt, and it showed that student loan outstanding

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Speaker 1: have totaled one point for trillion dollars, and delinquencies could

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Speaker 1: be up to twenty two percent if you take out

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Speaker 1: instances of students who are not required to make payments

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Speaker 1: because they're still in schooled UH and still in school, unemployed,

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Speaker 1: or for other reasons. Joining us now is Marshall Steinbaum,

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Speaker 1: research director and fellow at the Roosevelt Institute in Washington,

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Speaker 1: d C. Marshall, thank you so much for joining us.

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Speaker 1: This is a really important topic. I'm just wondering. You

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Speaker 1: did a report looking at the macroeconomic implications of this

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Speaker 1: rising pile of student debt. What what are the implications?

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Speaker 1: I mean they could be quite significant, considering that this

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Speaker 1: is uh now a one point four trillion dollar pile

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Speaker 1: of debt. The effect on the macro economy of canceling

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Speaker 1: all the outstanding student debt and what we found is

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Speaker 1: that it would have a moderate stimulative effect on overall output.

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Speaker 1: I think the numbers of a v six billion to

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Speaker 1: a hundred billion dollars a year approximately given the two

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Speaker 1: models that we used, um that it would reduce the

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Speaker 1: unemployment rate and increase the total rate of people being employed.

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Speaker 1: And the main effect is because essentially the debt is

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Speaker 1: burdening the balance sheets of households, especially young households, and

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Speaker 1: if they didn't have to make those payments, they would

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Speaker 1: spend the money on other things, and that would increase

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Speaker 1: aggregate demand. Where would the money come from in order

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Speaker 1: to pay off this debt? That's a good question. Currently

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Speaker 1: the federal government is the lender for about the debt,

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Speaker 1: and what we modeled is essentially then for canceling it,

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Speaker 1: so just writing it off, and then the other ten

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Speaker 1: percent the federal government would assume making payments to the

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Speaker 1: private lenders on behalf of students um. So overall, both

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Speaker 1: of those two things would increase the federal deficit um

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Speaker 1: and and the federal debt outstanding um while relieving debt

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Speaker 1: from individual households. And the whole macroeconomic UH mechanism that's

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Speaker 1: going on in the in the forecast of the effects

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Speaker 1: is that that transfer of the debt from households to

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Speaker 1: the government is h macroeconomically beneficial. Okay, But if the

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Speaker 1: government is going to be the one to put the bill,

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Speaker 1: doesn't that really mean that the taxpayer is the one

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Speaker 1: to foot the bill. Well, we've been running up dead

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Speaker 1: and deficits for a long time. Now UM, and the

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Speaker 1: tax share of total output is I think at its

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Speaker 1: lowest ever UM and our lowest in a very long time,

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Speaker 1: and uh low for the state of the business cycle

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Speaker 1: where we currently are. Normally, you'd expect the federal government

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Speaker 1: to be collecting the most in taxes when the economy

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Speaker 1: is doing relatively well. UM. So I think you know,

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Speaker 1: whether there's this tight connection between the federal government assuming

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Speaker 1: debt and collecting taxes to pay that debt. I think

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Speaker 1: that's an open question at macroeconomics. I'm trying to figure out.

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Speaker 1: So your report found that there would be this modest

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Speaker 1: stimulative effect if the student debt were canceled of up

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Speaker 1: to one hundred and eight billion dollars per year. Does

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Speaker 1: that change over time? I mean, is it? How do

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Speaker 1: you quantify the economic effect of student debt on a

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Speaker 1: generation of people who might be delaying home purchases or

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Speaker 1: having children, or taking jobs that that are risk here

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Speaker 1: but might have more potential. That's a great question, and

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Speaker 1: we don't really do that in the paper. That is

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Speaker 1: specifically look at questions of like home ownership or small

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Speaker 1: business formation, or what jobs do people take as a

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Speaker 1: result of having debt? UM The macroeconomic models that that

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Speaker 1: we used to make those sort of big statements about

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Speaker 1: how large the the economy would be don't really get

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Speaker 1: into that level of detail. But I think it's crucially

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Speaker 1: important to understand what effect student debt is actually having

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Speaker 1: on the economy. Uh. It's certainly true that now we

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Speaker 1: have essentially a whole generation of workers who had who

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Speaker 1: felt that they had to take on some level of

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Speaker 1: student debt to get access to the labor market, much

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Speaker 1: more so than was the case previously. And I think

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Speaker 1: that given that the labor market has not been performing

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Speaker 1: terribly well, that wages are stagnant, they feel that that

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Speaker 1: debt is a burden rather than a an opening to

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Speaker 1: to social mobility and to better jobs. Well, how much

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Speaker 1: of this is an indictment, frankly on what individuals are

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Speaker 1: paying for. In other words, some of the schools that

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Speaker 1: aren't necessarily setting up students for jobs that are lucrative

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Speaker 1: enough to make this debt seem relatively insignificant. I think

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Speaker 1: the overall explanation for why we have a student debt

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Speaker 1: crisis in this country has to do with things that

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Speaker 1: aren't really about higher education, Although certainly part of the

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Speaker 1: story is there UM. I think what happened was that

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Speaker 1: we had a theory that the labor market was suffering

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Speaker 1: from a skills gap, and that the solution to that

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Speaker 1: skills gap was to make sure that people had the

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Speaker 1: education they needed for today's jobs, and ultimately, because that

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Speaker 1: education would end up paying for itself in the form

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Speaker 1: of higher wages, we got comfortable as a sort of

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Speaker 1: policy priority of shifting the responsibility of paying for that

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Speaker 1: education from UH state governments in the form of support

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00:24:54,200 --> 00:24:58,159
Speaker 1: for public higher education to individuals using the federal student

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00:24:58,200 --> 00:25:01,960
Speaker 1: loan program. And what we've found, I think, is that

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00:25:01,960 --> 00:25:05,480
Speaker 1: that diagnosis of a skills gap was not correct, So

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00:25:06,200 --> 00:25:09,760
Speaker 1: people ended up paying for these degrees that were supposed

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00:25:09,800 --> 00:25:12,960
Speaker 1: to be the route to higher earnings, and it turned

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00:25:12,960 --> 00:25:15,639
Speaker 1: out that that really wasn't why wages were stagnating. The

437
00:25:15,760 --> 00:25:19,600
Speaker 1: issue is not a skills gap, but rather UH trends

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00:25:19,680 --> 00:25:21,320
Speaker 1: in the economy that have to do with the power

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00:25:21,320 --> 00:25:25,320
Speaker 1: of employers and UM the ability of employers to essentially

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00:25:25,320 --> 00:25:29,240
Speaker 1: credentialize the labor markets are to demand a higher UH

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00:25:29,440 --> 00:25:32,120
Speaker 1: level of credentials and thus a higher level of debt

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00:25:32,160 --> 00:25:35,520
Speaker 1: to go along with any given job who has financially

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00:25:35,640 --> 00:25:39,560
Speaker 1: benefited from these student loans, I don't. I don't mean

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00:25:39,600 --> 00:25:41,679
Speaker 1: the students in trying to sort of connect it with

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00:25:41,720 --> 00:25:46,640
Speaker 1: a future employment. But who's benefited financially and why don't

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00:25:46,680 --> 00:25:51,080
Speaker 1: they then if the government or someone decides that this

447
00:25:51,160 --> 00:25:54,840
Speaker 1: is something that we should not be supporting, why not

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00:25:55,080 --> 00:25:58,720
Speaker 1: have them assume the burden of this financial problem. I

449
00:25:58,720 --> 00:26:02,040
Speaker 1: mean that's a very good question. Uh. I think so aside,

450
00:26:02,080 --> 00:26:04,040
Speaker 1: you know, the federal government is the lender, so in

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00:26:04,080 --> 00:26:07,439
Speaker 1: a direct sense, they have benefited financially. I mean, this

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00:26:07,520 --> 00:26:09,919
Speaker 1: is I think a policy that the federal government decided

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00:26:09,920 --> 00:26:12,760
Speaker 1: to undertake that they wanted more people to get degrees,

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00:26:12,800 --> 00:26:14,879
Speaker 1: and so they were willing to extend loans on what

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00:26:14,960 --> 00:26:18,360
Speaker 1: for the private sector would be considered pretty generous terms, UM,

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00:26:18,400 --> 00:26:20,600
Speaker 1: in exchange for having more people get higher education. I

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00:26:20,600 --> 00:26:23,880
Speaker 1: think beyond that, UM, you have a lot of institutions

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00:26:23,880 --> 00:26:25,800
Speaker 1: that have benefited a great deal from what I would

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00:26:25,800 --> 00:26:30,560
Speaker 1: consider credentialization spiral. So they're able to sell degrees to

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00:26:30,760 --> 00:26:33,360
Speaker 1: people who wouldn't previously have needed those degrees in order

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00:26:33,400 --> 00:26:35,959
Speaker 1: to get access to the jobs they want. UM. I

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00:26:36,000 --> 00:26:39,919
Speaker 1: think you know that that. I think people tend to

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00:26:40,040 --> 00:26:42,760
Speaker 1: point to the for profit higher education providers as being

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00:26:42,840 --> 00:26:45,200
Speaker 1: especially kind of culpable in that sense, but I think

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00:26:45,200 --> 00:26:47,919
Speaker 1: it doesn't just extend to them. Um. And then the

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00:26:47,960 --> 00:26:50,359
Speaker 1: other piece of this is that the federal government, you know,

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00:26:50,440 --> 00:26:54,399
Speaker 1: really doesn't manage this large loan portfolio by itself. It

468
00:26:54,440 --> 00:26:58,640
Speaker 1: has a servicers. When the federal government took over responsibility

469
00:26:58,680 --> 00:27:01,400
Speaker 1: as as the lender, that is, stopped guaranteeing private loans

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00:27:01,400 --> 00:27:04,840
Speaker 1: and started becoming being the lender itself for newly originated loans,

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00:27:05,440 --> 00:27:10,400
Speaker 1: the financial institutions that had been the lenders before became servicers.

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00:27:10,440 --> 00:27:13,480
Speaker 1: And then there there are some other um bodies that

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00:27:13,480 --> 00:27:15,800
Speaker 1: that service these loans, and they have an incentive to

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00:27:15,880 --> 00:27:19,199
Speaker 1: essentially extend payment as long as possible UM and not

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00:27:19,240 --> 00:27:25,040
Speaker 1: necessarily to uh inform borrowers what their best options are

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00:27:25,080 --> 00:27:29,760
Speaker 1: about how to for instance, UH available public service loan

477
00:27:29,800 --> 00:27:32,520
Speaker 1: forgiveness and other other income based repayment. So so it's

478
00:27:32,520 --> 00:27:36,280
Speaker 1: another word's almost like a credit card situation where you know,

479
00:27:36,600 --> 00:27:39,840
Speaker 1: you uh sort of demonize the people for getting into debt,

480
00:27:39,880 --> 00:27:41,840
Speaker 1: but you encourage them to be able to take out

481
00:27:41,840 --> 00:27:44,919
Speaker 1: more debt by offering them all kinds of incentives to

482
00:27:44,960 --> 00:27:48,160
Speaker 1: do so. Yeah, and I think that is an apt

483
00:27:48,200 --> 00:27:51,159
Speaker 1: point because we have this sort of uh glow of

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00:27:51,240 --> 00:27:55,080
Speaker 1: higher education associated with student loans, and that's let people

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00:27:55,160 --> 00:27:57,880
Speaker 1: get the financial institutions and other stakeholders get away with

486
00:27:58,560 --> 00:28:01,520
Speaker 1: UM tactics that I think there has been greater scrutiny

487
00:28:01,520 --> 00:28:04,560
Speaker 1: of when the when the question is credit card loans

488
00:28:04,640 --> 00:28:06,440
Speaker 1: or home mortgages. I mean we had sort of the

489
00:28:07,320 --> 00:28:10,159
Speaker 1: scrutiny that arose in the financial crisis to other forms

490
00:28:10,280 --> 00:28:12,640
Speaker 1: of other parts of the credit market that I think

491
00:28:12,960 --> 00:28:17,240
Speaker 1: student debt has largely avoided. So which age group is

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00:28:17,680 --> 00:28:23,120
Speaker 1: most burdened by this one point for trillion dollar Well,

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00:28:23,119 --> 00:28:26,520
Speaker 1: it's certainly younger workers are most burdened by it. UM.

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00:28:26,840 --> 00:28:31,439
Speaker 1: You can see the enorm skyrocketing percentage of workers in

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00:28:31,440 --> 00:28:37,000
Speaker 1: the forty age cohort that have student loans relative to

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00:28:37,080 --> 00:28:41,480
Speaker 1: what that cohort would have had in earlier eras UM

497
00:28:41,640 --> 00:28:43,120
Speaker 1: or I should say what that age group would have

498
00:28:43,120 --> 00:28:44,920
Speaker 1: had in earlier ears. I should also say that a

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00:28:44,920 --> 00:28:48,120
Speaker 1: lot of families go into interes generational debt. UM there

500
00:28:48,280 --> 00:28:51,240
Speaker 1: you know, federal programs that explicitly encouraged that. And then

501
00:28:51,280 --> 00:28:54,640
Speaker 1: I think it's just natural that UM parents and grandparents

502
00:28:54,680 --> 00:28:58,560
Speaker 1: and and other family members want to contribute to their children, UM,

503
00:28:58,600 --> 00:29:01,160
Speaker 1: getting educated and getting access to the labor market and

504
00:29:01,200 --> 00:29:04,800
Speaker 1: too good jobs. UM. And so there's a good report

505
00:29:04,840 --> 00:29:07,480
Speaker 1: from the Federal Reserve Community Affairs Division that comes out

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00:29:07,480 --> 00:29:09,600
Speaker 1: every year that sort of goes into that the story

507
00:29:09,600 --> 00:29:12,280
Speaker 1: of student debt extending beyond the student and the debt

508
00:29:12,360 --> 00:29:16,320
Speaker 1: or themselves. Marshall, have you seen any change from employers

509
00:29:16,600 --> 00:29:21,520
Speaker 1: of not demanding sort of an increasing credentials No, the opposite.

510
00:29:21,560 --> 00:29:23,720
Speaker 1: I think it's it's it's going on and on. I think,

511
00:29:24,000 --> 00:29:26,479
Speaker 1: you know, employers know that they can, um, they can

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00:29:26,520 --> 00:29:29,000
Speaker 1: get more credential workers for essentially the same or lower

513
00:29:29,040 --> 00:29:31,560
Speaker 1: wages as they did in the past. And just briefly,

514
00:29:31,680 --> 00:29:35,560
Speaker 1: have people conflated this current kind of student debt explosion

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00:29:35,760 --> 00:29:37,720
Speaker 1: with what we're g I loans and no other words

516
00:29:37,720 --> 00:29:40,520
Speaker 1: saying they're kind of the same things. I beg your pardon,

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00:29:40,560 --> 00:29:42,160
Speaker 1: you know what we're going to go to. I want

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Speaker 1: to thank you very much for joining us, Marshall Steinbaum,

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00:29:44,520 --> 00:29:52,920
Speaker 1: Research Director fellow, Roosevelt Institute in Washington, d C. Thanks

520
00:29:52,920 --> 00:29:55,560
Speaker 1: for listening to the Bloomberg P and L podcast. You

521
00:29:55,560 --> 00:29:59,360
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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00:29:59,480 --> 00:30:02,960
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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00:30:02,960 --> 00:30:07,000
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.

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Speaker 1: It's one before the podcast. You can always catch us

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00:30:09,720 --> 00:30:11,320
Speaker 1: worldwide on Bloomberg Radio