American Consequences - October 2017

India. There are more of them than there are us. This will collide with the debt that’s been built up in the sense that debtor nations will be tried if they try to go too far down the path of debt forgiveness. And if you gave truth serum to any politician in America – regardless of their political affiliation – I think they would tell you that in order to maintain millennials as voters going forward, it’s going to come down to the student-loan debt forgiveness. Which is just a great lesson to teach an entire generation. Q: Do you think there’ll ever be a way of funding college with equity instead of with debt? DANIELLE DIMARTINO BOOTH: That’s an interesting way to approach it. But I think on a more fundamental level, education’s overpriced. That started with cash-out refinancing. People took money out of their homes and sent their children to school, which accelerated the pace tremendously if you look at the chart of college tuition inflation. It really took off during the housing boom years. And much more important, we’re finally starting to see consolidation in colleges, the way we have seen in many inefficient industries. So we’ll see a lot of them close. That’s a good thing. I’m not disparaging of anybody’s alma mater. But certainly, we need more vocation in this country. There is a reason – aside from outright currency manipulation via the euro – that the Germans have continued to excel since the great financial crisis. And a lot of it has to do

making 2 and 20, and all they’re going do is jack up rates. And lo and behold, a front-page Wall Street Journal story recently said that single family home rental rates are hundreds of dollars on a per-home basis higher than they would be otherwise. This, again, is hurting the average U.S. household who spends upward of a third and up to 50% in major markets of their income after tax on housing. That’s who it hurts the most. Q: The two largest areas of credit excess today are in the corporate- bond market and the student-loan area... You have had junk bonds trading at option-adjusted yields that are lower than investment-grade bonds, meaning there’s an enormous inflation in the value of junk bonds. And there’s been, therefore, way more of those issued than will ever be repaid, in my view. And more than 40% of student loans that ought to be being serviced are not being serviced. That’s a huge default rate, if anyone ever calculated it correctly. Do you have any insight to how those two big bubbles will be resolved? DANIELLE DIMARTINO BOOTH: Well, I think that some of the recent work by the Bank of International Settlements suggests that the over-indebtedness is going to be difficult to resolve against a backdrop of basically an emerging middle class in other parts of the world. We’re going to shift on a demographic dime soon, in large part because there are burgeoning middle classes in China and

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