Surveillance: Don't Press Panic Button, says Crescenzi

with Jerome Schneider. How is Jerome Schneider's week, Ben? I mean, you guys are in the short term space. Are you guys just watching the long duration guys lather up? Or or is a guy like Jerome Schneider had that invests and PIMCO broadly invest in short term instruments. Is still finding value there because it's still yields to be had. Three month librar is still in the twos. It will go lower, but it's still higher than these longer term

interest rates. That's what an inversion is, and so there's some value there, especially if you think that the federal deserved will deliver a fewer indust rate cuts than the market is priced for the markets thinking there's a fifty chance of a half point cut in September, and the market is priced for one percent policy rate by the end of that's down from the current level of two and a quarter. And so if you think that these

these rates will won't be realized, then there's still some boundy. Okay, well, what's the value now a little bit away from the frenzy of Tuesday, Wednesday, Thursday to an emergency FED cut. I mean, what's the so what of waiting for the meeting, are actually just saying Okay, we're gonna move this thing forward and coming in cut? Tom? But did you look at yesterday's retail sales report and the figures in there within it, which was so robust and indicating that the

economy has reasonable momentum going into the third cord. The way GDP is calculated, it's looks it looks at the the average of one courts activity versus the average of another. And so if activity ended a quarter strongly, and it did in the second court of June, that means it begins the third quarter at a level that's above the previous court is average, and so it looks like growth will be reasonably good nearly the Fed wants it, which is around two percent or so in the third quarter.

That's not a reason to panic financial conditions. Perhaps if they would dire, they would it would be But with the SMP five up in the low teens and NASTACK up in the high teens, is that a reason to put press the panic button, especially when policy related issues that can't control are causing the nervousness The panic buttons setting plenty of cash into money markets, right, I mean, we saw one of the biggest inflows in the week and in Wednesday eighteen billion dollars of inflows, so the

ten year high we're currently at that when it comes to money market funds, I want to switch gears a little bit. There was a white paper out of black Rock basically arguing for helicopter money in the next downturn that came out yesterday, and I want to talk about this because it's sort of goes to the zeitgeist of today, which is this fear that the Federal Reserve is out of ammunition, which is what we're seeing in the yield curve, and that the next go around is going to have

to be extreme and very different. Do you buy into the idea of some sort of helicopters policy. In fact, Marina Eckles echals there's the FED chief. The FED building today is named after Echo's called the Echos Building. He talked about the FED pushing on a string. One could say that the FED is today in other central banks pushing on a string, and no matter what they do in terms of putting money in the system, it will

not have impact. One could say that this, this helicopter idea was attempted in two thousand nine in the American Recovery and Reinvestment Act. How well, it's a different form. Well, it was one form. Perhaps it was the first salvo um the The US deficit was about ten percent of g d P. In that deficit, there was a spending agreement to to distribute fifty million checks too Americans, or about two fifty dollars. We've forgotten about it because it's such a tiny amount of money. So where where is

that money today? Or in other words, where would that money go in the future if they were given. Did it go towards maybe a nice movie, dinner, clothing? Who knows what it's all gone? It didn't get invested, so how could it have any meaningful long term impact. If it's meaning if it simply goes towards consumption, letting people have some a little bit extra to spend. You're not trying helicopter money. I can tell but here, but but

here's my question. I mean, how important are these questions? Uh? In terms of where people's minds are, They're very important, But they're moved there. They're they're the wrong questions because the too too often, and the President is doing this as well as the fingers appointed at the Fed and should be at the fiscal Authority, not the monetary authority, because they are the ones in control of of the way growth is um conducted or produced, not the central Bank.

They produced one thing money. I want to go back to your wheelhouse, which is the short term paper market in the indications of trust. The old days, it used to be the commercial paper market. That's gone. What do you look at now is a measurement of trust, particularly in European banking and finance. What's the indicator you look at and what does it say? Well? One one of pimco's high investor, high conviction investments is to invest in European bank capital, not all banks, but many banks. It's

and this is it's not too complicates. Understand, there's different levels of what's called the capital structure. The equity investor is the one that gets hurt most because they've directly involved in them. But a senior bond holder is senior and the first in line if something goes wrong, The equity holders last in line, the the bank capital owners second in line. One could say it's sliver above equity

in the bank buddle structure. But we like those securities and that's a statement in itself because we wouldn't go there. We wouldn't invest in the security we thought the system were in in dire Do we go into the weekend and end of September frankly with the trust measures that you and Jerome Schneider look at intact? Is the system functioning in terms of liquidity? No, it SolV Yes, it's intact,

but there is fragility. The biggest worry of all is that the and it's not trade, but that the U. S. And China are entering a cold started the starting this this start of a new Cold War that could have a longer period of implication because the trade story is a short term one. But the geopolitical tension, that the acidities trapped the named uh for the Graham Alison idea.

I was going to Graham else that the rising power threatens an existing one at least to warfe and you've seen Great Dahlia talking about this on a linked video this week. In five years have been sixteen changes in leaders hedgemons as they're called. Twelve of those changes led to actual war. No one is calling for that, but we are traversing away from cooperation and short term paper

to the Greek wars. Well, I mean, but this is actually where we're at right this sort of existential question of whether growth ever again and whether the state of geopolitical uh, geopolitical relations. But I do have to wonder going forward, because it does feel like there has been a change this week, last week we have tipped a corner. Is that an accurate characterists? Let me tell you what hasn't changed. Let's go back. Let's think Adam Smith in

the Sevres the Wealth of Nations. He talked about this. I heard him on your show and the radio is listening. How is wealth created in the nations by individuals, companies all striving to fair bet and full themselves for their companies. Has this passion ending because of political uncertainty? No, we still will work week up every day. We're here on the radio all trying to help others to make money. Seven eight am in the morning. I'm done with the esoteric.

Are we going to revisit an inverted yield curve? Or was that a scare? And we've come back to some normalcy set at a lower rate. DIO curve is not like that would be a lasting condition because the conditions that cause it the type that the Central Bank would generally respond to and cause it to disinvert. Anthony Cosenzi And what's great about Tony Cosenzi is there's a real

palaty history and society across his discussion of finance. You mentioned the Chicago Cubs fan from from Chicago, Richard Taylor, the laureate on Behavioral Economic Did you, Lisa, did you ever do a course with Taylor? I would not like to do a seminar dark of the door with him. He's like huge. And of course Taylor talks to pimp

all the time. And you mentioned Tony that this crazy week we've seen old people, which you know, Lisa doesn't understand this conversation old people look at the screening, go really, I mean there's a lot of that going on, right, Yes, And it's this bias that we have to remove. And Richard, by the way, I feel like, look at the screen not just race, but inflation and growth in the relationship

to interest rates and economies. M. Richard Taylor's has is a Nobel laureate and behavioral economics, and PIMCO employs him. And we had one of his former students, Rique Mamendia, in attendance at one of our forums in May, and we discussed this idea of age having an impact on how people think about things, including inflation. And she even studied the Federal Reserve and how different members of the Fed because of their ages, might think differently about whether

inflation will pick up. And that's important to investors because what the Fed thinks about the future from inflation effects when it decides to move on interest rates and how by how much stuck in our past? Me fifty plus says uh, Well, I saw a CPI at six percent in eight nine, so inflation could pick up when growth picks up, but it hasn't. It's son and three kids will do that preserve you or they'll take you down. Let me tell you it's the other way around. I

don't know. I'm a tony with hair like on Saturday night fever. That's that's that's what's causing. But we think differently about We think inflation will pick up because we observed it, we experienced it, But unfortunately a baby boomer like me will ultimately come out of the equation. In surveys, you'll see inflation expectations fall over time because at least of people like you and other younger individuals will be part of that survey more and more and their experiences

will be biased by their low inflation experience. This is this is really tremendous. You guys both are you know you're you're younger than I. Therefore care for your towards not understanding the I'm the new it's the new crop. At least of the new crop of PhDs are the ones that are gonna that are going to have the future so called Phillips curve models. The most exciting material will probably come out in the next decade because I'll have experienced things that that that we haven't created these

other things. You know, I hear both sides of this. Number. One, I hear people kind of are are stuck in the past and are looking for inflation models that are different. And then I hear the other side of the equation, which is, if you look at the trading desks on Wall Street, they're all under the age of thirty and they've never seen a cycle and they don't know how

to operate. So which is it? Good points, So it's it's possible then with their bias towards inflation being low, policymakers will come up with an idea that creates more inflation and they'll be blindsided. So there's the other side of that equation. Good point. I'm not big on like viewer questions and all that, but this woman is absolutely brilliant. This is some Julius and he's got it in trump like all caps. Ask Tony what savers are to do

in new lower low rate environment? All the blatherer we're doing sailor all the rest of it. The fact that I mane should forget about it. What do savers? Well, we think what to deploy that financial capital? It's it's electronic, it's paper. Why not make it something physical? As you know, there is a bias toward investments, private equity and real assets, including real estate. Owning businesses is also a good idea. Yes, we have too few in the amount of savings to

do all of that, so it is. It is a difficult situation, but it depends on one's age. And if Julius, you're young enough, don't bet against America. Warren Buffett would tell you that, don't bet against capitalists. People worry about populist, but what about the capitalist. Isn't it the business owner, the individual worthy of some attention, because aren't they the true disruptors? That phone you're carrying and perhaps sent tom the message on? Do you think that that was made

by a populist? Some capitalists decided to make it and then making a profit, and you could have made a profit investing in that individual who made those I wonder if he's always as philosophical or if this era unfortunately negative yields towards things that I shouldn't be philosophical about. Is negatively very quickly, we're gonna run out of time, Mr Cosenzi, but our negative yields here to stay. Or do you still look at him as a one off?

Two admiration, negad Adventistrates destroy money, so it is unlikely they will be sustained over the long run. They also siphon money from the private sector to the government, which is an inefficient use of money. So it's improbable that the last and it's a bad idea and something that federal is unlikely to want to avoid. That's good. It's a perfect time, Tony Coni. Thank you so much, Thanks so much. Absolutely one thing. This is one of the quietest notes of the week, and it's from City Group.

It's one, two, three, four, five, six paragraphs. Big deal. Dana Peterson worked us up in the car going to work. Uh this morning, she joins us. Now, Dana, it's a it's a note of optimism. I mean, there's a consumption driven optimism to the American economy. Does that EBB or does that sustain us in the next year? Well, I think that. You know, we're definitely seeing this theme of of domestic resilience driven by households and government uh and

external weakness. And certainly when we saw the retail sales, with the exception of autos, we saw across the broad strength, a board strength and even department stores, which is posted a negative string of negative prints were up, Dana. Key question for me this month this year, who leads the

consumer our businesses when it comes to the cycle. Well, I think it's going to be It's definitely going to be consumers, because what we're seeing is that the US is participating in this global trade and manufacturing slump, but we're it's still expressing resilience and other sectors and that's being certainly helped by the consumer as well as the massive amounts of discal stimulus that was implemented last year and then will be implemented yet again. So what's your

GDP called twelve months out? Just to frame the conversation is City Group and Dana Peterson and two percent plus? Are you below two percent? We still have two percent and that's because you have two different drivers going on. On the one hand, the downward revisions from the benchmark GDP release placed downward pressure on on growth for next year,

so we might see below two percent. But on the other hand, you have upward pressure from the bipart are some budgets aft between nineteen So together that's keeping you right around supercent Danta. What will be the effect of the FED cutting fifty basis points in September, and some people are hoping, well, that's a great question. We asked our our investors who read our research, and they said,

it's probably just going to inflate asset prices. That's not really going to drive additional consumption or even urge businesses to invest. And indeed, businesses are on the sidelines because they're concerned about the external environment. They're concerned. They're very uncertain with respect to the trade wars between US and China, and in that environment, the said, it seems like it's more willing to cut clearly, but will it upset all

the weakness from abroad? Probably not. Yeah, data, I guess there's also a sort of angst over markets. Have we shifted? Has something materially changed over the past few weeks when it comes to sentiment and the direction of markets given the fact that businesses aren't spending as much in the wake of uncertainty, etcetera. I mean, have we entered a new regime, a new paradigm. Well, I think we've been. We've been moving in that direction since it earlier this year.

We've seen that and the FED speak, you know, the FED went from being pretty hawkish in December of last year to putious native watching and then shifting to an actual rate cut and signaling that there could be more. Okay, but this is really critical at Lisa brought up as the arch theme of the week in the Central Bank, and it is we've had a regime shift in bonds inversion,

distant version, but clearly a lower set on yield. Has it been a Bullard like regime shift or is it business as usual for Philip's curve structured fed Well, I think there has been a regime ship in terms of markets viewing this in version of the yield curve psychologically, and I think it us have fed a little bit more ammunition to go ahead. This is critical, Lisa. I mean, I'm glad you brought this up because it really goes

to the heart of the communication the FEDS speak. We're going to get is do they come over to build Bullard's important short paper. I'm going to guess three years ago where they've got a shift to regimes study versus a more theoretical construction. Yeah, and Dana, I do have to wonder also we're talking about the Federal Reserve and their reaction function. But I do have to wonder whether we're past the point of the U. S And China

coming to some agreement and making this all better. Whether we've sort of passed that point at the at a time when businesses aren't investing and we've already gotten that sort of baked into the economy. Well, I don't know that we're past the point for any change, um, meaning things can get better. Certainly, President Trump said that he's waiting for a phone call from President She and the Chinese have been willing to deal with the US on the point by point basis, meaning China is not willing

to go further than the US is. So I think there is some time to reverse on this course. Um. I mean, are we, you know, headed for a regime where there's going to be perpetually weak growth. Probably not. I mean, this is just part of the what happens when you have a trade war. You know, it's global and unless you have some change, it's going to be weak. Dana, we've been talking about the yield curve and version the

gap between twos and tens uh throughout the week. I'm wondering, do you think that is an indicator of recession in the next six or twelve months in the United States. Well, I would suggest that you should never place all your ships on one measure um, and we know that there's been different activity at both ends of the curve. At the shorter end, you do have market signaling that the said policies are too tight, the FED needs to cut. At the longer end, some of that related to the

equity market. People are also nervous about second half earnings and so they're buying treasuries as a you know, search for for equality. Right um, So I would suggest that it's not as strong as an indication. And plus you have quantitative easing which kind of dampens back into the Yolk curve as well. So would look at a multitude of indicators. And right now the labor markets doing fine um and growth outlook is still healthy. We still have

another round the fiscal stimulus in the US. I'm not sure if at all signals right now, if anything signaling a recession in the US. We are seeing signals of a potential flowdown or even a recession globally led by China and Germany, fueled by the trade wars. Dana, thank you so much. Dana Peterson with US with City Group this morning on a two percent economy. Two point zero percent economy, I believe is where she is. We are thrilled to bring in now for two sections, Michael Darta.

He is at a profound impact on Bloomberg on the economy and Bloomberg surveillance synthesizing economics into markets. No one on the street uses Bloomberg charts like Michael dart is. Mike, what's the most important chart for you on the Bloomberg right now? What matters? And the zillions of charts you construct. Thanks for having me on, Tom. You know, I'm watching these various measures of the of the yield curve, both here and overseas, and you know, one thing that's really

jumped out in the last week. I know, you know a lot of journalists have been focusing on the very brief inversion in the ten year to two years spread uh this week, but we've had other measures of the yield curve that certainly have some prominence in the academic literature, like the tenure to the T bill rate that have been inverted since May uh. And we're even you know, we're seeing that inversion intensify. And I think one reason for that was this hot CPI inflation report, which sounds

pretty counterintuitive. If inflation comes in above expectations, why the heck would investors you want to buy bonds and invert the yield curve. Well, if that hot inflation report creates some more of a luctance for the Fed to to move in it gingerly fashioned, it could actually increase risks of a downturn. And I think that's, you know, part of what happened this week, even though it didn't get

a lot of attention. So, Mike, here's the thing. I'm trying to square the sort of concern about recession that we saw pervasive throughout the week with the retail sales that we saw which were really good, and the fact that we saw retailers like Walmart post really good returns and results. How do you square those two realities. Yeah, that's a great question. So there there's I think been a lot of confusion in looking at some of these long leading indicators, like the yield curve is a is

a very long leading indicator with quite a bit of variation. Historically, typically an inversion will occur anywhere between seven to twenty one months before a recession. So if we were just starting to see incipient and versions back in May and June. It would likely be way too early to see the coincident indicators meaning reach, hail, sales, production, jobs, incomes. Those are all coincident. They tell us how the economy did last month, but not necessarily how it will do a

year from now. And all that data looks really strong. And that's one reason that historically when the curve inverts, the narrative about it being different this time and actually quite compelling because it looks different if you're looking to the coincident data, which is still healthy. Mike Michael, you lead your note with a demand side analysis of what

the federal do cut rates help demand, etcetera, etcetera. How do you take the idea of central bank efficacy at the zero bound or even at the negative interest rate bound? Can can we have a can we have a trust and the outcomes that are traditional? Well, Tom, I think it's a question of if the central banks are behind

the curve or not. So, you know, these falling interest rate levels are are one sign of central banks being less effective in the sense that you have growth momentum slowing and with that weaker momentum the whole structure of equilibrium, interest rates comes down, and and so you know, you could see a situation, you know, with the Fed, I think we're already seeing it where even though they've started to cut rates and they're expected to cut rates in

the future, it may not revive growth because they're simply the curve. So we need the central banks to get ahead of the curve. What I be looking for is the bonds to sell off. I mean, I think if you continue to see the long bond yield making new loads, I mean, that is not a healthy sign for the business cycle. That's not what you would see if growth and inflation expectations for the future we're reviving in a

sufficient fashion, we're gonna come back. But Michael, we got to talk about the major, major recession indicator, which is a line out the door. It Backdoor Donuts in Oak Bluffs and Martha's Vineyard. I mean, what are you seeing on the vineyard this year? I mean, you're a regular. Everybody knows you spend like six months out there every year. I mean at the Artcliff Diner, at Backdoor Donuts. What

do you indicate you know? I mean, you know, the restaurants are full and things are always pretty chipper out here, Tom, but this may not be a good reflection of reality. Let's put it that way. Really, you think with this, Michael Darta of m Camp Partners are thrilled he could be with us today, Michael, to fold into the equity markets in the long term ramifications for our listeners worldwide.

James Bevan was just on with a tangible optimism about cash flow generation and the ability to buy here in the vicinity of here. Do you share that optimism or do you link equity performance into the angst of the bond market? Tom, I I don't share that optimism at the moment, simply because business cycle risks, meaning recession risks, I think, have been amplified to the highest level that

we've seen so far during this economic expansion. And that doesn't mean the equity market is going to go straight down. But I do think the risk of a recession and typically what accompanies it a bear market, is elevated here if we think back to where we ended last year, where the market fell almost yet we didn't have these long leading indicators of recession flashing red at that point.

My view, as you want to be bullish there now, with the equity market just off all time highs, in some real concerns coming out of credit markets, I would I would have a you know, a much more cautious posture here. Now go ahead, Sorry, Well, I just want to know, is a trade deal something that could save this economic cycle? You know, it's it's certainly possible if it boosted optimism, optimism enough to disinvert the yield curve and you know, sort of indirectly put the FED into

a more accommodative stance. We've been seeing just the opposite on Fortunately, it seems like a deal is almost wishful thinking now. I mean, if we look at how the administration has has acted, UM, it's not clear to me at all that there's even a desire for a deal, at least one that would you know, completely reverse the tariffs. I think the best we can hope for is sort of, you know, in an environment where the trade war doesn't

continue to escalate. Um, And that's probably not going to cut it in terms of a big turnaround and the look, so let's say that's the base case. When do we get recession in the US, I would say, you know, we'd probably be looking at you know, business cycle peaks sometime around next summer, you know, through the through the winner. It's really looking ahead a year, maybe a little bit longer. The key here will be to watch some of these

intermediate and shorter term leading indicators for confirmation. And it's probably still too soon to expect to see much, but even we can look at high yield spreads for example. So far no recession indicated by you know, by credit spreads, but they do suggest that growth is slowing, and certainly we could see more pressure they're going into next year.

And then for listeners, I would watch, if you want one, watch jobless claims, you know, claims on a year over year basis of phenomenally important recession indicator, only leaning by a few months, but still if you're rising or more year to year on that four week moving average, then you know, go into the bunker because business cycle is

probably coming down. Mica. One final question, and that is that there's an understanding of goods disinflation and deflation and the angst of the gloom crew that service sector inflation will begin to disinflate. Is that feasible that all the goods manufacturing trade challenge rolls right over and actually affects service sector inflation. Tom It depends on, you know, on on how the Fed manages. So if if overall aggregate demand growth is allowed to slump, then that's exactly what

you'll see. If not, then prices will be going up in some sectors and down in others. One thing I think it's important to point out is many people look at the almost one and a half percent ten year yield and they think this is being driven by central banks. But what's missed is the fact that year over year nominal GDP aggregate demand growth has slowed from a six percent year to year growth rate in you two of

last year to four percent growth. That's two hundred basis points that any wonder that the tenure yield has fallen almost as much. It isn't to me, but it seems like that's, you know, a bit overlooked out there in the commentation. We leave Michael Darter with What made his claim was just as the dynamics of nominal GDP top line animal spirit into what we see in bonds and equities. Michael Darter, thank you so much for this extensive conversation.

I'm an important Friday Kevin Carey has been one of the few people who has actually said when everybody calmed down and actually look at what's available, the programs, and the desire to fix this train wreck. He is with education policy. He has written on this for the Chronicle of Higher Education. Most importantly, he's worked at the Center on Budget and Policy Priorities, which is not only something liberals read, it's something conservatives read as well. He's out

of Binghamton and Ohio State University. Kevin, We're honored to have you on the program. Uh, let's get to the crisis part of it. Everybody lathers hysterical about student debt. Is the is the hysteria warranted? Well, there's a couple of different ways to talk about a crisis. Some people analogize the student debt amount of student debt, which is grown and grown and grown to the two thousand eight housing crisis. That's about analogy. It's not the same thing.

There's not a there's not a frothy securitization of student loans out there. People aren't speculating on other people's loans. Um. I think it is an enormous problem for a lot of people. And I think, uh, if you step way back and say, over the last thirty or forty years, we essentially decided to convert our higher education system to UH in many ways predominantly debt financed or substantially debt finance system. Um. I think it's it's that has not

worked out well and it's hurting a lot of people. Okay, so let's look at the finance first. The quickest solution, of course, this comes up with the keyen household does any other household? Is the quickest solution to get over this ten year or fifteen year payback and extended out over a lifetime of employment. I'm going to guess thirty

or forty years. Well, I mean, you can extend a loan out to thirty years, um, but really there's no reason to do that because we have a system of UM income based for payment and loan forgiveness now out the federal government runs. So you can UM at most make your monthly payments, say fixed percentage of your disposable income, and then any UM remaining data is forgiven after twenty years or if you're in a public service job, ten years,

which is actually a really good deal. Although we're having a lot of problems now with the initial implementation of that program. I mean, I mean my point here is, people like you and others are making all these well meaning efforts to write this program, and I would suggest families aren't aware of all these efforts. Am I right or wrong on that? I don't think people realize that we have a a income based repayment and loan forgiveness program. I mean then, and we've had it since two thousand

and seven. The reason they don't realize how why don't we know this? Um? The programs are too complicated. There are too many options for repaying your loans. Every Congress never he's away old options for repaying loans. They just keep adding new ones. So we're at the point now where if you try to figure it out, it's like looking at a huge spreadsheet. There are dozens of possible combinations. UM. The loan servicing companies. These are private companies that the U. S.

Department of Education contracts with to help people make these decisions. UM. They often don't do a good job. They're paid on a per capita basis UH for servicing these loans, which means the more complicated your loan and the more advice you need, the less money you make for them, exactly. They're not. The system is not incentivized to sit the kid down. He's twenties, four years old, he's got a big fat loan, he's got a payoff, and they don't

make it simple. They're not incentivized to make it simple, right, No, they're not at all. I mean, in some ways they're incentivized just push people into certain kinds of repayment that actually make you ineligible for loan forgiveness and in the long term, absolutely bizarre. What's the politics of this? Is Democrat and against Republican, Republican against Democrat, or is everybody just appalled by what we've worked at, what we've worked

our way into. I mean, I don't think there's a member of Congress that doesn't have a lot of constituents who are super worried about this. So and that I think it is a bipartisan issue. On the specific issue

of loan forgiveness, I think that is pretty partisan. I mean, we have these um enormous policy proposals from some of the Democrats running for president, including Elizabeth Warren and Bernie Sanders, to have essentially massed that forgiveness for the loans that are out there got combined with U kind of a free college plan. UM. Republicans have proposed to eliminate public service loan forgiveness. UM. That hasn't gone anywhere and won't

as long as the Democrats control the House. But I think on the forgiveness question, it is a partisan issue. Which country does this? Right? I mean, is there a Kevin care you just joining us? So it's Kevin Carey with education policy? Which which country gets the Kevin care re prize for common sense and educating our our kids? Well? I mean, you know, people often point to Australia and New Zealand is having UM income based loan repayment programs

that work. UM. But what's important to know is that that's accompanied by UM a pretty low cost system to start with. You know, so we we have a very high cost really education system. UM. Uh, that we have an unusual number of students going to private nonprofit and private for profit colleges, where in a lot of countries it's basically just the public university system. UM. That that's out there in terms of publicavities, we're at the prime

time of write and checks on this. Is there any outrage that forty has become sixty, and that's sixty is becoming seventy. I mean, you know, it's it's a market, and I know that look what it's done to us, right. I mean, I think part of the denied dynamic here too is that you have institutions. Um that I mean every you know, every one of the one point six trillion dollars in outstanding loans went into the pocket of a college somewhere, right. So so we talked about reforming

the system to bring those numbers down. I'm not sure colleges have an incentive to do that because that means they're gonna get paid less. Um. But people default on loans, it's no skin off of the college. They get paid up front. They have no financial risk in this system at all. Uh. And UM, I think they've been chasing dollars in status and in some cases, um, looking to make money. UM. In A lot of I mean a

lot of of those loans are for graduate school. And I think that gets lost sometimes when we talk about loan burdens and opportunity, but just proportionately, this money is

being taken out to go to graduate school. That's where a lot of growth is in the market, and that's where frankly, a lot of the profits are the profits of their the growth is their discuss For us what comes up constantly, which is and particularly for critics of America's effort here, which is kids through loans, taking degrees that have a history of not implying employment, having degrees that do not apply the ability to repay back those loans.

Is that a valid criticism? Absolutely. You know, there's a there's a remarkably little regulation of our higher education system. There's a baseline assumption that the market will work, um, and that people won't borrow too much money in order to get a degree. Um. But that's simply I mean, if you look at the fact that we have a million students defaulting on their loans every year, that's obviously not true. It's actually a very complicated market market. It

needs to be regulated. Um. You can't just it's not like going out to buy a cup of coffee. It's a very complicated thing to to purchase. Now, the Obama administration tried to fix this by essentially making a regulation based on exactly what you said. They would look at every program and every for profit college, um, and say and some in some nonprofit colleges. Um look at how much money students were borrowing, look at how much money

they were earning. And if the ratio was way off, if people were borrowing a lot of money for degrees the produced very little earnings, they would say, you're out, You're out of the program. We're not going to support that financially. Where did that go? The Trump administration is in the process of dismantling those regulations. So, you know, Kevin, just you know, to give you an anecdote, here, the middle child calls up and says, I want to go

to graduate school. I'm like, great, pharmacy. I think it looks great. She said, No, something more stable, screenwriting. I mean, that's I mean, Kevin, that's the heart of the matter, isn't it. Well. And the thing is that you can invent a master's degree in anything, people, I mean, there's if you're accredited college, you can just say master's degree in screenwriting, and really you can go off and borrow they sure, there's no there's no one that will tell

you not to do that. There's really approval for that. I'm sure there are master's degrees in screenwriting and the whole really general government. If it's a graduate degree, if it's an undergraduate degree, there are vary how much money you can Keevin, we're out of time. We're gonna have to have you back when someday they pay all those bills. Kevin Carey Education policy on our nation's debt. Major Team Surveillance Shout out to a tumultuous week. We are produced

some days of the week by Richard Truman. This is Bloomberg. I'm thanks for listening to the Bloomberg Surveillance Podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio two.