WEBVTT - Tactics, Tariffs and Truth Bombs

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, Radio News.

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<v Speaker 2>Welcome to the Merton Talks Money Market rap, where we

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<v Speaker 2>talk about the biggest moves in markets this week and

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<v Speaker 2>wat's driving them. I'm joined Steppick, senior report and author

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<v Speaker 2>of the Money Distilled newsletter. Merin is still off on holiday.

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<v Speaker 2>I mean, I don't know where she gets all these

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<v Speaker 2>days from. So as always we've invited Marcus Ashworth, Bloomberg

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<v Speaker 2>opinion columnist Marcus Guru, very good friend of the show.

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<v Speaker 2>Always pleasure, Marcus, nice to have you here again.

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<v Speaker 1>Well my pleasure. I mean it's a pleasure.

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<v Speaker 2>There's been quite a lot of stuff for August thinking

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<v Speaker 2>about it because usually this is like you know, the

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<v Speaker 2>kind of the dead zone, the and of opinion columnists.

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<v Speaker 1>And it's been more interesting than no normal because the

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<v Speaker 1>markets aren't moving necessarily. But there's a lot of other

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<v Speaker 1>stuff going on, obviously tariffs, bit of politics, yeah, and

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<v Speaker 1>a few other sort of stuff which is I think

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<v Speaker 1>making it more of a not quite so many silly stuff.

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<v Speaker 2>It's usually daft things in August then is not to do.

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<v Speaker 2>This week it's been the Swiss and the Fighting Lane.

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<v Speaker 1>Yeah, very funny cartoon in one of the Swiss press

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<v Speaker 1>basically saying, basically, we come to the conclusion that your

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<v Speaker 1>American F thirty fives aren't expensive enough. I we know

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<v Speaker 1>we're going to have to pay up and look big.

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<v Speaker 1>I mean the famous story of that was always in Japan,

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<v Speaker 1>when somehow one of the trading houses Whi's got the

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<v Speaker 1>contract to supply the Japanese Air Force or naval air Force,

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<v Speaker 1>managed to at the end they work, that's thirty five

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<v Speaker 1>times the list price that Lockie put on this F

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<v Speaker 1>sixteen or whatever it was. So yeah, there is there

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<v Speaker 1>is a history of overcharging, should we say, for supply

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<v Speaker 1>contracts and all the rest other things. So I wonder

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<v Speaker 1>how the Swiss going to get around this one. But yeah,

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<v Speaker 1>I mean they're going mob handed to see Trump and

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<v Speaker 1>shower him with gifts, just as the EU are saying

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<v Speaker 1>that actual fact, maybe we won't quite deliver on the

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<v Speaker 1>six hundred billion of whatever the things we've been thrown,

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<v Speaker 1>or seven to fifty of the energy. I lose track

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<v Speaker 1>which ones which which? I think The comments coming back

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<v Speaker 1>from the States are, ah, how was about fifteen thirty

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<v Speaker 1>five percent?

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<v Speaker 2>Well that's because the Swiss swift good. What is it

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<v Speaker 2>tootly five was a thoroughly name, isn't it so random number?

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<v Speaker 2>Why has he pecked on the Swiss?

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<v Speaker 1>And that's because well, the charity one a non charitable version.

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<v Speaker 1>The non charitable version he does not realize that all

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<v Speaker 1>the shenanigans being on in gold which require a lot

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<v Speaker 1>of gold to be melted down ships across the States

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<v Speaker 1>and put into sizes. It's the comex future delivery will

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<v Speaker 1>accept because there's a squeeze on the contract there. It's

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<v Speaker 1>going nothing to do with the Swiss per se. It's

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<v Speaker 1>just the way that you know, shifting of gold across

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<v Speaker 1>from the States to the States, from Switzerland and various

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<v Speaker 1>other places. Yeah, but that's the untracted version of the charitable version,

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<v Speaker 1>is that he's just looked at this and gone, look,

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<v Speaker 1>very very rich country. You've got roach nev artists, you know,

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<v Speaker 1>nesle making lots and lots of money out of the

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<v Speaker 1>American consumer. Why aren't you making the espresso capsules and

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<v Speaker 1>indeed all the pharmaceuticals in the US. And that's the

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<v Speaker 1>big pushrus is behind this is that is that he's

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<v Speaker 1>also threatening on pharmaceuticals, which will affect the Swiss. Double

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<v Speaker 1>Lisa not just thirty nine percent everything, but also the

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<v Speaker 1>fact that it could be up to one hundred and

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<v Speaker 1>fifty and even two hundred and fifty percent pharmaceutical tariff,

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<v Speaker 1>which of course both the Irish and Swiss economies are

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<v Speaker 1>going to find extremely painful. In the German to be

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<v Speaker 1>fair as well. So you know there are French huh

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<v Speaker 1>oh in the UK anyway, So what is this one's

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<v Speaker 1>coming down the pipe? It's been longcoming that what he's

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<v Speaker 1>going to do on pharmaceuticals. But the Swiss have got

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<v Speaker 1>thirty nine steps bumbum to try and make come more

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<v Speaker 1>offers of the stuff they will buy, which will clearly

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<v Speaker 1>be maybe some energy, but certainly I would think defense spending.

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<v Speaker 2>That's kind of track you for our neutral, famously neutral country.

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<v Speaker 1>Yeah, well, neutrality is of meaningness to I mean, the

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<v Speaker 1>EU are slightly smirking behind the they're veil on this

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<v Speaker 1>one because I think they feel that the Swiss has

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<v Speaker 1>ever it's been accused of playing from both sides, and

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<v Speaker 1>I think neutrality is not relevant here as far as

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<v Speaker 1>Trump is concerned. So we'll see a play out, but

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<v Speaker 1>I think there is. I think the Swiss are pretty

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<v Speaker 1>confident they will be able to get some form of

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<v Speaker 1>sensible answer to this one.

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<v Speaker 2>So let's jump a little man to the farmer say

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<v Speaker 2>the things, because I think it's interesting to talk about

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<v Speaker 2>what Trump is actually trying to achieve with tards, because

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<v Speaker 2>I mean, I guess there's two elements to this. There's

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<v Speaker 2>what he wants to achieve, and then there's what it

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<v Speaker 2>actually achieves. And they're kind of miss stand to focus

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<v Speaker 2>on I will actually it means it's attacks on the

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<v Speaker 2>US consume. Oh blah blah blah.

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<v Speaker 1>Well, they don't know, and they've been pro proven that

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<v Speaker 1>the actual synopsis is not playing out, and they don't

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<v Speaker 1>know when they'll play out. But the simple rule is

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<v Speaker 1>I think people would understand is that all things been equal,

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<v Speaker 1>a tariff imposed by your country will make your goods

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<v Speaker 1>into your own consumers more expensive. Now that will be

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<v Speaker 1>ameliorated by margin pressure, which is clearly coming through. It's

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<v Speaker 1>been a lot of greedflation in the last year or

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<v Speaker 1>two post COVID, and there is plenty of margin room

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<v Speaker 1>to say soften the blow for the consumer. But you know,

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<v Speaker 1>we're seeing some signs, particularly on Ponferral report and various

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<v Speaker 1>other different things, IM and other manufacturing purchasing sort of

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<v Speaker 1>and servicing surveys that we are seeing, you know, a

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<v Speaker 1>potential uptic in inflation. Yeah, clearly the Fed's focused on that.

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<v Speaker 1>But the other thing, which is also pretty much undeniable,

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<v Speaker 1>that even if the inflation doesn't come through anywhere as

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<v Speaker 1>much as it could come through on the consumers say

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<v Speaker 1>from the United States, that the exporting countries will suffer

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<v Speaker 1>a deflationary pressure. And then I think some of the

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<v Speaker 1>is what the European Central Bank and other central banks

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<v Speaker 1>particularly are blindly ignoring. But you know there is this

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<v Speaker 1>is going to cause pressure on exporting companies and that

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<v Speaker 1>will affect both the inflation and the economy of those countries.

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<v Speaker 1>And that that I think is which Trump doesn't care

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<v Speaker 1>about because he's trying to change the cus I mentioned before,

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<v Speaker 1>the corporate US tax code, and the best way he

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<v Speaker 1>thinks of doing so he won't be able to get

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<v Speaker 1>the Congress, is to do it via inflicted on the

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<v Speaker 1>rest of the world. Along with a long long held

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<v Speaker 1>view that ever since the two thousand and one introduction

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<v Speaker 1>of China back into the well into the World Trade Organization,

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<v Speaker 1>that this has been exploited not just by China but

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<v Speaker 1>by peripheral countries Vietnams, Indonesias, et cetera, but equally by

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<v Speaker 1>the European Union and the Swiss. So you know they get.

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<v Speaker 2>Because I suppose there's the there's the difference here between

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<v Speaker 2>sticking a tada for see fifteen percent or whatever on

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<v Speaker 2>blanket goods from the EU. So to imamained, you're not changing.

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<v Speaker 2>We are the manufacturer on this dine. You're just increasing.

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<v Speaker 1>The government is hidden in a genera.

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<v Speaker 2>Yeah, but I'm just thinking like that. But if you're

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<v Speaker 2>putting two hundred and fifty percent tariffs on pharma, then

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<v Speaker 2>that does feel like, actually, no, I expect the factory

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<v Speaker 2>that is currently in Switzerland to be moved to wherever.

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<v Speaker 1>Little Switzerland, Pennsylvania.

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<v Speaker 2>Yeah, exactly, Yeah, you know it is that feels like

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<v Speaker 2>I suppose it's that thing where like, on the one hand,

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<v Speaker 2>it's okay, well, we're still going to buy your stuff

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<v Speaker 2>because in the world have just put the price up,

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<v Speaker 2>it's still cheaper and less hassle than actually manufacturing in

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<v Speaker 2>the US. Whereas if you're putting a two hundred and

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<v Speaker 2>fift percent tariff on something, that feels like that's a

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<v Speaker 2>very explicit instruction. No, you need to build this stuff here. Yeah,

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<v Speaker 2>I don't think does that make any sense. I don't know.

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<v Speaker 1>What it does for the United States perhaps, but that

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<v Speaker 1>were to take place, it would course push the cost

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<v Speaker 1>drugs within the US sky high, and these initially and

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<v Speaker 1>take quite some while before that was a mini Actually

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<v Speaker 1>he's we've seen that with the cot for tariffs, which

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<v Speaker 1>he's had to correct already. So I mean, but the

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<v Speaker 1>whole point is it's chop change chaos for a reason.

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<v Speaker 1>You know. Ultimately, the tariff revenues, which he's clearly starting

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<v Speaker 1>to get to see some uptick in, are going to

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<v Speaker 1>be redispersed in theory to lower the tax taxes on

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<v Speaker 1>on on, you know, up to one hundred thousand and

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<v Speaker 1>five thousand whatever it may be earning regular Americans, which

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<v Speaker 1>of course, along with lots of lovely new manufacturing jobs

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<v Speaker 1>which probably won't shut up. Let's just imagine they are

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<v Speaker 1>means that you don't very democrat you know in the

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<v Speaker 1>red you know, sorry, the sort of blue collar areas

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<v Speaker 1>which you know, the states, because they always fight over

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<v Speaker 1>you know, for your Michigan Wisconsins, in your Pennsylvanias, etcetera.

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<v Speaker 1>That that that that'll will swing it JB events as

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<v Speaker 1>way or whatever it is in the next elections.

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<v Speaker 2>And so so when I guess things, we're talking about

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<v Speaker 2>deficits and tax takes and allistic because obviously we are

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<v Speaker 2>going John, Yeah, there's the definitely something in the US

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<v Speaker 2>is want of the B but is something that we.

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<v Speaker 1>Had enough thing to worry about here. It's nothing that's

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<v Speaker 1>perfully fine, nothing at all.

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<v Speaker 2>So there's this new report coming from one of the

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<v Speaker 2>more the better an knowing think tanks, and I yes

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<v Speaker 2>this morning as we're recording this on Wednesday, and it's

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<v Speaker 2>said that basically Rachel is going to have to find

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<v Speaker 2>fifty one billion because the black hole has somehow grown

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<v Speaker 2>from twenty two billion to forty one billion, and if

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<v Speaker 2>she wants to keep ten billion fiscal Hendron, which is

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<v Speaker 2>still a tiny, tiny child, she's going to have to

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<v Speaker 2>do something.

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<v Speaker 1>So the National Step for Economic and Social Research used

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<v Speaker 1>to be viewed, obviously is used to be perceived as

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<v Speaker 1>as sort of one of the left leaning and someone

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<v Speaker 1>was quite left leaning. However, recently it seems to be

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<v Speaker 1>not that way leaning at all. I will politely say

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<v Speaker 1>these numbers are clickbait for the summer silly season, which

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<v Speaker 1>I said, there wasn't too bad this year, but I

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<v Speaker 1>think this one is just big NUMBERUS. It's getting lots

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<v Speaker 1>of free publicity. Our economists, for what it's worth, view

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<v Speaker 1>a twenty billion hole plus the ten A round they

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<v Speaker 1>and that's sort of their worst case scenario. So I

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<v Speaker 1>would say fifty is Look, the scenario isn't great at

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<v Speaker 1>the moment, but you know, she's high bound by these

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<v Speaker 1>ridiculous fiscal rules. You know, the Office for Budget Responsibility

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<v Speaker 1>is doing a job it wasn't really ever meant to do,

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<v Speaker 1>and it's given an importance and a credence which I

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<v Speaker 1>don't think are irrelevant really in a modern society. It's

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<v Speaker 1>it's it's hairshirt stuff. It's ridiculous. She's worse, she's she's

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<v Speaker 1>just she's now completely beholden to them. I think she

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<v Speaker 1>does have some wiggle room in the context of obviously

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<v Speaker 1>we talked before fiscal drag winding out those income tax

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<v Speaker 1>sort of frozen at fifty thousand, whether tax kicks in

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<v Speaker 1>for ever more, and definitely on pensions, I think, you know,

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<v Speaker 1>cutting the percentage relief and the allowances annually and things

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<v Speaker 1>like that, that there are ways and means of doing

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<v Speaker 1>things which will fulfill some of those back holes. But

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<v Speaker 1>she's going to have to raise tax elsewhere as well.

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<v Speaker 1>I don't think personally she's going to go at capital

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<v Speaker 1>gains tax for two reasons. One it would be stupid too.

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<v Speaker 1>She said that she won't do anymore. She should have

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<v Speaker 1>sorted that already, so that would be you know, really

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<v Speaker 1>going back recent.

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<v Speaker 2>Changes cut it. So I mean, you certainly can't cut

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<v Speaker 2>the allans much farther because don't need three key.

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<v Speaker 1>No, well, I forget that, you'll touch I was talking

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<v Speaker 1>about more the sort of the rates in twenty four

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<v Speaker 1>percent and eighteen the for lower tax band. But you know, look,

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<v Speaker 1>all things are possible, I'm sure, but I think people

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<v Speaker 1>are getting a little bit silly on this, and I

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<v Speaker 1>think there are ways and means of doing other stuff.

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<v Speaker 1>But you know, look, she will come after the individual

0:11:46.160 --> 0:11:50.080
<v Speaker 1>taxpayer for sureless time round, as opposed to having gone

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<v Speaker 1>off the employer last time round, principally. And so a

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<v Speaker 1>lot of stuff that we wrote, you know last year, rinse,

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<v Speaker 1>repeat and dust it down and change the data and

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<v Speaker 1>it comes again.

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<v Speaker 2>The thing adventure. So this this trail emma that they

0:12:06.400 --> 0:12:09.520
<v Speaker 2>talk about, which is we are that she's she feels

0:12:09.559 --> 0:12:12.520
<v Speaker 2>she can't break us firstcool rules. She can't break the

0:12:12.600 --> 0:12:17.520
<v Speaker 2>manifest or promise not to. Is in a employee in

0:12:17.679 --> 0:12:21.400
<v Speaker 2>a B A T the big taxes And well, she

0:12:21.480 --> 0:12:24.160
<v Speaker 2>can't cut spending because the back benches of all already

0:12:24.360 --> 0:12:26.280
<v Speaker 2>made it very explicit that they won't counting them say

0:12:26.280 --> 0:12:27.160
<v Speaker 2>any spending.

0:12:27.000 --> 0:12:29.160
<v Speaker 1>Can and she will cut spending. But the question is

0:12:29.160 --> 0:12:32.160
<v Speaker 1>whether we believe the previous government. They say there's all

0:12:32.160 --> 0:12:34.840
<v Speaker 1>sorts of forward tax spending cuts a part of me

0:12:34.880 --> 0:12:37.680
<v Speaker 1>which never never manifests. So I think she will have

0:12:37.720 --> 0:12:39.800
<v Speaker 1>to cut spending, and she'll she'll she'll have to show

0:12:39.800 --> 0:12:44.120
<v Speaker 1>that she's cutting spending just on nothing, which perhaps back

0:12:44.160 --> 0:12:46.480
<v Speaker 1>bench is quite so much. But I also think at

0:12:46.480 --> 0:12:49.120
<v Speaker 1>some point they're going to have to launce that boil

0:12:49.240 --> 0:12:52.240
<v Speaker 1>because they cannot last the rest of this term of

0:12:52.280 --> 0:12:55.440
<v Speaker 1>parliament without addressing it, and I don't think the ABI

0:12:55.559 --> 0:12:57.480
<v Speaker 1>will allow them. I that and the OBI has made

0:12:58.120 --> 0:13:00.800
<v Speaker 1>some fairly unsubtle signals, as as Bank of England as

0:13:00.840 --> 0:13:04.720
<v Speaker 1>indeed has the insue fiscal studies and clearly Anaesia SR

0:13:04.840 --> 0:13:09.040
<v Speaker 1>as well that you know what, her current scenario doesn't float,

0:13:09.120 --> 0:13:10.719
<v Speaker 1>and I think she's going to have to be more

0:13:10.720 --> 0:13:14.439
<v Speaker 1>aggressive with approaching what's happening with government spending.

0:13:15.000 --> 0:13:18.680
<v Speaker 2>When last question Plasente Droid's do you think are the

0:13:18.760 --> 0:13:21.000
<v Speaker 2>chances of her lasted until the end of this year?

0:13:23.840 --> 0:13:26.200
<v Speaker 1>Yeah, definitely, and I don't. I think she's got more

0:13:26.400 --> 0:13:28.920
<v Speaker 1>We've got room than perhaps people are prepared to think

0:13:29.000 --> 0:13:31.760
<v Speaker 1>that she has. And I think the alternative for Starma,

0:13:31.960 --> 0:13:38.520
<v Speaker 1>particularly after the quasi quarteng trust, sort of doesn't work well.

0:13:38.679 --> 0:13:41.520
<v Speaker 1>And also I think she, you know, is a human shield,

0:13:41.720 --> 0:13:44.760
<v Speaker 1>so in that sense for Starmer himself, and if he

0:13:44.880 --> 0:13:48.119
<v Speaker 1>were to change her, it would come with a wholesale

0:13:48.120 --> 0:13:52.120
<v Speaker 1>approach change and I think that would mean dropping the

0:13:52.160 --> 0:13:54.040
<v Speaker 1>fiscal rules, and it would have to bring someone in

0:13:54.280 --> 0:13:56.480
<v Speaker 1>of credibility and a whole different approach, and I think

0:13:56.520 --> 0:14:00.199
<v Speaker 1>that would be a seismic shock, which I don't think

0:14:00.200 --> 0:14:02.480
<v Speaker 1>he's got that type of political chops for or once,

0:14:02.640 --> 0:14:05.280
<v Speaker 1>so personally I think he will, you know, muscle out.

0:14:05.320 --> 0:14:05.920
<v Speaker 1>That's his style.

0:14:08.360 --> 0:14:17.880
<v Speaker 2>Fascinating. Thanks very much, Marcus. That's all for this show,

0:14:17.960 --> 0:14:20.560
<v Speaker 2>So thanks for listening to this week's Merlton Talks Money Debrief.

0:14:20.680 --> 0:14:23.040
<v Speaker 2>If you like the show, rate review and subscribe wherever

0:14:23.120 --> 0:14:26.280
<v Speaker 2>you get your podcasts. This episode was produced by Moses

0:14:26.320 --> 0:14:29.320
<v Speaker 2>and Dam and Summer Sadi Special thanks to Marcut sash Wath.

0:14:29.800 --> 0:14:31.920
<v Speaker 2>Questions and comments on the show and all the shows

0:14:31.920 --> 0:14:35.000
<v Speaker 2>are always welcome. The show email is medon money at

0:14:35.000 --> 0:14:38.480
<v Speaker 2>bloomberd dot net and also yes, do leave a five

0:14:38.520 --> 0:14:40.600
<v Speaker 2>star review if you liked it. It enables us to

0:14:40.640 --> 0:14:43.600
<v Speaker 2>get more incredible, expensive guests like Marcus on