Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Thank you all for being here. It's a real pleasure.
Speaker 3: If someone ha said to me, you're gonna interview the Treasury
Speaker 3: Secretary and a church, but not have been on my
Speaker 3: not have been on my bingo card. I also recognize
Speaker 3: there's a major football game happening at this particular time.
Speaker 3: Greatful we could be here as well. Secretary Yell needs
Speaker 3: no introduction. I'll very quickly run through the pertinent biography.
Speaker 3: She has the trifecta Treasury Secretary, former Federal Reserve Chair,
Speaker 3: chief Economic advisor to President Clinton as well, and along
Speaker 3: the way, president of the Federal Reserve Bank of San Francisco.
Speaker 3: The accolades are many of the CV is long. We
Speaker 3: can move past it quickly, and before we get to this,
Speaker 3: there's a lot to talk about before we.
Speaker 2: Get to that. Some light fare.
Speaker 3: And I use the pun intentionally when I said to
Speaker 3: friends I was interviewing you. Everyone is interested in where
Speaker 3: you go to eat on these trips, and I noted
Speaker 3: here in Austin, one in a million wa a Burger.
Speaker 2: And I have to ask.
Speaker 3: About that because there was such a frenzy when you
Speaker 3: went to California, and stopped it in an out burger,
Speaker 3: And let's create a little contrary.
Speaker 2: Let's have a hard conversation. How was the burger?
Speaker 4: They're both terrific in different ways, and loved that it
Speaker 4: was excellent.
Speaker 2: I promise my editor would make some headlines here today.
Speaker 4: We're going to try to barbecue before we leave excellent.
Speaker 1: I'm not gonna let that go by.
Speaker 3: Let's start a bit by talking about the economy. I
Speaker 3: had the pleasure of tagging along with you yesterday. You
Speaker 3: visited an IRS processing facility here in Austin. We saw
Speaker 3: a lot of sorting machines. You asked about your tax
Speaker 3: returns from nineteen seventy one, if they still have them.
Speaker 3: And after I had a chance to ask you about
Speaker 3: the latest jobs data and about the economy one hundred
Speaker 3: and forty two thousand jobs at it last month downward
Speaker 3: revision of the jobs numbers that we've seen prior to that,
Speaker 3: unemployment rate catching down slightly to four point two percent.
Speaker 2: You told me afterward, the labor market looks healthy to you.
Speaker 3: There will be a lot of people who wonder about that,
Speaker 3: wonder about how the economy is doing, the jobs market
Speaker 3: is doing, in particular, given this prolonged fight the FED
Speaker 3: has been having against high inflation and worry about the consequences.
Speaker 3: Explain why you feel like it is healthy yet.
Speaker 4: So, what I see when I look at it the
Speaker 4: economy broadly speaking, is very strong growth, deep into a recovery,
Speaker 4: with the economy operating it basically at full employment. We're
Speaker 4: still seeing three percent growth roughly over the last year,
Speaker 4: and it continues. Consumers spending, investment, spending, solid, inflation coming
Speaker 4: down substantially and I believe headed back to the feds
Speaker 4: two percent goal. And what I describe is a strong,
Speaker 4: solid labor market. Clearly, the pace of job creation has
Speaker 4: gone down, and that's something we should expect. The unemployment
Speaker 4: rate has moved up somewhat off it's very low level
Speaker 4: of I think it got down to three point four percent,
Speaker 4: but it's not common in the United States to have
Speaker 4: unemployment rates in the foes.
Speaker 1: And it's what.
Speaker 4: I think of is a full employment economy. We're seeing
Speaker 4: continued decent pace of hiring, fewer job openings, a lot fewer.
Speaker 4: But there was an enormous amount of disruption in the
Speaker 4: labor market we.
Speaker 1: Saw during the pandemic.
Speaker 4: So the labor market is less hot than it was
Speaker 4: in the hiring frenzy that took place as the economy
Speaker 4: opened up after the pandemic.
Speaker 1: But one hundred and forty thousand jobs.
Speaker 4: This is what you expect in an economy where you
Speaker 4: don't have a lot of unemployment and jobs need to
Speaker 4: be created for new entrance to the labor force. So
Speaker 4: nobody knows exactly what that magic number is. What do
Speaker 4: you need to see in terms of monthly job creation
Speaker 4: to hold the unemployment rate steady? But my guess is
Speaker 4: we're seeing something in that region, and I think this
Speaker 4: is what most people would call a soft landing. Now,
Speaker 4: I will say when you see the pace of job
Speaker 4: creation diminishing over time, what I'd love to say see
Speaker 4: is that it stabilizes roughly where it is now, and
Speaker 4: we have to be careful to make sure that it's
Speaker 4: not going to weaken further. But when you think about
Speaker 4: what will drive at the pace of consumer spending, that's
Speaker 4: important and that remains quite solid.
Speaker 1: We're not seeing layoffs. We're seeing.
Speaker 4: Less frenzy in terms of hiring and job openings, but
Speaker 4: we're not seeing meaningful layoffs. Unemployment insurance claims remain at
Speaker 4: very low levels, so I'm attentive to downside risk now on.
Speaker 1: The employment side.
Speaker 4: But what I think we're seeing and hope we will
Speaker 4: continue to see, is a good, solid economy.
Speaker 3: You say, many people would call that a soft landing.
Speaker 3: So that is the FED being able to get high
Speaker 3: inflation under control without triggering a deep downturn or recession. Right,
Speaker 3: many people would say that. Do you say that as well?
Speaker 3: Do you think that it's Are you fairly confident that
Speaker 3: we're going to get done?
Speaker 4: I think what we're seeing now is consistent with that,
Speaker 4: And you know, while there are risks, it really has
Speaker 4: been amazing to be able to get inflation down as
Speaker 4: meaningfully as we have. And I'd say also, wages are
Speaker 4: going up at a decent clip, and real wages adjusted
Speaker 4: for inflation are rising, and they've well, a lot of
Speaker 4: especially low income households, are under stress.
Speaker 1: Aspects of the cost.
Speaker 4: Of living for them are genuinely challenging, and it's our
Speaker 4: administration's top priority to try to address that. It's still
Speaker 4: true that wages have gone up since before the pandemic
Speaker 4: in real or inflation adjusted terms, and continue youing to
Speaker 4: rise at a decent base.
Speaker 3: Economic policy makers just gathered in Jackson, holl Wyoming. You
Speaker 3: didn't go this year, You've gone in the past many times,
Speaker 3: and I was thinking as I watched.
Speaker 2: All of that unfold.
Speaker 3: You know, a big takeaway from that is, wow, policymakers
Speaker 3: have managed to pull this off, or so it seems.
Speaker 2: There hasn't been a recession.
Speaker 3: Inflation has come down dramatically, And I want to draw
Speaker 3: on your experience as an academic economist and a policy makers.
Speaker 3: What's the message from that to future policymakers about what's
Speaker 3: worked here? How much of this was I won't call
Speaker 3: it dumb luck, but fortunate that it happened. Are we
Speaker 3: any closer to understanding why it worked out the way
Speaker 3: that it has?
Speaker 4: So, you know, shocks occur to the economy, and sometimes
Speaker 4: they have very unique features. And so when you ask
Speaker 4: do we under what do we understand and what are
Speaker 4: the lessons? You know, each shock in each situation needs
Speaker 4: to be under stood in its own terms. And aside
Speaker 4: from typically wars where goods are in short demand and
Speaker 4: you see bursts of inflation. Fortunately there have been few,
Speaker 4: but there have been some episodes In the United States.
Speaker 4: This was a very unique episode.
Speaker 1: Some of the.
Speaker 4: Inflation came from supply side shocks.
Speaker 1: That were related to COVID.
Speaker 4: We found the automakers had just a shortage of semiconductors
Speaker 4: they couldn't get. They couldn't get the semiconductors they needed
Speaker 4: to produce cars, so things like cars were an absolute shortage.
Speaker 4: There was a huge change in the character of demand
Speaker 4: in the US economy associated with the pandemic. People no
Speaker 4: longer going out to eat in restaurants, cooking at home,
Speaker 4: working from home, wanting to expand and improve their work
Speaker 4: spaces their homes, pushing up house prices and rents, and
Speaker 4: demand for goods going through the ceiling to the point
Speaker 4: where we saw ships lined up in the major ports
Speaker 4: in California and other parts of the country couldn't unload
Speaker 4: their cargoes. So there were a lot of supply shocks,
Speaker 4: and that led to some steep price increases. Then we
Speaker 4: had Russia's attack on Ukraine that led to for a
Speaker 4: while spiking energy and commodity prices.
Speaker 1: And part of.
Speaker 4: What we've seen is inflation come down as the economy
Speaker 4: is adjusted to those shocks, and I think that's part
Speaker 4: of why we haven't needed to have a recession. You know,
Speaker 4: when the fed Titans and causes it causes the recession.
Speaker 4: It's often because the labor market itself has become overheated
Speaker 4: and they feel they need to loosen up the labor
Speaker 4: market in order to get inflation down. And we did
Speaker 4: see a very tight labor market for a while, but
Speaker 4: it's gradually cooled in a way that should not necessitate
Speaker 4: a recession. Wages are rising a little bit under four
Speaker 4: percent at a pace that is consistent with two percent
Speaker 4: inflation and significant productivity growth. So all of that looks
Speaker 4: all of that looks good. So this has been a
Speaker 4: unique thing, you know, I think when I think about lessons,
Speaker 4: one of the lessons that my colleagues and I had
Speaker 4: in responding to the pandemic is we know, when you
Speaker 4: have a deep downturn in the economy, if you don't
Speaker 4: do something to address unemployment, it can leave.
Speaker 1: People out of the labor market.
Speaker 4: Out of jobs, scarred in ways that will have a.
Speaker 1: Permanent impact on their lives.
Speaker 4: And getting people back to work is important in order
Speaker 4: to avoid.
Speaker 1: This kind of scarring.
Speaker 4: And so we were very focused on trying to create jobs,
Speaker 4: and I really don't think that was a mistake at all.
Speaker 4: We've enjoyed about the fastest and larger recovery of any
Speaker 4: advanced country that's experienced this shock. And well, we did
Speaker 4: see a spurt and inflation, and you know, we're concerned
Speaker 4: about the cost of living. It's a high priority every country.
Speaker 4: So or a burst of inflation, it's something that was
Speaker 4: probably unavoidable.
Speaker 1: Given this shock.
Speaker 3: As I listened to you talk about catalysts for high inflation,
Speaker 3: you didn't mention companies. And I'm sure you've heard the
Speaker 3: conversation that's happening now about whether companies have been contributing
Speaker 3: to this. Are there mechanisms that could be put in
Speaker 3: place to deal with price gouging? Let me ask you,
Speaker 3: as an economist, do you think that that is a
Speaker 3: reasonable response and is it a necessary response at this
Speaker 3: point in time?
Speaker 4: So to me, inflation is largely ongoing a matter of
Speaker 4: supply and demand, but it is important to have competition
Speaker 4: in the economy and benefits to consumers very substantial from
Speaker 4: having an active anti trust policy. From our earliest days,
Speaker 4: the Biden Harris administration has been focused on enforcing existing
Speaker 4: anti trust policy to maintain competition in our economy, which
Speaker 4: benefits consumers.
Speaker 1: And so with respect to price gouging.
Speaker 4: It can be a lack of competition, or sometimes after
Speaker 4: a shock, you have a snow snowstorm and the price
Speaker 4: of shuffles can go up or slaves.
Speaker 3: As I know from having kids, sled sled prices tend
Speaker 3: to rise. You know, when the forecast calls for a snow.
Speaker 4: Forty states have laws against that. And that's that seems
Speaker 4: relevant to me.
Speaker 3: I'd like to talk about the work that you've done
Speaker 3: internationally and domestically kind of equal parts. And you know,
Speaker 3: I look at what you've done as Treasury Secretary. You
Speaker 3: approached it kind of like a diplomat. Treasury secretary is
Speaker 3: a diplomat, And I want to start by asking you
Speaker 3: about your experience on US China relations. So I didn't
Speaker 3: go on the trip with you there that you took
Speaker 3: to China, but I followed the coverage of it. And
Speaker 3: aside from the five thousand articles about the magic mushrooms
Speaker 3: that may have been on the meal that you that
Speaker 3: you ate there, she don't have to address here, and
Speaker 3: you've a dressed that money. There was this other thread
Speaker 3: that came out, and that is you were able to
Speaker 3: carry a tough message to your counterparts and they seem
Speaker 3: to if not like you, hear you out, spend time
Speaker 3: with you. These meetings, as they often do when you
Speaker 3: meet with counterparts in China, last almost days, they last hours.
Speaker 3: And I was thinking of something that I saw Alan
Speaker 3: Blind or your former colleague at the FED say about you,
Speaker 3: and that is Janet Yellen makes an argument on the merits,
Speaker 3: and she sticks with it, and she's good at articulating
Speaker 3: an argument in a way that doesn't leave people on
Speaker 3: the other side hopping mad at her. What is your
Speaker 3: secret as you think of embracing this role as a diplomat,
Speaker 3: what has made you particularly i'll say particularly good or
Speaker 3: have the facility for.
Speaker 1: Well, well, thank you for the compliment. I've seen.
Speaker 4: This sort of diplomatic initiative, both with China and with
Speaker 4: other countries as really critical because we need to work
Speaker 4: together collaboratively to solve every global problem that we face,
Speaker 4: from climate change to Russia's aggression to issues that we
Speaker 4: have with China. And during the previous administration, I'm sorry
Speaker 4: to say, our alliance is fred and you know it
Speaker 4: was America first, and that should really never be America alone,
Speaker 4: and it was necessary to rebuild alliances, is to work
Speaker 4: with allies around the world, and that's been a broad
Speaker 4: that's been a broad effort, and I think we really
Speaker 4: have succeeded. And perhaps we'll talk about this, but when
Speaker 4: Russia attacked Ukraine, we had an alliance that came together
Speaker 4: in a matter of a day or two to strongly
Speaker 4: counter what Russia was doing. We've stayed together and we've
Speaker 4: worked together to address and this is broad effort G
Speaker 4: twenty or larger, to address climate change and problems afflicting
Speaker 4: poor countries around the world, to address pandemics, created a
Speaker 4: pandemic fund, knowing there'll probably be another pandemic unfortunately, and
Speaker 4: we need to be better prepared we were for COVID.
Speaker 4: So on many different fronts, we have tried to rebuild alliances,
Speaker 4: and with respect to China, relations had really deteriorated during
Speaker 4: the pandemic, and we went for a period of close
Speaker 4: to two years without any meaningful senior level contact between
Speaker 4: US and Chinese, and that was really a very dangerous
Speaker 4: state of affairs. President Biden met with President she In Bali.
Speaker 4: I was at that meeting, and they agreed that it
Speaker 4: was important to re establish relationships, and that means having
Speaker 4: honest conversations about the things that we're concerned about. It
Speaker 4: could be, of course, for the defense. In foreign policy side,
Speaker 4: it's things like Taiwan and the South China see. For us,
Speaker 4: it's some of the tools that we think constitute unfair
Speaker 4: competition or macroeconomic policies that China is following that we
Speaker 4: see as having negative impacts on the United States and
Speaker 4: other countries. These are things we need to discuss, honestly,
Speaker 4: so we try to re establish relationships. Before I went
Speaker 4: to China, I set out three basic tenets for our relationship. First,
Speaker 4: that we have national security concerns, and we're really that's
Speaker 4: not an area where we can compromise. We intend to
Speaker 4: address those concerns. What we can do, though, and I've
Speaker 4: found that this has been helpful, is to explain carefully
Speaker 4: what those concerns are, to try to we dress them
Speaker 4: in the narrowest possible way so that addressing these concerns
Speaker 4: doesn't drift into taking actions intended to harm the entire
Speaker 4: Chinese economy or the Chinese people, and explaining how we
Speaker 4: have drawn those lines. Also giving the Chinese an opportunity
Speaker 4: if they feel we've gone too far and really broadly
Speaker 4: harming their economy, to explain what their concerns are and
Speaker 4: to respond and to listen and if you know, occasionally
Speaker 4: just something that we do because there's a legitimate concern there.
Speaker 1: So that was one tenant.
Speaker 4: The other is to say, look, we've got economic issues
Speaker 4: where we disagree, but what we agree on is we
Speaker 4: do have deep trade and investment relations with China, and
Speaker 4: that's benefiting many Americans. Americans who are involved in export industries.
Speaker 4: We're selling goods to China, people who have jobs with
Speaker 4: firms that are investing in China and operating in China.
Speaker 4: We benefit from much of the trade and investment that's
Speaker 4: going on. And it is not a zero sum game.
Speaker 4: It is a win win type of situation. But the
Speaker 4: trade and investment has to be fair, and we have
Speaker 4: grievances and one of the topics we're discussing intensively now,
Speaker 4: I guess I call it over capacity. China has a
Speaker 4: unique economy in which they are savings rate, so the
Speaker 4: amount of their GDP that they save is over forty percent.
Speaker 1: This is really rare.
Speaker 4: Among countries around the world.
Speaker 1: I don't know of any.
Speaker 4: Developed country with anything like that. Consumer spending is very low,
Speaker 4: as the share of the economy in comparison with any
Speaker 4: other country. And for a country that's trying to develop,
Speaker 4: having this huge pool of savings to invest, that's a
Speaker 4: great thing. And they invested in infrastructure, and they invested
Speaker 4: it in housing and property. But you know, there are
Speaker 4: only so many bridges and roads that it makes sense
Speaker 4: to build, and they did that, and they built a
Speaker 4: lot of houses and live incule with many or not
Speaker 4: many are unfinished, and there are a lot of problems there,
Speaker 4: and so it doesn't you're lived with forty percent of
Speaker 4: your economy. You're saving and what are you going to
Speaker 4: do with all those savings? And they've basically made a
Speaker 4: decision they want to channel.
Speaker 1: That into advanced manufacturing.
Speaker 4: And you know, there are a lot of countries, not
Speaker 4: just the United States, but Europe and developing countries like
Speaker 4: India or Brazil or Mexico that are producing and have
Speaker 4: good jobs in these industries, and when you have massive subsidization,
Speaker 4: it undercuts jobs in many places. So we need to
Speaker 4: discuss this in a sensible way, and we have and
Speaker 4: they're willing to listen. And you have set up working
Speaker 4: groups and economic and a financial working group. But the
Speaker 4: last piece of it is that we also need to collaborate.
Speaker 4: The world needs that from the two largest countries, and
Speaker 4: there are global challenges we face, like climate change or
Speaker 4: debt burdens in poor countries that are really stopping development
Speaker 4: dead in its tracks. We need our multilateral development banks
Speaker 4: to operate in a better and more efficient way to
Speaker 4: help poor countries round middle income countries around the world.
Speaker 1: And we need to work together on these things.
Speaker 4: Or if there is a financial crisis it spills across borders.
Speaker 4: We need to if something happens, be able to work together.
Speaker 4: And so we also agreed we're going to try to
Speaker 4: do that, and we've been doing this very effectively.
Speaker 3: Do you foresee going back there as Treasury secretary? Do
Speaker 3: you need to go back there?
Speaker 4: I certainly may go back there. I, you know, would
Speaker 4: welcome a visit by my Chinese counterpart, and my guess
Speaker 4: is that we will have, one way or another a visit.
Speaker 4: His team will be traveling very soon to China to
Speaker 4: discuss economic issues and carry this forward.
Speaker 3: One last question before we move on to Russia and Ukraine.
Speaker 3: You mentioned that relationship had deteriorated and frayed. You have
Speaker 3: knitted it back together so much as you've been able
Speaker 3: to how fragile is it is you look ahead to
Speaker 3: a new administration, whichever one that may be. As you
Speaker 3: listen to those who counsel for less engagement with China
Speaker 3: as opposed to more, how worried are you about the
Speaker 3: integrity of it and it kind of falling to the
Speaker 3: wayside in the way in which it had before.
Speaker 4: Well, I do think it's possible. I think this is
Speaker 4: something that needs to be prioritized.
Speaker 1: And nurtured, and.
Speaker 4: We need to continue to talk to one another at
Speaker 4: all levels, from the most senior down through staff of
Speaker 4: places like treasury, where there are lots of issues. They
Speaker 4: don't rise to the top level, but we need to
Speaker 4: work together. And as we saw it during the pandemic,
Speaker 4: and we have enough differences, and without a chance to
Speaker 4: discuss them and put them in context, it's certainly possible
Speaker 4: for tensions to rise.
Speaker 1: So this is something that.
Speaker 4: Really requires ongoing attention.
Speaker 1: I hope that it would get it.
Speaker 3: Pivoting to Russia and Ukraine, you mentioned how quickly and
Speaker 3: allies came together to impose sanctions and economic restrictions on
Speaker 3: Russia after its invasion of Ukraine. The US has imposed
Speaker 3: more sanctions under this administration than anyone in the past
Speaker 3: by a mile. And there are critics who say, maybe
Speaker 3: we've gone a little far down that road, maybe they're
Speaker 3: not as effective as you might hope.
Speaker 2: What do you say to them.
Speaker 3: It's a rare day when I go to my computer,
Speaker 3: open the inbox and don't see something from Treasury about
Speaker 3: sanctions on that particular conflict, maybe in South America. It
Speaker 3: is a tool that the Treasury Department, yes, under you,
Speaker 3: but under your recent predecessors as well, have been relying
Speaker 3: upon more this kind of financial warfare, economic warfare.
Speaker 4: Well, I think it can be a potent tool when
Speaker 4: used in the right context. You know, clearly there are
Speaker 4: cases where you use sanctions and you're not successful in
Speaker 4: stopping activity that you'd like to punish. You know, perhaps
Speaker 4: North Korea is a case in point. We have imposed
Speaker 4: high costs on the country, but it hasn't been sufficient
Speaker 4: to establish the goal. But in many cases I think
Speaker 4: sanctions are effective. You know, the dollar is the world
Speaker 4: world's currency. It's used for all around the world for transactions,
Speaker 4: and for countries to be able to do that and
Speaker 4: transact with the rest of the world, they need to
Speaker 4: operate and through correspondent banks in the United States or elsewhere.
Speaker 1: And the threat to cut off.
Speaker 4: Institutions in other countries from the dollar based international financial
Speaker 4: system is a very serious sanction. We we've used that intensively.
Speaker 4: But you know, in the case of Russia and Ukraine
Speaker 4: that you asked about that this is a situation where
Speaker 4: we felt, you know, we certainly don't want to be
Speaker 4: boots on the ground, and we do want to do
Speaker 4: something that's going to be as effective as we can
Speaker 4: make it. We're focused on two things. One is, we
Speaker 4: want to the maximum extent possible to cut off Russia's
Speaker 4: access to military goods, to goods to conduct the war
Speaker 4: or to rebuild its own military complex. And second of all,
Speaker 4: we want to constrain their revenue. So the very first
Speaker 4: thing we did, and we agreed on this in record time,
Speaker 4: is we immobilized the assets of the of the Russian
Speaker 4: Central Bank that lift at least in Europe over you know,
Speaker 4: maybe in total, in total over three hundred billion dollars
Speaker 4: of Russian assets.
Speaker 3: As a subject of robust debate whether or not to
Speaker 3: do that, Am I right.
Speaker 4: Well, we decided to do that. The g and agreed
Speaker 4: to do that in the span of less than twenty
Speaker 4: four hours, so there may have been some discussion within
Speaker 4: those twenty four hours, but it was pretty pretty rapid
Speaker 4: decision making.
Speaker 1: On that, and we had strong.
Speaker 4: Allies and we were all agreed that we needed to
Speaker 4: respond in the strongest possible way to try to stop
Speaker 4: this attack and impede Russia's attack. But we've had some
Speaker 4: innovative things that we have done. What we wanted to
Speaker 4: do was to go after Russia's revenues and to make
Speaker 4: it more difficult for Russia to do the spending that's
Speaker 4: necessary to conduct the war. And Russia's most important source
Speaker 4: of revenue comes from its global oil sales. So everyone
Speaker 4: focused right away on let's impede Russia's global oil sales.
Speaker 4: The problem with that is that if we diminished Russia's
Speaker 4: supply of oil onto the global markets, Russia is an
Speaker 4: important enough oil producer that this could send prices skyrocketing,
Speaker 4: not only in the United States but all around the world,
Speaker 4: including in port countries that are really just can't afford
Speaker 4: to have higher energy prices. So we knew that we
Speaker 4: had to be very careful and it could At first,
Speaker 4: it was how on earth can we possibly cut into
Speaker 4: this revenue stream without harming everybody around the globe. And
Speaker 4: eventually my team came up with the idea that we
Speaker 4: would try to limit the price that Russia was getting
Speaker 4: for the oil that it was selling, but we wanted
Speaker 4: to maintain Russia's incentives to sell the oil. So we
Speaker 4: devise something we called the price cap on Russian oil,
Speaker 4: and we had sanctioned companies, whether it's financial institutions, insurance companies.
Speaker 4: Much of the global oil trade. Tankers that carry oil
Speaker 4: need insurance. Western companies, the United States, Britain, the European Union.
Speaker 4: Their insurance companies provide most of the insurance they need.
Speaker 4: Trade financing, much of it comes from Western banks, and
Speaker 4: we realized that because these inputs, these financial inputs, were
Speaker 4: critical to Russia in maintaining its.
Speaker 1: Global oil sales.
Speaker 4: But what we could do was say, Okay, you can
Speaker 4: go on supplying these things to Russia so they can
Speaker 4: sell oil, but you can only do it if you
Speaker 4: charge if Russia is charging less than a price. We
Speaker 4: would determine per barrel of oil, and we started off
Speaker 4: with sixty dollars a barrel, and it was essentially outlawed
Speaker 4: to assist with it. Insurance or anything else. Tankers couldn't
Speaker 4: carry the oil, and we in the first year of
Speaker 4: putting this in effect, Russia's or our revenues fell by
Speaker 4: forty percent and they continued to supply oil. So it
Speaker 4: was nobody had ever really tried anything like that, and
Speaker 4: it took a long time to convince countries around the
Speaker 4: world that this was a workable or good idea. I mean,
Speaker 4: what happens with sanctions is.
Speaker 1: That over time they work less well.
Speaker 4: Countries look for ways around it, and Russia began to
Speaker 4: invest in their own insurance, in having a fleet of tankers.
Speaker 1: They started selling.
Speaker 4: Oil, mainly to India and to China, and we've had
Speaker 4: to come up with new ways to address that, but
Speaker 4: we have worked together and I think we've had an impact. Well.
Speaker 3: Last question on this point, I saw that the IMF
Speaker 3: is sending a mission to Russia for the first time
Speaker 3: since this conflict, and I wonder if that's something that
Speaker 3: you back or agree with that at a time when
Speaker 3: the US and its allies are imposing these sanctions and
Speaker 3: fighting this economic fight against Russia, does it make sense
Speaker 3: that that international body that the US does play such
Speaker 3: a key role with is doing that at this point.
Speaker 4: Well, Russia is not getting resources from the IMF, and
Speaker 4: my guess is that I would object strongly to that.
Speaker 4: But Russia is a member of the IMF and participates.
Speaker 4: And I'm not sure what the purpose if the mission is,
Speaker 4: but the IMF routinely, on an annual basis, evaluates the
Speaker 4: economies that are members members of the organization, and I
Speaker 4: wouldn't object to that.
Speaker 3: We're going to move from international to domestic, and I'm
Speaker 3: going to, in the hope of breaking some news, ask
Speaker 3: you a question that I'm sure you're not going to answer,
Speaker 3: but I'll ask it anyway, and feel free. Feel free
Speaker 3: to have some water as I give this long preamble.
Speaker 3: But a big story right now in this country is
Speaker 3: whether a Japanese company should be allowed to buy US steel,
Speaker 3: which is this iconic American steel manufacturer. And the President
Speaker 3: has reportedly said that once a report by a committee
Speaker 3: that you chair that assesses economic risk and security risk,
Speaker 3: once that report has delivered his desk, he will go
Speaker 3: against that deal. Vice President has said as much as well.
Speaker 3: There's the preamble, Can you give us any update on
Speaker 3: the status of that of that report or the timing
Speaker 3: of it.
Speaker 4: So no, I have to do my role, which is
Speaker 4: to say that this group called SIPHIUS, the Committee on
Speaker 4: Foreign Investment in the United States, operates operates in a
Speaker 4: way that we cannot talk about any specific transaction at all.
Speaker 1: I can't even tell.
Speaker 4: You whether or not this this transaction is under review,
Speaker 4: although it has been widely reported that it is.
Speaker 2: That I'll tell you, I'll go ahead, go ahead, So
Speaker 2: I'm not.
Speaker 4: Going to comment on the specifics what what I will
Speaker 4: what I will say is that foreign direct investment in
Speaker 4: the United States is really important and by and large
Speaker 4: has been a huge positive for US, and it is
Speaker 4: a priority to maintain an open and healthy environment for
Speaker 4: foreign countries to invest in the United States, just as
Speaker 4: we're investing in many countries around the world. So that
Speaker 4: is the positive value. On the other hand, foreign investment
Speaker 4: in the United States can impose national security concerns, and
Speaker 4: siphius's role is to use the expertise of multiple agencies
Speaker 4: to try to identify any national security risks and to
Speaker 4: provide the President with advice on whether or not there
Speaker 4: is a way to.
Speaker 1: Address these risks.
Speaker 4: And it is an agency that takes that role very
Speaker 4: very seriously, and we try to present the President with
Speaker 4: the best of valuation they could have. But I say
Speaker 4: that Ciphius's advisory to the president, and ultimately it's the
Speaker 4: president's decision.
Speaker 3: Let me, with trepidation, take one more bite at this apple,
Speaker 3: and that is to say, can you share anything about
Speaker 3: the calculus that that committee goes through. I saw that
Speaker 3: Larry Summers, the former Treasury secretary and your former student
Speaker 3: at Harvard, said yesterday it's important to take into consideration
Speaker 3: how a company's products might be used in the American economy.
Speaker 3: So here I'll say, if it's a steel manufacturer, how
Speaker 3: that might affect the automotive industry in the States. Is
Speaker 3: that part of what you consider the sort of knock
Speaker 3: on effects or downstream effects of a deal?
Speaker 4: Well, as I said, the focus is on national security.
Speaker 4: Is there a national security concern? But it could be economic,
Speaker 4: So we you know part of that is supply chains
Speaker 4: or supply chains at risk. Sometimes you know one might
Speaker 4: work or that an investment could somehow endanger supply chains
Speaker 4: that could potentially be taken into a camp.
Speaker 3: All right, we'll move on and let me I wanted
Speaker 3: to ask you about deficits in preparation for this I
Speaker 3: went back and watched your confirmation hearing, which happened at
Speaker 3: such a critical and difficult moment in this country's history.
Speaker 3: And what's fascinating is at that time your message was
Speaker 3: we need to go big, We need a big fiscal
Speaker 3: spending package to get us out of the doulgrums of
Speaker 3: the pandemic.
Speaker 2: And at the same time.
Speaker 3: You said that the Treasury Sectory has to be a
Speaker 3: voice for fiscal sanity and you pledge to do that.
Speaker 3: A lot of people will think of you as a
Speaker 3: deficit hawk. Do you still consider yourself to be a
Speaker 3: deficit hawk? And I think of this moment when look,
Speaker 3: the economy seems to have come around, inflation is lower,
Speaker 3: the job's market looks good. Is it time for a
Speaker 3: kind of fiscal reset in this country?
Speaker 4: Well? I do think we have to be on a
Speaker 4: sustainable fiscal course, and I feel my job is Treasury
Speaker 4: Secretary is to monitor that and to make recommendations that
Speaker 4: would be consistent with a responsible fiscal path. Look, when
Speaker 4: the economy is suffering from a huge downturn, it can
Speaker 4: even be ultimately deficit reducing. To spend a lot to
Speaker 4: address it get the economy back on track. That aids
Speaker 4: tax revenue over the long term, of course, it has
Speaker 4: to be temporary spending, and of course, since the pandemic
Speaker 4: has ended, spending has declined for all of those programs.
Speaker 4: But a challenge we face in the United States is
Speaker 4: that the level of tax revenue has declined in comparison
Speaker 4: with historic norms. That's partly because of the twenty seven
Speaker 4: Team tax cuts, the Jobs Cuts, the Job and Tax Act,
Speaker 4: parts of which expire in twenty twenty five.
Speaker 3: I'll call it the Trump tax cuts, even though I
Speaker 3: know that you won't, but for everyone's familiarity with how
Speaker 3: it's commonly called, these are expiring in the coming months, and.
Speaker 4: You know that was something that reduced tax revenues. Then
Speaker 4: we have an aging population and three huge programs, Social Security.
Speaker 1: Medicare, and Medicaid.
Speaker 4: As the population ages, just leaving the rules of all
Speaker 4: of those programs in place, they the spending on those
Speaker 4: programs goes up.
Speaker 1: And as you start looking.
Speaker 4: Out ten twenty years ahead, even if you think that
Speaker 4: our fiscal situation is okay right now, that aging of
Speaker 4: the population and expansion of those programs can put us
Speaker 4: on a financial path, a fiscal path that's not sustainable.
Speaker 4: So right now, although the numbers of how large the
Speaker 4: federal deficit is, you name them, it can seem scary, Can.
Speaker 2: I name one quickly?
Speaker 1: Sure?
Speaker 3: Congressional Budget off is saying US fiscal deficits projected to
Speaker 3: equal or exceed five and a half percent of GDP
Speaker 3: every year out to twenty thirty four, and the CBO
Speaker 3: also noting deficits have not been that large or remain
Speaker 3: that large for more than five years in a row
Speaker 3: since at least nineteen thirty.
Speaker 2: That is scary. I mean, it strikes me as scary.
Speaker 4: Well, I think the deficits need to be brought down
Speaker 4: to the point where the interest costs on the debt
Speaker 4: remain manageable, and they remain manageable over the long run.
Speaker 4: And I would say historically the United States has rarely
Speaker 4: had interest costs and I mean in inflation adjusted terms
Speaker 4: that exceed two percent of GDP. That's we're living within
Speaker 4: that now. At the interest costs on the debt are
Speaker 4: not you know, they're well under two percent. And President
Speaker 4: Biden and Vice President Harris delivered a budget to Congress
Speaker 4: that continues that over a ten year horizon. Now, President
Speaker 4: Biden has signed into law a trillion dollars worth of
Speaker 4: deficit reduction. He's raised. He's put in place a corporate
Speaker 4: alternative minimum tax that Congress agreed to. He's enabled Medicare
Speaker 4: to bargain with pharmaceutical companies to bring down drug costs,
Speaker 4: which is some thing that's lowered pharmaceutical costs for Americans
Speaker 4: and also lowered resulted in greater revenue lower expense for
Speaker 4: the government. But he's proposed three trillion dollars in additional
Speaker 4: deficit reduction over the next ten years in his most
Speaker 4: recent budget. And important pieces of that are tax fairness
Speaker 4: in two respects. One is looking to corporations and wealthy
Speaker 4: and high income individuals to pay their fair share, and
Speaker 4: they benefit from many things like a very low and
Speaker 4: sometimes nonexistent capital gains taxation, restoring high higher income tax
Speaker 4: rates on the richest Americans, not on people learning under
Speaker 4: four hundred thousand dollars. But other important part of that
Speaker 4: is making sure that our internal Revenue Service actually as
Speaker 4: the resources to collect the taxes that people are obligated
Speaker 4: to pay. And a shocking number is that current estimates
Speaker 4: say that on the close to a trillion dollars a
Speaker 4: year of taxes are simply not paid their due. That's
Speaker 4: called the tax gap, the difference between what is owed
Speaker 4: under our current laws and what is being collected, and
Speaker 4: that comes close to a trillion dollars a year.
Speaker 1: We fought really hard for the.
Speaker 4: Internal Revenue Service to get the resources it needs to
Speaker 4: collect those tax revenues, because what's happened over decades is
Speaker 4: that the IRS has been so starved for res sources
Speaker 4: that they could neither collect the taxes that are due.
Speaker 4: They're so starved that the audit rates on high income individuals,
Speaker 4: complex partnerships, corporations, big corporations they felt pitifully, I mean
Speaker 4: so close to zero that you could be pretty sure
Speaker 4: that if you cheated on your taxes, you wouldn't get caught.
Speaker 4: And what happened is a disproportionate share of enforcement money
Speaker 4: went into making sure that poor people who get the
Speaker 4: earned income tax credit don't cheat. And that was really
Speaker 4: a situation that had to be changed. In the Inflation
Speaker 4: Reduction Act. We succeeded in getting a multi year eighty
Speaker 4: billion dollars for the Internal Revenue Service. Of course, the
Speaker 4: other aspect of IRA performance is that anybody who tried
Speaker 4: to contact the IRS on the phone you know, by
Speaker 4: the time people finally got through, it really wasn't fun
Speaker 4: to be an IRS customer representative. The typical person when
Speaker 4: they actually got a human on the phone, wo'd start
Speaker 4: by screaming at that person about how frustrated they were
Speaker 4: that they had spent the entire day on hold waiting
Speaker 4: for the phone to be answered.
Speaker 1: I don't know how many people here.
Speaker 4: Over the last year or two have tried to call
Speaker 4: the IRS, but what I can tell you is, as
Speaker 4: a result of an eighty billion dollar infusion, customer's service
Speaker 4: has been transformed. We went from a twenty percent rate
Speaker 4: of answering telephone calls to this last tax sees in
Speaker 4: eighty eight percent in three minutes or less.
Speaker 3: And we have a few minutes left before I get
Speaker 3: to my last questions. Do you do your own taxes?
Speaker 3: I've always wondered, are you?
Speaker 1: For most of my life?
Speaker 2: I have, but it's gotten complicated.
Speaker 4: It's got a little more complicated, But most of my
Speaker 4: life I've been to do it yourself.
Speaker 3: For the last of means, we have just some sort
Speaker 3: of broader macro questions, And one that I've thought a
Speaker 3: lot about is where you see risk when you look
Speaker 3: at the global financial system. Now, what concerns you? What
Speaker 3: are things that you're keeping an extra watch on, being
Speaker 3: extra vigilant about, you know, is it private? Actually, are
Speaker 3: there things that you're worried about or think that that
Speaker 3: merit more attention.
Speaker 4: Well, just so, for a year ago, year ago March,
Speaker 4: really unexpectedly we saw in the United States what could
Speaker 4: have turned itself into a systemic bank run type of
Speaker 4: situation in which two banks, Silicon Valley Bank and Signature,
Speaker 4: had large quantities of uninsured deposits and suffered losses in
Speaker 4: their investment portfolio that gave rise to runs on the
Speaker 4: deposits in those banks at a speed we had never
Speaker 4: ever seen in the United States.
Speaker 3: Another moment when you have a robust debate in a
Speaker 3: very compressed period of time.
Speaker 4: We worked very hard that weekend to make sure that
Speaker 4: we didn't end up with contagion to the rest of
Speaker 4: the banking system. And you know, this is something we
Speaker 4: thought was no longer a problem. So you know, even
Speaker 4: in the core part of our financial system, the banking system,
Speaker 4: there are steps we need to take to make sure
Speaker 4: that banks have adequate liquidity to be able to deal
Speaker 4: with that, to mitigate that risk but there's much less
Speaker 4: regulation of the financial system outside the banking system, and
Speaker 4: there are risks there. And I had something called the
Speaker 4: Financial Stability Oversight Committee.
Speaker 2: You can talk more about that than the other committee.
Speaker 1: Well, it was created in the aftermath of the.
Speaker 4: Financial crisis to attempt to systematically survey the financial system,
Speaker 4: to try to identify and address risks, and we do
Speaker 4: that on a regular basis. Money market funds have created risks.
Speaker 4: I think we've now hopefully successfully dealt with that, but
Speaker 4: there are a few areas outside core bank that remain
Speaker 4: of concern. And globally, of course, the system is connected.
Speaker 4: Cybersecurity is a huge is a huge and growing risk.
Speaker 1: We're working on that.
Speaker 4: But overall, I would say for the US, the kinds
Speaker 4: of metrics that we would monitor that would summarize risks,
Speaker 4: whether it's asset valuations or the degree of leverage.
Speaker 1: Things look good. There are not I don't see red
Speaker 1: lights flashing.
Speaker 3: I went through your biography at the top in broad strokes,
Speaker 3: and I wonder, now, as we approach the end of
Speaker 3: President Biden's tenure, your tenure in this job, I should ask,
Speaker 3: is there any world in which you are in this
Speaker 3: job after January twenty fifth, or are you done at
Speaker 3: the end of this administration?
Speaker 4: Probably done, But we'll say.
Speaker 2: What surprised you about it?
Speaker 3: Maybe perhaps beyond the difficulty of dealing with Congress, what
Speaker 3: surprised you most about about doing this particular job.
Speaker 4: Well, I don't know that this wasn't really a surprise,
Speaker 4: but one of the things I noticed right away I
Speaker 4: hadn't really spent any time at Treasury. I spent a
Speaker 4: lot of time at the Federal Reserve. But the quality
Speaker 4: of the workforce of the federal workforce is just excellent.
Speaker 4: And you know, they've taken a fair amount of abuse,
Speaker 4: people accusing federal employees of waste, fraud and abuse, not
Speaker 4: being competent or good at their jobs, the Dark State
Speaker 4: and all of that. You know, we have a federal
Speaker 4: workforce people who are deeply dedicated to the mission of
Speaker 4: public service, who are immensely knowledgeable, and who are really
Speaker 4: dedicated and working hard to try try to improve life
Speaker 4: for Americans. And this is like a huge resource, a
Speaker 4: capital asset for the American people. And it is impressive
Speaker 4: what people are willing to give. I mean, I just
Speaker 4: give you recent example. Treasury has many different responsibilities, but
Speaker 4: when Congress passed the Inflation Reduction Act, huge set of
Speaker 4: new tax incentives created to promote clean energy, and the
Speaker 4: burden that creates in terms of writing rules on everything
Speaker 4: from electric uh, you know, tax credits for buying electric
Speaker 4: cars to credits for developing hydrogen that's clean to use
Speaker 4: in heavy industry in normer miss burden of tax writing
Speaker 4: and the people, the people in this office, you know,
Speaker 4: thanksgivings would go by, Christmas would go by, people not
Speaker 4: getting vacations twenty four to seven. And complex technical work
Speaker 4: to understand the science and the public policy Inteagency work
Speaker 4: to figure out how do you design incentives that will
Speaker 4: be effective, that are administrable. You know, the dedication that
Speaker 4: you see of wanting to get this right and having
Speaker 4: the ability to do it. I mean, this is really
Speaker 4: it's impressive, and it's been one of the joys of
Speaker 4: my job, the civil service, the appointed appointed people, and
Speaker 4: really really an impressive.
Speaker 3: Last question, Madam Secretary, is as you approach the end
Speaker 3: of your tenure, probably what are one or two things
Speaker 3: on your very long to do Listen, we've kind of
Speaker 3: touched on all of these things within your remit and
Speaker 3: that you're working on that you want to get done
Speaker 3: or feel that you have to get done before there
Speaker 3: is a change in leadership.
Speaker 4: At Treasury, well, for example, we're working very hard to
Speaker 4: complete the rule writing that we need to do. There
Speaker 4: are huge programs that we're administering both the Treasury and
Speaker 4: in other agencies. We have the Semiconductor and Chips Act
Speaker 4: and been hearing a lot here in Austin about the
Speaker 4: difference this is making in terms of the investments and
Speaker 4: growth that you're seeing. Rebuilding America's infrastructure of bridges and
Speaker 4: rail and roads, and the internet. Getting the internet make
Speaker 4: sure that everybody has access. We need to continue implementing
Speaker 4: this well. And you know, we continue to generate in
Speaker 4: areas where we care a lot about.
Speaker 1: The Congress hasn't.
Speaker 4: Legislated the programs that the President and Vice President have
Speaker 4: put forward. So housing is a huge issue. Affordable housing
Speaker 4: in many parts of the country critical priority.
Speaker 1: We need to use every tool we.
Speaker 4: Have to promote that agenda, and we are it's important
Speaker 4: for Congress to act to provide for additional construction of
Speaker 4: affordable housing.
Speaker 1: But we need to use.
Speaker 4: Every tool we have, and we're doing that. Childcare, healthcare.
Speaker 4: You know, there are things that the executive can do,
Speaker 4: and their area is still left to address.
Speaker 2: This has been a real treat to have an hour
Speaker 2: with you. Thank you very much, and thanks to all
Speaker 2: of your
Speaker 1: Life for helming as well.