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Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with

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Speaker 1: David Gura. Daily we bring you insight from the best

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Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance

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Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course,

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Speaker 1: on the Bloomberg well Born. On a Tuesday, the twenty

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Speaker 1: two of August, This is Bloomberg Surveillance on Bloomberg Radio

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Speaker 1: David Gurrow with Francine Lakway in London. Tom Keene is

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Speaker 1: off this week. Connor d Quadra is here with me

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Speaker 1: in our Bloomberg eleven three studios in New York. Senior

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Speaker 1: economist at r Q Economics kind enough to stay with us.

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Speaker 1: He was on TV with me and friend as well.

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Speaker 1: Let's start by looking ahead to Jackson Hole, if if

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Speaker 1: we could, what are you going to be listening for?

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Speaker 1: You and Frank, we're talking about your inflation expectations during

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Speaker 1: Bloomberg Surveillance on Bloomberg Television. What are you gonna be

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Speaker 1: listening for from policy makers? From these Fed presidents gathered

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Speaker 1: uh in Jackson, Wyoming a little later this week. Well,

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Speaker 1: I think one of the main things is how strongly

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Speaker 1: does Janet Yellen still believe in the policy outlook that

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Speaker 1: was outlined at the last FED meeting, and particularly in

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Speaker 1: terms of the rate hike that the FED had in

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Speaker 1: its SEPs one more rate high this year I expected

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Speaker 1: to be in December. Is that's still likely? UM? And

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Speaker 1: also how closely do we the topic of the UM

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Speaker 1: symposium is obviously financial stability. That's a topic of Janet

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Speaker 1: yellen speech. UM. How closely does she link financial stability

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Speaker 1: to monetary policy? And that you know, obviously that's not

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Speaker 1: a UM one of the official mandates of of the FED,

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Speaker 1: and we know that that drug speaking there too, and

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Speaker 1: it's not a mandate of the of the e c B,

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Speaker 1: which has a single mandate of inflation. But how important

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Speaker 1: is that in policy? And how important is that in

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Speaker 1: in the outlook, and particularly as it relates to normalizing

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Speaker 1: balance sheets, given that that's I think one of the

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Speaker 1: risks to financial stability is in the very large size

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Speaker 1: of of UM big countries and big big countries center

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Speaker 1: bank balance sheets. SA. You look at that dual mandate,

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Speaker 1: there's the labor component and the inflation component. Do you

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Speaker 1: think that this feed has been paying too much attention

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Speaker 1: to one versus the other, well initially, and I think

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Speaker 1: that this was just the um the focus of Janet

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Speaker 1: Yellen as a labor market economist she was when she

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Speaker 1: first became FED chair was seems to be predominantly looking

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Speaker 1: at the labor marketing component, and I think that was

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Speaker 1: just a function of the fact that the unemployment it

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Speaker 1: was still very elevated UM, and now that the unemployment

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Speaker 1: rate has moved through what the FED thinks is a

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Speaker 1: rate that's consistent with full employment UM, the focus is

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Speaker 1: shift to inflation because we have inflation that's below their

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Speaker 1: their target. Now, my opinion is that this is not

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Speaker 1: a significant miss on on inflation one and a half

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Speaker 1: versus to percent inflation, but I don't think that that's

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Speaker 1: the view of the FED when they're looking at equilibrium rates,

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Speaker 1: at least the way that they look at policy. Equilibrium

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Speaker 1: rates have come down. Their ability to generate negative real

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Speaker 1: rate UM is challenged by a low equilibrium rate UH

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Speaker 1: and inflation that is below their targets, so that the

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Speaker 1: focus of the FED on inflation I think has been

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Speaker 1: has been ramped up, and in my opinion, is probably

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Speaker 1: a little bit too much. I don't think a half

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Speaker 1: a percentage point miss on inflation is something to get

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Speaker 1: too excited about, right, But but what if it underlied?

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Speaker 1: Conrad a bigger problem, right, that we're measuring things wrong

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Speaker 1: and that we need to have a whole set of

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Speaker 1: numbers or data points to see exactly what's going on

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Speaker 1: in the economy. Well, I think the there that's that's

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Speaker 1: a good point, UM. And it's gets back to the

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Speaker 1: the question about the FED UM in their models when

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Speaker 1: we have because they have this Phillips curve view of

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Speaker 1: the inflation process, which is not a view that that

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Speaker 1: UM I subscribe to, but but it is ingrained in

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Speaker 1: in the FED. And and last week we had the

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Speaker 1: Minutes and there were some doubters on the Phillips curve UM.

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Speaker 1: A lot was made of that. I think probably a

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Speaker 1: little bit too much, because there's always been doubters about

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Speaker 1: the Phillips curve um at the FED. But the predominant

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Speaker 1: view remains that when we have a labor market that's

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Speaker 1: relatively tight, that should lead to higher inflation. And obviously

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Speaker 1: that's not happening. So you know, the point that you

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Speaker 1: make that is the process has something changed. UM. I

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Speaker 1: don't think that that's that's necessarily the case. I mean,

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Speaker 1: I think they FED has always been a little bit

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Speaker 1: too focused on how much slack, particularly the labor market,

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Speaker 1: but economics slack more generally effects inflation UM without considering

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Speaker 1: other things, without considering the productivity environment. If we think

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Speaker 1: about wages, the FED has been questioning why haven't wages

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Speaker 1: moved up when um, the labor market is tight. Well,

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Speaker 1: I think that we need to also consider productivity. Productivity

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Speaker 1: growth is very low, So UM, is it really a

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Speaker 1: contrary to economic models that wage growth hasn't picked up

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Speaker 1: to the same degree as it has previously With the

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Speaker 1: unoplumber rate has moved down to close to four percent UM.

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Speaker 1: I don't think that it's that surprising given that productivity

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Speaker 1: growth is so much lower than it's been in the past.

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Speaker 1: So do you still look at the Philips curve? Well,

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Speaker 1: I mean I look at it from the trying to

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Speaker 1: assess how the FED might view the outlook. I I

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Speaker 1: don't My inflation outlook is is not necessarily based on

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Speaker 1: or I shouldn't necessarily it's not based on a Phillips

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Speaker 1: curve view. And I think that UM, from my perspective, First,

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Speaker 1: we have obviously had a number of special factors that

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Speaker 1: have affected inflation over the last few months. We've had, um,

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Speaker 1: the cell phone price wars. Obviously, we've had some extreme

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Speaker 1: volatility in medical care prices where we had significant increases

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Speaker 1: in things like prescription trucks towards the end of the

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Speaker 1: year and the early part of this year, and then

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Speaker 1: the reversal of that is what gave us this downtrend

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Speaker 1: in in core inflation. So I've had a number of

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Speaker 1: special factors. The most recent report, we would have had

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Speaker 1: a two tents increase in core CPI had it not

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Speaker 1: been for record decline in hotel prices. UM. So these

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Speaker 1: are are some some technical factors. Unfortunately, every month there

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Speaker 1: seems to be another one, and so the question is, uh,

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Speaker 1: you know, how long will there be this willingness to

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Speaker 1: say these are idiosyncratic factors. UM, it's not something to

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Speaker 1: be too worried about in terms of the FED. UM.

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Speaker 1: My expectation is we we probably aren't going to have

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Speaker 1: a special factor every month, and we'll have core inflation

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Speaker 1: trend back towards two percent. But as I said earlier,

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Speaker 1: I I just I'm not as concerned about inflation being

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Speaker 1: half a percent off target as the FED is the

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Speaker 1: watchword in Portugal a few weeks back was coordination. You're

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Speaker 1: gonna have Mario Draggy and Janet Yellen hanging out at

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Speaker 1: the chuck Wagons supper at Grand Titaw National Park. And

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Speaker 1: I wonder if you think because of that, we're going

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Speaker 1: to get more of an indication of how these two

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Speaker 1: central banks planned to exit the quantitative easing policies they

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Speaker 1: have in place. Well, I don't think that there's official

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Speaker 1: coordination on the part of central banks and that they

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Speaker 1: sit down and say, Okay, you know, I'm gonna start

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Speaker 1: to normalize my balance sheet UM drug times the tapering

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Speaker 1: announcement UM, because Janet Yellens has given that that indication

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Speaker 1: to him. I think it's more that the there's a

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Speaker 1: coordination of the dissipation of the tail risks in that

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Speaker 1: we had a tail risk in Europe with a possibility

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Speaker 1: related to political factors, and that tail risk is passed,

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Speaker 1: I think most importantly followed the following the election in

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Speaker 1: France UM and in the US. The tail risks, in

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Speaker 1: my opinion, passed a long time ago. UM, and so

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Speaker 1: at least that the downside tail risk I mean now

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Speaker 1: we I think we need to start thinking about the

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Speaker 1: potential tail risks on the other side, UM related to

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Speaker 1: this topic that's that's going to be discussed in in

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Speaker 1: Jackson Hole financial stability. Are there financial or unseen financial

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Speaker 1: stability risks from this very aggressive monetary policies of the

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Speaker 1: large central banks. So I don't think it's coordinated. I

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Speaker 1: think that that the what drove central banks to to

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Speaker 1: put these emergency policies in place. UM, those factors have dissipated,

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Speaker 1: and so now both here and in Europe, and so

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Speaker 1: now we're getting a synchronized move towards normalizing balance sheets

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Speaker 1: in there are different stages. You know, the US is

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Speaker 1: going to be winding down its balance sheet, the the

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Speaker 1: e c B is just gonna be adding at a

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Speaker 1: slower pace. Uh. And in the ECB a case that's

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Speaker 1: probably not probably most likely not gonna gonna start until UM.

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Speaker 1: But you know, it's just the similar factors that have

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Speaker 1: been driving qui um that they're sort of moving in

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Speaker 1: the same direction. Now about thirty seconds here, we'll come

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Speaker 1: back with you, but let me ask you about scarcity

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Speaker 1: when it comes to to the ECB into your How

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Speaker 1: worried are you? How worried you think the bank is

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Speaker 1: about about scarcity when it comes to purchases. Well, I

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Speaker 1: think that's part of the factor. And you know when

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Speaker 1: they look at how much buying they have if they

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Speaker 1: were to continue at this pace, um and UM it's

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Speaker 1: just given the capital key or are there enough assets

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Speaker 1: for them to buy. That's probably something that they're that

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Speaker 1: they're considering, but I don't think it's the primary driver

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Speaker 1: of their of their policy. I think that um, they

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Speaker 1: were worried and that we've heard this UM ECB meeting

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Speaker 1: after ECB meeting that they're the primary concern for them

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Speaker 1: was political geopolitical and and that concern has eased following

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Speaker 1: the last few few elections, or you know, even before that,

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Speaker 1: the concern of the further ramping up of populism after

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Speaker 1: the breaks of vote after the election of of Donald Trump, UM,

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Speaker 1: there were I think the big concern on their part

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Speaker 1: was where would we see some of that in France? UM,

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Speaker 1: And that didn't happen. So so there are still some

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Speaker 1: elections coming, UM, but I think the concerns have just dissipated.

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Speaker 1: Let me start there with the counter de quadras of

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Speaker 1: art Q economics is here in our Bloomberg eleven three

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Speaker 1: studios in New York. We're talking about Jackson whole prospects

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Speaker 1: for coordination, what effect that might have on currency? How

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Speaker 1: about dollar strength? We've seen such dollar weakness here over

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Speaker 1: these recent months. What's your forecast for outlook for the

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Speaker 1: strength of the dollar going forward? Well, obviously, with the

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Speaker 1: UH once we had the election, once we had the

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Speaker 1: prospect of of changes in fiscal policy, as the views

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Speaker 1: about the FED normalizing policy came more closely into view,

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Speaker 1: we had that big move in the dollar. UM. And

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Speaker 1: now that that has reversed. Now I questioned whether that

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Speaker 1: reversal has has gone too far? Are UM, whether it's

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Speaker 1: not necessarily because I think that the odds of getting

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Speaker 1: the tax reform are very high. You know, I'd love

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Speaker 1: to see it. I think that's a very important thing

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Speaker 1: and and necessary thing for the longer term US economic outlook. UM.

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Speaker 1: But I wonder whether maybe markets have gone too far

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Speaker 1: and their expectations for other central bank policies, whether it's

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Speaker 1: the Bank of Bank of England, whether it's the ECB UM,

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Speaker 1: and expectations there may have gotten a bit ahead of themselves. UM.

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Speaker 1: And also whether the markets are are appropriately reflecting the

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Speaker 1: adjustment and monetary policy in in the U s UM,

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Speaker 1: and whether we have Although the expectations are there for

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Speaker 1: this announcement on balance sheet normalization UM, it would expect

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Speaker 1: that once the Fed begins that process, that's going to

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Speaker 1: put some upper pressure on on the dollar. I still

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Speaker 1: think that the markets probably underpricing what the Fed is

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Speaker 1: likely to do on rates, and and that should pressure

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Speaker 1: the dollar higher also, so I remain of the view

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Speaker 1: that the the the the direction of the dollars is

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Speaker 1: likely to be towards a stronger position UM. But UM

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Speaker 1: might might take a few a few weeks here to

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Speaker 1: get further information on monetary policies and and as we

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Speaker 1: get into the fiscal policy to play it. Of course,

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Speaker 1: the first thing that needs to happen on that front

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Speaker 1: UH is UM getting through the the debt ceiling and

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Speaker 1: passing that extension to the debt ceiling. UM. That's gonna

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Speaker 1: be a big step. And I think that once that

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Speaker 1: gets behind us, once we see that the UM Congress

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Speaker 1: of the Administration can work together on getting that done,

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Speaker 1: then maybe we start to look more seriously about the

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Speaker 1: prospects for for a tax reform. I wanted to ask

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Speaker 1: you just about the dilemma the FED faces, the administration

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Speaker 1: faces everyone faces every time a labor report comes out.

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Speaker 1: It seems we see such slow wage growth and productivity

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Speaker 1: is still a very big concern. Do you see a

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Speaker 1: way out here when it comes to that something that

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Speaker 1: could jumpstart wage growth in particular, Well, if the we

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Speaker 1: get the wage growth, but it's just simply because the

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Speaker 1: UM the labor market has gotten so tight UM that

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Speaker 1: companies are competing for a small amount of of labor

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Speaker 1: and in fact not we're not any longer talking about

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Speaker 1: unused labor, they're just competing among labor that that each

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Speaker 1: company has. We get that sort of upper pressure on

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Speaker 1: wages UM and that is that that kind of an outcome.

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Speaker 1: I don't think it is necessarily a good one, and

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Speaker 1: that it either leads to a squeeze on corporate profits

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Speaker 1: UM or it leads to a more significant pick up

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Speaker 1: and inflation as companies try to pay for that. And

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Speaker 1: and that could then UM get a more aggressive response

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Speaker 1: out of the Fed. Obviously, what would be more UM

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Speaker 1: positive is if that pressure on wages up where it

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Speaker 1: comes from from stronger productivity growth. Uh, And that's a

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Speaker 1: much more slower moving process. But it's a process that

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Speaker 1: I think relates to to tax reform UH in that

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Speaker 1: one of the issues I think on productivity growth is

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Speaker 1: that we've haven't had the investments in capital that we've

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Speaker 1: we've had in the past UM. And if we were

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Speaker 1: to have tax reform UM, I think that's something that

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Speaker 1: could encourage more business investment in capital. UM could put

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Speaker 1: upper pressure on growth rate of productivity, and then we

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Speaker 1: would have I think a more positive UH force on

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Speaker 1: on wages, resulting in stronger wage growth than just simply

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Speaker 1: that being related to tightness in the labor market. UM. Conoran,

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Speaker 1: you were talking there about the ECB and the b

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Speaker 1: o E. Who has a currency problem. So the b

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Speaker 1: o E is dealing with a falling pound and of

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Speaker 1: course that's pushing up inflation, but it's not the kind

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Speaker 1: of the sticky kind of inflation. But then the ECB

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Speaker 1: seems to be mentioning it's worried about your levels. I

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Speaker 1: think that right now, the Bank of England probably has

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Speaker 1: the bigger problem in that UM. Both the E c

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Speaker 1: B in the Bank of England are single mandate institutions UM,

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Speaker 1: at least in theory, and I know that they're both

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Speaker 1: strayed a little bit from that than the and they

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Speaker 1: have in the past. But um, we have inflation in

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Speaker 1: the UK that's i'd say, you know, well ahead of

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Speaker 1: where they would like to see their target. Um, that's

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Speaker 1: I think unlikely to reverse significantly. They're not even expecting

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Speaker 1: it to reverse. With the pound weakening to the extent

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Speaker 1: that it has. Um. The e c B right now

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Speaker 1: is just talking about some concerns. At least there's a

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Speaker 1: few people on the Governing Council that that might be

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Speaker 1: a little bit concerned, um that the strength of the

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Speaker 1: euro is is going to undo some of the progress

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Speaker 1: that we've seen in the in the Eurozone. But I

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Speaker 1: think they're the bigger problem. UM. As far as the

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Speaker 1: central banks, that it relates to the Bank of England

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Speaker 1: and that there's there's really um nothing that that we're

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Speaker 1: likely to see that we're that reverses this this weakening

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Speaker 1: in the pound, um. Given how that influences UK inflation,

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Speaker 1: it has a much stronger influence on UK inflation than

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Speaker 1: U dollar movements have on on US inflation. UM. And

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Speaker 1: so I think that that's likely to be an issue

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Speaker 1: for them. With inflation running where it is. Sterling right

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Speaker 1: at Connor Dequadra's twint us here in a Bloomberg level

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Speaker 1: of three of studios in New York. Senior economists at

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Speaker 1: rd Q Economics, thanks for the time here on radio. Well,

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Speaker 1: the presidents I mentioned delivered in the speech to the

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Speaker 1: nation last night from Fort Myer just outside Washington did

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Speaker 1: He focused on US strategy in Afghanistan and pleasure to

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Speaker 1: have Larry Corb with us now. He's with the Center

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Speaker 1: for American Progress, left leaning think tank in Washington, d C.

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Speaker 1: He was an official in the Reagan administration. Larry the

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Speaker 1: President at the beginning of that speech said, my original

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Speaker 1: instinct was to pull out, and historically I like following

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Speaker 1: my instincts. The president did not do that. He did

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Speaker 1: a bit of an about face here. How how radical

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Speaker 1: transformation has this president undergone when it comes to his

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Speaker 1: thinking on the war in Afghanistan? Well, I think it's

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Speaker 1: very radical, and I mean basically what he said in

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Speaker 1: the campaign was pretty well motivated by people like Steve

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Speaker 1: Bannon who are not there and in the administration. Now

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Speaker 1: you got, you know, three generals who nobody would have

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Speaker 1: thought would have been that close to a candidate like

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Speaker 1: like President Trump and it's clear they're the ones who

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Speaker 1: convinced him to take the stand he's taking now about Afghanistan.

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Speaker 1: Put a question to you that I put to Michael

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Speaker 1: Reubin from the American Enterprise Institute a few minutes ago

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Speaker 1: on Bloomberg Television, how does this war end? How does

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Speaker 1: the war in Afghanistan? And it doesn't seem like a

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Speaker 1: lot of people are talking about a political solution. When

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Speaker 1: you look at how wars have ended in the past,

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Speaker 1: that's where and how they have ended. How do you

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Speaker 1: see this coming to a close? Well, basically, you're going

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Speaker 1: to have at some point, if you can get a

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Speaker 1: stable government in Afghanistan that has the support of the

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Speaker 1: majority of the people to come to some sort of

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Speaker 1: agreement with the Taliban to allow them to have control

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Speaker 1: in particularly in the southern Pastoon areas, assuming that they

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Speaker 1: go along with the constitution. It's not going to be perfect,

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Speaker 1: but that's what you need. And then you have to

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Speaker 1: have all the country surrounding get Russia, China, India and Pakistan,

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Speaker 1: you know, ensure that that arrangement holds, because none of

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Speaker 1: them want an unstable Afghanistan. But it's very easy to

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Speaker 1: say that's what you need. It's hard to get from

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Speaker 1: from here to there, Larry. With the President now warning

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Speaker 1: against a hasty Afghanistan withdrawal, what does this tell us

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Speaker 1: about the administration's appetite to be much more involved in

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Speaker 1: foreign policy. Well, I think and I give the president

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Speaker 1: credit for that, for changing his you know, his campaign

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Speaker 1: rhetoric on on this particular issue, as well as rejecting

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Speaker 1: the Steve Bannon proposal that we turn it over to,

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Speaker 1: you know, a group of contractors to fight. I think

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Speaker 1: what it says he's going to be very more traditional

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Speaker 1: foreign policy president, much like George W. Bush and Barack Obama,

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Speaker 1: rather than this you know, radical person who basically said,

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Speaker 1: you know, we've got to rebuild America and stop worrying

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Speaker 1: about the world. All right. What is the one thing

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Speaker 1: that actually surprised you that was most in the speech

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Speaker 1: yesterday again, is it's a little bit like what David

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Speaker 1: was alluding to that he may have turned so now

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Speaker 1: he listens to his counsel. Or is it just that

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Speaker 1: he's not afraid of alienating his base, after all, his

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Speaker 1: campaign was based on making you know, America first, and

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Speaker 1: this is not America first. Well, I think it surprised

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Speaker 1: me that he has been captured, if you will, and

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Speaker 1: I'm not using that in the derogatory sense by the

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Speaker 1: traditional foreign policy establishment, because had people thought that that's

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Speaker 1: what they were voting for. Is very unlikely that a

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Speaker 1: lot of Wooden voted for him. When he's talked about

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Speaker 1: quote unquote train the swamp. I mean, you could have

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Speaker 1: Kelly Madison McMaster, you know, in a Secretary Clinton administration,

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Speaker 1: h or you know Barack Obama administration. In fact, you

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Speaker 1: know all three of them were. We're in the Obama administration.

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Speaker 1: David Grey here in your fancy laqwa in London. We're

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Speaker 1: talking to Larry Corby the Center for American Progress. He

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Speaker 1: joins us on our phone lines to continue to analyze

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Speaker 1: the speech President Trump delivered last night at Fort Meyer

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Speaker 1: on the subject of U S strategy in Afghanistan, and

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Speaker 1: he talked a bit about Pakistan as well. Larry Corby,

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Speaker 1: if I could ask you about that. He said, it's

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Speaker 1: time for Pakistan to demonstrate its commitment to civilization order

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Speaker 1: and to piece how complicated is this relationship right now

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Speaker 1: between the US and Pakistan, How essential is pack stands

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Speaker 1: through the US as we continue to support support troops

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Speaker 1: in Afghanistan. Well, it's essential because Afghanistan as a landlocked

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Speaker 1: country and you've got to get a lot of the

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Speaker 1: supplies there through UH, through through Pakistan. The Pakistani's have

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Speaker 1: different objectives than we do in Afghanistan. They don't want

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Speaker 1: to see it become a haven, if you will, or

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Speaker 1: place for India to have have have influence. They're also

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Speaker 1: concerned about the fact that they have an element of

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Speaker 1: the Taliban in in UH in Pakistan, the Hakkani, the

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Speaker 1: Hakkani network that they don't want to get involved in

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Speaker 1: a big conflict, big conflict with So it's one of

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Speaker 1: those things that and you know, his predecessors have tried

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Speaker 1: to deal with this. As somebody from the Bush administration

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Speaker 1: told me one time, the Pakistani's are with you Monday,

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Speaker 1: Wednesday and Friday, Tuesday, Thursday and Saturday. They're on the other,

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Speaker 1: you know, on the other hand. And this thing talking

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Speaker 1: about the fact that well India will you know, work

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Speaker 1: with Pakistan on that No, that that's not going that's

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Speaker 1: not going to going to happen. What the Pakistani's want

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Speaker 1: as a stable situation in Afghanistan that doesn't allow any

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Speaker 1: of the outside countries to get undue influence because they'll

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Speaker 1: see that as a threat to them. Help us with

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Speaker 1: the history here. Remember when the US entered into this war,

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Speaker 1: there was a lot of commentary about the Soviets failed

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Speaker 1: experiment in Afghanistan as well, You and and others must

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Speaker 1: be able to sympathize with the President's frustration that this

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Speaker 1: continues to go on. He said last night, he doesn't

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Speaker 1: want to precipitous out from this conflict. That's not a

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Speaker 1: tenable solution as well. But there is an element among

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Speaker 1: many American people of exhaustion here. Well, there is, and

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Speaker 1: I think what people don't realize. We talk about whether

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Speaker 1: you've got the terrorists and you've got the Taliban, you

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Speaker 1: have a lot of other conflicts going on in Afghanistan.

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Speaker 1: Even you know, the Pashtoons, who you know, we usually

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Speaker 1: put in government. They have rivalries, you know, among themselves,

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Speaker 1: as you will in the northern and southern You've got

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Speaker 1: the Northern Alliance that doesn't like the Pashtoons there, you know.

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Speaker 1: And you also have sort of the cultural revolution where

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Speaker 1: you have the you know, folks in the city and

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Speaker 1: the folks in the in the country countryside. So there's

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Speaker 1: a lot of elements going on in there, and that's

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Speaker 1: why you know, people called it the Graveyard of the Empires,

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Speaker 1: because everybody who's tried to control that has found it

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Speaker 1: almost impossible to do. We're concerned, the President said this,

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Speaker 1: I think correctly about you know, al Qaeda and ISIS.

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Speaker 1: But you don't have to be there to deal with them.

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Speaker 1: You can attack them, you know, with from from Afar,

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Speaker 1: as we're doing in places like Yemen. We're attacking Alcade

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Speaker 1: in the Arabian Peninsula. So the idea that somehow another

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Speaker 1: to you know, prevent an attack on the United States.

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Speaker 1: You've got to control Afghanistan now, and really, until you

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Speaker 1: get a government that has the support of the majority

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Speaker 1: of the people, you're gonna continue to have these divisions.

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Speaker 1: I think in the long run, the Taliban are going

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Speaker 1: to take part of the country, the government will have

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Speaker 1: have another, and they'll be a very loose relationship there. Larry,

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Speaker 1: the President didn't give much detail, but he did say

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Speaker 1: that the new war plan will prevent a vacuum for terrorists.

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Speaker 1: How can we be so sure? Well, you can't and

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Speaker 1: and and again, you know, by giving the military more

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Speaker 1: authority to launch attacks, obviously, this will make the you know,

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Speaker 1: the folks fighting the war on the ground better. But

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Speaker 1: the fact is that you can cause more problems than

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Speaker 1: you solve. You may kill some terrorists, but if you

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Speaker 1: kill innocent people, that's going to create more. Remember Don

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Speaker 1: Rubsvell Bush's Secretary Defense set for every you know, one

432
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Speaker 1: of these people you kill, you create sex more and

433
00:22:48,800 --> 00:22:51,760
Speaker 1: it's not going to be one. Militarily, you have to

434
00:22:51,880 --> 00:22:58,000
Speaker 1: undermine what attracts people to this, you know, horrible, horrible ideology.

435
00:22:58,240 --> 00:23:00,880
Speaker 1: So I think that that's important because you can win

436
00:23:00,920 --> 00:23:03,919
Speaker 1: the battles but lose the war. And I think, you know,

437
00:23:04,040 --> 00:23:06,720
Speaker 1: we need to keep that, keep that in mind and

438
00:23:06,760 --> 00:23:10,679
Speaker 1: recognize that in dealing with threats from terrorists, it's not

439
00:23:10,800 --> 00:23:13,440
Speaker 1: just what you do on the battlefield's your homeland security

440
00:23:13,520 --> 00:23:17,520
Speaker 1: sharing intelligence. I mean, these folks that were motivated in Barcelona,

441
00:23:18,080 --> 00:23:21,080
Speaker 1: you can't stop that even if you kill more Taliban

442
00:23:21,240 --> 00:23:24,359
Speaker 1: or al Qaeda or ISIS people. Right, But in the US,

443
00:23:24,440 --> 00:23:27,040
Speaker 1: for example, fight on multiple fronts. So if you're so

444
00:23:27,080 --> 00:23:29,760
Speaker 1: committed to Afghanistan, what does it mean for you know,

445
00:23:29,920 --> 00:23:32,320
Speaker 1: US is foreign policy and for example the Middle East

446
00:23:32,320 --> 00:23:35,360
Speaker 1: in Syria, but also how you deal with North Korea. Well,

447
00:23:35,400 --> 00:23:37,120
Speaker 1: it does. And I think you know, when we went

448
00:23:37,160 --> 00:23:40,600
Speaker 1: into Afghanistan after two thousand one, we were a hedge

449
00:23:40,600 --> 00:23:42,640
Speaker 1: of mind. I mean, actually we were on a way

450
00:23:42,680 --> 00:23:46,199
Speaker 1: to eliminating our federal deficit. No, but we didn't have

451
00:23:46,280 --> 00:23:50,680
Speaker 1: any peer competitors. You know, sixteen years it's different. I mean,

452
00:23:51,119 --> 00:23:53,760
Speaker 1: General Dunford, the Chairman of the Joint Chiefs staffs it

453
00:23:53,800 --> 00:23:56,240
Speaker 1: is our main threat as Russia, and you've got the

454
00:23:56,400 --> 00:24:00,720
Speaker 1: Chinese have a much better military, much better economy, and

455
00:24:00,840 --> 00:24:04,840
Speaker 1: so we're putting more troops into into Europe. So the

456
00:24:04,880 --> 00:24:08,480
Speaker 1: real question is, you know, can you prioritize and how

457
00:24:08,480 --> 00:24:10,679
Speaker 1: do you do it? I mean when he was talking

458
00:24:10,800 --> 00:24:14,160
Speaker 1: last night about you know, getting the State Department more involved,

459
00:24:14,600 --> 00:24:16,639
Speaker 1: but then he didn't point out the fact that his

460
00:24:16,720 --> 00:24:20,600
Speaker 1: budget cut from the State Department budget to fund more defense.

461
00:24:21,000 --> 00:24:22,919
Speaker 1: I mean, and so those are things. I mean, we

462
00:24:23,240 --> 00:24:25,840
Speaker 1: you know, we're still the world's pre eminent power, but

463
00:24:25,960 --> 00:24:28,560
Speaker 1: we're not hedge him on anymore. We've got a lot

464
00:24:28,600 --> 00:24:32,359
Speaker 1: of competition and we have to start, you know, prioritizing.

465
00:24:32,720 --> 00:24:35,200
Speaker 1: We're speaking with Larry Corby the Center for American Progress

466
00:24:35,200 --> 00:24:37,919
Speaker 1: from resistant Secretary of Defense, and Larry, let me just

467
00:24:37,920 --> 00:24:41,080
Speaker 1: step back to ask you about the President's National security

468
00:24:41,080 --> 00:24:43,320
Speaker 1: team right now. I know you've observed it from there

469
00:24:43,320 --> 00:24:45,879
Speaker 1: in Washington, d C. Is it operating in a more

470
00:24:46,000 --> 00:24:48,639
Speaker 1: uniform fashion now? Is there is there is still the

471
00:24:48,680 --> 00:24:52,159
Speaker 1: tension that existed even during the about administration between the

472
00:24:52,240 --> 00:24:54,640
Speaker 1: national security team at the White House and the Pentagon.

473
00:24:54,760 --> 00:24:58,480
Speaker 1: Say no, it isn't now because basically you've turned it

474
00:24:58,560 --> 00:25:02,359
Speaker 1: over to the general's I mean Madison Kelly, you know,

475
00:25:02,440 --> 00:25:05,359
Speaker 1: are both Marines who came into the Marines at about

476
00:25:05,359 --> 00:25:09,119
Speaker 1: the same time, served together. General Dunford, who's a chairman

477
00:25:09,160 --> 00:25:11,359
Speaker 1: of the Joint chiefs of Staff, also serve with him.

478
00:25:11,359 --> 00:25:13,640
Speaker 1: So you've got three Marines up there. And then you've

479
00:25:13,640 --> 00:25:16,720
Speaker 1: got General McMaster, who's a rising star in the army.

480
00:25:16,720 --> 00:25:19,399
Speaker 1: He was a hero in the First Gulf War. And

481
00:25:19,440 --> 00:25:21,520
Speaker 1: then of course you know he was the one who

482
00:25:21,800 --> 00:25:24,840
Speaker 1: really portray has got credit for, but he started, you know,

483
00:25:24,880 --> 00:25:28,040
Speaker 1: this whole counterinsurgency strategy when it was a field commander

484
00:25:28,040 --> 00:25:31,840
Speaker 1: in I Rock. So you've got you know, basically the

485
00:25:32,480 --> 00:25:36,680
Speaker 1: military establishment basically running things, and you know, the people

486
00:25:36,680 --> 00:25:40,680
Speaker 1: who disagreed, whether it's Bannon or you know, the mooch

487
00:25:40,840 --> 00:25:46,520
Speaker 1: or whoever else they're gone. They are indeed, And I

488
00:25:46,560 --> 00:25:49,119
Speaker 1: wonder at this point can you can you can you

489
00:25:49,160 --> 00:25:52,320
Speaker 1: easily synthesize what the what the national security strategy of

490
00:25:52,400 --> 00:25:54,560
Speaker 1: this president is? His friend mentioned there was so much

491
00:25:54,600 --> 00:25:57,560
Speaker 1: rhetoric about America first on the campaign trail, has more

492
00:25:57,640 --> 00:26:00,120
Speaker 1: nuanced been introduced since then? Do you have a good

493
00:26:00,200 --> 00:26:02,320
Speaker 1: of what the strategy overall is? And did we make

494
00:26:02,400 --> 00:26:04,440
Speaker 1: some steps toward that last night in the speech that

495
00:26:04,480 --> 00:26:06,560
Speaker 1: we heard from the president. Well, I think he moved

496
00:26:06,560 --> 00:26:08,600
Speaker 1: in the right direction, and I think he was right.

497
00:26:08,720 --> 00:26:11,159
Speaker 1: You know, for example, he was willing to turn it

498
00:26:11,200 --> 00:26:13,080
Speaker 1: over the contract us here a couple of weeks ago,

499
00:26:13,119 --> 00:26:15,720
Speaker 1: if you can believe some of the reports, is the

500
00:26:15,760 --> 00:26:19,640
Speaker 1: Erik Prince's outfit of the propos black Waters. And remember

501
00:26:19,680 --> 00:26:23,840
Speaker 1: that Eric's sister, you know, works in the education right,

502
00:26:23,960 --> 00:26:27,400
Speaker 1: So I think that is a step in the right direction.

503
00:26:27,440 --> 00:26:29,200
Speaker 1: And I think the fact that we don't want to

504
00:26:29,240 --> 00:26:33,639
Speaker 1: precipitous withdrawal from Afghanistan is also you know correct. The

505
00:26:33,720 --> 00:26:37,680
Speaker 1: question is okay, you've done that, now what when will

506
00:26:37,760 --> 00:26:39,919
Speaker 1: you know? How long will you go on? And what

507
00:26:39,960 --> 00:26:43,120
Speaker 1: do you do if the Afghan government can never get

508
00:26:43,119 --> 00:26:46,920
Speaker 1: the support of the people. I mean, you know the

509
00:26:47,119 --> 00:26:49,280
Speaker 1: you know, they've been in power. We created that in

510
00:26:49,320 --> 00:26:52,400
Speaker 1: two thousand and one, so they've been there for sixteen

511
00:26:52,480 --> 00:26:54,680
Speaker 1: years and they still don't have the support of the people.

512
00:26:54,760 --> 00:26:58,000
Speaker 1: And yeah, the Taliban are making some gains militarily, but

513
00:26:58,119 --> 00:27:01,840
Speaker 1: they're making gains because the people don't trust the people

514
00:27:01,920 --> 00:27:04,720
Speaker 1: in cobble. Larry, thanks so much, appreciate all your time

515
00:27:04,760 --> 00:27:07,040
Speaker 1: this morning here on Bloomberg Radio, Blomberg Television as well.

516
00:27:07,119 --> 00:27:09,440
Speaker 1: Larry Corb at the Center for American Progress, left leaning

517
00:27:09,440 --> 00:27:12,119
Speaker 1: think tank in Washington, d CEE. Of course, his service

518
00:27:12,359 --> 00:27:15,000
Speaker 1: for the US government included a stint as Assistant Secretary

519
00:27:15,280 --> 00:27:30,119
Speaker 1: of Defense. David Gurraw here in New York. Francy Lakway

520
00:27:30,200 --> 00:27:31,879
Speaker 1: in London. Tom Keene is off this week. This is

521
00:27:31,880 --> 00:27:34,920
Speaker 1: Bloomberg Surveillance on Bloomberg Gradio. We contend to analyze the

522
00:27:34,960 --> 00:27:37,240
Speaker 1: speech the President gave last night at Fourth Meyer just

523
00:27:37,240 --> 00:27:40,720
Speaker 1: outside Washington, d C, focused on U S strategy in Afghanistan.

524
00:27:40,720 --> 00:27:42,679
Speaker 1: Here to give us his perspective now is Eric Fanning,

525
00:27:42,920 --> 00:27:44,640
Speaker 1: a former U S Secretary of the Army. He joins

526
00:27:44,680 --> 00:27:47,640
Speaker 1: us from our Bloomberg studios in Washington, d C. Great

527
00:27:47,680 --> 00:27:49,520
Speaker 1: to have you with us on the program, and I

528
00:27:49,520 --> 00:27:51,600
Speaker 1: wonder if I could just ask you, first of all

529
00:27:51,680 --> 00:27:53,720
Speaker 1: here sort of what do you make of the broad

530
00:27:53,840 --> 00:27:56,640
Speaker 1: theme to this the president's approach to foreign policy visa

531
00:27:56,720 --> 00:27:59,840
Speaker 1: v what he's proposed in Afghanistan. Does it indicate to

532
00:27:59,840 --> 00:28:03,199
Speaker 1: you a more overarching strategy for US engagement in the world.

533
00:28:03,840 --> 00:28:06,160
Speaker 1: It doesn't really to me. What I heard last night

534
00:28:06,320 --> 00:28:10,160
Speaker 1: actually um wasn't a strategy per se or a new strategy.

535
00:28:10,200 --> 00:28:12,840
Speaker 1: It's more of the same. Really. What I think it's

536
00:28:12,840 --> 00:28:15,200
Speaker 1: important about tonight is the is the president coming to

537
00:28:15,240 --> 00:28:18,000
Speaker 1: the realization that the options in Afghanistan are much more

538
00:28:18,040 --> 00:28:21,560
Speaker 1: complicated and much narrower than he probably realized when he

539
00:28:21,600 --> 00:28:24,639
Speaker 1: was a candidate. What HELPUSS understands with the process that

540
00:28:24,720 --> 00:28:27,800
Speaker 1: led to the speech last night? Shortly after he was inaugurated,

541
00:28:27,800 --> 00:28:30,119
Speaker 1: he went to Secretary of Defense James Madis asked for

542
00:28:30,119 --> 00:28:33,160
Speaker 1: a review of the strategy in Afghanistan? How did all

543
00:28:33,160 --> 00:28:35,280
Speaker 1: of that play out? Are you? Are you satisfied that

544
00:28:35,320 --> 00:28:36,879
Speaker 1: he heard from the right people leading up to this

545
00:28:36,920 --> 00:28:39,920
Speaker 1: decision which he announced last night. I'm satisfied he heard

546
00:28:39,920 --> 00:28:42,680
Speaker 1: from the right people when he was considering the military

547
00:28:42,720 --> 00:28:46,400
Speaker 1: aspect of this strategy. It's a very deliberate process that

548
00:28:46,480 --> 00:28:49,800
Speaker 1: any administration goes through. UH. It takes a great deal

549
00:28:49,800 --> 00:28:51,560
Speaker 1: of time, and it can be very frustrating when you're

550
00:28:51,560 --> 00:28:54,520
Speaker 1: in the middle of it. My concern in this administration

551
00:28:54,840 --> 00:28:59,280
Speaker 1: is that there he's not hearing from all elements of

552
00:28:59,360 --> 00:29:02,080
Speaker 1: those who should be advising him. And I'm thinking particularly

553
00:29:02,120 --> 00:29:05,360
Speaker 1: of the State Department, the department that is in many

554
00:29:05,360 --> 00:29:08,600
Speaker 1: ways being guided, the appointees aren't in place, the budgets

555
00:29:08,600 --> 00:29:11,160
Speaker 1: being slashed, and I think I have a great deal

556
00:29:11,200 --> 00:29:13,400
Speaker 1: of confidence coming out of eight years in the Pentagon

557
00:29:13,720 --> 00:29:16,840
Speaker 1: that he's getting really good, sound military advice. But that's

558
00:29:16,880 --> 00:29:18,840
Speaker 1: only one element of what should be a part of

559
00:29:18,840 --> 00:29:22,280
Speaker 1: this strategy, right, what should the rest of the strategy?

560
00:29:22,280 --> 00:29:24,440
Speaker 1: B Secretary? If you look at, you know, the position

561
00:29:24,440 --> 00:29:27,040
Speaker 1: that the US has now taken on Afghanistan, what does

562
00:29:27,080 --> 00:29:29,120
Speaker 1: it mean with how they deal with the Middle East,

563
00:29:29,200 --> 00:29:32,560
Speaker 1: but also Russia and I imagine China trying to get

564
00:29:32,640 --> 00:29:35,400
Speaker 1: them closer to deal with Korea. Well, I think I

565
00:29:35,440 --> 00:29:37,520
Speaker 1: would say the same thing for all of these regions.

566
00:29:37,560 --> 00:29:41,040
Speaker 1: The military is an important component of what should be

567
00:29:41,080 --> 00:29:43,479
Speaker 1: a broader strategy that should have all the tools of

568
00:29:43,560 --> 00:29:46,880
Speaker 1: the U s foreign policy national security toolbox at play,

569
00:29:46,880 --> 00:29:49,400
Speaker 1: whether it's China, whether it's Russia, whether it's the Middle East.

570
00:29:49,840 --> 00:29:53,160
Speaker 1: And so what I would hope to see is a

571
00:29:53,240 --> 00:29:56,640
Speaker 1: stepped up appreciation for those other elements, so that he's

572
00:29:56,640 --> 00:30:00,000
Speaker 1: not just relying on the military advice and the military

573
00:29:59,760 --> 00:30:02,240
Speaker 1: st rategy. Right. But sector when you say this is

574
00:30:02,240 --> 00:30:04,080
Speaker 1: more of the same, I mean, for me, you know,

575
00:30:04,120 --> 00:30:07,200
Speaker 1: an outsider far away, it felt different because this was

576
00:30:07,200 --> 00:30:08,960
Speaker 1: one of the first times that the president first of

577
00:30:09,000 --> 00:30:12,000
Speaker 1: all acknowledged his previous stance on something and that actually

578
00:30:12,000 --> 00:30:13,880
Speaker 1: have changed my mind, and this is what we're going

579
00:30:13,920 --> 00:30:17,040
Speaker 1: to do. Does it not feel like it's it's um.

580
00:30:17,080 --> 00:30:19,160
Speaker 1: I don't know if it's a you know, reborn of

581
00:30:19,200 --> 00:30:21,520
Speaker 1: the president, but certainly it's a different side to the

582
00:30:21,520 --> 00:30:24,520
Speaker 1: president that we've seen. Well, that's exactly what I was saying.

583
00:30:24,520 --> 00:30:27,240
Speaker 1: I don't think that there's any real change here in

584
00:30:27,240 --> 00:30:29,440
Speaker 1: the strategy. In as much as you can call it

585
00:30:29,480 --> 00:30:31,840
Speaker 1: a strategy that he rolled out last night, it is

586
00:30:31,840 --> 00:30:35,440
Speaker 1: a fundamental change in his viewpoint and in the decision

587
00:30:35,520 --> 00:30:38,640
Speaker 1: that he's made to sort of stay the course provides

588
00:30:38,680 --> 00:30:42,480
Speaker 1: some more troops to change the momentum of the existing strategy.

589
00:30:42,520 --> 00:30:45,719
Speaker 1: That's the biggest change from last night, it's the president's

590
00:30:45,800 --> 00:30:48,440
Speaker 1: view and the decision that he came to. I wanted

591
00:30:48,440 --> 00:30:50,520
Speaker 1: to ask you. You were in the Pentagon when the

592
00:30:50,520 --> 00:30:54,040
Speaker 1: Secretary Defense ash Quarter opened the services to transgender Americans

593
00:30:54,040 --> 00:30:56,160
Speaker 1: to serve in the armed forces, and we had this

594
00:30:56,200 --> 00:30:58,240
Speaker 1: flurry of tweets from the President a few weeks ago,

595
00:30:58,960 --> 00:31:02,080
Speaker 1: seemingly reversing that that decision. What would you make of

596
00:31:02,160 --> 00:31:05,200
Speaker 1: the way that that was announced And would be curious

597
00:31:05,200 --> 00:31:07,200
Speaker 1: if you've had any eddication from folks within the Pentagon,

598
00:31:07,400 --> 00:31:10,400
Speaker 1: within the defense community about the degree to which that

599
00:31:10,400 --> 00:31:13,680
Speaker 1: that's been used as some sort of executive order. Well,

600
00:31:13,760 --> 00:31:15,760
Speaker 1: I think there's still a great deal of confusion as

601
00:31:15,800 --> 00:31:19,440
Speaker 1: to what's going to actually happen going forward with transgender service.

602
00:31:20,040 --> 00:31:25,400
Speaker 1: I'd never have experienced a major policy announcement via tweet

603
00:31:25,440 --> 00:31:28,760
Speaker 1: before UM and these are very complicated issues that took

604
00:31:28,800 --> 00:31:31,840
Speaker 1: us an entire year UH to figure out how to

605
00:31:32,240 --> 00:31:34,400
Speaker 1: change the policy in the first place and how to

606
00:31:34,480 --> 00:31:37,800
Speaker 1: implement it. So everything I hear is there's still a

607
00:31:37,800 --> 00:31:40,800
Speaker 1: great deal of confusions as where we're moving going forward.

608
00:31:40,960 --> 00:31:44,480
Speaker 1: And I think also there's confusion because a decision had

609
00:31:44,480 --> 00:31:47,760
Speaker 1: been made to allow service after a great deal of

610
00:31:47,800 --> 00:31:50,280
Speaker 1: thought and discussion and debate, and it would be the

611
00:31:50,320 --> 00:31:52,840
Speaker 1: first time we've ever told people made it, made a

612
00:31:52,880 --> 00:31:55,120
Speaker 1: compact with people you can serve, and you can serve openly,

613
00:31:55,480 --> 00:31:57,840
Speaker 1: and then reversed course. I guess I was confused by

614
00:31:58,000 --> 00:31:59,840
Speaker 1: the way the President opened the speech last night, talking

615
00:31:59,880 --> 00:32:01,520
Speaker 1: to the troops who had gathered there at Fort Myer,

616
00:32:01,600 --> 00:32:04,400
Speaker 1: saying that they transcend every line of race, ethnicity, creating color,

617
00:32:04,440 --> 00:32:08,240
Speaker 1: to serve together and sacrifice together and absolutely perfect cohesion.

618
00:32:08,240 --> 00:32:10,360
Speaker 1: Did that come across to you as a bit tone

619
00:32:10,360 --> 00:32:12,560
Speaker 1: deaf and light of that announcement? I think so. I

620
00:32:12,560 --> 00:32:16,560
Speaker 1: think it's I think it's very inconsistent um, and it's

621
00:32:16,600 --> 00:32:19,400
Speaker 1: on one of the great things about the military actually

622
00:32:19,480 --> 00:32:22,600
Speaker 1: has in my view, been very successful over many years

623
00:32:23,120 --> 00:32:26,280
Speaker 1: at integrating and opening up opportunities to service so that

624
00:32:26,520 --> 00:32:29,560
Speaker 1: the President can stand up there and look out over

625
00:32:29,640 --> 00:32:33,239
Speaker 1: his force, representatives of his force that that resemble the

626
00:32:33,240 --> 00:32:35,920
Speaker 1: country they protect. All right, Thank you so much, Eric

627
00:32:35,960 --> 00:32:47,960
Speaker 1: finding There, the former Army Secretary. Thanks for listening to

628
00:32:48,000 --> 00:32:52,680
Speaker 1: the Bloomberg Surveillance podcast. Subscribe and listen to interviews on

629
00:32:52,880 --> 00:32:58,440
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer I'm

630
00:32:58,480 --> 00:33:01,200
Speaker 1: on Twitter at Tom Keene Day. Dvid Gura. Is that

631
00:33:01,440 --> 00:33:06,280
Speaker 1: David Gura before the podcast? You can always catch us worldwide.

632
00:33:06,480 --> 00:33:07,520
Speaker 1: I'm Bloomberg Radio