1 00:00:00,240 --> 00:00:02,960 Speaker 1: This is Bloomberg Wall Street Week, and we may not 2 00:00:03,000 --> 00:00:05,240 Speaker 1: have an overall recession, we're having a rolling recession. 3 00:00:05,240 --> 00:00:07,040 Speaker 2: Econy of roll looks pretty strongly. It is when it 4 00:00:07,080 --> 00:00:07,640 Speaker 2: comes to jobs. 5 00:00:07,720 --> 00:00:09,840 Speaker 3: The financial stories that shape our world. 6 00:00:09,960 --> 00:00:13,640 Speaker 1: Three major regional bank failures send shockwaves through the banking system. 7 00:00:13,680 --> 00:00:15,480 Speaker 1: We're all trying to figure out what to make of 8 00:00:15,600 --> 00:00:17,240 Speaker 1: generative AI. 9 00:00:16,920 --> 00:00:19,320 Speaker 3: Through the eyes of the most influential voices. 10 00:00:19,440 --> 00:00:22,400 Speaker 1: Welcome down, Doctor Paul Krugman, Ryan Moynahan, a Bank of America, 11 00:00:22,520 --> 00:00:25,360 Speaker 1: deebro Lair of the Paulson Institute, Glenn Hubbard of the 12 00:00:25,360 --> 00:00:26,280 Speaker 1: Columbia Business School. 13 00:00:26,280 --> 00:00:30,160 Speaker 3: Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 14 00:00:32,000 --> 00:00:34,920 Speaker 1: This week's special contributor Larry Summers on what the jobs 15 00:00:34,960 --> 00:00:37,440 Speaker 1: numbers told us about the state of the economy. 16 00:00:38,159 --> 00:00:40,960 Speaker 4: We've got something of an energizer bunny economy. 17 00:00:41,159 --> 00:00:44,559 Speaker 5: The economy keeps moving right along. 18 00:00:45,600 --> 00:00:48,919 Speaker 1: Glenn Hubbard of Columbia on whether the bond vigilantes are 19 00:00:49,040 --> 00:00:52,880 Speaker 1: knocking at the door, and Ray Dalio Bridgewater on cash 20 00:00:52,960 --> 00:00:54,680 Speaker 1: being trash no longer. 21 00:00:55,560 --> 00:00:58,440 Speaker 6: When you look at the expected returns for this moment, 22 00:00:58,880 --> 00:01:02,600 Speaker 6: cash is a relatively attractive asset class at this moment. 23 00:01:15,800 --> 00:01:18,320 Speaker 1: There was a fair amount of turmoil on global Wall 24 00:01:18,360 --> 00:01:21,240 Speaker 1: Street this week, starting with a turmoil in Washington over 25 00:01:21,319 --> 00:01:24,559 Speaker 1: who is Speaker of the House, as Kevin McCarthy became 26 00:01:24,600 --> 00:01:27,800 Speaker 1: the first speaker in history to be voted out, throwing 27 00:01:27,840 --> 00:01:30,480 Speaker 1: the business of the Congress up in the air until 28 00:01:30,520 --> 00:01:31,679 Speaker 1: they could sort things out. 29 00:01:32,520 --> 00:01:37,240 Speaker 5: The yeas are two sixteen, the nays are two ten. 30 00:01:37,680 --> 00:01:41,280 Speaker 7: The office of Speaker of the House of the United 31 00:01:41,280 --> 00:01:45,480 Speaker 7: States House of Representatives is hereby declared vacant. 32 00:01:46,840 --> 00:01:49,760 Speaker 1: Samuel Bankman Free spent his week worried not about his 33 00:01:49,920 --> 00:01:53,360 Speaker 1: job but about his freedom as his criminal fraud trial 34 00:01:53,440 --> 00:01:56,680 Speaker 1: got underway in Lower Manhattan. Putting Crypto under a bright 35 00:01:56,960 --> 00:02:00,000 Speaker 1: hot spotlights. 36 00:02:00,120 --> 00:02:04,000 Speaker 8: Kind of missed the moment, since that when FTX happened, 37 00:02:04,280 --> 00:02:07,520 Speaker 8: you would have thought that that might bring people together 38 00:02:07,560 --> 00:02:10,040 Speaker 8: in Congress and say, Okay, we really have to do something. 39 00:02:10,680 --> 00:02:13,520 Speaker 1: Things weren't much better when it came to labor disputes 40 00:02:13,560 --> 00:02:16,920 Speaker 1: this week, as the autoworkers kept up the pressure with 41 00:02:17,120 --> 00:02:20,200 Speaker 1: GM taking out a new credit line. 42 00:02:20,560 --> 00:02:23,160 Speaker 9: I know the workers want to see strong companies because 43 00:02:23,160 --> 00:02:25,680 Speaker 9: they want to have jobs, but when the companies got 44 00:02:25,720 --> 00:02:27,760 Speaker 9: in trouble in two thousand and eight and two thousand 45 00:02:27,800 --> 00:02:32,160 Speaker 9: and nine those workers gain so that those companies would 46 00:02:32,200 --> 00:02:33,800 Speaker 9: succeed and wouldn't go bankrupt. 47 00:02:34,400 --> 00:02:38,680 Speaker 1: And seventy five thousand healthcare employees of Kaiser Permanente joined 48 00:02:38,680 --> 00:02:41,600 Speaker 1: the auto workers on strike, complaining of too much work 49 00:02:41,800 --> 00:02:42,960 Speaker 1: and not enough pay. 50 00:02:43,760 --> 00:02:48,440 Speaker 10: Look at the wage pressure on things like the auto strike, 51 00:02:48,560 --> 00:02:50,840 Speaker 10: and you know there's a lot of discussion. If they're successful, 52 00:02:50,880 --> 00:02:53,480 Speaker 10: you'll start to see other unions striking. And sure enough, 53 00:02:53,480 --> 00:02:56,000 Speaker 10: today you had the seventy five thousand employees at Kaiser 54 00:02:56,000 --> 00:02:59,240 Speaker 10: Permanentite going out on strike looking for wage increases. Those 55 00:02:59,240 --> 00:03:01,880 Speaker 10: are going to be very inflationary. 56 00:03:02,520 --> 00:03:05,639 Speaker 1: Whatever turmoil we saw throughout the week, it was dwarfed 57 00:03:05,680 --> 00:03:08,640 Speaker 1: by the blowout jobs numbers that came on Friday, A 58 00:03:08,680 --> 00:03:11,560 Speaker 1: full three hundred and thirty six thousand new jobs added 59 00:03:11,560 --> 00:03:14,480 Speaker 1: in September, about double what we expected, which sent the 60 00:03:14,560 --> 00:03:17,919 Speaker 1: markets reeling, but they quickly recovered. The S and P 61 00:03:18,040 --> 00:03:21,560 Speaker 1: five hundred ended the week up almost percent half a 62 00:03:21,600 --> 00:03:24,520 Speaker 1: percent to forty three ohaight, just under the forty four 63 00:03:24,520 --> 00:03:27,360 Speaker 1: to thirty five median prediction of our Bloomberg elves for 64 00:03:27,400 --> 00:03:30,120 Speaker 1: the end of the year. The NANZDAC fared even better, 65 00:03:30,280 --> 00:03:33,440 Speaker 1: up one point six percent, and once again this week, 66 00:03:33,560 --> 00:03:35,760 Speaker 1: the big action was really in the bond market, with 67 00:03:35,840 --> 00:03:38,680 Speaker 1: the ten year adding almost twenty two basis points, ending 68 00:03:38,720 --> 00:03:41,800 Speaker 1: the week at four point seven nine. To take us 69 00:03:41,880 --> 00:03:44,160 Speaker 1: through this week in the market, Welcome back now, Liz 70 00:03:44,200 --> 00:03:48,040 Speaker 1: Anne Saunders, Charles Schwab, chief market strategist, and David Bianca, 71 00:03:48,320 --> 00:03:53,040 Speaker 1: he is WDS America's Chief investment officer. Welcome both of you. 72 00:03:53,080 --> 00:03:55,160 Speaker 1: Thank you so much for being here. So listen, let 73 00:03:55,200 --> 00:03:57,640 Speaker 1: me start with you about those jobs numbers. They did 74 00:03:57,720 --> 00:04:00,280 Speaker 1: surprise I think pretty much all of us. What do 75 00:04:00,320 --> 00:04:01,920 Speaker 1: they tell us about where we are with the economy 76 00:04:01,960 --> 00:04:03,120 Speaker 1: and how did the markets react? 77 00:04:04,080 --> 00:04:06,480 Speaker 8: Well, you know, certainly on the surface, looking at the 78 00:04:06,520 --> 00:04:10,520 Speaker 8: headline payroll numbers, it shows an ongoing amount of resilience 79 00:04:10,560 --> 00:04:15,400 Speaker 8: in the labor market that is quite surprising. You could 80 00:04:15,400 --> 00:04:17,480 Speaker 8: pick a little at the numbers if you wanted to 81 00:04:17,560 --> 00:04:20,640 Speaker 8: by looking under the surface. Or continues to be a 82 00:04:20,680 --> 00:04:24,080 Speaker 8: pretty wide gap between the establishment survey, which is a 83 00:04:24,120 --> 00:04:27,839 Speaker 8: survey of companies that's what generates the payroll number, and 84 00:04:27,880 --> 00:04:30,880 Speaker 8: the household survey, which is a survey of just out 85 00:04:30,920 --> 00:04:33,679 Speaker 8: of households. That's where you get the unemployment rate from 86 00:04:34,000 --> 00:04:37,280 Speaker 8: and the household survey tends to be a bit more 87 00:04:37,520 --> 00:04:40,880 Speaker 8: of the appropriate tell when you're at a possible inflection 88 00:04:40,960 --> 00:04:44,159 Speaker 8: point in the economy, and that's been much weaker. And 89 00:04:44,200 --> 00:04:45,960 Speaker 8: then the last thing I'd say is, yes, the wage 90 00:04:46,040 --> 00:04:49,680 Speaker 8: number was better than expected than that it downticked a 91 00:04:49,760 --> 00:04:51,880 Speaker 8: little bit, which is good news from the perspective of 92 00:04:51,920 --> 00:04:54,880 Speaker 8: the FED. But that may be a function of mixshift 93 00:04:54,960 --> 00:04:58,400 Speaker 8: because so much of the job creation was in lower 94 00:04:58,440 --> 00:05:02,560 Speaker 8: wage segments of the economy, which, of course, when you 95 00:05:02,640 --> 00:05:06,520 Speaker 8: put more low wages in an average, you get a 96 00:05:06,560 --> 00:05:10,719 Speaker 8: lower average. So I would say, under the surface, it 97 00:05:10,760 --> 00:05:12,600 Speaker 8: was a little more mixed than the headline. 98 00:05:12,760 --> 00:05:14,480 Speaker 1: David, how would you take away from it? I mean, 99 00:05:14,480 --> 00:05:16,640 Speaker 1: we did have a lot of jobs created, as resident 100 00:05:16,720 --> 00:05:19,920 Speaker 1: centives said, the wages didn't go up as fast as 101 00:05:19,920 --> 00:05:21,800 Speaker 1: we thought they might do, but maybe that's not such 102 00:05:21,839 --> 00:05:22,320 Speaker 1: good news. 103 00:05:22,400 --> 00:05:24,479 Speaker 11: Well, but there's no doubt that there's a strong jobs 104 00:05:24,520 --> 00:05:27,960 Speaker 11: reported surprise to the upside. We're always excited about the 105 00:05:27,960 --> 00:05:31,480 Speaker 11: monthly jobs report on Friday at eight twenty nine am, 106 00:05:31,640 --> 00:05:35,240 Speaker 11: but right afterward it's just another data point, and no 107 00:05:35,320 --> 00:05:39,279 Speaker 11: one single data point makes a trend. But the data 108 00:05:39,360 --> 00:05:43,280 Speaker 11: as a whole would suggest the labor market remains very, 109 00:05:43,400 --> 00:05:47,400 Speaker 11: very resilient, still creating more jobs than the natural growth 110 00:05:47,400 --> 00:05:49,720 Speaker 11: of the labor force in the United States, and it's 111 00:05:49,720 --> 00:05:52,279 Speaker 11: a full employment economy. I think that's the main message 112 00:05:52,320 --> 00:05:55,719 Speaker 11: that even with all of this FED hiking so far, 113 00:05:56,160 --> 00:05:58,880 Speaker 11: we're still at a full employment economy. 114 00:05:58,960 --> 00:05:59,800 Speaker 2: Well, let we follow up on that. 115 00:06:00,600 --> 00:06:02,880 Speaker 1: Can the FED get inflation under control with a full 116 00:06:02,920 --> 00:06:03,800 Speaker 1: employment economy? 117 00:06:04,120 --> 00:06:07,440 Speaker 11: That's what's the big challenge here, And we can debate 118 00:06:07,839 --> 00:06:10,839 Speaker 11: all day long about the need for watching more data 119 00:06:10,920 --> 00:06:13,880 Speaker 11: the jobs market. The inflation report next week will be 120 00:06:14,240 --> 00:06:17,240 Speaker 11: I'm sure scrutinized, but I think we're at the stage, 121 00:06:17,279 --> 00:06:19,960 Speaker 11: given the turmoil in the bond market this week, the 122 00:06:20,000 --> 00:06:23,000 Speaker 11: past couple of weeks, where the Fed should be thinking 123 00:06:23,040 --> 00:06:26,599 Speaker 11: about what it can do to help calm and reduce 124 00:06:26,760 --> 00:06:29,680 Speaker 11: risks for the bond market and bond investors to get 125 00:06:29,800 --> 00:06:32,120 Speaker 11: The labor market so far seems to be taking care 126 00:06:32,120 --> 00:06:33,200 Speaker 11: of itself just fine. 127 00:06:33,279 --> 00:06:35,360 Speaker 1: So listen on what about that? To what extent do 128 00:06:35,400 --> 00:06:37,920 Speaker 1: you expect the Fed to take into account the turmoil 129 00:06:37,920 --> 00:06:39,560 Speaker 1: in the bond market, because certainly we have had that 130 00:06:39,600 --> 00:06:40,039 Speaker 1: this week. 131 00:06:41,040 --> 00:06:44,000 Speaker 8: Well, I think you're starting to hear you had Mary 132 00:06:44,080 --> 00:06:49,159 Speaker 8: dally making comments about the spike in the tenuere to 133 00:06:49,240 --> 00:06:52,320 Speaker 8: some degree doing some of the Fed's job for it. 134 00:06:52,480 --> 00:06:52,680 Speaker 12: You know. 135 00:06:53,040 --> 00:06:56,440 Speaker 8: The one unique aspect or maybe rubing this cycle as 136 00:06:56,440 --> 00:06:59,400 Speaker 8: it relates to what should be happening with the kind 137 00:06:59,440 --> 00:07:02,880 Speaker 8: of surge in yields in conjunction with what the FED 138 00:07:02,920 --> 00:07:06,640 Speaker 8: has done on the short end, is the transmission mechanism 139 00:07:06,760 --> 00:07:10,280 Speaker 8: through the economy, certainly the consumer side, the business side, 140 00:07:10,760 --> 00:07:13,040 Speaker 8: and I don't want to say the economy is much 141 00:07:13,080 --> 00:07:16,720 Speaker 8: less interest sensitive, but when you look at what many 142 00:07:16,760 --> 00:07:19,200 Speaker 8: companies have done in terms of terming out debt, you 143 00:07:19,240 --> 00:07:21,480 Speaker 8: look at things like the mortgage market, and the fact 144 00:07:21,520 --> 00:07:23,920 Speaker 8: that there's so much more of a bias towards the 145 00:07:23,960 --> 00:07:26,760 Speaker 8: fixed rate side of things versus the variable rate side 146 00:07:26,760 --> 00:07:28,800 Speaker 8: of things, like was the case and six when the 147 00:07:28,880 --> 00:07:32,800 Speaker 8: FED was raising. I don't think it eliminates the impact. 148 00:07:33,240 --> 00:07:36,400 Speaker 8: But when we all talk about, and quote Milton Friedman, 149 00:07:36,480 --> 00:07:39,880 Speaker 8: with the long and variable lags, the lag component of 150 00:07:39,920 --> 00:07:43,320 Speaker 8: it may have been added to by virtue of some 151 00:07:43,400 --> 00:07:46,520 Speaker 8: of those offsets. But this, you know, the spike to 152 00:07:46,600 --> 00:07:49,320 Speaker 8: four to eight, it's the speed I think that we 153 00:07:49,440 --> 00:07:52,160 Speaker 8: have to have some concern about in terms of you 154 00:07:52,200 --> 00:07:55,400 Speaker 8: know something breaking breaking, as is often said. 155 00:07:55,520 --> 00:07:57,160 Speaker 1: David pick up on what la za Ane Sanders was 156 00:07:57,160 --> 00:07:59,560 Speaker 1: talking about there, and that is the question of maybe 157 00:07:59,560 --> 00:08:02,400 Speaker 1: the econ it's a little less sensitive to rate hikes. 158 00:08:02,680 --> 00:08:04,680 Speaker 1: And if that's true because of some of the reasons 159 00:08:04,680 --> 00:08:08,320 Speaker 1: you suggest, the terms of the debt, corporate and personal debt. 160 00:08:08,520 --> 00:08:10,400 Speaker 1: If that's true, does that mean the Fed has to 161 00:08:10,480 --> 00:08:13,320 Speaker 1: hike more, have to go further to get the attention 162 00:08:13,360 --> 00:08:14,040 Speaker 1: to the economy. 163 00:08:14,520 --> 00:08:17,440 Speaker 11: We Zan's totally right that the lags are uncertain and 164 00:08:17,760 --> 00:08:20,680 Speaker 11: the economy has been resilient in part because it's a 165 00:08:20,720 --> 00:08:23,440 Speaker 11: service driven economy, but also it's only recently that we've 166 00:08:23,480 --> 00:08:26,640 Speaker 11: gotten clearly to positive real interest rates. For a long time, 167 00:08:26,680 --> 00:08:30,440 Speaker 11: inflation was still above where the Fed had the overnight rate, 168 00:08:31,120 --> 00:08:35,720 Speaker 11: and if the economy hasn't slowed down enough, and of 169 00:08:35,760 --> 00:08:38,840 Speaker 11: course inflation has come down more, but there's no guarantees 170 00:08:38,880 --> 00:08:41,360 Speaker 11: that it might not reaccelerate. And if you're a ten 171 00:08:41,440 --> 00:08:44,400 Speaker 11: year bond investor, you want to be comfortable that inflation 172 00:08:44,480 --> 00:08:47,200 Speaker 11: is not going to reaccelerate over a longer period of 173 00:08:47,240 --> 00:08:52,280 Speaker 11: time owing to labor market conditions, supply conditions, and deficit conditions. 174 00:08:52,400 --> 00:08:54,040 Speaker 11: And I think This is the thing. When the FED 175 00:08:54,120 --> 00:08:56,280 Speaker 11: goes into their meeting at the end of the month 176 00:08:56,320 --> 00:08:59,000 Speaker 11: makes a decision November. First, I think they need to 177 00:08:59,040 --> 00:09:02,640 Speaker 11: ask themselves what action helps to prevent the ten year 178 00:09:02,679 --> 00:09:06,000 Speaker 11: treasury yield from going over five percent, because I think 179 00:09:06,040 --> 00:09:09,240 Speaker 11: that would do more damage to the economy and perhaps 180 00:09:09,320 --> 00:09:11,079 Speaker 11: cause a hard landing. So I think the FED needs 181 00:09:11,120 --> 00:09:14,200 Speaker 11: to act in a way that calms the bond market 182 00:09:14,440 --> 00:09:17,000 Speaker 11: and prevents ten year yields from going higher. And usually 183 00:09:17,040 --> 00:09:20,680 Speaker 11: what makes bond investors bullish is when the FED is hawkish. 184 00:09:21,080 --> 00:09:23,840 Speaker 1: So, David, based on what you've seen so far, then 185 00:09:23,880 --> 00:09:25,640 Speaker 1: you think actually the way to calm the bond market 186 00:09:25,640 --> 00:09:27,160 Speaker 1: actually would be to raise rates. 187 00:09:27,440 --> 00:09:28,240 Speaker 5: It's tough call. 188 00:09:28,679 --> 00:09:31,360 Speaker 11: But with the turmoil we've seen in the bond market 189 00:09:31,559 --> 00:09:33,600 Speaker 11: and the uncertainty that's going to be going on with 190 00:09:33,640 --> 00:09:37,280 Speaker 11: the budgeting process, certainly through and into November, because the 191 00:09:37,280 --> 00:09:41,240 Speaker 11: Continuing Resolution only being forty five days to November seventeenth, 192 00:09:41,280 --> 00:09:43,840 Speaker 11: I think it's important that the bond market note that 193 00:09:43,880 --> 00:09:47,120 Speaker 11: the Fed's got its back, while DC is not really 194 00:09:47,120 --> 00:09:48,760 Speaker 11: taking too much concern with these deficits. 195 00:09:48,840 --> 00:09:51,200 Speaker 1: Lezan, same question to you, is the best way for 196 00:09:51,240 --> 00:09:53,000 Speaker 1: the FED to calm the bond market if that were 197 00:09:53,040 --> 00:09:55,480 Speaker 1: their priority, is it to raise rates at this point 198 00:09:55,600 --> 00:09:55,840 Speaker 1: or not? 199 00:09:56,800 --> 00:10:01,600 Speaker 8: Well, either raise rates or at least maintain somewhat hawkish 200 00:10:01,720 --> 00:10:05,160 Speaker 8: rhetoric and continue to emphasize the for longer part of 201 00:10:05,240 --> 00:10:09,480 Speaker 8: higher for longer, which Powell has certainly been trying to do. 202 00:10:10,040 --> 00:10:12,880 Speaker 8: The other issue here is that you know, we know 203 00:10:13,080 --> 00:10:16,280 Speaker 8: the risks that come from such a speedy move up 204 00:10:16,280 --> 00:10:18,720 Speaker 8: in yields and the ripple effect through the economy. The 205 00:10:18,800 --> 00:10:22,040 Speaker 8: concerns that, as David mentioned, are around the deficit and 206 00:10:22,520 --> 00:10:27,240 Speaker 8: financing our debt given some supply demand imbalance, but there's 207 00:10:27,280 --> 00:10:31,400 Speaker 8: also been so much lending done in the shadow banking 208 00:10:31,480 --> 00:10:34,520 Speaker 8: system in private market, So that's that's one of those 209 00:10:36,120 --> 00:10:41,400 Speaker 8: opaque areas where you wonder whether something could break in 210 00:10:41,480 --> 00:10:44,120 Speaker 8: an area where it's hard for any of us as 211 00:10:44,160 --> 00:10:46,520 Speaker 8: market watchers or even the Fed to have a sense 212 00:10:46,640 --> 00:10:49,080 Speaker 8: of where those potential cracks are. 213 00:10:49,480 --> 00:10:51,640 Speaker 1: Okay, it's been really great having both you back with us, 214 00:10:51,679 --> 00:10:54,800 Speaker 1: as David Bianco of DWS Group and Liz Anne Saunders of. 215 00:10:54,880 --> 00:10:58,000 Speaker 2: Charles Schwab coming up. 216 00:10:58,240 --> 00:11:01,319 Speaker 1: Washington lawmakers went to the match this week and Speaker 217 00:11:01,320 --> 00:11:03,720 Speaker 1: of the House Kevin McCarthy ended up taking the hit. 218 00:11:04,280 --> 00:11:07,040 Speaker 1: We go through the long term issues with contributor Glenn 219 00:11:07,120 --> 00:11:10,280 Speaker 1: Hubbard of Columbia on what comes next on Wall Street 220 00:11:10,320 --> 00:11:11,520 Speaker 1: Week on Bloomberg. 221 00:11:15,160 --> 00:11:19,160 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 222 00:11:19,280 --> 00:11:20,240 Speaker 3: Bloomberg Radio. 223 00:11:21,760 --> 00:11:25,200 Speaker 1: The deficit, it's like the weather. Everybody talks about it, 224 00:11:25,280 --> 00:11:28,240 Speaker 1: but nobody does anything about it. Last week on Capitol 225 00:11:28,320 --> 00:11:29,520 Speaker 1: Hill there was more talking. 226 00:11:29,800 --> 00:11:32,079 Speaker 7: The third best option is the one we tried on Friday, 227 00:11:32,160 --> 00:11:34,199 Speaker 7: which said we're going to reduce spending some but. 228 00:11:34,240 --> 00:11:36,840 Speaker 1: In the end not much doing, even though it is 229 00:11:36,880 --> 00:11:38,839 Speaker 1: truly a bipartisan challenge. 230 00:11:38,960 --> 00:11:41,240 Speaker 9: So from my point of view, it's really the responsibility 231 00:11:41,240 --> 00:11:44,319 Speaker 9: of Congress and administration to make sure that they're party 232 00:11:44,400 --> 00:11:47,920 Speaker 9: keeping guinting us on a sustainable path and fiscal policy. 233 00:11:48,000 --> 00:11:50,160 Speaker 1: The US government has been running a deficit for over 234 00:11:50,240 --> 00:11:51,600 Speaker 1: half a century now. 235 00:11:51,840 --> 00:11:55,360 Speaker 13: The US has run a budget deficit practically every year 236 00:11:55,480 --> 00:11:57,880 Speaker 13: in the last fifty years, no matter if you've had 237 00:11:57,920 --> 00:12:01,800 Speaker 13: a Republican or a Democrat precedent, or whoever has been 238 00:12:02,320 --> 00:12:05,439 Speaker 13: in Congress. The attitude has come to be a policy 239 00:12:05,440 --> 00:12:07,359 Speaker 13: makers that deficits don't matter. 240 00:12:07,320 --> 00:12:09,880 Speaker 1: And we're told the time is getting short to make 241 00:12:09,920 --> 00:12:10,679 Speaker 1: some changes. 242 00:12:10,920 --> 00:12:13,840 Speaker 12: We're a rich country and we've got time to deal 243 00:12:13,880 --> 00:12:16,920 Speaker 12: with it, but we need to do some things in 244 00:12:16,960 --> 00:12:21,960 Speaker 12: the next few years to change that trajectory, and I 245 00:12:21,960 --> 00:12:23,160 Speaker 12: think that's going to be very important. 246 00:12:23,280 --> 00:12:26,040 Speaker 1: Pretty much everyone knows that those changes are going to 247 00:12:26,080 --> 00:12:29,520 Speaker 1: require addressing some thorny issues like entitlements. 248 00:12:29,760 --> 00:12:32,880 Speaker 14: This has been just a mystery to me as to 249 00:12:32,960 --> 00:12:35,280 Speaker 14: why it is that the public doesn't want to hear 250 00:12:35,440 --> 00:12:38,280 Speaker 14: more about what we're going to do to try and 251 00:12:38,360 --> 00:12:41,679 Speaker 14: solve the long term debt situation in this country. You know, 252 00:12:41,760 --> 00:12:46,120 Speaker 14: it gets back to, ultimately the entitlement programs mixed with 253 00:12:46,200 --> 00:12:48,920 Speaker 14: our demographics in this country, what you have is a 254 00:12:48,960 --> 00:12:54,319 Speaker 14: system where the Medicare system is almost fifty percent underfunded, 255 00:12:55,120 --> 00:12:57,719 Speaker 14: meaning that the taxes and the premiums that go in 256 00:12:58,360 --> 00:13:03,080 Speaker 14: only cover about fifty sin of the program times ten 257 00:13:03,160 --> 00:13:06,320 Speaker 14: thousand every day, and that just keeps digging your hole. 258 00:13:06,559 --> 00:13:09,000 Speaker 1: There are always good reasons not to get to the 259 00:13:09,000 --> 00:13:11,640 Speaker 1: tough ones, the ones that in the end really matter. 260 00:13:12,080 --> 00:13:13,680 Speaker 2: But leaders of Global Wall Street like. 261 00:13:13,720 --> 00:13:17,160 Speaker 1: Jamie Diamond see the looming deficit as a real storm 262 00:13:17,160 --> 00:13:20,880 Speaker 1: cloud on our economic horizon. The fiscal money being spent 263 00:13:21,040 --> 00:13:25,640 Speaker 1: is so big, largest in peacetime, ever America and kind 264 00:13:25,640 --> 00:13:31,000 Speaker 1: of around the world with already very high deficits. To 265 00:13:31,080 --> 00:13:33,679 Speaker 1: explain what all the fighting is about and what's potentially 266 00:13:33,720 --> 00:13:37,320 Speaker 1: at stake, we welcome back Glenn Hubbard of Columbia Business School, 267 00:13:37,320 --> 00:13:39,480 Speaker 1: where he was dean after serving as chair of the 268 00:13:39,480 --> 00:13:41,720 Speaker 1: Council of Economic Advisors under President George W. 269 00:13:41,840 --> 00:13:42,240 Speaker 3: Bush. 270 00:13:42,280 --> 00:13:45,080 Speaker 1: Professor Hubbard is author of The Wall and the Bridge, 271 00:13:45,120 --> 00:13:48,680 Speaker 1: Fear and Opportunity in Disruptions Wake. So, Glenn, thank you 272 00:13:48,679 --> 00:13:50,480 Speaker 1: so much for being back with this. We sure this 273 00:13:50,559 --> 00:13:52,120 Speaker 1: is something you and I have talked about a bit 274 00:13:52,160 --> 00:13:53,840 Speaker 1: in the past. But let's come back to what we saw. 275 00:13:53,840 --> 00:13:56,320 Speaker 1: This huge Sherman drawing, if I can call that now 276 00:13:56,400 --> 00:13:59,719 Speaker 1: that I'm Washington. Media loves to cover it, but did 277 00:13:59,760 --> 00:14:02,400 Speaker 1: an did anything happen that really matters this week in 278 00:14:02,480 --> 00:14:03,680 Speaker 1: Washington when it comes to the deficit? 279 00:14:03,880 --> 00:14:04,319 Speaker 5: Not really. 280 00:14:04,360 --> 00:14:07,760 Speaker 7: It was a farce, sermon drawings, probably even too much. 281 00:14:08,400 --> 00:14:11,240 Speaker 7: I think the big story, or the big drama, really 282 00:14:11,320 --> 00:14:13,880 Speaker 7: is the deficit and debt. We have high and rising 283 00:14:13,960 --> 00:14:17,280 Speaker 7: debt to GDP ratios, and that was completely ignored in 284 00:14:17,320 --> 00:14:20,000 Speaker 7: this drama, but really needs to become front and center. 285 00:14:20,160 --> 00:14:23,040 Speaker 1: Well, and that's a problem that Democrats and Republicans share. 286 00:14:23,240 --> 00:14:26,800 Speaker 7: That's by no absolutely if you ask yourself, bad math. 287 00:14:27,560 --> 00:14:30,120 Speaker 7: The Democrat and Republican parties have no plan and the 288 00:14:30,160 --> 00:14:33,040 Speaker 7: president has no leadership. What could go wrong a lot, 289 00:14:33,760 --> 00:14:37,080 Speaker 7: particularly when you count in the need for higher defense spending, 290 00:14:37,400 --> 00:14:40,440 Speaker 7: spending on opportunity, and particularly in the context of today's 291 00:14:40,520 --> 00:14:42,960 Speaker 7: jobs reports, higher interest rates, and what they do to 292 00:14:42,960 --> 00:14:43,480 Speaker 7: the budget. 293 00:14:43,720 --> 00:14:45,480 Speaker 2: So what about the math? You refer to the math? 294 00:14:45,640 --> 00:14:46,680 Speaker 2: What's the math. 295 00:14:46,400 --> 00:14:48,560 Speaker 1: As opposed to the policy differences before we get to 296 00:14:48,600 --> 00:14:49,200 Speaker 1: the policies. 297 00:14:49,360 --> 00:14:51,680 Speaker 7: Well, the math is the debt to GDP ratio is 298 00:14:51,680 --> 00:14:54,720 Speaker 7: on an unsustainable path, meaning we just can't go there, 299 00:14:55,120 --> 00:14:57,920 Speaker 7: and we can fight about how to address it. That's 300 00:14:57,920 --> 00:15:01,560 Speaker 7: a reason for legitimate political de scores. But denying that 301 00:15:01,600 --> 00:15:04,480 Speaker 7: it's a problem is not. And we can't say that 302 00:15:04,560 --> 00:15:06,720 Speaker 7: we won't raise any tax or cut any spending. 303 00:15:06,760 --> 00:15:07,280 Speaker 2: There's no door. 304 00:15:07,360 --> 00:15:10,000 Speaker 1: Number three, When do we really start to feel the pain? 305 00:15:10,040 --> 00:15:12,080 Speaker 1: Because part of the problem is we keep hearing about 306 00:15:12,080 --> 00:15:14,760 Speaker 1: this drama and then it goes away and nothing quite happens, 307 00:15:14,880 --> 00:15:16,240 Speaker 1: and so at some point it's sort of like the 308 00:15:16,240 --> 00:15:17,960 Speaker 1: Boy that Cried Wolf, Right, We're going to. 309 00:15:17,920 --> 00:15:20,280 Speaker 7: Feel it very soon and it's easy to see why 310 00:15:20,520 --> 00:15:21,840 Speaker 7: we need to spend much. 311 00:15:21,600 --> 00:15:22,600 Speaker 5: More on defense. 312 00:15:23,400 --> 00:15:26,040 Speaker 7: Interest rates have gone up and have really thrown the 313 00:15:26,080 --> 00:15:30,360 Speaker 7: federal budget into a problem. In fact, if interest rates 314 00:15:30,400 --> 00:15:34,160 Speaker 7: stay where they are now, premium over what the CBO 315 00:15:34,280 --> 00:15:37,640 Speaker 7: forecast over the next decade all about a seven percentage 316 00:15:37,680 --> 00:15:40,720 Speaker 7: point increase in the debt to GDP ratio, even over 317 00:15:40,760 --> 00:15:43,600 Speaker 7: bad numbers, and about three trillion dollars more debt. We 318 00:15:43,760 --> 00:15:44,880 Speaker 7: really can't go there. 319 00:15:45,360 --> 00:15:46,560 Speaker 2: So what's the solution? 320 00:15:46,840 --> 00:15:49,560 Speaker 1: Give us the answer to it again, apart from exactly 321 00:15:49,640 --> 00:15:51,360 Speaker 1: what the policies are, but how do we start in 322 00:15:51,400 --> 00:15:53,200 Speaker 1: a path that actually addresses the issue? 323 00:15:53,240 --> 00:15:54,120 Speaker 5: You know, it's a great question. 324 00:15:54,280 --> 00:15:56,080 Speaker 7: I think the problem is we can't go to the 325 00:15:56,120 --> 00:15:59,720 Speaker 7: Congressional Budget Office's long term outlook and start pulling out 326 00:15:59,720 --> 00:16:01,120 Speaker 7: techmocratic proposals. 327 00:16:01,400 --> 00:16:02,320 Speaker 5: That's not going to work. 328 00:16:02,600 --> 00:16:05,360 Speaker 7: We first have to tell the American people what's going on, 329 00:16:05,800 --> 00:16:09,600 Speaker 7: actual information. Here's the path, Here's how bad it is, 330 00:16:09,720 --> 00:16:12,200 Speaker 7: Here's what it's going to do to programs you care about, 331 00:16:12,360 --> 00:16:16,560 Speaker 7: the ability to defend the country, educate children, do basic research. 332 00:16:17,000 --> 00:16:19,880 Speaker 7: And then we have to start articulating stories. You know, 333 00:16:19,960 --> 00:16:22,680 Speaker 7: what kinds of policies make sense? Do we have a 334 00:16:22,760 --> 00:16:26,400 Speaker 7: tax system that works. Do we want social Security and 335 00:16:26,520 --> 00:16:29,640 Speaker 7: medicare to be as generous they are now for up 336 00:16:29,680 --> 00:16:33,160 Speaker 7: er income people. We have to have those discussions, and 337 00:16:33,200 --> 00:16:36,360 Speaker 7: then finally we have to talk about gradual adjustment. No 338 00:16:36,480 --> 00:16:39,120 Speaker 7: serious person thinks we're going to slam on the brakes today, 339 00:16:39,400 --> 00:16:42,600 Speaker 7: but how do we like the Greenspan Commission decades ago 340 00:16:43,040 --> 00:16:46,320 Speaker 7: outline something steadily that could make a difference. 341 00:16:46,440 --> 00:16:50,360 Speaker 1: Who's the We we live in a democracy and votes 342 00:16:50,440 --> 00:16:54,160 Speaker 1: count political appeal accounts. I assume you're talking about some 343 00:16:54,200 --> 00:16:56,880 Speaker 1: political leadership that has to really take the bull by 344 00:16:56,880 --> 00:16:57,360 Speaker 1: the horns. 345 00:16:57,600 --> 00:16:59,920 Speaker 7: Yes, I mean, obviously the president should be lea. 346 00:17:00,280 --> 00:17:00,600 Speaker 5: He's not. 347 00:17:01,080 --> 00:17:05,080 Speaker 7: I would hope that in the presidential campaign we will 348 00:17:05,119 --> 00:17:09,120 Speaker 7: see this. My desire would be to have a fiscal 349 00:17:09,119 --> 00:17:13,200 Speaker 7: Commission begin after the election, the twenty twenty four election, 350 00:17:13,600 --> 00:17:17,280 Speaker 7: to really tackle these issues, and whoever's president to take 351 00:17:17,359 --> 00:17:20,159 Speaker 7: that very seriously unless you think it's naive. We have 352 00:17:20,200 --> 00:17:23,760 Speaker 7: plenty of precedents for doing this, and frankly, anything that 353 00:17:23,800 --> 00:17:26,200 Speaker 7: tries to move fast or just isn't politically vibe. 354 00:17:26,359 --> 00:17:28,239 Speaker 1: Tell us about the commission, as you say, it's been 355 00:17:28,280 --> 00:17:31,320 Speaker 1: done before with respect to Social security, as I recall 356 00:17:31,400 --> 00:17:32,320 Speaker 1: also base closings. 357 00:17:32,320 --> 00:17:33,840 Speaker 5: I think yes, those are the two issues. 358 00:17:33,840 --> 00:17:38,560 Speaker 7: So social Security had a cash flow problem. President Reagan 359 00:17:38,560 --> 00:17:42,680 Speaker 7: appointed a commission. Alan Greenspan shared it, and that commission 360 00:17:42,760 --> 00:17:46,359 Speaker 7: came up with a politically palatable idea of gradual changes 361 00:17:46,560 --> 00:17:49,680 Speaker 7: that affected both taxes and spending. I think the same 362 00:17:49,720 --> 00:17:51,920 Speaker 7: thing has to happen here. We have to ask ourselves, 363 00:17:52,080 --> 00:17:54,280 Speaker 7: do we have the right tax system? Hint we don't, 364 00:17:54,760 --> 00:17:57,680 Speaker 7: let's fix that. Do we have the right structure of 365 00:17:57,680 --> 00:18:00,239 Speaker 7: the entitlements? Hint we don't? And how to can we 366 00:18:00,280 --> 00:18:02,879 Speaker 7: gradually change those to bring the budget. 367 00:18:02,520 --> 00:18:03,600 Speaker 2: Back in the past. 368 00:18:03,640 --> 00:18:05,680 Speaker 1: When you use a commission, is it basically because both 369 00:18:05,720 --> 00:18:07,480 Speaker 1: sides know where they need to get to They just 370 00:18:07,560 --> 00:18:09,960 Speaker 1: need to have a way to do it without paying 371 00:18:09,960 --> 00:18:12,359 Speaker 1: too much of a price. And do sides right now 372 00:18:12,600 --> 00:18:13,840 Speaker 1: have that same understanding? 373 00:18:14,359 --> 00:18:17,760 Speaker 7: I think they do. I think nobody wants to admit it. 374 00:18:17,920 --> 00:18:21,399 Speaker 7: Right now, we have a bipartisan consensus that taxes should 375 00:18:21,440 --> 00:18:23,520 Speaker 7: not be raised except on the very rich, and no 376 00:18:23,640 --> 00:18:24,720 Speaker 7: spending should be cut. 377 00:18:25,160 --> 00:18:26,960 Speaker 5: That fails, math. 378 00:18:27,280 --> 00:18:28,560 Speaker 2: Where are we social security? 379 00:18:29,600 --> 00:18:32,600 Speaker 7: Social Security is actually relatively straightforward to fix. We have 380 00:18:32,600 --> 00:18:34,520 Speaker 7: to ask ourselves a fundamental question, what do we want 381 00:18:34,560 --> 00:18:37,879 Speaker 7: it to do. If we want social Security to make 382 00:18:37,920 --> 00:18:41,400 Speaker 7: sure no senior is in poverty, we should raise minimum 383 00:18:41,400 --> 00:18:45,159 Speaker 7: benefits and then flatten them for everyone else. Raising the 384 00:18:45,200 --> 00:18:48,399 Speaker 7: retirement age is something to consider, although one would want 385 00:18:48,440 --> 00:18:51,040 Speaker 7: to make sure it doesn't bind on people who do 386 00:18:51,320 --> 00:18:53,520 Speaker 7: a lot of physical labor as opposed to people who 387 00:18:53,560 --> 00:18:57,680 Speaker 7: do more office labor. But this one isn't hard economically, 388 00:18:58,119 --> 00:18:59,560 Speaker 7: it's just politically difficult. 389 00:18:59,600 --> 00:19:02,879 Speaker 1: Is there only way to get to real deficit reform 390 00:19:03,000 --> 00:19:05,760 Speaker 1: without dealing with Social Security and medicare? 391 00:19:05,920 --> 00:19:06,480 Speaker 5: No? 392 00:19:06,480 --> 00:19:06,560 Speaker 12: No. 393 00:19:06,920 --> 00:19:09,439 Speaker 7: In fact, if you say let's just fix this by 394 00:19:09,560 --> 00:19:12,119 Speaker 7: raising taxes on the rich, if you did all of 395 00:19:12,160 --> 00:19:13,720 Speaker 7: the tax increases on the rich. 396 00:19:13,640 --> 00:19:14,600 Speaker 5: That might be plausible. 397 00:19:14,640 --> 00:19:16,760 Speaker 7: You might be talking about a percentage point of GDP 398 00:19:16,960 --> 00:19:19,879 Speaker 7: that's real money, but not compared to the size of 399 00:19:19,920 --> 00:19:23,199 Speaker 7: the deficit that we're talking about. You really have to 400 00:19:23,320 --> 00:19:25,040 Speaker 7: tackle the entitlement program. 401 00:19:25,440 --> 00:19:27,520 Speaker 1: Is there any way to deal with the deficit problem 402 00:19:27,600 --> 00:19:30,360 Speaker 1: without doing both revenue and costs. 403 00:19:30,760 --> 00:19:31,400 Speaker 5: No. No. 404 00:19:31,480 --> 00:19:34,440 Speaker 7: I think revenue has to be part of their equation 405 00:19:34,560 --> 00:19:37,400 Speaker 7: for two reasons. One is political, but the other's timing. 406 00:19:37,600 --> 00:19:40,679 Speaker 7: If you believe that you need gradual adjustment in the 407 00:19:40,720 --> 00:19:44,240 Speaker 7: spending side, on entitlements. You'll need more revenue upfront, so 408 00:19:44,440 --> 00:19:47,359 Speaker 7: candidates I think would include, let's say, a carbon tax 409 00:19:48,040 --> 00:19:50,720 Speaker 7: or a reform in the tax system that allows you 410 00:19:50,800 --> 00:19:54,120 Speaker 7: to raise more revenue without killing jobs and growth. Both 411 00:19:54,160 --> 00:19:55,040 Speaker 7: of those are possible. 412 00:19:55,160 --> 00:19:56,760 Speaker 2: Glenn. It's always such a treat to have you here. 413 00:19:56,800 --> 00:19:57,880 Speaker 2: Thank you very much. 414 00:19:58,080 --> 00:20:00,159 Speaker 1: That is Glenn Hubbard of Columbia. 415 00:20:00,240 --> 00:20:00,719 Speaker 2: Coming up. 416 00:20:00,760 --> 00:20:02,399 Speaker 1: We wrap up the weekend as we always do with 417 00:20:02,440 --> 00:20:05,760 Speaker 1: our special contributor, Larry Summers of Harvard. That's next time 418 00:20:05,880 --> 00:20:07,280 Speaker 1: Wall Street Week on Bloomberg. 419 00:20:11,400 --> 00:20:15,040 Speaker 3: You're listening to Bloomberg Wall Street Week with David Weston 420 00:20:15,320 --> 00:20:18,600 Speaker 3: from Bloomberg Radio. 421 00:20:23,720 --> 00:20:25,359 Speaker 2: This is Wall Street Week. I'm David Weston. 422 00:20:25,400 --> 00:20:27,680 Speaker 1: We are joined once again by our very special contributor 423 00:20:27,680 --> 00:20:28,440 Speaker 1: here on Wall Street Week. 424 00:20:28,440 --> 00:20:31,120 Speaker 2: He is Larry Summers of Harvard. So Larry, thanks so much. Boy. 425 00:20:31,200 --> 00:20:33,520 Speaker 1: The big question here came up on Friday. Are those 426 00:20:33,600 --> 00:20:36,600 Speaker 1: jobs numbers? It really was so far away and above 427 00:20:36,720 --> 00:20:39,480 Speaker 1: what was expected. What do you make of those numbers? 428 00:20:39,480 --> 00:20:41,840 Speaker 1: Where are we in this economy? And how can it 429 00:20:42,040 --> 00:20:43,120 Speaker 1: keep doing what it's doing. 430 00:20:43,359 --> 00:20:46,359 Speaker 4: Look, we've got something of an energizer bunny economy. 431 00:20:46,960 --> 00:20:50,400 Speaker 5: The economy keeps moving right along. 432 00:20:51,040 --> 00:20:53,400 Speaker 4: It's not only that we got a very strong employment 433 00:20:53,480 --> 00:20:57,600 Speaker 4: number this month, we had upwards revisions for the last 434 00:20:57,600 --> 00:21:01,000 Speaker 4: two months. If anything that looks like job growth is 435 00:21:02,160 --> 00:21:06,280 Speaker 4: accelerating for the moment, this is great news. We got 436 00:21:06,400 --> 00:21:10,760 Speaker 4: an economy that looks very strong, and the wage inflation 437 00:21:10,960 --> 00:21:18,800 Speaker 4: numbers looked very much under control for the medium term. 438 00:21:19,520 --> 00:21:25,680 Speaker 4: Very complex picture that the FED has to read tight 439 00:21:26,200 --> 00:21:33,360 Speaker 4: and substantially tightening labor markets combined with significant labor unrest, 440 00:21:34,040 --> 00:21:41,680 Speaker 4: combined with significant uncertainty about commodity prices. And even though 441 00:21:41,720 --> 00:21:46,560 Speaker 4: it doesn't show up in the inflation statistics explicitly, people 442 00:21:46,680 --> 00:21:49,560 Speaker 4: feel when interest rates are going up, when mortgage rates 443 00:21:49,560 --> 00:21:55,840 Speaker 4: are approaching eight percent, like their cost of living is rising. 444 00:21:56,280 --> 00:22:03,480 Speaker 4: So very challenging environment going forward. These are good numbers, 445 00:22:03,520 --> 00:22:06,280 Speaker 4: and you've got to recognize that these are good numbers, 446 00:22:06,800 --> 00:22:12,040 Speaker 4: but I can't say that they give anything like assurance 447 00:22:12,680 --> 00:22:17,280 Speaker 4: of soft landing. And I think the risks of hard 448 00:22:17,359 --> 00:22:21,600 Speaker 4: landing are very much as real as they were, And 449 00:22:22,040 --> 00:22:24,800 Speaker 4: perhaps the fact that the plane is flying even faster 450 00:22:24,960 --> 00:22:28,160 Speaker 4: than we thought makes the hard landing at some point 451 00:22:28,240 --> 00:22:29,520 Speaker 4: risk look a little greater. 452 00:22:29,760 --> 00:22:32,280 Speaker 1: So, Larry, why is the plane at this point flying 453 00:22:32,280 --> 00:22:34,800 Speaker 1: this past fast I mean, an awful lot of people 454 00:22:34,880 --> 00:22:37,000 Speaker 1: thought once you raise the rates as much as the 455 00:22:37,040 --> 00:22:39,240 Speaker 1: Fed did, as quickly as it did, it would slow 456 00:22:39,280 --> 00:22:41,760 Speaker 1: things down. Shouldn't look like that message is getting through, 457 00:22:41,800 --> 00:22:44,399 Speaker 1: for example, the corporate leadership that's hiring as fast as 458 00:22:44,440 --> 00:22:45,000 Speaker 1: they can. 459 00:22:45,440 --> 00:22:49,040 Speaker 4: David that economists will be studying that for a long time. 460 00:22:49,600 --> 00:22:51,919 Speaker 4: One of the things I've talked about on your show 461 00:22:52,720 --> 00:22:58,320 Speaker 4: is that interest rates may be less restrictive than they 462 00:22:58,440 --> 00:23:01,800 Speaker 4: used to be. When people don't sell houses because they're 463 00:23:01,840 --> 00:23:05,239 Speaker 4: locked in with low mortgages, house prices go up and 464 00:23:05,240 --> 00:23:08,560 Speaker 4: that makes people feel wealthier. When the government's got as 465 00:23:08,640 --> 00:23:12,440 Speaker 4: much debt as it does and interst rates go up, 466 00:23:12,760 --> 00:23:18,240 Speaker 4: that's more money in people's pockets and they spend some 467 00:23:18,400 --> 00:23:18,679 Speaker 4: of it. 468 00:23:19,200 --> 00:23:21,520 Speaker 5: When capital that people are. 469 00:23:21,359 --> 00:23:25,919 Speaker 4: Purchasing is a new AI system rather than building a 470 00:23:25,960 --> 00:23:31,440 Speaker 4: new factory, it's all shorter duration and less intrasensitive. So 471 00:23:31,480 --> 00:23:34,680 Speaker 4: we may be living in a world where the interst 472 00:23:34,800 --> 00:23:39,640 Speaker 4: rate is less of a tool for guiding the economy 473 00:23:39,680 --> 00:23:42,320 Speaker 4: that it used to be, and that means when things 474 00:23:42,760 --> 00:23:45,920 Speaker 4: need to be cooled off, interest rates are going to 475 00:23:46,000 --> 00:23:47,600 Speaker 4: have to be more volatile. 476 00:23:47,760 --> 00:23:51,760 Speaker 5: Than they have been in the past. 477 00:23:52,280 --> 00:23:55,440 Speaker 4: That's one important part of it, and the other important 478 00:23:55,480 --> 00:23:59,920 Speaker 4: part of it is what's happening with the budget deficit 479 00:24:00,280 --> 00:24:05,280 Speaker 4: and what's happening with the government's fiscal position. Even though 480 00:24:05,359 --> 00:24:09,520 Speaker 4: we've got a booming economy, the deficit is a share 481 00:24:09,560 --> 00:24:13,359 Speaker 4: of GDP. Once you take out special factors, well just 482 00:24:13,440 --> 00:24:17,080 Speaker 4: about double this year will rise by more than three 483 00:24:17,160 --> 00:24:24,000 Speaker 4: percent of GDP. That's been a big push forward to 484 00:24:24,840 --> 00:24:30,880 Speaker 4: the economy. And frankly, our financial authorities haven't done what 485 00:24:31,240 --> 00:24:35,480 Speaker 4: has been done by corporate treasurers and by smart households 486 00:24:35,920 --> 00:24:38,840 Speaker 4: over the last several years. When the private sector was 487 00:24:38,920 --> 00:24:43,240 Speaker 4: turning out its debt, we did more turming in with 488 00:24:44,280 --> 00:24:47,840 Speaker 4: QE and what the treasury has done then we've done 489 00:24:48,240 --> 00:24:52,120 Speaker 4: terming out of the debt, and that means that we've 490 00:24:52,160 --> 00:24:56,720 Speaker 4: got a wall of higher and higher debts, debts finance 491 00:24:57,920 --> 00:25:01,040 Speaker 4: that is ahead of us. I think it's a combination 492 00:25:01,480 --> 00:25:06,040 Speaker 4: of the changing impact of interest rates and the fiscal 493 00:25:06,119 --> 00:25:11,680 Speaker 4: expansion that explains where we are, and that's why I 494 00:25:11,720 --> 00:25:15,320 Speaker 4: don't think interest rates are likely to come down quite 495 00:25:15,359 --> 00:25:18,520 Speaker 4: as much, and haven't for a long time thought interest 496 00:25:18,560 --> 00:25:20,439 Speaker 4: rates were going to come down as much as the 497 00:25:20,480 --> 00:25:25,080 Speaker 4: market did. Markets revised its view substantially. I wouldn't be 498 00:25:25,080 --> 00:25:27,960 Speaker 4: surprised if the market revises its view a little more. 499 00:25:28,119 --> 00:25:29,920 Speaker 1: Well, so, Larrie, let's go to where the market is 500 00:25:30,000 --> 00:25:31,960 Speaker 1: right now, because we did see real turmoil in the 501 00:25:31,960 --> 00:25:35,080 Speaker 1: bond markets. We saw yields really go up. You two 502 00:25:35,119 --> 00:25:37,280 Speaker 1: or three weeks ago on this program talked about a 503 00:25:37,280 --> 00:25:39,920 Speaker 1: four point seventy five percent on the ten year. At 504 00:25:39,920 --> 00:25:41,680 Speaker 1: the time, it seemed like an off high number. Now, 505 00:25:41,680 --> 00:25:44,480 Speaker 1: if anything, maybe you were you were not fast enough 506 00:25:44,520 --> 00:25:46,440 Speaker 1: and making a call given where we are this week, 507 00:25:46,720 --> 00:25:48,639 Speaker 1: is epic as a supply and demand because of the 508 00:25:49,200 --> 00:25:51,800 Speaker 1: deficit that you're talking about and how much the supply 509 00:25:52,040 --> 00:25:53,320 Speaker 1: is exceeding the demand right now. 510 00:25:53,640 --> 00:25:57,919 Speaker 4: I think it's half underlying reality of the strong economy 511 00:25:57,960 --> 00:26:02,000 Speaker 4: and what's going to be necessary to keep the economy 512 00:26:02,880 --> 00:26:07,879 Speaker 4: in balance what fed watchers call our star, and everybody's 513 00:26:08,000 --> 00:26:10,800 Speaker 4: just just I've been warning for quite some time now 514 00:26:11,880 --> 00:26:17,200 Speaker 4: revising upwards their view of our star. I think that's 515 00:26:17,480 --> 00:26:19,919 Speaker 4: half the story. And I think the other half of 516 00:26:20,119 --> 00:26:27,359 Speaker 4: the story is people thinking that there's just a big 517 00:26:27,400 --> 00:26:33,280 Speaker 4: issuance of debt ahead and there's less willingness to hold 518 00:26:34,200 --> 00:26:38,600 Speaker 4: us long term debt given rising rates in Japan, that 519 00:26:38,760 --> 00:26:42,080 Speaker 4: source of demand may fall off. Who knows what's going 520 00:26:42,119 --> 00:26:46,480 Speaker 4: to happen with China as a source of demand for 521 00:26:46,720 --> 00:26:50,800 Speaker 4: US debt. The changes that all the banks are making 522 00:26:50,880 --> 00:26:55,560 Speaker 4: to make sure that they're not the next SVB caught 523 00:26:55,640 --> 00:26:59,760 Speaker 4: with a lot of long term bonds. That's reducing holdings 524 00:27:00,080 --> 00:27:04,440 Speaker 4: of long term bonds. So if you've got more supply 525 00:27:04,640 --> 00:27:06,600 Speaker 4: and less demand, that may. 526 00:27:06,560 --> 00:27:07,800 Speaker 5: Should be less. 527 00:27:07,800 --> 00:27:15,960 Speaker 4: More supply and less demand, that's gotta gotta have a 528 00:27:16,000 --> 00:27:18,119 Speaker 4: big effect on price. 529 00:27:18,400 --> 00:27:20,160 Speaker 1: Okay, Larry, thanks so much for being with us. That's 530 00:27:20,200 --> 00:27:23,760 Speaker 1: Larry Summers of Harvard. We talked with Bridgewater founder Gray 531 00:27:23,840 --> 00:27:26,840 Speaker 1: Value at the Greenwich Economic Forum this week, and given 532 00:27:26,880 --> 00:27:30,320 Speaker 1: his track record, we asked him the obvious, where should 533 00:27:30,320 --> 00:27:31,399 Speaker 1: we put our money? 534 00:27:33,359 --> 00:27:35,640 Speaker 6: There's a saying in the markets, he who lives by 535 00:27:35,640 --> 00:27:38,800 Speaker 6: the crystal balls, He who lives by crystal ball is 536 00:27:38,840 --> 00:27:43,000 Speaker 6: destined to a ground glass. Okay. What I mean is 537 00:27:45,040 --> 00:27:48,439 Speaker 6: what you don't know is very important relative to what 538 00:27:48,480 --> 00:27:51,480 Speaker 6: you do now. And for that reason, understanding how to 539 00:27:51,560 --> 00:27:57,399 Speaker 6: properly balance and diversify a portfolio, and that diversification should 540 00:27:57,520 --> 00:28:01,720 Speaker 6: be out of country's currencies and assets, is something that's 541 00:28:01,760 --> 00:28:06,800 Speaker 6: important for most investors to make tactical decisions is not 542 00:28:06,920 --> 00:28:09,040 Speaker 6: going to be the best thing they can do. They're 543 00:28:09,040 --> 00:28:13,880 Speaker 6: going to they'll do that badly. And when you come 544 00:28:13,920 --> 00:28:16,680 Speaker 6: to conferences like this, you will get different points of view. 545 00:28:17,040 --> 00:28:19,880 Speaker 6: But unless you actually have a system and your mechanize 546 00:28:20,280 --> 00:28:24,080 Speaker 6: and we put hundreds of millions of dollars lots of money, 547 00:28:24,240 --> 00:28:27,920 Speaker 6: maybe a billion dollars, I don't know into doing a technology, 548 00:28:27,960 --> 00:28:30,840 Speaker 6: and so what to try to get an edge? So 549 00:28:31,320 --> 00:28:34,159 Speaker 6: number one is respect what you don't know how to 550 00:28:34,200 --> 00:28:39,040 Speaker 6: diverse by well, because diversifying allows you to reduce your 551 00:28:39,160 --> 00:28:42,680 Speaker 6: risk by up to eighty percent without reducing your incut, 552 00:28:42,880 --> 00:28:45,280 Speaker 6: without your reducing spectrum of jerk. If you know how 553 00:28:45,280 --> 00:28:49,800 Speaker 6: to do that, well, okay, then I think then what 554 00:28:49,840 --> 00:28:51,600 Speaker 6: you have to do is you have to look at 555 00:28:51,760 --> 00:28:54,920 Speaker 6: the relative appeal of asset classes. So when I go 556 00:28:55,040 --> 00:29:01,160 Speaker 6: through that calculation, the relative cash now as a relatively 557 00:29:01,400 --> 00:29:06,720 Speaker 6: attractive appeal. You know sort of people when I said 558 00:29:06,960 --> 00:29:09,680 Speaker 6: cash is trash and that got a lot of attention, 559 00:29:09,840 --> 00:29:14,520 Speaker 6: But that's when cash was nil. Okay, Now when you 560 00:29:14,560 --> 00:29:18,040 Speaker 6: look at the expected returns for this moment, cash is 561 00:29:18,040 --> 00:29:21,920 Speaker 6: a relatively attractive asset class at this moment, it's not 562 00:29:22,040 --> 00:29:28,640 Speaker 6: just attractive because it has a relatively decent decent not great, 563 00:29:28,720 --> 00:29:31,760 Speaker 6: but decent expected In other words, it has something like 564 00:29:32,200 --> 00:29:35,360 Speaker 6: a one and a half percent real return Okay, not 565 00:29:35,440 --> 00:29:38,320 Speaker 6: bad and not bad in comparison to the other things. 566 00:29:38,440 --> 00:29:39,720 Speaker 6: And it doesn't have price risk. 567 00:29:42,000 --> 00:29:44,080 Speaker 2: That was ray value of Bridgewater. 568 00:29:45,720 --> 00:29:49,040 Speaker 1: Coming up and changing the world by losing a few pounds. 569 00:29:50,440 --> 00:29:52,640 Speaker 1: That's next on Wall Street Week on Bloomberg. 570 00:30:00,440 --> 00:30:04,440 Speaker 3: This is Bloomberg Wall Street Week with David Weston from 571 00:30:04,560 --> 00:30:07,600 Speaker 3: Bloomberg Radio. 572 00:30:12,680 --> 00:30:14,280 Speaker 2: Finally, one more thought. 573 00:30:14,640 --> 00:30:17,400 Speaker 1: Mark Twain said that the only way to keep your 574 00:30:17,440 --> 00:30:20,160 Speaker 1: health is to eat what you don't want, drink what 575 00:30:20,240 --> 00:30:23,800 Speaker 1: you don't like, and do what you'd rather not. Judging 576 00:30:23,800 --> 00:30:26,560 Speaker 1: from current results, an awful lot of Americans are eating 577 00:30:26,600 --> 00:30:29,840 Speaker 1: and drinking pretty much whatever they want, regardless of their health. 578 00:30:30,200 --> 00:30:33,040 Speaker 1: The Centers for Disease Control report that the number of 579 00:30:33,040 --> 00:30:36,800 Speaker 1: obese Americans is now around forty percent, and the severely 580 00:30:36,880 --> 00:30:40,920 Speaker 1: obese are reaching toward ten percent, which has some real 581 00:30:41,040 --> 00:30:45,400 Speaker 1: economic effects for us. All obesity itself is like just 582 00:30:45,440 --> 00:30:47,840 Speaker 1: this gigantic economic force. 583 00:30:47,880 --> 00:30:48,920 Speaker 5: It's a business force. 584 00:30:49,000 --> 00:30:52,160 Speaker 7: The are businesses that thrive on how much people like 585 00:30:52,240 --> 00:30:53,720 Speaker 7: to eat unhealthy foods. 586 00:30:53,760 --> 00:30:55,640 Speaker 2: They're huge cost to insure. 587 00:30:55,840 --> 00:30:59,120 Speaker 1: But things may be changing thanks to pharmaceutical companies coming 588 00:30:59,200 --> 00:31:02,640 Speaker 1: up with a new category of drugs called GLP one, 589 00:31:03,040 --> 00:31:06,240 Speaker 1: originally intended for diabetes, but the turnout to help us 590 00:31:06,320 --> 00:31:09,479 Speaker 1: get around Mark Twain's dilemma. They help us not to 591 00:31:09,600 --> 00:31:12,880 Speaker 1: want to eat the things we shouldn't. Demand for the 592 00:31:12,880 --> 00:31:14,760 Speaker 1: new drugs is through the roof. 593 00:31:15,200 --> 00:31:18,680 Speaker 15: If you take our best setting medicine, Oceanpic for type 594 00:31:18,680 --> 00:31:21,520 Speaker 15: two diabetes that grew the first six months by fifty 595 00:31:21,600 --> 00:31:25,280 Speaker 15: nine percent, that's actually lower pricing, so underlying volume growth 596 00:31:25,400 --> 00:31:26,320 Speaker 15: is much higher. 597 00:31:26,160 --> 00:31:29,080 Speaker 1: With immediate and dramatic effects for the drug companies involved, 598 00:31:29,120 --> 00:31:31,120 Speaker 1: like Novo Nordisk for ozempic. 599 00:31:31,640 --> 00:31:33,960 Speaker 9: The newest thing that we really like is the weight 600 00:31:34,040 --> 00:31:35,160 Speaker 9: loss drugs. 601 00:31:35,680 --> 00:31:39,920 Speaker 1: We say those area, that area is going to just explode, 602 00:31:40,000 --> 00:31:43,240 Speaker 1: and even for whole economies with Denmark that's home of 603 00:31:43,320 --> 00:31:46,760 Speaker 1: Novo Nordisk, the macro ozempic having to deal with an 604 00:31:46,760 --> 00:31:49,680 Speaker 1: influx of dollars so large that it's driving up the 605 00:31:49,760 --> 00:31:52,920 Speaker 1: kroner and requiring Denmark to cut interest rates so it 606 00:31:52,960 --> 00:31:55,520 Speaker 1: doesn't get out of whack with the Eurozone. But the 607 00:31:55,600 --> 00:31:58,640 Speaker 1: new chemical approach to weight loss goes way beyond the 608 00:31:58,680 --> 00:32:02,440 Speaker 1: sale of drugs themselves. In success, they point to whole 609 00:32:02,520 --> 00:32:06,200 Speaker 1: new classes of winners and losers, like the airline companies, 610 00:32:06,200 --> 00:32:09,720 Speaker 1: for example, big winners as people lose weight and require 611 00:32:09,840 --> 00:32:12,360 Speaker 1: less jet fuel to get them up into the sky. 612 00:32:12,840 --> 00:32:17,560 Speaker 16: They saved an ounce on every passenger seat from taking 613 00:32:17,600 --> 00:32:20,120 Speaker 16: out changing the feedstock of the paper that they used 614 00:32:20,480 --> 00:32:23,600 Speaker 16: on their United Airlines magazine and saving eleven pounds for 615 00:32:23,760 --> 00:32:27,320 Speaker 16: per flight. What yeah, and so we extrapolated that into 616 00:32:27,400 --> 00:32:29,880 Speaker 16: ten pounds per passengers one hundred and seventy five people 617 00:32:29,880 --> 00:32:33,360 Speaker 16: per plane. What happens to the fuel savings? They save 618 00:32:33,440 --> 00:32:34,840 Speaker 16: twenty seven million. 619 00:32:34,880 --> 00:32:37,520 Speaker 1: While snack food makers may come up losers in a 620 00:32:37,560 --> 00:32:40,440 Speaker 1: world where there's less demand for things like pringles. 621 00:32:40,840 --> 00:32:43,360 Speaker 2: You've got Canagra that just said that it's watching this. 622 00:32:43,920 --> 00:32:48,560 Speaker 1: Kelenova, the former Kellogg, said earlier this week that it's 623 00:32:48,600 --> 00:32:52,560 Speaker 1: studying the impacts and WW which has worked for years 624 00:32:52,600 --> 00:32:55,280 Speaker 1: to get you on that weight Watcher's diet, has decided 625 00:32:55,360 --> 00:32:57,560 Speaker 1: not to beat the new drugs but to join them, 626 00:32:57,840 --> 00:33:01,160 Speaker 1: cutting back on their diet meetings and expand into telehealth 627 00:33:01,360 --> 00:33:03,920 Speaker 1: to get people the pharmaceuticals that may work better. 628 00:33:04,280 --> 00:33:08,080 Speaker 10: We wanted to enter the space and be able to 629 00:33:08,160 --> 00:33:12,160 Speaker 10: extend our toolkit to not only behavior change and functional 630 00:33:12,200 --> 00:33:14,240 Speaker 10: but also clinical interventions. 631 00:33:14,560 --> 00:33:17,880 Speaker 1: And wait, there's more. Just imagine if we started getting 632 00:33:17,920 --> 00:33:21,200 Speaker 1: the GLP one wonder drugs to all of our troops, 633 00:33:21,440 --> 00:33:24,640 Speaker 1: whose wasts we carefully measure every six months to make 634 00:33:24,680 --> 00:33:26,120 Speaker 1: sure they're in fighting shape. 635 00:33:26,400 --> 00:33:28,280 Speaker 2: Surely it would slim them down. 636 00:33:28,080 --> 00:33:30,200 Speaker 1: Some and maybe take some of the heat out of 637 00:33:30,240 --> 00:33:32,800 Speaker 1: the inner service war over just where our waist is 638 00:33:32,840 --> 00:33:34,520 Speaker 1: measured from anyway. 639 00:33:34,960 --> 00:33:36,800 Speaker 2: But if the pharmaceutical. 640 00:33:36,080 --> 00:33:38,600 Speaker 1: Companies really want to help, maybe they could come up 641 00:33:38,640 --> 00:33:41,360 Speaker 1: with something for our political leadership to take in Washington, 642 00:33:41,760 --> 00:33:44,320 Speaker 1: something that interferes with their appetites not to eat what 643 00:33:44,400 --> 00:33:47,800 Speaker 1: they shouldn't eat, but to spend what they shouldn't spend 644 00:33:48,280 --> 00:33:51,640 Speaker 1: and that we can't afford. We saw that unhealthy appetite 645 00:33:51,640 --> 00:33:54,040 Speaker 1: displayed again this week when the fight of the budget 646 00:33:54,120 --> 00:33:56,240 Speaker 1: led to the House of Representatives for the first time 647 00:33:56,280 --> 00:33:58,680 Speaker 1: in history, voting out a Speaker of the House. 648 00:33:59,200 --> 00:34:01,600 Speaker 5: Chaos is Speaker McCarthy. 649 00:34:02,040 --> 00:34:06,080 Speaker 6: Chaos is somebody who we cannot trust with their word. 650 00:34:06,800 --> 00:34:09,279 Speaker 1: I know we would all like our lawmakers to be 651 00:34:09,400 --> 00:34:12,840 Speaker 1: Santa Claus, but unfortunately there is a price to be paid. 652 00:34:13,239 --> 00:34:16,440 Speaker 5: But it's growing on it. I mean forty five pounds 653 00:34:16,520 --> 00:34:17,040 Speaker 5: a week. 654 00:34:17,360 --> 00:34:17,799 Speaker 2: That does it. 655 00:34:17,840 --> 00:34:20,040 Speaker 1: For this episode of Wall Street Week, I'm David Weston. 656 00:34:20,200 --> 00:34:21,920 Speaker 2: This is Bloomberg. See you next week.