WEBVTT - Bloomberg Wall Street Week - August 9th, 2024 0:00:00.280 --> 0:00:04.720 This is Bloomberg Wall Street Week. The global push into infrastructure, 0:00:04.760 --> 0:00:08.480 breaking the IPO logjam in text, the financial stories that 0:00:08.560 --> 0:00:11.680 shape our work, cutting inflation without losing jobs. Do we 0:00:11.800 --> 0:00:14.440 need rate cuts and if so? How many? Investing in 0:00:14.480 --> 0:00:16.400 a time of geopolitical. 0:00:15.680 --> 0:00:18.560 Turmoil Through the eyes of the most influential voices. 0:00:18.720 --> 0:00:22.480 Ten Rogueff economists of Harvard, former FDIC had Shila bet 0:00:22.680 --> 0:00:27.360 Ge CEO, Larry Culp, San Francisco fed President Mary Daily Bloomberg. 0:00:26.840 --> 0:00:30.480 Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.320 --> 0:00:33.880 Market turmoil, Middle East threats, and the presidential race is 0:00:33.920 --> 0:00:37.080 off and running. This is Bloomberg Wall Street Week. I'm 0:00:37.159 --> 0:00:41.800 David Weston. This week, Harvard economist Greg Mank on facing 0:00:41.880 --> 0:00:43.239 up to the federal deficit. 0:00:43.960 --> 0:00:47.279 You can't leave your children a negative bequest unless you're 0:00:47.320 --> 0:00:48.080 doing it through the government. 0:00:48.680 --> 0:00:52.080 Former Pentagon Number two Michelle Flornoy on what's needed for 0:00:52.120 --> 0:00:54.520 the US to face a more dangerous world. 0:00:55.160 --> 0:00:57.560 We really have to take a fresh look at what 0:00:57.600 --> 0:00:59.840 we're spending on and where we're investing. 0:01:00.560 --> 0:01:03.920 And Jack Hittery of Sandbox AQ on what's real and 0:01:03.960 --> 0:01:06.679 what's hype in the world of artificial intelligence. 0:01:07.360 --> 0:01:09.280 This is a great moment for a I that takes 0:01:09.360 --> 0:01:14.840 us beyond the chat GPT. 0:01:24.680 --> 0:01:27.520 We start with a wild week in the markets, stocks 0:01:27.560 --> 0:01:30.280 and bonds responded to weak jobs numbers, a shift in 0:01:30.360 --> 0:01:34.160 Japanese monetary policy, and geopolitical uncertainty. To take us through 0:01:34.160 --> 0:01:36.440 what it all means, we turn once again to our 0:01:36.480 --> 0:01:39.399 special contributor, Larry Summers of Harvard. So, Larry a lot 0:01:39.440 --> 0:01:42.520 to sort through here. What was your overall take on 0:01:42.600 --> 0:01:45.720 the terminil the marketplace and the speculation, the speculation that 0:01:45.720 --> 0:01:47.840 FED maybe should have an emergency rate cut. 0:01:48.760 --> 0:01:53.160 I would shay on current facts, given that there has 0:01:53.240 --> 0:01:56.480 been some recovery, given that volatility has. 0:01:56.440 --> 0:01:57.960 Come way down. 0:01:58.840 --> 0:02:02.200 It were not out of the woods. You can't be certain. 0:02:02.280 --> 0:02:07.000 The FED certainly needs to be watching carefully, but I 0:02:07.080 --> 0:02:15.600 think an emergency response would be launching panicked, overheated and 0:02:16.880 --> 0:02:22.360 counterproductive on current facts, Which doesn't mean that the FED 0:02:22.440 --> 0:02:28.519 shouldn't be watching very closely. Before they have another decision 0:02:28.560 --> 0:02:31.639 to make in September, there's going to be a lot 0:02:31.720 --> 0:02:35.680 more data that it's going to come in, and I 0:02:35.720 --> 0:02:38.840 think they should make clear that they're going to be 0:02:38.880 --> 0:02:41.959 watching all that data and they're going to make a 0:02:42.040 --> 0:02:47.560 decision reflecting the need to balance the concern of making 0:02:47.600 --> 0:02:51.960 sure that we have stopped inflation with the concern of 0:02:52.320 --> 0:02:58.840 maximizing employment, and I think they need to not be 0:02:59.200 --> 0:03:05.240 pressured into specificity of a kind that is impossible. 0:03:05.840 --> 0:03:06.960 Let me pick up on one of the things you 0:03:06.960 --> 0:03:09.760 mentioned was volatility. The VIC really did spike up, I 0:03:09.800 --> 0:03:12.320 think over sixty, maybe the highest it had been since 0:03:12.360 --> 0:03:16.200 the pandemic first hit. How much attention should the FED 0:03:16.320 --> 0:03:19.359 pay to that volatility index what it might be telling 0:03:19.360 --> 0:03:20.840 you about the markets are functioning. 0:03:22.560 --> 0:03:29.200 I actually think that the SEC and the relevant exchanges 0:03:29.840 --> 0:03:34.120 may want to pay a bit of attention. My understanding 0:03:34.360 --> 0:03:38.200 is that because there are some ill liquid instruments that 0:03:38.440 --> 0:03:43.800 go into the calculation of the VIX, the VICS had 0:03:43.800 --> 0:03:49.800 a somewhat artificial movement on Monday that if one looks 0:03:49.840 --> 0:03:53.560 at the vic's futures, which are a somewhat different instrument, 0:03:54.240 --> 0:04:02.760 they the movements were much much less drum. So I 0:04:02.800 --> 0:04:07.360 certainly had my attention caught by the vics early in 0:04:07.400 --> 0:04:11.200 the day on Monday. But as I have looked into it, 0:04:11.880 --> 0:04:16.520 I think you were learning more about issues around liquidity 0:04:16.560 --> 0:04:21.479 in the options markets than you were about some profound 0:04:21.560 --> 0:04:27.240 reassessment of the American economy, and since that is so 0:04:27.400 --> 0:04:32.760 widely watched an indicator issues of liquidity. Issues around how 0:04:32.800 --> 0:04:38.560 it settles, I think should be studied by the relevant 0:04:38.600 --> 0:04:43.000 parties in the industry and the regulator, the SEC. Larry. 0:04:43.000 --> 0:04:44.840 We spent much of the week with various people getting 0:04:44.839 --> 0:04:47.599 advice to the FAT. It included our former President Donald 0:04:47.640 --> 0:04:50.520 Trump on Thursday and a long news conference and which 0:04:50.560 --> 0:04:53.920 he addressed it, reiterating he thinks the president should have 0:04:53.960 --> 0:04:57.680 some say over monetary policy and rate setting, including saying, boy, 0:04:57.720 --> 0:04:59.279 he'd made an awful lot of money and he thinks 0:04:59.279 --> 0:05:01.960 he knows better than the chair of the FED. You 0:05:02.000 --> 0:05:04.680 had a reaction to that. I know you posted on 0:05:04.720 --> 0:05:08.320 that question. Give us your stance about how dangerous that 0:05:08.440 --> 0:05:09.040 could be. 0:05:10.520 --> 0:05:15.080 I guess I can't say I was surprised by ex 0:05:15.200 --> 0:05:20.159 President Trump because he had said things like that before, 0:05:20.839 --> 0:05:24.719 but I sure was appalled at. 0:05:24.600 --> 0:05:27.200 How bad an idea it was. 0:05:28.240 --> 0:05:35.400 I mean, start with the preposterous arrogance. The Central Bank 0:05:35.600 --> 0:05:41.720 has nineteen members of the FOMC who spend more or 0:05:41.800 --> 0:05:48.240 less all their time scrutinizing every economic statistic. President's got 0:05:48.279 --> 0:05:52.400 a lot of things to do at any given moment, 0:05:52.480 --> 0:05:59.080 and he's actually much less close to the economy. God knows, 0:06:00.400 --> 0:06:06.560 the skills associated with being an economic forecaster and the 0:06:06.640 --> 0:06:11.880 skills associated with being a successful real estate operator are very, 0:06:12.000 --> 0:06:15.840 very different ones. So I don't think there's any particular 0:06:15.920 --> 0:06:18.920 reason to think that a president of the United States 0:06:19.000 --> 0:06:26.080 would have a intellectual contribution to make. And the reason 0:06:26.200 --> 0:06:29.640 why countries all over the world this isn't just. 0:06:29.600 --> 0:06:32.279 An American thing, but countries essentially. 0:06:31.960 --> 0:06:37.760 All over the world have moved to independent central banks 0:06:38.440 --> 0:06:42.920 is that they recognize a profound conflict of interest. 0:06:43.160 --> 0:06:44.960 Who's ever an. 0:06:44.360 --> 0:06:49.039 Elective or political office always is tempted to put more 0:06:49.080 --> 0:06:54.479 money lower Intereststrates hit the accelerator hard to get a 0:06:54.839 --> 0:06:58.560 boost to the economy to make people feel good, But 0:06:58.720 --> 0:07:02.800 when everybody sees that coming, it doesn't actually make people 0:07:02.839 --> 0:07:08.359 feel good. It just raises the expectation they have for inflation, 0:07:09.040 --> 0:07:11.680 so you get more inflation and you don't get any 0:07:11.720 --> 0:07:13.240 substantial output gain. 0:07:13.800 --> 0:07:15.960 Okay, Larry, thank you so very much once again for 0:07:16.000 --> 0:07:18.840 being with us. That is our special Wall Street Week contributor. 0:07:18.880 --> 0:07:22.360 He is Larry Summers of Harvard Markets went on a 0:07:22.480 --> 0:07:24.880 wild ride this week in the wake of the boj 0:07:25.120 --> 0:07:27.840 moved to titan and the week US jobs numbers from 0:07:27.920 --> 0:07:31.160 last Friday, but after gapping down when trading began the 0:07:31.200 --> 0:07:34.120 week with the VIC shooting up to over sixty, things 0:07:34.200 --> 0:07:36.520 settled down a bit. The S and P five hundred 0:07:36.600 --> 0:07:39.040 ended the week at fifty three forty four, just about 0:07:39.040 --> 0:07:41.160 where it was at the end of last week and 0:07:41.200 --> 0:07:44.040 only slightly below the median year end number for our 0:07:44.040 --> 0:07:47.840 Bloomberg elves of fifty five sixty eight. The Nasdaq hit 0:07:47.880 --> 0:07:51.320 a similar air pocket Monday morning, but ended the week 0:07:51.560 --> 0:07:55.040 up two point six percent from Monday's lows, again just 0:07:55.200 --> 0:07:57.480 under where it ended last week. The yield on the 0:07:57.480 --> 0:08:00.600 tenure in the meantime, added about fourteen bases points over 0:08:00.640 --> 0:08:02.560 the course of the week to end at three point 0:08:02.680 --> 0:08:04.880 nine to four percent to take us through the week. 0:08:04.880 --> 0:08:07.560 In the markets, we welcome back now, David Bianco, DWS 0:08:07.720 --> 0:08:11.120 America's Chief investment Officer. Always great to have you here, David, 0:08:11.360 --> 0:08:12.880 and this is a perfect week to have you because 0:08:12.880 --> 0:08:14.480 where there was a lot of action in the market, 0:08:14.560 --> 0:08:15.440 what did you make of it? 0:08:15.760 --> 0:08:18.400 It was wild indeed for in August, and even though 0:08:18.400 --> 0:08:20.040 the S and P is back to where we were 0:08:20.120 --> 0:08:23.240 last Friday, let's just for a moment talk a little 0:08:23.240 --> 0:08:25.480 bit about what the causes were for the volatility around 0:08:25.520 --> 0:08:29.000 the world. As said, a lot of conversation around the 0:08:29.000 --> 0:08:33.319 Bank of Japan hiking, poor timing around the hiking, and 0:08:33.760 --> 0:08:36.880 the unwind of the end carry trade, this legendary en 0:08:36.960 --> 0:08:39.480 carriage trade. It's real, always difficult to know just how 0:08:39.520 --> 0:08:43.440 big it is. But what happened last week was that 0:08:43.640 --> 0:08:47.920 not only did the BOJ hike, the FED put on 0:08:48.040 --> 0:08:52.840 the table the possibility of a cut in September. But then, 0:08:52.880 --> 0:08:55.960 don't forget, we had that jobs report on Friday, and 0:08:56.040 --> 0:08:59.160 the jobs report had a jump of further climb in 0:08:59.160 --> 0:09:02.480 the unemployment eight to four point three percent, and it 0:09:02.520 --> 0:09:04.959 triggered what a lot of people are calling the somb rules, 0:09:04.960 --> 0:09:09.559 some indication of a recession in progress. The job creation 0:09:09.640 --> 0:09:11.800 numbers were still good one hundred and fourteen thousand on 0:09:11.800 --> 0:09:15.040 the payroll survey, but a lot of panic broke out, 0:09:15.080 --> 0:09:17.720 particularly in the bond market, that maybe the Fed's way 0:09:17.760 --> 0:09:21.120 behind and maybe emergency cuts are necessary. So just as 0:09:21.440 --> 0:09:23.720 the BOJ what I think they could have done this 0:09:23.760 --> 0:09:27.000 earlier in the year, decided to do a hike, last week, 0:09:27.240 --> 0:09:29.840 you have the FED and then data suggesting the FED 0:09:29.880 --> 0:09:33.439 maybe cutting a lot. It was kind of crossing the streams. 0:09:33.559 --> 0:09:36.640 It's really dangerous across the streams to major central banks 0:09:36.640 --> 0:09:42.040 moving in different directions, and that sparked ye appreciation people 0:09:42.280 --> 0:09:45.079 trying to probably pay back some of their yen loans. 0:09:45.840 --> 0:09:48.800 That's part of what created all the volativity and made markets, 0:09:48.840 --> 0:09:53.359 particularly Japan, fall out of bed on Sunday night, Yet appreciated. 0:09:53.640 --> 0:09:56.360 Japanese stocks down more than twenty percent on one point, 0:09:56.440 --> 0:10:00.760 led by the big banks. It hurt other global equity 0:10:00.760 --> 0:10:03.600 markets on Monday. But we've recovered and there's more going 0:10:03.640 --> 0:10:06.040 on though than Japan during the week and last week. 0:10:06.080 --> 0:10:07.920 But David, how much did you think was the markets 0:10:07.920 --> 0:10:09.680 and how much was the economy? I mean, you referred 0:10:09.720 --> 0:10:12.360 to recession possibility, and some of the banks started saying, well, 0:10:12.360 --> 0:10:15.439 we're taking up our probability of recession, something that last 0:10:15.520 --> 0:10:18.760 year we thought was a real probability, Now not so much. 0:10:18.880 --> 0:10:20.640 Where are you on the probability of recession? 0:10:21.080 --> 0:10:24.880 I think we're still a safe distance from recession. We 0:10:25.040 --> 0:10:29.400 do dbs. We expect the economy to slow further, but 0:10:29.440 --> 0:10:32.000 I don't think we're slipping into a recession. Not right 0:10:32.040 --> 0:10:36.079 now what happened this week late last week, I think 0:10:36.160 --> 0:10:42.160 is more about investors overreacting, sometimes putting words into policymaker's 0:10:42.240 --> 0:10:44.680 mouths about what they may be doing, or maybe just 0:10:44.760 --> 0:10:48.360 overreacting to step in one direction how much further you're 0:10:48.400 --> 0:10:49.719 going to go, whether it be. 0:10:49.760 --> 0:10:50.560 Hikes or cuts. 0:10:52.000 --> 0:10:54.840 But there was this background of other concerns. We've had 0:10:54.880 --> 0:10:59.880 geopolitical risks, We've had investors take an additional concern with 0:11:00.000 --> 0:11:03.360 what remains a week economy in China and a week 0:11:03.480 --> 0:11:06.560 manufacturing economy in Europe and still weak in the United 0:11:06.559 --> 0:11:09.680 States outside of data centers and chips, and then an 0:11:09.720 --> 0:11:12.880 earning season. Well, the earning season is basically done. Ninety 0:11:12.920 --> 0:11:16.599 percent of companies have reported, and while the results of 0:11:16.920 --> 0:11:20.040 coming okay, we're still hearing from the non tech companies 0:11:20.040 --> 0:11:24.240 that businesses sluggish, manufacturing, consumer businesses. They're cautious about the 0:11:24.320 --> 0:11:26.560 outlook as well. And I would just say, even though 0:11:26.600 --> 0:11:28.760 we've got ten percent year on year growth at of 0:11:28.800 --> 0:11:31.040 SMP earnings about sixty dollars a share in the second quarter, 0:11:32.200 --> 0:11:33.840 it's all still coming from big cap tech. 0:11:34.040 --> 0:11:36.360 It doesn't help it's in August and so the markets 0:11:36.360 --> 0:11:39.200 are not as liquid as we normally expect, right, But 0:11:39.320 --> 0:11:40.760 what are you expecting for the rest of the year, 0:11:40.800 --> 0:11:43.000 given where we are in earnings right now, all the factors, 0:11:43.120 --> 0:11:44.880 where do you think the SMP five hundreds headed for 0:11:44.920 --> 0:11:45.480 the rest of the year. 0:11:45.960 --> 0:11:48.200 Well, I think market's going to stay volatile. Markets can 0:11:48.200 --> 0:11:50.600 be valuatle particularly any day any week. By the way, 0:11:50.640 --> 0:11:53.160 options and futures markets can be even more volatile. I 0:11:53.200 --> 0:11:55.760 think the volatility is with us. We've been shaken by 0:11:55.800 --> 0:11:57.400 some of the events that that broke out, and I 0:11:57.400 --> 0:12:00.560 think that those risks and those concerns, particularly the election 0:12:00.960 --> 0:12:04.000 and the uncertainty for what that means for taxes and tariffs, 0:12:04.000 --> 0:12:07.680 and I think investors want to see some election outcome 0:12:07.760 --> 0:12:11.720 that keeps taxes low and prevents tariffs from going higher. 0:12:12.800 --> 0:12:15.599 But you know, there's a lot of uncertainty around the elections, 0:12:15.960 --> 0:12:19.320 and I think markets will stay volatile at least until then. 0:12:19.559 --> 0:12:21.280 David, thank you so much for being here. That's David 0:12:21.320 --> 0:12:27.000 Bianco of DWS coming up. Despite the market volatility, the 0:12:27.120 --> 0:12:30.760 US economy continues its relatively strong performance. We ask carbon 0:12:30.800 --> 0:12:33.840 economist Greg Mank for his assessment of the economy and 0:12:33.920 --> 0:12:36.240 what the next president needs to do about it. 0:12:36.520 --> 0:12:38.880 I think we need to at some point move to 0:12:38.920 --> 0:12:40.680 a sustainable fiscal policy. 0:12:41.200 --> 0:12:43.439 That's next on Wall Street Week on Bloomberg. 0:12:48.440 --> 0:12:52.680 This is Bloomberg Wall Street Week with David Weston from 0:12:52.800 --> 0:12:53.720 Bloomberg Radio. 0:13:00.320 --> 0:13:03.480 This is Waltere Week. I'm David Weston. Jobs numbers may 0:13:03.480 --> 0:13:06.560 have come in weaker than expected, and some consumers spending 0:13:06.640 --> 0:13:10.400 may be softening, but overall the economy remains strong and 0:13:10.440 --> 0:13:14.480 inflation is moderating. We talked with Harvard economics professor Greg 0:13:14.520 --> 0:13:18.040 Mankew at the Aspen Economic Strategy Group meetings about how 0:13:18.120 --> 0:13:20.720 the FED is doing and what comes next. 0:13:22.640 --> 0:13:23.320 I think we're there. 0:13:23.440 --> 0:13:26.559 I give FED low marks early on because I thought 0:13:26.559 --> 0:13:28.680 they were slow off the mark, but then they once 0:13:28.720 --> 0:13:30.959 they realized the problem, they reacted vigorously. And I think 0:13:30.960 --> 0:13:33.800 we're basically very close to target now. And if you 0:13:33.880 --> 0:13:37.280 look at the measures of inflation, a big part of 0:13:37.280 --> 0:13:40.160 that is shelter, and shelter we know is measures a lag. 0:13:40.200 --> 0:13:44.760 If you look at the private sector measures of shelter inflation, rents. 0:13:44.520 --> 0:13:46.240 Are basically flat. Now there's no inflation in that. 0:13:46.320 --> 0:13:49.240 So I think the overall measured inflation rates we're get 0:13:49.280 --> 0:13:51.079 to CEPI say that's going to be coming down to 0:13:51.120 --> 0:13:52.960 target in the next six months. 0:13:53.160 --> 0:13:56.120 So the economy is doing well by most measures. A 0:13:56.200 --> 0:13:58.480 lot of people want to move to our country, right, 0:13:58.480 --> 0:14:00.400 they want to invest in our country, and then a 0:14:00.440 --> 0:14:03.679 lot of people are very unhappy with the economy. How 0:14:03.720 --> 0:14:05.040 do you square those two things. 0:14:05.240 --> 0:14:08.239 Well, the pandemic had a strange effect on people's finances 0:14:08.280 --> 0:14:10.400 because if you think back to the early pandemic, we 0:14:10.440 --> 0:14:12.680 were sending people lots of checks, whether it's just general 0:14:12.720 --> 0:14:16.520 stimulus checks or expanded unemployment insurance. So people were getting 0:14:16.559 --> 0:14:19.040 lots of income, but they couldn't spend it, so they're 0:14:19.080 --> 0:14:21.200 saving a lot. They are paying back down their credit 0:14:21.240 --> 0:14:24.520 card bills. So even though people are kind of unhappy 0:14:24.520 --> 0:14:27.040 being stuck up in their houses, their finances are pretty good. 0:14:27.160 --> 0:14:30.160 So let's look where are now. All these stimulus checks 0:14:30.160 --> 0:14:33.640 have disappeared. People are spending more and so their credit 0:14:33.640 --> 0:14:37.000 cards bollses are building up, credit card delinquencies are arising 0:14:37.040 --> 0:14:38.840 a little bit. So I think, if you're comparing where 0:14:38.880 --> 0:14:41.760 we were to twenty twenty, well better off because we're 0:14:41.760 --> 0:14:42.520 not in a pandemic. 0:14:43.040 --> 0:14:45.200 But people's finances are actually slightly worse. 0:14:45.720 --> 0:14:47.760 There's a lot of talk about when the federal cut 0:14:47.800 --> 0:14:49.960 how much we will cut? Put that to one side, 0:14:50.200 --> 0:14:52.080 Where do you think we will end up? Where we 0:14:52.200 --> 0:14:54.440 end up through this cycle, Because there's a debate really 0:14:54.440 --> 0:14:55.840 on whether we're going to go back down to really 0:14:55.880 --> 0:14:58.240 low interest rates or whether there are structural factors that 0:14:58.360 --> 0:14:59.400 will keep them elevated. 0:14:59.560 --> 0:15:01.240 I don't think we know, and I think the Fed 0:15:01.320 --> 0:15:03.640 is going to have to play it by year. I 0:15:03.800 --> 0:15:06.200 think there were good reasons why we had a thirty 0:15:06.280 --> 0:15:09.800 year decline in real interest rates prior to the pandemic 0:15:10.000 --> 0:15:13.200 and the recent recent events to what I sent, all 0:15:13.200 --> 0:15:14.800 those forces still in play, and to what I sent, 0:15:14.920 --> 0:15:17.680 they're new forces, like very big budget deficits that are 0:15:17.680 --> 0:15:19.120 going to keep them straights high. I don't think we 0:15:19.160 --> 0:15:22.040 really know yet. Partly it's going to depend on future policy, 0:15:22.120 --> 0:15:23.280 and the next present is going to have to make 0:15:23.320 --> 0:15:26.440 decisions over taxes and spending, and so I don't think 0:15:26.440 --> 0:15:27.720 we really know where the FED is going to end up. 0:15:27.720 --> 0:15:29.800 It's probably lower than it is today, but probably higher 0:15:29.800 --> 0:15:32.400 than it was before the hiking cycle began. 0:15:32.880 --> 0:15:35.320 You mentioned the debt and the deficit. How big are 0:15:35.320 --> 0:15:36.440 problem is after the economy? 0:15:36.880 --> 0:15:39.080 Well, I think there's two problems with the debt. 0:15:39.120 --> 0:15:41.760 I think this is one of the ordinary problems, and 0:15:41.760 --> 0:15:45.680 the extraordinary problems. The ordinary problems are basically passing a 0:15:46.120 --> 0:15:48.600 debt onto our children. You can't leave your children a 0:15:48.600 --> 0:15:51.360 negative bequest unless you're doing it through the government, and 0:15:51.360 --> 0:15:53.120 that's what we're basically doing because we're leaving our children 0:15:53.160 --> 0:15:55.160 in negative bequest by running up the debt. So they're 0:15:55.160 --> 0:15:58.200 going to face higher taxes that will encourage some crowding 0:15:58.200 --> 0:16:01.400 out of private capital, reduced activity growth. And then this 0:16:01.480 --> 0:16:03.520 is the extraordinary problems of debt. You know, could the 0:16:03.600 --> 0:16:07.680 United States turn into Greece or Argentina where there's a 0:16:07.760 --> 0:16:10.640 fiscal crisis. The markets don't think there's going to be one, 0:16:10.640 --> 0:16:13.360 that they're expecting us to be responsible. I hope they're right, 0:16:13.640 --> 0:16:16.280 But the laws of economics that played out in Greece 0:16:16.320 --> 0:16:19.200 and Argentina could happen in the United States. And so 0:16:19.240 --> 0:16:21.560 I think we need to at some point move to 0:16:21.560 --> 0:16:23.760 a sustainable fiscal policy. 0:16:23.560 --> 0:16:26.920 Even short of Greece or Argentina. At some point, does 0:16:27.000 --> 0:16:32.360 the deficit problem curtail the fedibility actually to control the economy, 0:16:32.400 --> 0:16:34.880 because at some point the markets take over in setting 0:16:34.960 --> 0:16:35.840 rates from the FED. 0:16:36.560 --> 0:16:38.640 Well, the FED would have to set higher rates. 0:16:38.680 --> 0:16:40.200 I think that I'm not really worried about the FED 0:16:40.280 --> 0:16:43.000 losing control sort of a fiscal crisis. I'm not worried 0:16:43.000 --> 0:16:46.120 about the FED losing control of the economy, but it 0:16:46.200 --> 0:16:48.800 doesn't mean the FED is going to have to place 0:16:48.880 --> 0:16:51.200 higher rates, and that could be a problem for fiscal policy. 0:16:51.240 --> 0:16:54.600 These higher rates put pressure on the budget deficit, and 0:16:54.640 --> 0:16:57.240 as a result, the tension between fiscal policy makers and 0:16:57.240 --> 0:16:59.280 monetary policy makers could be exacerbated. 0:17:00.000 --> 0:17:02.320 How we defined debt crisis? What are the prospects for 0:17:02.360 --> 0:17:04.680 the next president, whoever it is, we'll have to deal 0:17:04.760 --> 0:17:06.159 with the debt crisis. And I guess that really is 0:17:06.160 --> 0:17:07.480 bond vigilantes, right. 0:17:07.320 --> 0:17:10.240 Well, it is exactly. It's bond bond vigilantes. And I 0:17:10.240 --> 0:17:12.280 don't think we know it's partly psychological. At what point 0:17:12.280 --> 0:17:14.920 do people become scared. I don't think it's gonna happen soon, 0:17:15.520 --> 0:17:19.199 but I think at some point in our lifetimes the 0:17:19.240 --> 0:17:20.959 current policy has to be changed, because if you look 0:17:21.000 --> 0:17:24.119 at the CBO projections on their current policy, that GDP 0:17:24.280 --> 0:17:26.080 ratio is going up to infinity, and we know that's 0:17:26.080 --> 0:17:26.760 not gonna happen. 0:17:27.000 --> 0:17:29.360 So at some point that's gonna change. 0:17:29.359 --> 0:17:31.240 It's probably not gonna change the next few years, but 0:17:31.280 --> 0:17:33.040 it's something we're gonna have to deal with, and how 0:17:33.080 --> 0:17:35.400 to deal with that does not be an easy political problem. 0:17:35.760 --> 0:17:38.600 What about the election coming up? In so far as 0:17:38.640 --> 0:17:40.880 we know anything, we have I think a sense maybe 0:17:40.920 --> 0:17:43.359 if we're a second president, Trump would take us. I 0:17:43.359 --> 0:17:45.280 don't know how much we know abou Kamala Harris, but 0:17:45.359 --> 0:17:46.960 what are the alternatives? You see them? 0:17:47.119 --> 0:17:47.359 Well? 0:17:47.440 --> 0:17:50.120 One of the big issues for me is the role 0:17:50.200 --> 0:17:52.800 of the United States and the global economy. 0:17:52.960 --> 0:17:54.800 I know it's a sort of a bad word these 0:17:54.840 --> 0:17:55.760 days that I'm a globalist. 0:17:55.840 --> 0:17:58.439 I actually believe that integrating the United States with the 0:17:58.440 --> 0:18:00.400 global economy is a good thing. So I'm in favor 0:18:00.400 --> 0:18:02.840 of free trade agreements. I'm in favor of more relaxed 0:18:02.880 --> 0:18:06.200 immigration rules. This is a sort of mainstream view back 0:18:06.240 --> 0:18:09.760 in the Bush and Clinton years. Now is a sort 0:18:09.760 --> 0:18:12.160 of backlash against it. I think that backlash has been 0:18:12.320 --> 0:18:14.600 is ill informed, and I think at some point we 0:18:14.640 --> 0:18:16.359 need to go back to being a leader in the 0:18:16.359 --> 0:18:18.359 global economy, which I think is good not only for 0:18:18.400 --> 0:18:20.760 the rest of the world, but also for the United States. 0:18:21.280 --> 0:18:23.720 What about US relationships with China, when it comes to 0:18:23.760 --> 0:18:24.920 the economy. 0:18:25.000 --> 0:18:28.480 Well, China is the big challenge, not not so much economically, 0:18:28.560 --> 0:18:31.560 but I think politically and especially the threat in Taiwan. 0:18:31.600 --> 0:18:34.200 So I do worry a lot about sort of what's 0:18:34.240 --> 0:18:37.080 going on in that part of the world. I understand 0:18:37.359 --> 0:18:39.280 I don't really like industrial policy in general, but I 0:18:39.400 --> 0:18:42.560 understand the motivation had the Chips Act because almost all 0:18:42.560 --> 0:18:45.239 the high end chips are coming from Taiwan's semiconductor and 0:18:45.280 --> 0:18:46.920 that's a very vulnerable. 0:18:46.440 --> 0:18:47.080 Part of the world. 0:18:47.320 --> 0:18:51.960 So relationship with China is very important, but it's not 0:18:51.960 --> 0:18:55.000 so much an economic relationship as a geopolitical relationship, and 0:18:55.040 --> 0:18:56.320 that's the part we need to negotiate. 0:18:56.920 --> 0:19:01.080 That was Harvard economics professor Greg mank. Whoever wins the 0:19:01.160 --> 0:19:05.679 US presidency in November, they will confront geopolitical hotspots around 0:19:05.680 --> 0:19:08.800 the world, from the Middle East to Ukraine to the 0:19:08.880 --> 0:19:12.359 South China Sea. Michelle Flornoy was the Deputy Secretary of 0:19:12.359 --> 0:19:15.199 Defense under President Obama, and when we sat with her 0:19:15.280 --> 0:19:18.879 at the Aspen Economic Strategy Meetings last week, we started 0:19:18.920 --> 0:19:20.919 with what the Defense Department needs to do to be 0:19:20.960 --> 0:19:23.880 prepared for the range of challenges it faces. 0:19:24.400 --> 0:19:26.720 I think the United States you know, we're a global power. 0:19:26.800 --> 0:19:31.399 We have interests, very real interests in many parts of 0:19:31.400 --> 0:19:35.240 the world. So if we get engaged in say deterring 0:19:35.359 --> 0:19:40.280 a Chinese attack on Taiwan, or deterring Russian aggression beyond 0:19:40.359 --> 0:19:43.399 Ukraine and to NATO, we have to also be able 0:19:43.440 --> 0:19:47.119 to still have presence and deterrence ability elsewhere so that 0:19:47.320 --> 0:19:50.040 the Middle East doesn't also erupt. So you never want 0:19:50.080 --> 0:19:52.200 to be in a situation where your engagement in one 0:19:52.240 --> 0:19:58.480 region basically provokes or encourages another adversary elsewhere to start 0:19:58.520 --> 0:20:01.280 to take advantage of that and start something else. And 0:20:01.359 --> 0:20:03.879 so you really do need to have the ability to 0:20:03.960 --> 0:20:07.760 look across multiple theaters at a time and to be 0:20:07.840 --> 0:20:10.919 fully engaged in one while deterring in the others. 0:20:11.240 --> 0:20:13.560 You mentioned some of the relationships with allies. Obviously we 0:20:13.560 --> 0:20:15.920 have NATO when it comes to Europe, and now there's 0:20:15.960 --> 0:20:18.800 more and more development in Asia, including these talks among 0:20:18.880 --> 0:20:21.680 South Korea, Japan, and the United States we just have happened. 0:20:21.880 --> 0:20:23.840 How much can that relieve some of the pressure on 0:20:23.840 --> 0:20:25.000 the United States itself? 0:20:25.320 --> 0:20:29.800 First, it's extremely important politically and in terms of demonstrating resolves. 0:20:29.800 --> 0:20:34.000 So if you're trying to affect Hijipang's calculus about whether 0:20:34.040 --> 0:20:37.080 to use force in the region, knowing that he won't 0:20:37.119 --> 0:20:40.000 just have to deal with a US response, but a 0:20:40.080 --> 0:20:43.520 Japanese response, a Korean response, an Australian response, and others 0:20:43.560 --> 0:20:46.639 in the region who you know coming together in coalition 0:20:46.800 --> 0:20:49.560 to try to protect the rules based order in Asia. 0:20:49.840 --> 0:20:54.479 And then these allies increasingly, particularly Japan, Korea, Australia, they 0:20:54.520 --> 0:20:59.119 have real capability to contribute to any sort of crisis situations. 0:20:59.359 --> 0:21:01.160 There are a lot of fiscal pressures in the United 0:21:01.200 --> 0:21:03.760 States right now. At the same time, many people think 0:21:03.920 --> 0:21:06.959 we're going to have to commit more resources actually to defense, 0:21:07.040 --> 0:21:08.640 given some of the things you've just talked about. Larry 0:21:08.640 --> 0:21:11.240 Summers said that repeatedly on this program. We're looking forward, 0:21:11.280 --> 0:21:13.720 we're going to spend more on defense. Are we spending enough? 0:21:13.880 --> 0:21:15.359 Do we need to spend it more and if so, 0:21:15.400 --> 0:21:16.040 how much more? 0:21:16.760 --> 0:21:19.720