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Ben Miller

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2024-04-22

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2024-04-22

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1. “That one was much more government focused, what they did in that era is they said, okay, we'll deregulate these banks and they can kind of like, you know, they're underwater, so they'll grow their way out. And instead of what the banks did was just at the farm with government money. So that was not a good idea. And it cost at the time it cost a trillion dollars. So it's different, but that was the worst real estate crisis and way worse than 2008, like way, way, way, way worse.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

2. “They're underwater. And so as the credit portfolio starts to deteriorate, right, which is today, they mean something like third bank said they had zero defaults, like zero credit losses last year or something. And I'm like, okay, well, that's illustrating my point, is that everybody's kicking the can. The reality, this is the savings and loan crisis. This is exactly what happened in the 70s and 80s. So we're just seeing it all happen again for all the same reasons. And that crisis, like, right, just to summarize that, because everybody's as familiar with the SNL crisis, is that all the banks lent at 5% from 1950s to 1970s and the 1970s, interest rates went to 20%. And that made all these banks go underwater. And you're talking about the SNL crisis happens in 1987, 1988, 1989. In that same era Same era had they delayed for half a decade.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

3. “Yes, it's wild. And then you know this, but JP Morgan's deposit rates 0.05%. Well, Fargo deposit rates 0.01. So the big banks have all the deposits and they haven't. They basically borrow at zero and they lend it six, seven percent, 8%. So it's an incredible market inefficiency that shouldn't exist that depositors would leave 75% of their deposits at banks that are paying close to 0%. But that's actually the reality. And then for the other 25% of assets are with banks that are having to pay 5% for deposits and they have negative leverage, right? Because most of their assets are on long-term fixed rate mortgages they made before 2022.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

4. “That point is too late. So you saw the cracks in the regional banking again in October. Like it happened in March. It started happening again in October. The weak link here is the regional bank. And the regional bank is, the reason why the big banks are fine. And maybe you already know all this, but there's 75% of all deposits are with 15 banks. So it's super concentrated.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

5. “Hire for longer interest rates are unequivocally bad for the real estate commercial real estate industry because nearly all the commercial real estate industry is levered. So interest expenses are higher. It ruins the profitability of a lot of deals, in some cases makes them non-economic so that the value of the earnings every year net operating income is in some cases less than the debt costs. You said in October cracks were beginning to form. What did you mean and maybe cracks are beginning to form now? What do you mean? Because, you know, we've had a few niche developers on some apartment building in California or so wherever default and go bad, but it really hasn't gone systemic yet at all. And by systemic, it hasn't gone into the broader economy. It hasn't even gone into the rest of the commercial real estate market, right? Like there's very few failures. Show me the failures, Ben, and then I'll give you the crisis.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

6. “So we're living why the Fed always ends up doing what it always has done, which is that by the time it does anything, it's too late. And you're seeing why they don't have a choice. They can't get ahead of it. Like if they got ahead of it, they would have stopped a crisis that no one believes is going to happen.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

7. “Apartments are too levered. Leverage was cheap. And during the last heyday, the last cycle. So private equity is high leverage, lever loan. I mean, there's a lot of parts of the sector. So it's what everybody wants is something simple. And this is complicated. hundred million different borrowers who are all trying to figure this out. And each one of them is suffering to some extent as they look forward and deal with this. And so the Fed's hope is that it's like, you see the marginal decline day by day and that slows everything down. And that, you know, it's like we're living. We're living. You look back at the Fed data and you always see the Fed like the Fed talks like a trader but acts like an accountant.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

8. “Rates came back down. And now we're basically on that roller coaster again. And this time is a little different than October because we're really starting to see that inflation might be stuck at 3.5% or whatever you can pick your CPI, PPI, blah, blah, blah. It's stuck higher. And so it's, again, this reflexivity. The moment the market decides that we really are higher forever is when you're moments away from the financial crisis. You know, that's one alternative. The other one is that rates do come down, inflation does come down. It's just like it's a grindy process. And because nobody wants it, there's enough, there'll just be like some decline of office market is going to have some pain. And it's not just office. I mean, a lot of residential.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

9. “They delay. Like, this happened briefly in October. In October, when the tenure treasury went to 5%, like there was cracks developing. And then, you know, Janet Yellen came out with and did a little fancy footwork. And then we saw some, the dot map and people got optimistically delayed again.”

   2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

10. “Yeah, just, you know, we'll split the difference and say two to three. Let's say three. And so most banks, and the regulators, the FTIC regulators. Are explicit in like letting the banks extend and pretend, blend and pretend, that's like part of the policy. So every, again, everybody at the table, if you're a business, if you're a bank, if you're a debt fund, if you're a real estate company, they're all looking at it and saying, okay, well, if we just wait a year, okay, we waited a year if we wait another year. And so like the market's fighting them because without that kind of pain, it's hard to have the right environment come back down. So the rate environment can't come down until that pain is taken because everybody sees that forward benefit of waiting.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

11. “Well, it's not true now. I mean, we got one cut price in, but I guess you got the reprieve. Interest rates are about as restrictive as they were in October, late October. The Federal Reserve pivoted. November, then six cuss were priced for this year around the beginning of 2024. Now it's then five, then four. Now it's less than three, which the Fed has less, the market is now pricing in fewer cuts than the Federal Reserve indicated on its dot plot. And I mean, now it's maybe even less than one. Sorry, less than two by the end of the year.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

12. “Fed funds rate or three and a half, whatever you say, and the forward curve and the long-term interest rates at various points last year, long-term 10-year mortgages were in the threes at 3.8, 3.9. And so as long as the long-term interest rate was way inside the short term, everybody was complicit in delaying because that's what the forward curve tells you. It tells you basically if you just wait a year to this problem goes away. The moment that's not true, there's a crisis.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

13. “The market is reflexive and the expectation of the market was that rates were going to be high in the short term and come down in the medium to long term. And the forward curve or the Fed funds dot map showed it at 5.45, but getting down to 2.5 or into the twos by 2028. And it was a steady decline. And so what you could do as a borrower, you could create synthetic ways to bridge that gap with derivatives. But everybody at the table, all the banks, all the borrowers, the regulators, the FDIC regulators all look at that and say, well, clearly the answer is to just get to the other side of this bump, get to the other side of the slope, because this thing can clearly pencil at a 2.5%.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

14. “So we know commercial real estate is the locus of the pain of higher interest rates. How bad is it now? Because 18 months ago, there were a lot of commercial real estate developers, very large developers who would go on TV and say, this is going to cause an apocalypse in the commercial real estate world. And I'm sure the past 18 months hasn't been great, but I mean, the unemployment rate remains below 4%. It has not had a broad impact at all. Has it gotten steadily worse just as, you know, okay, the interest rate shock of the overnight rate by the beginning of 2023, most of the hikes were already there. It's just that the cutting that was priced into the forward market has just been moved up. Borrowing activity is as well. How would you say it is there? Has that impacted the space?”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

15. “And the disadvantage of hire for longer is that you end up with a more concentrated breakdown rather than a soft landing. This is the problem with the market is that it always extrapolates the present into the future. And so today, the fact that the present is healthy with 3.5% inflation rate, they extrapolate that forward and assume that's just like in 2021, they extrapolate 2021's craziness forward or 2018 when interest rates were nearly zero, like the market overextrapolates the president to the future and it's doing it again.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

16. “And I just take real estate as a microcosm of this, where every year there's a couple hundred billion dollars of debt that comes due and recess the higher rate. And every time that happens, you are likely to have to delever because if you have a property that can't support its debt service, it needs less debt. And so somebody has to write a check and deleverage that property. And what that does is it soaks up liquidity. Liquidity starts going out of the market because debt is money. And so, as you deleverage, you have declining M2, declining money supply, which we know we have, but money velocity has basically compensated for it. That's a point in time, though. But again, if you go to the hire for longer, you play it out over a few years. Three years from now, four years from now, it's completely unsustainable.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

17. “I think only 10% of all U.S. federal debt is 30 year fixed. It's a really small percentage of it. And that's true with if you go, if you're a real estate company or you're a small business or even a middle market business, you're going to borrow five-year debt. The duration typically bank and an investor securitization markets, they don't want to go beyond 10 years. And so you're talking about most of the market is either short-term floating or three to seven year duration. And so every year a big part of the market's resetting because they don't have very long dated debt. And that's like what's happening in the real estate industry where”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

18. “Yeah, so you're, you know, 90% of the money, if not more, is duration of a few years. U.S. federal debts duration six years. And this was one of the things that shocked me, and you probably know more about it than me, but only like.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

19. “So to think that's the norm is people extrapolating what they see in their life to every other part of the sector, but banks, corporate sector, businesses, any kind of professional's borrowing 15 to 30 year except for like, again, like Microsoft.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

20. “Yeah, I would broaden that a little bit in that the reason you have 30 year and 15 year fixed rate mortgages for households is that there's government subsidized.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

21. “Earlier, we talked about the fixed rate mortgage. So the vast majority of individual residential mortgages, like, oh, I own a home and I have a mortgage on it. A person saying that is fixed rate mortgage. Maturity of 15 or 30 years, you said a duration of eight, which factors in the prepayment thing that I said. The pain for the fixed rate people is not here yet. And it's going to be many years. The pain for the floating rate people is not only here, it was here a year ago, 18 months ago. And the floating rate people, correct me if I'm right, Ben is your world of the commercial real estate building of you buy, you're not buying a house for your family. You're buying an office building for people to work in. Then you rent it out or an apartment building. You're in the apartment building world. You're not in the office world. You said negligible exposure to offices. But is it accurate to say that the floating rate pain of rising interest rate is a huge, huge, huge amount of that is on the commercial real estate side, not residential.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

22. “Office building and redo the whole thing with equity financing, like that's, and today debt costs as much as equity. So that's why office buildings are trading at such low prices $100 a square foot versus seven, eight, six, seven, eight, hundred dollars a square foot 36 months ago is that they're unfinanceable. And that's happened before in the 80s and real estate in downtowns as a, I'm like old enough to remember that where the riots in 1968 and the white flight crushed downtown some of the cities went into huge economic decay. And so again, probably the country can afford higher for longer, but we'll have very concentrated costs.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

23. “Get economically revived. They need tons of money to renovate, to tear down, to redo. There's this massive economic demand, need because you take Washington DC or San Francisco or any of these cities, a collapse downtown where you have vacant office buildings is economic crisis for those cities. And I'm already seeing it where school budgets are getting cut and they're trying to figure out how to make up the whole. And if interest rates say high for longer, it's going to be really difficult to afford any of the economic revitalization you need for those cities. So they actually, you're talking about long-term decay to downtowns, which is like a second order consequence to higher for longer. If you get into the math, which I could get into, you could see.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

24. “So, okay, so real estate. So, the biggest problem in real estate today is the office industry. By way of background, people like I, we own $7,8 billion in real estate. We don't own one office building in our portfolio. So it's like negligible because I never liked office. I bought office and I managed office and I never liked office. Office is a multi-trillion dollar part of the market. Let's say $3 trillion. Most of the office is probably zero equity. Equity is zeroed. I'd argue and I have lots of office people who get mad when I say this that all offices zeroed and then probably half the debt. There's this massive economic bomb that went off in office. And this is everybody knows this. But if you look at the second order consequences of that, so now you have, I think it's like a couple hundred billion square feet of office in downtowns in particular that need to.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

25. “Where we keep hiring for longer, and half the country is fine with that, half the country is suffering enormously. Same with businesses. So it's the same story over and over again. Like if you look at the corporate markets, you have like NVIDIA and big AAA rated getting like super cheap debt. And you have a small business that if they can get debt at all, they're going to pay huge rates. So like that doesn't seem sustainable to me. Let's talk about real estate for a second. Yeah.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

26. “So you get under the hood and you say, okay, well, what percentage of the economy of the households that we were talking about have this wonderful fixed rate debt? So it's mostly boomers. It's older you are, the more likely to have it, the less money you have, the less likely you are to have it. So you end up now with an economy that's on like a two Americas again, where you have huge part of the economy, at least half the economy, all young people will not have this asset and will struggle. And then the rest of the economy, the older people, wealthier people will be fine. And so what does that do to the economy? It's not really clear, but I think there's political consequences and economic consequences if the typical entrepreneur is a young person. I mean, most of the dynamism in the country comes from people who are kind of rising generation. So you can imagine a scenario.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

27. “Yeah, no, I mean, I'm optimistic about the household, but you have to think, look at the economy in you have to get under the hood”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

28. “Yeah, we got $13 trillion home mortgages. Some people, a large percent of that is fixed date. Yeah, compared to the 100 trillion in overall debt, it's not. But again, we agree that the household debt is what households and businesses is what matters. I mean, I mean, some people disagree, but the government, the demand for U.S. treasury is quite high for U.S. debt.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

29. “So, which is in my analysis. I have a page that looks at what we think the average duration of all U.S. debt is. And I even expanded. I said, okay, if eight and a half years, maybe it's even wider because it's assuming a falling forward curve. So maybe it's 10 years. But that's only a percentage, how many people own houses, how many people don't own houses. The consequences to U.S. dynamism if essentially your main asset is a long-term fixed rate debt is like kind of like the great stagnation where you can't move. Nobody can buy a new house. There's like huge negative consequences. And again, of the $100 trillion in debt, you may be talking about six, seven percent of it that's really long-term 30-year fixed rate debt. So it's not the, it's the households are the part of the economy, I think, is most.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

30. “Yeah. So there's, I mean, I had this and then I can't remember off the top of my head. I think it was like $13 trillion, was it? I can't remember it's in my deck if you have the slide. So we also buy asset-backed securities and the securitization side. We buy kind of all sides of the market. And if you go buy a mortgage today, let's say, oh, you know, new issuance are 7% mortgages. Like I like that mortgage. Or I say, oh no, I like this mortgage that's like, you know, there's a 4% mortgage out there, right? And it's underwater. So it reset to higher rates. The bond market assumes that a 4% mortgage will have an eight and a half year duration. So, eight and a half years is like that's not 30 years.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

31. “Well, yeah, so I have two counterpoints to that. So first is you're extrapolating a small part of the market. Very little of the market is 30 year fixed. Of the $100 trillion in debt, you're talking about a really small part of all debt.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

32. “Yes, but that is why the prepayment rate on mortgages has collapsed from, you know, I think it peaked to like 40 or 50 percent in the boom days of 2020. And now it's like 4%. So 4% of people, that means 96% of people who have a mortgage stay in it every year. I think that's how you interpret the statistic. And that's because, yeah, they. Their mortgage is four. I don't know exactly what it is, but let's say on average, 4%, 5%, 4%. The spot mortgage rate is, I mean, you know it to the basis point, but like way, way higher than that. So the only reason you would do that is if you have to move out, there's a divorce, you have to move for a job, something like that, like real stuff comes in the way. But yeah, it's pretty good. I mean, 30 years is a pretty long time.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

33. “About a percent of real interest rate and then long end of the curve, what's a 205? Yeah, like not 50 pips wide, right? Probably five and a half to six. And then you're borrowing at a 200 spread over that. So you're talking about borrowing at 78%. Like there's no way anybody who's listening to this podcast, if their mortgage reset to 8% that they could afford their house.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

34. “And the only chance is if you take a company, right? Because these are fractals, you can go up and down in terms of telescoping company says, okay, well, if we grow enough, we can afford it when it comes due, right? If we can just grow, like if you're highly indebted business, you can double your top line and your bottom line, then you'll be fine. So growth is the only solution. Because the debts don't come debt, interest rates don't come down, then their only hope for the country is high growth and the higher the rates normalized to, the more growth we need. We need a lot of, if rates normalized where they are today, which is three and a half percent inflation, which you'd probably be at about four and a half Fed funds right.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

35. “Exactly, because the whole world fixed to the low interest rate environment that Now, I think people believe it's gone forever. And so then the primary asset of any individual, any company, or any sector is that long-term fixed rate debt. But essentially, it's a wasting asset, right? It's not like you own NVIDIA that's like a growing asset. I mean, like everybody who has these debts slowly but surely they expire, they mature. And as they do, right, that's what slows the economy down. And that's the sort of like the access will fall.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

36. “Much debt, how much collateral. But if you took it by math, right? So if you had 75% debt at 4% mortgage, 75% debt at 7% mortgage, virtually nobody can afford a 7% mortgage even with 75% debt because essentially at that point have taken the effective collateral up by 50 to 65 percent.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

37. “Right, that's exactly what everybody talks about debt to income as a ratio rather than they look at the stock. That's a stock analysis.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

38. “Looking at the household debt, and that is 73% debt as a percentage of GDP, which is down from the peak of 100% in 2008. And it's a little bit above the mid 60s average of the 1990s. It's not super high. It's lower than it's been anytime of the past 15 years. Right, right.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

39. “But that didn't happen. But that didn't in the 2010s people started to believe it was going to be lower forever. So you could go out and get, I mean, you saw, right, like Austria got a hundred-year bond or something at like next to nothing. So there were negative interest rates, tens of trillions of negative interest rates. The world had fixed a lot of debts long term At super low rates. So as a consequence, that's like the most, that's the biggest asset. And as that debt matures or rolls over, that's the biggest trigger to financial distress or economic slowdown. And so if you go to look at any sector, you could look at real estate, commercial real estate, home mortgages, small business, consumer borrowing. If you look at any one of those sectors, the only question you have to ask is about the duration of their debts.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

40. “That really low interest rate environment, you had to get to take relatively short term debt, three-year, five-year, maybe seven year at most. It didn't take long for the interest rate environment to reset to the higher rate because there was very, very, very few companies and borrowers who, the long end of the curve was never close to their front end of the curve. Front end of the curve fell in 03 and 02.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

41. “What's special about this, how this time is different, is that we had zero percent, I'm just going to round it to 0% interest rates for about 12, 13 years so it normalized into our society. And so you could get long-term fixed rate debt. Like the difference between the 2008 financial crisis and this time is back in the 2005, you couldn't get 30 year fix at 3%. That wasn't. The long end of the curve didn't come down. The only way you could get really low rates was with an arm. So everybody, when the Fed dropped rates down to 1%, Greenspan dropped rates down from basically five and a half to one during the tech bubble, you know, a 10203. Rates were low for around to about three or four years. And then they brought them back up to five and a quarter. In order to capitalize.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

42. “That matters is whether or not your debt has reset to the higher rate. Like whether every sector, that's the only question that matters is maturity.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

43. “In the early 90s, or take the 80s and the 80s, there was half as much debt as GDP. Imagine having GDP of today or GDP is 27 trillion. Imagine only having $14 trillion of debt in the United States. It's like nothing, right? So the reason the US could have, like during Volcker, when you had this 21% interest rates, the reason that we could afford that is that there was so little debt in the country. So that's why you can't look at the past and say, well, we used to have mortgages used to be six, seven percent and Fed funds used to be five and it was fine is that the total debt load is just so much higher. So it's like there's not a good extrapolation that's missing a huge part of the equation. So that's like at the highest level. Then you can telescope down and say, okay, what's happening? And you can pick your industries and you can take real estate, you can look at down the line. And the only thing.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

44. “So, the reason the U.S. could afford 7% mortgages in the 90s was that there was a lot less debt, right? There was two times debt to GDP in the 90s, and now they're three and a half times.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

45. “And now back to the integration. Why can the economy not handle 5% interest rates if it handled them in the mid to late 1990s 1998, let's say? And there was a boom. I mean, there, the U.S. household was probably more levered in 1998 than it is now. And then the real black sheep is the government. So if the government was the household sector, yes, there would be a definitely some financial issues with the rise in interest rates, but the government can always just print money. But that's a different sector. But where are you seeing the strains of households, real estate, businesses, large corporations, the government? Who is 5% interest rates hurting the most now and who is it going to hurt the most in this longer term concern that you have?”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

46. “Oh, you'd have to grow into that. And even then, you'd have to have interest rates come down. Like the idea that we're at 3.5% inflation permanently would mean that we have a mortgage rate in the six to seven percent at least. And the US has too much debt. So the point of a no landing scenario is like an airplane. Okay, there's no landing until you run out of gas. Like there's no such thing as no landing, right? Eventually the airplane has to land or crash And so by persisting in the short term view of inflation, you're headed down the path of financial crisis.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

47. “The average mortgage in the US in the 2010s was about 4%, and the average mortgage is a little bit hard to forecast, but maybe it's 6%, maybe it's 7%. Today it's 7%. But even if it's 6%, that's 50% higher. So how many people, how many businesses, how many banks can afford 50% higher debt service? Not the majority. The majority cannot. And so the interesting view, my view on hire for longer is that anything is feasible in the short run. That's why bubbles exist. On the long run, it's completely infeasible to be able to carry that unless the US has explosive growth.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

48. “And so the consequence of hire for longer is that that debt-to-income ratio is going to rise. And I feel like what's missing from the debate about interest rates and inflation is a long-term view. Most people are talking about 2024, maybe 2025 But if you look at it on a longer term base, just pure fundamentals can the US afford to have 50%, approximately 50% higher annual debt payments.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

49. “Yeah, it's called Japan. Yeah, there's stock and flow and you need to look at the volume of stock and the volume of stock increased five and a half times over this period from the 80s to 2008. And now we end up with a lot of debt. And when we end up with a lot of debt, the way we managed it over the last 15 years is we kept interest rates low. So we could afford it because interest rates, Fed funds rates were close to zero. Zero was a policy. And so we had a lot of debt. But it was actually manageable from like a debt-to-income ratio because the house you can afford to buy when your mortgage is 3% versus the house you can afford to buy when your mortgage is seven, you just can't afford as much house because you can't afford to carry the mortgage.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT

50. “So, Ben, I want to say a really important thing, the main metric, of course, is a debt to GDP, but that is a metric of comparing debt, which is an amount of money to a GDP, which is a flow of money. It's not like we have to pay three times as much in debt every year as our economy is, you know, it is very normal for that for a flow to be much smaller than a stock and an appropriate way would be to look at the debt income service ratio. So how much is the US government paying on its federal debt corporates? How much are people paying on their debt every year compared to JDP? That's what you've done. Whereas debt to GDP itself is, you know, I mean, if no one pays any money on any interest rate, if interest rates are zero, then Deb GP could be infinity and it would cost nothing.”

    2024-04-22 · Forward Guidance · Can The U.S Handle High Interest Rates Past 2024? | Ben Miller · IDENTIFIED FROM THE TRANSCRIPT