WEBVTT - John Paulson Talks Trump, Fed Rate Cuts 0:00:02.400 --> 0:00:08.320 Bloomberg Audio Studios, podcasts, radio news. John Paulson of Paulson 0:00:08.360 --> 0:00:11.559 and Co. And of course an informal economic advisor to 0:00:11.800 --> 0:00:15.440 former President Trump and a large donor to the Trump 0:00:15.520 --> 0:00:19.600 campaign as well. And John, thank you for joining because 0:00:19.640 --> 0:00:21.439 you are actually one of the people to ask a 0:00:21.520 --> 0:00:24.720 question to the former president at this Economic Club of 0:00:24.920 --> 0:00:28.000 New York event, and you asked about the deficit. Yes, 0:00:28.080 --> 0:00:32.120 he proposed not only making his twenty seventeen tax cuts permanent, 0:00:32.479 --> 0:00:37.000 he also proposed lowering those corporate taxes to fifteen percent. 0:00:37.440 --> 0:00:41.040 In this scenario, how concerned are you about the US deficit? 0:00:41.520 --> 0:00:46.280 I'm not that concerned because the reduction in corporate taxes 0:00:46.760 --> 0:00:50.360 was just for a segment of the corporate population, and 0:00:50.400 --> 0:00:57.200 it concern those that are involved in US manufacturing overall. Currently, 0:00:57.280 --> 0:01:01.240 we have about a two trillion dollar deficit under the 0:01:01.280 --> 0:01:05.880 current administration. So President Trump feels confident that could be 0:01:05.959 --> 0:01:13.560 reduced several ways. One is through the revenue earned from tariffs, 0:01:14.000 --> 0:01:19.400 which could be substantial. Two is by cutting wasteful spending. 0:01:20.000 --> 0:01:24.240 The most important item he alluded to was the Green 0:01:24.319 --> 0:01:27.520 New Deal, which over time adds up to somewhere around 0:01:27.560 --> 0:01:32.120 a trillion in spending, and the third is not providing 0:01:32.520 --> 0:01:40.080 federal benefits to illegal immigrants. So net, these revenue generation 0:01:40.800 --> 0:01:47.480 and savings will offset any minor adjustments to the tax code. 0:01:47.640 --> 0:01:50.120 But the way that it worked out in the past, right, 0:01:50.240 --> 0:01:53.120 you have the Committee for a Responsible Federal Budget, You 0:01:53.160 --> 0:01:56.200 have the Tax Foundation, the Congressional Budget Office all saying 0:01:56.240 --> 0:01:58.520 that the Trump tax cuts would actually cost more than 0:01:58.560 --> 0:02:02.840 ten point five dollars over a decade, which means that 0:02:02.960 --> 0:02:06.560 all of the tax cuts proposed really don't add up 0:02:06.800 --> 0:02:10.120 to really filling in the hole from the tariffs that 0:02:10.160 --> 0:02:11.440 he recommends. Yeah. 0:02:11.480 --> 0:02:14.480 I haven't seen those particular studies. I really don't know 0:02:14.520 --> 0:02:15.400 what they're referring to. 0:02:16.080 --> 0:02:18.200 So at the end of the day, as well, how 0:02:18.200 --> 0:02:21.239 do you think that he could really gather the American populace, 0:02:21.320 --> 0:02:24.200 the American worker that has become so important in this 0:02:24.320 --> 0:02:29.160 election cycle with a recommendation of cutting taxes on corporations 0:02:29.720 --> 0:02:31.960 rather than helping out the American worker. 0:02:32.080 --> 0:02:34.960 Yeah, I don't think he said he would cut taxes 0:02:35.440 --> 0:02:39.800 generally against corporations. He's not raising taxes. What he wants 0:02:39.880 --> 0:02:44.240 to do is make his previous tax policy permanent and 0:02:44.320 --> 0:02:48.400 leave the basic corporate tax rate at twenty one percent. 0:02:49.160 --> 0:02:54.400 The tax cuts that he proposed target the Americans that 0:02:54.440 --> 0:02:57.800 would need it most. One is well known now no 0:02:57.960 --> 0:03:01.240 tax on tips, which would be a great benefit to 0:03:01.320 --> 0:03:05.440 service workers and allowed them to keep more of their income. Second, 0:03:05.680 --> 0:03:10.360 was not taxing social Security benefits. So many people rely 0:03:10.520 --> 0:03:14.240 on Social Security benefits for most of their income, so 0:03:14.280 --> 0:03:17.000 that could be a very significant help in the after 0:03:17.080 --> 0:03:18.680 tax earnings of recipients. 0:03:18.919 --> 0:03:20.960 Let's take a step back and also ask just a 0:03:20.960 --> 0:03:23.280 broader question here. You have obviously been a very large 0:03:23.400 --> 0:03:26.640 supporter of the former president in this cycle. What underpins 0:03:26.680 --> 0:03:27.480 your faith in him? 0:03:28.360 --> 0:03:33.359 Well, first of all, his policies which under his administration 0:03:33.440 --> 0:03:37.880 were very successful. While people or these studies referred to 0:03:37.920 --> 0:03:42.720 are concerned about potential inflation or deficits, under his four years, 0:03:43.120 --> 0:03:46.680 the average annual inflation was only one point nine percent, 0:03:47.200 --> 0:03:50.800 interest rates were very low, and oil prices were very low, 0:03:51.200 --> 0:03:56.680 and real wages for the average worker increased. Under the 0:03:56.720 --> 0:04:03.360 Biden administration, which is supposed to be for the average worker, 0:04:03.840 --> 0:04:09.440 real wages declined because inflation was so high, interest rates 0:04:09.440 --> 0:04:13.000 are much higher, and oil prices are much higher. So 0:04:13.040 --> 0:04:16.160 when you look at the benefits four years under Trump 0:04:16.680 --> 0:04:20.080 or four years under Biden. The average American has done 0:04:20.160 --> 0:04:21.920 much better under Trump. 0:04:22.160 --> 0:04:24.680 I do have a question about the energy policy as well, 0:04:24.720 --> 0:04:27.720 because he did say today that oil production will increase 0:04:28.040 --> 0:04:31.800 he said fourfold if he takes office again. But the 0:04:31.920 --> 0:04:35.719 US is already producing more oil than ever, and the 0:04:35.760 --> 0:04:39.760 surplus oil could end up being sold overseas, and it's 0:04:39.920 --> 0:04:42.599 very unlikely that companies will drill more at this point 0:04:42.600 --> 0:04:45.240 in time. Why spend so much money on this policy? 0:04:45.640 --> 0:04:49.120 I don't think Trump would be spending money. He said 0:04:49.200 --> 0:04:53.960 that he would release federal lands for more drilling, that 0:04:54.120 --> 0:04:58.800 he would reduce regulations and reduce the current moratorium on 0:04:59.000 --> 0:05:04.279 permitting new LNG facilities, So that would be a boon 0:05:04.440 --> 0:05:07.840 to US production and a boom for US export. So 0:05:08.240 --> 0:05:11.440 exporting energy is very positive for our economy. 0:05:12.120 --> 0:05:14.960 I would love for you to also hone in here 0:05:15.120 --> 0:05:17.040 on some of the commentary that was made this week. 0:05:17.240 --> 0:05:20.280 You may have seen the Goldman Sachs analysts had said 0:05:20.279 --> 0:05:22.880 that economic output could take a hit under a future 0:05:22.880 --> 0:05:26.599 Trump administration. They said, and I'm quoting their report, that 0:05:26.640 --> 0:05:29.760 the hit to growth from tariffs and tighter immigration policy 0:05:30.200 --> 0:05:33.680 would outweigh the positive fiscal impulse. What do you say 0:05:33.680 --> 0:05:35.000 to them, I think the. 0:05:36.480 --> 0:05:42.880 Immigration policy is a negative for our economy. If you 0:05:42.920 --> 0:05:46.479 look at New York City, we have hundreds of thousands 0:05:46.520 --> 0:05:52.800 of immigrants which are costing the economy valuable resources that 0:05:53.240 --> 0:05:56.960 existing taxpayers are paying for. So we have to provide 0:05:58.279 --> 0:06:02.200 healthcare benefits, housing benas of it's food benefits, and these 0:06:02.240 --> 0:06:05.719 workers aren't allowed to work. So I don't think the 0:06:05.760 --> 0:06:10.159 illegal immigration has been a benefit to American workers. It 0:06:10.240 --> 0:06:14.000 increased the supply of cheap labor, which held down wage 0:06:14.040 --> 0:06:15.960 growth for American citizens. 0:06:16.279 --> 0:06:19.080 The wage growth has been part of the inflationary story, 0:06:19.120 --> 0:06:19.520 has it not. 0:06:22.520 --> 0:06:26.800 Wage growth has been grown less than inflation. That's why 0:06:26.920 --> 0:06:28.440 real wages have declined. 0:06:29.760 --> 0:06:33.240 I also want to talk about interest rates, because at 0:06:33.240 --> 0:06:35.600 the end of the day, there has been a lot 0:06:35.640 --> 0:06:38.200 of concern on Wall Street about what a Trump administration 0:06:38.240 --> 0:06:41.040 would mean when it comes to the Federal Reserve. There was, 0:06:41.080 --> 0:06:43.159 of course, that Wall Street Journal report a number of 0:06:43.200 --> 0:06:46.480 months ago that question whether the Federal Reserve would remain independent, 0:06:46.880 --> 0:06:49.760 And then we also had the former president commenting in 0:06:49.800 --> 0:06:52.039 an interview with Bloomberg as well, saying that the president 0:06:52.080 --> 0:06:55.680 can certainly be talking about interest rates because he has 0:06:55.760 --> 0:06:58.400 good instincts. That doesn't mean he's calling the shot, but 0:06:58.440 --> 0:07:00.200 it does mean he should have a right to talk 0:07:00.240 --> 0:07:03.920 about it like anyone else. Do you share that concern 0:07:04.400 --> 0:07:07.280 that he could potentially damage the reputation of the Federal 0:07:07.320 --> 0:07:09.680 Reserve as an independent organization. 0:07:10.160 --> 0:07:12.320 No, I don't share that concern. I think it is 0:07:12.400 --> 0:07:15.240 important for the President and the White House and the 0:07:15.280 --> 0:07:21.360 Treasurer Secretary to comment on economic policy, including interest rate policy, 0:07:21.680 --> 0:07:24.520 but ultimately the decision is up to the FED. But 0:07:24.600 --> 0:07:29.720 it's important for the Fed to hear other viewpoints and 0:07:29.760 --> 0:07:33.440 to make sure the Fed policies then sync with overall 0:07:33.480 --> 0:07:34.440 physcal policy. 0:07:34.680 --> 0:07:37.000 To that end, what do you believe should happen with 0:07:37.120 --> 0:07:38.400 interest rate policy through the end of the WORL. 0:07:38.480 --> 0:07:41.840 Well, when you look at inflation now is somewhere around 0:07:41.920 --> 0:07:45.800 three percent, interest rates are five percent, so real interest 0:07:45.920 --> 0:07:48.920 rates are too high. So the Fed I think, waited 0:07:48.960 --> 0:07:51.800 too long to bring interest rates down. So I think 0:07:52.000 --> 0:07:55.480 that likely course of action is going forward is the 0:07:55.560 --> 0:07:57.880 Fed will start to cut interest rates. 0:07:57.920 --> 0:07:59.960 What should they be by the end of twenty twenty five. 0:08:00.800 --> 0:08:03.680 It's difficult to predict, but my best estimate would be 0:08:03.720 --> 0:08:06.600 around three percent, perhaps two and a half percent. 0:08:07.080 --> 0:08:09.240 And what would that mean in terms of ripple effects 0:08:09.280 --> 0:08:10.200 across the economy. 0:08:10.200 --> 0:08:13.120 Well, it's generally beneficial. The major cost when you get 0:08:13.120 --> 0:08:16.360 a mortgage is the interest rates. So if mortgage, if 0:08:16.600 --> 0:08:21.080 the cost of mortgages come down, the cost of buying 0:08:21.080 --> 0:08:24.320 a home would also come down, and that makes a 0:08:24.480 --> 0:08:29.080 housing affordability go up, and you know that would spur 0:08:29.640 --> 0:08:31.040 a new housing development. 0:08:31.440 --> 0:08:35.040 So another thing that the former president had tried to 0:08:35.080 --> 0:08:39.040 do in office the last time around was privatized Danny Freddy, 0:08:39.600 --> 0:08:41.160 is that something you think you would be able to 0:08:41.200 --> 0:08:44.040 accomplish or as talking about accomplishing in a potential next term. 0:08:44.080 --> 0:08:47.080 I think it makes sense. The intention of the Conservative 0:08:47.120 --> 0:08:53.640 ship was to temporarily put Fanny and Freddy in conservativeship 0:08:53.720 --> 0:08:58.040 while they built up their capital. Initially, all the earnings 0:08:58.040 --> 0:09:01.480 of Fanny and Freddy were swept out by the government, 0:09:01.960 --> 0:09:06.840 but after Steve Manuchin left office he no longer allowed 0:09:06.840 --> 0:09:12.720 that policy, and the GSS have been rebuilding capitals. The 0:09:12.800 --> 0:09:16.520 narrative position that where they're fairly well capitalized, which would 0:09:16.520 --> 0:09:18.400 make privatization logical. 0:09:18.920 --> 0:09:21.200 I do have to ask you the one thing that 0:09:21.240 --> 0:09:24.520 he mentioned you very directly about also in the course 0:09:24.520 --> 0:09:27.640 of his speech today, which was that there's an idea 0:09:27.840 --> 0:09:32.320 about an American sovereign wealth fund. How realistic is that 0:09:32.559 --> 0:09:35.840 idea and how much have you built out that idea 0:09:35.880 --> 0:09:36.800 with the former president. 0:09:37.120 --> 0:09:40.839 Well, we haven't flushed it out, but clearly savings within 0:09:40.880 --> 0:09:44.360 a country or a measure of a country's strength. So 0:09:44.400 --> 0:09:48.320 you have countries like Norway, the Middle least to the 0:09:48.360 --> 0:09:51.600 Asian countries a very large sovereign wealth funds, and I 0:09:51.640 --> 0:09:53.960 think that's a good model to follow. So you have 0:09:54.040 --> 0:09:57.000 to start somewhere. So I think the idea of a 0:09:57.080 --> 0:10:00.760 sovereign wealth fund for American savings it's a good one. 0:10:01.160 --> 0:10:04.400 Who else is involved in a kind of conversation. 0:10:04.080 --> 0:10:07.360 Like that, We haven't discussed it in detail at this point. 0:10:07.920 --> 0:10:10.240 And how big could it be at the onset? 0:10:10.640 --> 0:10:13.679 Well, you know, you look at the Norwegian fund, it's 0:10:13.720 --> 0:10:17.800 over a trillion dollars, well over a trillion. Saudi Arabia 0:10:17.960 --> 0:10:21.520 has very large funds, Abu Dhabi has large funds. So 0:10:21.520 --> 0:10:24.360 it'll be great to see America join this party. And 0:10:24.440 --> 0:10:26.920 instead of having dead had savings. 0:10:26.559 --> 0:10:28.440 Of a trillion dollar sovereign well fund. 0:10:28.800 --> 0:10:33.040 Well would be over time larger than any existing funds. 0:10:33.600 --> 0:10:35.480 John we thank you so much for your time today. 0:10:35.480 --> 0:10:37.480 I know it's a very busy day off the heels 0:10:37.559 --> 0:10:41.120 really of that former President Trump's speech today at the 0:10:41.200 --> 0:10:43.160 Economic Club of New York. We thank you, thank you 0:10:43.280 --> 0:10:43.680 very much.