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Speaker 1: It was a choppy response to the consumer price Index
Speaker 1: as well as the retail sales number. Uh. Here to
Speaker 1: kind of have us shape our idea of how to
Speaker 1: view these two numbers is Peter Sheer, head of macro
Speaker 1: strategy at Academy Securities based in Connecticut. Peter, thank you
Speaker 1: so much for joining us. So Uh, the initial response
Speaker 1: was to sell stocks, sell bonds, gold Who knows? People
Speaker 1: just wringing their hands. What don't you ache of this?
Speaker 1: I mean, was this a good report given the CPI
Speaker 1: accelerating fast more than people expected, or was it a
Speaker 1: bad report given the retail sales coming in in an
Speaker 1: underwhelming way. I think it is a bad report. Um.
Speaker 1: I think this retail sales is very problematic, and when
Speaker 1: I look back at some of the recent data we had,
Speaker 1: I think it was the Richmond said, the New York said,
Speaker 1: a lot of the regional feds have missed on their reports.
Speaker 1: I look at the city Economic Surprise Index that's been
Speaker 1: turning down. So the one thing that helps this market
Speaker 1: through all this volatility is this real belief that the
Speaker 1: fundamentals are okay. I'm wondering if this is going to
Speaker 1: call it some of that into question. So Pete, what's
Speaker 1: the trade? I think you continue to sell risk. We
Speaker 1: bounced off that low on Friday. We have an opportunity
Speaker 1: to take off some risks. I think you want to
Speaker 1: be careful here. It's still very volatile, it's still very
Speaker 1: uncertain what's going on. And if there is anything that
Speaker 1: starts to show weakness in the economy or some of
Speaker 1: the trade negotiations start turning bad, I think there's just
Speaker 1: some more downside and going back to those glows. Okay,
Speaker 1: So what risk do you sell? Do you sell riskier
Speaker 1: credit in the US? Do you sell emerging markets? Do
Speaker 1: you sell stocks? I think you saw a little bit
Speaker 1: of stocks here. I think emerging markets. I would not
Speaker 1: be selling high yield here, although people are selling that
Speaker 1: again today, only because I think that has become a
Speaker 1: very crowded short position. For some reason, people in the
Speaker 1: credit markets state high yield. If you're a macro player,
Speaker 1: you hate high yield. Everyone's kind of stixated on high
Speaker 1: yield as a short, and it's very costly to short
Speaker 1: that right now. So I think there's better opportunities, So
Speaker 1: I'd be probably shorting some em and more likely even
Speaker 1: some US equities of here. So with emerging markets, how
Speaker 1: should people be trying to either go short UH emerging
Speaker 1: markets or should they just sell? Because I was looking
Speaker 1: this morning at UH spreads, extra yield over benchmarks on
Speaker 1: high yield bonds in the US versus high old bonds
Speaker 1: and emerging markets, and right now you're getting no premium
Speaker 1: whatsoever for going into emerging markets high yield bonds or
Speaker 1: US high old bonds. How do people play that? I
Speaker 1: think you could take a look at something like e
Speaker 1: m B, which is a emerging market bond ets. It's
Speaker 1: not going to quite capture what you're looking at there,
Speaker 1: but I think close enough. And I think that's what
Speaker 1: people are going to start doing, is they're gonna look
Speaker 1: at high heels and say, wow, my high heeld bonds
Speaker 1: are down three points or four points and my e
Speaker 1: M bonds only down one point, Maybe I should sell those.
Speaker 1: So I think that is a relative value transformation that
Speaker 1: tends to occur. So, Peter, why you're not fixing it
Speaker 1: on the consumer Price Index? It's been so volatile. They
Speaker 1: have told us, you know, time and time again to
Speaker 1: focus on PC. Anyways, it's one number and of anything.
Speaker 1: If I really want to fixate on this, you start
Speaker 1: getting nervous that we're seeing from signs of stagflation. Right,
Speaker 1: we're finally creating inflation without the underlying growth. Maybe there
Speaker 1: that needs to be Again, it's premature to look at
Speaker 1: it like that, but I think we're gonna start testing
Speaker 1: this whole economic fundamental is great theory in the next
Speaker 1: week or so in terms of data. So what does
Speaker 1: this do for the FED? I mean, right now the
Speaker 1: market is pricing chance of a March rate hike. Does
Speaker 1: this mean that they have more ammunition to increase rates
Speaker 1: faster because of some inflationary pressure, or does that mean
Speaker 1: that they're going to hold back because there's sort of
Speaker 1: a questionable dynamic underlying the growth story. My view is
Speaker 1: that they will hike in March. I think that's still
Speaker 1: on the table, and you know the CPI lets them
Speaker 1: do that, but I think they will give us some
Speaker 1: cautionary tales that they want to watch what's going on
Speaker 1: with the consumer. You know, this is now not just
Speaker 1: this month number is bad, but they revised down last month.
Speaker 1: You've seen an uptick and credit card delinquencies. You've also
Speaker 1: seen all these bizarre stories. To me, I in mind
Speaker 1: of people not being allowed to buy bitcoin on their
Speaker 1: credit cards, which cause into questions who is buying bitcoin
Speaker 1: on credit cards? So I think they're going to be
Speaker 1: cautious and say, hey, we've risen rates a lot, let's
Speaker 1: see what this does to the consumer. Pete, what about
Speaker 1: stag inflation? What would have to happen for you to
Speaker 1: make that a headline for you? I think we need
Speaker 1: to really believe that inflation is here, and I just
Speaker 1: questioned that. And we're starting to see, you know, things
Speaker 1: like oil rolled over a little bit, so a lot
Speaker 1: of the inflationary pressures that were there. I think we'll
Speaker 1: go down. We will see maybe there are going to
Speaker 1: be all these way chikes related to tax reform and
Speaker 1: that could help and really drive some pressure. But right
Speaker 1: now we're just seeing more one time bonuses rather than
Speaker 1: big wage increases and there's no inflation number that would
Speaker 1: get you to change your mind. Yeah, I think it's
Speaker 1: discontinues in its persistent. I would become concerned then that
Speaker 1: we really created inflation, and hopefully, if we've created that,
Speaker 1: these bad retail sales numbers will be an anomaly. So
Speaker 1: I guess I'm looking for probably another month or so
Speaker 1: that starts confirming or at least the sneaking suspicion that
Speaker 1: inflation has increased while growth is flowing. All right, well,
Speaker 1: we're gonna check in with you then. Of course. Peter
Speaker 1: Cheer is the head of macro strategy at Academy Securities.
Speaker 1: He's based in Connecticut, giving this giving us his thoughts
Speaker 1: about inflation, but also really sparing uh no effort when
Speaker 1: he looks at those retail sales numbers. The future of
Speaker 1: infrastructure in the United States calls for experts to give
Speaker 1: us their thoughts, advice, and their experience. Walter Kempsis is
Speaker 1: economist and chief strategist for U Sports, Airports and Global
Speaker 1: Infrastructure Group of j A L. That's Jones lang Lassalle
Speaker 1: and they're based in Chicago. Walter, thank you very much
Speaker 1: for being here. Maybe just tell people a little bit
Speaker 1: about your background and that you are currently advising the
Speaker 1: U s Department of Commerce their Advisory Committee on Supply
Speaker 1: Chain Competitiveness, as well as the Department of Transportations Task
Speaker 1: Force on Infrastructure Valuation. Maybe just give us a little
Speaker 1: bit of a hint of your background and how you're
Speaker 1: applying that to the President's effort to improve the infrastructure
Speaker 1: quality in the United States. Thank you. I'm a former
Speaker 1: investment banker who got pulled into a marine engineering firm
Speaker 1: Mofitta Nickel to help the financial community as they were
Speaker 1: trying to initially invest in infrastructure about twelve fifteen years ago. UH.
Speaker 1: That role eventually morphed into planning the infrastructure, and I've
Speaker 1: worked with the number of port authorities around the country
Speaker 1: in strategic development plans, making sure they had the capacity
Speaker 1: in advance of the freight coming in. And as a
Speaker 1: result of that work, um I was asked to join
Speaker 1: the Department of Commerce uh Advisory Committee on Supply Chain Competitiveness,
Speaker 1: which is comprised of port authorities, railroads are big importers
Speaker 1: and big exporters, as well as a few, uh you know,
Speaker 1: advisory experts like myself. So Walter. Since you talk with
Speaker 1: US ports and airports and other infrastructure groups, what's their
Speaker 1: outlook and how much money is going to get unleashed
Speaker 1: by some sort of infrastructure spending program and what can
Speaker 1: we glean from the budget the President Trump put out
Speaker 1: earlier this week that most people said it was dead
Speaker 1: on arrival. Is there anything any details that we can
Speaker 1: hang on to? Okay, I mean, just if you're just
Speaker 1: looking at the ports sector. On the water side of
Speaker 1: the ports, uh, the American Association Port Authorities estimates about
Speaker 1: sixty six billion dollars, you know, to raise bridges, to
Speaker 1: drudge channels, to strengthen key walls, and buy bigger equipment
Speaker 1: to handle the bigger ships. The what they don't have
Speaker 1: an estimate for is on the land side, because you know,
Speaker 1: as the volumes have grown in this country, the economy,
Speaker 1: the population, the number of of paved miles have not
Speaker 1: kept pace. And in the major ports cities we see
Speaker 1: a lot of congestion, such as in Los Angeles Long
Speaker 1: Beach as well as New York. Uh. You can add
Speaker 1: other cities to that, but that's the part where the
Speaker 1: estimated cost doesn't exist. But I would put that number
Speaker 1: at twice what we need for the for the waterside um.
Speaker 1: In terms of the plan itself, I think people need
Speaker 1: to understand that this is not supposed to be an
Speaker 1: Eisenhower interstate program. We've already built our interstate. We've built
Speaker 1: the core infrastructure. But this is supposed to be a
Speaker 1: means to repair and upgrade all of our infrastructure, including transportation, energy,
Speaker 1: and the water supply. You know. And ever since the
Speaker 1: Eisenhower era, responsibility has shifted the states and local governments, uh,
Speaker 1: you know, to not only direct the infrastructure investments, but
Speaker 1: also as a means to reduce the incentives to use
Speaker 1: free federal money and I say free in quotes, but
Speaker 1: free federal money to generate jobs building roads to nowhere.
Speaker 1: So the whole idea here is to target about two
Speaker 1: billion dollars as seed capital, which, along with other actions
Speaker 1: such as a shock clock on on permit approval time,
Speaker 1: will make it a lot easier for private capital to
Speaker 1: invest um. The other part of the program also includes
Speaker 1: loosening the federal loan programs such as TIFFIA, WI, A
Speaker 1: RIFF and the other you know alphabet soup of programs
Speaker 1: that exist that currently um, you know, our structure to
Speaker 1: help somebody, you know, do the upfront capital expenditures but
Speaker 1: be able to wait a number of years before generating
Speaker 1: the revenue necessary for debt repayment. The problem with these
Speaker 1: programs is they've been extremely stingy, and loans generally don't
Speaker 1: get approved, So there is an effort to loosen that, uh,
Speaker 1: in order to unleash the federal support that's available already. Walter,
Speaker 1: is there a project that you could use as a showcase,
Speaker 1: and I mean you as collectively of the industry that
Speaker 1: could be used as a showcase in order to demonstrate
Speaker 1: both the politicians and to the electorate that these programs
Speaker 1: can work. That then would foster even greater incentive and
Speaker 1: desire to accomplish these things, because it seems as though
Speaker 1: we don't have a specific objective and that makes it
Speaker 1: even more challenging. Yeah, I completely agree with you. Um
Speaker 1: you know where one of the things that the program
Speaker 1: falls short on is to tie all of this this
Speaker 1: effort into some kind of national economic objective. And the
Speaker 1: simplest one, and this relates to the efforts for free
Speaker 1: trade agreement renegotiations, is to support exports. Most of our
Speaker 1: infrastructure investment in the last twenty thirty years has gone
Speaker 1: towards the import side of the trade flows. And when
Speaker 1: you look at it, you know, volume wise, the US
Speaker 1: trade deficit is practically zero. But we import high value
Speaker 1: per Ton goods and we export low value per Ton goods.
Speaker 1: So on a dollar basis, we run a very large
Speaker 1: trade deficit, averaging half a trillion a year for the
Speaker 1: last you know, five ten years. So the money would
Speaker 1: naturally be attracted to where there is a high value
Speaker 1: per Ton, there's more pricing power and earned there's more
Speaker 1: return available. If we tied the infrastructure program to something
Speaker 1: like supporting exports, uh, then I think things would work
Speaker 1: a little bit better. And part of the problem is
Speaker 1: that as jobs have left the US, jobs in the
Speaker 1: export oriented industries haven't taken up the slack in the
Speaker 1: labor markets. So if we do renegotiate the trade agreements
Speaker 1: and opener markets to US exports, we will need to
Speaker 1: invest in infrastructure to support that. So just to be
Speaker 1: really clear, what is that spending that needs to support exports? Yeah? Um,
Speaker 1: the first off, it would be on the Mississippi Waterway.
Speaker 1: Most of that was built in the nineties. Uh, you know,
Speaker 1: during the great depression. That infrastructure is now uh seventy
Speaker 1: five years or older. The Soybean Transportation Coalition has done
Speaker 1: to report a couple of them now and they've pointed
Speaker 1: out that roughly three fourths of our Mississippi Waterway infrastructures
Speaker 1: over seventy five years of age. And the way it
Speaker 1: works with the dams and the locks is that they're
Speaker 1: built with the fifty year life cycle, and every twenty
Speaker 1: five years you inspected and try to retrofit it a
Speaker 1: little bit and get another twenty five years out of it.
Speaker 1: But when you hit seventy five years, that's it. You're done.
Speaker 1: You need to replace it, just like we're doing with
Speaker 1: the bridges in New York. You know, perhaps a little late,
Speaker 1: but yeah, that Mississippi Waterway infrastructure when it breaks down.
Speaker 1: When a lock breaks down, miles of barges back up
Speaker 1: on either side because they can't traverse the step in
Speaker 1: the river, and oftentimes we have two three D print
Speaker 1: apart because it just doesn't exist anymore. Walter Kemsies, thank
Speaker 1: you so much for your insights. We'll have to have
Speaker 1: you back. Walter Kemsie's economist and chief strategist for US
Speaker 1: Ports Airports and Global Infrastructure Group at j L L.
Speaker 1: Jones Langless Sality, Chicago, joining us by phone the shares
Speaker 1: of Marriott International. They're hired by a little bit more
Speaker 1: than one percent right now. The company will report results
Speaker 1: after the close of trading today. Based in Bethesda, Maryland,
Speaker 1: home to Bloomberg and one oh five point seven FM
Speaker 1: HD two and here to tell us about the company
Speaker 1: and more in the hospitality industry is Mike Belisario, equity
Speaker 1: analyst at Baird. Mike, what can you tell us about
Speaker 1: Marriott and the I guess it's the years since they
Speaker 1: acquired the Star Wars brand. What are they going to
Speaker 1: post in terms of savings and asset sales? Good morning,
Speaker 1: things for having me UM. I think you're going to
Speaker 1: hear a lot from Marriott that we heard from Hyatt,
Speaker 1: from Tuney, from Hilton this morning. Really strong fourth quarter
Speaker 1: guidance for that is pretty much in line with UM.
Speaker 1: The results that they posted for fully, I mean specifically
Speaker 1: for Marriott, it's been fifteen sixteen months since they've closed
Speaker 1: the transaction. Investors are really focused on the synergies. A
Speaker 1: lot of those have been realized assets sales here or there,
Speaker 1: that's important. A lot of the heavy lifting has been done.
Speaker 1: I think the thing people are really focused on is
Speaker 1: all the extra benefit that Marriott being bigger, having more
Speaker 1: negotiating power can pass to its owners, especially in a
Speaker 1: tough operating environment like today. So, Mike, I'm wondering just
Speaker 1: about the tourism industry in general. We had heard reports,
Speaker 1: given some of the talk of the current presidential administration
Speaker 1: about UH foreigners and immigrants and all of that, that
Speaker 1: it had would have a dampening effect on tourism. Did
Speaker 1: we see any of that from Hilton's results? We did,
Speaker 1: and we've seen that broadly in the data. Inbound international
Speaker 1: travel to the US was down a bit. In Hilton
Speaker 1: this morning thinks it's inbound travel was down about four percent,
Speaker 1: But that only makes up call it, you know, five
Speaker 1: ish percent of their total business. You know. Some of
Speaker 1: that is the you know, the political backlash if if
Speaker 1: you're someone overseas and you might not want to come
Speaker 1: to the US because you don't like what you're hearing,
Speaker 1: that's possible. Some of it is also the US dollar.
Speaker 1: It just was more expensive throughout seventeen to come to
Speaker 1: the US. Flip side too, we don't talk about it enough.
Speaker 1: Is the domestic traveler, the US traveler not going on
Speaker 1: vacation to Florida or southern California, But because it's so
Speaker 1: cheap to go to Europe or Japan, for example, more
Speaker 1: US citizens going abroad too. So that's also an impact
Speaker 1: in the numbers that people don't talk a lot about.
Speaker 1: But yes, there there was an impact in seventeen. We're
Speaker 1: still seeing it on the inbound international travel side. So
Speaker 1: of the big hospitality companies which are most exposed to
Speaker 1: that trend of domestic tourists from the US is going
Speaker 1: international and not as many inbound tourists in the US. Actually,
Speaker 1: the biggest beneficiary come on a percentage basis, would be
Speaker 1: Highatt because a larger percentage of their portfolio is overseas Hilton,
Speaker 1: Marriott and high Att. Hilton is the most domestic focused. Um.
Speaker 1: The way to think about it too is where where
Speaker 1: do people come to the US To go to New York,
Speaker 1: They go to San Francisco, Los Angeles. So anyone that
Speaker 1: has urban market gateway market exposure, if you're an owner
Speaker 1: of hotels in those markets, which a lot of the
Speaker 1: reeds are, those companies are also disproportionately impacted. But you know,
Speaker 1: Marriott's brand, Hilton's brand in the US overseas, if you
Speaker 1: can capture that same traveler that was maybe going to
Speaker 1: travel to the Marriott in Orlando, but they're going to
Speaker 1: the Marriott in Prague, that's kind of a win win
Speaker 1: for Marriott in its eyes. So does this mean that
Speaker 1: Mike that expansion for these growth markets in Asia and Europe,
Speaker 1: would that be key to achieving some of these profit targets. Absolutely,
Speaker 1: Roughly half of the big brand's pipelines is outside of
Speaker 1: the United States. We can't zoom out these big global
Speaker 1: hotel companies. They're very focused in the US and in
Speaker 1: North America. There's a lot of white space still uh
Speaker 1: in Europe, in Asia, Pacific and even in Africa, so
Speaker 1: a lot of the growth is coming from there. You're
Speaker 1: just also working off a smaller base. But yeah, that's
Speaker 1: that's where they're focusing a lot of their efforts to
Speaker 1: kind of capture both of the inbound and outbound travel,
Speaker 1: but particularly from China. We've actually seen the dollar week
Speaker 1: in this year a little bit. Does that matter or
Speaker 1: in the scheme of things, is it such a minimal
Speaker 1: weakening that it's not going to change the trend that
Speaker 1: we saw in it matters that actually came up on
Speaker 1: Hilton's conference call. It's hard to tell on a week
Speaker 1: to week, month to month basis. I think over rolling
Speaker 1: twelve month periods it's important. Um And on the margin,
Speaker 1: it does cause people to either say yes or no,
Speaker 1: I want to go to the U S or yes
Speaker 1: or no, I want to go to London instead of Japan,
Speaker 1: for example. Um And there's also a lag to booking.
Speaker 1: If you're a leisure traveler, you're more price sensitive and
Speaker 1: you're sometimes booking three to six months out. So if
Speaker 1: there is a weakening or strengthening of the dollar, you're
Speaker 1: not necessarily going to see it now. It might not
Speaker 1: be until June or July or August, for example, when
Speaker 1: we actually see the impact of what happened to the
Speaker 1: dollar today. Mike Belisario, thank you so much for joining us.
Speaker 1: Really interesting insights. Mike Belisario is senior equity research analyst
Speaker 1: at Baird, coming to us from Chicago. The New York
Speaker 1: Fed put out a report this week taking a look
Speaker 1: at consumer debt, and it showed that student loan outstanding
Speaker 1: have totaled one point for trillion dollars, and delinquencies could
Speaker 1: be up to twenty two percent if you take out
Speaker 1: instances of students who are not required to make payments
Speaker 1: because they're still in schooled UH and still in school, unemployed,
Speaker 1: or for other reasons. Joining us now is Marshall Steinbaum,
Speaker 1: research director and fellow at the Roosevelt Institute in Washington,
Speaker 1: d C. Marshall, thank you so much for joining us.
Speaker 1: This is a really important topic. I'm just wondering. You
Speaker 1: did a report looking at the macroeconomic implications of this
Speaker 1: rising pile of student debt. What what are the implications?
Speaker 1: I mean they could be quite significant, considering that this
Speaker 1: is uh now a one point four trillion dollar pile
Speaker 1: of debt. The effect on the macro economy of canceling
Speaker 1: all the outstanding student debt and what we found is
Speaker 1: that it would have a moderate stimulative effect on overall output.
Speaker 1: I think the numbers of a v six billion to
Speaker 1: a hundred billion dollars a year approximately given the two
Speaker 1: models that we used, um that it would reduce the
Speaker 1: unemployment rate and increase the total rate of people being employed.
Speaker 1: And the main effect is because essentially the debt is
Speaker 1: burdening the balance sheets of households, especially young households, and
Speaker 1: if they didn't have to make those payments, they would
Speaker 1: spend the money on other things, and that would increase
Speaker 1: aggregate demand. Where would the money come from in order
Speaker 1: to pay off this debt? That's a good question. Currently
Speaker 1: the federal government is the lender for about the debt,
Speaker 1: and what we modeled is essentially then for canceling it,
Speaker 1: so just writing it off, and then the other ten
Speaker 1: percent the federal government would assume making payments to the
Speaker 1: private lenders on behalf of students um. So overall, both
Speaker 1: of those two things would increase the federal deficit um
Speaker 1: and and the federal debt outstanding um while relieving debt
Speaker 1: from individual households. And the whole macroeconomic UH mechanism that's
Speaker 1: going on in the in the forecast of the effects
Speaker 1: is that that transfer of the debt from households to
Speaker 1: the government is h macroeconomically beneficial. Okay, But if the
Speaker 1: government is going to be the one to put the bill,
Speaker 1: doesn't that really mean that the taxpayer is the one
Speaker 1: to foot the bill. Well, we've been running up dead
Speaker 1: and deficits for a long time. Now UM, and the
Speaker 1: tax share of total output is I think at its
Speaker 1: lowest ever UM and our lowest in a very long time,
Speaker 1: and uh low for the state of the business cycle
Speaker 1: where we currently are. Normally, you'd expect the federal government
Speaker 1: to be collecting the most in taxes when the economy
Speaker 1: is doing relatively well. UM. So I think you know,
Speaker 1: whether there's this tight connection between the federal government assuming
Speaker 1: debt and collecting taxes to pay that debt. I think
Speaker 1: that's an open question at macroeconomics. I'm trying to figure out.
Speaker 1: So your report found that there would be this modest
Speaker 1: stimulative effect if the student debt were canceled of up
Speaker 1: to one hundred and eight billion dollars per year. Does
Speaker 1: that change over time? I mean, is it? How do
Speaker 1: you quantify the economic effect of student debt on a
Speaker 1: generation of people who might be delaying home purchases or
Speaker 1: having children, or taking jobs that that are risk here
Speaker 1: but might have more potential. That's a great question, and
Speaker 1: we don't really do that in the paper. That is
Speaker 1: specifically look at questions of like home ownership or small
Speaker 1: business formation, or what jobs do people take as a
Speaker 1: result of having debt? UM The macroeconomic models that that
Speaker 1: we used to make those sort of big statements about
Speaker 1: how large the the economy would be don't really get
Speaker 1: into that level of detail. But I think it's crucially
Speaker 1: important to understand what effect student debt is actually having
Speaker 1: on the economy. Uh. It's certainly true that now we
Speaker 1: have essentially a whole generation of workers who had who
Speaker 1: felt that they had to take on some level of
Speaker 1: student debt to get access to the labor market, much
Speaker 1: more so than was the case previously. And I think
Speaker 1: that given that the labor market has not been performing
Speaker 1: terribly well, that wages are stagnant, they feel that that
Speaker 1: debt is a burden rather than a an opening to
Speaker 1: to social mobility and to better jobs. Well, how much
Speaker 1: of this is an indictment, frankly on what individuals are
Speaker 1: paying for. In other words, some of the schools that
Speaker 1: aren't necessarily setting up students for jobs that are lucrative
Speaker 1: enough to make this debt seem relatively insignificant. I think
Speaker 1: the overall explanation for why we have a student debt
Speaker 1: crisis in this country has to do with things that
Speaker 1: aren't really about higher education, Although certainly part of the
Speaker 1: story is there UM. I think what happened was that
Speaker 1: we had a theory that the labor market was suffering
Speaker 1: from a skills gap, and that the solution to that
Speaker 1: skills gap was to make sure that people had the
Speaker 1: education they needed for today's jobs, and ultimately, because that
Speaker 1: education would end up paying for itself in the form
Speaker 1: of higher wages, we got comfortable as a sort of
Speaker 1: policy priority of shifting the responsibility of paying for that
Speaker 1: education from UH state governments in the form of support
Speaker 1: for public higher education to individuals using the federal student
Speaker 1: loan program. And what we've found, I think, is that
Speaker 1: that diagnosis of a skills gap was not correct, So
Speaker 1: people ended up paying for these degrees that were supposed
Speaker 1: to be the route to higher earnings, and it turned
Speaker 1: out that that really wasn't why wages were stagnating. The
Speaker 1: issue is not a skills gap, but rather UH trends
Speaker 1: in the economy that have to do with the power
Speaker 1: of employers and UM the ability of employers to essentially
Speaker 1: credentialize the labor markets are to demand a higher UH
Speaker 1: level of credentials and thus a higher level of debt
Speaker 1: to go along with any given job who has financially
Speaker 1: benefited from these student loans, I don't. I don't mean
Speaker 1: the students in trying to sort of connect it with
Speaker 1: a future employment. But who's benefited financially and why don't
Speaker 1: they then if the government or someone decides that this
Speaker 1: is something that we should not be supporting, why not
Speaker 1: have them assume the burden of this financial problem. I
Speaker 1: mean that's a very good question. Uh. I think so aside,
Speaker 1: you know, the federal government is the lender, so in
Speaker 1: a direct sense, they have benefited financially. I mean, this
Speaker 1: is I think a policy that the federal government decided
Speaker 1: to undertake that they wanted more people to get degrees,
Speaker 1: and so they were willing to extend loans on what
Speaker 1: for the private sector would be considered pretty generous terms, UM,
Speaker 1: in exchange for having more people get higher education. I
Speaker 1: think beyond that, UM, you have a lot of institutions
Speaker 1: that have benefited a great deal from what I would
Speaker 1: consider credentialization spiral. So they're able to sell degrees to
Speaker 1: people who wouldn't previously have needed those degrees in order
Speaker 1: to get access to the jobs they want. UM. I
Speaker 1: think you know that that. I think people tend to
Speaker 1: point to the for profit higher education providers as being
Speaker 1: especially kind of culpable in that sense, but I think
Speaker 1: it doesn't just extend to them. Um. And then the
Speaker 1: other piece of this is that the federal government, you know,
Speaker 1: really doesn't manage this large loan portfolio by itself. It
Speaker 1: has a servicers. When the federal government took over responsibility
Speaker 1: as as the lender, that is, stopped guaranteeing private loans
Speaker 1: and started becoming being the lender itself for newly originated loans,
Speaker 1: the financial institutions that had been the lenders before became servicers.
Speaker 1: And then there there are some other um bodies that
Speaker 1: that service these loans, and they have an incentive to
Speaker 1: essentially extend payment as long as possible UM and not
Speaker 1: necessarily to uh inform borrowers what their best options are
Speaker 1: about how to for instance, UH available public service loan
Speaker 1: forgiveness and other other income based repayment. So so it's
Speaker 1: another word's almost like a credit card situation where you know,
Speaker 1: you uh sort of demonize the people for getting into debt,
Speaker 1: but you encourage them to be able to take out
Speaker 1: more debt by offering them all kinds of incentives to
Speaker 1: do so. Yeah, and I think that is an apt
Speaker 1: point because we have this sort of uh glow of
Speaker 1: higher education associated with student loans, and that's let people
Speaker 1: get the financial institutions and other stakeholders get away with
Speaker 1: UM tactics that I think there has been greater scrutiny
Speaker 1: of when the when the question is credit card loans
Speaker 1: or home mortgages. I mean we had sort of the
Speaker 1: scrutiny that arose in the financial crisis to other forms
Speaker 1: of other parts of the credit market that I think
Speaker 1: student debt has largely avoided. So which age group is
Speaker 1: most burdened by this one point for trillion dollar Well,
Speaker 1: it's certainly younger workers are most burdened by it. UM.
Speaker 1: You can see the enorm skyrocketing percentage of workers in
Speaker 1: the forty age cohort that have student loans relative to
Speaker 1: what that cohort would have had in earlier eras UM
Speaker 1: or I should say what that age group would have
Speaker 1: had in earlier ears. I should also say that a
Speaker 1: lot of families go into interes generational debt. UM there
Speaker 1: you know, federal programs that explicitly encouraged that. And then
Speaker 1: I think it's just natural that UM parents and grandparents
Speaker 1: and and other family members want to contribute to their children, UM,
Speaker 1: getting educated and getting access to the labor market and
Speaker 1: too good jobs. UM. And so there's a good report
Speaker 1: from the Federal Reserve Community Affairs Division that comes out
Speaker 1: every year that sort of goes into that the story
Speaker 1: of student debt extending beyond the student and the debt
Speaker 1: or themselves. Marshall, have you seen any change from employers
Speaker 1: of not demanding sort of an increasing credentials No, the opposite.
Speaker 1: I think it's it's it's going on and on. I think,
Speaker 1: you know, employers know that they can, um, they can
Speaker 1: get more credential workers for essentially the same or lower
Speaker 1: wages as they did in the past. And just briefly,
Speaker 1: have people conflated this current kind of student debt explosion
Speaker 1: with what we're g I loans and no other words
Speaker 1: saying they're kind of the same things. I beg your pardon,
Speaker 1: you know what we're going to go to. I want
Speaker 1: to thank you very much for joining us, Marshall Steinbaum,
Speaker 1: Research Director fellow, Roosevelt Institute in Washington, d C. Thanks
Speaker 1: for listening to the Bloomberg P and L podcast. You
Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,
Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm
Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa Abramo.
Speaker 1: It's one before the podcast. You can always catch us
Speaker 1: worldwide on Bloomberg Radio