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Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along

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Speaker 1: with Jonathan Farrell and Lisa Abramowitz. Join us each day

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Speaker 1: for insight from the best and economics, geopolitics, finance and investment.

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Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and

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Speaker 1: anywhere you get your podcasts, and always I'm Bloomberg dot Com,

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Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. Jay Bryson,

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Speaker 1: Chief economist at Wills Fargo. Doctor Bryson, thank you so

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Speaker 1: much for joining today. One set of data does not

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Speaker 1: make a trend. If we put together three months like this,

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Speaker 1: what does it signal to Jerome Powell? Well, so, I mean,

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Speaker 1: if you look at the last three months, right, if

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Speaker 1: that core rate was up zero point four percent, and

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Speaker 1: so if you look at the last three months, you're

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Speaker 1: still running at an annualized rate of close to five percent. There. Now,

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Speaker 1: the good news is that the MP component or the

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Speaker 1: owner's equivalent rant component is starting to come in, and

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Speaker 1: so that should continue to put some downward pressure on

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Speaker 1: inflation as we go forward. But we're still a long

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Speaker 1: way from two percent at this point. And so you know,

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Speaker 1: if you're Jerome Pal. You look at this, you say,

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Speaker 1: I think Mike just said it. We're on the right track,

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Speaker 1: But I don't think this makes the case for a

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Speaker 1: pause in May. You know this and what we saw

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Speaker 1: earlier in terms of the jobs report, I still think,

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Speaker 1: knowing what I know right now, that they go twenty

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Speaker 1: five in May, a lot of people agree with you,

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Speaker 1: and yet they seem to be increasingly pricing out the

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Speaker 1: potential for further rate hikes and possibly a great rate

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Speaker 1: cutting cycle to start in the second half of this year. Jay,

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Speaker 1: what would we have to see on Friday to discount

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Speaker 1: the strength, the underlying strength and core that we see

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Speaker 1: in this report, albeit perhaps not more than expected. So

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Speaker 1: when you say Friday, at least are you talking about

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Speaker 1: the retail sales numbers we're going to get out on

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Speaker 1: on Friday? Jp, Morgan's earnings earnings? How much that learning stress? Yeah?

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Speaker 1: So right, if we're starting to see signs and you

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Speaker 1: know the upcoming bank earnings, you know, if there's a

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Speaker 1: lot of stress out there in the financial system with

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Speaker 1: banks in terms of their earnings, in terms of the

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Speaker 1: credit standards tightening, things of that nature, that potentially could

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Speaker 1: start to swing things in the direction of a pause

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Speaker 1: in May. I mean, we'll see, you know what they

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Speaker 1: say with the banks say in the coming weeks here,

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Speaker 1: But you know, I think at this point that would

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Speaker 1: be the thing that would for me would say, okay, May,

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Speaker 1: maybe they actually go and pause. Is what sort of

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Speaker 1: stress we're seeing in the banking system? Jay, There seems

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Speaker 1: to be a complacency in markets about the fact that

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Speaker 1: the FED will be able to get inflation under control,

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Speaker 1: that the rates will go back down to three or

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Speaker 1: perhaps even two percent in the next couple of years.

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Speaker 1: And I'm talking about ten year yields. Are you less

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Speaker 1: confident about that based on the increasing pressure for them

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Speaker 1: to pause or just take step back as they wait

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Speaker 1: to understand what the dynamic is. So in terms of

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Speaker 1: the longer end of the curve, least I could see

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Speaker 1: that going back to three percent. I mean, I just

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Speaker 1: think that given the structural challenges in the US economy

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Speaker 1: today in terms of its long run growth potential, for me,

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Speaker 1: a long run three percent ten year yields makes perfect sense.

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Speaker 1: I guess where I have a little bit more question

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Speaker 1: is in terms of the two year yield. I don't

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Speaker 1: agree with the view that the FED is going to

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Speaker 1: be cutting rates by the end of the year potentially, right,

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Speaker 1: if we're in a recession at the end of the year,

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Speaker 1: I could definitely see that. But if we have a

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Speaker 1: soft landing in the economy, I could see the inflation

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Speaker 1: rate here getting stuck at three to three and a

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Speaker 1: half percent. What does the FED do at that point?

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Speaker 1: Does it throw in the towel and does it say, Okay,

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Speaker 1: we can live with three and three and a half

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Speaker 1: percent or do they really mean it, we need to

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Speaker 1: get back down to two percent. And if they need

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Speaker 1: to get back down to two percent, then you're not

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Speaker 1: going to see I think rate cuts at the end

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Speaker 1: of this year. I think you're going to see rates

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Speaker 1: remain at a minimum elevated at that point. And so

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Speaker 1: I have it just a little bit of a disagreement

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Speaker 1: where the two year is right now. Hey, j you're

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Speaker 1: not the only one. Jake Bryson of last FAGO, Thank you, sir,

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Speaker 1: on the latest inflation data in America. Jeffrey Rosenberg joins

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Speaker 1: portfolio manager of Systematic Multi Strategy fund at black Rock.

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Speaker 1: He's been medicated over the last four months the beginning

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Speaker 1: of two twenty three. It's been chaos I'm fascinated Jeff

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Speaker 1: Rosenberg with your wide mandate at black Rock, how you've

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Speaker 1: survived two twenty three. What have you done to your

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Speaker 1: portfolio given the cacophony handed to you. Well, it's a

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Speaker 1: it's a good framing for the question in front of

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Speaker 1: today's data, Tom, because it is it is particularly a

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Speaker 1: period of heightened uncertainty around the outlook. We talked about

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Speaker 1: it in the earlier segments in terms of the uncertainty

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Speaker 1: around in inflation. You know, we're moving through this period

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Speaker 1: into a new period of you know, I think a

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Speaker 1: pause and a reflection from the Fed, you know, whether

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Speaker 1: they hike in May or not. For our portfolios, you know,

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Speaker 1: that's made directional exposures whether markets are going up, our

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Speaker 1: markets are going down. You know, pretty challenging environment to

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Speaker 1: try to pick that direction. We have the benefit of

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Speaker 1: being able to do a lot more flexible things around

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Speaker 1: our portfolio to take away the direction and really look

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Speaker 1: underneath the hood and play the dispersion that we see

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Speaker 1: in markets and particularly you know, one of the big

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Speaker 1: stories is you know, exceptionally high, historically high interest rate

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Speaker 1: volatility relative to low equity volatility. But that low equity

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Speaker 1: volatility is really a story of the surface. Underneath the surface,

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Speaker 1: there's tremendous amounts of dispersion, and we're trying to take

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Speaker 1: more advantage of that and lean our portfolio more into

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Speaker 1: dispersion than in direction as you avoid trying to take

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Speaker 1: a call unnecessarily what's going to happen at a time

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Speaker 1: where that seems to be pretty much impossible. Jeff, I'd

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Speaker 1: love your read on what we just experienced, which is

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Speaker 1: an almost inline inflation report for CPI, the core CPI

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Speaker 1: coming in inline with expectations and this market cheering and

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Speaker 1: actually now expecting even greater rate cuts in the next

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Speaker 1: twelve months. Does that make sense to you, Well, you know,

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Speaker 1: I think Jonathan Farrow has said this in a couple

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Speaker 1: of contexts, maybe more around around payroll. Be careful about,

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Speaker 1: you know, the initial market reaction as to whether or

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Speaker 1: not that's the longer run message. But the initial market

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Speaker 1: reaction is really talking about, you know, the beat on

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Speaker 1: headline and the impact on food and energy prices. You know,

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Speaker 1: it helps, and it helps a lot in terms of

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Speaker 1: the optics around inflation going down. I think that's the

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Speaker 1: near term market reaction. The stuff I'm focused on and

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Speaker 1: we're focused on is really about the labor markets, it's

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Speaker 1: about wage inflation. It's really about what we see in

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Speaker 1: this report in terms of core services core services X shelter.

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Speaker 1: I think Mike mentioned that in the earlier segment, you know,

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Speaker 1: there's a little bit of a trend coming down there.

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Speaker 1: I wouldn't read a huge amount into this report in

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Speaker 1: terms of giving the all clear for that much more

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Speaker 1: important and durable services inflation. I think it's a it's

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Speaker 1: a positive. It's in the sense that it wasn't a

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Speaker 1: big negative surprise upward, and I think the market is

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Speaker 1: trading a little bit off of that, but mostly off

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Speaker 1: of the headline here this morning, as we careened toward

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Speaker 1: that May third meeting of the Federal Reserve, what are

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Speaker 1: you watching to get a sense of what is going

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Speaker 1: on in real time beneath the hood with credit lending,

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Speaker 1: with the expansion or contraction they're in. Yeah, I mean,

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Speaker 1: obviously the big uncertainty, and Powell characterized it very well

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Speaker 1: in that the direction of the banking crisis in March

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Speaker 1: is to contribute towards tighter financial conditions, to contribute to

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Speaker 1: the transmission of tighter monetary policy. The direction is clear,

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Speaker 1: the magnitude is not, and so everyone's focused on the

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Speaker 1: weekly H eight report and what's going on with bank lending.

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Speaker 1: The issue, though, is that bank lending and bank lending

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Speaker 1: expected standards tightening had been in place well before the

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Speaker 1: banking crisis. So the issue isn't whether or not banks

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Speaker 1: are tightening credit. The issue is how much did the

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Speaker 1: banking crisis in March accelerate those trends. That is very

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Speaker 1: hard to measure. It certainly is accelerated something we can measure,

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Speaker 1: and that is deposits moving out of banks and into

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Speaker 1: money market funds, waking up to it's no longer zero

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Speaker 1: interest rates, and that's perhaps accelerated the funding costs of banks.

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Speaker 1: But whether or not that transmits, whether that's a bank

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Speaker 1: margin issue or whether it's a real economy issue, remains

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Speaker 1: to be seen. Frozenberg. In the equity space, we can

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Speaker 1: talk about bull market, bear market, We can talk about

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Speaker 1: movements op ratios and such. In the bond market, we

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Speaker 1: do less. Are we in the beginning a bond bull market,

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Speaker 1: which is generally price up and yield down? And if

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Speaker 1: I use a ten year as a proxy for that,

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Speaker 1: do you frame out a surprisingly lower ten year yield

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Speaker 1: out one year or two years. I think the jury

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Speaker 1: is out on that kind of one year two year

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Speaker 1: framing of the of the question Tom. Clearly, what's been

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Speaker 1: happening over the last couple of weeks, really since and

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Speaker 1: kicked off by the banking crisis. Remember, pre banking crisis,

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Speaker 1: we were debating, you know, a fifty basis point hike

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Speaker 1: and whether the FED needed or you know, we kind

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Speaker 1: of forgot all about that because it's it's it's really

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Speaker 1: much more a pivot towards did this banking crisis accelerate tightening?

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Speaker 1: I think the jury is out, but clear the momentum

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Speaker 1: in the bond market is towards more of a focus

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Speaker 1: on recession risk. And as Lisa's talking about, you know,

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Speaker 1: the pricing in of you know, a very rapid turn

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Speaker 1: towards FED rights. We think that's probably overstated, but that's

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Speaker 1: where the market's at right now. Well, you know, I

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Speaker 1: want to be junior portfolio manager today. If people are

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Speaker 1: saying long duration does better, big tech inequities does better,

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Speaker 1: is this the time for Jeff Rosenberg to do a

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Speaker 1: Jeff Nnick George VanDerHeyden reducts from thirty years ago and

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Speaker 1: do you need to go out and buy a twenty

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Speaker 1: year zero coupon bond to play a long duration play

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Speaker 1: over a year or two years or three years. You know,

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Speaker 1: the long duration call is really about recession versus inflation.

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Speaker 1: And right now, as you can see after today's report,

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Speaker 1: it appears that inflation fears are waning and that's going

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Speaker 1: to give some more credence towards the notion that duration

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Speaker 1: can once again play the diversifier in a recession environment.

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Speaker 1: You want to be, you know, out as far in

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Speaker 1: duration as you can stomach. We're a little bit more

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Speaker 1: cautious on that view, however, Tom and again it was

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Speaker 1: to my comments that you know, today the market is

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Speaker 1: kind of playing off the headline. It's the services piece

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Speaker 1: and the inflation from the wage picture and these still

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Speaker 1: very tight labor markets. I think we still need to

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Speaker 1: see that loosen up before you can say it's all

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Speaker 1: clear and we're back to duration is on equivocally, you know,

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Speaker 1: a clear hedge to a recession risk. It certainly is

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Speaker 1: if you get the recession, but it becomes much more

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Speaker 1: vulnerable if inflation is more sticky than we're currently anticipating,

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Speaker 1: and market circles Jeff Rosenberg. Oh, Jeff, thank you so much.

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Speaker 1: Jeff Rosenberg always with black Rock ad imposing with is

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Speaker 1: always an annual visit at these meetings of the IMF

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Speaker 1: from the World Bank. He's president of the peters An

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Speaker 1: Institute of International Economics. He is, without question, with Richard Clarato,

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Speaker 1: one of the leaders in thinking about Germany in the

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Speaker 1: United States of America. Doctor Posen joins us this morning,

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Speaker 1: John's going to talk to you about your wonderful essay

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Speaker 1: on the simplistic static analysis of manufacturing in America. I

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Speaker 1: want to go to the Matthew News. She learn you

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Speaker 1: at Brooklyn High School million years ago and they said,

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Speaker 1: don't look out five years. And then you went off

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Speaker 1: to undergraduate, don't look out five years. Then you did

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Speaker 1: your PhD work and they said, don't look out five years.

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Speaker 1: And here's the International Monetary Fund with a five year

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Speaker 1: model of three percent growth? Can people like you look

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Speaker 1: out five years? We can look, but we may not see.

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Speaker 1: I think Tom, the IMF is making a judgment call,

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Speaker 1: which is within their rights, and I think it's a

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Speaker 1: reasonable judgment call, but unfortunately, I think it buries the lead,

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Speaker 1: which is that we're going to get a goosing of

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Speaker 1: short term growth in the large economies in the US

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Speaker 1: and China in Europe because it's going to be public

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Speaker 1: spending on defense and on green and there's going to

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Speaker 1: be a continued falling off of growth and the poor

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Speaker 1: economies who are going to be forced to choose between

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Speaker 1: US and China, and for reasons is very good report

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Speaker 1: put up by the IMF recently. I know you've covered

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Speaker 1: very good report by the World Bank recently you've recovered

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Speaker 1: you've covered my stuff, the spillovers on growth for the

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Speaker 1: developing world from the US China conflict and the subsidies

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Speaker 1: race between Europe and US. It's very bad. What means

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Speaker 1: critical here, And David folkarts Landau Deutsche Bank, with some

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Speaker 1: serious publishing with Duly years ago, echoed what you said

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Speaker 1: the day after Putin invaded Ukraine. So, if we have

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Speaker 1: the fiscal stimulus that doctor folkarts Land I was talking about,

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Speaker 1: you're talking about right now, and we dove tell that

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Speaker 1: into your colleague Olivier Blanchard's phrase, fiscal space. Does the

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Speaker 1: United States or Bolivia that we mentioned the other day,

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Speaker 1: do they have fiscal space to act given the present promise?

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Speaker 1: So you may have seen. I hosted a debate or

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Speaker 1: a conversation between Olivier and Larry Summers on Pie dot

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Speaker 1: comic a few weeks ago on this very topic, and

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Speaker 1: where Olivier, Larry, and I, more importantly Olivia and Larry

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Speaker 1: came down was that this kind of sustained fiscal expansion

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Speaker 1: and possibly some inflation premium that continues going forward, will

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Speaker 1: decrease the amount of fiscal space. Olivier's fiscal space rightly

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Speaker 1: is about the gap between real interest rates and real growth,

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Speaker 1: and that's been very large for a long time. This

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Speaker 1: is probably going to cut that by a third to

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Speaker 1: a half. That doesn't mean the US doesn't have fiscal space,

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Speaker 1: but it means that there were more at risk than

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Speaker 1: we've been for a very long time, and a bad

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Speaker 1: shock to productivity to revenue where the interest rates could

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Speaker 1: put us quickly into bad space. But additionally, if our star,

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Speaker 1: the shorthand for this basically goes up, meaning that the

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Speaker 1: gap between interest rates and growth shrinks. The Bolivia's, the

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Speaker 1: Sri Lankas, the Pakistans, lots of Central America, lots of

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Speaker 1: South Asia, lots of Africa. They lose fiscal space. When

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Speaker 1: you have these discussions. Is there a tipping point for

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Speaker 1: ten year yield, say for borrowing costs in the United States,

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Speaker 1: after which the current fiscal model becomes untenable. Yes and no,

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Speaker 1: sorry to do it that way, Lisa. The yes is

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Speaker 1: you can do some very fancy mathy stuff. Jeremy Zedelmayer

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Speaker 1: now the head of Broigel, used to be at the IMF,

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Speaker 1: and Olivier and others have worked on this, and you

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Speaker 1: have to do simulations. But cold bottom line, the odds

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Speaker 1: of your tipping go up, and probably go up nonlinearly

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Speaker 1: the closer you get to our midus G being zero.

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Speaker 1: Because this is the math, I mean, the basic math.

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Speaker 1: Once you're above, Once that our minus G turns positive,

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Speaker 1: meaning interest rates are outpacing growth, that's when the bad

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Speaker 1: debt dynamics kick in. That's when if you have debt

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Speaker 1: to GDP it's over one hundred percent of kicks in. Now,

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Speaker 1: it's not a tipping point that that happens. Going back

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Speaker 1: to where Tom started this this week, this month, maybe

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Speaker 1: for Bolivia, not for the US. But if that turns

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Speaker 1: out to be the case, that being rates above growth

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Speaker 1: rates for six months a year, then you start getting serious.

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Speaker 1: The bad politics hand stots it. You mentioned that the

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Speaker 1: subsidies right between Europe and the United States. I still

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Speaker 1: don't think this is getting enough coverage. You said it's

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Speaker 1: very bad. Can you paint a pictures to why this

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Speaker 1: is so bad? So as it happens Olivia and I

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Speaker 1: and some of our trade experts from Peterson, Chad Bound

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Speaker 1: and Jeff Shot, we're meeting with a European finance minister

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Speaker 1: last night about this very issue. Basically, the problem with

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Speaker 1: subsidies in trade is that it ends up being not

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Speaker 1: just waste soul. That's bad. But as I've tried to

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Speaker 1: argue my article and this history shows us, it escalates

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Speaker 1: very quickly. And this is what we're seeing. The US

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Speaker 1: puts out this IRA, which includes huge subsidies for particular companies,

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Speaker 1: not just subsidies for green tech, not just subsidies for

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Speaker 1: R and D that would be nice, but subsidies for

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Speaker 1: particular companies on a criteria they have to be producing

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Speaker 1: the US and mostly they have to be US headquartered.

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Speaker 1: And so then Europe said, okay, well we'll do subsidies

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Speaker 1: and retaliation. And then the UK says already has one

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Speaker 1: of the opposition politicians, Miliband came out and said, you know,

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Speaker 1: we got to keep up with this. We're not going

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Speaker 1: to be left behind. We had the Indian Finance Minister

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Speaker 1: at PIA on Monday and she said, we're going to

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Speaker 1: do subsidies. And so what you end up with is

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Speaker 1: like an arms race. Everybody builds up, nobody gains economy

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Speaker 1: of scale, the competitive basis for having the winning company,

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Speaker 1: say based on better technology, more efficient processes, doesn't win

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Speaker 1: because you're subsidizing here and you're subsidizing here, and France

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Speaker 1: says we're not going to buy American, and America says

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Speaker 1: we're not going to buy French, and so you end

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Speaker 1: up with this huge on balance sheet obligation to the

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Speaker 1: fiscal to go back to where Lisa was. And one

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Speaker 1: of the worst things about this is this is open ended.

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Speaker 1: So the way the US pass the latest round of subsidies,

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Speaker 1: it's driven by the consumer. It's how much you produce.

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Speaker 1: It's not oh, we're going to get to this level.

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Speaker 1: You produce more, you get more subsidies. So this becomes

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Speaker 1: a fiscal issue as well as you run in place

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Speaker 1: to just get to the same spot. And then finally

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Speaker 1: it's totally discriminatory against the rest of the world because basically, China,

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Speaker 1: the EU, in the US can afford to do this,

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Speaker 1: India can pretend to afford to do this, UK can pretend,

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Speaker 1: and the rest of the world you're out of luck.

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Speaker 1: It's done under the guise of supply chain resiliency, and

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Speaker 1: these phrases get thrown around and they take on a

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Speaker 1: life in their own. It's almost just the truth. You

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Speaker 1: have to get more resiliency into the supply chain, and

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Speaker 1: that means you have to bring it home. You've dismissed

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Speaker 1: that straight up. I think you've said it proven to

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Speaker 1: be a fallacy through economic history, and I can think

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Speaker 1: of several failed socialist communist states that attracted the same thing,

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Speaker 1: and it's difficult to do it. Is the United States, Europe, China,

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Speaker 1: even if they have access to the funds, they can

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Speaker 1: afford to do it. Who says it's going to be

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Speaker 1: a success? I well, thank you. I agree. You know,

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Speaker 1: there is a legitimate question to be raised as private

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Speaker 1: supply chains have risen organically, individual purchasing managers saying I

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Speaker 1: got an order from the CFO to cut cost ten percent,

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Speaker 1: so I'll outsourced this. Oh, I've now outsourced this so

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Speaker 1: I know somebody else. You know, there's a reasonable public

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Speaker 1: policy interest in saying let's not overdo that. But that's

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Speaker 1: very different from saying bringing it home is safer. You know,

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Speaker 1: it's the same logic as your investor watchers say diversification matters.

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Speaker 1: I think you mentioned all the communist countries. This is

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Speaker 1: part of what I've been arguing. I mean, you look

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Speaker 1: at Russia. Russia has spent twenty years trying to make

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Speaker 1: itself self sufficient just so it could go do things

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Speaker 1: like conveyed Ukraine and not worry about it. And like

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Speaker 1: the US, like China, it's huge, but it still doesn't work.

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Speaker 1: It ends up backfir and you end up with a

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Speaker 1: corrupt industrial complex that doesn't give you what you need. John,

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Speaker 1: I'm British headline twenty twelve, eleven years ago, Business Group

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Speaker 1: economist to replace Arch Dove posead Bank of England. Do

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Speaker 1: you have any advice former MPC member for Megan Green

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Speaker 1: if she is anointed to There'll be a coronation if

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Speaker 1: she moves to the Bank of England. Oh, I hadn't

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Speaker 1: heard the news. Congratulations to Megan, that's great. You know,

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Speaker 1: the external members including Catherine Mann my former colleague who's

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Speaker 1: now one at the Bank of England. Have a good

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Speaker 1: record of genuinely giving independent thought. And you mentioned me

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Speaker 1: as being characterized as the arch dove a decade or

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Speaker 1: eleven years ago. Of course, now I'm considered a hawk

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Speaker 1: because I'm telling the Bank of England, you guys are

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Speaker 1: whistling fantasies. Inflation stopped coming down, so be data driven

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Speaker 1: and everything will be okay. But I hadn't heard about Megan.

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Speaker 1: That's great, Adam. The external model at the Bank of

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Speaker 1: engand on the MPC. It's different to say the Federal Reserve.

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Speaker 1: Why is that so important? And what lessons can we

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Speaker 1: take from that? Mohammedan Adam was talking to Tom and

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Speaker 1: I about this on Friday. He said that the MPC

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Speaker 1: model of having external members is helpful. Do you think

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Speaker 1: it is? I think it is. I fear it's not

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Speaker 1: as helpful as it should be because sort of you

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Speaker 1: look back at what the Bank of England has done

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Speaker 1: or others with an external model versus what the Fed

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Speaker 1: has done, and the differences aren't as great as I

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Speaker 1: would like to think. But I do feel it's been

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Speaker 1: important for the bank, both in terms of legitimacy, just

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Speaker 1: that they're you end up having more split votes and

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Speaker 1: more open discussion and debate, which is better for the

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Speaker 1: public sense that this is hard, but they're taking it

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Speaker 1: seriously and occasionally you get things right a little faster

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Speaker 1: because the external member squeaky you used to have and

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Speaker 1: still probably do. My former colleague Danny Blancheflower, who was

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Speaker 1: quite squeaky, but so or the worse thins Henry the Eighth,

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Speaker 1: I think, but he was, but he in this particular instance,

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Speaker 1: he was right. And I think history has shown I

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Speaker 1: was probably right on some of the stuff I squeaked

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Speaker 1: about while I was there. So it's it's useful. Adam

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Speaker 1: a clinic as O Wise, thank you said, it's going

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Speaker 1: to from you, Adam Housing that of the Patison Institute

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Speaker 1: for International Economics of right now, we're going to wait

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Speaker 1: and see on a banking crisis. We do this with

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Speaker 1: Timothy Adams, President and chief executive Officer of the very

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Speaker 1: important IF the Institute of International Finance. This is a

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Speaker 1: gathering of I'm going to say, the large bankers, and

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Speaker 1: he's going to get upset with me, I mean, and

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Speaker 1: you know that's that's what he's going to say, the

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Speaker 1: stereotype is a four bankers and you is it? You

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Speaker 1: mointing him diamond and arrest sitting around one table, who

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Speaker 1: is the I f four hundred institutions, sixty five countries.

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Speaker 1: I thank you. This is a unique occurrence, folks, and

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Speaker 1: we're going to audible here on this banking crisis and

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Speaker 1: your fury over it. I'm going to go back to

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Speaker 1: eighteen thirty three and a guy from Tennessee. You grew

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Speaker 1: up in the aura of Andrew Jackson, and he said,

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Speaker 1: our biggest fear is bank consolidation. If we went from

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Speaker 1: four thousand smaller banks, they're not part of if to

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Speaker 1: three thousand smaller banks, would anything change in your Kentucky No,

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Speaker 1: not at all. And if you look where we were

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Speaker 1: in nineteen thirty we had thirty thousand banks across the

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Speaker 1: United States and now we have four thousand, two hundred

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Speaker 1: FDI in short institutions, the trajectory is pretty clear, not

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Speaker 1: only in the United States, but globally. We're going towards

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Speaker 1: greater consolidation. Technology. It's a scale business, and the cost

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Speaker 1: of technology, whether it's for aml or for providing a

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Speaker 1: customer experience on the front end, is it credibly. My

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Speaker 1: concern with this it's so important, is we had a

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Speaker 1: marketing scheme in Silicon Valley wrapped around the glause of

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Speaker 1: a bank. We all had enjoyment watching the SVB blow up.

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Speaker 1: The concern that we have to have is the new

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Speaker 1: banking environment we have. What does I say other than

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Speaker 1: read Jamie Diamond's annual letter. Well, Jamie Diamond's Anger letters

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Speaker 1: pretty dark and good, so I'd urge everyone to read it. Look,

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Speaker 1: we have consolidation, a different it's going to be a

428
00:24:18,760 --> 00:24:22,640
Speaker 1: different system going forward. Technology has dramatically changed the way

429
00:24:22,640 --> 00:24:26,600
Speaker 1: in which financial intermediation happens, and artificial intelligence, the chat

430
00:24:26,600 --> 00:24:31,000
Speaker 1: GBT revolution is going to only accelerate that process over

431
00:24:31,040 --> 00:24:33,199
Speaker 1: the coming months and years, and it's happening at a

432
00:24:33,200 --> 00:24:35,920
Speaker 1: breakneck pace. You don't think this is a banking crisis.

433
00:24:36,040 --> 00:24:38,639
Speaker 1: I don't. I think it's a market turbulence. As we

434
00:24:38,720 --> 00:24:42,720
Speaker 1: have transitioned from a period of low negative real interest rates,

435
00:24:43,119 --> 00:24:46,080
Speaker 1: huge fiscal support. Look at the deficits we've run and

436
00:24:46,200 --> 00:24:49,720
Speaker 1: you read our annual debt report to a period that's

437
00:24:49,760 --> 00:24:52,920
Speaker 1: more normal. But going from one transition to another, we

438
00:24:53,680 --> 00:24:56,159
Speaker 1: were going to see things pop. I didn't think it

439
00:24:56,160 --> 00:24:58,360
Speaker 1: was gonna be Silicon Valley Bank. But I do think

440
00:24:58,400 --> 00:25:00,920
Speaker 1: we'll see other stresses in the system that's not a crisis.

441
00:25:01,000 --> 00:25:03,399
Speaker 1: What kind of stresses are you expected to see. Well,

442
00:25:03,440 --> 00:25:05,600
Speaker 1: you know, there's a lot of concern about commercial real

443
00:25:05,680 --> 00:25:07,720
Speaker 1: estate or something we've been watching. I don't think it's

444
00:25:07,720 --> 00:25:10,280
Speaker 1: a crisis, but I think it deserves our attention overcoming

445
00:25:10,400 --> 00:25:13,359
Speaker 1: twenty four to thirty six months. Is there something about

446
00:25:13,440 --> 00:25:15,480
Speaker 1: what's happened with some of the smaller regional banks that's

447
00:25:15,520 --> 00:25:18,760
Speaker 1: going to lead to issues in CIRA. Well, certainly there's

448
00:25:18,800 --> 00:25:21,160
Speaker 1: a feedback loop. So that's why I think it's worth watching.

449
00:25:21,840 --> 00:25:23,560
Speaker 1: And there are concerns, but if you look at credit

450
00:25:23,600 --> 00:25:25,639
Speaker 1: card data is still pretty strong. C and I is

451
00:25:25,640 --> 00:25:29,399
Speaker 1: still pretty strong. Obviously, commercials down, but the system is

452
00:25:29,400 --> 00:25:32,280
Speaker 1: pretty normal. Think about it. On ninety nine percent of

453
00:25:32,280 --> 00:25:34,879
Speaker 1: our banks in the United States are globally over the

454
00:25:34,920 --> 00:25:37,719
Speaker 1: past four weeks open their doors and had normal business.

455
00:25:38,080 --> 00:25:42,160
Speaker 1: This is a small slice of very unique, idiosyncratic institutions.

456
00:25:42,359 --> 00:25:45,199
Speaker 1: No one enjoyed watching it, and it's demias. No one

457
00:25:45,280 --> 00:25:47,879
Speaker 1: enjoyed the fallout of companies that are struggling to wonder

458
00:25:48,480 --> 00:25:50,960
Speaker 1: where they're going to get the money to make paycheck.

459
00:25:51,359 --> 00:25:54,840
Speaker 1: There also was a larger question around what does systemic

460
00:25:54,920 --> 00:25:57,760
Speaker 1: mean in a new era when there are specific banks

461
00:25:57,800 --> 00:26:02,119
Speaker 1: that have a dominant position specific businesses. How has the

462
00:26:02,160 --> 00:26:05,560
Speaker 1: idea of systemic been redefined? Yeah, I think it's concentration

463
00:26:05,640 --> 00:26:08,760
Speaker 1: risk that would spbe was the dominant player not only

464
00:26:08,760 --> 00:26:11,640
Speaker 1: Silicon Valley, about in the research triangle in North Carolina,

465
00:26:11,680 --> 00:26:15,920
Speaker 1: for example, six thousand institutions it's supported. So it's concentration risks.

466
00:26:15,920 --> 00:26:18,399
Speaker 1: So we need to think about other institutions that are

467
00:26:18,480 --> 00:26:21,840
Speaker 1: dominant players in a particular industry or region and ask

468
00:26:21,920 --> 00:26:24,280
Speaker 1: ourselves what kind of risk does that pose if they

469
00:26:24,320 --> 00:26:27,240
Speaker 1: become stressed? How much of that equation is shifting to

470
00:26:27,480 --> 00:26:31,800
Speaker 1: a geopolitical question of which banks have more dominant positions

471
00:26:31,800 --> 00:26:35,680
Speaker 1: in specific countries where there are increasing tensions between say

472
00:26:36,000 --> 00:26:38,600
Speaker 1: the US and China, or the US and certain Middle

473
00:26:38,600 --> 00:26:41,200
Speaker 1: Eastern nations. It's a great question, as I just said

474
00:26:41,600 --> 00:26:44,760
Speaker 1: as we were coming on air, is the geopolitical issues

475
00:26:44,800 --> 00:26:46,640
Speaker 1: I still worry about. It was in Japan last week

476
00:26:46,920 --> 00:26:50,880
Speaker 1: the dominant conversation was US China relations, US Russian relations

477
00:26:50,960 --> 00:26:54,720
Speaker 1: or China Russia relations. President Macron had just visited just

478
00:26:55,200 --> 00:26:58,159
Speaker 1: landing in Beijing. Those are the issues that keep me

479
00:26:58,240 --> 00:27:01,479
Speaker 1: up at night. How concerned of the executives you meet with,

480
00:27:01,760 --> 00:27:03,919
Speaker 1: how much do they feel like there is a storm

481
00:27:03,960 --> 00:27:07,280
Speaker 1: bearing down as Jamie Diamond was talking about, or reflect

482
00:27:07,359 --> 00:27:10,800
Speaker 1: the gloom that you hear from the IMF projections. You know,

483
00:27:10,920 --> 00:27:13,240
Speaker 1: coming into the last few weeks, we've really trying to

484
00:27:13,280 --> 00:27:16,639
Speaker 1: look through the cycle and prepared be prepared for twenty

485
00:27:16,720 --> 00:27:19,119
Speaker 1: twenty four, which is how do we have the technology,

486
00:27:19,119 --> 00:27:21,760
Speaker 1: do we have the talent for recovering growth? But it's

487
00:27:21,760 --> 00:27:25,680
Speaker 1: the geopolitical concerns, the fragmentation which the IMF talked about

488
00:27:25,560 --> 00:27:30,760
Speaker 1: in their annual report, the issue of US relations which

489
00:27:30,800 --> 00:27:33,040
Speaker 1: seems to get worse by the day. Those are things

490
00:27:33,080 --> 00:27:35,840
Speaker 1: that are most worried about. There anything that your palmer's

491
00:27:35,880 --> 00:27:38,560
Speaker 1: financial institutions are actually doing that suggest as anything to

492
00:27:38,560 --> 00:27:40,640
Speaker 1: worry about with regards to China. They all just want

493
00:27:40,640 --> 00:27:43,560
Speaker 1: to be there. Well, John has been in a lure

494
00:27:43,680 --> 00:27:46,160
Speaker 1: for you know, one hundred and fifty years. It's that changed.

495
00:27:46,200 --> 00:27:48,960
Speaker 1: So I think there is questions about de risking as

496
00:27:49,000 --> 00:27:51,760
Speaker 1: we are seeing with respect to all supply chains, not

497
00:27:51,840 --> 00:27:53,960
Speaker 1: just the financial sector, but the real economy as well.

498
00:27:54,200 --> 00:27:55,560
Speaker 1: I think we have to worry about what are the

499
00:27:55,640 --> 00:27:59,119
Speaker 1: risks operating in a variety of different markets. And if

500
00:27:59,160 --> 00:28:01,080
Speaker 1: you look at many of our firms were in Russia

501
00:28:01,119 --> 00:28:04,679
Speaker 1: for decades, that became untenable, right, so we have to

502
00:28:04,680 --> 00:28:07,960
Speaker 1: look at other geographies that could become under stress. Is

503
00:28:07,960 --> 00:28:11,719
Speaker 1: there any evidence whatsoever that financial institutions are ever proactive

504
00:28:12,240 --> 00:28:14,800
Speaker 1: about any of this? I mean, we've been talking about

505
00:28:14,880 --> 00:28:17,359
Speaker 1: Russia for years and years and years and years and years.

506
00:28:17,880 --> 00:28:20,439
Speaker 1: It is not a surprise to anyone. I don't know

507
00:28:20,440 --> 00:28:22,399
Speaker 1: why we've talked about the last eighteen months as if

508
00:28:22,440 --> 00:28:25,040
Speaker 1: it's surprising. It's not surprising. It's not a shock. It's

509
00:28:25,040 --> 00:28:28,520
Speaker 1: a failure of leadership in Europe to see this one coming.

510
00:28:28,680 --> 00:28:31,480
Speaker 1: Chancellor Merka was warned about this repeatedly. Didn't change the

511
00:28:31,560 --> 00:28:34,800
Speaker 1: energy relationship in any way, shape or form, and financial

512
00:28:34,800 --> 00:28:37,320
Speaker 1: institutions have been caught with the pants down in Russia.

513
00:28:37,400 --> 00:28:39,440
Speaker 1: It's hardly a shock to anyone that this has happened.

514
00:28:39,480 --> 00:28:42,120
Speaker 1: So why were they still there? And is there any

515
00:28:42,120 --> 00:28:44,200
Speaker 1: reason to believe they're going to be proactive about issues

516
00:28:44,280 --> 00:28:47,120
Speaker 1: like China? I'm not convinced to you, well, most of

517
00:28:47,120 --> 00:28:50,400
Speaker 1: the I am convinced that we are sensitive to the

518
00:28:50,520 --> 00:28:53,960
Speaker 1: risks of US China attentions. It is the product of

519
00:28:54,000 --> 00:28:57,160
Speaker 1: every conversation we have at our board meetings, and now

520
00:28:57,240 --> 00:28:58,680
Speaker 1: the questions what do you do about it? And that's

521
00:28:58,680 --> 00:29:00,520
Speaker 1: the same question of real acconemies. I mean lots of

522
00:29:00,560 --> 00:29:02,680
Speaker 1: real economy CEOs are saying we should do risk. Are

523
00:29:02,680 --> 00:29:05,280
Speaker 1: they moving out? Not clear that that's happening. When is

524
00:29:05,280 --> 00:29:08,280
Speaker 1: the risk of stranded assets going to supersede the risk

525
00:29:08,480 --> 00:29:12,720
Speaker 1: of losing out in profits in terms of China? Well,

526
00:29:12,720 --> 00:29:14,520
Speaker 1: I don't I'm not sure we're going to have stranded assets.

527
00:29:14,520 --> 00:29:16,240
Speaker 1: We taught US stranded assets a lot with respect of

528
00:29:16,280 --> 00:29:18,680
Speaker 1: climate change, but the timeline of that is very different

529
00:29:18,720 --> 00:29:21,600
Speaker 1: from the way which we do capital planning. This was

530
00:29:21,640 --> 00:29:24,000
Speaker 1: an education, a clinic. It always is. Tim outans that

531
00:29:24,440 --> 00:29:31,200
Speaker 1: the Institute of International Finance joining US now in his

532
00:29:31,320 --> 00:29:35,200
Speaker 1: Washington as General Mark Kimmitt, Yes, the former Assistant Secretary

533
00:29:35,240 --> 00:29:37,680
Speaker 1: of State for Political and Military Affairs, but he has

534
00:29:37,680 --> 00:29:41,680
Speaker 1: been a terrific advisor to Bloomberg Surveillance on the complexities

535
00:29:42,040 --> 00:29:45,600
Speaker 1: of military in this modern era. General Kimmitt, thank you

536
00:29:45,600 --> 00:29:48,440
Speaker 1: so much for joining Bloomberg Surveillances today. I want to

537
00:29:48,480 --> 00:29:50,600
Speaker 1: go right now to something dovetailed. It's a bit off

538
00:29:50,600 --> 00:29:52,800
Speaker 1: the script here of the themes out there, and I

539
00:29:52,800 --> 00:29:55,680
Speaker 1: think it's been ignored in the American press. We are

540
00:29:55,760 --> 00:29:59,480
Speaker 1: reaffirming our position in the Pacific Rim by a one

541
00:29:59,600 --> 00:30:03,280
Speaker 1: hundred million dollars twelve month capital commitment to the Philippines

542
00:30:03,680 --> 00:30:07,640
Speaker 1: in four Navy army bases. I think most of America's

543
00:30:07,720 --> 00:30:10,920
Speaker 1: ignorant of the army commitment in World War Two, what

544
00:30:11,080 --> 00:30:14,680
Speaker 1: happened north of Manila, the bravery that was done there,

545
00:30:14,720 --> 00:30:17,000
Speaker 1: And what I'd like to know from you is the

546
00:30:17,120 --> 00:30:21,400
Speaker 1: importance of this projection by the Pentagon to a new

547
00:30:21,480 --> 00:30:25,400
Speaker 1: Pacific Rim strategy army and Navy. Look. I don't want

548
00:30:25,400 --> 00:30:28,320
Speaker 1: to sound trite, but you and I Tom grew up

549
00:30:28,560 --> 00:30:32,480
Speaker 1: when the Iron Curtain was up. I think this generation

550
00:30:32,720 --> 00:30:35,000
Speaker 1: is going to be growing up with the Bamboo Curtain,

551
00:30:35,400 --> 00:30:38,920
Speaker 1: and we are setting a curtain for that ranges from

552
00:30:39,000 --> 00:30:42,880
Speaker 1: Korea to the Philippines, to Japan down to Australia to

553
00:30:43,000 --> 00:30:49,480
Speaker 1: try to contain the hegemonic behavior of China militarily, cooperation

554
00:30:49,640 --> 00:30:52,840
Speaker 1: and competition going on economically, but there is a significant

555
00:30:52,840 --> 00:30:58,560
Speaker 1: concern about the hegemonic aspirations of China and that's what

556
00:30:58,640 --> 00:31:02,200
Speaker 1: the military is setting up. Our guests talk about a

557
00:31:02,280 --> 00:31:08,160
Speaker 1: substantial increase of Pentagon spending to GDP. You're the best

558
00:31:08,240 --> 00:31:11,760
Speaker 1: general we have linking in financial matters. It's widely understood

559
00:31:11,760 --> 00:31:14,920
Speaker 1: that kimodons the high ground there. Do we have the

560
00:31:15,000 --> 00:31:19,600
Speaker 1: will to expand Pentagon spending to GDP? Well, I may

561
00:31:19,640 --> 00:31:21,400
Speaker 1: know a lot about the military, but that's more of

562
00:31:21,400 --> 00:31:24,520
Speaker 1: a political question. The issue is can the president, can

563
00:31:24,520 --> 00:31:28,480
Speaker 1: the Pentagon make the argument to Congress and to the

564
00:31:28,520 --> 00:31:32,600
Speaker 1: American people that that raising of GDP is necessary at

565
00:31:32,600 --> 00:31:37,640
Speaker 1: a time when quite candidly, the federal budget is under

566
00:31:38,120 --> 00:31:43,360
Speaker 1: significant arrests from other expenditure programs and entitlement programs. I

567
00:31:43,400 --> 00:31:45,880
Speaker 1: hope they do. I think it's necessary, but that's a

568
00:31:45,920 --> 00:31:48,800
Speaker 1: tough sell to make these days. General I keep going

569
00:31:48,840 --> 00:31:51,520
Speaker 1: back to what Peter Cheer, a commentator said on this

570
00:31:51,560 --> 00:31:53,680
Speaker 1: show a couple of days ago, when he said that

571
00:31:53,720 --> 00:31:57,720
Speaker 1: this is probably the most perilous and fraught moment geopolitically

572
00:31:57,720 --> 00:32:00,120
Speaker 1: that he's experienced and that his generals who were with

573
00:32:00,200 --> 00:32:02,960
Speaker 1: him as former generals, have experienced in a very long time.

574
00:32:03,320 --> 00:32:05,480
Speaker 1: Do you agree and is it really focused in China

575
00:32:05,600 --> 00:32:08,120
Speaker 1: or is it broader. Well, first of all, he must

576
00:32:08,160 --> 00:32:12,960
Speaker 1: be quite young, because the threats that we faced when

577
00:32:13,000 --> 00:32:15,479
Speaker 1: I was young officers were far more significant. Whether it

578
00:32:15,520 --> 00:32:19,920
Speaker 1: was the Soviet Union, the impacts of the post Vietnam period,

579
00:32:20,080 --> 00:32:26,640
Speaker 1: the Russian Soviet interference in both Africa, Latin America, Central America.

580
00:32:26,880 --> 00:32:29,959
Speaker 1: There are a significant number of challenges there, Not to mention,

581
00:32:30,040 --> 00:32:34,880
Speaker 1: we had a population that was absolutely unsupportive of the

582
00:32:34,880 --> 00:32:38,400
Speaker 1: military writ large. Yes, we have challenges today, but I'm

583
00:32:38,440 --> 00:32:41,400
Speaker 1: convinced that the US military is up to those challenges,

584
00:32:41,480 --> 00:32:44,680
Speaker 1: whether it's the Army, Navy, Air Force, Marines. We need

585
00:32:44,680 --> 00:32:48,520
Speaker 1: to modernize, we need to expand, but our soldiers are ready.

586
00:32:49,160 --> 00:32:51,840
Speaker 1: How does that dovetail into the leaks, the national security

587
00:32:51,920 --> 00:32:55,600
Speaker 1: leaks that we've seen. Perhaps the military is ready, but

588
00:32:55,880 --> 00:33:00,000
Speaker 1: is the intelligence infrastructure, is the cyber sort of secure

589
00:33:00,040 --> 00:33:04,320
Speaker 1: already in place to really support them? I certainly hope. So.

590
00:33:04,480 --> 00:33:08,480
Speaker 1: I was never concerned about the intelligence products that we

591
00:33:08,480 --> 00:33:13,080
Speaker 1: were getting from DA the human intelligence, the signals intelligence,

592
00:33:14,200 --> 00:33:18,080
Speaker 1: the military intelligence, cyber you know, I think we're at

593
00:33:18,080 --> 00:33:20,160
Speaker 1: a situation at least where we don't know what we

594
00:33:20,200 --> 00:33:23,200
Speaker 1: don't know. But the fact that Russia has not been

595
00:33:23,240 --> 00:33:29,719
Speaker 1: able to execute a successful cybersecurity operation against Ukraine I

596
00:33:29,720 --> 00:33:33,880
Speaker 1: think tells everyone that we're probably ahead of where we

597
00:33:33,920 --> 00:33:36,280
Speaker 1: should be. I'm just not competent to answer that question.

598
00:33:36,400 --> 00:33:39,360
Speaker 1: But the bigger takeaway for a lot of people is

599
00:33:39,400 --> 00:33:42,760
Speaker 1: that the US is spying on its allies. That we

600
00:33:42,840 --> 00:33:45,040
Speaker 1: always have a right, So this is sort of not

601
00:33:45,080 --> 00:33:47,600
Speaker 1: a surprise, and perhaps it shouldn't be. But that also

602
00:33:47,960 --> 00:33:50,280
Speaker 1: that the US could be a sive right, that there

603
00:33:50,280 --> 00:33:54,400
Speaker 1: could be breaches here if other countries share intelligence. How

604
00:33:54,440 --> 00:33:56,360
Speaker 1: concerning is that to you? How much is that what

605
00:33:56,400 --> 00:34:01,000
Speaker 1: you're focused on. That's that's probably the most important issue there,

606
00:34:01,040 --> 00:34:03,920
Speaker 1: the issue of allies spying on allies. I mean, that's

607
00:34:03,960 --> 00:34:07,600
Speaker 1: something that's understood. This is not a surprise. It's just

608
00:34:07,680 --> 00:34:12,319
Speaker 1: an embarrassment when it gets into the general public. With

609
00:34:12,360 --> 00:34:15,880
Speaker 1: regards to your other questions, particularly what we call the

610
00:34:15,920 --> 00:34:21,520
Speaker 1: Five Eyes countries that we share with, that is a

611
00:34:21,640 --> 00:34:27,120
Speaker 1: significant threat to the relationships because very simply it reduces

612
00:34:27,200 --> 00:34:30,000
Speaker 1: the intelligence flows. The other country is much better than

613
00:34:30,000 --> 00:34:31,960
Speaker 1: we are in certain areas, but if they don't want

614
00:34:32,000 --> 00:34:34,839
Speaker 1: to share it because they can't trust us, that's going

615
00:34:34,880 --> 00:34:37,280
Speaker 1: to have a ground effect. I want to talk about

616
00:34:37,560 --> 00:34:39,919
Speaker 1: the United States allies. Europe has been a weak link

617
00:34:40,040 --> 00:34:42,760
Speaker 1: when it came to Russia over the last decade, particularly Germany.

618
00:34:42,840 --> 00:34:45,840
Speaker 1: Germany was want time and time again about the energy

619
00:34:45,880 --> 00:34:48,279
Speaker 1: dependence it had on Russia and didn't do enough to

620
00:34:48,320 --> 00:34:49,680
Speaker 1: back away, and we've had to deal with that in

621
00:34:49,680 --> 00:34:52,239
Speaker 1: the last twelve months. Now we're dealing with China, and

622
00:34:52,280 --> 00:34:54,440
Speaker 1: some people might make the same accusation that you're once

623
00:34:54,480 --> 00:34:56,080
Speaker 1: again as a weak link. And I would bring up

624
00:34:56,080 --> 00:34:58,040
Speaker 1: the comments from the French President, the French leader of

625
00:34:58,160 --> 00:35:01,240
Speaker 1: the last week as an example of that. You've talked

626
00:35:01,239 --> 00:35:04,480
Speaker 1: about the hegemonic aspirations of China and the risk around

627
00:35:04,520 --> 00:35:07,440
Speaker 1: that for the United States has been effective hedgehum on

628
00:35:07,480 --> 00:35:09,560
Speaker 1: the global stage. Both wouldn't get ample. It needs to

629
00:35:09,560 --> 00:35:12,279
Speaker 1: bring its allies with it. The Europeans, you say, much

630
00:35:12,280 --> 00:35:14,680
Speaker 1: evidence of that when it comes to China. Well, with

631
00:35:15,160 --> 00:35:18,160
Speaker 1: regards of China, I'm more concerned that the relationships we

632
00:35:18,239 --> 00:35:23,000
Speaker 1: have are the strong links with Australia, Korea, Japan, the Philippines.

633
00:35:23,040 --> 00:35:26,240
Speaker 1: That's the front line. The supporting line comes out of Europe.

634
00:35:26,280 --> 00:35:29,759
Speaker 1: So while Europe is important, particularly with regards to the

635
00:35:29,800 --> 00:35:36,520
Speaker 1: economic cooperation or economic enforcement, when China violates wto. I'm

636
00:35:36,520 --> 00:35:38,880
Speaker 1: more concerned that we've got it right with the Allies

637
00:35:38,960 --> 00:35:42,720
Speaker 1: on the front lines, and then those in the second tier,

638
00:35:43,239 --> 00:35:47,799
Speaker 1: the Europeans. That's important, but less important give us a

639
00:35:47,840 --> 00:35:51,520
Speaker 1: window into China. Stillwell was over there a long time

640
00:35:51,560 --> 00:35:55,600
Speaker 1: ago and it was basically total chaos. Marshall retiring, had

641
00:35:55,640 --> 00:35:58,680
Speaker 1: to fly over there on an emergency basis and try

642
00:35:58,719 --> 00:36:03,400
Speaker 1: to figure out the new Has anything changed in seventy years.

643
00:36:04,239 --> 00:36:07,120
Speaker 1: Do we have an intelligence basis there where we can

644
00:36:07,160 --> 00:36:10,239
Speaker 1: be more confident of our actions or is there that

645
00:36:10,640 --> 00:36:14,680
Speaker 1: cacophony that's still Well and Marshall faced Well. First of all,

646
00:36:14,719 --> 00:36:16,960
Speaker 1: I'm not an intelligence expert, but I sure know there

647
00:36:16,960 --> 00:36:18,360
Speaker 1: are a lot of people in this town that know

648
00:36:18,480 --> 00:36:21,880
Speaker 1: China well in terms of the intelligence assets we have

649
00:36:21,920 --> 00:36:23,640
Speaker 1: on the ground. If I knew what they were, I

650
00:36:23,640 --> 00:36:25,719
Speaker 1: couldn't tell you that. But I think we've got a

651
00:36:25,719 --> 00:36:28,480
Speaker 1: fairly good picture of what's happening in China. China, this

652
00:36:28,520 --> 00:36:31,240
Speaker 1: isn't a mystery like Gorbachev in Russia, where we had

653
00:36:31,520 --> 00:36:36,040
Speaker 1: really difficult intelligence. The problem that we have with intelligence

654
00:36:36,120 --> 00:36:41,040
Speaker 1: is we're very very good about assessing capabilities, what they've got,

655
00:36:41,040 --> 00:36:43,279
Speaker 1: how many tanks they've got, how many planes they've got,

656
00:36:43,320 --> 00:36:46,279
Speaker 1: how many soldiers they have. The hard part for the

657
00:36:46,280 --> 00:36:50,600
Speaker 1: intelligence experts is determining intentions. What are they going to

658
00:36:50,640 --> 00:36:54,920
Speaker 1: do with all of those capabilities. I think that's conundrum

659
00:36:54,960 --> 00:36:57,319
Speaker 1: that's been going on for years and years. One can

660
00:36:57,400 --> 00:37:00,600
Speaker 1: only hope that when it comes to China, we can

661
00:37:00,680 --> 00:37:04,040
Speaker 1: find some manner in which we can come to some

662
00:37:04,120 --> 00:37:08,400
Speaker 1: sort of I hate to keep using these words coming

663
00:37:08,400 --> 00:37:11,359
Speaker 1: out of the Cold War, but some sort of parastroike

664
00:37:11,520 --> 00:37:14,560
Speaker 1: or some sort of detante, because it's clear that China

665
00:37:14,600 --> 00:37:16,879
Speaker 1: has asked I work in the Middle East. You can't

666
00:37:16,880 --> 00:37:19,680
Speaker 1: swing a dead cat without hitting a Chinese businessman on

667
00:37:19,719 --> 00:37:23,560
Speaker 1: a daily basis. Maybe we quote you that you may

668
00:37:24,520 --> 00:37:28,160
Speaker 1: they're out there. They're pushing hard. They're pushing hard economically,

669
00:37:28,200 --> 00:37:32,319
Speaker 1: as we saw with the agreement between the Saudis and

670
00:37:32,320 --> 00:37:35,840
Speaker 1: the Iranians. They want to play heavily in a diplomatic field.

671
00:37:36,640 --> 00:37:38,400
Speaker 1: We just got to make sure in the military that

672
00:37:38,440 --> 00:37:42,200
Speaker 1: we can contain their military aspirations. You've made a series

673
00:37:42,200 --> 00:37:46,319
Speaker 1: of personal assessments about their intentions. What about timeline specifically,

674
00:37:46,520 --> 00:37:50,560
Speaker 1: what about taiwine specifically? A tough policy issue. I think

675
00:37:50,560 --> 00:37:52,960
Speaker 1: the Chinese, regardless of what we're seeing with all the

676
00:37:53,040 --> 00:37:55,399
Speaker 1: noise in the air and on the sea. They're taking

677
00:37:55,400 --> 00:37:59,440
Speaker 1: the long view. They believe that eventually Taiwan will return

678
00:38:00,080 --> 00:38:03,320
Speaker 1: to the People's Republic of China. They're not in a hurry,

679
00:38:03,360 --> 00:38:07,040
Speaker 1: I think militarily, they know that trying to invade and

680
00:38:07,200 --> 00:38:13,000
Speaker 1: occupied Taiwan would be an absolute disaster. But they've got time. General.

681
00:38:13,080 --> 00:38:15,919
Speaker 1: We appreciate your time this morning. Thank you, suck you fantastic. General.

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00:38:16,000 --> 00:38:18,360
Speaker 1: Mark Kim at Dad the former Assistant Secretary of State

683
00:38:18,600 --> 00:38:22,000
Speaker 1: for Political Military at Fast Subscribe to the Bloomberg Surveillance

684
00:38:22,040 --> 00:38:26,439
Speaker 1: podcast on Apple, Spotify, and anywhere else you get your podcasts.

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00:38:26,840 --> 00:38:30,920
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Speaker 1: Bloomberg dot Com, the iHeartRadio app tune In, and the

687
00:38:35,000 --> 00:38:39,040
Speaker 1: Bloomberg Business app. You can watch us live. I'm Bloomberg

688
00:38:39,040 --> 00:38:43,280
Speaker 1: Television and always I'm the Bloomberg Terminal. Thanks for listening.

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00:38:43,719 --> 00:38:46,560
Speaker 1: I'm Tom Keane and this is Bloomberg