34: Race against recession: growth vs. debts in America
Mar 15, 2024
auto_awesome
The podcast discusses the US dilemma between growth and debt, exploring scenario planning for future outcomes. They compare debt growth in the 1990s and 2008-2023, analyze factors influencing growth like AI, and delve into positive economic scenarios. The conversation highlights the potential impact of stable oil prices, legal immigration rebound, and navigating economic uncertainty with a focus on real estate investments. They explore positive and negative surprises and their implications on the economy and real estate sector.
Scenario planning is crucial for anticipating different future outcomes in economic growth.
Real estate investments thrive when growth outpaces debt, benefiting from high GDP growth and low interest rates.
High debts may hinder economic growth, but if GDP growth surpasses debt repricing, it could lower the debt-to-income ratio by 2028.
Deep dives
Scenario Planning Framework and Introduction
Planning for the future involves scenario planning, a structured way to anticipate different outcomes. Three main scenarios are typically considered: scenario one predicts more of the same, scenario two involves negative shocks or a hard landing, and scenario three features unexpected surprises. Each scenario aims to prepare organizations for various future situations.
Scenario One: Soft Landing for Real Estate
Under scenario one, known as a soft landing, where growth outpaces debt, real estate investment thrives as it leverages GDP growth and benefits from falling interest rates. High GDP growth coupled with declining interest rates magnify returns in real estate investments, making the scenario exceptionally favorable for the real estate sector.
Scenario Two: Hard Landing and Deleveraging
In scenario two, characterized by debt outpacing growth, a great deleveraging occurs. This scenario poses challenges due to rising government deficits, hidden liabilities from entitlements, and potential high interest rates. If interest rates reset to higher levels, it could significantly increase debt service payments, impacting sectors dependent on debt financing.
Debating the Impact of High Debts on Economic Growth
High debts can hinder economic growth as the dollars used for interest payments could have been invested in R&D or education. However, the delayed negative consequences of high debts may be mitigated if GDP growth outpaces debt repricing, resulting in a lower debt-to-income ratio by 2028.
Concerns Over Collateral and Potential Economic Consequences
The speaker expresses worry about collateral collapse accompanying elevated debts, referencing the 2008 financial crisis. A scenario where debts remain high but collateral values plummet could lead to cascading effects through various sectors, potentially triggering a downturn with lasting impacts on the economy.
Two roads diverged before the US. One the way of growth and the other the way of a debt spiral. In this episode, Cardiff Garcia and Ben Miller look at the state of US dynamism vs. indebtedness, and the narrow path that would lead to a prolonged US boom. They scenario plan three potential futures: the continuation of current growth trends, a major recession, and a surprise development. The discussion spans historical debt trends, the impact of AI and technology on growth, and the influence of interest rates and fiscal policies. They highlight the strategic balance required between debt management and economic development, with a focus on achieving a ‘soft landing.’ This episode covers the key decisions between leveraging growth and managing debt that will shape America’s economic destiny.
Have questions or feedback about this episode? Drop us a note at Onward@Fundrise.com.
Onward is hosted by Ben Miller, co-founder and CEO of Fundrise, and Cardiff Garcia, co-founder of Bazaar Audio and host of the economics-focused podcast The New Bazaar (after spending many years as the co-creator and co-host of NPR's The Indicator podcast).
Podcast production by The Podcast Consultant. Music by Seaplane Armada.
About Fundrise
With over 2 million users, Fundrise is America's largest direct-to-investor alternative asset investment platform. Since 2012, our mission has been to build a better financial system by empowering the individual. We make it easier and more efficient than ever for anyone to invest in institutional-quality private alternative assets — all at the touch of a button.
Please see fundrise.com/oc for more information on all of the Fundrise-sponsored investment funds and products, including each fund’s offering document(s).
Want to see the specific properties that make up and power Fundrise portfolios? Check out our active and past projects at www.fundrise.com/assets.
Get the Snipd podcast app
Unlock the knowledge in podcasts with the podcast player of the future.
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode
Save any moment
Hear something you like? Tap your headphones to save it with AI-generated key takeaways
Share & Export
Send highlights to Twitter, WhatsApp or export them to Notion, Readwise & more
AI-powered podcast player
Listen to all your favourite podcasts with AI-powered features
Discover highlights
Listen to the best highlights from the podcasts you love and dive into the full episode