Media-Whipped Slowdown Fears Could Trigger Recession | Danielle DiMartino Booth

**Danielle DiMartino Booth** (0:00)
If the media gets on board with the idea that there's a recession, my greatest fear is that it could become more self-fulfilling prophecy, because so many Americans have been feeling recession for a very long time now. But if the media all of a sudden jumps on board and agrees with them, then my greatest fear is that we'll entrench too much, that there will be too much of a pulling back, because there's an underappreciation for how fragile the economy was to begin with.

**Adam Taggart** (0:38)
Welcome to Thoughtful Money. I'm its founder and your host, Adam Taggart. Last year, fears of recession faded from the headlines as the no landing narrative went out. But the disruption brought by the new Trump administration, especially around global trade, has brought recession concerns back to the forefront. Now, the administration says it's not worried, that we're merely passing through a transitory detox period before new trade deals, tax cuts, and deregulation kick in to turbocharge economic growth. But others fear a more pronounced slowdown is in the cards. So, which outlook is more likely? To find out, we've got the good fortune to speak today with Danielle DiMartino Booth, CEO and Chief Strategist for QI Research and author of the book Fed Up, An Insider's Take on Why the Federal Reserve is Bad for America. Danielle, thanks so much for joining us today.

**Danielle DiMartino Booth** (1:30)
And thank you for having me. Great to see you again, Adam.

**Adam Taggart** (1:33)
Thank you. All right, Danielle, look, it's actually been a while since I've kicked one of these interviews off with the general question that I want to, which is, what's your current assessment of the global economy and financial markets? Feel free to start with that if you like. But before we turn the camera on here, you brought up an interesting concept where you're seeing America at a hand the baton off moment, and you've got a strong sense of where the baton is being handed off from. But maybe we've got a much less clear picture on who's going to be taking that baton next. So maybe why don't we start there?

**Danielle DiMartino Booth** (2:12)
So Adam, the current background, I suppose, the higher the sense of uncertainty grew, the more I kind of started looking into history to try and get my bearings. And in doing so, I had an epiphany, because I started looking at waves of the stimulus measures that have helped support the mighty US consumer, right? 70% of US consumption, sorry, 70% of US GDP, 18, 18% of global GDP, that is the US consumer. And it got me to thinking, you know, when was the last time, really, nobody was looking after the US consumer? And to answer that great big question, I had to go back to the era when Paul Volcker was at the Fed, which takes you quite a ways back.
Okay, yeah. Nearly 30 years.

**Adam Taggart** (3:19)
We're talking, yeah, 30, 40 years, actually, right?

**Danielle DiMartino Booth** (3:22)
So yeah, 87, yeah. So in the era that followed the maestro, if you will, whose Ph.D. dissertation was on housing bubbles, which he asked to be taken, removed from the NYU library the day he was confirmed by the US. Senate to be chair of the Fed. There are ironies in this world, and then there are ironies. But a lot of the work that he had done on housing earlier on in his career was based on something called mortgage equity withdrawal. And in the years that followed Greenspan's coming to office, mortgage equity withdrawal came to be 9, 10% of disposable personal income. So a big number. A huge support for personal consumption expenditures. And so we know that that fell off in the aftermath of the first housing bubble bursting. But if you look at borrowing in America, something actually replaced it. And so by the time you got to from kind of 2006 up until 2018 when it peaked, student loan borrowing grew to be 9% of disposable personal income. Wow. Wow, that's a big number. And so it peaked out as a percentage and has been falling off in the years that have followed, leading in its way $1.77 trillion in debt. So what followed that? Well, that was the pandemic baton handoff.
And so what did that look like? Well, that looked like the FHA becoming everybody's mortgage lender. Right now, they've got an average debt-to-income ratio of 64%, more than double what it was when this adventure began. And in addition to that, $15 trillion of federal spending, along with people taking out mortgages for the first time, people taking out car loans for the first time, people not having to pay their student loans for five whole years, and people piling on credit card debt and other personal loans, and buy now, pay later, which we think will be about $250 billion by the end of this year. You start throwing around hundreds of billions and trillions of dollars, and at some point, you're talking about real money, but what now? And I have asked the smartest people I know, but what now? Right now, we're contemplating the avoidance of a negative income shock. So we're trying to avoid a negative income shock by way of extending tax cuts that were enacted in 2017 So we're trying to avoid corporate America getting hit with a negative income shock. Well, okay, Adam, that's not a supplementary marginal form of stimulus. Nope, that's not it. We're looking at a negative income shock because Linda McMahon has told us to expect one. 20.5% of student loan borrowers haven't paid anything in the last five years or so. 9.7 million is what the New York Fed figures will be hit. Number of borrowers will be hit, have their FICO scores impaired by virtue of having to begin repaying these student loans. There is a lot of buyer's regret among millennials who bought homes. A lot of them are trying to list their homes for sale. The Airbnb bubble is bursting as we speak. A lot of those Airbnb jocks are trying to get out from underneath their mortgages. Redfin just reported that second home sales have declined to the lowest on record.