WEBVTT - Fed Will Face Questions if Inflation Stays Low, Konstam Says 0:00:09.720 --> 0:00:12.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keen with 0:00:13.560 --> 0:00:16.560 David Gura. Daily we bring you insight from the best 0:00:16.560 --> 0:00:22.279 of economics, finance, investment, and international relations. Find Bloomberg Surveillance 0:00:22.320 --> 0:00:27.000 on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 0:00:27.320 --> 0:00:33.360 on the Bloomberg Domini constant Here with us in our 0:00:33.360 --> 0:00:35.720 Bloomberg eleven three studios. He's the global head of rates 0:00:35.840 --> 0:00:39.040 research at Deutsche Bank Securities. Let's start by just previewing 0:00:39.080 --> 0:00:40.919 what you expect to see tomorrow. Gonna get some new 0:00:40.960 --> 0:00:43.159 data on inflation here in the US, so much of 0:00:43.200 --> 0:00:47.920 the conversation centering on inflation expectations where inflation stands. What 0:00:48.200 --> 0:00:52.080 are you looking for tomorrow when those new data come out? Um, well, 0:00:52.120 --> 0:00:54.680 I mean the views of the official view is pretty 0:00:54.720 --> 0:00:57.480 much consensus. Uh, sort of slightly better inflation days than 0:00:57.520 --> 0:00:59.560 we've seen. I guess in my heart of hearts, I'm 0:00:59.600 --> 0:01:02.040 sort of concerned that we're going to see perhaps some 0:01:02.120 --> 0:01:05.920 broadening of the weakness. There's means some focus on the 0:01:05.959 --> 0:01:09.880 service sector inflation being a weak relative to the good 0:01:09.920 --> 0:01:12.800 side inflation, and that's in some sense more important because 0:01:12.840 --> 0:01:15.840 services are much less volatile than good. So if you 0:01:15.880 --> 0:01:17.440 get some sort of weakness there, you're going to be 0:01:17.440 --> 0:01:21.320 wired about a more persistent downdraft inflation going forward. And 0:01:21.480 --> 0:01:24.880 behind the sort of month to month data, we have 0:01:24.959 --> 0:01:27.920 this sort of underlying concern that inflation is just generally 0:01:28.240 --> 0:01:30.800 going to be sort of drifting lower or closer to 0:01:30.840 --> 0:01:33.800 one percent than the Fed two percent targets. And that's 0:01:33.800 --> 0:01:37.000 our kind of new inflation equilibrium concept that we've been 0:01:37.000 --> 0:01:40.440 focused on. Tom, How do you process the divide within 0:01:40.480 --> 0:01:42.600 the federals on this issue? And in particularly have the 0:01:42.600 --> 0:01:45.920 Fed cheers saying this is transitory, these headwinds or transitory. 0:01:45.920 --> 0:01:48.240 We heard from Jim Bowler of the St. Louis Fed 0:01:48.360 --> 0:01:51.559 yesterday saying he's not optimistic we're going to see any 0:01:51.600 --> 0:01:55.200 market rise in inflation anytime soon. How problematic is that 0:01:55.240 --> 0:01:57.560 divide among policy makers? Well? I think that the central 0:01:57.560 --> 0:01:59.960 banks of a real problem because you know, in general, 0:02:00.000 --> 0:02:01.760 and it's not just the FED, they've all struggled to 0:02:01.800 --> 0:02:06.040 meet inflation targets. H And the importance of the inflation 0:02:06.040 --> 0:02:08.560 target for any central bank is that it obviously gives 0:02:08.560 --> 0:02:11.399 them the anchors, you know, kind of what they do. Uh, 0:02:11.440 --> 0:02:14.880 And it's because inflation is generally considered to be driven 0:02:14.919 --> 0:02:18.160 by the expectations of inflation. If you have a target 0:02:18.160 --> 0:02:20.600 that's supposed to be driving expectations and you don't meet 0:02:20.639 --> 0:02:23.400 that target, then you have to It begs the question 0:02:23.440 --> 0:02:26.560 what does create inflation? H And that's the kind of 0:02:26.600 --> 0:02:29.960 idea whereby if inflation is being created by some other process, 0:02:30.040 --> 0:02:32.400 and it could be structural, that could be do with technology, 0:02:32.440 --> 0:02:34.880 it could be to do with demographics and all these 0:02:34.919 --> 0:02:37.440 other sort of structural things that is really outside the 0:02:37.480 --> 0:02:41.400 remit of a central bank, and then it almost becomes 0:02:41.480 --> 0:02:44.760 redundancy what their inflation target is, and it may be 0:02:45.200 --> 0:02:48.160 challenges their whole kind of policy framework. And I think 0:02:48.160 --> 0:02:50.840 that's the that's why the the FED has to in 0:02:50.880 --> 0:02:53.320 any center brank has to still say things are transitory. 0:02:53.320 --> 0:02:57.560 Inflation will go up, won't it, Because otherwise otherwise what 0:02:57.600 --> 0:03:00.440 are they doing? Well? Here in I guess the two 0:03:00.440 --> 0:03:02.920 thousan seventeen what's the the utility of the use of 0:03:03.160 --> 0:03:04.960 the Phillips curve at this point? How do you regard 0:03:05.560 --> 0:03:08.600 that tool? Well, we know empirically it's been a disaster. 0:03:08.760 --> 0:03:12.119 So if you look at five year rolling regressions of 0:03:12.160 --> 0:03:17.120 the wage inflation versus unemployment gaps unemployment rates. Obviously, empirically 0:03:17.120 --> 0:03:20.679 it's broken down, it's flattened and as shifted lower, which 0:03:20.720 --> 0:03:24.200 means that the average wage inflation rates for some sort 0:03:24.200 --> 0:03:27.560 of unemployment technliberum is much lower, and the sensitivity of 0:03:27.600 --> 0:03:30.920 wages to change his unemployment is much lower. So empirically 0:03:30.919 --> 0:03:33.880 it's become a problem. I think that there is a camp, obviously, 0:03:33.880 --> 0:03:36.440 and it's a consensus camp. There's just a matter of time. 0:03:36.480 --> 0:03:39.160 We have to be patient. This is the natural consequence 0:03:39.160 --> 0:03:42.080 of a major financial crisis and economic downturn. It's all 0:03:42.080 --> 0:03:43.680 going to come good, and I think that's the sort 0:03:43.680 --> 0:03:46.400 of consensus within the FED. My concern is that there 0:03:46.440 --> 0:03:50.120 are reasons for why we've noticed this this collapse in 0:03:50.160 --> 0:03:53.600 the Philips curve, and they are not to do necessarily 0:03:53.640 --> 0:03:56.200 with cyclical forces. Are to do with these structural forces 0:03:56.200 --> 0:03:59.160 such as demographics. For example, the older people, the fifty 0:03:59.160 --> 0:04:02.600 five year old plus generation, they've seen the biggest shift 0:04:02.640 --> 0:04:05.120 in Phillips curve relatians is some of the younger generations. 0:04:05.320 --> 0:04:08.040 And because though that that that that group of that 0:04:08.120 --> 0:04:10.520 age cohort is becoming more and more dominant in the 0:04:10.600 --> 0:04:13.280 labor force. I don't think this thing is necessary going 0:04:13.320 --> 0:04:15.360 to change over the next five years or so. We're 0:04:15.400 --> 0:04:20.080 waxing single equation this morning with the Philips because so 0:04:20.200 --> 0:04:24.000 we said, good morning, David Gerin, Tom Key, Bloomberg Surveillance Dominique. 0:04:24.000 --> 0:04:26.000 One of the ideas here is a Phillips curve, a 0:04:26.080 --> 0:04:29.800 single equation solution. What a conceit? Come on? This thing 0:04:29.839 --> 0:04:32.800 comes out of Lse forty years ago. I get it. 0:04:33.160 --> 0:04:36.039 And there's been adjustments by guys a lot smarter than me. 0:04:36.520 --> 0:04:40.919 But please tell our audience wire supposed to hinge where 0:04:40.960 --> 0:04:47.280 we're going on. Frankly, a rather simplistic algebraic function. Well 0:04:47.480 --> 0:04:50.560 I can. I couldn't agree more. And and it's sort 0:04:50.600 --> 0:04:54.320 of incredibly sort of backward looking in some sense as well. 0:04:54.760 --> 0:04:58.440 Um so, no, I I think it's a there's a 0:04:58.480 --> 0:05:00.240 it's a it's good it's a good thing that sort 0:05:00.279 --> 0:05:02.919 of isn't working because it makes you think about you 0:05:02.960 --> 0:05:06.160 know what exactly, and I mean Bob Schuller's world folds 0:05:06.240 --> 0:05:08.839 over under this, and that there's not only a behavioral 0:05:08.880 --> 0:05:12.520 construct that you overlay on a simple algebraic function, but 0:05:12.640 --> 0:05:14.960 at the heart all of these equations are based on 0:05:15.080 --> 0:05:19.560 some forms of Gaussian Bell curve distributions. It's I think 0:05:19.600 --> 0:05:21.680 we learned in the last ten years. It's not a 0:05:21.720 --> 0:05:24.880 Bell curve world, right, Yes, And I think I guess 0:05:25.040 --> 0:05:27.000 if you're going to defend anything, I suppose what you 0:05:27.200 --> 0:05:30.080 do as you say that at least when things break down, 0:05:30.160 --> 0:05:32.200 you still understand why you've been so wrong for so 0:05:32.240 --> 0:05:33.840 long sort of thing. And I think that's going to 0:05:33.880 --> 0:05:36.640 be the case with some of the central banks. I'll realize, 0:05:36.680 --> 0:05:39.440 you know, they'll understand what they got wrong based Is 0:05:39.480 --> 0:05:41.120 it just because they don't have a new theory to 0:05:41.160 --> 0:05:43.160 go to. I mean, that's a that's a very valid 0:05:43.240 --> 0:05:46.479 thing to ponder here, and I mean, really good papers 0:05:46.520 --> 0:05:48.600 is summer Frankly, I mean they're driving in the dark 0:05:48.680 --> 0:05:51.920 to some extent, and uh yeah, I mean it's been 0:05:52.000 --> 0:05:54.200 partly because we're in this world of let's say, creative 0:05:54.200 --> 0:05:58.040 destruction and huge structural upheavals, whether it's globalization, technology or 0:05:58.080 --> 0:06:00.720 the aging populations. All of these things things and make 0:06:00.760 --> 0:06:03.560 it very hard I think for anyone to have a 0:06:03.560 --> 0:06:06.480 lot of confidence in the in the future. I mean, 0:06:06.560 --> 0:06:09.039 David gurd did, do people understand that four months of 0:06:09.040 --> 0:06:11.600 the year, it's like we live in Greenland. You drive 0:06:11.680 --> 0:06:13.560 to work in the dark, and you come, you go 0:06:13.680 --> 0:06:18.800 home from blue exactly treasure these few several months, there's 0:06:18.800 --> 0:06:21.400 no there's no sund surveillance. I'd love you ask you 0:06:21.480 --> 0:06:23.760 that you explained that there could be a linking between 0:06:24.080 --> 0:06:27.159 low inflation high growth via what we're seeing inequity. Just 0:06:27.160 --> 0:06:30.120 spell that out for you, so if you want, well, 0:06:29.839 --> 0:06:33.200 I recall very well the late nineties early two thousand's 0:06:33.200 --> 0:06:36.840 where we saw strong growth and low inflation, and obviously 0:06:36.839 --> 0:06:40.159 it was associated with a real investment boom. It was 0:06:40.279 --> 0:06:42.520 to do with the dot com bubble at the time, etcetera. 0:06:43.000 --> 0:06:46.520 UH and extray markets were doing very well. And there's 0:06:46.560 --> 0:06:49.400 this concept of Tobin's Q, which is basically the market 0:06:49.440 --> 0:06:52.719 value of ecuties versus replacement costs, which is investment, which 0:06:52.760 --> 0:06:55.640 is the investment side of it. So companies basically started 0:06:55.720 --> 0:06:57.839 issuing a lot of equity instead of buying back their stock. 0:06:58.080 --> 0:07:00.720 And and I know we know that the capital laborat 0:07:00.760 --> 0:07:03.560 show the amount of investment relative to employment in the 0:07:03.640 --> 0:07:06.200 US in particular is very very low. Now, so there 0:07:06.279 --> 0:07:07.839 is this sort of case for saying we want to 0:07:07.839 --> 0:07:11.760 see much higher real investment relative to employment and that 0:07:11.800 --> 0:07:15.240 would raise productivity. And so clearly one way to do 0:07:15.280 --> 0:07:18.080 that would be to have companies stop buying back their 0:07:18.120 --> 0:07:22.480 stock uh and invest and UH the actual market going 0:07:22.600 --> 0:07:26.160 up another sort of thirty percent would be equivalent to 0:07:26.200 --> 0:07:29.200 a kind of what happened in the late nineties. And 0:07:29.320 --> 0:07:33.400 so rather than being worried about equity bubbles and the 0:07:33.480 --> 0:07:35.160 idea that you know, interest rates are going to go 0:07:35.240 --> 0:07:37.800 up and and and that that the actually market may 0:07:37.840 --> 0:07:39.400 have to come down, so that as part of that, 0:07:39.920 --> 0:07:42.920 just maybe the outlook is to say interest rate is 0:07:42.960 --> 0:07:44.560 going to stay very low because inflation is going to 0:07:44.600 --> 0:07:47.200 stay very low, and interest rates will only rise when 0:07:47.320 --> 0:07:49.320 real growth is a lot stronger. But in a way 0:07:49.320 --> 0:07:52.080 that has to come after equities go up. What is 0:07:52.280 --> 0:07:53.720 what is that We're going to come back with you, 0:07:53.840 --> 0:07:56.880 but very quickly here what is the catalyst to jump 0:07:56.960 --> 0:08:00.320 start real growth besides the hope and a prayer from 0:08:00.400 --> 0:08:03.840 smart guys like you. Well, I mean, I think we've 0:08:03.880 --> 0:08:06.360 had a lot of buybacks in the extray markets. Sort 0:08:06.360 --> 0:08:08.160 of we know that there's been a lot of buybacks. 0:08:08.200 --> 0:08:10.880 There's a sense whereby that's maybe shifting towards more m 0:08:10.920 --> 0:08:14.080 and A activity and in the grand cycle of things. 0:08:14.320 --> 0:08:17.120 Is possible that we could shift to greater net equity 0:08:17.160 --> 0:08:20.280 issuance at some point once valuations in the epting markets 0:08:20.560 --> 0:08:23.880 encourage companies to sort of think about replicating themselves rather 0:08:23.880 --> 0:08:26.960 than buying someone else. So the cast lists would have 0:08:27.040 --> 0:08:30.160 to come from, you know, from the financial markets to 0:08:30.240 --> 0:08:34.559 some extent, and without doubt, a strong ectually market I 0:08:34.559 --> 0:08:38.240 I think would encourage real investments and that would raise productivity. 0:08:38.280 --> 0:08:40.360 You would be adding capital to labor right now. The 0:08:40.360 --> 0:08:43.200 capital laboration shows growing is pathetic. It's growing around for 0:08:43.240 --> 0:08:45.960 three or four percent if you're lucky. It used to be. 0:08:46.080 --> 0:08:48.160 It's been as high as eight percent, and on average 0:08:48.160 --> 0:08:50.280 it should be six percent. I find it interesting that 0:08:50.320 --> 0:08:54.560 the President of the United States is retweeting a Bloomberg 0:08:54.600 --> 0:08:57.240 Markets church. I saw that. I haven't brought it up. 0:08:57.320 --> 0:08:59.920 I did see that. Yeah, Mr Trump, if you're listening 0:09:00.000 --> 0:09:02.360 out on the golf course in the early morning sun, 0:09:02.920 --> 0:09:07.480 all I can say is our team led by when M. 0:09:07.520 --> 0:09:10.880 Bloomberg would love to visit you and move a terminal 0:09:11.200 --> 0:09:13.800 out to your many bed men stars today he does 0:09:13.800 --> 0:09:16.800 he understand he could have a Bloomberg log in and 0:09:16.960 --> 0:09:21.480 have a terminal in bedstory in Florida. He could have 0:09:21.559 --> 0:09:24.040 one at the White House when he's there. Can he 0:09:24.120 --> 0:09:25.719 have one on the golf course? I think he can 0:09:25.880 --> 0:09:29.240 use the professional app Very good, continue to continue to 0:09:29.280 --> 0:09:32.199 hawk this product. That was a word by our sponsors, folks, 0:09:32.200 --> 0:09:35.840 But we thank the President seriously for retreating show Chandra's 0:09:35.880 --> 0:09:38.840 great work at Bloomberg Markets dominy constant with us. He 0:09:38.880 --> 0:09:41.920 knows about the Bloomberg terminal dominic. One of the great 0:09:41.960 --> 0:09:45.640 minds of investment was Phil Currey, enjoying a life well 0:09:45.679 --> 0:09:48.720 into his hundredth year, a great student of solar eclipses. 0:09:48.760 --> 0:09:51.480 As we have the clips coming up in August, and 0:09:51.520 --> 0:09:54.160 Phil kay always talked about the bright lights of inflation 0:09:54.559 --> 0:09:57.719 under the constant theme there aren't any bright lights. How 0:09:57.760 --> 0:09:59.560 in the dark, How in the shade are we going 0:09:59.640 --> 0:10:05.240 to be with a lack of inflation? Well, um, I 0:10:05.280 --> 0:10:08.240 think it ultimately comes down to how low nominal growth 0:10:08.360 --> 0:10:12.120 is because of the lack of inflation. So this is 0:10:12.200 --> 0:10:14.880 why if we can, if we can make something out 0:10:14.920 --> 0:10:17.280 of low inflation in terms of higher real growth, it 0:10:17.320 --> 0:10:20.439 won't be so dark. So that's the kind of key 0:10:20.440 --> 0:10:24.200 issue I think initially though, if inflation is going to 0:10:24.440 --> 0:10:27.920 stay somewhat disappointing. UH, and we're not going to get 0:10:27.960 --> 0:10:30.440 a big rebound or see the data obviously on the 0:10:30.480 --> 0:10:34.040 PPI front today and UH and CPI tomorrow. But if 0:10:34.080 --> 0:10:37.719 initially we don't get any sort of meaningful bounce back inflation, 0:10:37.960 --> 0:10:40.360 then obviously it's going to look a little bit dark 0:10:40.440 --> 0:10:42.920 because people are going to question what the FED is 0:10:42.960 --> 0:10:45.679 actually doing. You know, obviously they're they're on on course 0:10:45.720 --> 0:10:47.800 to do their balance sheet reduction, and they're talking about 0:10:47.880 --> 0:10:51.240 hiking possibly in December, and all that's going to look 0:10:51.280 --> 0:10:53.920 a bit sort of you know, what's the point of it? Okay, 0:10:53.960 --> 0:10:56.640 So within your research, note, I don't think there's a 0:10:56.640 --> 0:11:01.400 fiscal response. Well, all the infrastructure is the other father role? 0:11:01.520 --> 0:11:04.160 Is that? I mean my yeah, I mean my view 0:11:04.160 --> 0:11:06.360 on fiscal is to distinguish the sort of the two 0:11:06.440 --> 0:11:10.439 kinds of fiscal One is obviously fiscal stimulus, and stimulus 0:11:10.480 --> 0:11:13.160 is fine if in some sense you can sort of 0:11:13.240 --> 0:11:16.319 unleash some sort of multiply effect. But there's always a 0:11:16.400 --> 0:11:19.760 danger that the FED kind of responds to that by saying, okay, 0:11:19.800 --> 0:11:22.959 because of our models on unemployments and we think that 0:11:23.000 --> 0:11:24.840 Phillips curve is gonna work. We're gonna just you know, 0:11:25.120 --> 0:11:28.120 snuff out the extra stimulus by a raising rates a 0:11:28.120 --> 0:11:29.760 bit faster. So it could be a sort of a 0:11:29.880 --> 0:11:32.360 zero some game if the FED kind of offsets the 0:11:32.400 --> 0:11:36.640 fiscal fiscal reform though, is that actually kind of raises 0:11:36.679 --> 0:11:41.000 potential growth is much more interesting because and obviously you 0:11:41.040 --> 0:11:44.520 can sort of shift out your supply curve effectively. Uh 0:11:44.559 --> 0:11:47.559 and um, what's the scope for that? Well, it doesn't 0:11:47.600 --> 0:11:49.960 look so good now because they've obviously dropped some of 0:11:50.000 --> 0:11:53.679 these are more outrageous type policies that what some people 0:11:53.679 --> 0:11:56.440 thought were outrages, such as the border attacks. Uh. And 0:11:56.679 --> 0:11:59.280 but those could have had a more meaningful impact I 0:11:59.280 --> 0:12:01.600 think on potential growth. And David part of the debate 0:12:01.600 --> 0:12:03.559 here as you've got to move the needle. I mean, 0:12:03.920 --> 0:12:07.079 in the seventeen nineteen frillion dollar economy, it takes a 0:12:07.160 --> 0:12:10.040 lot of fiscal part really to move the needle. You 0:12:10.080 --> 0:12:12.800 declare volatility dead, and I'm sure there are many investors 0:12:12.840 --> 0:12:15.200 grieving that. How do we move past that? What what 0:12:15.240 --> 0:12:17.000 do you what do you see as the wavefward when 0:12:17.040 --> 0:12:19.760 it comes to this this low volatility environment, Well, it 0:12:19.800 --> 0:12:23.559 doesn't he doesn't do the hedge fund again. Yeah right, 0:12:24.360 --> 0:12:26.880 I mean that that. I mean that invol's dead, I 0:12:27.000 --> 0:12:28.839 think for a couple of reasons, or has been dead 0:12:28.840 --> 0:12:31.280 for a couple of reasons. One is, obviously interest rates 0:12:31.320 --> 0:12:33.319 are very low, and when interest rates are very low 0:12:33.800 --> 0:12:35.599 in general volacities, he's going to be pretty low in 0:12:35.640 --> 0:12:37.679 the rate market, and that's sort of, um, you know, 0:12:37.760 --> 0:12:40.040 maybe infects some of these other assetment class as well, 0:12:40.040 --> 0:12:42.560 because's not just rate vol that's obviously very low. Um. 0:12:42.920 --> 0:12:46.600 The other reason, though, obviously, is the central banks are 0:12:46.640 --> 0:12:49.280 such big players and the financial markets through countit of easing. 0:12:49.480 --> 0:12:52.280 So even though the FED no longer is doing quey 0:12:52.280 --> 0:12:53.920 and it's going to start winding down the balance sheet 0:12:54.000 --> 0:12:57.160 very slowly, uh, the CB and BOJ are still massive 0:12:57.760 --> 0:13:00.800 buyers of securities and that see other sort of reason 0:13:00.880 --> 0:13:02.800 than affects it. So I think the way in which 0:13:02.840 --> 0:13:06.000 you eventually get out of it will be some combination 0:13:06.280 --> 0:13:09.040 of raising nominal growth and as we said, it's not 0:13:09.320 --> 0:13:11.280 likely to come from inflation very much. It'd have to 0:13:11.320 --> 0:13:13.880 be a real growth story eventually, but also getting the 0:13:13.960 --> 0:13:16.679 central banks sort of out of the financial markets, and 0:13:17.440 --> 0:13:22.360 the ECB is probably gonna taper again later, we'll announce 0:13:22.440 --> 0:13:25.559 the tapering later this year, perhaps as early September. And 0:13:25.600 --> 0:13:27.439 obviously fed's doing their thing on balance sheet and the 0:13:27.480 --> 0:13:29.280 b J is going to be a long way behind. 0:13:29.400 --> 0:13:31.800 But then eventually they may do something. So if all 0:13:31.840 --> 0:13:34.679 goes well, you know, slowly, slowly, slowly, maybe we can 0:13:34.800 --> 0:13:38.560 bring back higher, higher rates on the real side and somethng. 0:13:39.080 --> 0:13:41.120 You have been more than generous, as I say, folks, 0:13:41.360 --> 0:13:43.439 the problem with Domini because you have to read as 0:13:43.520 --> 0:13:47.840 length theory, search past word by word. Sure we protect 0:13:47.880 --> 0:13:50.439 the carpyright. I've already had a couple of emails. No, 0:13:50.760 --> 0:13:53.240 we're not going to mail out Deutscha Bank's work. Please 0:13:53.240 --> 0:14:09.439 contact Deutsche Bank for doctor customs. Brilliant, uh, David, I 0:14:09.520 --> 0:14:11.880 guess we should wax politically here. That seems to be 0:14:12.000 --> 0:14:15.920 the season with a qualified candidate, the former governor of Oklahoma. 0:14:16.160 --> 0:14:20.760 Oklahoma's outside of the three zip codes we work within, David, 0:14:20.840 --> 0:14:24.360 it's the rest of America. We second morning to our 0:14:24.400 --> 0:14:27.400 listeners there on serious ex im one nineteen. If Frank 0:14:27.480 --> 0:14:30.440 Keating joins us now, as you say, former governor of 0:14:30.520 --> 0:14:33.160 Oklahoma with a long history with the FBI as well. 0:14:33.200 --> 0:14:34.920 He governor Keating. Great to have you on the program 0:14:35.000 --> 0:14:37.000 once again got us up to speed on what you're 0:14:37.080 --> 0:14:40.840 watching here as all of these investigations unfold. Given your background, 0:14:40.960 --> 0:14:43.600 what's most interesting to you? Where do you see the 0:14:43.720 --> 0:14:48.000 most interest when it comes into the Russia investigations. Well, I, 0:14:48.480 --> 0:14:52.800 of course, as a citizen, UM was not surprised, but 0:14:52.920 --> 0:14:55.760 certainly as a result of my background that the Russians 0:14:55.840 --> 0:15:00.720 and others have been interested in American politics and American elections. 0:15:00.800 --> 0:15:04.600 Have they been, um doing everything in their power to 0:15:04.800 --> 0:15:08.120 disrupt them or to change the outcome? Well, I suppose 0:15:08.240 --> 0:15:11.800 they would try if they could, But de Nited States 0:15:11.920 --> 0:15:14.840 does the same thing. They are we are very interested 0:15:14.880 --> 0:15:17.800 in what's going on in countries that are our adversaries, 0:15:18.120 --> 0:15:20.680 and I'm sure and I know that in the past 0:15:21.160 --> 0:15:24.920 there have been efforts made to change outcomes of elections. 0:15:25.240 --> 0:15:30.720 But that said, UM, I'm not friendly to the concept 0:15:30.760 --> 0:15:35.160 of an independent council, a special prosecutor special council, because 0:15:35.200 --> 0:15:38.440 if you have one victim and you have an armory 0:15:38.520 --> 0:15:42.560 of investigators, have an army of prosecutors, you're going to 0:15:42.640 --> 0:15:44.880 get your victim, whether it's spending on the sidewalk or 0:15:44.920 --> 0:15:48.120 whether in for example, the Trump case, UM it's a 0:15:48.240 --> 0:15:52.240 deduction that wasn't warranted, or you in a limited um 0:15:52.560 --> 0:15:57.440 partnership value a property greater than its real value was, 0:15:57.560 --> 0:16:00.920 and all that's of course arguable, but that's what worries me. 0:16:01.160 --> 0:16:04.280 The Independent Council himself, Bob Mueller, I think is a 0:16:04.520 --> 0:16:07.720 very fine person, very sharp person. But again it's the 0:16:07.880 --> 0:16:11.240 concept itself and where it goes with anybody's guests. But 0:16:11.360 --> 0:16:14.680 I would imagine they'll find something, and I think that's 0:16:14.760 --> 0:16:17.920 terribly destructive to a free society. How does somebody like 0:16:18.200 --> 0:16:22.600 Mr Mueller, the agents who are working these investigations, how 0:16:22.640 --> 0:16:25.440 do they tune out the political noise surrounding all of this. 0:16:25.600 --> 0:16:28.840 We've seen some criticism direct and indirect of Mr Mueller, 0:16:28.880 --> 0:16:32.560 for instance, uh speculation that he might be be removed, etcetera. 0:16:32.640 --> 0:16:35.160 When you're working investigation like this amid all of these 0:16:35.160 --> 0:16:38.400 political pressures, how do you tune that out? Well? I 0:16:38.560 --> 0:16:41.120 was U S attorney in in my state, and I 0:16:41.280 --> 0:16:43.480 share the U S attorneys. I was number three at 0:16:43.520 --> 0:16:46.720 the Justice Department and supervised versually all of the federal 0:16:46.920 --> 0:16:50.200 enters and establishment at Treasury and in Justice. We had 0:16:50.360 --> 0:16:55.600 pretty strong rules that we didn't get engaged in politics 0:16:56.080 --> 0:16:58.840 unless there was a real issue, I mean, a very 0:16:59.000 --> 0:17:06.400 very dangerous um challenge to legal, challenge to the process itself. 0:17:06.680 --> 0:17:08.960 I remember one time, as a young agent in San Francisco, 0:17:09.520 --> 0:17:13.320 I interviewed Mayor Alito, who then was under an investigation. 0:17:13.400 --> 0:17:16.679 I don't recall at this juncture what poor And he said, well, 0:17:16.760 --> 0:17:19.080 you're just here because of Richard Nixon told you to 0:17:19.160 --> 0:17:23.120 come here. But they average fbigent. You know, he has 0:17:23.480 --> 0:17:26.639 cases open, he's assigned to lead, he interviews people. He 0:17:26.840 --> 0:17:30.200 is totally a political and he is you know, totally 0:17:30.280 --> 0:17:33.360 professional at least that has been my experience. So where 0:17:33.480 --> 0:17:36.080 this goes is anybody's yes. But as I said, I 0:17:36.240 --> 0:17:39.440 just hope that it's not another kem Star. We moved 0:17:39.520 --> 0:17:43.480 from white Water to the staining dress and the President 0:17:43.560 --> 0:17:46.080 rying about having it's We're going to turn things in 0:17:46.160 --> 0:17:48.119 your head. That's what we do. In August, here David gurin, 0:17:48.440 --> 0:17:52.280 Tom Keene with us, the governor of Oklahoma, the former governor, 0:17:52.320 --> 0:17:54.480 Frank Keating, of course, with his public service with the 0:17:54.480 --> 0:17:58.080 Federal Bureau of Investigation, talking here about Mr Mueller earlier 0:17:58.119 --> 0:18:01.840 in that Frank, let's talk Anna Langthorne. She's head of 0:18:01.840 --> 0:18:07.600 the Oklahoma Democrats. John Sparks a Senate leader, Scott Inman 0:18:07.640 --> 0:18:11.320 the House leader. The Democrats owned the state from nineteen 0:18:11.359 --> 0:18:15.240 o seven to nine, when the Commies known as the Republicans, 0:18:15.320 --> 0:18:18.480 took over the state. What do the Democrats need to 0:18:18.560 --> 0:18:22.040 do to get that traditional Democratic voice back? Many would 0:18:22.040 --> 0:18:26.280 suggest that the Secretary of State lost the election rather 0:18:26.359 --> 0:18:29.560 than Mr Trump won it. Do you have any worry 0:18:29.600 --> 0:18:32.840 that the Democrats actually get their message organized and they 0:18:32.920 --> 0:18:38.080 take back Michigan or they could even take back Oklahoma. Well, 0:18:38.160 --> 0:18:42.000 you know, Tom, it is uh anybody's guess right now, 0:18:42.160 --> 0:18:45.640 because I was the first Republican governor of my state 0:18:45.720 --> 0:18:48.400 since the sixties, the Democrats in control of the House 0:18:48.480 --> 0:18:52.240 and Senate forever. And my whole theme was why are 0:18:52.320 --> 0:18:55.719 we for capita income? There's no reason for this. When 0:18:55.760 --> 0:18:58.520 I left office, oil was never above eighteen dollars of barrow. 0:18:58.600 --> 0:19:01.439 We were concurty seven and per capita income. We put 0:19:01.560 --> 0:19:04.680 right to work in the constitution. Today, the highway system, 0:19:04.720 --> 0:19:07.280 the turnpikes, made the kids take carter course in school, 0:19:07.760 --> 0:19:10.080 you know, charter choice. All that stuff. Got rid of 0:19:10.160 --> 0:19:13.440 welfare through a Democrat House and Senate. It can be done. 0:19:14.119 --> 0:19:17.080 But what's important is to have Republicans realized. To be 0:19:17.200 --> 0:19:20.720 the party of Lincoln, they have to win Lincoln agendas, 0:19:21.280 --> 0:19:23.479 and the Democrats to be a party of Jefferson, they 0:19:23.520 --> 0:19:26.359 have to win Jefferson agendas. But both of them are 0:19:26.400 --> 0:19:30.159 American agendas. Come together, let's work it out and do 0:19:30.280 --> 0:19:34.040 what's necessary to make America great again. As the President says, 0:19:34.119 --> 0:19:37.320 So it's not that difficult. It doesn't really take a 0:19:38.359 --> 0:19:41.080 a PhD in economics to figure out what America? What 0:19:41.160 --> 0:19:44.199 ails America? And this tax thing, I think is going 0:19:44.280 --> 0:19:47.800 to be watched very carefully with all those trillions abroad, 0:19:47.880 --> 0:19:50.240 and we're gonna fix the system and bring that money home. 0:19:50.760 --> 0:19:54.040 We'll see. But it does take leadership, and it has 0:19:54.200 --> 0:19:56.760 it takes humility to get stuff done. You can't like it, 0:19:57.119 --> 0:19:59.359 you just can't take the view con that it's my 0:19:59.520 --> 0:20:02.720 way or the highway. Where's that humility? Where's that leadership 0:20:02.760 --> 0:20:04.320 going to come from? As you mentioned, we're all watching 0:20:04.400 --> 0:20:06.720 what's what's happening We're going to happen in Washington when 0:20:06.720 --> 0:20:10.399 it comes to tax reform. Where do you do you 0:20:10.480 --> 0:20:13.119 see a real leadership in humility? Deficit in Washington and 0:20:13.200 --> 0:20:17.960 what's going to fill that Well, obviously Donald Trump, there's 0:20:18.000 --> 0:20:20.400 not a whole lot of humility there. But he wants 0:20:20.440 --> 0:20:23.840 to win. He wants to be a successful president. I 0:20:23.960 --> 0:20:26.399 know the vice president feels the same way. Think of 0:20:26.440 --> 0:20:29.440 the good men and women who are willing to serve 0:20:29.520 --> 0:20:32.919 in the administration. They don't want to leave a wreckage 0:20:33.320 --> 0:20:36.479 of a legacy. I mean, they want to win. They 0:20:36.520 --> 0:20:40.160 want to succeed as well. And I really think the Democrats. 0:20:40.880 --> 0:20:43.840 My grandfather was a bank owner in Illinois, but he 0:20:44.000 --> 0:20:48.639 was a Democrat member of Congress. Your father, my granddad was, 0:20:49.640 --> 0:20:53.280 but he I mean he really thought deep these issues 0:20:53.359 --> 0:20:57.320 and he wanted um during he was a member during 0:20:57.359 --> 0:21:00.439 the depression. He wanted to make sure that small towns 0:21:00.520 --> 0:21:04.400 and community banks were listened to and looked at during 0:21:04.440 --> 0:21:07.720 the course of the recovery from the from the depression. 0:21:08.200 --> 0:21:10.800 And you know, but it does take, you know, the 0:21:10.880 --> 0:21:14.560 president's leadership, and he needs to send up ahead of 0:21:14.600 --> 0:21:17.480 the table, bring people from both sides in and say, look, 0:21:17.760 --> 0:21:20.280 here's how I see we ought to go. What do 0:21:20.400 --> 0:21:22.959 you think can we count on you to help us? 0:21:23.280 --> 0:21:25.000 And you look at the Democrats, how do you hike 0:21:25.040 --> 0:21:28.840 camp for North Dakota's um Joe mansion from West Virginia. 0:21:29.160 --> 0:21:32.639