Morning Wire XX
[0] A convergence of economic factors are leading to fewer young Americans owning homes and making other long -term investments, while a new push for digital currency has sparked widespread fears that people will have less control over their finances in the future.
[1] In this episode, we talk with best -selling author Carol Roth about growing concerns over the economic direction of the country and the idea that Americans will eventually own nothing.
[2] It's Sunday, July 2nd, and this is an extra edition of Morning Wire.
[3] joining us now is carroll roth a recovering investment banker entrepreneur tv pundit and host and new york times bestselling author her upcoming book is titled you will own nothing hi carroll so a report this week shows that corporate defaults have risen to 41 this year and according to moody's investor service that's actually double the number of corporate bankruptcies year over year and we've also seen bankruptcy filing's hit highs we haven't seen since 2010.
[4] So what's going on here?
[5] Well, we haven't even gotten to the commercial real estate portion of the discussion yet.
[6] It's been a really crazy time in the market.
[7] We had the Federal Reserve intervene and basically suppress interest rates and disrupt risk for the last 15 years, keeping rates near zero almost for nine of those 15 years.
[8] And when you have that kind of policy, you put a lot of easy money, easy debt into the hands of Wall Streets, and they take on extra risks, and eventually you have to pay the price for that.
[9] And unfortunately, we're all paying the price, whether it's individuals in terms of inflation or these corporations who either can't service their debt or finding that they, you know, they're struggling with their businesses now.
[10] Basically, the bill has come due.
[11] We know that American consumer debt has surpassed $17 trillion for the first time ever.
[12] Credit card debt continues to go up.
[13] What's driving this?
[14] Is there a connection?
[15] Yeah, I call this the personal recession.
[16] So one of the issues that we've had is that as prices have continued to increase, particularly for the lower and middle class classes that are bearing much of the burden, they've had to really dig deep in order to maintain their lifestyle.
[17] So we've seen a couple of things.
[18] One is that they have dug into savings.
[19] The personal savings rate has come down and it's bounced around a little bit, but it's down below sort of historical averages.
[20] And individuals have also taken on more personal debts.
[21] And again, we're seeing this more concentrated in that middle and working class arena.
[22] The people who are wealthy are able to kind of of shift around and make some different decisions about how they allocate their spending.
[23] But when you have to go to the grocery store or pay your rent or whatnot, and those prices have increased so substantially, it's really put people in a tough position, double down coming out of the COVID cycle where many people couldn't take vacations and do other things.
[24] So they're feeling the need to continue that lifestyle they had before.
[25] And then on top of that, you know, they still do have jobs.
[26] So given the disruption in the labor market, the fact that we still have people who feel comfortable that the job is going to be there, they haven't felt that pressure to cut back on their spending that we might have seen in a different cycle in terms of a weird economic cycle, so to speak.
[27] Now, one of the biggest costs for everyone is housing.
[28] Higher mortgage rates did seem to cause a slowdown in housing purchases for a bit, but new data out Tuesday shows new home sales rose for the third month.
[29] in a row in May, and the prices of homes are still very high.
[30] Why is the housing market so strong?
[31] So we have this crazy supply demand and balance in housing like we have and everything else.
[32] And this kind of happened.
[33] Coming out of the Great Recession financial crisis, we had an overbuilding in homes.
[34] And obviously, there were a bunch of people who took on debt and took on houses that were perhaps excessive beyond what they could afford.
[35] And unfortunately, Wall Street got a bailout, but a lot of Americans, millions upon millions, lost them to short sales or to foreclosures.
[36] At the same time, the policy that we started talking about, this Fed policy, this easy money policy, gave corporations lots of money.
[37] And for the first time ever, we saw major institutional buyers coming in and starting to buy up some of these houses.
[38] So they really benefited, Wall Street benefited at the expense of the average American.
[39] But because there was so much supply, it also caused there to be an underbuilding of new supply for this decade.
[40] And so we don't have enough housing.
[41] It's estimated that we are probably down close to four, and I've seen numbers up to five plus million single family home units.
[42] And so because there is no supply, plus the fact that interest rates are so high, if you have a house and you're locked in at a lower interest.
[43] interest rate, it's hard for you to say, okay, well, I'm going to leave this behind and go find something else and then have to refinance that at a higher rate.
[44] So we just don't have enough supply in the market for all of that demand.
[45] And certainly the government's not doing anything to make it easier to build or to decrease the cost of regulations or anything else that would kind of fix that imbalance.
[46] So that really has propped up the housing market in a different way than I think that some of the economists weren't paying attention expected.
[47] And this plays into why you maintain that the American dream of home ownership is under fire.
[48] Expand on that more for us, if you would.
[49] Yeah, so as I was mentioning, part of the outcome of this easy money policy, giving money to Wall Street at the same time that all of these asset classes in the market, stocks and the like were exploding, basically investors, looking for places to put their money.
[50] And so we had for the first time, starting in 2010, meaningful corporate money going in to compete with individuals for single family homes.
[51] So now it's somewhere in the neighborhood of one in five homes is being sold to a corporate investor.
[52] And what these investors want to do is that they don't want to fix them up and flip them back to you so that you can buy it and you can participate in that ownership.
[53] and owning the American dream, they want to wrench it back to you.
[54] They want to rent you the American dream so that they can extract that wealth that would normally be going to housing and leave you owning nothing.
[55] And they certainly sell it under the guise of, hey, this is going to be very convenient for you and it's a great lifestyle choice.
[56] But the reality is that people aren't renting by and large because they want to rent.
[57] It's because they can't afford the down payment or they can't afford the ongoing payments with purchasing a home.
[58] And this is a really big issue in terms of wealth for families because the house is typically across households the largest assets in terms of dollar value.
[59] So we're removing the opportunity for wealth creation as we have these corporations coming in trying to rent you back that American dream.
[60] So this premise is central to your book.
[61] own nothing.
[62] It also ties into your discussion of the next generation in terms of how much wealth they've accumulated.
[63] We're seeing stats that show that millennials in terms of an inflation -adjusted basis actually make more money than Gen Xers or boomers at the same age, yet they have less wealth.
[64] They own fewer houses and other long -term investments.
[65] You blame colleges and the government for that.
[66] Can you lay out your thinking on that?
[67] Yeah, so it's all tied together and there's sort of two sides to the story.
[68] And this was really one of the most staggering pieces of information that I uncovered while doing the research for you all and nothing, like you said, on an inflation -adjusted basis, you've got these millennials making more money than the previous generations, but owning so much less.
[69] Part of it, as we just talked about, was that easy money that went into inflating the asset prices and inflating housing values.
[70] And so the houses are more expensive than they were.
[71] But at the same time, you have an entire generation who is just completely swimming in college debt.
[72] And I do blame the government because they took over student lending and they have become the largest predatory lender in the country.
[73] They are selling five, in some cases, six figure loans to teenagers who don't have the ability to evaluate return on investments.
[74] And at the same time, the colleges have no skin in the game.
[75] So as they have made more capital available, simple supply and demand.
[76] There aren't a ton more colleges.
[77] There is more demand for the college services and the college is able to raise their prices.
[78] And so you have really this giant wealth transfer that's been enabled by the government going from young people to college administrators.
[79] So when they're coming out of school, these people who haven't sort of gotten the right degrees, maybe to be able to justify the level of debt that they've taken on for the same kinds of degrees are stuck.
[80] They may be earning more, but they also have these terrible balance sheets.
[81] And when we talk about, oh, you need college because you're going to have higher income, they don't ever look at the cost side of the equation.
[82] So when you come out and you have all of this debt, and we know that the number is staggering for young people in terms of the more than a trillion dollars that they have in college debts, now they have to pay down the loans.
[83] It's taking longer for them to do that.
[84] and they're not able to make the purchases for the houses.
[85] It's delaying their ability to accumulate wealth.
[86] So it's really, it's kind of a surprising thought that the college, instead of making you able to be wealthier, is actually zapping your wealth.
[87] And it starts and ends with this government intervention in the market, the fact that they won't let these students go through bankruptcy.
[88] There's no underwriting process.
[89] Colleges have no skin in the game.
[90] that entire thinking and that entire mechanism needs to shift.
[91] So what can the average American do to fight back to reclaim the American dream?
[92] What are some financial habits that people should change?
[93] And what can we do policy -wise?
[94] So I think the first thing is really just having the mindset about ownership.
[95] We live in this digital society right now where people are used to kind of renting things or having their life be a subscription or a service.
[96] Even people who are going out to buy my book, you will know, nothing, I'm telling them, get the hard copy.
[97] You know, don't get the digital copy of it, just so that you have that habit of holding on to things.
[98] And in particular, you want to have hard assets that have the opportunity to retain their value and appreciate in value.
[99] So to the extent that you are renting, you know, you might want to rethink where it is that you live, that maybe you want to move to a different state or a different city or different location.
[100] where you have the opportunity instead of giving that money to somebody else every month to start building some equity in your home.
[101] Some of the things that we didn't talk about, issues that may come down the pike like Central Bank digital currencies, you may want to have hedges and things like precious metals should the government have more control over how you spend things.
[102] But kind of from a macro standpoint, it's just the behaviors of not spending as much being a little bit more austere, so that you have more money to put into the accumulation of those assets that can appreciate and value and having the mindset of ownership and how important that is to your freedom, to your wealth, and to your family's legacy.
[103] Carol, thank you so much for coming on.
[104] Thanks for having me. That was entrepreneur Carol Roth, author of You Will Own Nothing.
[105] And this has been an extra edition of Morning Wire.