Speaker 1: Yeah, Welcome to the Bloomberg Surveillance podcast and I'm Tom Keane.
Speaker 1: Daily we bring you insight from the best in economics, finance, investment,
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Speaker 1: Something special with us William Dudley. He is a former
Speaker 1: president of the New York Fellow Reserve. There are eight, nine,
Speaker 1: ten topics that we could speak to William Dudley about,
Speaker 1: but there is only one topic for those of economics,
Speaker 1: and you've seen it percolate. We've done it on this
Speaker 1: show as well, and that is a new governor at
Speaker 1: the Felleral Reserve System. Her name is Judy Shelton. She
Speaker 1: has an education degree from Portland State University, which is
Speaker 1: six four miles from Bill Dudley's PhD at Berkeley. This
Speaker 1: is a delicate conversation, Bill Dudley, but let me begin
Speaker 1: with a blunt question. How does this system deal with
Speaker 1: a potential governor this uniquely qualified. I don't think it
Speaker 1: creates huge amounts of problems. That there have been governors
Speaker 1: in the past that have been outside the mainstream. And
Speaker 1: Wayne Angel, as someone who comes to mind, uh and
Speaker 1: fed you know there's more than there's there's seven governors.
Speaker 1: There will be seven governors if the Waller and Shelton
Speaker 1: are confirmed, and I think you know they will. They
Speaker 1: will have a voice, but they will not actually set
Speaker 1: the path for Monterrey policy or regulatory policy. I'll be
Speaker 1: set by J. Paul and Randy Quarrels. The heart of
Speaker 1: her theory is the yearning to go back to another
Speaker 1: time of a more closed American system, a more static economy.
Speaker 1: To the many people that support Judy Shelton and that
Speaker 1: desire that feeling of another time and place, how do
Speaker 1: you respond in this time of an open America, an
Speaker 1: open economy. Well, she has advocated returning to the gold standard,
Speaker 1: and returning to the gold standard resulting tremendous increase in
Speaker 1: the volatility of interest rates because basically, my gold prices
Speaker 1: were going up, the Federal Reserve would have to rage
Speaker 1: rates when gold prices would have to lower interest rates,
Speaker 1: regardless of what was happening in the real economy, regardless
Speaker 1: of was having to inflation, regardless of what was having
Speaker 1: to The gold standard is not a good anchor for
Speaker 1: US monetary So let's talk about the real economy. How
Speaker 1: would you be reacting now to the data that started
Speaker 1: to come through in America? We saw in the high
Speaker 1: frequency day, so we've got a flavor that things were
Speaker 1: starting to store to roll over, and now we see
Speaker 1: it in jobless claims as well. They're starting to pick
Speaker 1: up again. I said a couple of months ago that
Speaker 1: it looks like the right wing of that v's starting
Speaker 1: to break. What would that mean for you? It's a
Speaker 1: policy make for the Fed again. Well, I think what's
Speaker 1: happening is the recovering economic activity is flattening out is
Speaker 1: as shut sounds are recurring, and social distancing is increasing again.
Speaker 1: And I don't think we're gonna see a fall back
Speaker 1: to where we were, uh, you know, in March, April
Speaker 1: and May. But the recovery is going to be quite subdued.
Speaker 1: The unemployment rate's gonna stay high for quite some time.
Speaker 1: And as a consequence of that, Monterrey policy is going
Speaker 1: to be on hold, and the Fed Federal Reserves be
Speaker 1: looking around for what things can they do to provide
Speaker 1: additional Monterrey pals. What things do you think they can
Speaker 1: and should do in the months to come. Well, I
Speaker 1: think Unfortunately, they don't have a lot of great weapons.
Speaker 1: I think they're going to continue their large scale as
Speaker 1: it purchases, buying treasuries and it is mortgage backed securities.
Speaker 1: They may come forward with more definitive forward guidance in
Speaker 1: terms of keeping interest rates until low, for long, until
Speaker 1: the unemployment rate falls below a particular level or inflation
Speaker 1: clowns above particular level. But the real, the real focus
Speaker 1: right now should be on fiscal policy. That's what the
Speaker 1: U S economy needs. We're basically right at the edge
Speaker 1: of a huge fiscal cliff with the expiration of the
Speaker 1: six hundred dollars a week unemployment conversation benefits at the
Speaker 1: end of this month. And if that's not, you know,
Speaker 1: replaced by something significant soon, the commun is actually gonna
Speaker 1: be weaker than participate. Bill Fedger Fedger J. Powell also
Speaker 1: agreeing with you coming out and saying fiscal policy is necessary.
Speaker 1: But the FED has control over monetary policy, and right
Speaker 1: now monetary policy is pushing investors into equities. We're looking
Speaker 1: at futures right now unchanged or a little bit higher
Speaker 1: on the day ahead of the open, even after these
Speaker 1: worsening labor statistics. How much should the equity market be
Speaker 1: a gauge of financial conditions for the Federal Reserve something
Speaker 1: to shoot for, with higher equity values being a good thing.
Speaker 1: I don't think the Fed wants the equity market to
Speaker 1: go to any particular level. They do want financial conditions
Speaker 1: to be accommodati if they want markets to work. They
Speaker 1: want markets the open and will functioning, and I think
Speaker 1: that's what they've achieved. I think there are some people
Speaker 1: on the Reserve that are a little bit concerned about
Speaker 1: how high the equity market in the last sea minutes,
Speaker 1: because saw a couple of people talking about financial stability
Speaker 1: is jees. I personally think the stock market is high
Speaker 1: mainly because bonnyals are low and bonniles are low because
Speaker 1: Montreal policy is going to be very accommodative for a
Speaker 1: number of years. Well. But to the extent that the
Speaker 1: Fed is worried about the widening gap between wealthy and
Speaker 1: poorer individuals, how concerning is it that their policies have
Speaker 1: pushed up asset prices, have created easier financial conditions, but
Speaker 1: clearly are not leading to a better labor market. Given
Speaker 1: the fact that we're seeing a reversal in the claims numbers. Well,
Speaker 1: I think they are frustrated by the fact that they
Speaker 1: don't have good tools to address the issue of income
Speaker 1: and equality. I think they wish they did have better tools.
Speaker 1: But Montrey policy is not well suited for the fiscal policies.
Speaker 1: So it's really for Congress and the administration to do
Speaker 1: things on fiscal policy that help address the fact that
Speaker 1: the burden of the of the pandemic is falling disproportionately
Speaker 1: on low and moderating communciles. Bill Dudley Wethers, and we
Speaker 1: will continue with the former president of New York FED.
Speaker 1: We welcome all of you on Bloomberg Radio and Bloomberg Television.
Speaker 1: Is John Farrell notes a flip in the market here,
Speaker 1: you just come back dollars stronger. And John, we've got
Speaker 1: to look as we as we continue with Bill Dudley, John,
Speaker 1: we've got to look at the substantial curve flattening. It's
Speaker 1: really broken down long end and buy two basis points
Speaker 1: to about on a thirty year Bill, talk to me
Speaker 1: about the QUE program and the scope for adjusting that
Speaker 1: to sit at the long end just a little bit more.
Speaker 1: The front end is already so well anchored. What can
Speaker 1: you do with the long end and what did you
Speaker 1: learn coming down to the last crisis. Well, the historically
Speaker 1: as used their large scale asset purchased to buy treasuries
Speaker 1: across the yield curve. They could decide to buy more
Speaker 1: longer matority treasury since, as you point out, the short
Speaker 1: end of the treasure market is well anchored by expectations
Speaker 1: move for next for for several years, that has indicated
Speaker 1: that they're going to shift their large scale asset purchase
Speaker 1: programs from focusing on market function, which is now good
Speaker 1: for focusing on how do you actually stimulate econmy I
Speaker 1: think that it does imply that they're gonna buy a
Speaker 1: greater proportion of longer dated treasury. But before we let
Speaker 1: you go, I need a message for fiscal policymakers down
Speaker 1: in Washington. There's a real discussion about perhaps allowing the
Speaker 1: enhanced unemployment benefits to expire, maybe to taper them aggressively.
Speaker 1: Maybe that's the best case that we can hope for
Speaker 1: at the administration and Republicans. If that happens, what you
Speaker 1: expect August and September data to look like, Bill, Well, again,
Speaker 1: I think it's going to depend more on the course
Speaker 1: of the pandemic and what social distancing that then requires.
Speaker 1: But if there is no extension of unemployment, conversation benefits,
Speaker 1: and I think you will see consequences for consumer spending.
Speaker 1: The consumer spending is held up reasonably well in part
Speaker 1: because household incomes have been well supported by fiscal policy
Speaker 1: that supports ends the consequences. What we're seeing in the
Speaker 1: liver market, You're gonna start to become more important in
Speaker 1: terms of outlets. Bill, appreciate your time this morning. Appreciate
Speaker 1: your patients to great to catch up you William don't
Speaker 1: be their former New York Fed president right now joining us,
Speaker 1: And I'm really looking forward to a good conversation with
Speaker 1: a guy who has put together a firm of continued success.
Speaker 1: It is ever cord as ever Core I s I
Speaker 1: of course with the great at Himan and he is
Speaker 1: Ralph Schlastein. He is co chairman and co CEO, looking
Speaker 1: like he just played a folk act at the Dennison
Speaker 1: College Michael Eisner Performing Center, and we are thrilled he
Speaker 1: could join us this morning. Ralph, I want to talk
Speaker 1: first about your senior chairman, Roger Altman. I think it
Speaker 1: is under appreciated how lonely you guys were when you
Speaker 1: set up ever cor. What did Altman and schlo Stein
Speaker 1: do at that time that was so different? Well, I
Speaker 1: wasn't there. Roger was there for the first fourteen years
Speaker 1: without me. I joined eleven years ago. But he literally,
Speaker 1: uh came back from his stint at the Treasury and
Speaker 1: thought that the world needed a more old time investment bank,
Speaker 1: one that focused purely on advice. Uh. And the very
Speaker 1: first presentation he made twenty five years ago, the first
Speaker 1: page had the words quality and integrity on that first page.
Speaker 1: And I've been here eleven years. The one thing I
Speaker 1: was allowed to do by Roger is I change quality
Speaker 1: to excellence. And so now it's excellence in integrity. But
Speaker 1: it's it's a great business model. We have very senior people.
Speaker 1: They actually do the work rather than just show and
Speaker 1: the board meeting. So well, that's a huge distinction, and
Speaker 1: certainly we've seen that with Ed Hyman and with the
Speaker 1: others of your your principles. Okay, let's cut to the chase.
Speaker 1: How do you readjust and recalibrate out of this pandemic
Speaker 1: given the competition of the major banks. Well, uh, what
Speaker 1: we have done over the last several years is to
Speaker 1: dramatically broaden the things that we can advise our clients on.
Speaker 1: So we have the number one activist fence practice. We're
Speaker 1: the only independent firm with an equity underwriting capability, and
Speaker 1: in the quarter we just finished, we did more underwriting
Speaker 1: revenues UH than we did all of last year, which
Speaker 1: was a record for US. We have debt advisory, we
Speaker 1: have restructuring UH advice on hedging. So what we've done
Speaker 1: is we've built deep capabilities in everything that a company
Speaker 1: would want to do. Big firm as a counterpart Ralph.
Speaker 1: One important question, and this has come up with Lisa
Speaker 1: Bramwis and John Farrell day after day. You guys have
Speaker 1: been massively benefited by the stimulus of Jerome Powell and
Speaker 1: by the leadership of Congress. How do you how do
Speaker 1: you move forward with the American public Where we see
Speaker 1: New York Wall Street and indeed global Wall Street benefiting
Speaker 1: so much from the stimulus, That's a I think a
Speaker 1: really really important issue. UH. There's clearly been a uh
Speaker 1: massive effect on the capital markets, both the equity market
Speaker 1: and the debt market. UH, and that has certainly benefited
Speaker 1: the trading activities and the shares of the large firms
Speaker 1: and of all all firms also, So we have this
Speaker 1: massive inequality. It was necessary to stabilize the economy, but
Speaker 1: it's had a much greater effect on the wealth of
Speaker 1: the wealthy than it has on the well being of
Speaker 1: those in me. Does that compromise your ambitions in any way,
Speaker 1: shape or film, Ralph, No, I think we have to
Speaker 1: continue to do what we do, but it does, UH,
Speaker 1: in my private life make me some bard of of
Speaker 1: UH people and of policies that are focused more on
Speaker 1: a more equal distribution of wealth in this country. Give
Speaker 1: us more detail on that, Ralph, Is that a shift
Speaker 1: to the left for you politically speaking ahead of this election? No,
Speaker 1: I actually, uh worked for Hubert Humphrey in the Senate
Speaker 1: and then worked for President Carter in the White House,
Speaker 1: so I've always had a I wouldn't call it a left.
Speaker 1: I'm a conservative on fiscal policy, but I do believe
Speaker 1: that we need to do more for those who are
Speaker 1: underserved in terms of income, health care, housing in this country. So, Ralph,
Speaker 1: given the fact that you're a fiscal conservative, what would
Speaker 1: you say to companies right now raising record amounts of
Speaker 1: debt in order to survive this period of time becoming
Speaker 1: more indebted ahead of a period of slowing growth. Well,
Speaker 1: I think the the most important thing for every company
Speaker 1: to look at in the period that we've just been
Speaker 1: through has been liquidity. Uh, do we have the cash
Speaker 1: to survive? Because? Uh? In O eight O nine, we
Speaker 1: learned that financial institutions fail not because of capital, but
Speaker 1: because of liquidity. And in this UH recession, deep recession,
Speaker 1: we have learned also that that phenomena is more widespread.
Speaker 1: So we spent a lot of time in the last
Speaker 1: four months encouraging companies to put more cash on their
Speaker 1: brown sheets. But here's here's the conundrum, Rouph. Because we're
Speaker 1: heading into a period of slowing growth, we have a
Speaker 1: more fragile economy, and we have more indebted companies. Why
Speaker 1: not just file for bankruptcy? Why not renegotiate the debtloads
Speaker 1: now with creditors to reduce the obligations rather than putting
Speaker 1: their entire capital models in a more precarious situation. Well,
Speaker 1: there's some of that going on as well. Uh. I
Speaker 1: think the real issue, UH, in terms of how to
Speaker 1: solve one's balance sheet issues, depends upon the outlook for
Speaker 1: the business. If if it truly is a the uh
Speaker 1: type uh downturn and then recovery. Uh. Then it's just
Speaker 1: a matter of having the cash to survive to the
Speaker 1: other side of the chasm. Other businesses obviously are going
Speaker 1: to be more seriously uh and permanently impaired, and for them,
Speaker 1: you know, bankruptcy and recapitalization is the right model. Well,
Speaker 1: if the heritage of ever Core Forward is on John
Speaker 1: Weinberg and you and of course Mr Weinberg, that name
Speaker 1: is magical and always associated with Golden Sex, I'd be
Speaker 1: honored if you'd comment Ralph on the retail experiment at
Speaker 1: Golden Sex. Can institutions be all things to all people? Uh?
Speaker 1: If do you really want me to comment on that,
Speaker 1: he'd love you take if I were in their shoes,
Speaker 1: It's not the path that I would choose. Uh. I
Speaker 1: think that. Well, there are two parts of their retail experiment.
Speaker 1: One is collecting deposits. That makes sense because deposits are
Speaker 1: much more stable funding source uh than going to the
Speaker 1: institutional market. And I think that is a very sound
Speaker 1: thing to do. And they're you know, they're paying up
Speaker 1: a little bit, but they're paying for much more stable
Speaker 1: liabilities or borrowings. Uh, the lending side of it. I'm
Speaker 1: not a big fan of It's a very crowded business.
Speaker 1: Uh and uh coming late to the party. In my view,
Speaker 1: as you know, Ralph, Bloomberg, surveillance is all about the
Speaker 1: conversation with experts. Of course, we all know your acquisition
Speaker 1: of that Hyman Services a number of years ago. Tell
Speaker 1: us the value, the intellectual component value of the future
Speaker 1: Wall Street, the future global Wall Street. How much does
Speaker 1: it matter that experts will be needed? I you know,
Speaker 1: it's it's interesting. I often say, uh that we're We're
Speaker 1: in every business that Goldman Sacks is in that meets
Speaker 1: the following criteria. You compete solely on the basis of
Speaker 1: your ideas, your intellectual capital, and your relationships. And the
Speaker 1: only source of revenue is f income. So we are
Speaker 1: we are the walking example of an intellectual capital firm.
Speaker 1: We have two major businesses, the research business which you
Speaker 1: just asked about, and the investment banking advisory business, and
Speaker 1: both of those are fundamentally driven by intellectual capital. Ralph.
Speaker 1: One final question, this is a critical importance. We have
Speaker 1: a viewer that emails in right now, John from of
Speaker 1: indremed and he suggests. I asked you, do you think
Speaker 1: I could pull off the beard? Relf? I mean this
Speaker 1: was a point of debate pre pandemic. Did you think
Speaker 1: you know? Does my face say beard? Tom? You're asking
Speaker 1: about you? Yeah, do you think I should grow a beard?
Speaker 1: What do you think? I don't know. You should probably
Speaker 1: ask those near and dear to you. Yeah, I did.
Speaker 1: Hell from New Jersey said no, Ralph, last I go away. Congratulations, Congratulations, Ralph,
Speaker 1: last time with ever talking to you. Thank you, Ralph,
Speaker 1: appreciate it. Right now our conversation of the day on China,
Speaker 1: Meredith Sumters eraise your group had a research strategy and
Speaker 1: operations in a move from Bill Ackman over to the
Speaker 1: authority of Meredith Sumters important out of LSE and a
Speaker 1: course with a profound knowledge of China. Meredith, what can
Speaker 1: you add to the conversation? You see the punditry, it's
Speaker 1: in the zeitgeist right now. But what can you add
Speaker 1: on this Thursday morning about this consulate tip for Tad.
Speaker 1: Great to be here with you, Tom. I would say, like, look,
Speaker 1: this is a remarkably unusual escalation. A closure of a
Speaker 1: conflant outside of wartime is rare and It's really just
Speaker 1: one of a myriad of US actions, as you've noted,
Speaker 1: to pressure China and to try to put the ballateral
Speaker 1: relationship on a fundamentally different course. And we heard comments
Speaker 1: that this is strong, but the question is is it effective?
Speaker 1: And what's key here? As you see this unswerving US
Speaker 1: pressure in speeches of Trump administration officials over the past
Speaker 1: several weeks, National Security Advisor O'Brien hitting out the ideology
Speaker 1: of the CCP, the Communist Party, train General bar calling
Speaker 1: China's ambitionism to trade with the US but to raid
Speaker 1: the US, and of course Secretary of State Pompeo who's
Speaker 1: called the relationship fundentally detrimental to the United States. All
Speaker 1: this tells you is that you should expect the US
Speaker 1: to continue this escalation with China up through November, even
Speaker 1: as most US officials recognize that President Trump, accordin to
Speaker 1: Whole Night numbers, is currently on track to potentially lose
Speaker 1: in November. Their actions. Bottom line, what we're watching here
Speaker 1: is their actions could fundamentally alter the course of the
Speaker 1: Biloud relationship on the eve of a potential administration change. Well, Mary,
Speaker 1: to let me ask you this from your perspective of
Speaker 1: these decisions surgical or they reactive and unpredictable. You mean
Speaker 1: that the decisions from the U S and Jonathan, Yeah,
Speaker 1: I'm just wondering if there is an ultimate objective here
Speaker 1: and there are some surgical decisions which are going to
Speaker 1: come together in a bigger picture, there's a bigger strategy,
Speaker 1: or whether this is just ad hoc. I wouldn't call
Speaker 1: it necessarily ad hoc, but I wouldn't call it part
Speaker 1: of a grand strategy at all. Talking to Trumba administration officials,
Speaker 1: what's clear is the President has given a green light
Speaker 1: for his officials to get how on China, thinking it
Speaker 1: might help him in the polls, although so far his
Speaker 1: campaign has been disappointed by that, with voters focus more
Speaker 1: so on pandemic than on China. But President Trump has
Speaker 1: been very clear that his Phase one trade deal is
Speaker 1: off limits. So you see this tip for tat escalation
Speaker 1: being pushed by the U S side that gets right
Speaker 1: up to that breaking point, but it's not meant to
Speaker 1: go over the line, and the risk is that they
Speaker 1: could go over the line without knowing that they're doing.
Speaker 1: So what happens then, what happens if the Phase one
Speaker 1: trade deal gets rejected, is basically dead in the water,
Speaker 1: as Leland Miller China Beige Book thinks it probably will
Speaker 1: be soon, you know, at least. What's really key here
Speaker 1: is that, well, obviously you know in the immediate term
Speaker 1: there's going to be negative market reaction and fallout. This
Speaker 1: is not what President Trump wants in his side, neither
Speaker 1: is it what for his president she wants on on
Speaker 1: Beijing side, which is why we still have a sixty
Speaker 1: five percent probability that that deal last through the November election.
Speaker 1: But what's really key here is that Phase one deal
Speaker 1: is increasingly a relevant barometer of the U. S. China relationship.
Speaker 1: Even if that deal provides, the broader relationship has pretty
Speaker 1: much fallen apart, and that that is going to be
Speaker 1: the case with regardless of whether you have a second
Speaker 1: term compan administration or if you have a Joe Biden
Speaker 1: administration who will come into office and inherit uh quite
Speaker 1: a challenging by that of relationships. I mean, we can
Speaker 1: go all day on this and the different theories of
Speaker 1: game theory, Meredith Sumter, but it comes down to a
Speaker 1: game of chicken. Maybe you go back to Cuba and
Speaker 1: the Cuban missile crisis, mutual assured destruction. It comes down
Speaker 1: to who's gonna blink first. How does that play out?
Speaker 1: What is the process of how you get through a
Speaker 1: game of chicken? Well, I would say I think that
Speaker 1: from from Asians perspective, they're just trying to manage that
Speaker 1: game of chicken through November, looking at poll numbers and
Speaker 1: hoping that they're going to have a change in US
Speaker 1: political leadership that they don't think will necessarily have a
Speaker 1: fundmently different view of of that that um uh sort
Speaker 1: of confrontation with China, but it will be handled in
Speaker 1: a much different way and a much more manageable way
Speaker 1: for Beijing murder. If we've got to wrap up by
Speaker 1: talking about the response from Beijing. Last week, the United
Speaker 1: Kingdom is freezing out announcing plans to freeze out Huawei.
Speaker 1: What we've learned in the last twenty four hours is
Speaker 1: that China is responding by having a blackout for the
Speaker 1: English Premier League this coming weekend, the last game of
Speaker 1: the season. I'm just wondering why they keep going towards sports.
Speaker 1: They did this with the mp A and the last
Speaker 1: twelve months as well, they're doing with English football. Now
Speaker 1: in the last twenty four hours, how effective do you
Speaker 1: think the strategy actually is? Jonathan talked about a game
Speaker 1: of chicken. You think you have problems with the US
Speaker 1: China relationship, and China has problems across the whole host
Speaker 1: of its relationships externally. And the question is does Beijing
Speaker 1: realize the strategic error that they're making. In other words,
Speaker 1: at a time when the US positions vis the China
Speaker 1: and frankly Vius to be, the rest of the world
Speaker 1: has been at odds with with what the worst of
Speaker 1: the world want, this could have been an opportunity for Beijing,
Speaker 1: but really Beijing has fundamentally failed to capitalize on that
Speaker 1: on the part of using politics in its own political
Speaker 1: insentives to try to course other countries. That's going to
Speaker 1: have negative fill over, John, are you telling me that
Speaker 1: China is gonna blackout Crystal Palace and the tots that
Speaker 1: massive game that you're so excited about, they won't be
Speaker 1: able to see. Meredith, were gonna say thank you, Meredith
Speaker 1: somethday you write your group had of research, strategy and operations.
Speaker 1: Joining is right now a gentleman who it is important
Speaker 1: to speak to on the miles rounded up six miles
Speaker 1: from Manila west northwest to a set of islands with
Speaker 1: Chinese jets on them in the South China Sea, and
Speaker 1: that would, of course be James Trevinis. Admiral Stevinus has
Speaker 1: been a wonderful friend of the show, and of course
Speaker 1: has authored too many books to count, including the time
Speaker 1: his ship came out of San Diego and he moved
Speaker 1: out to sea for the first time. Admiral, thank you
Speaker 1: so much for joining us this morning. How do we
Speaker 1: show the flag in the South China Sea? How does
Speaker 1: that actually happen? Tom? We take our ships as you
Speaker 1: would expect. Our big aircraft carrier's nuclear powered aircraft carriers
Speaker 1: are big amphibious carriers that carry thousands of marines and
Speaker 1: above all our destroyers like the new movie Tom Hanks Greyhound,
Speaker 1: those fast, lean ships that can go into these waters,
Speaker 1: and we simply drive them through these waters. We operate
Speaker 1: the aircraft of them. And we do this to demonstrate
Speaker 1: to China that China's claim that the entire South China
Speaker 1: Sea is territorial Chinese waters is preposterous and viole. It's
Speaker 1: international law. These are called freedom of navigation patrols. It's
Speaker 1: the most effective way to physically demonstrate these are high seas,
Speaker 1: international water. And well, let me ask the question, and
Speaker 1: I say this our attempt to say this with grace
Speaker 1: and that we all have a collective memory of the
Speaker 1: Falkland Islands where boats were floating around and all of
Speaker 1: a sudden there was a missile. In this case, there
Speaker 1: are some form of images of Chinese aviation within the vicinity.
Speaker 1: How do we know that our kids are safe on
Speaker 1: these ships? First of all, these ships have the most
Speaker 1: sophisticated air defense systems in the world. Having said that,
Speaker 1: you're absolutely correct, Tom. In the nineteen eighties during the
Speaker 1: Falkland's invasion, number of British ships were sunk by Argentine aircraft.
Speaker 1: On the other hand, are AEGIS combat system is very sophisticated.
Speaker 1: Great are we have high speed missiles that go with it?
Speaker 1: We can defend ourselves re noably well. Part of this again,
Speaker 1: one final question. I know Paul Sweeney wants to jump
Speaker 1: in here as well. Admiral it is tit for tat diplomacy.
Speaker 1: You are toughs, I'm sure had to go through courses
Speaker 1: on game theory. To our audience and to me it's
Speaker 1: just a game of chicken. How does a diplomatic game
Speaker 1: of chicken unravel? How does it end? Um it unravels.
Speaker 1: Those are two different questions. It unravels if the protagonists
Speaker 1: in the game on the point of the exercise UM miscalculate,
Speaker 1: if a Navy destroyer UH fires on a Chinese jet
Speaker 1: before it's in a firing position, and we have an
Speaker 1: international incidents, that's how it unravels. The way we prevent
Speaker 1: it is create buffer zones, Tom. And the way to
Speaker 1: do that is negotiate with China for a set of
Speaker 1: protocols and see that keep our forces some set distance
Speaker 1: physically apart. We did that with the Soviet Union during
Speaker 1: the Cold War. We're gonna need to do that with China. Admiral,
Speaker 1: what is it? What is the state of the United
Speaker 1: States Navy in the Pacific as we speak here is
Speaker 1: because we think about the tensions rising with China. Good news,
Speaker 1: bad news. Good news are carriers are forward. We have
Speaker 1: two nuclear powered aircraft carriers in the South China Sea
Speaker 1: right now. We have very capable forces in Japan Forward.
Speaker 1: About half of our fleet focuses on that vast Pacific
Speaker 1: water space. The bad news paul Is. For example, we
Speaker 1: just recently had a fire and lost one of our
Speaker 1: big deck UH amphibious carriers in San Diego, the Bonham
Speaker 1: Richard Um. We see some instances where the Navy needs
Speaker 1: to do better with its level of professionalism. That destroyer
Speaker 1: collisions a couple of years ago. So Navy has some
Speaker 1: work to do. It's not perfect, but it's still the
Speaker 1: best maritime force in the world. I'm confident in the Navy. So, Adam,
Speaker 1: what you kind of mentioned that the fire for that
Speaker 1: ship in San Diego, We've we've all seen the images
Speaker 1: on the news, and you mentioned some of those collisions
Speaker 1: from uh some Navy ships over the last couple of years.
Speaker 1: Is there anything there to extrapolate from those issues? Is
Speaker 1: there a is there something wrong with the Navy? Is
Speaker 1: there a breakdown anywhere you think the professionalism of the
Speaker 1: Navy or these are just kind of one off coincidences.
Speaker 1: Now I don't think they're one off coincidences. And and
Speaker 1: I just did a piece in Bloomberg Opinion, where I'm
Speaker 1: a columnist, as you know, on this exact subject. It's
Speaker 1: time for the Navy to kind of say all stop,
Speaker 1: let's take a hard look at how we're operating the
Speaker 1: Navy because there are too many, uh, individual instances of concern.
Speaker 1: The new Chief of Naval Operations, and he is new.
Speaker 1: We have a new Secretary of the Navy. They both
Speaker 1: gripped this, and I think you're going to see some
Speaker 1: hard self examination by the service going forward. It seems
Speaker 1: to be such rough language. Secretary of Pompeo with comments
Speaker 1: this morning of the course in Denmark. I believe it
Speaker 1: was yesterday. I believe he has a speech of four
Speaker 1: pm this afternoon. Is moving so fast, folks, I can't
Speaker 1: keep up. This is almost ad hoc diplomacy. Is there
Speaker 1: a theory here admalstra vitas? I think there is a
Speaker 1: theory with regard to China, which is, as we get
Speaker 1: into this twenty one century, our greatest challenge is not
Speaker 1: going to be Russia, which is what I focused on
Speaker 1: when I was Supreme Allied Commander of NATO. Instead, our
Speaker 1: greatest challenge going forward in this century tom economically, culturally, politically, diplomatically,
Speaker 1: certainly militarily, is going to be China. So I think
Speaker 1: the administration would say they are constructing a strategy to
Speaker 1: compete with China to ensure that we maintain our sets
Speaker 1: of alliances around the world. That's why you're seeing Secretary
Speaker 1: Pompeo out on patrol all around the world making these points.
Speaker 1: And well, I've got too short of visit. We have
Speaker 1: to leave it there, but we look forward speaking to
Speaker 1: you again. Apples te Vidis James Travins with us today
Speaker 1: with just wonderful books. I can't say enough, folks about
Speaker 1: the Leader's bookshelf. I just really can't say enough about
Speaker 1: its effort, particularly here within the pandemic. Thanks for listening
Speaker 1: to the Bloomberg Surveillance podcast. Subscribe and listen to interviews
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