1 00:00:00,040 --> 00:00:02,480 Speaker 1: I'm joined by David Malpass, the former World Bank head 2 00:00:02,520 --> 00:00:05,160 Speaker 1: and also Under Secretary of Treasury under the Trump administration. 3 00:00:05,200 --> 00:00:07,880 Speaker 1: Thank you so much for your time. John outlined some 4 00:00:08,000 --> 00:00:09,920 Speaker 1: of these thoughts that you have going into next year, 5 00:00:09,960 --> 00:00:13,680 Speaker 1: this perfect storm, the debt ceiling, the perennial spending fights 6 00:00:13,680 --> 00:00:16,160 Speaker 1: that happened in Washington, and also this expiration, the Trump 7 00:00:16,239 --> 00:00:19,200 Speaker 1: error tax cuts, whether it's Biden or Trump. How should 8 00:00:19,239 --> 00:00:21,680 Speaker 1: the next president be thinking about all of this morning? 9 00:00:21,760 --> 00:00:25,560 Speaker 2: And Marie and John, so that you have to recognize 10 00:00:25,600 --> 00:00:28,520 Speaker 2: what's been going on politically in DC, which is not 11 00:00:28,760 --> 00:00:32,240 Speaker 2: making decisions, not really sorting out what to do about spending, 12 00:00:32,240 --> 00:00:35,600 Speaker 2: about debt, about taxes, and so that's all pushed into 13 00:00:35,640 --> 00:00:39,280 Speaker 2: twenty five and that has an impact on businesses. They 14 00:00:39,360 --> 00:00:42,160 Speaker 2: wait to see. So the uncertainty, I think is what's 15 00:00:42,320 --> 00:00:45,839 Speaker 2: prevailing within the economy. I don't want to invest if 16 00:00:45,880 --> 00:00:48,239 Speaker 2: there's going to be a big tax increase, but I 17 00:00:48,280 --> 00:00:50,959 Speaker 2: can't see what they're going to do to avoid it, 18 00:00:51,040 --> 00:00:54,400 Speaker 2: and so that's the time clock that's going on. Now. 19 00:00:54,560 --> 00:00:56,720 Speaker 1: I'd like to talk about taxes because Ed Mills was 20 00:00:56,760 --> 00:00:58,920 Speaker 1: on from Raymond James earlier this morning, and he made 21 00:00:58,960 --> 00:01:00,960 Speaker 1: a great point, which is the fat that yesterday we 22 00:01:01,040 --> 00:01:03,760 Speaker 1: heard from the House Ways and Means Committee Chair Jason 23 00:01:03,800 --> 00:01:06,679 Speaker 1: Smith coming out and saying it's actually some Republicans who 24 00:01:06,680 --> 00:01:09,399 Speaker 1: want to see a higher corporate tax rate. Trump brought 25 00:01:09,440 --> 00:01:11,639 Speaker 1: it down to twenty one percent from thirty five. Biden 26 00:01:11,680 --> 00:01:14,240 Speaker 1: has pitched twenty eight. Senator Joe Manchin has said maybe 27 00:01:14,240 --> 00:01:16,680 Speaker 1: twenty five is something we can all agree on. Where 28 00:01:16,680 --> 00:01:20,840 Speaker 1: do you see Republicans and Democrats potentially having this equilibrium 29 00:01:20,880 --> 00:01:22,200 Speaker 1: when it comes to the corporate tax rate. 30 00:01:22,880 --> 00:01:25,200 Speaker 2: It's a bit of a fight in the election itself. 31 00:01:25,240 --> 00:01:27,360 Speaker 2: You've got a choice of do you want the economy 32 00:01:27,400 --> 00:01:30,319 Speaker 2: to grow stronger and do you think tax rates matter? 33 00:01:30,760 --> 00:01:33,440 Speaker 2: I think they really do in terms of the growth rate. 34 00:01:33,640 --> 00:01:37,520 Speaker 2: If you raise the taxes, there's less investment going on 35 00:01:37,720 --> 00:01:40,360 Speaker 2: in the corporate sector. We're already seeing it in the 36 00:01:40,400 --> 00:01:43,520 Speaker 2: small business sector, just very hard for them to make 37 00:01:43,560 --> 00:01:47,160 Speaker 2: the new investments needed to pull down or to improve 38 00:01:47,240 --> 00:01:51,680 Speaker 2: the supply chain. So we're seeing this persistent inflation and stagflation. 39 00:01:52,160 --> 00:01:54,800 Speaker 1: So what do you make of Republicans though, coming out 40 00:01:54,800 --> 00:01:56,120 Speaker 1: and saying that it should be higher. 41 00:01:56,640 --> 00:01:59,760 Speaker 2: You know, all through the party unity is not as 42 00:02:00,080 --> 00:02:03,600 Speaker 2: much in the Republican Party, So they've got to sort 43 00:02:03,640 --> 00:02:07,040 Speaker 2: out what is the message of Republicans that you want 44 00:02:07,080 --> 00:02:09,680 Speaker 2: Washington to be bigger. You know, it'd be fun for 45 00:02:09,760 --> 00:02:13,000 Speaker 2: a lot of politicians in Washington to have a big 46 00:02:13,080 --> 00:02:16,280 Speaker 2: debate over which taxes to raise. That pulls in a 47 00:02:16,320 --> 00:02:20,239 Speaker 2: lot of political contributions. But what we should be looking 48 00:02:20,280 --> 00:02:23,920 Speaker 2: at is which taxes affect growth the most, and you 49 00:02:24,000 --> 00:02:26,200 Speaker 2: want to hold those down so that you can have 50 00:02:26,280 --> 00:02:30,560 Speaker 2: more jobs, more people back to work. After COVID, a 51 00:02:30,560 --> 00:02:33,040 Speaker 2: lot of people are just staying out of the economy 52 00:02:33,160 --> 00:02:35,560 Speaker 2: because it's not strong enough to bring them into the 53 00:02:35,639 --> 00:02:36,600 Speaker 2: labor force. Well. 54 00:02:36,680 --> 00:02:40,320 Speaker 1: Labor participation rate though is pretty high, and unemployment is 55 00:02:40,320 --> 00:02:43,520 Speaker 1: below four percent. Most people would argue and would say 56 00:02:43,560 --> 00:02:46,120 Speaker 1: this is a very healthy labor market under four percent 57 00:02:46,120 --> 00:02:47,120 Speaker 1: for more than two years. 58 00:02:47,520 --> 00:02:50,120 Speaker 2: The labor force, though, doesn't include the people that have 59 00:02:50,240 --> 00:02:53,280 Speaker 2: opted out, and those are people that we need in 60 00:02:53,320 --> 00:02:56,520 Speaker 2: the economy in order to really be catching up. In 61 00:02:56,560 --> 00:03:01,720 Speaker 2: the meantime, China's numbers yesterday, they show their their trade numbers. 62 00:03:01,960 --> 00:03:08,400 Speaker 2: They're cleaning up by having a factories running at full speed. 63 00:03:08,480 --> 00:03:12,560 Speaker 2: I'm from Michigan. What you see is the manufacturing inventories 64 00:03:12,960 --> 00:03:17,720 Speaker 2: not building the whole US economy is waiting to see 65 00:03:17,760 --> 00:03:20,520 Speaker 2: what's going to happen in terms of policy in twenty 66 00:03:20,600 --> 00:03:24,200 Speaker 2: twenty five. That's this fiscal train wreck, and they want 67 00:03:24,240 --> 00:03:26,840 Speaker 2: to see how is that going to be resolved by Washington? 68 00:03:26,880 --> 00:03:29,560 Speaker 2: To get Washington out of the way. What we're seeing 69 00:03:29,639 --> 00:03:34,680 Speaker 2: right now is this regulatory push that's going on. Day 70 00:03:34,680 --> 00:03:37,920 Speaker 2: by day. You're seeing these massive new regulations come out 71 00:03:37,920 --> 00:03:42,440 Speaker 2: of Washington as an endpoint to the current administration. Also, 72 00:03:42,520 --> 00:03:46,880 Speaker 2: the proposals for big tax increases that you're talking about that, yes, 73 00:03:46,920 --> 00:03:49,880 Speaker 2: there's going to be some Republicans who say we need it, 74 00:03:50,080 --> 00:03:53,720 Speaker 2: but I think the public recognizes if you give more 75 00:03:54,120 --> 00:03:56,800 Speaker 2: money to Washington, it's just going to be spent. So 76 00:03:56,840 --> 00:03:59,320 Speaker 2: it's not really going to help on the national debt front. 77 00:03:59,440 --> 00:04:02,280 Speaker 1: When it comes to the national debt and taxes, the 78 00:04:02,320 --> 00:04:04,520 Speaker 1: CBO came out yesterday and said, if we were to 79 00:04:04,560 --> 00:04:07,120 Speaker 1: see an extension the Trump era tax cuts four point 80 00:04:07,160 --> 00:04:11,800 Speaker 1: six trillion dollars, so fiscally, this would be incredibly challenging. 81 00:04:12,720 --> 00:04:14,800 Speaker 1: How do you think about that? Would the bond market 82 00:04:14,880 --> 00:04:16,360 Speaker 1: even allow that to happen? 83 00:04:17,040 --> 00:04:20,000 Speaker 2: This gets into what are the taxes and how do 84 00:04:20,040 --> 00:04:23,520 Speaker 2: they affect growth. There's this tendency of people to do 85 00:04:23,560 --> 00:04:27,400 Speaker 2: what's called static modeling, meaning they say if nobody changes 86 00:04:27,440 --> 00:04:31,560 Speaker 2: their behavior, then tax cut will will just be added 87 00:04:31,560 --> 00:04:34,760 Speaker 2: to the national debt. But the whole point of taxation 88 00:04:35,160 --> 00:04:40,000 Speaker 2: is to raise revenue without stopping people from doing what 89 00:04:40,080 --> 00:04:44,400 Speaker 2: they need to do, small businesses, reinvesting. I think we're 90 00:04:44,480 --> 00:04:48,440 Speaker 2: over the laugh or curve right now in terms of 91 00:04:48,520 --> 00:04:53,760 Speaker 2: small business taxation. I don't know if you saw the statistics. 92 00:04:53,360 --> 00:04:58,479 Speaker 2: As President Biden has proposed these big tax increases on 93 00:04:58,600 --> 00:05:03,000 Speaker 2: capital gains also on basis step up. It causes small 94 00:05:03,040 --> 00:05:06,039 Speaker 2: businesses to just stop investing in their business. They look 95 00:05:06,120 --> 00:05:10,040 Speaker 2: to sell to somebody big because they can't afford the taxes. 96 00:05:10,320 --> 00:05:14,800 Speaker 2: So I challenge that for trillion statistic and say, look, 97 00:05:15,000 --> 00:05:17,480 Speaker 2: you would get more growth out of the economy if 98 00:05:17,480 --> 00:05:20,160 Speaker 2: you had better tax policies. You don't need to raise 99 00:05:20,200 --> 00:05:21,000 Speaker 2: the corporate rate. 100 00:05:21,360 --> 00:05:24,120 Speaker 1: Okay, well that's going to be definitely day one something, 101 00:05:24,279 --> 00:05:27,159 Speaker 1: and we already see committees being formed now in Congress 102 00:05:27,160 --> 00:05:29,360 Speaker 1: to try to map out what this tax policy will 103 00:05:29,400 --> 00:05:32,359 Speaker 1: look like. I want to also ask you about what 104 00:05:32,440 --> 00:05:34,599 Speaker 1: potentially we could see under Trump two point zero. You 105 00:05:34,640 --> 00:05:37,279 Speaker 1: were an economic advisor for him when he was campaigning 106 00:05:37,279 --> 00:05:39,400 Speaker 1: in twenty sixteen, you joined the administration, you ran the 107 00:05:39,440 --> 00:05:41,800 Speaker 1: World Bank. When the Wall Street Journal comes out with 108 00:05:41,800 --> 00:05:45,159 Speaker 1: a report and says that Trump potentially wants to put 109 00:05:45,160 --> 00:05:47,359 Speaker 1: his thumb on the scale when it comes to the 110 00:05:47,400 --> 00:05:50,960 Speaker 1: FED and questions FED independence, do you think that actually 111 00:05:50,960 --> 00:05:51,719 Speaker 1: would be happening. 112 00:05:52,960 --> 00:05:55,680 Speaker 2: I saw that story. There weren't any sources. I don't 113 00:05:55,720 --> 00:05:59,240 Speaker 2: think that is the policy that would create growth. You know, 114 00:05:59,320 --> 00:06:04,080 Speaker 2: the FED has I've criticized the FED for being too big, 115 00:06:04,440 --> 00:06:07,840 Speaker 2: for inserting itself into too many markets. The inner bank 116 00:06:07,880 --> 00:06:11,240 Speaker 2: market has gone. Now, trading of FED funds that were 117 00:06:11,320 --> 00:06:14,920 Speaker 2: so vital to the dynamism of the US economy that's gone. 118 00:06:15,040 --> 00:06:19,440 Speaker 2: The repoll market has been almost nationalized as you look 119 00:06:19,480 --> 00:06:22,920 Speaker 2: at the amount that the FED is controlling within that market. 120 00:06:23,040 --> 00:06:25,640 Speaker 2: So I think we could have a smaller FED, a 121 00:06:25,720 --> 00:06:28,640 Speaker 2: smaller balance sheet for the FED, and that would actually 122 00:06:28,680 --> 00:06:32,240 Speaker 2: be very positive for growth. The commercial banks would love 123 00:06:32,360 --> 00:06:36,560 Speaker 2: to be lending right now to small businesses, but the 124 00:06:37,080 --> 00:06:41,839 Speaker 2: way the regulatory policy works, they can't do it. It's 125 00:06:42,000 --> 00:06:45,680 Speaker 2: biased against small businesses. And that's true also of the 126 00:06:45,760 --> 00:06:48,640 Speaker 2: borrowing that's done by Treasury and by the FED, they're 127 00:06:48,680 --> 00:06:51,360 Speaker 2: borrowing in the short end of the curve, and that's 128 00:06:51,480 --> 00:06:54,280 Speaker 2: just crowding out small businesses. So I think that's the 129 00:06:54,400 --> 00:06:55,680 Speaker 2: key dynamic going on. 130 00:06:55,800 --> 00:06:57,760 Speaker 1: But they're borrowing the short end of the curve because 131 00:06:57,800 --> 00:07:00,240 Speaker 1: everyone thinks, why lock in rates this high at the 132 00:07:00,400 --> 00:07:02,200 Speaker 1: long end, We'll do that maybe in two years when 133 00:07:02,200 --> 00:07:04,240 Speaker 1: they come down, right, I mean, isn't that prudent? 134 00:07:04,760 --> 00:07:08,479 Speaker 2: No, that's not prudent. The yield curve is deeply inverted. 135 00:07:08,800 --> 00:07:13,760 Speaker 2: So if you if you borrow at the short end, 136 00:07:12,640 --> 00:07:17,000 Speaker 2: you're you're paying this five point four percent by the Fed, 137 00:07:17,240 --> 00:07:20,000 Speaker 2: they're borrowing every day at five point four percent to 138 00:07:20,120 --> 00:07:25,440 Speaker 2: own bonds that yield substantially less. That's not prudent. What 139 00:07:25,480 --> 00:07:28,280 Speaker 2: it does do is helps prop up the stock market 140 00:07:28,400 --> 00:07:31,640 Speaker 2: for now. I think there's there's some end game going 141 00:07:31,680 --> 00:07:34,880 Speaker 2: on within the economy where it's part of the kick 142 00:07:34,960 --> 00:07:38,880 Speaker 2: the can is to say, well, let's just borrow short term, 143 00:07:38,920 --> 00:07:43,120 Speaker 2: hoping for better in the future. But foreign, the global 144 00:07:43,200 --> 00:07:45,560 Speaker 2: markets look at that and they're not voting for the 145 00:07:45,680 --> 00:07:48,520 Speaker 2: United States on that. We're week at home. In terms 146 00:07:48,560 --> 00:07:51,360 Speaker 2: of the economy just one point six percent growth and 147 00:07:51,480 --> 00:07:55,120 Speaker 2: CBO's forecasts are for weak growth into the future. And 148 00:07:55,160 --> 00:07:59,120 Speaker 2: then abroad, we've also got that the weakness that's leading 149 00:07:59,160 --> 00:08:04,240 Speaker 2: to wars in multiple parts of the world, and they 150 00:08:04,280 --> 00:08:09,640 Speaker 2: look at the fiscal situation in the US, the inverted 151 00:08:09,720 --> 00:08:12,640 Speaker 2: yield curve, and say, why would I invest into that 152 00:08:12,840 --> 00:08:14,840 Speaker 2: highest short term interest rate? 153 00:08:14,920 --> 00:08:17,680 Speaker 1: Two final quick ones, So one you think under Trump 154 00:08:17,720 --> 00:08:20,200 Speaker 1: there would be an autonomous FED and two would you 155 00:08:20,240 --> 00:08:21,640 Speaker 1: go back into a Trump administrature? 156 00:08:22,520 --> 00:08:26,520 Speaker 2: You know right now that's way premature. The issue is 157 00:08:26,520 --> 00:08:29,440 Speaker 2: for people to sort out the policy differential. You've got 158 00:08:29,440 --> 00:08:35,000 Speaker 2: a choice of weak versus strong, of growth versus stagflation. 159 00:08:35,720 --> 00:08:38,839 Speaker 2: That's the decision for people to make. And Trump would 160 00:08:38,840 --> 00:08:42,800 Speaker 2: have a whole array of people that could really implement 161 00:08:42,880 --> 00:08:46,640 Speaker 2: a growth policy. I think that's quite possible, but it's 162 00:08:46,679 --> 00:08:49,079 Speaker 2: the election cycle, so let's focus on that. 163 00:08:49,360 --> 00:08:51,520 Speaker 1: David Malpass, thank you so much for your time this morning.