WEBVTT - Bloomberg Surveillance TV: January 21, 2025 0:00:00.080 --> 0:00:06.760 Boo, Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.239 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.880 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.680 --> 0:00:31.280 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.280 --> 0:00:33.919 anywhere else you listen, and as always on the Bloomberg 0:00:34.000 --> 0:00:37.080 Terminal and the Bloomberg Business App. Joining us now to 0:00:37.120 --> 0:00:40.480 discuss that is the former IMF Chief economist Ken rogof 0:00:40.520 --> 0:00:41.080 Ken It's going to. 0:00:41.000 --> 0:00:42.640 See you, sir, Good to see you. 0:00:42.640 --> 0:00:43.159 You wrote a. 0:00:43.080 --> 0:00:45.839 Piece in the South China Morning Post. I believe questioning 0:00:45.840 --> 0:00:48.720 whether we could see the same boom this time around 0:00:48.960 --> 0:00:51.159 as we saw last time around. And I want to 0:00:51.159 --> 0:00:52.240 be clear, and I'm going to do this for you 0:00:52.280 --> 0:00:55.240 and give you some credit. Back in sixteen seventeen, you 0:00:55.320 --> 0:00:58.160 weren't pessimistic on the Trump economy going into it. You 0:00:58.240 --> 0:01:02.040 were somewhat constructive. Is we're very very downbeat, So what's 0:01:02.120 --> 0:01:03.080 changed for you? Personally? 0:01:03.400 --> 0:01:06.400 People were unhappy when I said that, but I think 0:01:06.400 --> 0:01:09.039 it was closer to true than not. Well, I mean, 0:01:09.120 --> 0:01:12.760 for one thing, if we're just looking at policies, the 0:01:12.800 --> 0:01:15.560 things that he did and the first term I think 0:01:15.600 --> 0:01:20.039 on the whole were constructive, as you say, for the economy, deregulation, 0:01:21.000 --> 0:01:25.319 the tax cuts, getting rid of the state and local deduction, 0:01:25.440 --> 0:01:27.440 I think was actually a good move over. 0:01:27.280 --> 0:01:28.040 The long term. 0:01:28.280 --> 0:01:34.600 And this time every campaign practice promised practically is something counterproductive. 0:01:34.880 --> 0:01:38.080 I mean you could go to the tariffs, social Security 0:01:38.240 --> 0:01:41.679 being not taxed, and on and on and on. So 0:01:43.000 --> 0:01:45.520 you know, it's less obvious that he has the same 0:01:45.600 --> 0:01:49.320 room to run with his policies. And when he came 0:01:49.720 --> 0:01:54.840 interest rates were zero. Now they're not. Our bill for 0:01:55.200 --> 0:01:57.480 debt was you know, a couple hundred billion a year. 0:01:57.560 --> 0:01:59.720 Now it's pushing a trillion. So he has a lot 0:01:59.760 --> 0:02:02.320 of strengths that he didn't face the first time. So 0:02:02.360 --> 0:02:05.640 I don't think we can expect quite the boom that 0:02:06.000 --> 0:02:06.960 we got the last time. 0:02:07.160 --> 0:02:09.080 Ken was doing a panel at the World Economic Forum 0:02:09.120 --> 0:02:11.440 a little bit earlier this morning. Fantastic lineup, and you're 0:02:11.440 --> 0:02:14.000 also alongside Ruggaraja, who we'll catch up with in about 0:02:14.040 --> 0:02:16.920 five or ten minutes time. You mentioned that we're now 0:02:16.960 --> 0:02:19.000 spending more on our interests in America than we are 0:02:19.040 --> 0:02:20.840 in our defense. Do you think we are at that 0:02:20.880 --> 0:02:23.200 tipping point where this becomes problematic or are we not 0:02:23.240 --> 0:02:23.720 there yet? 0:02:24.800 --> 0:02:26.720 We hit it a while ago. I mean, I don't 0:02:26.720 --> 0:02:30.720 know about tipping point to crisis. But interest rates had 0:02:30.760 --> 0:02:32.920 been going down and down in the whole world, and 0:02:32.960 --> 0:02:36.360 I'm sure you interviewed them here over the years. Secular 0:02:36.480 --> 0:02:42.639 stagnation lower forever. That's very ingrained in the mindset, and 0:02:42.720 --> 0:02:46.120 it met in Washington and a lot of policy think 0:02:46.160 --> 0:02:49.600 tanks at the central banks. Dat is free, nothing to 0:02:49.639 --> 0:02:53.680 worry about. But when the interest rates are this high, 0:02:53.800 --> 0:02:55.760 then you start to have to think about it. I mean, 0:02:55.800 --> 0:02:59.400 so we're running a six point seven percent depsit on 0:02:59.480 --> 0:03:02.520 top of or I don't know, thirty five trillion dollar debt. 0:03:03.240 --> 0:03:06.200 You start to pile up an interest bill, and I 0:03:06.200 --> 0:03:09.280 think we've reached a moment where things have tanged. It's 0:03:09.320 --> 0:03:12.320 the interest rate that's turned. It has happened. It's not 0:03:12.480 --> 0:03:15.120 Donald Trump. I think it would have happened just as 0:03:15.240 --> 0:03:16.320 much if Harris had won. 0:03:16.800 --> 0:03:19.440 And you point out that right now where interest rates 0:03:19.480 --> 0:03:22.320 are would add two to three percent to the deficit 0:03:22.400 --> 0:03:25.360 of the United States over the coming years, just based 0:03:25.440 --> 0:03:28.040 on where rates are currently, do you think they will 0:03:28.040 --> 0:03:29.720 stay here? Do you think that they're going to go up? 0:03:29.919 --> 0:03:31.720 You said, you know, last time we spoke to you, 0:03:31.840 --> 0:03:34.720 that the FED couldn't necessarily cut that much. 0:03:35.120 --> 0:03:35.920 Can they cut again? 0:03:35.960 --> 0:03:36.960 Are they going to have to hike? 0:03:37.480 --> 0:03:39.840 Well, let's start with the long term rates. I don't 0:03:39.840 --> 0:03:43.400 think they're going lower outside of a recession. In fact, 0:03:43.480 --> 0:03:44.960 if I had to look at the arc of the 0:03:44.960 --> 0:03:48.320 next five years, I think we'll get another burst of 0:03:48.360 --> 0:03:52.200 inflation sometime within the next five to seven years, and 0:03:52.240 --> 0:03:55.600 this time we will not get a free pass. Inflation 0:03:55.720 --> 0:03:58.240 expectations will go up and interest rates will go up 0:03:58.280 --> 0:04:00.920 even more. But for now, I think think they're settled, 0:04:01.040 --> 0:04:03.480 you know, around in the four and a half five 0:04:03.600 --> 0:04:06.400 range that they probably going to stay. Maybe in a 0:04:06.440 --> 0:04:09.920 recession going down, I mean, the Fed's a different matter. 0:04:10.960 --> 0:04:13.400 But my guess is where we are at the moment, 0:04:13.520 --> 0:04:15.360 is the odds of a hiker as good as the 0:04:15.360 --> 0:04:16.400 odds of a cut. 0:04:16.720 --> 0:04:18.040 I think the. 0:04:18.120 --> 0:04:20.679 FED was way off the mark on where the neutral 0:04:20.720 --> 0:04:24.120 interest rate was, and that's what I found in my 0:04:24.240 --> 0:04:27.840 research on They're adjusting. They're starting to see that, And 0:04:28.440 --> 0:04:30.960 I don't think it's just what's going on the second. 0:04:31.000 --> 0:04:32.640 I think it's a longer term phenomenon. 0:04:32.880 --> 0:04:35.280 You were not very positive on the potential for the 0:04:35.320 --> 0:04:38.440 first Trump term. You're much less positive this time around, 0:04:38.440 --> 0:04:41.360 as John was mentioning, And I'm just wondering what that 0:04:41.680 --> 0:04:44.560 lack of positivity looks like in contrast to all the 0:04:44.560 --> 0:04:46.080 optimism we're hearing from all the bankers. 0:04:46.279 --> 0:04:48.919 So just to be clear, I don't have Trump derangement syndrome. 0:04:49.560 --> 0:04:53.040 I try to have an I try to have an objective, you. 0:04:52.960 --> 0:04:54.479 Know, trying to give you that pass that. 0:04:54.600 --> 0:04:58.559 We're starting at a very strong this is a question, 0:04:59.000 --> 0:05:02.239 and we've been booming for a while. It's a different picture, 0:05:02.480 --> 0:05:05.640 you know, somewhat than when he came in before. And 0:05:06.640 --> 0:05:09.960 you know, so just based on that, it's not as 0:05:10.000 --> 0:05:12.760 obvious that it would do well where I wouldn't quite 0:05:12.800 --> 0:05:15.800 say recessions around the corner, but it's not as many 0:05:15.880 --> 0:05:18.560 miles away as it was, you know, at one time. 0:05:19.480 --> 0:05:24.800 But also the uh, you know, I think certainly corrections 0:05:24.839 --> 0:05:27.040 to some of the things Biden did are welcome. 0:05:27.440 --> 0:05:28.080 I get it. 0:05:28.200 --> 0:05:32.000 Why so much of corporate America feels the wicked Witch 0:05:32.080 --> 0:05:35.880 is dead, and you know, now they can finally, you know, 0:05:36.000 --> 0:05:38.400 breathe freely on a lot of different dimensions. 0:05:38.520 --> 0:05:40.359 We drove down on that just a little bit. I 0:05:40.440 --> 0:05:43.279 understand it. The wicked Witch is dead. He was hardly 0:05:43.320 --> 0:05:46.400 warm and fuzzy with corporate America. GDP was pretty decent. 0:05:47.080 --> 0:05:49.800 These guys wetuwn out record profits quarter on quarter. Many 0:05:49.800 --> 0:05:52.920 of them were what is actually going to change fundamentally? 0:05:53.040 --> 0:05:56.480 So the underlying economy GDP growth, corporate profits, well. 0:05:56.360 --> 0:05:58.760 I mean, the sustainability of what's going on is its 0:05:58.920 --> 0:06:03.400 highly questionable. So yes, GDP growth was good, but we 0:06:03.520 --> 0:06:07.599 have this massive deficit we're running. I mean, all these 0:06:08.080 --> 0:06:11.039 Keynesians were saying the multipliers too. In other words, for 0:06:11.120 --> 0:06:14.360 every percent deficit you run, you get two percent growth. 0:06:14.640 --> 0:06:17.600 We're running double the deficit, more than doubles that we're 0:06:17.600 --> 0:06:18.400 getting in growth. 0:06:18.440 --> 0:06:18.680 Now. 0:06:19.520 --> 0:06:23.440 The immigration was probably larger than the official numbers by 0:06:23.800 --> 0:06:27.360 a considerable margin, and that also is contributing to growth. 0:06:27.400 --> 0:06:33.480 These things are not sustainable. But yeah, I mean, neverthing, 0:06:33.560 --> 0:06:36.640 you know. So it's true. You're right that some of 0:06:36.680 --> 0:06:40.200 what's going on was going to run out at some point. 0:06:41.040 --> 0:06:43.800 So it's a more difficult situation that he's inheriting. 0:06:43.800 --> 0:06:46.000 The death story is terrible. We all agree on that. 0:06:46.240 --> 0:06:48.440 Any evidence that people are pulling back from the US 0:06:48.560 --> 0:06:50.600 dollar and doubles denominated assets. 0:06:50.640 --> 0:06:53.640 With that in mind, well, the interest rate is the 0:06:53.720 --> 0:06:55.960 vote that they have. I mean, so I think our 0:06:56.000 --> 0:06:59.960 markets are very dollar oriented. Over the very long run, 0:07:00.560 --> 0:07:04.279 there could be more fragmentation that Chinese don't like the system. 0:07:05.080 --> 0:07:06.560 You know, you heard the session I was in this 0:07:06.600 --> 0:07:12.960 morning in Kyuzhin, who's a great brilliant economists originally from China, 0:07:13.400 --> 0:07:16.360 was talking about everything they're doing to build away from 0:07:16.400 --> 0:07:16.840 the dollar. 0:07:17.360 --> 0:07:18.440 If you go back to the. 0:07:18.520 --> 0:07:23.320 Sixties, the Europe was moving towards trying to have its 0:07:23.360 --> 0:07:26.000 own currency, and the dollar before it broke off, a 0:07:26.000 --> 0:07:28.720 lot of things were starting to be denominated in deutsch mark's. 0:07:29.000 --> 0:07:32.240 So you know, there's some gradual movement. But the big thing, 0:07:33.040 --> 0:07:35.960 you know, certainly is that the interest rates are going up, 0:07:36.360 --> 0:07:38.000 and that's people. 0:07:37.720 --> 0:07:38.880 Are requiring more. 0:07:38.920 --> 0:07:41.400 If they love the dollars so much, why don't they 0:07:41.480 --> 0:07:44.600 love it at one in one point seventy five percent 0:07:44.680 --> 0:07:47.520 for the tenure, which is what they were taking you know, 0:07:47.640 --> 0:07:48.400 five years ago. 0:07:48.760 --> 0:07:50.400 This is something that a lot of people were talking 0:07:50.400 --> 0:07:54.000 about that the US can afford to borrow more and 0:07:54.040 --> 0:07:56.280 more if the dollar is strong. You wrote a book 0:07:56.320 --> 0:07:59.360 about the dollar and the loss of its reserve currency status. 0:07:59.560 --> 0:08:01.880 Is it going to closer as a result of the 0:08:01.920 --> 0:08:04.160 deficits that we're seeing right now? Are you seeing that 0:08:04.280 --> 0:08:05.560 time frame brought forward? 0:08:06.360 --> 0:08:06.520 So? 0:08:06.560 --> 0:08:09.560 I have a book coming out in May called Our 0:08:09.640 --> 0:08:12.800 Dollar Year Problem that deals with us and some of 0:08:12.800 --> 0:08:17.600 your colleagues may have seen some early version, but you know, 0:08:18.000 --> 0:08:22.480 the dollar has just soared beyond anything people expected. There 0:08:22.480 --> 0:08:25.600 were several turns, not just the value, but it's footprint. 0:08:26.120 --> 0:08:30.000 But surely over time they're forces that are going to 0:08:30.040 --> 0:08:34.880 push that back. Crypto may not take over the legal economy, 0:08:35.080 --> 0:08:38.320 but the illegal economy, the underground economy, which in my 0:08:38.480 --> 0:08:41.600 work I find twenty percent of the global economy that's 0:08:41.640 --> 0:08:45.440 up for grabs, and China clearly needs to pull away. 0:08:45.760 --> 0:08:49.720 If China pulls away, then it pulls other people with them. 0:08:50.040 --> 0:08:51.680 That's a slow process. 0:08:51.760 --> 0:08:54.920 But yeah, I mean, I think, you know, we've had 0:08:54.920 --> 0:08:58.880 a great run. It's not over, but we might be 0:08:58.960 --> 0:09:01.920 looking at a little bit last sage are in a prevalence. 0:09:01.600 --> 0:09:02.120 In the future. 0:09:02.320 --> 0:09:04.079 Ken we could talk all day, but we're eating into 0:09:04.120 --> 0:09:05.280 raggedge times, so we got to go. 0:09:05.400 --> 0:09:06.080 Don't want to do that. 0:09:06.280 --> 0:09:08.079 To see sir, you got to catch up. Thank you. 0:09:08.280 --> 0:09:10.920 Ken Rogoff there, the former IMF Chief Economists and so 0:09:11.040 --> 0:09:23.240 much more joining us sat at the World Economic Forum. 0:09:23.280 --> 0:09:25.480 I'm pleased to say Gary Cohen, the IBM Vice chairman 0:09:25.679 --> 0:09:29.600 and former National Economic Council Director under Donald Trump. Gary 0:09:30.000 --> 0:09:30.920 or Gary's going to see you. 0:09:31.200 --> 0:09:31.800 Great to be here. 0:09:31.840 --> 0:09:33.720 Thanks very We mentioned this the last time we caught 0:09:33.800 --> 0:09:36.280 up in New York, how different things might be this 0:09:36.360 --> 0:09:39.560 time around. What are you hearing here in Davos, Switzerland? 0:09:39.600 --> 0:09:42.280 How different are things this time around compared to years 0:09:42.320 --> 0:09:43.280 gone by? 0:09:43.760 --> 0:09:46.080 You know, I started with the propos lease of making 0:09:46.679 --> 0:09:49.079 I always take dives with the grain of salt, because 0:09:49.120 --> 0:09:51.560 you know, you have lots of different opinions here, and 0:09:51.600 --> 0:09:54.480 I'm always the start of a new year. Everyone likes 0:09:54.520 --> 0:09:56.680 to be excited. Everyone likes to be balled up. We 0:09:56.760 --> 0:09:59.280 obviously went through an inauguration and change of power in 0:09:59.320 --> 0:10:02.559 the United States yesterday. We know that's fairly positive for 0:10:02.640 --> 0:10:05.640 business on the fundamental level. It's positive business. It's a 0:10:05.679 --> 0:10:09.760 pro business. It's a smart regulatory environment. So everyone's thinking 0:10:09.800 --> 0:10:11.720 that's very good for business. But I think we're going 0:10:11.760 --> 0:10:14.080 to ultimately have to see what the year brings, because 0:10:14.120 --> 0:10:16.520 there's still more unknowns. 0:10:16.000 --> 0:10:17.839 Than knowns in the equation at this point. 0:10:18.040 --> 0:10:20.319 When you were last in the administration, the focus was 0:10:20.360 --> 0:10:22.480 on taxes first, and I spent the best part of 0:10:22.480 --> 0:10:24.240 the year trying to work out that tax build. The 0:10:24.280 --> 0:10:27.160 following year things shifted towards trade. There's a sense this 0:10:27.240 --> 0:10:29.680 time around that maybe we can do everything all at once. 0:10:29.720 --> 0:10:31.960 How difficult is it to do everything all at once? 0:10:32.400 --> 0:10:35.000 Look, I'm not in Washington right now, so I don't know. 0:10:35.280 --> 0:10:37.800 I can't speak for them, but look, doing taxes by 0:10:37.800 --> 0:10:40.520 itself is going to be quite difficult. You know, there 0:10:40.520 --> 0:10:43.360 are a lot of different constituencies in Washington when it 0:10:43.400 --> 0:10:47.439 comes to doing taxes, and look, there are small margins 0:10:47.440 --> 0:10:49.280 of victory, so especially in the House. 0:10:49.360 --> 0:10:51.240 You know you've got two or three today. 0:10:51.040 --> 0:10:54.440 It might even be one or two seat majority in 0:10:54.480 --> 0:10:58.600 the House. And within the House, you've got certain members 0:10:58.640 --> 0:11:00.040 that want certain things. 0:10:59.840 --> 0:11:01.320 To be able to vote for a tax bill. 0:11:01.640 --> 0:11:04.160 You've got certain people that are deficit hawks, so they 0:11:04.200 --> 0:11:06.040 do not want to see the deficit go out. You've 0:11:06.040 --> 0:11:09.720 got other members that want to bring back as much 0:11:09.760 --> 0:11:13.720 of the state and local tax deduction assault as we 0:11:13.760 --> 0:11:16.520 always call it, the salt deduction. You've got other members 0:11:16.559 --> 0:11:19.520 that want to just extend everything in the Trump's tax cuts. 0:11:19.600 --> 0:11:22.319 Then you've got those that want to not only extend 0:11:22.360 --> 0:11:25.960 what's there and all of the additional things that were 0:11:26.000 --> 0:11:27.679 talked about on the campaign trail. 0:11:28.080 --> 0:11:29.120 All of those things. 0:11:28.880 --> 0:11:31.320 Have a price tag associated with them, so it's four trillion, 0:11:31.360 --> 0:11:34.240 five trillion, six trillion, and you try and balance those 0:11:34.280 --> 0:11:35.880 with the people that don't want to have a deficit, 0:11:36.160 --> 0:11:39.760 and ultimately something has to be worked out. And remember, 0:11:40.080 --> 0:11:42.840 the only thing that really has to change because its 0:11:42.880 --> 0:11:44.959 expires at the end of the year, is the personal 0:11:45.000 --> 0:11:45.760 side of the equation. 0:11:46.200 --> 0:11:47.800 That doesn't mean they won't. 0:11:47.600 --> 0:11:50.880 Touch the corporate side of the equation, because to make 0:11:50.920 --> 0:11:53.439 this all work, they're going to have to balance it. 0:11:53.440 --> 0:11:56.040 It's a balancing act, and there's numbers, so you're going 0:11:56.080 --> 0:11:58.040 to need revenue from certain places to be able to 0:11:58.080 --> 0:11:59.160 give it in other places. 0:11:59.320 --> 0:12:02.559 It's a balancing for Congress, and each congressional member has 0:12:02.600 --> 0:12:05.640 its own power just simply because of the thin margins. 0:12:06.080 --> 0:12:07.720 It is a one man show that when it comes 0:12:07.720 --> 0:12:10.520 to tariffs, And are you surprised that we didn't see 0:12:10.559 --> 0:12:14.040 more aggressive tariffs implemented or at least even announced from 0:12:14.080 --> 0:12:15.800 the get go, other than what we heard about from 0:12:15.800 --> 0:12:17.120 Mexico in Canada. 0:12:17.679 --> 0:12:19.080 No, I'm not supplied prize. 0:12:19.400 --> 0:12:21.640 I think that even when I was there eight years ago, 0:12:22.080 --> 0:12:27.319 there was always a heavy debate on tariffs, on the 0:12:27.720 --> 0:12:31.120 positives and the negatives of tariffs, on the intended consequences 0:12:31.120 --> 0:12:34.400 and the unintended consequences. You know, look, it's day one 0:12:34.679 --> 0:12:37.839 of a four year administration. You don't have to put 0:12:37.880 --> 0:12:41.120 tariffs on day one. I'm sure there's an enormous amount 0:12:41.120 --> 0:12:43.160 of debate going on in the White House today as 0:12:43.200 --> 0:12:46.920 there was in the transition, on what to do with tariffs, 0:12:47.000 --> 0:12:49.280 Where to put tariffs, Where can tariffs be helpful? 0:12:49.360 --> 0:12:50.480 Where can tariffs be hurtful? 0:12:50.679 --> 0:12:54.440 There are places, I'm sure where there's pretty universal agreement 0:12:54.720 --> 0:12:57.160 that we should tariff. There's other places where there's probably 0:12:57.200 --> 0:12:59.520 divided opinion, and there's places where people think there should 0:12:59.520 --> 0:13:00.240 not be terrif. 0:13:00.360 --> 0:13:03.120 So we're here in Davos. Everyone's incredibly excited about all 0:13:03.120 --> 0:13:07.120 the good and not really considering the potential inflationary component 0:13:07.200 --> 0:13:09.640 of this. The potentially rate, the potential rate rise that 0:13:09.679 --> 0:13:13.200 could accompany this, or the potential slow down from an 0:13:13.240 --> 0:13:15.440 increase in the price of goods at a time when 0:13:15.720 --> 0:13:18.080 spending power has been coming down. Are you trying to 0:13:18.120 --> 0:13:22.200 tell corporate executives who you meet with or others maybe 0:13:22.240 --> 0:13:23.839 temper your enthusiasm. 0:13:24.440 --> 0:13:26.640 No, I'm not trying to tell corporate executives anything. I 0:13:26.679 --> 0:13:29.559 think every one of us is eyes wide open. Everyone 0:13:29.600 --> 0:13:32.840 has a fairly good view of what's going on in Washington. Look, 0:13:33.000 --> 0:13:35.920 the one thing about the Trump administration is they're very transparent, 0:13:36.400 --> 0:13:38.199 and the administration are very transparent. 0:13:38.400 --> 0:13:39.840 They've had enormous access. 0:13:39.920 --> 0:13:43.160 The corporate community has access, The corporate community has been involved. 0:13:43.440 --> 0:13:46.240 The Trump administration has wanted to hear from corporate community. 0:13:46.320 --> 0:13:48.720 So I don't need no one needs to tell the 0:13:48.720 --> 0:13:51.360 corporate community to slow down. I think what people are 0:13:51.400 --> 0:13:54.480 starting to understand is what are the intended what are 0:13:54.480 --> 0:13:57.760 the unintended consequences? As you talked about, we've seen a 0:13:57.840 --> 0:14:01.520 higher rate environment. We're talking about an environment where we 0:14:01.559 --> 0:14:02.360 may not get. 0:14:02.200 --> 0:14:02.880 Cuts this year. 0:14:03.040 --> 0:14:05.800 We're talking about a steeper and steeper yield curve. I 0:14:05.840 --> 0:14:09.319 think the realization that the COVID financings that we're five 0:14:09.400 --> 0:14:10.520 year financings come do. 0:14:10.679 --> 0:14:12.680 There's a big maturity wall coming up. 0:14:13.120 --> 0:14:15.679 There's also a lot of deals in the pipeline. If 0:14:15.760 --> 0:14:18.040 you look back at the vintage years of sort of 0:14:18.080 --> 0:14:22.280 twenty ten on in the venture world, the private equi world, 0:14:22.480 --> 0:14:25.200 there's been very little to no liquidity. 0:14:24.720 --> 0:14:26.480 Out of twenty ten vintages on. 0:14:26.800 --> 0:14:31.280 There's a lot of investors, especially pensions and endowments, started 0:14:31.320 --> 0:14:34.160 looking for a return of capital from those vintage years. 0:14:34.440 --> 0:14:36.000 There's a lot of pressure in the. 0:14:36.000 --> 0:14:39.600 System to do transactions and get deals done. We all 0:14:39.640 --> 0:14:41.800 feel that, we all know that that will be great 0:14:41.800 --> 0:14:42.520 if we can get. 0:14:42.400 --> 0:14:42.880 It all done. 0:14:42.880 --> 0:14:45.560 But I think there's a realism that not all this 0:14:45.600 --> 0:14:47.760 can get done at the same time, and we'll have 0:14:47.800 --> 0:14:49.320 to see what the market can bear it. And we 0:14:49.480 --> 0:14:51.760 have all of this at the exact same time when 0:14:51.760 --> 0:14:54.680 we have very tight credit spreads and very high multiples 0:14:54.720 --> 0:14:55.160 in the market. 0:14:55.280 --> 0:14:57.560 You've said it repeated by coming into this year, there's 0:14:57.560 --> 0:15:00.360 a lot of paper that needs to be moved. Moment 0:15:00.400 --> 0:15:03.800 in the hearing with Scott Besson, the incoming Treasury Secretary, 0:15:03.840 --> 0:15:06.480 where he was asked about scrapping the debt ceiling, the 0:15:06.520 --> 0:15:08.840 debt limit and he said something instead of the warrant 0:15:08.840 --> 0:15:10.600 didn't really let him speak. But what I ultimately was 0:15:10.640 --> 0:15:13.359 going out was that he wanted to survey market participants. 0:15:13.800 --> 0:15:16.160 And what I sensed about where he was going was 0:15:16.200 --> 0:15:18.960 he wanted to find out how market participants would respond 0:15:19.000 --> 0:15:22.360 to that headline. Now, you've been in both office in 0:15:22.400 --> 0:15:25.800 the administration, and you've know the business financial markets, and 0:15:25.840 --> 0:15:28.240 your time at Goldman Sachs. What would you be telling 0:15:28.320 --> 0:15:31.120 Scott Besson about that, about how that headline would be 0:15:31.160 --> 0:15:33.800 absorbed in financial markets? And you're concerned that we could 0:15:33.800 --> 0:15:36.200 get some pushback to some of these plans. 0:15:36.320 --> 0:15:38.840 Well, I think you will get some pushback some of 0:15:38.840 --> 0:15:39.360 these plans. 0:15:39.440 --> 0:15:40.240 You know, the. 0:15:40.080 --> 0:15:43.080 Market is getting to a point now where they're telling 0:15:43.120 --> 0:15:45.880 you we are more concerned about the debt and the 0:15:45.880 --> 0:15:48.160 deficit today than we have been in a while. 0:15:48.800 --> 0:15:50.400 And I think there's a few factors there. 0:15:50.480 --> 0:15:52.880 The debt and deficit continues to get bigger, but we're 0:15:52.920 --> 0:15:57.800 also getting closer and closer to that Social security sort. 0:15:57.600 --> 0:15:58.320 Of tipping point. 0:15:58.760 --> 0:16:00.920 You know, when they work together, we all know that 0:16:00.920 --> 0:16:03.760 the Social Security Trust Fund will be unable to fund 0:16:03.840 --> 0:16:07.400 itself in a matter of years. So it's five six, 0:16:07.520 --> 0:16:11.120 seven four, you know, somewhere in there. And I think 0:16:11.120 --> 0:16:14.120 we're all confident that no one's going to cut those 0:16:14.120 --> 0:16:16.920 security payments. There's no member of Congress that is going 0:16:16.920 --> 0:16:17.840 to vote to cut those. 0:16:17.720 --> 0:16:19.120 Security payment nor should they. 0:16:19.600 --> 0:16:22.040 So not only do you take the pre existing debt 0:16:22.040 --> 0:16:23.920 that we have, the debt that we're going to continue 0:16:23.960 --> 0:16:26.080 to build by running this government, you're going to have 0:16:26.120 --> 0:16:28.840 a new source of additional debt called Social Security that 0:16:28.840 --> 0:16:30.680 you're going to have to have to fund. So you 0:16:30.720 --> 0:16:33.000 start putting all those things together, and you look at 0:16:33.000 --> 0:16:36.160 what the government's need going to need to borrow in 0:16:36.200 --> 0:16:38.960 the near future, and it's a fairly large number. And 0:16:39.000 --> 0:16:41.840 the rollovers, the quarterly rollovers, are going to start getting 0:16:41.880 --> 0:16:46.520 quite staggering. Add to that that the prior administration did 0:16:46.560 --> 0:16:49.200 not really elongate the maturities on the debt. They were 0:16:49.280 --> 0:16:52.360 using a very short dated maturity system, which I didn't 0:16:52.440 --> 0:16:55.000 understand when we had low rates. When you have low rates, 0:16:55.040 --> 0:16:57.080 you want to elongate your debt. We're going to have to 0:16:57.120 --> 0:16:59.320 deal with the problem that we never really put. 0:16:59.160 --> 0:17:01.400 Duration into the pre existing debt. So we've got to 0:17:01.480 --> 0:17:03.479 roll the duration of the pre existing. 0:17:03.120 --> 0:17:05.119 Debt out we've got to add to it the exist 0:17:05.440 --> 0:17:07.399 the new debt we're going to create, and we've got 0:17:07.440 --> 0:17:08.119 to be prepared for. 0:17:08.160 --> 0:17:08.840 So security. 0:17:08.920 --> 0:17:10.320 Do you think we can term out of debt just 0:17:10.359 --> 0:17:12.240 to unpack one piece of that? If we turned out 0:17:12.240 --> 0:17:14.440 the debt right now and you're fantastic this, We've talked 0:17:14.440 --> 0:17:16.240 about it before. Front end of the curve. At the 0:17:16.240 --> 0:17:18.760 moment it is priced around FED funds on twos, the 0:17:18.800 --> 0:17:21.480 curve is what forty fifty basis points step maybe forty 0:17:21.520 --> 0:17:24.120 something like that. The last time I check, historically that's 0:17:24.160 --> 0:17:25.880 not that much. I mean, I don't think there's any 0:17:25.880 --> 0:17:27.920 real sign that we're freaking out about the fiscal debt. 0:17:28.000 --> 0:17:30.600 So yeah, that's before you even do all of these 0:17:30.600 --> 0:17:31.680 things you've talked about. 0:17:32.119 --> 0:17:32.399 We're not. 0:17:32.560 --> 0:17:34.680 Look, I think it is a good opportunity to term 0:17:34.720 --> 0:17:36.960 out debt. We've got a, as you said, a forty 0:17:36.960 --> 0:17:40.359 point inverted yield curve. Historically, we've got to positively shape 0:17:40.400 --> 0:17:43.919 yield curve. You know, we still need to continue to 0:17:43.960 --> 0:17:46.200 elongate our maturities in the United States. 0:17:46.280 --> 0:17:47.840 You think we have the space to do that right 0:17:47.880 --> 0:17:50.040 now because I think it's about forty basis points steeper 0:17:50.080 --> 0:17:51.760 twos versus ten. Do you think we have the space 0:17:51.840 --> 0:17:52.760 to do it so steep? 0:17:52.840 --> 0:17:56.040 Yeah, Yeah, it's Steve, You're right, we do need we 0:17:56.119 --> 0:17:58.040 do need to do it at forty basis points. 0:17:58.800 --> 0:18:00.920 I still think it's it's the right place to go. 0:18:01.200 --> 0:18:03.919 Your message to the people that didn't live a steep 0:18:03.960 --> 0:18:06.320 yield curve and things that right now at the moment 0:18:06.400 --> 0:18:09.000 like this might be it. What's your message to them? 0:18:09.320 --> 0:18:12.080 My message is go back and look at history. You know, 0:18:12.160 --> 0:18:13.000 if you go back. 0:18:12.800 --> 0:18:15.760 And look at history, the one hundred year ten year 0:18:15.840 --> 0:18:18.000