WEBVTT - Treasury Secretary Scott Bessent Talks Tax Bill, Bonds, Capital Rule 0:00:02.759 --> 0:00:10.560 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.440 --> 0:00:13.080 For a Bloomberg audiences worldwide. I'm David Weston and we're 0:00:13.080 --> 0:00:16.319 delighted to welcome the Secretary Treasurer, mister Scott Bessant to 0:00:16.480 --> 0:00:17.400 our students in New York. 0:00:17.400 --> 0:00:19.040 Thank you so much, mister Secretary. 0:00:18.720 --> 0:00:20.560 For being here. David, thanks for having. 0:00:20.320 --> 0:00:23.080 Me, particularly just fresh off a flight from Banff. All right, 0:00:23.120 --> 0:00:25.159 from the G seven, and we want to talk about that. 0:00:25.200 --> 0:00:27.120 But first of all, while you're up there, you might 0:00:27.160 --> 0:00:29.639 not have heard the House of Representats actually passed a bill, 0:00:29.760 --> 0:00:31.680 the tax bill you've been talking about for so long. 0:00:32.320 --> 0:00:35.280 Give us your sense of the scoring as it were 0:00:35.320 --> 0:00:37.879 on that bill, because I know you're concerned about the deficit. 0:00:38.080 --> 0:00:39.879 A lot of people concerned it it's not helping us 0:00:39.880 --> 0:00:40.680 that much of the deficit. 0:00:40.800 --> 0:00:46.920 Well, David, I think this bill is very important because, 0:00:47.960 --> 0:00:51.920 as I've said, our economic policy was trumpet. An economic 0:00:51.960 --> 0:00:56.360 policy's a really three legged stool, so it's trade, taxes, 0:00:56.480 --> 0:01:01.279 and deregulations. So this tax bill first step making it 0:01:01.360 --> 0:01:06.080 through the House. I think the permanence in the bill 0:01:06.400 --> 0:01:10.840 from twenty seventeen is going to give everyone's talking about, oh, 0:01:10.880 --> 0:01:13.440 there's not enough certainty. Now, well, what I can tell 0:01:13.440 --> 0:01:17.320 you is this permanence is going to give great certainty. 0:01:17.720 --> 0:01:20.960 And I think the scoring you and I have talked 0:01:20.959 --> 0:01:24.640 about it quite a bit. It's Washington style scoring and 0:01:25.240 --> 0:01:29.279 it's not real world scoring. What I am concerned about, 0:01:29.600 --> 0:01:33.800 or have been concerned about. Are we controlling expenses? Yes? 0:01:34.040 --> 0:01:36.880 Are we going to grow the economy and accelerate the 0:01:36.920 --> 0:01:41.559 economy and stabilize and then bring down the total debt 0:01:41.640 --> 0:01:44.280 to GDP? And I think this bill does a great 0:01:44.360 --> 0:01:44.840 job of that. 0:01:45.319 --> 0:01:47.720 As you told us more than once, one of your 0:01:47.760 --> 0:01:50.800 goals is a deficit that's no greater than three percent 0:01:50.840 --> 0:01:54.960 of GDP. The scoring the predictions on this bill as 0:01:54.960 --> 0:01:57.720 it's written right now is seven percent, maybe six and 0:01:57.760 --> 0:02:01.320 a half percent next year, not anything close to three percent. Now, 0:02:01.360 --> 0:02:03.760 you said we won't get there right away, but when 0:02:03.800 --> 0:02:04.640 will we get there? 0:02:04.800 --> 0:02:07.880 Well, David, what I've talked about is something with a 0:02:07.960 --> 0:02:10.600 three in front of it by twenty twenty eight. We 0:02:10.639 --> 0:02:14.960 didn't get here overnight. We're not going to get there tomorrow. 0:02:15.280 --> 0:02:18.400 But what we've got to do is change a trajectory 0:02:18.560 --> 0:02:22.639 and start moving it down. So could we get down 0:02:22.760 --> 0:02:28.400 to six percent something below there with a five handle 0:02:28.720 --> 0:02:35.080 because what the scoring doesn't include. We have substantial tariff 0:02:35.160 --> 0:02:39.360 income coming in, so that's not included. We have dose 0:02:39.480 --> 0:02:43.680 savings in the hundreds of billions, that's not included. And 0:02:43.720 --> 0:02:48.359 then President Trump has made this very Bowld proposal on 0:02:48.760 --> 0:02:56.520 prescription drug pricing, which could save HHS substantial amounts of money. 0:02:56.560 --> 0:02:59.919 So none of those are included. So I'm very optimistic. 0:03:00.280 --> 0:03:02.960 So let's include those for a moment here and start 0:03:02.960 --> 0:03:04.920 with the first one that you identify, which is tariffs. 0:03:04.960 --> 0:03:09.240 We've had some announcements even very recently about tariffs maybe 0:03:09.280 --> 0:03:13.480 fifty percent from EU and twenty five percent on apple products. 0:03:14.000 --> 0:03:17.280 Is that motivation for that revenue? I mean, do you 0:03:17.440 --> 0:03:20.200 need those tariffs actually to go into effect to meet 0:03:20.200 --> 0:03:21.400 the numbers Union in deficit? 0:03:22.120 --> 0:03:26.480 Not at all, because we have substantial revenue coming in now, 0:03:27.080 --> 0:03:31.880 and there is at some point there's an equilibrium rate. 0:03:32.080 --> 0:03:37.080 It's called a lafter curve for tariffs, so and I 0:03:37.120 --> 0:03:41.160 think we will reach that rate. The other thing that's 0:03:41.160 --> 0:03:44.920 happening is a lot of their tariff barriers or non 0:03:44.960 --> 0:03:47.280 tariff trade barriers. A lot of these non tariff trade 0:03:47.320 --> 0:03:52.240 barriers are coming down, so friction is decreasing there and 0:03:52.320 --> 0:03:56.360 again because we don't know where these tariff negotiations are 0:03:56.360 --> 0:03:59.320 going to end up. They won't end up being scored, 0:03:59.600 --> 0:04:03.440 but several hundred million dollars a year, several hundred billion 0:04:03.480 --> 0:04:08.440 dollars a year of revenue that will be used for 0:04:08.520 --> 0:04:11.240 every one hundred billion, that's one hundred billion less of 0:04:11.280 --> 0:04:12.960 bonds a treasury has to issue. 0:04:13.120 --> 0:04:15.520 When you talk about uncertainty and getting more certainly because 0:04:15.560 --> 0:04:17.640 the tax bill, some of the uncertainty, A lot of 0:04:17.640 --> 0:04:19.440 it is because of tariffs right now, because we're not 0:04:19.480 --> 0:04:21.680 exactly sure we're going to end up. Do you have 0:04:21.720 --> 0:04:25.560 a sense when the economic community, the business community will 0:04:25.600 --> 0:04:27.400 get better certainty on tariffs. 0:04:27.600 --> 0:04:30.800 Well, we've done the ninety day pause. As I've mentioned 0:04:30.800 --> 0:04:35.120 several times, we have eighteen important trading partners. So what 0:04:35.200 --> 0:04:38.120 everyone should really focus on are those. We've done a 0:04:38.120 --> 0:04:41.920 deal with the UK. My sense is over the next 0:04:41.960 --> 0:04:46.840 couple of weeks we're going to have several large deals announced. 0:04:47.560 --> 0:04:50.960 We have put a pause and a ninety day pause 0:04:51.600 --> 0:04:55.120 with China. I expect that we will be negotiating in 0:04:55.160 --> 0:05:02.040 person with them again. And then the President today when 0:05:02.080 --> 0:05:06.640 we initiated the pause, the pause and the ten percent 0:05:07.640 --> 0:05:11.919 are moving down from the April second rate to the 0:05:12.000 --> 0:05:17.280 ten percent level was contingent on countries or trading blocks 0:05:17.360 --> 0:05:20.560 coming and negotiating in good faith, and I think the 0:05:20.600 --> 0:05:23.960 President was getting frustrated with the EU. You know the 0:05:24.000 --> 0:05:27.120 problem with EU, I've said several times they have a 0:05:27.120 --> 0:05:30.560 collective action problem. They're twenty seven countries, they all have 0:05:30.720 --> 0:05:34.200 different needs. The Germans they are interested in cars of 0:05:34.240 --> 0:05:39.039 French and agriculture, so and then you have Brussels negotiating 0:05:39.120 --> 0:05:42.680 with them. Now I am very impressed. I met my 0:05:43.600 --> 0:05:46.920 German counterpart who's part of the new German government, the 0:05:47.080 --> 0:05:53.760 German Finance minister in bamp that he was very responsive. 0:05:54.279 --> 0:05:58.880 I think that the new Chancellor Mertz is going to 0:05:58.920 --> 0:06:04.279 give a opportunity for a US Germany reset. So I'm 0:06:04.400 --> 0:06:10.320 very optimistic that perhaps Germany can help push the EU forward. 0:06:10.360 --> 0:06:13.520 Here, let's talk from something you know terribly well, have 0:06:13.640 --> 0:06:17.440 lived it your professional life, which is the markets. The 0:06:17.480 --> 0:06:21.080 bond market hasn't necessarily stood up and applauded with what 0:06:21.080 --> 0:06:22.520 they've seen out of Congress. 0:06:22.720 --> 0:06:23.719 Is the bond market wrong? 0:06:24.640 --> 0:06:29.840 Well, I think the notion that in any movements in 0:06:29.880 --> 0:06:33.760 the bond market being driven by the action of Congress. 0:06:33.839 --> 0:06:36.520 Is what's wrong? First of all, this has been a 0:06:36.560 --> 0:06:42.920 global phenomenon that the Japanese yields and most substantially German, 0:06:44.160 --> 0:06:47.880 UK and David. If we go back and look since 0:06:48.200 --> 0:06:51.240 either the beginning of the year or January twentieth, when 0:06:51.240 --> 0:06:56.040 the Trump administration came in the US tenure, is the 0:06:56.080 --> 0:07:02.200 only yield that is lower. Today, all yields are up. 0:07:02.600 --> 0:07:05.560 And again, you know, I think that that was a 0:07:05.640 --> 0:07:11.320 coincident indicator in market's very good at latching onto a story. 0:07:11.520 --> 0:07:15.080 So I'm not particularly worried about what the market's thinking. 0:07:15.120 --> 0:07:16.720 And because you know, on the other hand, what the 0:07:16.760 --> 0:07:21.160 market also could be thinking is that this bill is 0:07:21.200 --> 0:07:22.280 going to create growth. 0:07:23.760 --> 0:07:26.000 At the same time, you have things like the term 0:07:26.040 --> 0:07:29.720 premium up almost a one percent now, and you also 0:07:29.760 --> 0:07:32.200 have real yield up well over two percent. 0:07:32.800 --> 0:07:34.480 Should we be concerned with that? 0:07:34.920 --> 0:07:37.360 Is there a question here about the long term ability 0:07:37.400 --> 0:07:38.200 to repay the debt? 0:07:39.080 --> 0:07:45.800 Look, I think that again, as growth accelerates, I'm not 0:07:45.920 --> 0:07:51.560 worried about the US debt dynamics because a change in 0:07:51.880 --> 0:07:55.760 the growth trajectory takes care of a lot of that. 0:07:56.720 --> 0:07:59.679 I should we be concerned when we see yields going 0:07:59.760 --> 0:08:03.080 up on US treasuries and the dollar weakening normally, that's 0:08:03.120 --> 0:08:05.400 not the way it works as I understand it, is 0:08:05.440 --> 0:08:07.000 that something we should be concerned about. 0:08:07.960 --> 0:08:10.880 Well, I'm not concerned about it because I think part 0:08:10.880 --> 0:08:14.800 of it is we are seeing other countries step up, 0:08:15.000 --> 0:08:18.960 so I wouldn't on many of them, I wouldn't necessarily 0:08:19.000 --> 0:08:23.160 categorize it as a week dollar. It's for the first 0:08:23.200 --> 0:08:27.800 time in much of my career, Europe is actually going 0:08:27.840 --> 0:08:32.000 through a fiscal expansion. Back to this new German government 0:08:32.600 --> 0:08:37.440 that they are opening the German purse for the first 0:08:37.440 --> 0:08:39.800 time maybe even since he had been to the Euro. 0:08:39.880 --> 0:08:43.880 They're taking off the debt break, so the fundamentals are 0:08:43.960 --> 0:08:50.040 driving the euro. Japan is seeing a large increase in 0:08:50.040 --> 0:08:54.480 interest rates, driven by the Bank of Japan. So I 0:08:54.520 --> 0:08:58.680 think a lot of this is other countries strengthening or 0:08:58.720 --> 0:09:03.120 other country and see strengthening as opposed to the dollar weakening. 0:09:03.679 --> 0:09:06.560 You have said your concerns certainly about the deficit getting 0:09:06.600 --> 0:09:09.760 outder control and the President Trump and what you says, 0:09:09.800 --> 0:09:12.000 that's really a priority for him to get down to 0:09:12.040 --> 0:09:14.440 something with a three beginning it at least, if not 0:09:14.559 --> 0:09:18.319 three point zero percent how high a priority is that, 0:09:18.400 --> 0:09:20.280 And let me push you on a little bit like 0:09:20.320 --> 0:09:23.280 Mario Dragi. Will you do whatever it takes to get 0:09:23.280 --> 0:09:25.080 it to that level so that if the present plan 0:09:25.400 --> 0:09:27.439 does not work the way you hope it will, you'll 0:09:27.480 --> 0:09:28.240 take other steps. 0:09:28.480 --> 0:09:31.960 Well. I think what we've been trying to do, especially 0:09:32.080 --> 0:09:37.480 on the cost cutting side, whether it's Doge, whether it's 0:09:37.640 --> 0:09:40.640 it's omb is go line by line, and on a 0:09:40.640 --> 0:09:44.000 lot of this, the Democrats are fighting us, the courts 0:09:44.040 --> 0:09:47.480 are fighting us. So let's see where that ends up. 0:09:47.559 --> 0:09:50.440 And of course we will. We can keep coming back 0:09:51.040 --> 0:09:55.880 in terms of making government more efficient. I think I've 0:09:55.920 --> 0:09:59.000 been there three and a half months now, and I 0:09:59.000 --> 0:10:01.560 can tell you the amount of waste, fraud, and abuse 0:10:01.600 --> 0:10:02.240 is startling. 0:10:02.559 --> 0:10:02.719 Yeah. 0:10:02.760 --> 0:10:04.480 I think most of us who dealt with Washington would 0:10:04.480 --> 0:10:06.520 not disagree with that at all. The question is where 0:10:06.520 --> 0:10:07.840 do you trim and how do you go about it? 0:10:08.240 --> 0:10:11.080 There was a two trillion dollar number thrown out at 0:10:11.120 --> 0:10:13.040 a rally here in New York City, as I recall, 0:10:13.240 --> 0:10:14.800 by Elon Musk and Howard Lutnik. 0:10:15.440 --> 0:10:16.640 Was that a wrong number? 0:10:16.679 --> 0:10:18.880 Are you going to come close to two trillion dollars 0:10:18.920 --> 0:10:19.640 out of costs? 0:10:19.840 --> 0:10:24.800 Well, we'll see over what the scoring window is. Could 0:10:24.840 --> 0:10:29.000 we end up with one hundred and fifty billion a 0:10:29.080 --> 0:10:32.439 year in savings over the CBO window, that'd be a 0:10:32.520 --> 0:10:33.520 trillion and a half. 0:10:33.920 --> 0:10:37.319 So so, but you're on track, you think on the 0:10:37.760 --> 0:10:39.160 cost cutting side. 0:10:38.880 --> 0:10:44.120 Well, again, there's a lot of resistance that the DOGE 0:10:44.240 --> 0:10:48.520 and Elon were criticized for the pace they did. But 0:10:49.040 --> 0:10:51.840 I tell you just my three and a half months 0:10:51.880 --> 0:10:55.439 in Washington. If you don't move fast, then the swamp 0:10:55.559 --> 0:10:58.760 kind of grabs you and you start sinking, and the 0:10:58.840 --> 0:11:00.679 vest at interest cant. 0:11:00.800 --> 0:11:03.480 What other tools do you have in your toolbox to 0:11:03.559 --> 0:11:06.199 apply to the deficit if the present plan doesn't deliver 0:11:06.360 --> 0:11:07.760 all that you hope? 0:11:08.240 --> 0:11:13.559 Oh look, I think it's why don't we wait and 0:11:13.720 --> 0:11:18.240 see how this works out? Because I think we can see. 0:11:18.800 --> 0:11:22.320 As I mentioned, it's a three legged stool, so I 0:11:22.400 --> 0:11:27.959 think it would be the third part trade, tax and deregulation. 0:11:28.200 --> 0:11:32.559 So deregulation is the slowest moving part. I would expect 0:11:32.559 --> 0:11:36.640 that to substantially kick in to the economic growth in 0:11:36.679 --> 0:11:41.000 the third fourth quarters and really accelerate next year. Also, 0:11:42.400 --> 0:11:46.080 one of the most powerful economic parts of the tax 0:11:46.120 --> 0:11:49.640 bill is the immediate expensing of capital goods, one hundred 0:11:49.679 --> 0:11:54.240 percent for capital goods, and what we have added to 0:11:54.280 --> 0:11:58.920 that is one hundred percent expensing of factory structures. So 0:11:59.040 --> 0:12:01.400 I think that that could really accelerate the growth. 0:12:02.080 --> 0:12:05.720 And as you look at this problem right now, what 0:12:05.920 --> 0:12:10.640 is your approach to making sure that we bring the 0:12:10.760 --> 0:12:14.400 US economic machine into line and particularly the business community 0:12:14.520 --> 0:12:16.679 and investment most importantly. 0:12:16.840 --> 0:12:22.120 Well, let's talk about two pieces. But so before us 0:12:22.240 --> 0:12:24.840 with you just now, I was with a group of 0:12:24.960 --> 0:12:28.680 community bankers. So we are doing a substantial amount of 0:12:28.760 --> 0:12:32.800 financial deregulation to make sure that the benefits are more 0:12:32.920 --> 0:12:37.520 evenly distributed across the US economy. That as I said before, 0:12:37.880 --> 0:12:40.800 Wall Street's done great. Now it's time for Maintain Street 0:12:40.840 --> 0:12:43.760 to do well also, and they can both do great together. 0:12:44.320 --> 0:12:47.360 It's not an either or. So when I was with 0:12:47.440 --> 0:12:50.880 these community bankers, they were talking about the substantial amount 0:12:51.280 --> 0:12:56.440 of regulation that's been crushing them over the past ten 0:12:56.600 --> 0:13:00.000 fifteen years, and a huge amount of small business loans, 0:13:00.160 --> 0:13:03.199 huge amount of real estate loans and loans are made 0:13:03.240 --> 0:13:07.280 by these community banks. So we are really focusing on 0:13:07.480 --> 0:13:11.600 that on US business. We want to make the US 0:13:13.640 --> 0:13:17.520 the most attractive location for capital. I was just you 0:13:17.600 --> 0:13:19.440 and I were talking. I was just with the President 0:13:19.480 --> 0:13:22.360 in the Middle East. We were in Saudi, We're in Qatar, 0:13:22.720 --> 0:13:27.800 and we're in the UAE, and the trillions of dollars 0:13:27.800 --> 0:13:30.720 that are going to be pushed into the US. 0:13:31.440 --> 0:13:33.240 One form of regulation that gets a lot of attension 0:13:33.320 --> 0:13:36.040 in New York and on Wall Street is banking regulation. 0:13:37.120 --> 0:13:40.160 Let's talk about the supplemental leverage ratio, which seems like 0:13:40.200 --> 0:13:42.400 an obscure thing off to the side, but it has 0:13:42.440 --> 0:13:44.880 been the subject of much discussion, and it does, as 0:13:44.920 --> 0:13:48.800 I understand, relate to US treasuries and yields on US treasuries, 0:13:48.800 --> 0:13:51.600 so that if major banks held more US treasuries, it 0:13:51.640 --> 0:13:55.400 would bring it bring yields down. You've said you're going 0:13:55.480 --> 0:13:57.439 to take more of an active role, as I understand it, 0:13:57.520 --> 0:13:59.160 with respect to some of that banking regulation. 0:13:59.360 --> 0:14:02.840 Where are we. I think we are very close to 0:14:02.880 --> 0:14:09.720 moving the supplementary leverage ratio SLR. That is moving along 0:14:09.880 --> 0:14:14.480 very quickly between the three banking regulators, the FED, the 0:14:14.520 --> 0:14:18.240 OCC and the FDIC. So I would think we could 0:14:18.320 --> 0:14:22.120 see something on that over the summer or so. 0:14:22.320 --> 0:14:25.440 And knowing the markets as you do, would you anticipate 0:14:25.480 --> 0:14:29.600 that might have a significant material effect on treasury yields. 0:14:30.480 --> 0:14:35.320 Well, I think it could because banks are being penalized 0:14:35.360 --> 0:14:40.920 for holding treasury. You know, there's a large supplementary leverage charge, 0:14:41.040 --> 0:14:44.080 so I think for holding the risk free asset, we 0:14:44.120 --> 0:14:48.400 can reduce that. And you know, I've seen estimates that 0:14:48.560 --> 0:14:53.240 it could bring yields down by tens of basis points. Certainly, 0:14:53.920 --> 0:15:00.400 during the COVID crisis, it was the temporarily taken and 0:15:00.440 --> 0:15:01.480 it had a big effect. 0:15:02.080 --> 0:15:04.960 Let me ask something different, but I think might be related, 0:15:04.960 --> 0:15:08.520 which is stable coin. If really we went big into 0:15:08.520 --> 0:15:10.880 stable coin in this country, what effect could that have 0:15:11.160 --> 0:15:13.400 on the strength of the dollar because people might have 0:15:13.400 --> 0:15:16.080 to hold dollars in order to match against or even 0:15:16.120 --> 0:15:16.760 for treasuries. 0:15:17.160 --> 0:15:22.040 Well, we are going big on digital assets. So Trump 0:15:22.040 --> 0:15:29.760 administration has made digital assets for priority. Past administration starved 0:15:29.800 --> 0:15:32.440 and all thus made extinct a lot of these companies 0:15:32.720 --> 0:15:35.360 and pushed it offshore. So what we want to do 0:15:35.800 --> 0:15:43.440 is apply the highest US regulatory and AML standards two 0:15:43.560 --> 0:15:48.760 digital assets, especially stable coins. And I've seen estimates that 0:15:49.040 --> 0:15:53.640 just over the short term, stable coins could create two 0:15:53.800 --> 0:15:58.280 trillion of demand for US treasuries and treasury bills to 0:15:58.280 --> 0:16:01.560 put that in context, the number is probably about three 0:16:01.680 --> 0:16:02.880 hundred billion right now. 0:16:03.520 --> 0:16:07.280 There are reports, including Blueberg that there may be if 0:16:07.320 --> 0:16:10.200 I can call a privatization of Famimine freddie Mac something 0:16:10.240 --> 0:16:13.040 that's been talked about since I think they were nationalized 0:16:13.160 --> 0:16:16.240 essentially during the Great Financial Crisis. I heard the President 0:16:16.280 --> 0:16:19.200 say I'm going to ask Scott Besson about this. 0:16:19.640 --> 0:16:21.520 So has he asked you? And where does that stand? 0:16:24.120 --> 0:16:29.680 It is a goal for this administration. Again, we're doing 0:16:29.960 --> 0:16:35.240 piece deals, tax deals, trade deals. So as we land 0:16:35.480 --> 0:16:39.120 some of those deals, then we will focus on that. 0:16:39.400 --> 0:16:42.480 But David, what I can tell you we are doing 0:16:42.520 --> 0:16:47.880 a great deal, a great deal of studying at Treasury 0:16:48.240 --> 0:16:52.120 because the one requirement, the one requirement for this privatization 0:16:52.680 --> 0:16:55.280 is that they are privatized in such a way that 0:16:55.600 --> 0:16:59.680 mortgage spreads they do not widen. And in fact, is 0:16:59.720 --> 0:17:02.320 there a way that we can make the spread between 0:17:02.360 --> 0:17:06.639 the risk free rate and mortgages titan as the Fanning 0:17:06.680 --> 0:17:07.840 and freddie Er privatized. 0:17:07.960 --> 0:17:09.800 That was exactly my question. So do you know the 0:17:09.840 --> 0:17:11.720 answer to the question, is there a way to do that? 0:17:11.800 --> 0:17:14.879 Because most people are concerned that will drive up mortgage rates. 0:17:15.720 --> 0:17:18.480 Sure, there are several ways to do it, and we're 0:17:18.560 --> 0:17:24.000 exploring it. So we will move forward again after we 0:17:24.119 --> 0:17:27.000 land some of the piece deals, trade deals and tax deals, 0:17:27.320 --> 0:17:29.840 then we will work on this privatization deal. 0:17:30.359 --> 0:17:32.399 One of your many responsibilities that has to do is 0:17:32.640 --> 0:17:36.040 taxation and the IRS. I know that you were really 0:17:36.040 --> 0:17:38.640 pushing hard for montization of the IRS. At the same time, 0:17:38.720 --> 0:17:41.080 we've lost a lot of people of the IRS. Isn't 0:17:41.119 --> 0:17:42.760 that hurting their ability to do their job? 0:17:43.800 --> 0:17:50.040 So, David, my three priorities collections, privacy, and customer service, 0:17:50.480 --> 0:17:55.520 and if we look over a long view, we haven't 0:17:55.520 --> 0:17:57.000 lost a lot of people of the I r S. 0:17:57.400 --> 0:18:01.680 There was a massive headcount increase from the Inflation Reduction 0:18:01.760 --> 0:18:07.120 Act and back to this crazy CBO scoring by increasing expenses. 0:18:07.520 --> 0:18:11.560 There was this scoring that you would actually somehow up collections, 0:18:11.640 --> 0:18:14.960 which didn't happen. So we had a great collections year. 0:18:16.000 --> 0:18:21.760 This year came in above target. And this monitorization program, 0:18:22.000 --> 0:18:25.600 the tech monitorization program at the IRS was begun in 0:18:25.680 --> 0:18:29.240 nineteen ninety that the young man who was in charge 0:18:29.280 --> 0:18:31.560 of it was not who I put in charge of it, 0:18:31.640 --> 0:18:36.040 was not even born then, So that it's fifteen billion 0:18:36.119 --> 0:18:39.280 over budget. It's a three and a half billion a 0:18:39.359 --> 0:18:42.960 year budget. I think it's running on cobal, which is 0:18:43.000 --> 0:18:47.080 what I may have learned in college, on twelve different systems. 0:18:47.480 --> 0:18:51.840 So we are going to fix that, and I think 0:18:52.240 --> 0:18:54.840 all three of my priorities are going to be served. 0:18:54.960 --> 0:18:57.320 And I think it could be substantial savings to the 0:18:57.359 --> 0:19:02.960 American people because the IRS roughly processes as many transactions 0:19:03.359 --> 0:19:07.080 as a mid size US bank, which does it at 0:19:07.160 --> 0:19:09.359 ten percent of the number of people ten percent of 0:19:09.400 --> 0:19:09.800 the cost. 0:19:10.640 --> 0:19:13.639 President Trump said a while ago, posted actually on social 0:19:13.680 --> 0:19:17.879 media that they were in the process of removing the 0:19:17.960 --> 0:19:21.320 tax exempt status from Harvard. There's a lot of issues 0:19:21.320 --> 0:19:23.720 at Harvard, but that's one that comes within your bailiwick. 0:19:24.040 --> 0:19:25.400 Where is that process right now? 0:19:27.200 --> 0:19:32.520 That the President is moving forward with that, and we're 0:19:32.520 --> 0:19:36.560 also looking at taxes on endowments, and I think the 0:19:36.960 --> 0:19:39.760 important thing here, and it goes a little bit back 0:19:39.800 --> 0:19:47.080 to this main street versus the elites that Harvard to 0:19:47.240 --> 0:19:50.439 have a tax exempt status, there are rules you have 0:19:50.520 --> 0:19:52.800 to follow, and if you're not following the rules, no 0:19:52.880 --> 0:19:56.240 one's above the wall. So we will see if they're 0:19:56.520 --> 0:19:59.920 following the rules. It looks like there's substantial number where 0:20:00.160 --> 0:20:05.080 perhaps they weren't, and you know again too, Harvard is 0:20:05.119 --> 0:20:10.080 a giantic hedge fund. They run a leveraged investment model. 0:20:10.400 --> 0:20:13.000 So we'll see where all that goes. 0:20:13.280 --> 0:20:16.200 Is it Harvard alone or other other universities or colleges 0:20:16.280 --> 0:20:19.360 that also might be subject to review on taxis and status. 0:20:20.560 --> 0:20:27.840 I haven't seen that. But again back to cutting government expenses. 0:20:28.680 --> 0:20:33.000 These things are more out of control the universities. They 0:20:33.160 --> 0:20:35.919 are more out of control than the government. That there 0:20:36.119 --> 0:20:40.960 is a separate inflation index, it's called like the Index 0:20:41.000 --> 0:20:47.879 of Higher Education inflation index, and most of the expenses 0:20:47.920 --> 0:20:53.000 have grown at CPI plus three percent, So you know, 0:20:53.080 --> 0:20:55.200 they need to get their houses in order. 0:20:55.480 --> 0:20:57.680 Let's come back to BAMF because you just got back 0:20:57.720 --> 0:21:00.440 from the G seven meetings and the communicats I read 0:21:00.440 --> 0:21:04.320 it really focused on imbalances. What were the imbalances you're 0:21:04.359 --> 0:21:05.240 most concerned about? 0:21:05.560 --> 0:21:10.280 Well, I think the group as a whole was very 0:21:10.320 --> 0:21:16.239 concerned about the global imbalances around China, that China just 0:21:16.359 --> 0:21:23.159 keeps increasing their share of global manufacturing and has not 0:21:23.400 --> 0:21:27.720 done a much needed adjustment in terms of consumption. And 0:21:28.400 --> 0:21:32.680 as I predicted. Normally don't like to take victory laps, 0:21:32.720 --> 0:21:35.359 but I did predict it and I was right. I 0:21:35.359 --> 0:21:37.760 said when the US put up the tariff wall, that 0:21:37.880 --> 0:21:41.800 all those Chinese goods would go somewhere. And I think 0:21:42.280 --> 0:21:46.840 the other the G six has seen that these Chinese 0:21:46.840 --> 0:21:50.480 goods are starting to permeate into their economies. They're quite 0:21:50.480 --> 0:21:53.760 worried about it. But you know, there's a whole series 0:21:53.800 --> 0:22:00.359 of global imbalances. We have a oors trade deficity with 0:22:00.880 --> 0:22:04.960 the EU, so we'd like to see more pro growth 0:22:05.240 --> 0:22:10.080 consumer spending there. But the real thing when I think 0:22:10.119 --> 0:22:13.760 about China and the rest of the world, especially the US. 0:22:13.920 --> 0:22:18.359 In the US, we are trying to rebalance towards more manufacturing, 0:22:18.440 --> 0:22:22.440 mostly high end manufacturing, not the kind China has. Everyone 0:22:22.520 --> 0:22:28.480 agrees that China needs to rebalance toward less manufacturing more consumption. 0:22:29.040 --> 0:22:31.000 And is there a chance that we could do it 0:22:31.040 --> 0:22:35.000 together what Ray Dalio might call a big, beautiful rebalancing. 0:22:35.680 --> 0:22:38.119 So as I understand, I'm not a macroeconomists, you know, 0:22:38.520 --> 0:22:40.400 So as I understand it, when you have these trade 0:22:40.440 --> 0:22:43.320 and balances, it means we're importing buying more things, and 0:22:43.359 --> 0:22:46.639 we're exporting dollars essentially overseas. A lot of those dollars 0:22:46.680 --> 0:22:49.280 have been coming back to US in various forms, particalarly 0:22:49.280 --> 0:22:52.600 in US treasuries. Can you have a rebalancing, for example 0:22:52.600 --> 0:22:54.960 of China or with Europe for that matter, that doesn't 0:22:55.000 --> 0:22:58.840 necessarily raise the yield on treasuries because there are less 0:22:58.840 --> 0:23:01.840 dollars overseas to be invested in US treasuries. 0:23:01.920 --> 0:23:06.520 Oh sure, sure, I mean these balances weren't always like 0:23:06.600 --> 0:23:14.520 this in two thousand, before the China shock. We've historically 0:23:16.000 --> 0:23:20.240 had big inflows into treasuries. But what used to happen 0:23:20.920 --> 0:23:25.399 was in the old days, trade would come in and 0:23:25.440 --> 0:23:29.000 then we would sell the other country a GM. Now 0:23:29.080 --> 0:23:32.560 we are selling them either treasury bond, private equity, or 0:23:32.680 --> 0:23:37.879 Google stock, and that has a lot of distributional problems 0:23:37.880 --> 0:23:40.760 within the US. So that's how we've ended up with 0:23:40.960 --> 0:23:43.960 the coast or Wall Street doing very well, middle of 0:23:43.960 --> 0:23:49.639 the country manufacturing being gutted. So I think it's the 0:23:49.720 --> 0:23:54.000 composition of the flows coming back in, and then as 0:23:54.040 --> 0:23:58.040 you mentioned, I think we can see more bond buying 0:23:58.240 --> 0:24:02.160 by US citizens US US institutions. But the other thing 0:24:02.359 --> 0:24:04.720 that I will say is, you know, I have access 0:24:04.760 --> 0:24:11.080 to the data and we've actually been seeing foreign national entities, 0:24:11.119 --> 0:24:14.280 whether it's reserve managers, sovereign wealth funds or pension funds 0:24:14.560 --> 0:24:17.760 have been buying more treasuries in the latest auctions. 0:24:18.320 --> 0:24:20.800 So when we talk about trade, we talk about goods, 0:24:21.080 --> 0:24:25.160 sometimes services. What about capital flows and how capital flows work? 0:24:25.280 --> 0:24:27.119 There seems to be a movement in parts of the 0:24:27.160 --> 0:24:31.240 world toward stopping capital flows. I mean, we've had Macron 0:24:31.320 --> 0:24:33.640 and France said Europe can make it on its own. 0:24:33.720 --> 0:24:37.639 We've had Australia take certain actions requiring pension plans to 0:24:37.720 --> 0:24:38.840 invest domestically. 0:24:38.880 --> 0:24:40.960 Are we moving toward toward autocre? 0:24:42.560 --> 0:24:46.200 I don't think we have to. There's certainly nothing the 0:24:46.320 --> 0:24:54.240 US is doing to prevent capital flows. We except for 0:24:54.720 --> 0:25:03.359