WEBVTT - Bloomberg Wall Street Week - October 6, 2023 0:00:00.240 --> 0:00:02.960 This is Bloomberg Wall Street Week, and we may not 0:00:03.000 --> 0:00:05.240 have an overall recession, we're having a rolling recession. 0:00:05.240 --> 0:00:07.040 Econy of roll looks pretty strongly. It is when it 0:00:07.080 --> 0:00:07.640 comes to jobs. 0:00:07.720 --> 0:00:09.840 The financial stories that shape our world. 0:00:09.960 --> 0:00:13.640 Three major regional bank failures send shockwaves through the banking system. 0:00:13.680 --> 0:00:15.480 We're all trying to figure out what to make of 0:00:15.600 --> 0:00:17.240 generative AI. 0:00:16.920 --> 0:00:19.320 Through the eyes of the most influential voices. 0:00:19.440 --> 0:00:22.400 Welcome down, Doctor Paul Krugman, Ryan Moynahan, a Bank of America, 0:00:22.520 --> 0:00:25.360 deebro Lair of the Paulson Institute, Glenn Hubbard of the 0:00:25.360 --> 0:00:26.280 Columbia Business School. 0:00:26.280 --> 0:00:30.160 Bloomberg Wall Street Week with David Weston from Bloomberg Radio. 0:00:32.000 --> 0:00:34.920 This week's special contributor Larry Summers on what the jobs 0:00:34.960 --> 0:00:37.440 numbers told us about the state of the economy. 0:00:38.159 --> 0:00:40.960 We've got something of an energizer bunny economy. 0:00:41.159 --> 0:00:44.559 The economy keeps moving right along. 0:00:45.600 --> 0:00:48.919 Glenn Hubbard of Columbia on whether the bond vigilantes are 0:00:49.040 --> 0:00:52.880 knocking at the door, and Ray Dalio Bridgewater on cash 0:00:52.960 --> 0:00:54.680 being trash no longer. 0:00:55.560 --> 0:00:58.440 When you look at the expected returns for this moment, 0:00:58.880 --> 0:01:02.600 cash is a relatively attractive asset class at this moment. 0:01:15.800 --> 0:01:18.320 There was a fair amount of turmoil on global Wall 0:01:18.360 --> 0:01:21.240 Street this week, starting with a turmoil in Washington over 0:01:21.319 --> 0:01:24.559 who is Speaker of the House, as Kevin McCarthy became 0:01:24.600 --> 0:01:27.800 the first speaker in history to be voted out, throwing 0:01:27.840 --> 0:01:30.480 the business of the Congress up in the air until 0:01:30.520 --> 0:01:31.679 they could sort things out. 0:01:32.520 --> 0:01:37.240 The yeas are two sixteen, the nays are two ten. 0:01:37.680 --> 0:01:41.280 The office of Speaker of the House of the United 0:01:41.280 --> 0:01:45.480 States House of Representatives is hereby declared vacant. 0:01:46.840 --> 0:01:49.760 Samuel Bankman Free spent his week worried not about his 0:01:49.920 --> 0:01:53.360 job but about his freedom as his criminal fraud trial 0:01:53.440 --> 0:01:56.680 got underway in Lower Manhattan. Putting Crypto under a bright 0:01:56.960 --> 0:02:00.000 hot spotlights. 0:02:00.120 --> 0:02:04.000 Kind of missed the moment, since that when FTX happened, 0:02:04.280 --> 0:02:07.520 you would have thought that that might bring people together 0:02:07.560 --> 0:02:10.040 in Congress and say, Okay, we really have to do something. 0:02:10.680 --> 0:02:13.520 Things weren't much better when it came to labor disputes 0:02:13.560 --> 0:02:16.920 this week, as the autoworkers kept up the pressure with 0:02:17.120 --> 0:02:20.200 GM taking out a new credit line. 0:02:20.560 --> 0:02:23.160 I know the workers want to see strong companies because 0:02:23.160 --> 0:02:25.680 they want to have jobs, but when the companies got 0:02:25.720 --> 0:02:27.760 in trouble in two thousand and eight and two thousand 0:02:27.800 --> 0:02:32.160 and nine those workers gain so that those companies would 0:02:32.200 --> 0:02:33.800 succeed and wouldn't go bankrupt. 0:02:34.400 --> 0:02:38.680 And seventy five thousand healthcare employees of Kaiser Permanente joined 0:02:38.680 --> 0:02:41.600 the auto workers on strike, complaining of too much work 0:02:41.800 --> 0:02:42.960 and not enough pay. 0:02:43.760 --> 0:02:48.440 Look at the wage pressure on things like the auto strike, 0:02:48.560 --> 0:02:50.840 and you know there's a lot of discussion. If they're successful, 0:02:50.880 --> 0:02:53.480 you'll start to see other unions striking. And sure enough, 0:02:53.480 --> 0:02:56.000 today you had the seventy five thousand employees at Kaiser 0:02:56.000 --> 0:02:59.240 Permanentite going out on strike looking for wage increases. Those 0:02:59.240 --> 0:03:01.880 are going to be very inflationary. 0:03:02.520 --> 0:03:05.639 Whatever turmoil we saw throughout the week, it was dwarfed 0:03:05.680 --> 0:03:08.640 by the blowout jobs numbers that came on Friday, A 0:03:08.680 --> 0:03:11.560 full three hundred and thirty six thousand new jobs added 0:03:11.560 --> 0:03:14.480 in September, about double what we expected, which sent the 0:03:14.560 --> 0:03:17.919 markets reeling, but they quickly recovered. The S and P 0:03:18.040 --> 0:03:21.560 five hundred ended the week up almost percent half a 0:03:21.600 --> 0:03:24.520 percent to forty three ohaight, just under the forty four 0:03:24.520 --> 0:03:27.360 to thirty five median prediction of our Bloomberg elves for 0:03:27.400 --> 0:03:30.120 the end of the year. The NANZDAC fared even better, 0:03:30.280 --> 0:03:33.440 up one point six percent, and once again this week, 0:03:33.560 --> 0:03:35.760 the big action was really in the bond market, with 0:03:35.840 --> 0:03:38.680 the ten year adding almost twenty two basis points, ending 0:03:38.720 --> 0:03:41.800 the week at four point seven nine. To take us 0:03:41.880 --> 0:03:44.160 through this week in the market, Welcome back now, Liz 0:03:44.200 --> 0:03:48.040 Anne Saunders, Charles Schwab, chief market strategist, and David Bianca, 0:03:48.320 --> 0:03:53.040 he is WDS America's Chief investment officer. Welcome both of you. 0:03:53.080 --> 0:03:55.160 Thank you so much for being here. So listen, let 0:03:55.200 --> 0:03:57.640 me start with you about those jobs numbers. They did 0:03:57.720 --> 0:04:00.280 surprise I think pretty much all of us. What do 0:04:00.320 --> 0:04:01.920 they tell us about where we are with the economy 0:04:01.960 --> 0:04:03.120 and how did the markets react? 0:04:04.080 --> 0:04:06.480 Well, you know, certainly on the surface, looking at the 0:04:06.520 --> 0:04:10.520 headline payroll numbers, it shows an ongoing amount of resilience 0:04:10.560 --> 0:04:15.400 in the labor market that is quite surprising. You could 0:04:15.400 --> 0:04:17.480 pick a little at the numbers if you wanted to 0:04:17.560 --> 0:04:20.640 by looking under the surface. Or continues to be a 0:04:20.680 --> 0:04:24.080 pretty wide gap between the establishment survey, which is a 0:04:24.120 --> 0:04:27.839 survey of companies that's what generates the payroll number, and 0:04:27.880 --> 0:04:30.880 the household survey, which is a survey of just out 0:04:30.920 --> 0:04:33.679 of households. That's where you get the unemployment rate from 0:04:34.000 --> 0:04:37.280 and the household survey tends to be a bit more 0:04:37.520 --> 0:04:40.880 of the appropriate tell when you're at a possible inflection 0:04:40.960 --> 0:04:44.159 point in the economy, and that's been much weaker. And 0:04:44.200 --> 0:04:45.960 then the last thing I'd say is, yes, the wage 0:04:46.040 --> 0:04:49.680 number was better than expected than that it downticked a 0:04:49.760 --> 0:04:51.880 little bit, which is good news from the perspective of 0:04:51.920 --> 0:04:54.880 the FED. But that may be a function of mixshift 0:04:54.960 --> 0:04:58.400 because so much of the job creation was in lower 0:04:58.440 --> 0:05:02.560 wage segments of the economy, which, of course, when you 0:05:02.640 --> 0:05:06.520 put more low wages in an average, you get a 0:05:06.560 --> 0:05:10.719 lower average. So I would say, under the surface, it 0:05:10.760 --> 0:05:12.600 was a little more mixed than the headline. 0:05:12.760 --> 0:05:14.480 David, how would you take away from it? I mean, 0:05:14.480 --> 0:05:16.640 we did have a lot of jobs created, as resident 0:05:16.720 --> 0:05:19.920 centives said, the wages didn't go up as fast as 0:05:19.920 --> 0:05:21.800 we thought they might do, but maybe that's not such 0:05:21.839 --> 0:05:22.320 good news. 0:05:22.400 --> 0:05:24.479 Well, but there's no doubt that there's a strong jobs 0:05:24.520 --> 0:05:27.960 reported surprise to the upside. We're always excited about the 0:05:27.960 --> 0:05:31.480 monthly jobs report on Friday at eight twenty nine am, 0:05:31.640 --> 0:05:35.240 but right afterward it's just another data point, and no 0:05:35.320 --> 0:05:39.279 one single data point makes a trend. But the data 0:05:39.360 --> 0:05:43.280 as a whole would suggest the labor market remains very, 0:05:43.400 --> 0:05:47.400 very resilient, still creating more jobs than the natural growth 0:05:47.400 --> 0:05:49.720 of the labor force in the United States, and it's 0:05:49.720 --> 0:05:52.279 a full employment economy. I think that's the main message 0:05:52.320 --> 0:05:55.719 that even with all of this FED hiking so far, 0:05:56.160 --> 0:05:58.880 we're still at a full employment economy. 0:05:58.960 --> 0:05:59.800 Well, let we follow up on that. 0:06:00.600 --> 0:06:02.880 Can the FED get inflation under control with a full 0:06:02.920 --> 0:06:03.800 employment economy? 0:06:04.120 --> 0:06:07.440 That's what's the big challenge here, And we can debate 0:06:07.839 --> 0:06:10.839 all day long about the need for watching more data 0:06:10.920 --> 0:06:13.880 the jobs market. The inflation report next week will be 0:06:14.240 --> 0:06:17.240 I'm sure scrutinized, but I think we're at the stage, 0:06:17.279 --> 0:06:19.960 given the turmoil in the bond market this week, the 0:06:20.000 --> 0:06:23.000 past couple of weeks, where the Fed should be thinking 0:06:23.040 --> 0:06:26.599 about what it can do to help calm and reduce 0:06:26.760 --> 0:06:29.680 risks for the bond market and bond investors to get 0:06:29.800 --> 0:06:32.120 The labor market so far seems to be taking care 0:06:32.120 --> 0:06:33.200 of itself just fine. 0:06:33.279 --> 0:06:35.360 So listen on what about that? To what extent do 0:06:35.400 --> 0:06:37.920 you expect the Fed to take into account the turmoil 0:06:37.920 --> 0:06:39.560 in the bond market, because certainly we have had that 0:06:39.600 --> 0:06:40.039 this week. 0:06:41.040 --> 0:06:44.000 Well, I think you're starting to hear you had Mary 0:06:44.080 --> 0:06:49.159 dally making comments about the spike in the tenuere to 0:06:49.240 --> 0:06:52.320 some degree doing some of the Fed's job for it. 0:06:52.480 --> 0:06:52.680 You know. 0:06:53.040 --> 0:06:56.440 The one unique aspect or maybe rubing this cycle as 0:06:56.440 --> 0:06:59.400 it relates to what should be happening with the kind 0:06:59.440 --> 0:07:02.880 of surge in yields in conjunction with what the FED 0:07:02.920 --> 0:07:06.640 has done on the short end, is the transmission mechanism 0:07:06.760 --> 0:07:10.280 through the economy, certainly the consumer side, the business side, 0:07:10.760 --> 0:07:13.040 and I don't want to say the economy is much 0:07:13.080 --> 0:07:16.720 less interest sensitive, but when you look at what many 0:07:16.760 --> 0:07:19.200 companies have done in terms of terming out debt, you 0:07:19.240 --> 0:07:21.480 look at things like the mortgage market, and the fact 0:07:21.520 --> 0:07:23.920 that there's so much more of a bias towards the 0:07:23.960 --> 0:07:26.760 fixed rate side of things versus the variable rate side 0:07:26.760 --> 0:07:28.800 of things, like was the case and six when the 0:07:28.880 --> 0:07:32.800 FED was raising. I don't think it eliminates the impact. 0:07:33.240 --> 0:07:36.400 But when we all talk about, and quote Milton Friedman, 0:07:36.480 --> 0:07:39.880 with the long and variable lags, the lag component of 0:07:39.920 --> 0:07:43.320 it may have been added to by virtue of some 0:07:43.400 --> 0:07:46.520 of those offsets. But this, you know, the spike to 0:07:46.600 --> 0:07:49.320 four to eight, it's the speed I think that we 0:07:49.440 --> 0:07:52.160 have to have some concern about in terms of you 0:07:52.200 --> 0:07:55.400 know something breaking breaking, as is often said. 0:07:55.520 --> 0:07:57.160 David pick up on what la za Ane Sanders was 0:07:57.160 --> 0:07:59.560 talking about there, and that is the question of maybe 0:07:59.560 --> 0:08:02.400 the econ it's a little less sensitive to rate hikes. 0:08:02.680 --> 0:08:04.680 And if that's true because of some of the reasons 0:08:04.680 --> 0:08:08.320 you suggest, the terms of the debt, corporate and personal debt. 0:08:08.520 --> 0:08:10.400 If that's true, does that mean the Fed has to 0:08:10.480 --> 0:08:13.320 hike more, have to go further to get the attention 0:08:13.360 --> 0:08:14.040 to the economy. 0:08:14.520 --> 0:08:17.440 We Zan's totally right that the lags are uncertain and 0:08:17.760 --> 0:08:20.680 the economy has been resilient in part because it's a 0:08:20.720 --> 0:08:23.440 service driven economy, but also it's only recently that we've 0:08:23.480 --> 0:08:26.640 gotten clearly to positive real interest rates. For a long time, 0:08:26.680 --> 0:08:30.440 inflation was still above where the Fed had the overnight rate, 0:08:31.120 --> 0:08:35.720 and if the economy hasn't slowed down enough, and of 0:08:35.760 --> 0:08:38.840 course inflation has come down more, but there's no guarantees 0:08:38.880 --> 0:08:41.360 that it might not reaccelerate. And if you're a ten 0:08:41.440 --> 0:08:44.400 year bond investor, you want to be comfortable that inflation 0:08:44.480 --> 0:08:47.200 is not going to reaccelerate over a longer period of 0:08:47.240 --> 0:08:52.280 time owing to labor market conditions, supply conditions, and deficit conditions. 0:08:52.400 --> 0:08:54.040 And I think This is the thing. When the FED 0:08:54.120 --> 0:08:56.280 goes into their meeting at the end of the month 0:08:56.320 --> 0:08:59.000 makes a decision November. First, I think they need to 0:08:59.040 --> 0:09:02.640 ask themselves what action helps to prevent the ten year 0:09:02.679 --> 0:09:06.000 treasury yield from going over five percent, because I think 0:09:06.040 --> 0:09:09.240 that would do more damage to the economy and perhaps 0:09:09.320 --> 0:09:11.079 cause a hard landing. So I think the FED needs 0:09:11.120 --> 0:09:14.200 to act in a way that calms the bond market 0:09:14.440 --> 0:09:17.000 and prevents ten year yields from going higher. And usually 0:09:17.040 --> 0:09:20.680 what makes bond investors bullish is when the FED is hawkish. 0:09:21.080 --> 0:09:23.840 So, David, based on what you've seen so far, then 0:09:23.880 --> 0:09:25.640 you think actually the way to calm the bond market 0:09:25.640 --> 0:09:27.160 actually would be to raise rates. 0:09:27.440 --> 0:09:28.240 It's tough call. 0:09:28.679 --> 0:09:31.360 But with the turmoil we've seen in the bond market 0:09:31.559 --> 0:09:33.600 and the uncertainty that's going to be going on with 0:09:33.640 --> 0:09:37.280 the budgeting process, certainly through and into November, because the 0:09:37.280 --> 0:09:41.240 Continuing Resolution only being forty five days to November seventeenth, 0:09:41.280 --> 0:09:43.840 I think it's important that the bond market note that 0:09:43.880 --> 0:09:47.120 the Fed's got its back, while DC is not really 0:09:47.120 --> 0:09:48.760 taking too much concern with these deficits. 0:09:48.840 --> 0:09:51.200 Lezan, same question to you, is the best way for 0:09:51.240 --> 0:09:53.000 the FED to calm the bond market if that were 0:09:53.040 --> 0:09:55.480 their priority, is it to raise rates at this point 0:09:55.600 --> 0:09:55.840 or not? 0:09:56.800 --> 0:10:01.600 Well, either raise rates or at least maintain somewhat hawkish 0:10:01.720 --> 0:10:05.160 rhetoric and continue to emphasize the for longer part of 0:10:05.240 --> 0:10:09.480 higher for longer, which Powell has certainly been trying to do. 0:10:10.040 --> 0:10:12.880 The other issue here is that you know, we know 0:10:13.080 --> 0:10:16.280 the risks that come from such a speedy move up 0:10:16.280 --> 0:10:18.720 in yields and the ripple effect through the economy. The 0:10:18.800 --> 0:10:22.040 concerns that, as David mentioned, are around the deficit and 0:10:22.520 --> 0:10:27.240 financing our debt given some supply demand imbalance, but there's 0:10:27.280 --> 0:10:31.400 also been so much lending done in the shadow banking 0:10:31.480 --> 0:10:34.520 system in private market, So that's that's one of those 0:10:36.120 --> 0:10:41.400 opaque areas where you wonder whether something could break in 0:10:41.480 --> 0:10:44.120 an area where it's hard for any of us as 0:10:44.160 --> 0:10:46.520 market watchers or even the Fed to have a sense 0:10:46.640 --> 0:10:49.080 of where those potential cracks are. 0:10:49.480 --> 0:10:51.640 Okay, it's been really great having both you back with us, 0:10:51.679 --> 0:10:54.800 as David Bianco of DWS Group and Liz Anne Saunders of. 0:10:54.880 --> 0:10:58.000 Charles Schwab coming up. 0:10:58.240 --> 0:11:01.319 Washington lawmakers went to the match this week and Speaker 0:11:01.320 --> 0:11:03.720 of the House Kevin McCarthy ended up taking the hit. 0:11:04.280 --> 0:11:07.040 We go through the long term issues with contributor Glenn 0:11:07.120 --> 0:11:10.280 Hubbard of Columbia on what comes next on Wall Street 0:11:10.320 --> 0:11:11.520 Week on Bloomberg. 0:11:15.160 --> 0:11:19.160 This is Bloomberg Wall Street Week with David Weston from 0:11:19.280 --> 0:11:20.240 Bloomberg Radio. 0:11:21.760 --> 0:11:25.200 The deficit, it's like the weather. Everybody talks about it, 0:11:25.280 --> 0:11:28.240 but nobody does anything about it. Last week on Capitol 0:11:28.320 --> 0:11:29.520 Hill there was more talking. 0:11:29.800 --> 0:11:32.079 The third best option is the one we tried on Friday, 0:11:32.160 --> 0:11:34.199 which said we're going to reduce spending some but. 0:11:34.240 --> 0:11:36.840 In the end not much doing, even though it is 0:11:36.880 --> 0:11:38.839 truly a bipartisan challenge. 0:11:38.960 --> 0:11:41.240 So from my point of view, it's really the responsibility 0:11:41.240 --> 0:11:44.319 of Congress and administration to make sure that they're party 0:11:44.400 --> 0:11:47.920 keeping guinting us on a sustainable path and fiscal policy. 0:11:48.000 --> 0:11:50.160 The US government has been running a deficit for over 0:11:50.240 --> 0:11:51.600 half a century now. 0:11:51.840 --> 0:11:55.360 The US has run a budget deficit practically every year 0:11:55.480 --> 0:11:57.880 in the last fifty years, no matter if you've had 0:11:57.920 --> 0:12:01.800 a Republican or a Democrat precedent, or whoever has been 0:12:02.320 --> 0:12:05.439 in Congress. The attitude has come to be a policy 0:12:05.440 --> 0:12:07.359 makers that deficits don't matter. 0:12:07.320 --> 0:12:09.880 And we're told the time is getting short to make 0:12:09.920 --> 0:12:10.679 some changes. 0:12:10.920 --> 0:12:13.840 We're a rich country and we've got time to deal 0:12:13.880 --> 0:12:16.920 with it, but we need to do some things in 0:12:16.960 --> 0:12:21.960 the next few years to change that trajectory, and I 0:12:21.960 --> 0:12:23.160 think that's going to be very important. 0:12:23.280 --> 0:12:26.040 Pretty much everyone knows that those changes are going to 0:12:26.080 --> 0:12:29.520 require addressing some thorny issues like entitlements. 0:12:29.760 --> 0:12:32.880 This has been just a mystery to me as to 0:12:32.960 --> 0:12:35.280 why it is that the public doesn't want to hear 0:12:35.440 --> 0:12:38.280 more about what we're going to do to try and 0:12:38.360 --> 0:12:41.679 solve the long term debt situation in this country. You know, 0:12:41.760 --> 0:12:46.120 it gets back to, ultimately the entitlement programs mixed with 0:12:46.200 --> 0:12:48.920 our demographics in this country, what you have is a 0:12:48.960 --> 0:12:54.319 system where the Medicare system is almost fifty percent underfunded, 0:12:55.120 --> 0:12:57.719 meaning that the taxes and the premiums that go in 0:12:58.360 --> 0:13:03.080 only cover about fifty sin of the program times ten 0:13:03.160 --> 0:13:06.320 thousand every day, and that just keeps digging your hole. 0:13:06.559 --> 0:13:09.000 There are always good reasons not to get to the 0:13:09.000 --> 0:13:11.640 tough ones, the ones that in the end really matter. 0:13:12.080 --> 0:13:13.680 But leaders of Global Wall Street like. 0:13:13.720 --> 0:13:17.160 Jamie Diamond see the looming deficit as a real storm 0:13:17.160 --> 0:13:20.880 cloud on our economic horizon. The fiscal money being spent 0:13:21.040 --> 0:13:25.640 is so big, largest in peacetime, ever America and kind 0:13:25.640 --> 0:13:31.000 of around the world with already very high deficits. To 0:13:31.080 --> 0:13:33.679 explain what all the fighting is about and what's potentially 0:13:33.720 --> 0:13:37.320 at stake, we welcome back Glenn Hubbard of Columbia Business School, 0:13:37.320 --> 0:13:39.480 where he was dean after serving as chair of the 0:13:39.480 --> 0:13:41.720 Council of Economic Advisors under President George W. 0:13:41.840 --> 0:13:42.240 Bush. 0:13:42.280 --> 0:13:45.080 Professor Hubbard is author of The Wall and the Bridge, 0:13:45.120 --> 0:13:48.680 Fear and Opportunity in Disruptions Wake. So, Glenn, thank you 0:13:48.679 --> 0:13:50.480 so much for being back with this. We sure this 0:13:50.559 --> 0:13:52.120 is something you and I have talked about a bit 0:13:52.160 --> 0:13:53.840 in the past. But let's come back to what we saw. 0:13:53.840 --> 0:13:56.320 This huge Sherman drawing, if I can call that now 0:13:56.400 --> 0:13:59.719 that I'm Washington. Media loves to cover it, but did 0:13:59.760 --> 0:14:02.400 an did anything happen that really matters this week in 0:14:02.480 --> 0:14:03.680 Washington when it comes to the deficit? 0:14:03.880 --> 0:14:04.319 Not really. 0:14:04.360 --> 0:14:07.760 It was a farce, sermon drawings, probably even too much. 0:14:08.400 --> 0:14:11.240 I think the big story, or the big drama, really 0:14:11.320 --> 0:14:13.880 is the deficit and debt. We have high and rising 0:14:13.960 --> 0:14:17.280 debt to GDP ratios, and that was completely ignored in 0:14:17.320 --> 0:14:20.000 this drama, but really needs to become front and center. 0:14:20.160 --> 0:14:23.040 Well, and that's a problem that Democrats and Republicans share. 0:14:23.240 --> 0:14:26.800 That's by no absolutely if you ask yourself, bad math. 0:14:27.560 --> 0:14:30.120 The Democrat and Republican parties have no plan and the 0:14:30.160 --> 0:14:33.040 president has no leadership. What could go wrong a lot, 0:14:33.760 --> 0:14:37.080 particularly when you count in the need for higher defense spending, 0:14:37.400 --> 0:14:40.440 spending on opportunity, and particularly in the context of today's 0:14:40.520 --> 0:14:42.960 jobs reports, higher interest rates, and what they do to 0:14:42.960 --> 0:14:43.480 the budget. 0:14:43.720 --> 0:14:45.480 So what about the math? You refer to the math? 0:14:45.640 --> 0:14:46.680 What's the math. 0:14:46.400 --> 0:14:48.560 As opposed to the policy differences before we get to 0:14:48.600 --> 0:14:49.200 the policies. 0:14:49.360 --> 0:14:51.680 Well, the math is the debt to GDP ratio is 0:14:51.680 --> 0:14:54.720 on an unsustainable path, meaning we just can't go there, 0:14:55.120 --> 0:14:57.920 and we can fight about how to address it. That's 0:14:57.920 --> 0:15:01.560 a reason for legitimate political de scores. But denying that 0:15:01.600 --> 0:15:04.480 it's a problem is not. And we can't say that 0:15:04.560 --> 0:15:06.720 we won't raise any tax or cut any spending. 0:15:06.760 --> 0:15:07.280 There's no door. 0:15:07.360 --> 0:15:10.000 Number three, When do we really start to feel the pain? 0:15:10.040 --> 0:15:12.080 Because part of the problem is we keep hearing about 0:15:12.080 --> 0:15:14.760 this drama and then it goes away and nothing quite happens, 0:15:14.880 --> 0:15:16.240 and so at some point it's sort of like the 0:15:16.240 --> 0:15:17.960 Boy that Cried Wolf, Right, We're going to. 0:15:17.920 --> 0:15:20.280 Feel it very soon and it's easy to see why 0:15:20.520 --> 0:15:21.840 we need to spend much. 0:15:21.600 --> 0:15:22.600 More on defense. 0:15:23.400 --> 0:15:26.040 Interest rates have gone up and have really thrown the 0:15:26.080 --> 0:15:30.360 federal budget into a problem. In fact, if interest rates 0:15:30.400 --> 0:15:34.160 stay where they are now, premium over what the CBO 0:15:34.280 --> 0:15:37.640 forecast over the next decade all about a seven percentage 0:15:37.680 --> 0:15:40.720 point increase in the debt to GDP ratio, even over 0:15:40.760 --> 0:15:43.600 bad numbers, and about three trillion dollars more debt. We 0:15:43.760 --> 0:15:44.880 really can't go there. 0:15:45.360 --> 0:15:46.560 So what's the solution? 0:15:46.840 --> 0:15:49.560 Give us the answer to it again, apart from exactly 0:15:49.640 --> 0:15:51.360 what the policies are, but how do we start in 0:15:51.400 --> 0:15:53.200 a path that actually addresses the issue? 0:15:53.240 --> 0:15:54.120 You know, it's a great question. 0:15:54.280 --> 0:15:56.080 I think the problem is we can't go to the 0:15:56.120 --> 0:15:59.720 Congressional Budget Office's long term outlook and start pulling out 0:15:59.720 --> 0:16:01.120 techmocratic proposals. 0:16:01.400 --> 0:16:02.320 That's not going to work. 0:16:02.600 --> 0:16:05.360 We first have to tell the American people what's going on, 0:16:05.800 --> 0:16:09.600 actual information. Here's the path, Here's how bad it is, 0:16:09.720 --> 0:16:12.200 Here's what it's going to do to programs you care about, 0:16:12.360 --> 0:16:16.560 the ability to defend the country, educate children, do basic research. 0:16:17.000 --> 0:16:19.880 And then we have to start articulating stories. You know, 0:16:19.960 --> 0:16:22.680 what kinds of policies make sense? Do we have a 0:16:22.760 --> 0:16:26.400 tax system that works. Do we want social Security and 0:16:26.520 --> 0:16:29.640 medicare to be as generous they are now for up 0:16:29.680 --> 0:16:33.160 er income people. We have to have those discussions, and 0:16:33.200 --> 0:16:36.360 then finally we have to talk about gradual adjustment. No 0:16:36.480 --> 0:16:39.120 serious person thinks we're going to slam on the brakes today, 0:16:39.400 --> 0:16:42.600 but how do we like the Greenspan Commission decades ago 0:16:43.040 --> 0:16:46.320 outline something steadily that could make a difference. 0:16:46.440 --> 0:16:50.360 Who's the We we live in a democracy and votes 0:16:50.440 --> 0:16:54.160 count political appeal accounts. I assume you're talking about some 0:16:54.200 --> 0:16:56.880 political leadership that has to really take the bull by 0:16:56.880 --> 0:16:57.360 the horns. 0:16:57.600 --> 0:16:59.920 Yes, I mean, obviously the president should be lea. 0:17:00.280 --> 0:17:00.600 He's not. 0:17:01.080 --> 0:17:05.080 I would hope that in the presidential campaign we will 0:17:05.119 --> 0:17:09.120 see this. My desire would be to have a fiscal 0:17:09.119 --> 0:17:13.200 Commission begin after the election, the twenty twenty four election, 0:17:13.600 --> 0:17:17.280 to really tackle these issues, and whoever's president to take 0:17:17.359 --> 0:17:20.159 that very seriously unless you think it's naive. We have 0:17:20.200 --> 0:17:23.760 plenty of precedents for doing this, and frankly, anything that 0:17:23.800 --> 0:17:26.200 tries to move fast or just isn't politically vibe. 0:17:26.359 --> 0:17:28.239 Tell us about the commission, as you say, it's been 0:17:28.280 --> 0:17:31.320 done before with respect to Social security, as I recall 0:17:31.400 --> 0:17:32.320 also base closings. 0:17:32.320 --> 0:17:33.840 I think yes, those are the two issues. 0:17:33.840 --> 0:17:38.560 So social Security had a cash flow problem. President Reagan 0:17:38.560 --> 0:17:42.680 appointed a commission. Alan Greenspan shared it, and that commission 0:17:42.760 --> 0:17:46.359 came up with a politically palatable idea of gradual changes 0:17:46.560 --> 0:17:49.680 that affected both taxes and spending. I think the same 0:17:49.720 --> 0:17:51.920 thing has to happen here. We have to ask ourselves, 0:17:52.080 --> 0:17:54.280 do we have the right tax system? Hint we don't, 0:17:54.760 --> 0:17:57.680 let's fix that. Do we have the right structure of 0:17:57.680 --> 0:18:00.239 the entitlements? Hint we don't? And how to can we 0:18:00.280 --> 0:18:02.879 gradually change those to bring the budget. 0:18:02.520 --> 0:18:03.600 Back in the past. 0:18:03.640 --> 0:18:05.680 When you use a commission, is it basically because both 0:18:05.720 --> 0:18:07.480 sides know where they need to get to They just 0:18:07.560 --> 0:18:09.960 need to have a way to do it without paying 0:18:09.960 --> 0:18:12.359 too much of a price. And do sides right now 0:18:12.600 --> 0:18:13.840 have that same understanding? 0:18:14.359 --> 0:18:17.760 I think they do. I think nobody wants to admit it. 0:18:17.920 --> 0:18:21.399 Right now, we have a bipartisan consensus that taxes should 0:18:21.440 --> 0:18:23.520 not be raised except on the very rich, and no 0:18:23.640 --> 0:18:24.720 spending should be cut. 0:18:25.160 --> 0:18:26.960 That fails, math. 0:18:27.280 --> 0:18:28.560 Where are we social security? 0:18:29.600 --> 0:18:32.600 Social Security is actually relatively straightforward to fix. We have 0:18:32.600 --> 0:18:34.520 to ask ourselves a fundamental question, what do we want 0:18:34.560 --> 0:18:37.879 it to do. If we want social Security to make 0:18:37.920 --> 0:18:41.400 sure no senior is in poverty, we should raise minimum 0:18:41.400 --> 0:18:45.159 benefits and then flatten them for everyone else. Raising the 0:18:45.200 --> 0:18:48.399 retirement age is something to consider, although one would want 0:18:48.440 --> 0:18:51.040 to make sure it doesn't bind on people who do 0:18:51.320 --> 0:18:53.520 a lot of physical labor as opposed to people who 0:18:53.560 --> 0:18:57.680 do more office labor. But this one isn't hard economically, 0:18:58.119 --> 0:18:59.560 it's just politically difficult. 0:18:59.600 --> 0:19:02.879 Is there only way to get to real deficit reform 0:19:03.000 --> 0:19:05.760 without dealing with Social Security and medicare? 0:19:05.920 --> 0:19:06.480 No? 0:19:06.480 --> 0:19:06.560 No. 0:19:06.920 --> 0:19:09.439 In fact, if you say let's just fix this by 0:19:09.560 --> 0:19:12.119 raising taxes on the rich, if you did all of 0:19:12.160 --> 0:19:13.720 the tax increases on the rich. 0:19:13.640 --> 0:19:14.600 That might be plausible. 0:19:14.640 --> 0:19:16.760 You might be talking about a percentage point of GDP 0:19:16.960 --> 0:19:19.879 that's real money, but not compared to the size of 0:19:19.920 --> 0:19:23.199 the deficit that we're talking about. You really have to 0:19:23.320 --> 0:19:25.040 tackle the entitlement program. 0:19:25.440 --> 0:19:27.520