1 00:00:05,800 --> 00:00:08,360 Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim 2 00:00:08,400 --> 00:00:11,440 Speaker 1: Fox along with my co host Lisa Bramowitz. Each day 3 00:00:11,480 --> 00:00:15,000 Speaker 1: we bring you the most important, noteworthy, and useful interviews 4 00:00:15,040 --> 00:00:17,520 Speaker 1: for you and your money, whether you're at the grocery 5 00:00:17,560 --> 00:00:20,560 Speaker 1: store or the trading floor. Find the Bloomberg P M 6 00:00:20,680 --> 00:00:30,920 Speaker 1: L Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. 7 00:00:30,960 --> 00:00:33,120 Speaker 1: I know that this one person has been following the 8 00:00:33,159 --> 00:00:37,360 Speaker 1: healthcare negotiations so closely that it's affecting his health. Max 9 00:00:37,440 --> 00:00:40,159 Speaker 1: Neeson is here in the Bloomberg eleven three oh studio 10 00:00:40,600 --> 00:00:45,280 Speaker 1: with us. Max Neison is a Bloomberg Gadfly columnist covering healthcare, 11 00:00:45,400 --> 00:00:49,440 Speaker 1: and he really has been following not only what we 12 00:00:49,640 --> 00:00:53,040 Speaker 1: can expect from this healthcare bill, but some of the 13 00:00:53,120 --> 00:00:58,240 Speaker 1: political machinations that went into arriving at this. So first, uh, Max, 14 00:00:58,280 --> 00:01:00,760 Speaker 1: I want to start with a line that you wrote 15 00:01:00,960 --> 00:01:05,080 Speaker 1: in in your column yesterday, where you are talking about 16 00:01:05,160 --> 00:01:09,360 Speaker 1: how the entire medical establishment opposes the bill on moral 17 00:01:09,480 --> 00:01:12,080 Speaker 1: and financial grounds. As a result, is this completely dead 18 00:01:12,120 --> 00:01:14,080 Speaker 1: on arrival? And it does? Is it even a waste 19 00:01:14,120 --> 00:01:17,000 Speaker 1: of time for us to focus on it? I think 20 00:01:17,160 --> 00:01:20,720 Speaker 1: in its current form it's definitely dead on arrival in 21 00:01:20,760 --> 00:01:24,080 Speaker 1: the Senate, and they've basically said as much. Rather than 22 00:01:24,200 --> 00:01:27,240 Speaker 1: taking up the House version of the bill, um, you know, 23 00:01:27,280 --> 00:01:29,360 Speaker 1: which would be something of an endorsement or at least 24 00:01:29,520 --> 00:01:32,000 Speaker 1: a sign that they they think it's something they can 25 00:01:32,040 --> 00:01:34,600 Speaker 1: pass or could potentially come law, they're gonna go ahead 26 00:01:34,640 --> 00:01:38,039 Speaker 1: and start from scratching and write their own version of 27 00:01:38,040 --> 00:01:41,959 Speaker 1: the legislation. And it's likely to be substantially different on 28 00:01:42,040 --> 00:01:43,800 Speaker 1: a number of points than that what we saw past 29 00:01:43,840 --> 00:01:47,560 Speaker 1: in the House. Max, can you just uh, just just 30 00:01:47,640 --> 00:01:49,800 Speaker 1: backtracked just for a second, because I want to understand 31 00:01:49,840 --> 00:01:52,640 Speaker 1: this idea that the a c A, the Affordable Care Act. 32 00:01:53,000 --> 00:01:56,600 Speaker 1: We've heard a lot of criticism about it. What would 33 00:01:56,760 --> 00:01:59,800 Speaker 1: save that or what would improve it? I'm just curious 34 00:01:59,840 --> 00:02:02,880 Speaker 1: to see if what we've got is not great, what 35 00:02:02,920 --> 00:02:06,600 Speaker 1: would we need to make it slightly better? Um. I mean, 36 00:02:06,800 --> 00:02:09,600 Speaker 1: some of it would would require a time machine. But 37 00:02:09,600 --> 00:02:12,359 Speaker 1: but as for what can be done now, a good 38 00:02:12,400 --> 00:02:16,639 Speaker 1: start would be to keep funding and for the administration 39 00:02:16,680 --> 00:02:20,400 Speaker 1: to commit to keep funding some cost sharing payments to 40 00:02:20,480 --> 00:02:24,440 Speaker 1: insures and to low income people that help both insurers 41 00:02:24,440 --> 00:02:28,520 Speaker 1: deal with unexpected losses and help lower income people actually 42 00:02:28,560 --> 00:02:31,880 Speaker 1: afford um what are now some rising premiums. These were 43 00:02:31,919 --> 00:02:33,960 Speaker 1: things that we're built into the law and help make 44 00:02:33,960 --> 00:02:36,240 Speaker 1: it sustainable, but the fact that they've been kind of 45 00:02:36,320 --> 00:02:39,160 Speaker 1: yanked around has made it very difficult for insures to 46 00:02:39,160 --> 00:02:42,200 Speaker 1: stick around, and that kind of creates a bad cycle 47 00:02:42,280 --> 00:02:45,680 Speaker 1: within individual markets like in Iowa right now. So, Max, 48 00:02:45,720 --> 00:02:48,000 Speaker 1: one thing that you said earlier, you were talking about 49 00:02:48,040 --> 00:02:51,400 Speaker 1: how the Senates not just sort of taking on the 50 00:02:51,480 --> 00:02:54,520 Speaker 1: House bill in its own form and starting a fresh 51 00:02:55,120 --> 00:02:58,520 Speaker 1: is kind of a pretty pretty big slam down, frankly 52 00:02:58,720 --> 00:03:00,480 Speaker 1: of the House plan by say, and we're not even 53 00:03:00,480 --> 00:03:03,280 Speaker 1: gonna endorse it by taking it at all? Um, what 54 00:03:03,400 --> 00:03:06,240 Speaker 1: changes do you expect the Senate to make? How will 55 00:03:06,240 --> 00:03:09,160 Speaker 1: the bill differ in the form that the Senate puts 56 00:03:09,160 --> 00:03:13,360 Speaker 1: it out versus the House? So, Um, I think the 57 00:03:13,360 --> 00:03:15,200 Speaker 1: first thing that they're gonna want to wait to see 58 00:03:15,240 --> 00:03:18,440 Speaker 1: is the Congressional Budget Office score of this bill, which 59 00:03:18,480 --> 00:03:21,040 Speaker 1: will give them a sense of where we are. The 60 00:03:21,040 --> 00:03:24,680 Speaker 1: fact that the House didn't wait for that was pretty unusual. 61 00:03:24,800 --> 00:03:27,360 Speaker 1: When does that come out, We we don't know, probably 62 00:03:27,440 --> 00:03:30,240 Speaker 1: probably and probably next week. So we we don't know 63 00:03:30,320 --> 00:03:33,480 Speaker 1: how much the House version of the bill will cost um, 64 00:03:33,600 --> 00:03:36,480 Speaker 1: how much, how many people we left uninsured, how much 65 00:03:36,520 --> 00:03:38,600 Speaker 1: it will affect Medicaid, how it will affect the overall 66 00:03:38,640 --> 00:03:41,320 Speaker 1: insurance market. Those are all still unknown. So that's the 67 00:03:41,320 --> 00:03:43,840 Speaker 1: place they're going to start with what needs to be fixed. 68 00:03:43,880 --> 00:03:46,520 Speaker 1: But in terms of the kind of specific points that 69 00:03:46,600 --> 00:03:49,640 Speaker 1: I think a new Senate bill will adjust or or 70 00:03:49,720 --> 00:03:51,640 Speaker 1: kind of differ from the House bill, and it's going 71 00:03:51,680 --> 00:03:54,640 Speaker 1: to be the degree of cuts to Medicaid and the 72 00:03:54,720 --> 00:03:58,000 Speaker 1: degree of protection for those with pre existing conditions, both 73 00:03:58,040 --> 00:04:01,200 Speaker 1: of which were cut substantially by the h c A. Well, 74 00:04:01,280 --> 00:04:04,760 Speaker 1: you know, as Lisa introduced this idea that no one 75 00:04:04,880 --> 00:04:10,160 Speaker 1: in the medical or healthcare community was consulted or participated 76 00:04:10,360 --> 00:04:13,720 Speaker 1: in the creation of what passed the House yesterday. Is 77 00:04:13,760 --> 00:04:17,880 Speaker 1: that accurate? Um, I imagined that, you know, people made calls. 78 00:04:17,920 --> 00:04:20,400 Speaker 1: But considering the speed at which this bill was put 79 00:04:20,440 --> 00:04:22,960 Speaker 1: together in a matter of weeks, as opposed to the 80 00:04:23,080 --> 00:04:27,600 Speaker 1: more than a year than the Affordable Care up with hearings, consultations, 81 00:04:27,960 --> 00:04:30,760 Speaker 1: multiple scoring, this kind of you know, got put together 82 00:04:30,839 --> 00:04:33,920 Speaker 1: quickly then modified quickly. I don't think there was all 83 00:04:33,960 --> 00:04:35,839 Speaker 1: that much input. And you can see that from the 84 00:04:35,880 --> 00:04:40,640 Speaker 1: fact that, um, you know, several organizations of doctors hospitals, Um, 85 00:04:40,680 --> 00:04:44,159 Speaker 1: you know, disease focused organizations. I'll kind of object to 86 00:04:44,160 --> 00:04:46,360 Speaker 1: this bill. Well, that's why I wanted to go next, 87 00:04:46,480 --> 00:04:48,720 Speaker 1: which is, uh, what do you think is going to 88 00:04:48,800 --> 00:04:53,320 Speaker 1: happen to hospitals if this bill were to prevail, it 89 00:04:53,400 --> 00:04:57,960 Speaker 1: would be uh, something of a blood bath, particularly for 90 00:04:58,400 --> 00:05:01,080 Speaker 1: hospitals in more rural areas and in areas that have 91 00:05:01,520 --> 00:05:04,960 Speaker 1: a lot of Medicaid beneficiaries. What would be likely to 92 00:05:05,000 --> 00:05:06,560 Speaker 1: happen is that they would have a lot of people 93 00:05:06,600 --> 00:05:09,159 Speaker 1: that would lose insurance coverage and it would be back 94 00:05:09,200 --> 00:05:11,080 Speaker 1: to kind of the bad old days of having to 95 00:05:11,560 --> 00:05:16,320 Speaker 1: provide a lot more financial assistance and uncompensated care. Well 96 00:05:16,360 --> 00:05:17,760 Speaker 1: then why then, why not? Do you know what would 97 00:05:17,760 --> 00:05:20,599 Speaker 1: take a page out of President Donald Trump's playbook, which 98 00:05:20,720 --> 00:05:24,080 Speaker 1: at one point I believe he threatened to let Obamacare 99 00:05:24,200 --> 00:05:26,640 Speaker 1: the A c A continue and fail. At least that's 100 00:05:26,680 --> 00:05:29,800 Speaker 1: what he I believe said. Well, why not let the 101 00:05:29,800 --> 00:05:32,640 Speaker 1: Democrats say, Okay, you want this bill, let it go, 102 00:05:33,000 --> 00:05:34,840 Speaker 1: and then you'll end up with these hospitals that are 103 00:05:34,839 --> 00:05:36,960 Speaker 1: closing and people that realize that the bill is not 104 00:05:37,000 --> 00:05:40,440 Speaker 1: so great. Um, you know, I think it's just a 105 00:05:40,520 --> 00:05:44,120 Speaker 1: question of what you're viewpoint of what is appropriate or 106 00:05:44,160 --> 00:05:47,480 Speaker 1: in a policy or kind of moral standpoint, you need 107 00:05:47,560 --> 00:05:50,680 Speaker 1: a lot of Democrats, you know, a lot of a 108 00:05:50,680 --> 00:05:52,960 Speaker 1: lot of democrats, you understand my point. In other words, 109 00:05:53,160 --> 00:05:55,360 Speaker 1: if this is the bill at the House Republicans want, 110 00:05:55,760 --> 00:05:58,839 Speaker 1: then give it to them. And then okay, then you say, 111 00:05:58,839 --> 00:06:01,600 Speaker 1: all right, these are the result. You know they already though, 112 00:06:01,960 --> 00:06:04,359 Speaker 1: this is a different kind of story. So you can't, 113 00:06:04,360 --> 00:06:08,039 Speaker 1: in good conscience if you think it's truly bad, can you, 114 00:06:08,080 --> 00:06:11,560 Speaker 1: in good conscience let this kind of thing go? Yeah? 115 00:06:11,680 --> 00:06:14,000 Speaker 1: And and it kind of and they already have. You know, 116 00:06:14,080 --> 00:06:16,520 Speaker 1: these House members voted for the bill, so they get 117 00:06:16,560 --> 00:06:19,080 Speaker 1: to run ads and go back to their constituents with 118 00:06:19,120 --> 00:06:22,000 Speaker 1: the fact that they voted to take away potentially your 119 00:06:22,040 --> 00:06:24,440 Speaker 1: health care um that of your family. Do you have 120 00:06:24,480 --> 00:06:26,880 Speaker 1: a pre existing condition? You know, look at look at 121 00:06:26,920 --> 00:06:30,159 Speaker 1: what just happened. So they already have that benefit. And 122 00:06:30,800 --> 00:06:32,720 Speaker 1: we'll still, I think we want to fight against this 123 00:06:32,760 --> 00:06:35,440 Speaker 1: actually becoming a law. Well, of course, this is going 124 00:06:35,520 --> 00:06:38,040 Speaker 1: to be a conversation and a topic that is going 125 00:06:38,080 --> 00:06:40,560 Speaker 1: to continue to keep on giving because, of course, as 126 00:06:40,600 --> 00:06:43,719 Speaker 1: you just said, max Um, the Senate is pledging to 127 00:06:43,839 --> 00:06:46,360 Speaker 1: write its own version of the bill. Thank you very much, 128 00:06:46,520 --> 00:06:49,279 Speaker 1: Max and Neeson Bloomberg gad Fly columns when it comes 129 00:06:49,320 --> 00:06:53,360 Speaker 1: to healthcare, pharmaceuticals, and just about everything that's important, much appreciated. 130 00:07:05,040 --> 00:07:09,440 Speaker 1: As we were talking about earlier unemployment, the unemployment rate 131 00:07:09,480 --> 00:07:12,520 Speaker 1: in the US felt the lowest levels since May two 132 00:07:12,520 --> 00:07:16,800 Speaker 1: thousand and seven, according to numbers that came out this morning. Uh. 133 00:07:16,840 --> 00:07:19,520 Speaker 1: This just shows that the job market continues to recover 134 00:07:19,640 --> 00:07:23,040 Speaker 1: after the worst financial crisis, UH, since the Great Recession. 135 00:07:23,080 --> 00:07:25,640 Speaker 1: I want to bring in John Cochrane, Senior Fellow at 136 00:07:25,720 --> 00:07:30,160 Speaker 1: the Hoover Institution at Stanford University in California. John, you're 137 00:07:30,160 --> 00:07:34,320 Speaker 1: going to be attending a monetary policy conference, the Structural 138 00:07:34,360 --> 00:07:38,560 Speaker 1: Foundations of Monetary Policy. UH, that is ongoing right now, 139 00:07:38,800 --> 00:07:41,120 Speaker 1: and I want to sort of get your take on 140 00:07:41,200 --> 00:07:46,600 Speaker 1: whether this good Jobs report validates the feds unconventional methods 141 00:07:46,600 --> 00:07:51,480 Speaker 1: of stimulating the economy after the two thousand and eight crisis. Ah. Well, 142 00:07:51,480 --> 00:07:56,000 Speaker 1: there's a good question of because they're despite um. Certainly, 143 00:07:56,280 --> 00:07:58,920 Speaker 1: I think pretty much everyone agrees that said a great 144 00:07:58,960 --> 00:08:01,320 Speaker 1: job in two thousand eight of not screwing up in 145 00:08:01,360 --> 00:08:03,280 Speaker 1: the way that they really did in the Great depression, 146 00:08:03,400 --> 00:08:05,560 Speaker 1: and ben Burneki said we learned that lesson, we won't 147 00:08:05,600 --> 00:08:07,840 Speaker 1: do it again, and they did. Now is is the 148 00:08:07,880 --> 00:08:12,560 Speaker 1: resulting period of quiet due to it's it's big actions 149 00:08:13,040 --> 00:08:16,240 Speaker 1: or or do we just naturally recover from the recession? 150 00:08:16,600 --> 00:08:18,920 Speaker 1: That's the open question. That's why we have conferences to 151 00:08:18,960 --> 00:08:22,720 Speaker 1: debate things like this. Well, all right, so which side 152 00:08:22,720 --> 00:08:24,080 Speaker 1: are you going to come down on and what do 153 00:08:24,120 --> 00:08:29,560 Speaker 1: you expect your your opponent or the contrary opinion to be. Oh, 154 00:08:29,600 --> 00:08:31,960 Speaker 1: we don't, we don't have opponents, We have polite discussion. 155 00:08:33,600 --> 00:08:36,520 Speaker 1: My own view is that the Kiwi operation didn't do 156 00:08:36,559 --> 00:08:40,160 Speaker 1: a whole lot um. It perhaps signaled to markets that 157 00:08:40,200 --> 00:08:41,679 Speaker 1: the interest rates are gonna be low for a long 158 00:08:41,720 --> 00:08:44,920 Speaker 1: time and that was useful. But then contrarywise, that means 159 00:08:44,960 --> 00:08:47,040 Speaker 1: that QUI isn't doing a whole lot of harm and 160 00:08:47,080 --> 00:08:48,720 Speaker 1: that you don't need to be in a big rush 161 00:08:48,760 --> 00:08:51,280 Speaker 1: to wind down the balance sheet. That's one of the 162 00:08:51,280 --> 00:08:54,720 Speaker 1: big items on discussion at our conference is the big 163 00:08:55,000 --> 00:08:58,240 Speaker 1: balance sheet, lots of reserves. Is it causing too much stimulus? 164 00:08:58,320 --> 00:08:59,920 Speaker 1: Is it a problem to the said need to unwin 165 00:09:00,040 --> 00:09:02,160 Speaker 1: ended quickly or is it just kind of sitting out 166 00:09:02,200 --> 00:09:04,839 Speaker 1: there and not causing any particular problems and kind of 167 00:09:04,920 --> 00:09:08,480 Speaker 1: nice to keep the economy very liquid. John, in your conversations, 168 00:09:08,480 --> 00:09:14,240 Speaker 1: how important is wage growth? Well, wage growth is what 169 00:09:14,280 --> 00:09:17,120 Speaker 1: we're here for. Um, all right. Then you're here for 170 00:09:17,200 --> 00:09:19,360 Speaker 1: our raises, all right, So so tell us about why 171 00:09:19,400 --> 00:09:22,600 Speaker 1: we're not seeing more of them. We're here for real 172 00:09:22,960 --> 00:09:26,160 Speaker 1: wage growth. Um, we we want Uh, you know, just 173 00:09:26,240 --> 00:09:30,280 Speaker 1: inflationary wage growth doesn't do anybody any good. But higher productivity, 174 00:09:30,360 --> 00:09:34,000 Speaker 1: higher real wages, greater prosperity, and a job market that 175 00:09:34,120 --> 00:09:37,360 Speaker 1: isn't just unemployment. Unemployment is people are looking for jobs, 176 00:09:37,440 --> 00:09:39,679 Speaker 1: but there's still a big problem of people out there 177 00:09:39,679 --> 00:09:43,439 Speaker 1: who aren't even looking anymore. The labor force participation rate 178 00:09:43,600 --> 00:09:46,920 Speaker 1: is still low, the economy is growing much slower than 179 00:09:46,960 --> 00:09:49,160 Speaker 1: it should be by at least my view, and and 180 00:09:49,280 --> 00:09:52,720 Speaker 1: uh uh just about everyone else. The question is whether 181 00:09:52,760 --> 00:09:54,679 Speaker 1: that has to do with money or not. In the 182 00:09:54,679 --> 00:09:58,240 Speaker 1: long run, money can money can boost you a little 183 00:09:58,240 --> 00:10:00,240 Speaker 1: bit for an afternoon, but there's no substitute it for 184 00:10:00,240 --> 00:10:02,280 Speaker 1: a diet and exercise if you want long run growth. 185 00:10:02,400 --> 00:10:05,040 Speaker 1: So is diet an exercise in this case some kind 186 00:10:05,040 --> 00:10:07,760 Speaker 1: of fiscal stimulus or is it something else? And you 187 00:10:07,800 --> 00:10:11,240 Speaker 1: talk about you know, we're here for you know, wage growth. 188 00:10:11,240 --> 00:10:14,040 Speaker 1: That's that's the reason we're here. By that view, this 189 00:10:14,120 --> 00:10:18,640 Speaker 1: Job's report wasn't that great. Um, well, we're here for 190 00:10:18,760 --> 00:10:21,679 Speaker 1: a solid, long run real wage growth which in the end, 191 00:10:22,200 --> 00:10:25,000 Speaker 1: uh and and more people working at those higher wages. 192 00:10:25,480 --> 00:10:28,480 Speaker 1: In the end, that has to come from productivity growth. Um. 193 00:10:28,600 --> 00:10:32,080 Speaker 1: You can fiscal stimulus, monetary stimulus, these things can help 194 00:10:32,120 --> 00:10:34,520 Speaker 1: to get you out of a recession. But the foundations 195 00:10:34,520 --> 00:10:38,120 Speaker 1: of long run growth they have to come from greater productivity, 196 00:10:38,160 --> 00:10:42,160 Speaker 1: which in the end is tax reform, regulatory reform, more innovation, 197 00:10:42,320 --> 00:10:45,880 Speaker 1: more businesses, more competition, all that great stuff that the 198 00:10:46,120 --> 00:10:48,960 Speaker 1: Fed um, bless their hearts. Um, that's not their job. 199 00:10:49,800 --> 00:10:53,200 Speaker 1: I'm gonna give you a softball, John, Why are so 200 00:10:53,240 --> 00:10:57,360 Speaker 1: many people either not working, not studying for work, or 201 00:10:57,480 --> 00:11:01,520 Speaker 1: even bothering to look for work? Maybe you can reference 202 00:11:01,600 --> 00:11:07,120 Speaker 1: Nicholas ever stats column and commentary. Uh sorry, I didn't 203 00:11:07,160 --> 00:11:08,640 Speaker 1: happen to read that one of this has to do 204 00:11:08,679 --> 00:11:10,760 Speaker 1: with that he describes it. Well, you're on your blog 205 00:11:10,840 --> 00:11:13,440 Speaker 1: you say that one of the answers to why people 206 00:11:13,440 --> 00:11:15,360 Speaker 1: are not looking for work, not studying for work is 207 00:11:15,400 --> 00:11:20,280 Speaker 1: the opioid epidemic. And that according to Alan Krueger, about 208 00:11:21,080 --> 00:11:28,439 Speaker 1: seven million working age men are taking opioids pain killers. Yeah. 209 00:11:29,080 --> 00:11:32,000 Speaker 1: Is Unfortunately, it's not a softball. It's not something that 210 00:11:32,400 --> 00:11:35,360 Speaker 1: there's one big stimulus that will solve the problem. There's 211 00:11:35,360 --> 00:11:38,520 Speaker 1: a lot of Middle America that is right taking open 212 00:11:38,640 --> 00:11:42,199 Speaker 1: pain killers. Um, stuck in some ways in communities that 213 00:11:42,240 --> 00:11:45,160 Speaker 1: aren't working. They might have bought a house that now 214 00:11:45,280 --> 00:11:47,600 Speaker 1: is underwater. They can't move to where the better jobs are. 215 00:11:47,640 --> 00:11:50,880 Speaker 1: They might be stuck in some government programs, which though 216 00:11:50,920 --> 00:11:54,000 Speaker 1: those help them when they're in trouble, now uh, they 217 00:11:54,040 --> 00:11:55,880 Speaker 1: if they get a job, they lose all the benefits, 218 00:11:55,960 --> 00:11:58,400 Speaker 1: so um, they don't want to. That makes it much 219 00:11:58,440 --> 00:12:00,920 Speaker 1: harder for them to move, get some training, get a job, 220 00:12:00,960 --> 00:12:03,880 Speaker 1: move out. America is not as dynamic as it used 221 00:12:03,880 --> 00:12:05,720 Speaker 1: to be. It used to be when things are in trouble, 222 00:12:05,800 --> 00:12:07,559 Speaker 1: you get up, you move, you do something else. And 223 00:12:07,720 --> 00:12:10,040 Speaker 1: that's just much harder these days for a lot of 224 00:12:10,080 --> 00:12:12,280 Speaker 1: structural reasons, some of them having to do with government 225 00:12:12,280 --> 00:12:14,240 Speaker 1: programs and some of them having to do with lots 226 00:12:14,240 --> 00:12:17,280 Speaker 1: of big messages. Yeah, well, not monetary policy, but but 227 00:12:17,320 --> 00:12:19,120 Speaker 1: so John, a lot of the issues that you're talking 228 00:12:19,120 --> 00:12:22,400 Speaker 1: about that really are the next frontier for any recovery 229 00:12:22,480 --> 00:12:25,440 Speaker 1: in the US are not things, as you said, bless 230 00:12:25,440 --> 00:12:27,960 Speaker 1: the FEDS hards, not things that they can solve. So 231 00:12:28,280 --> 00:12:31,280 Speaker 1: at a conference like the one that you're currently at, 232 00:12:31,400 --> 00:12:34,200 Speaker 1: which you're talking about the structural foundations of monetary policy, 233 00:12:34,240 --> 00:12:38,000 Speaker 1: I mean people basically just saying at this point, there's 234 00:12:38,040 --> 00:12:43,600 Speaker 1: nothing left for them to do well. I think that's important. Um, 235 00:12:43,679 --> 00:12:46,520 Speaker 1: you know, the FED would like to help, and there's 236 00:12:46,520 --> 00:12:49,880 Speaker 1: a big temptation for an institution uh this large, to 237 00:12:50,040 --> 00:12:53,040 Speaker 1: take on jobs that it's ill suited for, So repeating 238 00:12:53,040 --> 00:12:55,440 Speaker 1: that message is important. I think a lot of what 239 00:12:55,559 --> 00:12:58,559 Speaker 1: the discussion for monetary policy is is, Look, it's it's 240 00:12:58,640 --> 00:13:03,360 Speaker 1: late summer, and late summer, winter comes. There will be 241 00:13:03,400 --> 00:13:07,079 Speaker 1: another recession sometime soon or sometime later, who knows when 242 00:13:07,120 --> 00:13:09,319 Speaker 1: it will come. There will be another crisis, something will 243 00:13:09,360 --> 00:13:11,960 Speaker 1: blow up, And I think a lot of what's what 244 00:13:12,160 --> 00:13:15,480 Speaker 1: the important thinking is is for the Fed's job, which 245 00:13:15,559 --> 00:13:19,559 Speaker 1: is demand not supply, which is stimulus, which is fighting recessions, 246 00:13:19,559 --> 00:13:22,840 Speaker 1: fighting crises. Uh, get get your powder dry, get ready 247 00:13:22,840 --> 00:13:24,800 Speaker 1: to think about how were you gonna where the next 248 00:13:24,800 --> 00:13:26,319 Speaker 1: one is coming from, and how you're going to solve 249 00:13:26,360 --> 00:13:29,120 Speaker 1: that one. Speak if you can about corporate tax cuts 250 00:13:29,120 --> 00:13:31,600 Speaker 1: that have been proposed by the administration and whether that 251 00:13:31,640 --> 00:13:38,319 Speaker 1: will lead to an increase in wages for workers. Oh um, well, 252 00:13:38,360 --> 00:13:41,720 Speaker 1: we'll see what comes out of there. Um, it should 253 00:13:42,040 --> 00:13:46,160 Speaker 1: in the end, or better prices for consumers. We got 254 00:13:46,160 --> 00:13:49,400 Speaker 1: to remember, every cent of corporate taxes does not paid 255 00:13:49,440 --> 00:13:52,480 Speaker 1: by corporations. It's paid from higher prices to the you 256 00:13:52,559 --> 00:13:56,720 Speaker 1: and I pay, or lower wages from workers. Um, some 257 00:13:56,960 --> 00:13:59,120 Speaker 1: argument for lower profits, but in the end, profits go 258 00:13:59,200 --> 00:14:01,800 Speaker 1: overseas if they don't got what they want. So all 259 00:14:01,840 --> 00:14:05,440 Speaker 1: that money will eventually mean are either wages for workers 260 00:14:05,840 --> 00:14:08,640 Speaker 1: or or lower prices for consumers. That's that's great stuff. 261 00:14:09,360 --> 00:14:11,959 Speaker 1: I would hope they would also attack the complexity of 262 00:14:12,000 --> 00:14:14,520 Speaker 1: the tax code and a lot of tax accountants and 263 00:14:14,600 --> 00:14:16,800 Speaker 1: lawyers and lobbyists can go drive for uber and do 264 00:14:16,880 --> 00:14:21,400 Speaker 1: something productive. How confident are you that the current administration 265 00:14:21,480 --> 00:14:23,200 Speaker 1: can come up with a plan that will end up 266 00:14:23,720 --> 00:14:27,240 Speaker 1: helping productivity to increase. Oh gosh, that don't ask me 267 00:14:27,240 --> 00:14:32,760 Speaker 1: political questions. I'm economist, all right, Fine, I know it's 268 00:14:32,840 --> 00:14:35,200 Speaker 1: much more fun and I have my opinions like anyone else. 269 00:14:35,200 --> 00:14:37,400 Speaker 1: But let's let's stick the things I know something about. 270 00:14:37,720 --> 00:14:39,280 Speaker 1: All right, I want to thank you very much for 271 00:14:39,360 --> 00:14:43,040 Speaker 1: joining us. He's are you still the Grumpy Economist? Uh? 272 00:14:43,440 --> 00:14:45,800 Speaker 1: That's my official title. As you may have noticed, that 273 00:14:45,880 --> 00:14:50,160 Speaker 1: is not my personality. Yea, exactly, well unless we ask 274 00:14:50,440 --> 00:14:52,480 Speaker 1: about politics, in which case, there there you show your 275 00:14:52,480 --> 00:14:57,000 Speaker 1: your grumpy colors, no humility. All right, I encourage everyone 276 00:14:57,040 --> 00:14:59,760 Speaker 1: to check out your blog, The Grumpy Economist. Thanks very much. 277 00:15:00,080 --> 00:15:03,720 Speaker 1: John Cochrane is a senior fellow at the Hoover Institution, 278 00:15:03,840 --> 00:15:17,640 Speaker 1: giving us his take on jobs and the economy. We 279 00:15:17,680 --> 00:15:19,400 Speaker 1: want to take a moment to let you know about 280 00:15:19,440 --> 00:15:22,280 Speaker 1: something new from Bloomberg. Starting right now, you can use 281 00:15:22,280 --> 00:15:25,000 Speaker 1: our i O s app or our new Google Chrome 282 00:15:25,080 --> 00:15:28,680 Speaker 1: extension to scan any news story on any website, instantly 283 00:15:28,680 --> 00:15:31,520 Speaker 1: revealing relevant news and market data from Bloomberg and other 284 00:15:31,560 --> 00:15:34,160 Speaker 1: sources related to the companies and people you're reading about. 285 00:15:34,440 --> 00:15:36,360 Speaker 1: So no matter where you're reading the news, you can 286 00:15:36,400 --> 00:15:39,000 Speaker 1: bring the power of Bloomberg's news and data with you. 287 00:15:39,160 --> 00:15:42,200 Speaker 1: It's pretty amazing. Download our io s app or search 288 00:15:42,280 --> 00:15:44,480 Speaker 1: for the Bloomberg extension on the Chrome Store to try 289 00:15:44,480 --> 00:15:47,560 Speaker 1: it out. Learn more at Bloomberg dot com. Slash lens 290 00:15:56,800 --> 00:15:58,640 Speaker 1: I am so excited to bring in the next guest 291 00:15:58,680 --> 00:16:01,680 Speaker 1: because he now works at Boberg Intelligence. I were Jersey 292 00:16:02,200 --> 00:16:06,480 Speaker 1: interest rate strategist and long time contact of mine. I'm 293 00:16:06,520 --> 00:16:09,760 Speaker 1: so excited to have you. Uh he uh is coming 294 00:16:09,800 --> 00:16:13,280 Speaker 1: to us on the phone from Princeton. You know. I 295 00:16:13,320 --> 00:16:16,080 Speaker 1: want to touch base with you on a somewhat contrarian 296 00:16:16,200 --> 00:16:20,280 Speaker 1: take that you unfailed today. Uh in some Bloomberg Intelligence 297 00:16:20,280 --> 00:16:23,440 Speaker 1: where you were saying, look, everyone's expecting the Fed to 298 00:16:23,800 --> 00:16:26,880 Speaker 1: start unwinding the balance sheet, but it might not have 299 00:16:27,000 --> 00:16:30,360 Speaker 1: the effect on yields that people think. Can you explain that? Yeah? 300 00:16:30,440 --> 00:16:33,720 Speaker 1: So so I think the conventionalism would tell you that 301 00:16:33,800 --> 00:16:36,920 Speaker 1: when there's more supply of treasuries that um and and 302 00:16:37,000 --> 00:16:40,200 Speaker 1: effectively with the Fed Reserve running off its balance sheet, Uh, 303 00:16:40,200 --> 00:16:43,480 Speaker 1: that's what you're going to get UM is additional supply 304 00:16:43,520 --> 00:16:46,200 Speaker 1: of treasuries. Normally, when that happens, people would say, oh, well, 305 00:16:46,240 --> 00:16:48,480 Speaker 1: that means that treasury yields have to go higher, the 306 00:16:48,520 --> 00:16:50,920 Speaker 1: price of bonds has to move lower, just because there's 307 00:16:51,120 --> 00:16:54,000 Speaker 1: there's more supply into the market. But it's not obvious 308 00:16:54,000 --> 00:16:56,240 Speaker 1: to me that that's what will happen, because it really 309 00:16:56,280 --> 00:16:58,400 Speaker 1: all depends not on what the Fed does, but what 310 00:16:58,440 --> 00:17:02,160 Speaker 1: the Treasury Department does. So how do they actually put 311 00:17:02,200 --> 00:17:04,439 Speaker 1: those extra bonds back in the market, because they'll have 312 00:17:04,480 --> 00:17:07,200 Speaker 1: to issue more bonds as these old bonds at the 313 00:17:07,240 --> 00:17:11,000 Speaker 1: Federal Reserve holds matures and um. And the Federal Reserve 314 00:17:11,080 --> 00:17:12,919 Speaker 1: has quite a lot of room in the front end 315 00:17:12,960 --> 00:17:15,560 Speaker 1: in order to increase issues, so they can issue very 316 00:17:15,600 --> 00:17:17,680 Speaker 1: short term tea bills. They can issue two year notes 317 00:17:17,720 --> 00:17:20,439 Speaker 1: and three year notes and and those things don't have 318 00:17:20,480 --> 00:17:23,000 Speaker 1: a lot of interest rate risks. So therefore the yields 319 00:17:23,040 --> 00:17:25,560 Speaker 1: don't have to necessarily move higher just because the Fed 320 00:17:25,640 --> 00:17:27,679 Speaker 1: lets its balance sheets start to run off. Well, I 321 00:17:27,720 --> 00:17:29,520 Speaker 1: just want to get you to continue that thought ire 322 00:17:29,600 --> 00:17:31,800 Speaker 1: about running off the balance sheet, because you also write 323 00:17:31,800 --> 00:17:34,240 Speaker 1: that the Federal Reserve could run off its treasury holdings 324 00:17:34,280 --> 00:17:37,520 Speaker 1: pretty quickly. In what do you mean by that? Well, well, 325 00:17:37,520 --> 00:17:39,840 Speaker 1: that's something interesting. So when the Federal Reserve was doing 326 00:17:39,880 --> 00:17:42,760 Speaker 1: all of its buying five five to ten years ago, 327 00:17:43,040 --> 00:17:44,760 Speaker 1: um or you know, now it's hard to believe that 328 00:17:44,800 --> 00:17:47,080 Speaker 1: it's been almost ten years since they started a quantitative easing, 329 00:17:47,119 --> 00:17:51,280 Speaker 1: but you know, we're all getting older. Um. The fact 330 00:17:51,320 --> 00:17:54,120 Speaker 1: is that two thousand eighteen is actually the most bonds 331 00:17:54,240 --> 00:17:57,639 Speaker 1: that mature on their balance sheet next year, UM and 332 00:17:57,680 --> 00:18:02,680 Speaker 1: that starts to tape slow down in UM. So the 333 00:18:02,840 --> 00:18:06,960 Speaker 1: four hundred about four dred billion dollars runs off its portfolio. 334 00:18:07,240 --> 00:18:10,800 Speaker 1: And if you recall, the Federal Reserve was was buying 335 00:18:10,800 --> 00:18:14,400 Speaker 1: bonds on the order of fifteen billion dollars a month. 336 00:18:14,680 --> 00:18:17,960 Speaker 1: So actually next year you could have more bonds run 337 00:18:17,960 --> 00:18:20,080 Speaker 1: off its balance sheet than when they actually started to 338 00:18:20,119 --> 00:18:23,879 Speaker 1: buy the bonds in their large scale asset purchases. So 339 00:18:23,960 --> 00:18:26,600 Speaker 1: this would be the large scale asset run off I guess, 340 00:18:26,640 --> 00:18:29,040 Speaker 1: and that would have well and just sort of walk 341 00:18:29,119 --> 00:18:30,680 Speaker 1: us through with the effect of that is if they're 342 00:18:30,720 --> 00:18:35,159 Speaker 1: not going to reinvest those proceeds, I mean, I'm just thinking, 343 00:18:35,480 --> 00:18:37,919 Speaker 1: um allowed, I mean, as you said, it depends on 344 00:18:37,920 --> 00:18:41,119 Speaker 1: whether the Treasury is going to replenish them. Although the 345 00:18:41,160 --> 00:18:43,879 Speaker 1: baseline scenario that everyone seems to have is that the 346 00:18:44,200 --> 00:18:47,040 Speaker 1: Treasury is going to be forced to increase longer term 347 00:18:47,080 --> 00:18:51,200 Speaker 1: issuance in short order. Well, they're going to definitely need 348 00:18:51,280 --> 00:18:55,119 Speaker 1: to increase um longer term issuance over time, primarily because 349 00:18:55,119 --> 00:18:58,720 Speaker 1: the deficits are going to be moving higher. UM. So, 350 00:18:59,040 --> 00:19:02,440 Speaker 1: imagine in a world today where the Federal Reserve hadn't 351 00:19:02,480 --> 00:19:05,480 Speaker 1: done quantitative using now grant that the economic environment might 352 00:19:05,520 --> 00:19:08,880 Speaker 1: be significantly different. But if if the Federal Reserve didn't 353 00:19:08,880 --> 00:19:11,480 Speaker 1: own these and other investors would where would yields be? 354 00:19:12,040 --> 00:19:15,199 Speaker 1: Um if they didn't believe it or not, you know, 355 00:19:15,240 --> 00:19:18,119 Speaker 1: my opinion is that it probably wouldn't be significantly higher 356 00:19:18,119 --> 00:19:21,199 Speaker 1: than than where yields are right now. Um So, So 357 00:19:21,320 --> 00:19:23,240 Speaker 1: the thing is the fact that the Fed owns these 358 00:19:23,240 --> 00:19:26,240 Speaker 1: instead of other people certainly has an impact. But um 359 00:19:26,320 --> 00:19:29,119 Speaker 1: but what they own are very short term securities right now. 360 00:19:29,200 --> 00:19:32,080 Speaker 1: Right these are all maturities that mature within the next 361 00:19:32,240 --> 00:19:35,800 Speaker 1: eighteen eighteen months to two years, right so five almost 362 00:19:35,800 --> 00:19:38,160 Speaker 1: five billion of them mature in the next couple of years. 363 00:19:38,640 --> 00:19:41,800 Speaker 1: If the Federals, if if the Treasury Department then decides 364 00:19:41,840 --> 00:19:44,200 Speaker 1: to issue these in in T bills and in two 365 00:19:44,280 --> 00:19:46,639 Speaker 1: year notes, it's not going to change the amount of 366 00:19:46,640 --> 00:19:48,880 Speaker 1: interest rate risk that's in the world today. It will 367 00:19:48,920 --> 00:19:50,840 Speaker 1: be the exact same amount of interest rate risk that's 368 00:19:50,840 --> 00:19:52,760 Speaker 1: in the world today now. If they do go out, 369 00:19:52,800 --> 00:19:54,800 Speaker 1: and the Treasury Department has been talking about this and 370 00:19:54,840 --> 00:19:59,360 Speaker 1: in fact, and Wednesday's um refunding statement they mentioned this um, 371 00:19:59,640 --> 00:20:01,680 Speaker 1: and and they seem keen on wanting to do this. 372 00:20:02,200 --> 00:20:05,600 Speaker 1: They might issue a fifty year bond and potentially increase 373 00:20:05,640 --> 00:20:08,880 Speaker 1: other maturities, but not necessarily because of the said more 374 00:20:09,000 --> 00:20:11,040 Speaker 1: because of the fact that you have a lot of 375 00:20:11,080 --> 00:20:13,879 Speaker 1: baby boomers retiring and deficits are going to be higher 376 00:20:14,119 --> 00:20:17,240 Speaker 1: over the next several years. Just um on any kind 377 00:20:17,280 --> 00:20:20,520 Speaker 1: of base case scenario for for for the federal deficit. 378 00:20:20,720 --> 00:20:23,520 Speaker 1: I'm glad you mentioned the deficit. How come that is 379 00:20:23,560 --> 00:20:28,199 Speaker 1: not a dominant theme when it comes to appropriations in 380 00:20:28,400 --> 00:20:31,920 Speaker 1: Washington or even thoughts about interest rates. Yeah, well, that's 381 00:20:31,920 --> 00:20:34,720 Speaker 1: a good question. I think, you know, folks in Washington 382 00:20:34,800 --> 00:20:36,520 Speaker 1: now maybe you're trying to think of, you know, house 383 00:20:36,560 --> 00:20:38,680 Speaker 1: ways to stimulate the economy. I mean, the economy is 384 00:20:39,000 --> 00:20:41,159 Speaker 1: not growing at a at a terrible pace, is just 385 00:20:41,200 --> 00:20:43,199 Speaker 1: not growing at this fast space that we got used 386 00:20:43,240 --> 00:20:46,000 Speaker 1: to in the eighties and nineties. So I think at 387 00:20:46,000 --> 00:20:50,040 Speaker 1: this point, um, you know, they want some stimulative activities, 388 00:20:50,040 --> 00:20:51,640 Speaker 1: and in order to do that, you kind of need 389 00:20:51,640 --> 00:20:56,560 Speaker 1: to run some deficits. It just from a pure deficit standpoint, 390 00:20:56,680 --> 00:20:59,280 Speaker 1: it's probably not the greatest time to be thinking about 391 00:20:59,320 --> 00:21:02,399 Speaker 1: stimulative ativities when you're going to get UM. You know, 392 00:21:02,880 --> 00:21:05,679 Speaker 1: like I mentioned, you're gonna have much higher UM costs 393 00:21:05,760 --> 00:21:09,399 Speaker 1: for things like Social Security and medicare just because of UM, 394 00:21:09,440 --> 00:21:13,080 Speaker 1: because of demographics, and that's going to swell the deficits anyway. Now, 395 00:21:13,200 --> 00:21:16,639 Speaker 1: now these low interest rates, the Treasury Department can issue 396 00:21:16,920 --> 00:21:18,600 Speaker 1: a lot of bonds. There's still a lot of demand 397 00:21:18,680 --> 00:21:20,719 Speaker 1: for treasuries because there's a lot of risks going on 398 00:21:20,760 --> 00:21:23,200 Speaker 1: around the world. Um, but there probably is some tipping 399 00:21:23,280 --> 00:21:25,760 Speaker 1: points somewhere. I don't think it's going to be in 400 00:21:25,800 --> 00:21:28,360 Speaker 1: the next couple of years, but um, but there probably 401 00:21:28,400 --> 00:21:31,000 Speaker 1: is a tipping point where you know, those bond vigilantees 402 00:21:31,000 --> 00:21:33,120 Speaker 1: that have been you know, hanging out in caves somewhere 403 00:21:33,320 --> 00:21:36,520 Speaker 1: are going to start coming out and selling bonds and droves. Yeah, 404 00:21:36,520 --> 00:21:40,000 Speaker 1: those caves they really have. I think they've all retired 405 00:21:40,040 --> 00:21:43,080 Speaker 1: at this point. They're pretty hot real estate, you know. 406 00:21:43,200 --> 00:21:46,280 Speaker 1: I'm I'm wondering. I've seen this one idea floated. Why 407 00:21:46,400 --> 00:21:49,640 Speaker 1: is the Treasury considering selling fifty year or one year 408 00:21:49,880 --> 00:21:52,040 Speaker 1: treasuries when they could just sell a whole bunch more 409 00:21:52,040 --> 00:21:54,920 Speaker 1: of thirty years. Well, Well they can, and I think 410 00:21:54,920 --> 00:21:57,159 Speaker 1: that's that's the argument because one of the things and 411 00:21:57,320 --> 00:21:59,040 Speaker 1: I put out a note on this on Wednesday that 412 00:21:59,080 --> 00:22:03,280 Speaker 1: you can find on the Bloomer terminal is the um 413 00:22:03,800 --> 00:22:05,320 Speaker 1: is the fact that there's not a lot more risk 414 00:22:05,359 --> 00:22:07,080 Speaker 1: in the thirty year than there is in the fifty year. 415 00:22:07,119 --> 00:22:09,240 Speaker 1: I think that the idea of the fifty year would 416 00:22:09,240 --> 00:22:12,399 Speaker 1: be to to basically um to issue bonds that are 417 00:22:12,480 --> 00:22:16,440 Speaker 1: longer than most retirees will will live, quite frankly, and 418 00:22:16,480 --> 00:22:19,600 Speaker 1: basically get over the social security humps that's really coming 419 00:22:19,640 --> 00:22:22,399 Speaker 1: over the next over the next several years. But in 420 00:22:22,480 --> 00:22:24,840 Speaker 1: terms of interest rate exposure and in terms of pricing 421 00:22:24,840 --> 00:22:28,200 Speaker 1: of these of these bonds, it creates a different point 422 00:22:28,200 --> 00:22:30,320 Speaker 1: on the curve. But but you're absolutely right least it 423 00:22:30,320 --> 00:22:32,320 Speaker 1: doesn't have a lot more risk. And in fact, the 424 00:22:32,359 --> 00:22:35,600 Speaker 1: amount of interest rate risk from ten years to thirty 425 00:22:35,680 --> 00:22:39,119 Speaker 1: years more than doubles. But from thirty to fifty years, 426 00:22:39,160 --> 00:22:41,480 Speaker 1: and this is again a little counterintuitive and very this 427 00:22:41,560 --> 00:22:43,880 Speaker 1: has to do with bond math, but the risk only 428 00:22:43,920 --> 00:22:47,480 Speaker 1: goes up by about twenty instead of like I said, 429 00:22:47,800 --> 00:22:50,800 Speaker 1: for the prior twenty years, So so you're not adding 430 00:22:50,840 --> 00:22:53,439 Speaker 1: a lot of risk. So that's one reason why the 431 00:22:53,480 --> 00:22:57,400 Speaker 1: Treasury Borrowing Advisory Committee these are dealers and investors and 432 00:22:57,720 --> 00:23:00,840 Speaker 1: both by side sell side hedge funds um. This is 433 00:23:00,880 --> 00:23:02,760 Speaker 1: one of the reasons why they're skeptical if there will 434 00:23:02,800 --> 00:23:06,359 Speaker 1: be consistent demands for the fifty year bond um. But 435 00:23:06,480 --> 00:23:08,760 Speaker 1: at the same time, it seems like the Trosury Department 436 00:23:08,800 --> 00:23:11,160 Speaker 1: seems pretty keen on on, you know, testing it out 437 00:23:11,200 --> 00:23:13,480 Speaker 1: and trying to issue some of these. Thank you very much. 438 00:23:13,560 --> 00:23:17,320 Speaker 1: I read Jersey is interest rate strategist for Bloomberg talking 439 00:23:17,320 --> 00:23:32,280 Speaker 1: about the outlook of course for interest rates. Thanks very much. Well, 440 00:23:32,400 --> 00:23:34,359 Speaker 1: let's find out what the feeling is in Puerto Rico. 441 00:23:34,480 --> 00:23:36,720 Speaker 1: Right now. We have Joe my Sack. He is our 442 00:23:36,880 --> 00:23:41,080 Speaker 1: expert our editor for Bloomberg breefs Municipal Market. Joe, maybe 443 00:23:41,119 --> 00:23:43,760 Speaker 1: just give us an update what has happened so far 444 00:23:43,880 --> 00:23:49,000 Speaker 1: this week in Puerto Rico. Title three him. Title three 445 00:23:49,440 --> 00:23:52,359 Speaker 1: sort of a version of bankruptcy that was set up 446 00:23:52,720 --> 00:23:57,040 Speaker 1: just for the Commonwealth and now the creditors are going 447 00:23:57,080 --> 00:23:58,919 Speaker 1: to have to slug it out. Right now, this is 448 00:23:59,119 --> 00:24:04,359 Speaker 1: UH using Title three to restructure geos, but they are 449 00:24:04,359 --> 00:24:07,840 Speaker 1: all general obligations general obligation bonds and they're also going 450 00:24:07,920 --> 00:24:12,800 Speaker 1: to file a Title three to restructure the Cofina bonds, 451 00:24:13,400 --> 00:24:16,160 Speaker 1: which are the sales tax backed bonds. You know, there's 452 00:24:16,160 --> 00:24:18,560 Speaker 1: a there's a lot of emotion tied to this issue, 453 00:24:18,640 --> 00:24:21,000 Speaker 1: both on the side of people living in Puerto Rico, 454 00:24:21,080 --> 00:24:24,600 Speaker 1: but also some of the creditors and UH particular, I'm 455 00:24:24,640 --> 00:24:27,760 Speaker 1: looking at the bond insures who are on the hook 456 00:24:27,840 --> 00:24:31,600 Speaker 1: to compensate investors for any losses on the bonds should 457 00:24:31,920 --> 00:24:35,920 Speaker 1: Puerto Rico write down the principle, UH substantially and sure 458 00:24:36,000 --> 00:24:39,760 Speaker 1: enough assured guarantee. One of those insurs today had earnings. UH. 459 00:24:39,800 --> 00:24:42,480 Speaker 1: They actually reported better than expected earnings since their shares 460 00:24:42,520 --> 00:24:45,920 Speaker 1: are up more than five percent. But the CEO said 461 00:24:46,040 --> 00:24:49,240 Speaker 1: on a call with investors that they wanted an adult 462 00:24:49,359 --> 00:24:51,760 Speaker 1: in the room to resolve Puerto Rico debt issues, which 463 00:24:51,760 --> 00:24:55,240 Speaker 1: it didn't get with either the oversight Board or the governor. 464 00:24:55,800 --> 00:24:58,119 Speaker 1: That the fiscal plan that the oversight board came up 465 00:24:58,119 --> 00:25:00,960 Speaker 1: with is a quote insult. Title three is quote in 466 00:25:01,040 --> 00:25:03,560 Speaker 1: no one's best interest. It will only mean long and 467 00:25:03,680 --> 00:25:07,719 Speaker 1: costly litigation. So you know, Joe, given this backdrop, can 468 00:25:07,760 --> 00:25:10,240 Speaker 1: you give a sense that observe the mood of the 469 00:25:10,280 --> 00:25:12,760 Speaker 1: people who you speak with our bond investors girding for 470 00:25:12,880 --> 00:25:16,400 Speaker 1: much steeper losses than are already baked in. I think 471 00:25:16,400 --> 00:25:20,160 Speaker 1: a lot of bond investors who are who are still 472 00:25:20,200 --> 00:25:23,000 Speaker 1: creditors at this point because you know, let's face it, 473 00:25:23,160 --> 00:25:26,919 Speaker 1: in the broader community market that I really care, um, 474 00:25:26,960 --> 00:25:30,840 Speaker 1: but in the but the creditors, sure, they're very Uh, 475 00:25:31,520 --> 00:25:35,119 Speaker 1: they're sort of stunned at this point. A lot of 476 00:25:35,119 --> 00:25:40,080 Speaker 1: them are still in denial. I mean at assure. Dominic 477 00:25:40,200 --> 00:25:44,119 Speaker 1: Is uh has always been a blunt speaker, Joe. One 478 00:25:44,200 --> 00:25:47,080 Speaker 1: of the things that's coming up in June, June eleven 479 00:25:47,320 --> 00:25:50,679 Speaker 1: is a plebiscite. It's a vote, and the people in 480 00:25:50,720 --> 00:25:52,840 Speaker 1: Puerto Rica are going to be able to vote on 481 00:25:52,880 --> 00:25:55,960 Speaker 1: their political status. Not the last time back in two 482 00:25:55,960 --> 00:26:01,040 Speaker 1: thousand and twelve, they rejected continuing as a territory. And 483 00:26:01,200 --> 00:26:06,199 Speaker 1: I believe it was something like six would vote or 484 00:26:06,240 --> 00:26:09,919 Speaker 1: had voted in that plebiscite for statehood. The fact that 485 00:26:09,960 --> 00:26:12,679 Speaker 1: Puerto Rico really is controlled by the federal government. Is 486 00:26:12,720 --> 00:26:17,240 Speaker 1: it likely that this vote will change anything? Uh? Well, 487 00:26:17,280 --> 00:26:20,280 Speaker 1: certainly not with the debt. And uh, you know, if 488 00:26:20,280 --> 00:26:22,080 Speaker 1: I had to bet, I'd say they're probably gonna vote 489 00:26:22,080 --> 00:26:25,679 Speaker 1: for the status quo. Really, even though you have this 490 00:26:26,359 --> 00:26:30,000 Speaker 1: decline in the economic fortunes of the territory, because I mean, 491 00:26:30,240 --> 00:26:32,399 Speaker 1: commonwealth doesn't really mean anything in the I mean it 492 00:26:32,440 --> 00:26:34,399 Speaker 1: doesn't have any legal status, right, I mean, this is 493 00:26:34,440 --> 00:26:38,160 Speaker 1: a territory and as a result, it's really run overseen 494 00:26:38,240 --> 00:26:43,119 Speaker 1: by the Congress. I think they they you know, it 495 00:26:43,240 --> 00:26:47,720 Speaker 1: strikes the balance between independence and UH and the requirements 496 00:26:47,720 --> 00:26:51,560 Speaker 1: of statehood. So I just you know, that's my bet 497 00:26:51,760 --> 00:26:53,840 Speaker 1: that they'll just go for the status quo. You know, 498 00:26:53,840 --> 00:26:56,600 Speaker 1: there's been a lot of discussion about who's next. Does 499 00:26:56,640 --> 00:26:59,880 Speaker 1: it said a bad precedent for say, the Virgin Isla, 500 00:27:00,080 --> 00:27:03,840 Speaker 1: which is another territory of the US and has been 501 00:27:03,880 --> 00:27:06,840 Speaker 1: building dead and has been facing some of the similar 502 00:27:06,880 --> 00:27:11,280 Speaker 1: issues that have ravaged Puerto Rico. So we were talking offline, 503 00:27:11,320 --> 00:27:13,920 Speaker 1: Joe that the Virgin Islands has about two billion dollars 504 00:27:13,960 --> 00:27:16,520 Speaker 1: of debt compared to seventy four billion dollars at Puerto Rico. 505 00:27:16,600 --> 00:27:19,640 Speaker 1: So this is not exactly an apple to apples comparison. 506 00:27:19,880 --> 00:27:22,679 Speaker 1: But could the Virgin Islands end up taking a similar 507 00:27:22,760 --> 00:27:26,000 Speaker 1: route to Puerto Rico? Oh? Sure? And again because it's 508 00:27:26,520 --> 00:27:29,200 Speaker 1: you know, sort of how do you put it, an 509 00:27:29,200 --> 00:27:35,000 Speaker 1: impoverished Caribbean. Many nation, I guess or state. Uh, and 510 00:27:35,520 --> 00:27:37,920 Speaker 1: you know, the things that are in operation in Puerto 511 00:27:38,040 --> 00:27:40,760 Speaker 1: Rico are sort of an operation in the Virgin Islands, 512 00:27:40,800 --> 00:27:43,639 Speaker 1: but in a very very smaller way. Well, do you 513 00:27:43,640 --> 00:27:47,560 Speaker 1: think that there is a precedent that's set for say, bondholders, uh, 514 00:27:47,920 --> 00:27:51,920 Speaker 1: for Illinois or New Jersey or other ravage states that 515 00:27:52,000 --> 00:27:54,919 Speaker 1: might not fall into the same title three provision? Contagion 516 00:27:55,240 --> 00:27:57,280 Speaker 1: that's what you're talking. Yes, I'm talking contagion. Are we 517 00:27:57,280 --> 00:28:00,720 Speaker 1: going to see contagion? I don't see contagion just because uh, 518 00:28:00,840 --> 00:28:05,159 Speaker 1: these uh states that you mentioned really have to have 519 00:28:06,000 --> 00:28:08,639 Speaker 1: regular access to the bond market, and there's still a 520 00:28:08,720 --> 00:28:10,920 Speaker 1: lot of things they could do. On the other hand, 521 00:28:11,359 --> 00:28:15,480 Speaker 1: just doesn't excuse the fact that they have a lot 522 00:28:15,560 --> 00:28:19,040 Speaker 1: of difficulties. You know, when you say New Jersey and Illinois, 523 00:28:19,560 --> 00:28:23,760 Speaker 1: Chicago public schools, these are places with very uh you know, 524 00:28:23,760 --> 00:28:25,800 Speaker 1: they have a lot of distress there. But certainly I 525 00:28:25,840 --> 00:28:28,359 Speaker 1: don't see any contagion spreading to states. The states have 526 00:28:28,480 --> 00:28:31,439 Speaker 1: a lot of power, and they have have a lot 527 00:28:31,480 --> 00:28:34,560 Speaker 1: of taxing power in particular. Well, then, having said that, 528 00:28:34,600 --> 00:28:38,160 Speaker 1: I'm wondering, why wouldn't Puerto Rico become a state I mean, 529 00:28:38,400 --> 00:28:40,200 Speaker 1: right now, it doesn't seem to be working in its 530 00:28:40,200 --> 00:28:43,240 Speaker 1: present situation of being a territory. Why not change the 531 00:28:43,280 --> 00:28:47,840 Speaker 1: status and fix this? Um? I think right now you're 532 00:28:47,960 --> 00:28:51,160 Speaker 1: you're sort of at the end of the line, and 533 00:28:51,200 --> 00:28:55,080 Speaker 1: that right now, this is probably how it's gonna work 534 00:28:55,160 --> 00:29:00,960 Speaker 1: going forward. Attaining statehood wouldn't change anything for them right now. 535 00:29:02,000 --> 00:29:04,160 Speaker 1: Just when you were talking earlier, real quick, can you 536 00:29:04,160 --> 00:29:06,480 Speaker 1: give us a sense of who the creditors really are 537 00:29:06,560 --> 00:29:08,760 Speaker 1: at this point? I mean, have the mutual funds and 538 00:29:08,800 --> 00:29:15,360 Speaker 1: the mom and pop investors pretty much all gone away? Well? Yeah, because, uh, 539 00:29:15,560 --> 00:29:18,360 Speaker 1: you know, Puerto Rico was downgraded several years ago, so 540 00:29:18,440 --> 00:29:21,000 Speaker 1: the mom and the typical mom and pop investor that 541 00:29:21,160 --> 00:29:24,840 Speaker 1: is off island. On the island, there are still small 542 00:29:24,840 --> 00:29:28,880 Speaker 1: investors who owned Puerto Rico paper, but uh, you know, 543 00:29:29,000 --> 00:29:32,240 Speaker 1: right now you have big hedge funds, you still have 544 00:29:32,920 --> 00:29:36,800 Speaker 1: you know, some big mutual funds. Um. So it's really 545 00:29:36,840 --> 00:29:40,240 Speaker 1: it's it's an institutional thing right now. There's still some 546 00:29:40,280 --> 00:29:43,080 Speaker 1: individuals who are in Puerto Rico paper, sure, but for 547 00:29:43,120 --> 00:29:46,760 Speaker 1: the most part it is institution versus Puerto Rico. Joe Meazac, 548 00:29:46,880 --> 00:29:50,880 Speaker 1: editor for Bloomberg Brief focusing on the municipal market. Thank 549 00:29:50,920 --> 00:29:52,840 Speaker 1: you so much for joining us. Truly a pleasure to 550 00:29:52,880 --> 00:29:58,120 Speaker 1: speak with you. Thanks for listening to the Bloomberg P 551 00:29:58,240 --> 00:30:00,760 Speaker 1: and L podcast. You can subscue. I've been listen to 552 00:30:00,760 --> 00:30:05,280 Speaker 1: interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. 553 00:30:05,680 --> 00:30:09,280 Speaker 1: I'm pim Fox. I'm on Twitter at pim Fox. I'm 554 00:30:09,280 --> 00:30:12,600 Speaker 1: on Twitter at Lisa Abramo wits one Before the podcast. 555 00:30:12,640 --> 00:30:15,240 Speaker 1: You can always catch us worldwide on Bloomberg Radio.