Speaker 1: This is Bloomberg Wall Street Week.
Speaker 2: The global push into infrastructure, breaking the IPO logjam in text.
Speaker 3: The financial stories that shape.
Speaker 2: Our work, cutting inflation without losing jobs. Do we need
Speaker 2: rate cuts and if so? How many? Investing in the
Speaker 2: time of geopolitical turmoil?
Speaker 1: Through the eyes of the most influential voices.
Speaker 2: Ten Rogueff economists at Harvard, former FDIC had Shiela Bert
Speaker 2: ge CEO, Larry Kulp, San Francisco FED President Mary Daily, Bloomberg.
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio.
Speaker 2: Great Britain gets a snap election, the FED debates whether
Speaker 2: it's gone high enough, and Nvidia shoots the lights out again.
Speaker 2: This is Bloomberg Wall Street Week. I'm David Weston. This week,
Speaker 2: former New Jersey Governor Christine Todd Whitman tells us that
Speaker 2: small nuclear reactors may be the answer for our AI
Speaker 2: data center needs.
Speaker 4: The manas for power of these data centers is in enormous.
Speaker 2: Nobel Prize winning economist Paul Kruman on why he doesn't
Speaker 2: know where interest rates are headed.
Speaker 5: On interest rates, I am fanatically confused.
Speaker 2: And Henry McVay KKR reports on his trip to China
Speaker 2: and what needs to come.
Speaker 6: Next, they can actually encourage more urbanization.
Speaker 2: We start with the week in the markets, where equities
Speaker 2: ended strong after a sag in the middle of the week.
Speaker 3: The S and P five hundred ended up just.
Speaker 2: A bit at fifty three h four, which keep them
Speaker 2: above the Bloomberg Els median year and number of fifty
Speaker 2: two hundred. The Nasdaq added one point four percent for
Speaker 2: the week, while the yield on the tenure was up
Speaker 2: just over four basis points to end the week at
Speaker 2: four point four to six percent. To take us through
Speaker 2: what we've seen this week, welcome back now, Scott Kroner.
Speaker 2: He's City US equity strategist. Scott, always a delight to
Speaker 2: have you with us. So give us a sense of
Speaker 2: what we think you saw this week. As I say,
Speaker 2: it's sagging the length and it came back at the end.
Speaker 3: What's going on? Right?
Speaker 7: So I think what's going on is the market continues
Speaker 7: to navigate where we think we are regarding economic conditions
Speaker 7: and the read through to FED policy.
Speaker 8: Okay, so we're back.
Speaker 7: And forth between stronger economic data which would signal a
Speaker 7: higher for longer FED versus signs of softening and ongoing
Speaker 7: deceleration and.
Speaker 8: Inflation, which gives a little bit more confidence.
Speaker 3: That you get a FED pivot.
Speaker 7: So we're back and forth between this ongoing debate and
Speaker 7: the data. It tends to be supportive on a transitory
Speaker 7: basis on both sides. In the meantime, we continue to
Speaker 7: have this new growth driver in town. We're now a
Speaker 7: year into this generative AI craze, if you will, and
Speaker 7: it was reinforced this week. So a number of things
Speaker 7: going on in both the macro and then let's call
Speaker 7: it the micro and new growth paradigm approach as well.
Speaker 2: Well, Scott, as I listened to you, I wonder if
Speaker 2: that's a little bit of microcosmic with a year so far,
Speaker 2: because we go back and look the first quarter, the
Speaker 2: equies were really on the march off the S and
Speaker 2: P of five hundred. Then it dipped at the beginning
Speaker 2: of the second quarter and it's come back up again.
Speaker 2: Now we went into the year expecting what was it,
Speaker 2: six rakes cuts and now we're down to maybe one
Speaker 2: one and a half.
Speaker 7: Yeah, So it's really interesting the way the market is
Speaker 7: navigating this. The way we tend to think of it,
Speaker 7: and the data tends to show this is that the
Speaker 7: growth profile and the growth influence on equities can often
Speaker 7: outweigh the interest rate influence as it pertains to the
Speaker 7: discounting mechanism and expectations for economic activity. What's been happening
Speaker 7: is that growth has been winning as more and more
Speaker 7: companies are now getting on this generative AI phase and
Speaker 7: really going more aggressively down the path of investing in
Speaker 7: future opportunities that should support longer term growth drivers for
Speaker 7: the broader US equity markets.
Speaker 2: And what about your views, because you are delighted to
Speaker 2: say one of our elves, as we call you, the
Speaker 2: Bloomberg elis here one of the analysts. You set it out
Speaker 2: that year toward the top of the pack of elves,
Speaker 2: and now you're.
Speaker 3: Sort of toward the did you move or did the
Speaker 3: rest of the pack move?
Speaker 7: I say, essentially, what's happening is the rest of the
Speaker 7: pack has been marketing with the market move and is
Speaker 7: leapfrogging us a bit, which is fine. I think the
Speaker 7: way we're looking at it is that we're still expressing
Speaker 7: a very constructive view on the fundamental setup for US
Speaker 7: equities at this point, particularly the S and P five hundred,
Speaker 7: But we do have to recognize it a lot has
Speaker 7: happened pretty quickly from a performance perspective, and more recently,
Speaker 7: our ongoing panic euphoria model is tripped into euphoria, which
Speaker 7: is usually not a great sign for forward performance.
Speaker 8: At the same time, we've seen valuations.
Speaker 7: Move higher to a point where the implied growth expectations
Speaker 7: supporting this market are getting pretty aggressive, so put us
Speaker 7: in an ongoing fundamentally constructive view, but shorter term, we
Speaker 7: think the risk rewards pretty balanced right now.
Speaker 2: David, what about the breadth of the market going into
Speaker 2: the year, We were really concerned it was so narrow.
Speaker 2: There was some hope that we're broadening out. Is it
Speaker 2: brought out from that Magnificent seven or whatever you want
Speaker 2: to call them?
Speaker 7: I think it is, but not in the way that
Speaker 7: many were expecting from a performance perspective.
Speaker 8: Off of the rally that began.
Speaker 7: Last November, we saw areas such as industrials and financials
Speaker 7: participate quite strongly as this year unfolded.
Speaker 8: Then as we hit the middle part.
Speaker 7: Of this year thus far, we began to see other areas.
Speaker 7: Energy kicked in for a period of time, and more
Speaker 7: recently it's been utilities. So while tech communications services are
Speaker 7: still your leading sectors.
Speaker 8: You are seeing different pockets of.
Speaker 7: The market kick in at different times, and it ends
Speaker 7: up supporting this broader index move.
Speaker 2: So, Scott, you mentioned actually a year ago you pointed
Speaker 2: out it was just a year ago that a company,
Speaker 2: I know you don't talk individual companies, I'll name the company,
Speaker 2: and Vidia came out with those blockbuster numbers. We had
Speaker 2: some more this week, but it sped out from Nvidia.
Speaker 2: There are all other companies as well that seem to
Speaker 2: get along for the ride. At the same time, a
Speaker 2: lot of other companies are spending money right now. They're
Speaker 2: investing money, so why does that buttress their stock because
Speaker 2: they actually haven't spent coming in.
Speaker 7: Yeah, So I think the way this is setting up,
Speaker 7: we're spending a lot more time now talking about capital expenditures,
Speaker 7: and I think one of the dynamics that is at
Speaker 7: hand right now is that you're seeing a lot of
Speaker 7: the investment into AI and related applications, and the semiconductor
Speaker 7: comportion component of that feels that quite quite directly, as
Speaker 7: does the software component. But so we're watching this AI
Speaker 7: narrative unfold through two paths. The first is you're going
Speaker 7: to have companies that are directly exposed. These tend to
Speaker 7: be your mag seven or Big seven components, where we're
Speaker 7: going to be measuring them directly on the way AI
Speaker 7: is feeding their fundamentals in the months to come. On
Speaker 7: the other hand, the bigger picture, and perhaps the more
Speaker 7: important longer term picture, is that now as more and
Speaker 7: more companies embrace the opportunity in generator of AI, they're
Speaker 7: putting a lot of effort into establishing their own ways
Speaker 7: of of benefiting from AI. What this is going to
Speaker 7: mean over time is that the investment and spending that's
Speaker 7: unfolding right now should translate into various forms of productivity enhancement,
Speaker 7: perhaps margin improvement, and ultimately what we really want to
Speaker 7: see is profitability enhancement, which in turn leads to higher valuations.
Speaker 7: All told, the setup is very clear right now. It's
Speaker 7: going to play out as I mentioned, months and perhaps
Speaker 7: in some cases over the next couple of years.
Speaker 8: But what it's doing is providing.
Speaker 7: The broader market, as we mentioned at the outset, a
Speaker 7: very compelling longer term growth opportunity that is taking fundamental
Speaker 7: expectations over and above traditional economic sensitivities.
Speaker 2: How much time do we have before they have to
Speaker 2: deliver on that productivity.
Speaker 8: It's going to vary.
Speaker 7: We think for some of the more direct beneficiaries, they
Speaker 7: need to start showing it in the months in quarters
Speaker 7: to come. For companies where it's going to be more
Speaker 7: of a prot activity enhancing application, we're going to be
Speaker 7: watching for that. I think probably is twenty twenty five
Speaker 7: kicks in and beyond, so it's going to be in
Speaker 7: some cases months, quarters and other cases. We have to
Speaker 7: give companies a couple of years to build these these
Speaker 7: products and services in product Tooty, thanks so much.
Speaker 2: Set's got Chronic City US equity strategies. China is on
Speaker 2: everyone's minds right now. Where it's going, where it's the economy,
Speaker 2: is where investment opportunities may be. Henry k Vay, he's
Speaker 2: the CIO of KKR balance Sheet, goes around the world
Speaker 2: and travels to places like China, comes back with reports.
Speaker 2: And he's just come back from China right now. We're
Speaker 2: welcoming back now to Wall Street weeks. So Henry, great
Speaker 2: to have you back with us. We've done different countries
Speaker 2: that Japan, we've done Indian, now let's do China.
Speaker 3: Great just coming back would you learn you know, I'd say.
Speaker 6: On the positive the economy is bottoming. We heard a
Speaker 6: couple of different data points, I think from companies in
Speaker 6: the logistics business that are seeing the US consumer pick
Speaker 6: up a bit, So that was a positive, and I
Speaker 6: do think we're things have bottomed also in Europe and
Speaker 6: there's a little bit more demand. But overall it's still
Speaker 6: a pretty sluggish economy post COVID, with very low inflation.
Speaker 2: And the growth that is there is not evenly distributed.
Speaker 2: There's some areas growing much more than others.
Speaker 6: As I understand it, We've spent a lot of time.
Speaker 6: I've actually been to China four times in the last
Speaker 6: five quarters, so I'll give you how I think the
Speaker 6: evolution of the economy is changing. Really, a lot of
Speaker 6: people focus on fixed investment, they focus on exports. I
Speaker 6: think the Chinese government is really repositioning the economy towards
Speaker 6: a couple of different things. One is this whole idea
Speaker 6: of digitalization, particularly as it relates to the industrial sector.
Speaker 6: They're trying to automate that sector be more effective and
Speaker 6: more competitive globally. In the past, I think a lot
Speaker 6: of people thought about China in terms of e commerce
Speaker 6: Ali Baba, domestic consumption. The focus right now from the
Speaker 6: government really is on industrial automation. China today actually has
Speaker 6: about half the world's robots on the industrial side, which
Speaker 6: is an amazing statistic. The second big driver is around
Speaker 6: the green effort, and they're trying to really dominate batteries,
Speaker 6: evs and solar panel that and they're trying to export
Speaker 6: some of that globally. So those are really the growth drivers.
Speaker 6: The offset, which is still problematic is around housing and
Speaker 6: our estimate as they have somewhere between kind of twenty
Speaker 6: and thirty million too many homes and so they're trying
Speaker 6: to clean that out right now. But that's a disinflationary
Speaker 6: force and it clearly has an impact on domestic psychology
Speaker 6: as well.
Speaker 2: Someone What China is investing in the green transition has
Speaker 2: gotten the attention of places like the United States and Europe,
Speaker 2: whether it's solar panels or batteries or evs, because there's
Speaker 2: a concern of a build of overcapacity.
Speaker 3: Do you see over capacity and what does that do
Speaker 3: to margins?
Speaker 6: I think what's going to happen around the world right
Speaker 6: now is that industries such as autos are going to
Speaker 6: become of national interests. We've already seen that in technology
Speaker 6: could expand into two other sectors, so there's definitely going
Speaker 6: to be sensitivity. You saw President Biden talked about increasing
Speaker 6: the tariff there. Europe, I think is going to do
Speaker 6: a similar a similar type of strategy. So you can
Speaker 6: have capacity. The question is is where can that capacity go.
Speaker 6: I think probably if you're China, you'll see more of
Speaker 6: it go into places such as Latin America, other places
Speaker 6: maybe Eastern Europe or where they have partners that maybe
Speaker 6: there's increasing kind of bilateral trade. That doesn't seem to
Speaker 6: be the case in the US and Europe right now.
Speaker 3: So there is growth.
Speaker 2: You found growth there, as you said, it's bottomed. At
Speaker 2: the same time when you're take into account the disinflation,
Speaker 2: the nominal GDP actually is not growing at the same
Speaker 2: rate as that some other places like Europe and the
Speaker 2: United States.
Speaker 6: If I could give an insight to your viewers, KKR
Speaker 6: typically has one hundred and fifty businesses around the world,
Speaker 6: you know upwards of two hundred now where we operate.
Speaker 6: You've got to focus on nominal revenues. Nominal GDP what
Speaker 6: does that mean? It's real GDP plus inflation. A lot
Speaker 6: of times the cell side focuses on real GDP and
Speaker 6: what you've seen in China. When I started going there
Speaker 6: in nineteen ninety five and when I started at KRE,
Speaker 6: nominal GDP was in the teens and twenty percent. There's
Speaker 6: a lot of growth and a lot of profit that
Speaker 6: comes with that. Today that number is probably about a
Speaker 6: third of that. So really that inflation component has come down.
Speaker 6: And then second thing.
Speaker 3: Is on the real GDP.
Speaker 6: The productivity has come down in concert with slower labor
Speaker 6: force growth, so it is a big deal. At the
Speaker 6: same time, the Western world has put a huge amount
Speaker 6: of fiscal stimulus into the system and that's driving a
Speaker 6: little more inflation, a little more nominal GDP.
Speaker 3: Thank you so much, Henry, Always love having you on.
Speaker 2: That's henryk vay Cio of the KKR balance Sheet.
Speaker 3: Coming up.
Speaker 2: If we're all going to use generative AI, then we're
Speaker 2: going to need a lot more power. We talk with
Speaker 2: former New Jersey governor and EPA administrator Christine Todd Whitman
Speaker 2: about whether nuclear power could be part of the answer.
Speaker 4: But this is where small module reactors can be perfect
Speaker 4: because you just can put them there right next to
Speaker 4: those data centers.
Speaker 3: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Well Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 3: This is Wall Street Week. I'm David Weston.
Speaker 2: The sprint toward generative AI has turbocharged the move to
Speaker 2: build data centers, and every one of them needs power,
Speaker 2: lots of it, with some believing they provide a good
Speaker 2: use case for those small modular nuclear reactors we've heard
Speaker 2: so much about.
Speaker 3: To take us through the.
Speaker 2: Possibilities, we welcome now Christine Todd Whitman, co founder and
Speaker 2: co chair of the States United Democracy Center MSSUS.
Speaker 3: Whitner, of course earlier.
Speaker 2: Served as EPA administrator and as Governor of the State
Speaker 2: of New Jersey. So Governor Werner, thank you so much
Speaker 2: for joining us here on Wall Street Week. As you know,
Speaker 2: generative AI is all the rage these days, at least
Speaker 2: on paper, and as we talk about that, we talk
Speaker 2: about a lot of data centers, the need for them
Speaker 2: and the need for power, and that has really spurred
Speaker 2: to the forefront the discussion of those small modular reactors,
Speaker 2: something you've talked about in the past. Is this a
Speaker 2: spur to actually get us going on those SMRs?
Speaker 4: I certainly hope. So, because it is true those data
Speaker 4: centers pull of power, and most people aren't thinking about that.
Speaker 4: They don't know what they're beginning to now to understand
Speaker 4: just how much they draw down on the grid. So
Speaker 4: this is where small modular actors can be perfect because
Speaker 4: you just can put them there, right next to those
Speaker 4: data centers and provide the power for that particular center.
Speaker 4: And it makes a whole bunch of sense when you
Speaker 4: look at the issues that we're facing and the economic
Speaker 4: price we're paying for what's going on with Mother Nature
Speaker 4: and the environment, and it is due to changing climate,
Speaker 4: and I think we all have to recognize that now,
Speaker 4: and so we need to do what makes sense. But
Speaker 4: that doesn't creator our economy, and this certainly wouldn't. We
Speaker 4: can build these things, we can distribute these things, and
Speaker 4: it makes a great deal of sense. They're mutually supportive, so.
Speaker 2: It increases the demand the opportunity for these What are
Speaker 2: the hurdles because as I say, you and I have
Speaker 2: talked about this in the past. You've been an advocate
Speaker 2: for experimenting and using these in the past.
Speaker 3: We haven't gotten there.
Speaker 2: As I under said, there are a lot of plans
Speaker 2: for them, but I'm not sure any have gotten built yet.
Speaker 4: No, they haven't Canada. They're moving forward. It's obviously the
Speaker 4: regulatory hurdles because we want to make sure that they're
Speaker 4: absolutely safe, and not all of those are federal. A
Speaker 4: lot of those regulatory roadblocks, as it were, or things
Speaker 4: that slow it down, which is we all know costs money,
Speaker 4: our local or state regulations and we've got to respect those.
Speaker 4: But I think what we're seeing now is the pressure
Speaker 4: coming that is going to, I believe, as you mentioned,
Speaker 4: perhaps spur an effort to move these things through, not
Speaker 4: to cut may corners, but to make sure that you're
Speaker 4: not holding anything up unnecessarily. Because they have a proven technology,
Speaker 4: they are easier to build, they're much safer to use
Speaker 4: or easier to use, and they can be used in
Speaker 4: discrete ways, such as putting them next to a data
Speaker 4: center and having them supply the power for that data center.
Speaker 2: You're very familiar with the regulatory structure, and it was
Speaker 2: put in place for various reasons with the very large
Speaker 2: nuclear Do those same considerations apply with the small modular reactors.
Speaker 2: Should it be the same regulatory system or should it
Speaker 2: be an entirely different way of approaching regulation.
Speaker 4: It wouldn't be entirely different, but certainly the way these
Speaker 4: things are constructed is entirely different and that needs to
Speaker 4: be regulated, be recognized from the regulatory perspective, so that
Speaker 4: there are vast differences. But because you're talking nuclear and
Speaker 4: people are very concerned, even though our history with nuclear
Speaker 4: has been extremely safe, you have to answer those questions.
Speaker 4: And so the NRC needs to take a step back
Speaker 4: and say, Okay, let's really look at the SMRs, the
Speaker 4: small module reactors, and identify they use a different kind
Speaker 4: of material. Some of them are molten salt reactors. That's
Speaker 4: entirely different way of producing the nuclear power. They're done
Speaker 4: in one place, which again is entirely different. You're not
Speaker 4: moving pieces sequentially to a site. You move the whole
Speaker 4: thing to a site. All those things. It is a
Speaker 4: different process and it does need to be handled differently.
Speaker 4: I'm just not sure that the NRC at the moment,
Speaker 4: and I don't know. I'm not saying they're not looking
Speaker 4: at what they need to do to update the regulations,
Speaker 4: but they certainly should be.
Speaker 2: I'm going to put this in the larger context of
Speaker 2: the climate, something you've been very outspoken on when you
Speaker 2: were governor of New Jersey when you're a mystery of VPA.
Speaker 2: And since then, if we in fact buy build all
Speaker 2: of these data centers and do not use something like
Speaker 2: small moduor reactors, what is the possible risk for the
Speaker 2: environment to respect the use of fossil fuels.
Speaker 4: It's huge because the demand for power of these data
Speaker 4: centers is enormous, and you're going to go to the fastest,
Speaker 4: cheapest power, and that's going to put more pressure on
Speaker 4: opening more coal and not closing coal. And you know
Speaker 4: the thing that I think you and I have talked
Speaker 4: about this, David. The thing that we're missing here is
Speaker 4: the understanding that nuclear can be the bridge if we
Speaker 4: ever get to making the making our renewable power base power.
Speaker 4: It's going to take a long time before we can
Speaker 4: rely solely on whens various forms of green power, and
Speaker 4: so we need a bridge and this is the best
Speaker 4: way to my mind to.
Speaker 9: Do this pretty quickly.
Speaker 2: Many thanks to Christine Todd Whitman of the state's United
Speaker 2: Democracy Center.
Speaker 10: I thought Hamilton had it right. He said a national
Speaker 10: debt could be a national blessing, and the national debt
Speaker 10: having a liquid market there provides a good benchmark for
Speaker 10: the private sector. It probably underpins the role of the
Speaker 10: dollar in the world. It allows the Fed to conduct
Speaker 10: monetary policy easily. I think we have to keep in
Speaker 10: mind the costs of paying down the debt. There is
Speaker 10: among some people a single minded focus on it, but
Speaker 10: there's no free lunch in this world, and eliminating the
Speaker 10: national debt, while it may sound.
Speaker 8: Attractive, has its costs as well.
Speaker 10: The President, by the way, in his program, is paying
Speaker 10: down as much debt as we can retire in the
Speaker 10: next ten years.
Speaker 3: We're moving in that direction.
Speaker 10: But whether we should pay it all off, I think
Speaker 10: this is a more open question.
Speaker 2: That was Larry Lindsay, director of the National Economic Council
Speaker 2: under President George W. Bush, appearing on Wall Street Week
Speaker 2: back in March of two thousand and one, back when
Speaker 2: the concern was about possibly having too little federal debt
Speaker 2: rather than too much to take us through our current
Speaker 2: very different situation. Welcome back now, Nobel Prize winning economists
Speaker 2: and New York Times columnist Paul Krugman of the City
Speaker 2: University of New York. So, doctor Pruy, thank you so
Speaker 2: much for being back with us. As I say, it
Speaker 2: was a very different time then when they thought we
Speaker 2: may eliminate the national debt. But now we're hearing a
Speaker 2: lot from people saying they're concern has gotten to be
Speaker 2: too big?
Speaker 3: Is it too big? Is it a problem for our
Speaker 3: economy right now?
Speaker 9: Okay, So, first of Allen, that was silly even then.
Speaker 5: I mean, there were you know, revenues were temporarily swollen
Speaker 5: by the dot com bubble and all of that, and
Speaker 5: you know, even in two thousand and one, knew that
Speaker 5: people like me were eventually going to hit sixty five
Speaker 5: and start collecting benefits. So you know, it's so that
Speaker 5: was a little bit silly to be concerned about that
Speaker 5: back then.
Speaker 9: Right now, the debt per se is not really a
Speaker 9: serious problem.
Speaker 5: I mean, you know, it's a bay number very four
Speaker 5: trillion dollars or something like that. But if we actually
Speaker 5: look at, you know, what does it cost to service
Speaker 5: that debt, Well, interest rates are still below the economy's
Speaker 5: growth rate, and so as long as other non interest
Speaker 5: spending and tax receipts are more or less in line,
Speaker 5: then the debt is really not you know, it's not
Speaker 5: a problem to continue servicing it. There's no really no
Speaker 5: reason why that should be an issue. But what is
Speaker 5: a problem, of course, is that government spending and tax
Speaker 5: receipts are not in line. And so the fundamental problem
Speaker 5: is not the debt. The fundamental problem is that we
Speaker 5: are not managing to to pay our way. We're not
Speaker 5: actually adjusting our inflow with our outflow.
Speaker 2: Well one we're putting out. Suppose it's not the debt,
Speaker 2: it is the deficit. It's how much we're actually coming
Speaker 2: up short each and every year. And I think last
Speaker 2: year it was something like eight point five eight point
Speaker 2: eight percent of GDP was in deficit. And this is
Speaker 2: a time when unemployment was very low, by the way,
Speaker 2: and the yeah, I some of that was good.
Speaker 5: Yeah, some of that was interest payments, and really should
Speaker 5: it's the primary deficit excluding interest payments, but that is
Speaker 5: a serious problem. We do have an ongoing large primary deficit.
Speaker 5: Some of that there were, you know, the year to
Speaker 5: year fluctuations. There's quirky stuff that can move the deficit around,
Speaker 5: but at a fundamental in a fundamental sense, we're not
Speaker 5: living within our means at the federal level. And that
Speaker 5: doesn't necessarily signal any kind of the media crisis, but
Speaker 5: it does say that, hey, something's going to give. But
Speaker 5: the trouble is you know what's going to give. So yeah,
Speaker 5: that is the real problem is not the numbers. The
Speaker 5: real problem is that we are not politically apparently able
Speaker 5: to reach any kind of agreement on how to live
Speaker 5: within our means.
Speaker 3: Not an immediate crisis, as you say.
Speaker 2: At the same time, I remember back in the early
Speaker 2: nineties when we talked about bond vigilantes, and there was
Speaker 2: the discussion within the Clinton administration actually about the issues
Speaker 2: with the bond market. At what point is it possible
Speaker 2: that the bond market might send a powerful message to us.
Speaker 2: We talked to Paul Ryan recently who said he thinks
Speaker 2: that it's quite possible in the next administration, whoever is president,
Speaker 2: they could be faced with what he would call a
Speaker 2: debt crisis.
Speaker 3: Does that sound reasonable to you?
Speaker 5: Not particularly, And I'm not sure I know why Paul
Speaker 5: Ryan would know this any better than anyone else. But
Speaker 5: the truth is, I've looked at I've actually put in
Speaker 5: a fair bit of work myself on when what's the
Speaker 5: historical record of countries that borrow in their own currency
Speaker 5: experiencing that kind of debt crisis to strike by lenders
Speaker 5: something like that what are the historical examples of that happening?
Speaker 9: And there's almost no examples of that.
Speaker 5: I mean, you start and you end up showing well,
Speaker 5: maybe France in nineteen twenty six. I mean, Japan has
Speaker 5: had huge debt for decades now, huge persistent deficits still
Speaker 5: no crisis. It's actually I think we should focus less
Speaker 5: on what's the risk of a single dramatic event and
Speaker 5: more on the kind of gradual erosion of confidence that
Speaker 5: comes from the fact that we can't seem to get
Speaker 5: interact together.
Speaker 2: There's no doubt that there are a lot of political challenges.
Speaker 2: But before we get to the political challenges, what about
Speaker 2: what the right answer would be if we didn't have
Speaker 2: to worry about the politics. I mean, there were times
Speaker 2: of which we actually did cut the deficit, right under
Speaker 2: George Herbert Walker Bush there was a bipart artists and
Speaker 2: effort that was made Andrews Air Force Base, and then
Speaker 2: under President Clinton it is not bipartisan. Actually, the Democrats
Speaker 2: to themselves they cut back on the deficit.
Speaker 3: What is the right thing to do? Is it more taxes,
Speaker 3: is it less spending, or is it all of the above.
Speaker 9: There is no right answer.
Speaker 5: What we know from cross national comparisons is that it's
Speaker 5: certainly possible to have a thriving economy with a lot
Speaker 5: more taxes than the United States. The United States is
Speaker 5: near the bottom in terms of tax receipts that are
Speaker 5: share of GDP among advanced countries, So we could be
Speaker 5: raising substantially more money and there's no there's no real
Speaker 5: indication that higher tax rates would be a problem for
Speaker 5: US economic growth. On the other hand, we don't have
Speaker 5: to provide essential healthcare to everybody. That's a that's not
Speaker 5: a question of economic rightness or wrongness.
Speaker 9: It's a question of your values.
Speaker 5: We don't have to provide an adequate retirement income to everybody. Again,
Speaker 5: that's not an economic comparative. So you can't actually divorce
Speaker 5: this from politics. This is all about the political decision.
Speaker 9: What are we going to try to close.
Speaker 5: This gap by making mostly the lives of older Americans tougher,
Speaker 5: or are we going to do it by raising taxes?
Speaker 5: But probably, I mean that includes raising taxes on the rich,
Speaker 5: but probably also at least a little bit more taxes
Speaker 5: on the middle class.
Speaker 2: I'm delaighted to say Professor Krugman will be staying with
Speaker 2: us as we turn from the fiscal issues that will
Speaker 2: face whomever is chosen to be the next president. So
Speaker 2: what difference is that choice will make for the economy?
Speaker 2: That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio.
Speaker 2: This is Wall Street Week. I'm David Weston. Doctor Paul
Speaker 2: Krugman of the City University of New York and the
Speaker 2: New York Times has remained with us. So doctor Kruman,
Speaker 2: let's look forward to this election we have coming up
Speaker 2: in November, and what economic choices the American people will
Speaker 2: be making as they go to the polls. Give us
Speaker 2: your sense of how different these two people, that is,
Speaker 2: Joe Biden and Donald Trump are in their approaches to
Speaker 2: the economy.
Speaker 5: Okay, so this is one of those cases where if
Speaker 5: you look at past experience, you would say, well, how
Speaker 5: much difference does it make? I mean, in a lot
Speaker 5: of ways, the economy of twenty twenty four looks a
Speaker 5: lot like the economy of twenty nineteen, pre pandemic, full employment,
Speaker 5: fairly low inflation.
Speaker 9: It's you know, worrying a little bit.
Speaker 5: But we were worrying about the difference between two and
Speaker 5: three not not anything major. It's it doesn't look as
Speaker 5: if it has made a whole lot of difference who's
Speaker 5: in the White House. But if there's a Trump too,
Speaker 5: then there's a lot of reasons to believe that it
Speaker 5: could be very different. There were What's amazing if you
Speaker 5: go back and look at Trump's first time in the
Speaker 5: White House was how little he did when all this
Speaker 5: said and done. You know, basically he got a moderate
Speaker 5: sized tax cut through sort of period, end of story.
Speaker 9: There wasn't a lot else that that went on.
Speaker 5: There were that's largely because there were institutional restraints there were.
Speaker 5: They couldn't get stuffed through Congress, couldn't couldn't tell the
Speaker 5: Federal Reserve what to do.
Speaker 3: Uh.
Speaker 9: That could be very very different right now.
Speaker 5: And if you take seriously what the what Trump uh
Speaker 5: former Trump aids are saying, Uh, it would be very
Speaker 5: very drastic name Biden would decontinuity.
Speaker 9: Biden, If you can do it.
Speaker 5: We'll do more, you know, some some further tax increases,
Speaker 5: some more green industrial policy, but probably not enough to
Speaker 5: make a huge difference to the macroeconomic numbers.
Speaker 9: Big differences in other respects.
Speaker 5: Trump well know that one of his former AIDS has
Speaker 5: been talking a lot about rounding up millions of immigrants
Speaker 5: supposedly undocumented, though wouldn't be surprising if a lot of
Speaker 5: legal immigrants got caught up in the net as well
Speaker 5: in deporting huge economic impacts, huge disruptions to the labor force.
Speaker 5: Another Peter Navarro, who's being interviewed from jail, but has
Speaker 5: said that Jay Powell will be fired within one hundred
Speaker 5: days and that we will basically have the politicization.
Speaker 9: Of monetary policy.
Speaker 5: And there's a lot of reasons to think that a
Speaker 5: Trump second term might see him become one of those
Speaker 5: autocrats who demands that you run the printing presses for
Speaker 5: his political gain. I mean, think of Urda and Turkey
Speaker 5: or something like that. So huge uncertainty. But I think
Speaker 5: anyone assuming that a second Trump term would look like
Speaker 5: the first one, with what ended up being fairly conventional,
Speaker 5: like in our policies, nothing and the Federal Reserve keeping
Speaker 5: the lid on things could be very in for a
Speaker 5: very rude shock.
Speaker 2: Picking up on your comment about monetary policy and fed
Speaker 2: SHO J. Powell, we had Ken Rogoff on somebody you
Speaker 2: know well, a fellow economists, and when.
Speaker 3: I asked that question of him.
Speaker 2: He said, the markets would not let president new president
Speaker 2: Trump do that, that they were to react really strong
Speaker 2: in the treasury markets, and he would not have that option.
Speaker 3: Is that plausible.
Speaker 5: The markets would certainly react, we would probably see acceleration
Speaker 5: of inflation, of plunge in the dollar.
Speaker 9: But you know, how does he respond to that.
Speaker 5: I mean, again, if you look at much smaller countries
Speaker 5: that are much more exposed to market pressure, like Turkey,
Speaker 5: authoritarian leaders have a habit of saying, well, the markets
Speaker 5: are wrong, and I'm going to order them to stop.
Speaker 5: But you know, you might be surprised at how much
Speaker 5: you know, socialism or at least in the sense of
Speaker 5: capital controls and other things might happen. You know, Trump
Speaker 5: says to the Fed, I want a booming economy. I
Speaker 5: want you to roll the printing presses, and the markets
Speaker 5: respond by driving the dollar.
Speaker 9: Down, in inflation up.
Speaker 5: He might well then say, well, I'm going to put
Speaker 5: on rules that stop that from happening. Rather than changing
Speaker 5: the policy. Remember, you know, we've had one, you know,
Speaker 5: since the immediate after Matthew World War two, we've had
Speaker 5: only one episode of price controls in America, and it
Speaker 5: was Richard Nixon, not some progressive Democrat who did it.
Speaker 5: So I think you want to be I understand Ken's point.
Speaker 5: He thinks that the bond vigilantes basically would would discipline Trump.
Speaker 9: But I don't think that's a safe bet.
Speaker 2: What about the prospect of inflation. Obviously tariffs tend to
Speaker 2: be inflation area rather than inflationary. At the same time,
Speaker 2: both President Biden and for President Trump seem to like
Speaker 2: tariffs pretty well.
Speaker 5: Well, there's a big difference. I mean, yes, both are
Speaker 5: doing terraffs. And Biden has not rolled back most of
Speaker 5: the Trump tariffs, which is politics, that's uh, you know
Speaker 5: there doesn't want to be accused of being soft on
Speaker 5: China or something like that. But if you look at
Speaker 5: the new proposals, they're actually although they both are proposing TIFFs,
Speaker 5: they're very different in the both in the details and
Speaker 5: in the purpose. So Trump's view is clearly he thinks
Speaker 5: of trade as a zero sum game. If we we
Speaker 5: win if we if other people buy our stuff, we
Speaker 5: lose if we buy other people's stuff. And so he
Speaker 5: wants to put a ring around the collar. He said,
Speaker 5: a ten percent tariff on everything, and the uh and
Speaker 5: maybe more for for some other countries. That's not at
Speaker 5: all what Biden is doing. What Biden is doing is
Speaker 5: some selective tariffs aimed at what he perceives as strategic sectors.
Speaker 2: And if I'm not mistaken, you generally support the notion
Speaker 2: we have to do, whoever the president is something to
Speaker 2: have to do to prevent a second, as you call it,
Speaker 2: China shock, such as we saw early around the time
Speaker 2: of the WTO, in order to basically it protect some
Speaker 2: of our workforce.
Speaker 5: Yeah, it's not so much jobs in the aggregate. Sorry
Speaker 5: it sounding like an ecmmist there, but it's not so
Speaker 5: much the total employment. We're not having a problem at
Speaker 5: least at the moment with overall employment. But what we
Speaker 5: learned rather painfully from the first China Shock was that
Speaker 5: sudden surges of imports can be disruptive in ways that
Speaker 5: a lot of standard economic models don't capture, though non
Speaker 5: standard models do. They can disrupt communities, they can disrupt
Speaker 5: strategic industries, and particularly if you are doing what Biden
Speaker 5: is doing, which is to try to sell climate policy
Speaker 5: in part by saying it also it creates manufacturing jobs,
Speaker 5: the political basis for that is going to be undermined
Speaker 5: if it ends up creating manufacturing jobs in China. So now,
Speaker 5: and this is a pride Look China. I don't think
Speaker 5: the Chinese seem to fully realize, but they they are
Speaker 5: having a situation of grossly inadequate domestic spending and relatives
Speaker 5: to their production capacity, and seem unwilling to boost their
Speaker 5: own demand, and they want to dump both in the
Speaker 5: sort of common language sense and probably in the in
Speaker 5: the illegal sense. They want to dump the excess production
Speaker 5: on the rest.
Speaker 9: Of the world.
Speaker 5: And it's not going to happen. We're not going to
Speaker 5: accept it. The Europeans are not going to accept it.
Speaker 5: So you have to do.
Speaker 3: Something because there's always such a treat to talk to you.
Speaker 2: Thank you so much, many thanks to our Nobil prize
Speaker 2: winging economist Paul Krugman. If opportunity doesn't knock, build a door.
Speaker 2: That was the advice of comedian Milton burrough For the
Speaker 2: last few years, employers have been knocking on the doors
Speaker 2: of job seekers with opportunity.
Speaker 4: Growth is slowed, but our labor market continues to be
Speaker 4: quite strong.
Speaker 2: And there are still firms on the hunt for more
Speaker 2: employees to expand their businesses, like in private credit.
Speaker 11: At ares, our differentiator is our ability to be in
Speaker 11: these local markets developing relationships with companies and assets. So
Speaker 11: by definition, we have to grow our headcount in order
Speaker 11: to support the au M target.
Speaker 2: And generative AI has brought to life a whole new
Speaker 2: job category of something called an AI prompt generator.
Speaker 12: I think that'll be all kinds of jobs that AI
Speaker 12: will create that we don't even know about, Like prompt
Speaker 12: engineer is a new job category. There's already lots of
Speaker 12: prompt engineers. There's going to be many more engineers now that.
Speaker 2: May be changing. Some of those job opportunities are drying up.
Speaker 2: TikTok employees this week learned there will be about one
Speaker 2: thousand less of them in their operations and marketing teams.
Speaker 2: Disney told Pixar that it was laying off fourteen percent
Speaker 2: of the staff that gave us toy story and Ratituwi.
Speaker 9: I need this job.
Speaker 5: I've lost so many I don't know how to cook
Speaker 5: and now I'm actually talking to a rat as if
Speaker 5: you did, you not.
Speaker 9: You understand me?
Speaker 3: And Red Lobster.
Speaker 2: Employees at restaurants across the country showed up for work
Speaker 2: only to find locked doors as the chain went into bankruptcy.
Speaker 12: Now seafood chain Red Lobster has fought for Chapter eleven
Speaker 12: bankruptcy after facing higher costs and a disastrous unlimited shrimp promotion.
Speaker 2: But at this time of year, we're particularly mindful of
Speaker 2: our college graduates, for whom that Milton Borough advice about
Speaker 2: building a door may be all too poignant. Members of
Speaker 2: the class of twenty twenty four have not had it
Speaker 2: easy from the beginning. From high school at the height
Speaker 2: of the pandemic, relegated to virtual graduations with no hope
Speaker 2: of a senior prom or senior prank. Many of them
Speaker 2: started college with remote learning and picking up box meals
Speaker 2: from closed cafeterias to be sure. They got to see
Speaker 2: the COVID vaccine turn things around dramatically, But just as
Speaker 2: they approached their first real graduation one they would be
Speaker 2: able to attend in person, the war in Gaza interrupted
Speaker 2: life on many college campuses, leading to graduation ceremonies that
Speaker 2: have been marred by protests or canceled altogether at places
Speaker 2: like Columbia.
Speaker 5: Columbia University today canceled their main commencement event for this
Speaker 5: school year following protest on campus in reaction to the
Speaker 5: war in Gaza.
Speaker 2: But however they got here, they now, at least most
Speaker 2: of them, have their college diplomas, only to be faced
Speaker 2: with a changed and changing job market, particularly in finance
Speaker 2: and consulting and technology. Firms are cutting back on their
Speaker 2: overall hiring, and those who already have the jobs are
Speaker 2: less likely to give them up. The other question is
Speaker 2: should be re evaluate how we work and how long
Speaker 2: we were. It's easy for those of us at the
Speaker 2: other end of our careers to say to those starting
Speaker 2: out that something better lies around the corner of many disappointments.
Speaker 2: At the beginning of my career, I was working for
Speaker 2: a judge in New York and wanted nothing more than
Speaker 2: to be hired as a law clerk for Supreme Court
Speaker 2: Justice Lewis Powell.
Speaker 3: I knew former.
Speaker 2: Clerks of his had studied his career and his decisions,
Speaker 2: that he was the one justice I dreamed of working for.
Speaker 2: I got an interview at the Court, took the train
Speaker 2: down to Washington, spent time with him and his clerks
Speaker 2: in his chambers. He was a reserved man, and I
Speaker 2: did not get any real sense of whether I had
Speaker 2: a chance or not. So a couple of weeks later,
Speaker 2: I was devastated to learn that he'd extended an offer
Speaker 2: to another clerk on the second circuit. I was certain
Speaker 2: that he wouldn't take two of us from the same court.
Speaker 2: I resigned myself to going in a different direction.
Speaker 3: So you can.
Speaker 2: Imagine my joy when I eventually got a call and
Speaker 2: Justice Powell's longtime assistant Sally Smith asked.
Speaker 3: Me to hold for the Justice.
Speaker 2: It turned out that I got what I'd wanted all along.
Speaker 2: It just took me a bit longer and a bit
Speaker 2: of emotional turmoil to get there. Now, I'm not saying
Speaker 2: it always works out that way. Often it doesn't, but
Speaker 2: I do know that regularly, in the course of a career,
Speaker 2: what seems like a wall turns out to be a door.
Speaker 2: After all, there may be a Sally out there giving
Speaker 2: us a call when we least expect it.
Speaker 3: That does it.
Speaker 2: For this episode of Wall Street Week, I'm David Weston.
Speaker 2: See you next week.