WEBVTT - Bloomberg Wall Street Week - February 2nd, 2024 0:00:00.240 --> 0:00:02.440 This is Bloomberg Wall Street Week. 0:00:02.480 --> 0:00:04.400 I mean may not have an overall recession. We're having 0:00:04.400 --> 0:00:06.680 a rolling recession. To kin of Rowl looks pretty strongly. 0:00:06.720 --> 0:00:07.400 It is when it comes to. 0:00:07.400 --> 0:00:09.840 Jobs the financial stories that shape our word. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures sent shockwaves through the banking system. 0:00:13.680 --> 0:00:15.440 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.000 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.439 Welcome down, Doctor Paul Krugman, Ryan Moynahan, Bank of America, 0:00:22.520 --> 0:00:25.360 deebro Lair of the Paulson Institute, Glen Hubbard of the 0:00:25.360 --> 0:00:26.280 Columbia Business School. 0:00:26.280 --> 0:00:30.120 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:30.320 --> 0:00:33.680 Up in the Air on whether Elon Musk moves to Texas, 0:00:33.800 --> 0:00:36.320 on the future of Boeing, on when tech we'll see 0:00:36.320 --> 0:00:39.360 that AI payoff, and on when the Fed we'll get. 0:00:39.280 --> 0:00:41.879 A move on. This is Bloomberg Wall Street Week. I'm 0:00:41.960 --> 0:00:42.720 David Weston. 0:00:43.520 --> 0:00:46.800 This week special contributor Larry Summers on US jobs numbers. 0:00:47.479 --> 0:00:52.080 I was surprised, not shocked that the job numbers came 0:00:52.159 --> 0:00:52.840 in that way. 0:00:53.680 --> 0:00:57.880 Shipwar author Chris Miller of Tufts on governments funding the tech. 0:00:57.760 --> 0:01:01.360 Race, all of the world's governments, from the US to Japan, 0:01:01.520 --> 0:01:04.440 to Europe to China, are pouring tens of billions of 0:01:04.440 --> 0:01:06.080 dollars into their own ship industries. 0:01:06.600 --> 0:01:09.720 And Nobel economist Paul Krugman of Cunei on what the 0:01:09.760 --> 0:01:12.200 election could mean for US trade policy. 0:01:12.720 --> 0:01:17.080 Tariffs don't eliminate trade deficits unless they get so high 0:01:17.120 --> 0:01:19.240 as to basically make trade impossible. 0:01:32.160 --> 0:01:34.600 Gold Wall Street looked at a lot of questions this week, 0:01:34.680 --> 0:01:37.920 but did not get many answers, as Elon Musk threatened 0:01:37.959 --> 0:01:40.720 to take his marbles along with his Tesla and go 0:01:40.800 --> 0:01:43.480 home to Texas after a Delaware court said he couldn't 0:01:43.520 --> 0:01:46.520 take home that fifty five billion dollar pay package his 0:01:46.600 --> 0:01:47.760 board had promised him. 0:01:48.200 --> 0:01:51.440 If shareholders, upon the board's recommendation, decide to move to Nevada, 0:01:51.520 --> 0:01:53.400 they have a right to do that, but it's not 0:01:53.440 --> 0:01:54.400 a Musk decision. 0:01:54.720 --> 0:01:57.200 Boweling's crisis over the seven thirty seven Max and nine 0:01:57.240 --> 0:02:01.160 aircraft is far from resolved, as the government limited future production. 0:02:01.440 --> 0:02:03.040 The companies said it would take a day off to 0:02:03.080 --> 0:02:06.160 reflect on what happened, and its chief executive admitted it 0:02:06.280 --> 0:02:10.280 was at fault. We carved the problems and we understand that, 0:02:10.480 --> 0:02:14.240 and we instituted additional quality controls and inspections at Going 0:02:14.760 --> 0:02:18.519 and at our supplier. Big Tech announced earnings this week, 0:02:18.560 --> 0:02:21.240 and although they were strong, they didn't entirely measure up 0:02:21.280 --> 0:02:24.240 to what some had hoped, leaving open the question of 0:02:24.400 --> 0:02:27.239 just when those promised AI profits are likely to hit 0:02:27.520 --> 0:02:28.600 the bottom line. 0:02:28.919 --> 0:02:32.560 The earnings that came out last night were excellent earnings 0:02:32.560 --> 0:02:35.000 by any measure, They just maybe didn't meet. 0:02:34.919 --> 0:02:40.080 The gaftiest of lofty expectations, and the Fed surprised absolutely 0:02:40.120 --> 0:02:43.240 no one by not moving at all or giving much 0:02:43.320 --> 0:02:44.040 real sense. 0:02:43.840 --> 0:02:44.560 Of when it will. 0:02:44.880 --> 0:02:47.760 I don't think it's likely that the Committee will reach 0:02:47.800 --> 0:02:49.760 a level of confidence by the time of the March 0:02:49.840 --> 0:02:52.640 meeting to identify March as the time to do that, 0:02:53.160 --> 0:02:55.240 but that's to be seen. 0:02:56.680 --> 0:02:56.840 Then. 0:02:56.880 --> 0:02:59.880 On Friday, US jobs numbers underscored why the Fed may 0:02:59.880 --> 0:03:02.519 be reluctant to cut rates in the near future, as 0:03:02.560 --> 0:03:05.600 three hundred and fifty thousand new jobs were almost double 0:03:05.639 --> 0:03:08.440 what people had expected and the unemployment rates stayed at 0:03:08.440 --> 0:03:11.200 a very low three point seven percent. After an up 0:03:11.200 --> 0:03:13.200 and down week, the equity markets were off to the 0:03:13.280 --> 0:03:15.120 races on the jobs news, with the S and p 0:03:15.160 --> 0:03:17.679 five hundred and he got just under one point four 0:03:17.720 --> 0:03:20.040 percent up for the week, a new record, and that 0:03:20.160 --> 0:03:22.680 beats the median number of our Bloomberg alves for the 0:03:22.840 --> 0:03:25.919 end of the year, while the Nasdaq added over one 0:03:25.960 --> 0:03:29.320 percent and the Yeald the Tenure jumped fifteen basis points 0:03:29.360 --> 0:03:31.680 on Friday alone, though for the week it was actually 0:03:31.720 --> 0:03:35.200 down twelve basis points to end just over four percent. 0:03:35.520 --> 0:03:36.520 Take us through the week. 0:03:36.320 --> 0:03:36.800 Of the markets. 0:03:36.880 --> 0:03:40.200 Welcome back, now, Sonal Desai. She's Franklin Templeton's fixed income 0:03:40.280 --> 0:03:45.080 CIO and Peter Krause, founder, chair and CEO of Aperture Investors. So, Sonawka, 0:03:45.080 --> 0:03:46.720 why don't you give us your take on what we 0:03:46.760 --> 0:03:49.000 saw in the markets this week up to the clothes 0:03:49.080 --> 0:03:49.640 on Friday. 0:03:50.560 --> 0:03:54.440 Well, you know, the market has been so positioned, so 0:03:54.640 --> 0:03:59.240 positioned for and it's not entirely shield on the back 0:03:59.280 --> 0:04:04.440 of walk positioned for massive early FED rate cuts that 0:04:04.880 --> 0:04:07.800 wasn't going to happen. And in many ways, what Powell 0:04:07.840 --> 0:04:11.960 said during his press conference he left the door open 0:04:12.040 --> 0:04:14.880 for potentially cutting. I don't think he should and I 0:04:14.880 --> 0:04:18.800 don't think they will. But the immediate reaction to Powell's 0:04:18.800 --> 0:04:22.120 statement was still a bit of a rally before they started, 0:04:22.160 --> 0:04:28.560 before one market started selling off. Eventually, overall, I think, unfortunately, 0:04:28.680 --> 0:04:31.000 it still is the case that in December the FED 0:04:31.120 --> 0:04:35.640 reinserted itself into the story of the market, and we 0:04:35.760 --> 0:04:39.520 continue to see an easing of financial conditions, which certainly 0:04:39.600 --> 0:04:42.679 makes the Fed's job somewhat harder in terms of deciding 0:04:42.680 --> 0:04:44.799 when to cut. And they want to cut. That's clear. 0:04:45.120 --> 0:04:45.560 That's clear. 0:04:46.040 --> 0:04:47.160 So Peter explained one thing. 0:04:47.200 --> 0:04:49.160 We had a sort of unusual week where we had 0:04:49.480 --> 0:04:52.479 rates up in the form of the yield and equities 0:04:52.560 --> 0:04:53.240 up at the same time. 0:04:53.279 --> 0:04:54.520 How do you explain those two things. 0:04:55.080 --> 0:04:57.200 Well, first of all, you made an interesting point that 0:04:57.480 --> 0:05:03.640 rates are up today but actually up relative to the week. Secondly, normally, 0:05:03.640 --> 0:05:05.840 when rates move have that big a move, the markets 0:05:05.839 --> 0:05:09.640 do actually go down. That's been the recent consensus move. 0:05:09.920 --> 0:05:12.560 But as you saw today, there are two really big. 0:05:12.279 --> 0:05:15.480 Stocks, Amazon and Meta that were up. 0:05:15.480 --> 0:05:19.120 Dramatically during the day, and if you actually adjust for that, 0:05:19.200 --> 0:05:21.239 I'm not sure the market was up much at all. 0:05:21.480 --> 0:05:23.679 And the Russell of course was down forty basis points. 0:05:23.720 --> 0:05:27.440 So I actually think the markets are reacting somewhat negatively 0:05:27.520 --> 0:05:31.040 to Pal taking his foot off the gas of cutting rates, 0:05:31.279 --> 0:05:33.280 But I agree with so now, and I've said for 0:05:33.320 --> 0:05:35.200 a while I don't think the FED is going to 0:05:35.279 --> 0:05:37.479 cut rates early. I think they're going to wait for 0:05:37.520 --> 0:05:41.000 inflation to actually break. I think inflation is done better, 0:05:41.080 --> 0:05:43.400 but it is still elevated, and you see job growth 0:05:43.440 --> 0:05:44.480 and you see wage growth. 0:05:45.320 --> 0:05:47.320 So so now I think you too are agreeing that 0:05:47.360 --> 0:05:49.320 there are going to be cuts. The question is how 0:05:49.360 --> 0:05:51.880 big and how soon? What do you expect for this 0:05:51.960 --> 0:05:52.680 the rest of the year. 0:05:53.400 --> 0:05:55.599 You know, I haven't changed my views now for quite 0:05:55.640 --> 0:05:59.000 a while, and I was in the fifty basis point 0:05:59.040 --> 0:06:02.680 cam in this in December and powers Folk it became 0:06:02.720 --> 0:06:05.200 pretty clear that the FED would like to do seventy five. 0:06:05.360 --> 0:06:07.760 I think maybe they'll do seventy five, but it's going 0:06:07.800 --> 0:06:09.920 to be in the second half of the year. I'm 0:06:09.960 --> 0:06:12.479 not changing any of that really, because it's not that 0:06:12.560 --> 0:06:15.240 I expect inplation to run away or pick up strongly, 0:06:15.560 --> 0:06:17.120 and I just don't think it's going to come down 0:06:17.279 --> 0:06:22.200 convincingly enough to allow for early rate cuts. And definitely 0:06:22.240 --> 0:06:25.839 the political calendar complicates this, But abstracting from that, I 0:06:25.839 --> 0:06:28.279 think as second half and seventy five business on this 0:06:28.320 --> 0:06:28.520 is well. 0:06:28.520 --> 0:06:29.760 I don't quite an experien in Sampeter. 0:06:29.839 --> 0:06:32.080 When you've got this kind of growth, which is very robust, 0:06:32.160 --> 0:06:35.320 and this kind of employment what we're seeing right now, why. 0:06:35.160 --> 0:06:36.280 Is there a need to cut rates? 0:06:36.440 --> 0:06:38.520 Why do you need to stimulate the economies through monetary 0:06:38.520 --> 0:06:39.280 policy right now? 0:06:39.440 --> 0:06:39.680 Yeah? 0:06:39.760 --> 0:06:42.000 I think that's a good point. I do think that 0:06:42.240 --> 0:06:46.599 we're seeing a very strong and resilient economy up and 0:06:46.680 --> 0:06:51.160 down the income spectrum. And although there are some delinquencies 0:06:51.200 --> 0:06:53.719 that are rising in the consumer world, we still have 0:06:53.800 --> 0:06:56.440 people well employed with jobs. 0:06:56.120 --> 0:06:58.400 That are paying even more than they paid last year. 0:06:58.960 --> 0:07:01.960 So the FED is looking that inflation, and inflation has 0:07:01.960 --> 0:07:04.599 come down from eight percent or seven percent down to four, 0:07:04.960 --> 0:07:06.960 down to three, But is it really. 0:07:06.760 --> 0:07:07.799 Going to fall much faster? 0:07:07.960 --> 0:07:09.960 And so I think the FED is going to be 0:07:10.080 --> 0:07:12.880 very careful about taking short rates down. And I think 0:07:12.880 --> 0:07:16.800 it's quite possible that longer rates go up from here, 0:07:17.040 --> 0:07:18.360 not down from here. 0:07:19.040 --> 0:07:21.239 So, given what you just said, Peter, why don't people 0:07:21.360 --> 0:07:24.280 feel better about it? Because everything we see and all 0:07:24.320 --> 0:07:26.840 the polls taken, people don't feel that great about the economy. 0:07:26.960 --> 0:07:28.680 You describe an economy it's pretty good. 0:07:29.080 --> 0:07:31.760 Yeah, I think that's the question that many people have asked, 0:07:31.760 --> 0:07:34.760 and I myself am a bit confused about it, but 0:07:34.800 --> 0:07:39.280 I think the answer really falls in how inflation affects 0:07:39.320 --> 0:07:44.160 people's spending capability. So, yes, wages are up, but remember 0:07:44.200 --> 0:07:47.280 wages are up following a very high period of inflation, 0:07:47.560 --> 0:07:50.960 which change the ability for consumers to actually spend money. 0:07:51.160 --> 0:07:54.280 It really changed their discretionary spending patterns, and it changed 0:07:54.560 --> 0:07:57.200 what they had left over to actually use for something else. 0:07:57.640 --> 0:07:59.440 So if you have to spend more money on food, 0:07:59.440 --> 0:08:00.800 and you have to spend more money on gas, and 0:08:00.840 --> 0:08:02.200 you have to spend money on the things that you 0:08:02.280 --> 0:08:04.560 have to spend money on, then you have a lot 0:08:04.640 --> 0:08:07.280 less for everything else, and people feel pinched. And that's 0:08:07.360 --> 0:08:10.560 not going to change until you get enough wage growth 0:08:10.600 --> 0:08:15.240 to actually overcome the effect of that inflation on your 0:08:15.360 --> 0:08:16.400 actual living expenses. 0:08:16.400 --> 0:08:17.600 Remember, we don't have deflation. 0:08:17.840 --> 0:08:20.600 Prices aren't coming down, they're just not going up faster. 0:08:21.000 --> 0:08:22.600 So it's going to take some time and people are 0:08:22.640 --> 0:08:24.200 not going to feel great about it for a while. 0:08:30.480 --> 0:08:31.240 This is Wall Straight Week. 0:08:31.280 --> 0:08:33.320 I'm David weston Son, I'll the side of Franklin Temple 0:08:33.360 --> 0:08:35.720 and Peter Krause of Aperture Investors have stayed with us 0:08:35.840 --> 0:08:38.000 We've talked on this program, Peter in the past about 0:08:38.040 --> 0:08:40.559 the growth of private credit and private equity. It seems 0:08:40.559 --> 0:08:42.960 sometimes like the trees are growing to the sky. I 0:08:43.000 --> 0:08:45.199 know you've just gotten back from Miami talking to MFA 0:08:45.320 --> 0:08:48.400 conference about a portfolio allegation. Is there a point at 0:08:48.400 --> 0:08:52.400 which maybe we start not rushing forward in private quite 0:08:52.440 --> 0:08:52.920 so fast? 0:08:53.200 --> 0:08:55.199 Yeah, I think we are at that point. 0:08:55.320 --> 0:08:58.720 I think that in the last fifteen years, we've had 0:08:58.840 --> 0:09:03.200 declining interest rates, benign credit environments and very low yields, 0:09:03.440 --> 0:09:05.720 and the place where you could get more yield was 0:09:05.760 --> 0:09:06.120 in the. 0:09:06.000 --> 0:09:08.280 Private space, particularly in private credit. 0:09:08.320 --> 0:09:10.720 And the place where you got more return inequity was 0:09:10.720 --> 0:09:12.520 in private equity, and a lot of that was in 0:09:12.559 --> 0:09:16.680 growth investing venture capital. I think at this point we 0:09:16.920 --> 0:09:20.280 have to be more cautious about those spaces, and the 0:09:20.320 --> 0:09:23.079 liquidity coming out of those areas that you invested in 0:09:23.160 --> 0:09:24.720 has slowed down dramatically. 0:09:25.040 --> 0:09:26.599 We know that there's a lot less M and A. 0:09:26.880 --> 0:09:28.560 We know there's a lot less. 0:09:28.520 --> 0:09:32.160 IPOs in the private equity space. There are continuation funds 0:09:32.160 --> 0:09:34.560 being talked about in credit, so maybe your credit comes 0:09:34.559 --> 0:09:37.480 back slower than you thought so, And I do think 0:09:37.520 --> 0:09:40.480 we said this in the earlier session is that yields 0:09:40.480 --> 0:09:44.120 in the liquid space have grown dramatically, and so if 0:09:44.120 --> 0:09:46.760 you're thinking about where you're going to allocate your next dollar, 0:09:47.040 --> 0:09:49.320 would it really be in that private space? 0:09:49.559 --> 0:09:51.679 Where would it make more sense. 0:09:51.400 --> 0:09:54.480 To actually be opportunistic in the liquid space and find 0:09:54.840 --> 0:09:57.800 a place to actually get reasonable yields with liquidity in 0:09:58.360 --> 0:09:58.760 that area. 0:09:59.000 --> 0:10:01.720 So so now in here from the fixed income side, 0:10:01.760 --> 0:10:04.200 how does this play out in fixed income, private credits, 0:10:04.240 --> 0:10:06.680 syndicated loans, liquid credit? 0:10:06.720 --> 0:10:07.560 How does it play out? 0:10:08.360 --> 0:10:11.640 So basically it is it is exactly true. For the 0:10:11.679 --> 0:10:17.959 last fifteen years, illiquidity was almost sought after because liquid 0:10:18.240 --> 0:10:22.200 liquid acids yielded so little. What I would say is 0:10:22.240 --> 0:10:25.040 today with with liquid assets, I look at high yield 0:10:25.080 --> 0:10:29.160 for example, and even with the current of compression, you 0:10:29.240 --> 0:10:31.520 are getting all in returns of something like seven and 0:10:31.559 --> 0:10:33.760 a half percent. If you look at bank loans or 0:10:33.760 --> 0:10:35.839 floating rate you know, which is a little bit even 0:10:36.160 --> 0:10:39.520 you know it's very short duration, it's looking good at 0:10:39.559 --> 0:10:44.600 around nine percent or so. I think that private markets 0:10:44.640 --> 0:10:48.040 are going to need to give a significant premium for 0:10:48.080 --> 0:10:52.480 the ill liquidity in a period when liquidity starts compressing, 0:10:52.679 --> 0:10:57.120 as central banks start ending their periods of QE and 0:10:57.160 --> 0:11:01.480 so on. So that's one element. But against this background, 0:11:01.559 --> 0:11:06.240 there are many institutional investors who quite like having assets 0:11:06.240 --> 0:11:09.080 which are not marked to market because you don't see 0:11:09.120 --> 0:11:12.600 the volatility constantly, right, So I think there's a bit 0:11:12.600 --> 0:11:16.160 of a trade off there. Nonetheless, with liquid markets liquid 0:11:16.200 --> 0:11:19.280 fixed in markets yielding as well as they currently are, 0:11:19.640 --> 0:11:22.480 I'm very optimistic about fixed income over the next few 0:11:22.520 --> 0:11:24.600 years relative to last decade. 0:11:24.800 --> 0:11:27.560 I think there's some risk in marking to market assets 0:11:28.280 --> 0:11:31.840 at the end. Oh yeah, I fully get that I 0:11:31.840 --> 0:11:33.560 don't want to see my assets go up and down. 0:11:33.600 --> 0:11:35.800 I fully get that it's nice to smooth them. 0:11:36.120 --> 0:11:37.280 But at the end of the day, if you actually 0:11:37.280 --> 0:11:39.720 don't know what the values are, that's not exactly a 0:11:39.720 --> 0:11:42.440 good place to be. And I also think that we've 0:11:42.480 --> 0:11:46.080 had very few periods in the last fifteen years we've 0:11:46.120 --> 0:11:49.240 had extended period of time when asset values are hard 0:11:49.240 --> 0:11:53.920 to determine. We've had short reductions and very rapid increases. 0:11:54.120 --> 0:11:56.079 But if you go for two years where. 0:11:55.880 --> 0:11:58.760 Your assets are kind of difficult to value, that's a 0:11:58.760 --> 0:12:00.319 tough place for any fiduciar be. 0:12:00.480 --> 0:12:02.080 Yeah, not knowing the value maybe part of the reason 0:12:02.080 --> 0:12:03.880 why they're not distributed cash back right. 0:12:04.800 --> 0:12:07.080 And because they don't have the cash. 0:12:06.920 --> 0:12:09.080 Exactly and when they sold them it might not be 0:12:09.120 --> 0:12:11.120 as much as they thought. Okay, many thanks now that 0:12:11.200 --> 0:12:15.240 Peter Krause of Aperture Investors and Sonal Desi of Franklin Templeton. 0:12:17.960 --> 0:12:20.880 Coming up the race for governments to subsidize chip production 0:12:21.000 --> 0:12:24.280 around the world, We talk with Chris Miller of Tufts University, 0:12:24.480 --> 0:12:29.280 author of Chip Wars. That's next on Wall Street Week 0:12:29.400 --> 0:12:30.080 on Bloomberg. 0:12:51.000 --> 0:12:55.200 This is Bloomberg Walls Street Week with David Weston from 0:12:55.320 --> 0:12:56.280 Bloomberg Radio. 0:13:02.559 --> 0:13:06.360 What a reversal today, when Japanese manufacturers have been so 0:13:06.559 --> 0:13:10.720 brilliantly successful at selling to and in many cases even 0:13:10.920 --> 0:13:15.320 taking over American markets that practically every politician in the 0:13:15.440 --> 0:13:20.080 US is scrambling to touch our nerves of xenophobia and 0:13:20.160 --> 0:13:23.920 to find a way of restricting and weakening these seemingly 0:13:24.000 --> 0:13:28.080 omnipotent foreign devils. Or look at the all two typical furor, 0:13:28.440 --> 0:13:32.680 this time involving Japanese chip producers who accused this week 0:13:32.800 --> 0:13:36.920 of the awful crime of selling their semiconductors outside the 0:13:37.040 --> 0:13:38.880 US at steep discounts. 0:13:40.480 --> 0:13:42.600 That was Lewis Rocheiser on Wall Street Week back in 0:13:42.679 --> 0:13:45.520 nineteen eighty six, when the issue was computer chips coming 0:13:45.520 --> 0:13:50.280 from Japan. Today it's Chinese chips that has Washington concerned, 0:13:50.440 --> 0:13:53.040 something laid out by Chris Miller of Tufts University in 0:13:53.080 --> 0:13:55.720 his book Chip War. We asked him for an update 0:13:55.760 --> 0:13:58.439 given the billions of dollars in US subsidies about to 0:13:58.480 --> 0:14:00.800 be announced under the Chips and Science Act. 0:14:02.880 --> 0:14:06.640 The boom and investment in artificial intelligence has impacted the 0:14:06.679 --> 0:14:09.520 chip industry too, and today there's actually a shortage of 0:14:09.559 --> 0:14:13.000 the types of chips that are used to train AI systems. 0:14:13.000 --> 0:14:16.320 Even the biggest companies in the world Microsoft, Amazon, Google 0:14:16.400 --> 0:14:19.400 can't get enough of these specialized AI chips, and in 0:14:19.440 --> 0:14:22.360 part because of this, all of the world's governments, from 0:14:22.360 --> 0:14:25.600 the US to Japan, to Europe to China, are pouring 0:14:25.680 --> 0:14:28.200 tens of billions of dollars into their own chip industries, 0:14:28.240 --> 0:14:31.920 trying to make sure they've got that competitive ability to 0:14:32.160 --> 0:14:36.120 stay up with regard to these chip making capabilities that 0:14:36.160 --> 0:14:38.360 are needed for AI chips. 0:14:38.880 --> 0:14:40.920 At the same time, there have been various actions taken 0:14:40.960 --> 0:14:44.200 by the US government and others to restrict China's access 0:14:44.240 --> 0:14:46.560 to some of the machinery, if I can put it 0:14:46.600 --> 0:14:48.800 that way, with the technology to develop these chips, how 0:14:48.800 --> 0:14:49.680 effective is that? 0:14:49.720 --> 0:14:50.120 Do we know? 0:14:50.840 --> 0:14:50.960 Well? 0:14:51.000 --> 0:14:53.200 I think the honest answer is that it's still pretty 0:14:53.200 --> 0:14:56.600 early in the process. The restrictions went into place in 0:14:56.720 --> 0:14:59.680 late twenty twenty two, and the goal the restrictions was 0:15:00.120 --> 0:15:03.320 not really to stop China in its tracks, but rather 0:15:03.440 --> 0:15:07.240 to slow its progress over time. And so China's continuing 0:15:07.240 --> 0:15:10.840 to make progress. SMIC, the leading Chinese chip maker, is 0:15:10.920 --> 0:15:14.080 moving forward and its technological capabilities, but I think it's 0:15:14.120 --> 0:15:16.800 already likely the case that it's moving forward at a 0:15:16.840 --> 0:15:19.880 slower rate than it would have had these controls not 0:15:19.960 --> 0:15:22.240 been in place. And the key is not really where 0:15:22.320 --> 0:15:25.200 is China, but it's where is China relative to the 0:15:25.240 --> 0:15:28.000 most advanced capabilities in Taiwan, or in the United States, 0:15:28.120 --> 0:15:30.800 or in South Korea. And there you see that China 0:15:30.880 --> 0:15:33.520 is making some progress closing the gap, but a really 0:15:33.560 --> 0:15:34.880 sizeable gap remains. 0:15:35.200 --> 0:15:37.200 A lot of these hips actually put into other products 0:15:37.240 --> 0:15:39.760 that get important. Do we know where the chips are 0:15:39.800 --> 0:15:40.360 coming from? 0:15:40.920 --> 0:15:43.160 Well, I think that's part of the challenge. You're right 0:15:43.200 --> 0:15:45.520 to say that the US and Europe and Japan is 0:15:45.560 --> 0:15:48.840 saying we don't actually import many chips from China directly. 0:15:49.160 --> 0:15:51.800 Most of the Chinese chips in our systems are actually 0:15:52.200 --> 0:15:54.400 first sent to Vietnam, then to the Philippines and to 0:15:54.520 --> 0:15:58.160 Malaysia and some countries. Some companies don't always know the 0:15:58.200 --> 0:16:01.520 origins of every single component inside of their system, and 0:16:01.560 --> 0:16:04.640 that's why a traditional anti dumping tariff might be less 0:16:04.680 --> 0:16:05.880 relevant in this case. 0:16:06.400 --> 0:16:08.880 It's not just the United States and China, but also 0:16:08.960 --> 0:16:12.360 I've read now about Japan actually investing in at least 0:16:12.400 --> 0:16:15.280 the precursors to some of the chip manufacturing. What is 0:16:15.320 --> 0:16:18.200 the role of Japan potentially in subsidizing some of the 0:16:18.480 --> 0:16:19.560 more advanced chips. 0:16:20.120 --> 0:16:23.280 Well, today, Japan doesn't produce any of the most advanced 0:16:23.320 --> 0:16:26.840 ships domestically, but it plays a major role in producing 0:16:26.880 --> 0:16:30.280 the machines and also the chemicals that are needed in 0:16:30.320 --> 0:16:33.640 cutting edge chip making. And there's some really unique expertise 0:16:33.720 --> 0:16:37.640 among a handful of Japanese firms, especially in the chemicals sphere, 0:16:38.040 --> 0:16:42.880 where Japan has very high levels of market share and 0:16:43.080 --> 0:16:46.520 limited competition because they've been investing in this sphere for 0:16:47.040 --> 0:16:49.600 now several decades. And that's where the Japanese government is 0:16:49.600 --> 0:16:52.560 focusing a lot of its efforts and retaining its advantages 0:16:52.600 --> 0:16:55.520 that it has over other countries and these chemicals. 0:16:57.320 --> 0:16:58.800 That was Chris Miller of Tufts. 0:17:05.640 --> 0:17:09.560 Elections have consequences, including for business and the economy. 0:17:09.880 --> 0:17:10.919 When President Trump was. 0:17:10.880 --> 0:17:15.240 Elected in twenty sixteen, markets reacted violently and turned out 0:17:15.280 --> 0:17:16.639 to be violently wrong. 0:17:17.240 --> 0:17:18.760 But you'll remember a lot of us kind of got 0:17:18.760 --> 0:17:21.160 this wrong on election night when it looked like Trump 0:17:21.200 --> 0:17:22.959 was going to win, and initially the market crash. Then 0:17:22.960 --> 0:17:25.080 people said, wait a minute, the markets sort up again, 0:17:25.119 --> 0:17:27.080 and it kind of took off from there, and. 0:17:27.119 --> 0:17:29.280 Right now it looks like we may get a second 0:17:29.320 --> 0:17:31.960 look at mister Trump's approach to the economy as he 0:17:32.000 --> 0:17:35.360 appears to be headed to renomination as the Republican candidate, 0:17:35.920 --> 0:17:39.400 and if nominated, would be a serious contender to replace 0:17:39.480 --> 0:17:43.360 President Biden. Some say that the Biden record on economics 0:17:43.400 --> 0:17:46.160 stacks up favorably to former President Trump's. 0:17:46.400 --> 0:17:49.320 For the first time in history, we have two candidates 0:17:49.480 --> 0:17:52.760 that had been president, So you have a track record 0:17:52.760 --> 0:17:55.320 of what to expect. In the case of President Biden, 0:17:55.720 --> 0:17:58.919 You've had so far three years of steadiness, good growth. 0:17:58.960 --> 0:18:02.240 Market said at all time home, I think it's underappreciated 0:18:02.480 --> 0:18:03.880 what has gone on with the economy. 0:18:04.440 --> 0:18:08.000 Others see President Biden's policies insufficiently pro growth. 0:18:08.280 --> 0:18:11.080 People are frustrated, and it's the economic policies the Biden 0:18:11.119 --> 0:18:14.360 administration that has brought us here. Is the president's policies 0:18:15.080 --> 0:18:17.800 of paying people not to work after the pandemic, massive 0:18:17.880 --> 0:18:21.280 multi trillion dollars spending bills that drove inflation. And the 0:18:21.359 --> 0:18:23.879 end result is if you speak to people here in Wisconsin, 0:18:24.200 --> 0:18:27.040 regular folks on the street, they're getting collaborated by Bidenomics, 0:18:27.040 --> 0:18:28.800 and they want to see Washington change course. 0:18:29.560 --> 0:18:32.320 And then you have experts like Glenn Hubbard who worry 0:18:32.359 --> 0:18:35.000 that there isn't a big enough difference between the two. 0:18:35.720 --> 0:18:39.000 What strikes me, in looking at least at President Biden 0:18:39.040 --> 0:18:43.040 and former President Trump's policies is less how different they 0:18:43.080 --> 0:18:47.160 are than how similar they are. So in terms of protectionism, 0:18:47.800 --> 0:18:51.639 in terms of a fondness for industrial pulse, in terms 0:18:51.640 --> 0:18:54.960 of intervention in financial markets, the two men are more 0:18:55.000 --> 0:18:56.399 similar than they are different. 0:18:56.680 --> 0:18:59.800 But whoever gets the presidential nod this year, they're going 0:18:59.840 --> 0:19:02.439 to be faced with some big issues of the federal 0:19:02.480 --> 0:19:06.199 deficits and debt. The problem is that's led us two 0:19:06.280 --> 0:19:07.800 years and years of borrowing too much. 0:19:07.840 --> 0:19:10.040 We now have a debt that's about to be at 0:19:10.040 --> 0:19:10.720 record levels. 0:19:10.760 --> 0:19:13.680 I think we're in a terrible place because, unfortunately, once 0:19:13.720 --> 0:19:16.560 you get to legislating, there's a lot of talk, but 0:19:16.600 --> 0:19:21.119 the talk is always divided politically between the Republicans who 0:19:21.119 --> 0:19:23.960 refuse to raise taxes and the Democrats who. 0:19:23.840 --> 0:19:24.880 Won't deal with titlements. 0:19:25.000 --> 0:19:27.000 I do think when we eventually get to doing this, 0:19:27.560 --> 0:19:31.280 about sixty percent or something of the increase in the 0:19:31.359 --> 0:19:35.199 debt from thousand to twenty twenty two was because of 0:19:35.240 --> 0:19:35.840 the tax cuts. 0:19:40.720 --> 0:19:43.280 For his thoughts on what difference the election out could 0:19:43.280 --> 0:19:45.679 could make for the economy were welcome, Dowt Doctor Paul Krugman, 0:19:45.880 --> 0:19:49.440 Nobel Laureate Economics and Distinguished Professor at the City University 0:19:49.440 --> 0:19:51.920 of New York Graduate Center. So, doctor Kruman, thank you 0:19:51.960 --> 0:19:53.840 so much for being back with this. Before we talk 0:19:53.840 --> 0:19:56.679 about what differences there may be in the leading candidates 0:19:56.760 --> 0:19:58.520