Editor’s Note: William Hunn messaged me this morning with an interesting reality about student debt and how it will affect even baby boomers. This is a short and important read that should help guide who you support, what policies are in not only the best interests of those with student debt but everyone’s interest as well.
by William Hunn
A few months ago there was an article in the WSJ about a coming deflation in real estate prices. They tied it directly to student debt.
As baby boomers age and look to retire, they will want to downsize and sell their suburban family home and move to retirement communities or at least smaller less expensive properties. As these properties flood the market, who is going to buy them? Certainly not the 20 and 30 somethings that traditionally snapped up these homes as they will be too indebted to qualify for mortgages.
Add to that the booming ranks of the unemployed, who will add additional properties to the real estate market and we are looking at an increasing supply that vastly outstrips demand resulting in substantial deflation.
The net worth of many boomers is largely tied up in real estate, notably their family homes. Many will have lost the capital gains they were counting on for retirement and will be forced to stay in increasingly unaffordable properties.
Ultimately, many of these properties will be purchased by institutional investors and turned into rental properties. This is clearly described in Piketty’s “Capital in the 21st Century” as the “rentier economy”. The rentier economy restricts ownership to the privileged few while the rest of us pay nearly everything we earn into the rental of necessities.
“Property ownership is one of the few ways in which the working class has been able to grow and retain wealth. The author of the WSJ supported reducing or eliminating student debt. The economy needs the buying power represented by student debt payments to fuel consumer spending, 80% of the American economy. The economic ramifications of the COVID crisis will fuel the acceleration of these trends.
Historically, debt has been backed by collateral in the form of property. Most home mortgages and car loans are self collateralized. The lender can always repossess the property and resell it to recover most of the loan value. Student debt is the only debt of that magnitude that has no resale value It cannot be relieved by selling it.
When some pundit warns of a coming depression, believe it.”