WEBVTT - Is This America's Liz Truss Moment? 0:00:02.600 --> 0:00:07.080 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.280 --> 0:00:11.920 The US financial system in terms of currency, bonds, and 0:00:12.039 --> 0:00:17.560 equity are potentially at risk of unraveling in a very 0:00:17.600 --> 0:00:20.880 precipitous way if you get to that point of no return, 0:00:21.320 --> 0:00:22.840 and we just don't know where that is. 0:00:32.000 --> 0:00:34.960 I'm Stephanie Flanders, head of Government and Economics at Bloomberg, 0:00:35.320 --> 0:00:38.239 and welcome to Trump Economics, the podcast that looks at 0:00:38.280 --> 0:00:41.040 the economic world of Donald Trump, how he's already shaped 0:00:41.080 --> 0:00:43.800 the global economy and what on earth is going to 0:00:43.840 --> 0:00:48.519 happen next. So some stuff has happened since we recorded 0:00:48.520 --> 0:00:51.280 our last episode with Martin Wolf, as we knew it 0:00:51.320 --> 0:00:55.000 would when we recorded that episode. We step back to 0:00:55.080 --> 0:00:58.320 consider the root cause of America's big trade deficits with 0:00:58.360 --> 0:01:01.720 the rest of the world. President Trump was getting ready 0:01:01.720 --> 0:01:04.400 to bring out that big poster board of tariff rates 0:01:04.400 --> 0:01:06.600 in the Rose Garden that was supposed to get rid 0:01:06.600 --> 0:01:09.399 of all of its deficits with everyone. Well, we're not 0:01:09.440 --> 0:01:11.640 going to go into the fine print of that plan today, 0:01:11.880 --> 0:01:14.600 or the infamous formula, if you can call it that, 0:01:14.720 --> 0:01:16.840 which produced the numbers. You would have heard that from 0:01:16.840 --> 0:01:19.760 plenty of other people. Plus the numbers might well have 0:01:19.840 --> 0:01:22.240 changed by the time this goes out. But I did 0:01:22.280 --> 0:01:26.120 want to think about what that big announcement has taught 0:01:26.200 --> 0:01:28.399 us about the Trump White House and what will it 0:01:28.440 --> 0:01:31.800 mean for the US economy. Put it another way, are 0:01:31.840 --> 0:01:34.760 we now looking at a US recession coming down the track? 0:01:35.160 --> 0:01:38.520 And if so, how much does Donald Trump actually care? 0:01:39.560 --> 0:01:42.959 Such small questions, but we have big brains to answer them. 0:01:42.959 --> 0:01:44.840 Here in the form of two friends of the show, 0:01:45.200 --> 0:01:49.520 Bloomberg's senior national political correspondent, Nancy Cook, welcome. 0:01:49.160 --> 0:01:51.440 Back, Thanks so much for having me, and we're in. 0:01:51.360 --> 0:01:53.960 The same room for once in the DC bureau. And 0:01:54.160 --> 0:01:59.360 Ed Harrison, senior editor and author of Bloomberg's Everything Risk newsletter, Ed, 0:01:59.480 --> 0:02:02.320 great to see hello. And you haven't been busy in 0:02:02.320 --> 0:02:04.760 the last few days at all, led Everything Risk. 0:02:06.440 --> 0:02:09.320 No, not at all. There are no risks whatsoever. 0:02:15.360 --> 0:02:18.000 Well, let me start with you give us a sense 0:02:18.080 --> 0:02:20.880 of where we've been in the last few days, as 0:02:21.160 --> 0:02:25.040 investors were trying to absorb what had happened last week, 0:02:25.080 --> 0:02:28.080 the announcements coming out of the administration and the president's 0:02:28.400 --> 0:02:33.280 steadfastness around this plan which has really taken a lot 0:02:33.280 --> 0:02:34.399 of people by surprise. 0:02:35.120 --> 0:02:38.000 Yeah, I think that last week you could characterize as 0:02:38.040 --> 0:02:42.079 a panic that was centered around the equity market. Basically, 0:02:42.639 --> 0:02:46.880 the tariffs were a lot more robust than people had anticipated, 0:02:46.919 --> 0:02:49.240 and as a result of that, equity sold off on 0:02:49.360 --> 0:02:54.399 the day after that. Then there was talk about retaliation 0:02:54.480 --> 0:02:58.120 against China, which as of this recording is about to 0:02:58.160 --> 0:03:04.320 go into effect, and that precipitated another sell off on Friday, 0:03:04.440 --> 0:03:07.480 in particular because people did not want to go into 0:03:07.520 --> 0:03:11.600 the weekend heavy on stocks with potentially bad news coming, 0:03:12.200 --> 0:03:15.400 and so then we reverse some of that on Monday. 0:03:15.480 --> 0:03:18.520 Things have been very choppy, but really I think most 0:03:18.560 --> 0:03:21.560 of the first salvo is done, and now we're at 0:03:21.600 --> 0:03:24.359 a point where people they don't know what to think, 0:03:24.400 --> 0:03:28.400 but they're waiting for the economic effects to start to 0:03:28.480 --> 0:03:31.360 occur because these tariffs are going to go into effect 0:03:31.480 --> 0:03:32.480 almost immediately. 0:03:33.000 --> 0:03:35.520 What has been interesting, and I guess this is particularly 0:03:35.520 --> 0:03:38.560 a kind of a trumpnomics topic, is what's happened in 0:03:38.600 --> 0:03:41.560 the treasury market. I think our first ever episode was 0:03:41.560 --> 0:03:45.360 about how important the US bond market was going to 0:03:45.360 --> 0:03:48.400 be to this administration. I think we will quite precent 0:03:48.480 --> 0:03:50.360 on some of that. But you have a bunch of 0:03:50.400 --> 0:03:54.360 tariffs come out, which other things equal, you'd expect to 0:03:54.480 --> 0:03:59.480 increase inflation, and actually the pet of the US Central 0:03:59.480 --> 0:04:02.160 Bank of the ED gave a speech on Friday that 0:04:02.280 --> 0:04:05.040 suggested he was still quite focused on inflation even with 0:04:05.120 --> 0:04:08.000 everything else going on. And yet ED, we didn't see 0:04:08.040 --> 0:04:13.600 necessarily the people buying US debt necessarily expecting more inflation 0:04:14.160 --> 0:04:16.880 and sort of steady interest rates. We saw a bit 0:04:16.920 --> 0:04:18.240 more confusion. 0:04:18.400 --> 0:04:20.799 Yeah, And I think the reason for that is because 0:04:20.839 --> 0:04:23.880 of the panic inequities that really it was just a 0:04:23.960 --> 0:04:28.280 knee jerk reaction to grab other assets you could at 0:04:28.279 --> 0:04:32.640 that particular juncture, you know, flight to quality, and Treasury's 0:04:32.640 --> 0:04:35.200 benefited from that. But now that we have a chance 0:04:35.240 --> 0:04:38.400 to sit back and watch the effects play out, I 0:04:38.400 --> 0:04:40.800 think we're going to see a quite different story coming 0:04:40.880 --> 0:04:43.680 into play the one that you mentioned with regard to 0:04:43.720 --> 0:04:46.320 the FED. The Fed's in a very difficult position here, 0:04:46.480 --> 0:04:51.120 in particular because the inflationary impact of the tariffs are 0:04:51.120 --> 0:04:56.640 probably going to proceed the negative impacts on the labor market, 0:04:56.680 --> 0:04:59.800 just because the labor market is really relatively solid right 0:04:59.839 --> 0:05:02.120 now and it's going to take a little while for 0:05:02.200 --> 0:05:04.680 that to dissipate, and so the FED is going to 0:05:04.720 --> 0:05:09.120 therefore be challenged with three percent, four percent, who knows 0:05:09.160 --> 0:05:12.080 it could be as high as five percent inflation at 0:05:12.080 --> 0:05:16.080 some point, and that is going to limit their ability 0:05:16.200 --> 0:05:18.000 to ride to the rescue. 0:05:18.520 --> 0:05:21.640 Nancy. Going back a few steps, the market seemed to 0:05:21.640 --> 0:05:24.239 have been very surprised by what he announced last week, 0:05:24.640 --> 0:05:26.719 even though in many ways he'd said even on the 0:05:26.760 --> 0:05:29.000 campaign trail that this is exactly what he was going 0:05:29.040 --> 0:05:32.240 to do. What was your thought when you saw those 0:05:32.320 --> 0:05:35.640 very high numbers, much higher than expected, for the tariff 0:05:35.720 --> 0:05:39.600 rates on every country, not just the countries with particularly 0:05:39.680 --> 0:05:43.600 large deficits. What did you conclude in terms of what's 0:05:43.640 --> 0:05:46.480 been driving this administration? Who's been close to the president? 0:05:47.120 --> 0:05:49.479 Yeah, the markets were very surprised by how high the 0:05:49.520 --> 0:05:52.279 tariffs were and the fact that there were tariffs on 0:05:52.320 --> 0:05:56.599 countries but also these universal baseline tariffs. And what happened 0:05:56.680 --> 0:05:59.719 was that Peter Navarro, who has been a huge advocate 0:05:59.800 --> 0:06:02.680 of of these baseline tariffs and really doing high tariffs 0:06:02.720 --> 0:06:06.080 on countries, has so much power in this White House 0:06:06.160 --> 0:06:07.359 at this particular moment. 0:06:07.920 --> 0:06:09.840 Just tell us a bit about him, what's his job now, 0:06:09.960 --> 0:06:12.360 and maybe a bit more about some of the other 0:06:12.360 --> 0:06:13.040 stuff he said. 0:06:13.360 --> 0:06:16.520 So he's a senior advisor to the President. He is 0:06:16.800 --> 0:06:19.000 supposed to be working on trade. You have to remember 0:06:19.000 --> 0:06:21.320 that he also worked on trade in the first Trump 0:06:21.360 --> 0:06:24.480 White House. But there were epic battles in the first 0:06:24.520 --> 0:06:28.799 Trump White House between different people in the administration, Gary Cohen, 0:06:28.800 --> 0:06:31.760 who was the National Economic Director at the time, Treasury 0:06:31.800 --> 0:06:34.760 Secretary Stephen Mnuchin, and they were more of a voice 0:06:34.839 --> 0:06:37.800 inside the West Wing who were advocates of free trade. 0:06:38.080 --> 0:06:40.640 And so it was like these constant battles between Peter 0:06:40.760 --> 0:06:43.760 Navarro and Robert Leitthheuser, who is the US trade representative, 0:06:43.800 --> 0:06:46.640 and Minuchin and Cohen and going back and forth, and 0:06:46.680 --> 0:06:49.239 the trade policy sort of swung back and forth based 0:06:49.279 --> 0:06:52.720 on who had the most influence. This time, there is 0:06:52.839 --> 0:06:55.440 not that same sort of checks and balances from the 0:06:55.480 --> 0:07:00.360 free trade perspective, and everybody is basically on board with tears, 0:07:00.640 --> 0:07:03.799 including people who you wouldn't necessarily think of, like Treasury 0:07:03.839 --> 0:07:07.320 Secretary of Scott Bessant or the National Economic Council Director 0:07:07.480 --> 0:07:11.600 Kevin Hassett. But Navarro has so much influence because he 0:07:11.680 --> 0:07:15.560 went to jail for Trump. He divided a subpoena to 0:07:15.720 --> 0:07:18.720 appear before the January sixth Committee and serve four months 0:07:18.720 --> 0:07:21.880 in prison. What Trump values most in the second term 0:07:21.920 --> 0:07:25.520 is loyalty, and what expresses loyalty more to him than 0:07:25.520 --> 0:07:28.920 someone who went but served behind bars, And so Peter's 0:07:29.040 --> 0:07:33.480 influence just can't be overstated. Now. My sources were telling 0:07:33.520 --> 0:07:37.080 me the Tuesday before the big tariffs came out that 0:07:37.160 --> 0:07:40.680 Wednesday that Navarro had gotten with Trump and had convinced 0:07:40.720 --> 0:07:43.320 him of this idea of the universal baseline tariffs, and 0:07:43.360 --> 0:07:46.320 that the two of them had doubled down. I covered 0:07:46.360 --> 0:07:49.280 Trump since twenty sixteen. What has surprised me this time 0:07:49.480 --> 0:07:54.280 is how undeterred they are by the market volatility, the 0:07:54.360 --> 0:07:59.160 calls from Wall Street and CEOs, businesses freaking out, just 0:07:59.240 --> 0:08:02.480 calling anyone they can find it the administration that Trump 0:08:02.520 --> 0:08:05.080 people feel like he talked about this in the campaign. 0:08:05.400 --> 0:08:08.120 You should have known this was coming. He's not up 0:08:08.160 --> 0:08:10.840 for a re election. You know, he really believes in 0:08:10.880 --> 0:08:13.200 these tariffs and think they're going to change the economy, 0:08:13.240 --> 0:08:16.480 and he and Peter Navarro are really doubling down. 0:08:17.080 --> 0:08:20.679 I don't think I had fully absorbed that Peter Navarro 0:08:20.880 --> 0:08:24.480 was running the trade ship inside the White House. Were 0:08:24.520 --> 0:08:27.200 we aware of quite how influentially. 0:08:26.640 --> 0:08:29.120 Be So I would say a few months ago, there 0:08:29.160 --> 0:08:31.840 was reporting coming out. I was talking to people, and 0:08:32.200 --> 0:08:34.360 it took a while for the Treasury Secretary and the 0:08:34.440 --> 0:08:37.480 Commerce Secretary to get confirmed. So what was happening in 0:08:37.520 --> 0:08:41.280 that vacuum was that Peter Navarro and Stephen Miller, who 0:08:41.320 --> 0:08:43.719 is a deputy chief of Staff. You'll remember him from 0:08:43.760 --> 0:08:47.280 all of the most controversial immigration issues from the first term. 0:08:47.520 --> 0:08:50.040 That two of them were basically the lone voices on 0:08:50.120 --> 0:08:53.240 trade for the first several weeks at the administration, and 0:08:53.280 --> 0:08:56.040 they were the ones driving the agenda. And to me, 0:08:56.360 --> 0:08:58.440 it's very clear that the White House is much more 0:08:58.480 --> 0:09:01.040 comfortable with Peter Navarro this time around than they were 0:09:01.120 --> 0:09:03.920 last time. Last time, they didn't really let him go 0:09:04.000 --> 0:09:06.920 on TV that much. They sort of hid him away. Sure, 0:09:06.960 --> 0:09:09.240 he was close to Trump, but he wasn't like the frontman. 0:09:09.760 --> 0:09:12.720 This time, he is going on TV almost every day 0:09:12.960 --> 0:09:16.959 representing the administration's trade policy, and I just think that 0:09:16.960 --> 0:09:19.880 that's a sign of how much influence he has and 0:09:19.920 --> 0:09:21.600 how much they are doubling down on this. 0:09:22.040 --> 0:09:24.680 At least one person who was also hanging out the 0:09:24.679 --> 0:09:26.599 White House a lot in the first few weeks of 0:09:26.640 --> 0:09:29.600 the administration was Elon Musk and then he and Navarro 0:09:29.679 --> 0:09:32.720 seem to now be getting at it in an entertaining 0:09:32.760 --> 0:09:35.640 but not very mature fashion. Shall we see? 0:09:35.800 --> 0:09:38.560 Well, I think Elon must Stock is dropping in the 0:09:38.559 --> 0:09:40.959 White House and him picking a fight with Peter Navarro 0:09:41.160 --> 0:09:44.079 is part of this. He was not in the final 0:09:44.080 --> 0:09:47.560 meetings on trade that was really sort of the economic aids. 0:09:47.760 --> 0:09:51.360 The Chief of Staff Susie Wilds Stephen Miller was in that. 0:09:51.520 --> 0:09:54.000 Elon has not been part of sort of the final 0:09:54.080 --> 0:09:57.239 decisions on trade. And although he likes to be the president's, 0:09:57.240 --> 0:10:00.440 you know, first best friend, and is on Air Force 0:10:00.480 --> 0:10:02.120 one and is a mar A Lago and it is 0:10:02.160 --> 0:10:04.560 in Marshington a lot and has real walk in privileges 0:10:04.559 --> 0:10:06.920 in the West Wing, trade is not his lane. And 0:10:06.960 --> 0:10:09.480 I think that they are not taking his advice seriously 0:10:09.520 --> 0:10:11.080 on it. 0:10:11.080 --> 0:10:14.599 It sounds like the White House that Nancy is describing 0:10:15.559 --> 0:10:19.559 is not one that's going to back down, at least 0:10:20.160 --> 0:10:25.160 to any serious extent. We'll wait to see. So given that, 0:10:25.960 --> 0:10:28.880 how are you looking at the risks of recession and 0:10:29.480 --> 0:10:32.400 that challenge for the FED of whether it can actually 0:10:32.440 --> 0:10:33.640 do anything to prevent one. 0:10:34.280 --> 0:10:37.360 Yeah, the recession car is a big one because I 0:10:37.400 --> 0:10:40.840 think that people now realize how serious Trump was and 0:10:40.880 --> 0:10:44.600 that it's not just ten percent tariffs, these across the 0:10:44.600 --> 0:10:47.360 board baseline tarffs, which the likes of Bill Ackman said 0:10:47.360 --> 0:10:51.839 they can get behind, but rather something more severe, doubling down. 0:10:51.640 --> 0:10:53.679 On one hundred and six percent or one hundred and 0:10:53.760 --> 0:10:55.920 four whatever it is on top. That's definitely a bit more. 0:10:55.800 --> 0:10:59.600 Severe going into effect literally as we are taping this. 0:11:00.040 --> 0:11:02.719 And so I think that if recession is not your 0:11:02.760 --> 0:11:04.960 base case, it's a very high probability case. 0:11:05.440 --> 0:11:07.480 And that's what the markets are saying. 0:11:07.720 --> 0:11:11.480 You know, the equity markets are down and treasury yields 0:11:11.480 --> 0:11:14.360 are down as well. What I find interesting in terms 0:11:14.440 --> 0:11:17.360 of the recession trade and how this is all playing 0:11:17.400 --> 0:11:24.280 out is currencies. The Japanese yen and the Swiss franc 0:11:24.480 --> 0:11:29.000 are really appreciating in value versus the US dollar. Not 0:11:29.320 --> 0:11:32.600 just as this has played out, but in the last 0:11:32.720 --> 0:11:36.080 day or so, as the one hundred and four percent 0:11:36.200 --> 0:11:39.280 Chinese tariffs have come into play, the Swiss franc has 0:11:39.320 --> 0:11:43.319 really gone ballistic, as if suddenly the United States is 0:11:43.360 --> 0:11:48.320 not the safe haven currency in these kinds of times 0:11:48.320 --> 0:11:53.040 of difficulty. This is a huge transition that the market's 0:11:53.080 --> 0:11:55.480 going to have to deal with and understand what the 0:11:55.520 --> 0:11:58.600 implications are, especially if we have a recession that's not 0:11:58.760 --> 0:12:00.480 just in the United States but global. 0:12:01.240 --> 0:12:04.880 Is there a natural difference of view between the Fed 0:12:05.240 --> 0:12:08.640 and the markets. I say that because if the FED 0:12:08.720 --> 0:12:11.520 is thinking, Hm, we've still got an inflation problem, so 0:12:11.559 --> 0:12:13.400 we're going to have to wait a bit before we 0:12:14.080 --> 0:12:17.160 provide the support for the economy even as the market's falling, 0:12:17.960 --> 0:12:20.840 And if the market's expecting the FED to be late, 0:12:21.040 --> 0:12:23.400 then I guess there's no disagreement. But we are looking 0:12:23.440 --> 0:12:24.120 at a recession. 0:12:24.679 --> 0:12:29.520 Well, I think that the markets are front running so 0:12:29.679 --> 0:12:32.240 many cuts that it's going to be very difficult for 0:12:32.280 --> 0:12:34.600 the FED to deliver them in the timeframe that the 0:12:34.640 --> 0:12:38.520 markets are talking about. Unless it's a very onerous recession. 0:12:38.920 --> 0:12:41.480 It's more likely that they will be late, as you're saying, 0:12:41.520 --> 0:12:44.960 and that they'll be more aggressive if things fall apart, 0:12:45.040 --> 0:12:46.800 because their hands are going to be tied in the 0:12:46.840 --> 0:12:51.079 near term by the inflation that is likely to happen 0:12:51.120 --> 0:12:52.040 almost immediately. 0:12:52.360 --> 0:12:54.040 It was interesting what Power was saying. 0:12:54.200 --> 0:12:57.160 He didn't say it directly, but he was essentially saying, 0:12:57.480 --> 0:13:00.840 we're going to wait. We're not going to make any 0:13:00.920 --> 0:13:05.040 moves whatsoever until we find out what the actual for 0:13:05.240 --> 0:13:09.559 ramifications of the policies are and what the policies themselves are. 0:13:09.880 --> 0:13:11.960 They don't know what the policies are, and so what 0:13:12.000 --> 0:13:15.439 that means is an extended hold period at a minimum, 0:13:15.760 --> 0:13:17.640 and that's not what the market has priced in. 0:13:18.440 --> 0:13:21.080 Yeah, it's interesting. I mean, our own Anawong, who we've 0:13:21.080 --> 0:13:23.840 heard several times on this podcast, is a former FARED economist, 0:13:24.280 --> 0:13:26.600 is our chief US economist. She put out a great 0:13:26.640 --> 0:13:30.360 preace actually just as markets were going through their girations 0:13:30.400 --> 0:13:33.200 on Monday and treasury yields had gone down quite far, 0:13:33.520 --> 0:13:37.920 apparently on the anticipation of lower rates, saying, you know, 0:13:38.040 --> 0:13:40.360 markets are hoping for a FED put and this is 0:13:40.440 --> 0:13:44.000 why that's unlikely, and she went through all of the things. 0:13:44.040 --> 0:13:45.760 I think the fact that the FED is focused on 0:13:45.840 --> 0:13:50.199 hard data, the fact that the Fed's own inflation forecasts 0:13:50.200 --> 0:13:53.640 and inflation risks are thinks that the Fed's very concerned about, 0:13:53.679 --> 0:13:57.800 and certainly J. Powell, the chair, doesn't want to be 0:13:57.880 --> 0:14:00.320 seen to be making the same mistake that was made 0:14:00.320 --> 0:14:02.920 in twenty twenty two when they were quite slow to 0:14:03.280 --> 0:14:05.520 raise rates in the face of inflation. I mean, I 0:14:05.600 --> 0:14:08.719 found that pretty convincing. Nancy, How do you think the 0:14:08.720 --> 0:14:11.559 administration's thinking about the FED? I mean, could they potentially 0:14:11.960 --> 0:14:16.640 rescue the economy provide some kind of flaw even with 0:14:16.800 --> 0:14:19.320 this tariff plan? And I guess the other side of 0:14:19.320 --> 0:14:20.880 that if they don't. Is he going to be a 0:14:20.960 --> 0:14:23.840 useful kind of whipping boy for putting all the blame 0:14:23.880 --> 0:14:24.680 on I. 0:14:24.640 --> 0:14:27.720 Mean, the FED is already a whipping boy for President Trump. 0:14:27.760 --> 0:14:30.400 I mean he has come out already last week and 0:14:30.480 --> 0:14:33.800 said Powell should do something. He's posting messages on truth 0:14:33.880 --> 0:14:36.560 social he is willing to use his bully pulpit from 0:14:36.560 --> 0:14:38.800 the White House to try to act like this is 0:14:38.840 --> 0:14:42.080 the Fed's problem, even though these tariffs are one hundred 0:14:42.080 --> 0:14:45.600 percent of policy of the administration. It's not Congress. It 0:14:45.680 --> 0:14:48.280 is a self inflicted wound or whatever you want to 0:14:48.280 --> 0:14:50.080 call it on the part of the administration. 0:14:50.240 --> 0:14:50.720 They did this. 0:14:51.600 --> 0:14:54.560 He has long had J. Powell in his sight. And 0:14:55.400 --> 0:14:58.880 when I interviewed Trump during the campaign, or different people did, 0:14:58.920 --> 0:15:01.320 there was constantly question like are you going to fire J? 0:15:01.480 --> 0:15:01.920 Powell? 0:15:02.320 --> 0:15:04.440 And do you believe in the independence of the FED? 0:15:04.480 --> 0:15:07.080 And he sort of went back and forth honestly months 0:15:07.160 --> 0:15:10.040 month on the importance of the independence of the FED 0:15:10.120 --> 0:15:12.040 and whether or not he would let Powell serve out 0:15:12.080 --> 0:15:12.400 his term. 0:15:12.440 --> 0:15:14.040 Did he said to us, he said, oh, yeah, as 0:15:14.040 --> 0:15:16.240 long as I think he's doing a good joke exactly. Yeah, 0:15:16.240 --> 0:15:18.680 he's still the safe as long as I think so. 0:15:18.680 --> 0:15:20.480 So I think that that will just continue to be 0:15:20.560 --> 0:15:23.480 a point of tension. And even Treasury Secretary of Scott Besson, 0:15:23.600 --> 0:15:26.240 who I think before what happened with the tariffs, was 0:15:26.520 --> 0:15:29.240 seen as like a grown up who could speak to 0:15:29.240 --> 0:15:31.480 the markets. I don't know exactly how he's viewed by 0:15:31.520 --> 0:15:33.400 Wall Street now. I think that's been muddied a bit. 0:15:33.720 --> 0:15:37.560 But even he sort of had a plan for replacing 0:15:37.640 --> 0:15:40.040 Powell and did not think that Powell needed to serve 0:15:40.080 --> 0:15:42.160 out his term. So I think even Bessen is not 0:15:42.280 --> 0:15:44.880 fully on board with the idea that the FED should 0:15:44.920 --> 0:15:47.520 be as independent as it should be, and it just really, 0:15:47.600 --> 0:15:50.440 I think marks a huge shift. There's so many shifts 0:15:50.440 --> 0:15:54.000 in the Republican Party on how Trump approaches economic issues, 0:15:54.320 --> 0:15:56.560 and the FED is just one of them. 0:15:56.880 --> 0:16:00.240 We've talked a few times on this podcast about kind 0:16:00.280 --> 0:16:03.400 of ordering of things in this administration and how you 0:16:03.400 --> 0:16:07.000 could make the argument that in the first term, Trump 0:16:07.080 --> 0:16:09.440 kind of did the positive things of the economy first, 0:16:09.880 --> 0:16:12.520 and then the negative stuff, the bigger tariffs other things 0:16:13.080 --> 0:16:16.040 came later and actually caused the economy to weaken even 0:16:16.080 --> 0:16:19.800 before COVID, when arguably, from a political standpoint, you'd want 0:16:19.800 --> 0:16:21.800 to get your costly things and at the beginning and 0:16:21.840 --> 0:16:25.000 then have the more positive things. We've certainly got some 0:16:25.320 --> 0:16:28.520 pain coming down the track. We've had the Doge cuts, 0:16:28.560 --> 0:16:33.080 but also most fundamentally, these big tariff increases tax cuts, 0:16:34.040 --> 0:16:37.320 making the Trump tax cuts permanent, maybe some other tax 0:16:37.320 --> 0:16:39.400 cuts on top of that. I mean, that does seem 0:16:39.440 --> 0:16:41.960 to be something the administration is now turning its mind 0:16:42.000 --> 0:16:46.800 to and wanting Congress to act on as fast as possible. Nancy, 0:16:46.840 --> 0:16:49.240 do you think that can be a source of support 0:16:49.280 --> 0:16:50.800 for the economy and the administration. 0:16:51.520 --> 0:16:53.560 I have written a lot of tax stories lately, and 0:16:53.640 --> 0:16:56.560 Republicans now have moved up the timeframe of when they 0:16:56.600 --> 0:16:58.880 want to get tax reformed done given what's happening with 0:16:58.920 --> 0:17:01.520 the tariffs. Where they thought, oh, they could do it 0:17:01.520 --> 0:17:03.600 at the end of twenty twenty five when the tax 0:17:03.760 --> 0:17:06.760 cuts actually expire, now they want to do it as 0:17:06.800 --> 0:17:10.080 soon as possible, hopefully by even July fourth. I think 0:17:10.080 --> 0:17:13.280 that's a little optimistic, but people on Capitol Hill think, okay, 0:17:13.280 --> 0:17:16.359 maybe by you know, Midsummer or towards the end of summer. 0:17:16.400 --> 0:17:18.359 So August there was a bit of movement on this. 0:17:18.440 --> 0:17:19.800 Even this weekend on the Hill. 0:17:20.320 --> 0:17:23.120 Yeah, there was the Senate passed a budget resolution which 0:17:23.119 --> 0:17:25.359 will give them a vehicle to do tax reform and 0:17:25.400 --> 0:17:28.280 some parameters about how much money they can spend. And 0:17:28.320 --> 0:17:31.080 I think that the Trump people, including Peter Navarro, are 0:17:31.080 --> 0:17:33.640 going on TV and saying, well, look, these tariffs are 0:17:33.680 --> 0:17:36.560 just one part of the economic package. We also have 0:17:37.040 --> 0:17:40.560 you know, less restrictions on energy deregulation, the tax cuts. 0:17:40.840 --> 0:17:43.680 I think the question about the tax cuts is, yes, 0:17:43.720 --> 0:17:45.600 they want to do a big tax bill, but a 0:17:45.640 --> 0:17:47.879 lot of those tax cuts are just going to be 0:17:47.960 --> 0:17:51.960 extending existing ones. And I don't know if that is 0:17:52.040 --> 0:17:55.199 going to be you know, extending people's existing tax cuts 0:17:55.560 --> 0:17:58.320 is going to be a giving them a tax increase, right, 0:17:58.400 --> 0:17:59.160 not giving them a. 0:17:59.119 --> 0:18:02.159 Taxing cust car because I didn't have a tax right. 0:18:02.240 --> 0:18:02.840 That's not how. 0:18:02.760 --> 0:18:04.840 People think about it. And so I just don't know 0:18:05.000 --> 0:18:07.560 if that is going to be enough to actually juice 0:18:07.600 --> 0:18:11.320 the economy the way that they think it will compared 0:18:11.320 --> 0:18:14.040 to the stark policies that they did on tariffs, which 0:18:14.080 --> 0:18:17.720 were really surprising and quite large and ed. 0:18:18.119 --> 0:18:21.120 I guess this gets us back to how the financial 0:18:21.119 --> 0:18:24.160 markets would view this. I mean, I have to mention 0:18:24.240 --> 0:18:29.240 that that Senate resolution contained a really not very responsible 0:18:29.280 --> 0:18:33.960 approach to scoring the cost of making those tax cuts permanent. 0:18:34.320 --> 0:18:37.920 I think we're talking extra five trillion dollars in debt, 0:18:38.119 --> 0:18:41.679 but it was scored as almost zero on rules that 0:18:41.720 --> 0:18:45.359 no one thinks make any sense. But even if this 0:18:45.440 --> 0:18:49.440 gets past this tax cut bill or the making permanent 0:18:49.520 --> 0:18:53.359 of the previous tax cuts, if it sends a message 0:18:53.400 --> 0:18:56.760 that there is no physical restraint of any kind of 0:18:56.800 --> 0:19:02.080 serious degree in this White House or the country, and 0:19:02.200 --> 0:19:05.800 an ocean of red ink way more than is even 0:19:05.800 --> 0:19:08.280 in the existing numbers. We look at our numbers, our 0:19:08.320 --> 0:19:11.120 forecast for the US debt, they're about one hundred percent 0:19:11.200 --> 0:19:14.080 of GDP. Now it's going to maybe one hundred and 0:19:14.160 --> 0:19:17.000 fifty percent of GDP over the next twenty thirty years. 0:19:17.040 --> 0:19:20.120 And that's assuming that the text cuts are not made permanent. 0:19:20.600 --> 0:19:23.280 So surely that's not going to put a floor under 0:19:23.320 --> 0:19:25.119 the sort of confidence in the US. 0:19:25.359 --> 0:19:28.760 As you were saying that, I'm thinking about Liz Trust 0:19:29.040 --> 0:19:34.120 and what happened there, when suddenly you're looking at oceans 0:19:34.400 --> 0:19:37.760 of red ink. Over the longer term, it's going to 0:19:37.880 --> 0:19:42.280 lead to a depreciation of the currency, greater inflation, and 0:19:42.640 --> 0:19:47.920 ultimately it could create a crisis of confidence about the 0:19:48.240 --> 0:19:52.800 United States ability to govern itself and its finances. The 0:19:52.880 --> 0:19:56.000 numbers that we're talking about really are are mind boggling. 0:19:56.359 --> 0:20:00.919 Because we're already at six percent debt to GDP in 0:20:00.960 --> 0:20:06.480 a booming situation where growth was at three percent. What 0:20:06.600 --> 0:20:08.919 if you add tax cuts on top of that, the 0:20:08.920 --> 0:20:12.199 baseline being three percent are being six percent, and you 0:20:12.240 --> 0:20:15.679 add tax cuts that are going to make that even greater, 0:20:16.359 --> 0:20:20.680 then you're looking at permanent deficits of eight nine percent. 0:20:21.119 --> 0:20:24.879 It's just absolutely mind boggling. I think the markets would 0:20:24.880 --> 0:20:28.560 throw its dizzy and it could be very destabilizing. 0:20:29.040 --> 0:20:31.320 It's interesting you mentioned this trust. We had a great 0:20:31.359 --> 0:20:34.440 column that was by our columnists in Europe, Lionel Laurent 0:20:34.600 --> 0:20:38.880 and Marcus Ashworth. Imagine the UK Liz Trust moment only global. 0:20:39.440 --> 0:20:41.560 They're saying, the US is the closest thing to a 0:20:41.560 --> 0:20:44.480 global superpower we have, and that means when it's leaders 0:20:44.520 --> 0:20:47.399 are in the grip of excessive over confidence, similar to 0:20:47.440 --> 0:20:51.080 that scene in the UK's Liz Trust meltdown, Everyone not 0:20:51.200 --> 0:20:53.919 just America, pays the price. I guess I'll give a 0:20:53.920 --> 0:20:56.720 final word to you, Ed. You mentioned something about the 0:20:56.720 --> 0:21:00.240 safe haven status for the US. 0:21:00.480 --> 0:21:02.960 That's what I was thinking as you were reading that. Well. 0:21:03.480 --> 0:21:05.560 Donald Trump has said he doesn't like this dollar being 0:21:05.600 --> 0:21:07.840 so strong, so be careful what you wish for. But 0:21:07.880 --> 0:21:11.159 I guess that the risk is the combination of you know, 0:21:11.280 --> 0:21:15.879 question marks around central bank independence, question marks about runaway 0:21:16.400 --> 0:21:21.520 borrowing and debt, not to mention stepping out of the 0:21:21.560 --> 0:21:24.320 global trading system in the way that he has now done, 0:21:24.400 --> 0:21:27.360