Speaker 1: Welcome to Bloomberg Opinion. I'm only Quinn this week right now.
Speaker 1: An attempt to invade Tail one, there's a great deal
Speaker 1: of risk that that would fail. And if you were
Speaker 1: to try to invade Taiwan, kill the Chinese economy and
Speaker 1: then also not be able to take Taiwan, that would
Speaker 1: put him in an extremely precarious position domestically in China.
Speaker 1: I just don't think he would take that risk at
Speaker 1: this moment. Bloomberg Executive Editor for Greater China, John Lure
Speaker 1: in New York for the first time since Maitland China
Speaker 1: Open for Travel, joins for an extended conversation about China's
Speaker 1: direction of travel, politically and economically. Later, at some point,
Speaker 1: the House cream concuss people. The radicals are going to
Speaker 1: believe that McCarthy sold them out, whether it's after no
Speaker 1: shutdown at all or after a three month shutdown. They're
Speaker 1: gonna think, oh, if only the government closed two more weeks,
Speaker 1: we would have gotten everything we wanted. And then if
Speaker 1: they use that and decide, well, let's get rid of
Speaker 1: the speaker, they may do that. Bloomberg Opinions Jonathan burns
Speaker 1: enjoins to discuss the aftermath of the fifteen round speaker
Speaker 1: election in the House and what comes next for the Congress.
Speaker 1: So to China now, and the question over what kind
Speaker 1: of leader President she Jin Pink turns out to be
Speaker 1: for China's economy and markets over the coming years. Bloomberg
Speaker 1: Executive Editor for Greater China, John Leeu joins. So, John,
Speaker 1: we've spoken a lot on the show to Shooli Wren
Speaker 1: for updates on how China has been faring through COVID
Speaker 1: zero and the pivot away from that. So I wanted
Speaker 1: to zoom out a little bit and ask you some
Speaker 1: larger questions about China's direction of travel under President she
Speaker 1: Now that he's effectively consolidated power for life or for
Speaker 1: as long as he wants, is this position solid? First
Speaker 1: of all, is there anyone in the CCP providing a
Speaker 1: checker balance? I think he's got a pretty solid grasp
Speaker 1: of power. There does not seem to be any challengers
Speaker 1: on the horizon. Like you said, he's consolidated power in
Speaker 1: a way that that has been actually quite surprising to observers.
Speaker 1: At the Party Congress. The new Standing Committee is filled
Speaker 1: with his allies. There are no political opponents there. He
Speaker 1: should have quite a large amount of flexibility in terms
Speaker 1: of policy, in terms of decision making, and as you said,
Speaker 1: you know, I think he's in a position to be
Speaker 1: in power for quite some time. How popular is he
Speaker 1: among the one point for billion people or so of China.
Speaker 1: I know that's a large question. You know, it's hard
Speaker 1: to say because there is not publicly available polling as
Speaker 1: you have in many other places like the United States.
Speaker 1: But I would say he's probably more popular than not.
Speaker 1: And the reasons for that are one. Corruption during his
Speaker 1: time in power has really been reined in. I remember
Speaker 1: when I first got to Beijing, our colleagues were telling me,
Speaker 1: you know, they used to bribe their school teachers so
Speaker 1: that their kids could sit at the front of the class,
Speaker 1: and that that's just unheard of now. Pollution has gotten
Speaker 1: much much better. You'll remember the stories a couple of
Speaker 1: years ago about you know, there are being so much
Speaker 1: smog in Beijing that planes couldn't take off, for example,
Speaker 1: and that's it's the skies have gotten much bluer under
Speaker 1: she and so as a result of that, I think
Speaker 1: there there is a lot of reason for people to
Speaker 1: like some of the changes that they've seen under j Ping.
Speaker 1: At the same time, there are things when it comes
Speaker 1: to the room for descent, when it comes to cracking
Speaker 1: down on things like rights lawyers or or even women's
Speaker 1: rights groups. There are other parts of society that have
Speaker 1: lots of reasons to oppose many of she policies, and
Speaker 1: and where he's not that popular, and there does seem
Speaker 1: to be a new found well I'm not sure how
Speaker 1: a new found it is, but desire to protest sometimes.
Speaker 1: I mean the protests that we saw at the end
Speaker 1: of November because of COVID that was There are protests
Speaker 1: in China. They're exceptionally rare, but they do happen. I
Speaker 1: think what stood out about those protests were that they
Speaker 1: happened basically over the same weekend across cities all over China,
Speaker 1: and for the same reason. And in the past when
Speaker 1: we've had protests, they've been largely about very local issues
Speaker 1: like I don't want to landfill in my back yard
Speaker 1: and so I'm going to protest. But that situation, you
Speaker 1: had people in different cities all over the country protesting
Speaker 1: the same thing, and so that would have made it
Speaker 1: made that situation more alarming for the government. How will
Speaker 1: he provide for or so of China's youth who are unemployed,
Speaker 1: he certainly doesn't want to see it any discontent in
Speaker 1: that group. I think opening up, you know, exiting COVID
Speaker 1: zero is going to go a long way and helping
Speaker 1: provide jobs, especially in the service industry, which has been
Speaker 1: really hit. So if you think about restaurants, if you
Speaker 1: think about airlines, if you think about tourism in general, hotels,
Speaker 1: those are all businesses that you still employ lots of people,
Speaker 1: especially younger people. Uh And if if people start traveling again,
Speaker 1: people start shopping again because they're not being locked down,
Speaker 1: they don't have to do testing all the time, then
Speaker 1: that will go a long way again the economy going
Speaker 1: and providing job opportunities for for that segment of society.
Speaker 1: In terms of markets, John, how much does she want
Speaker 1: to keep international market participants interested in China. It did
Speaker 1: seem like there was a it to a more domestic agenda,
Speaker 1: but that could have been just through COVID. I think
Speaker 1: we're gonna see uh we I think we've already started
Speaker 1: to see in three and the latter part of real
Speaker 1: focus on growth. I think the embrace that we've seen
Speaker 1: in the last couple of weeks of private business at
Speaker 1: financial for example, getting the right to recapitalize add more capital. UH.
Speaker 1: They've the government has shown a lot more tolerance for
Speaker 1: the big internet companies. We had the Party Secretary of
Speaker 1: jo John Province where Ali Baba is based visiting the company.
Speaker 1: So I think that UH is part and parcel of
Speaker 1: an attempt to add confidence, not just to global markets,
Speaker 1: with domestic markets. I think the government right now is growth, growth, growth.
Speaker 1: They will do anything to get the economy going, and
Speaker 1: that means sacrificing things like that domestic agenda that you
Speaker 1: talked about. There's one big elephant in the room. How
Speaker 1: soon before he decides Taiwan needs to be back in
Speaker 1: his fold. Markets were quite stressed about that question before
Speaker 1: Russia and bad did you train? And I think there's
Speaker 1: still an underlying tension among investors. I mean, I think
Speaker 1: it's the I don't know what the answer to that is,
Speaker 1: but in my opinion, I think currently markets are over
Speaker 1: pricing the risk of an invasion the short term. I
Speaker 1: don't think it's gonna happen in the short term, and
Speaker 1: the reason I think it will be further off than
Speaker 1: people expect is that Jijimi has two things he wants
Speaker 1: to do. He wants to revitalize the economy. He wants
Speaker 1: to get China to you know, make it a rich nation,
Speaker 1: a developed nation, catch the US in terms of GDP.
Speaker 1: And that's part of this revitalization of the Chinese nation
Speaker 1: that he talks about all the time. And and part
Speaker 1: of that revitalization also includes bringing Taiwan into the fold. Well,
Speaker 1: those those goals are contradictory. And so if he were
Speaker 1: to if there were an invasion of Taiwan, it would
Speaker 1: it would crash the global economy, and it would definitely
Speaker 1: crash the Chinese economy. And you know, right now an
Speaker 1: attempt to invade Taiwan is not there are there's a
Speaker 1: great deal of risk that that would fail. And if
Speaker 1: you were to try to invade Taiwan, kill the Chinese
Speaker 1: economy and then also not be able to take Taiwan,
Speaker 1: that would be that would put him in an extremely
Speaker 1: precarious position domestically in China. I just don't think he
Speaker 1: would take that risk at this moment, as someone who
Speaker 1: studied him quite a lot. How capricious is he is
Speaker 1: there a danger that something like that might just happen
Speaker 1: overnight on a whim. I think he's he's uh. From
Speaker 1: what we can tell, he seems to be a very
Speaker 1: studied person, considers his steps very purposeful in his actions.
Speaker 1: I think the recent reopening that we've seen in China,
Speaker 1: it's surprised a lot of people and the speed and
Speaker 1: the pace that it's it's happened, and there's a lot
Speaker 1: of things about it that are that are hard to defend.
Speaker 1: Why they didn't do it until why didn't they didn't
Speaker 1: get vaccination rates higher before trying to do it? But
Speaker 1: at the same time, I think it suggests an ability
Speaker 1: at course correction that is greater than people had expected.
Speaker 1: So I think being able to take a pragmatic approach,
Speaker 1: I think is something that has you know, benefited the
Speaker 1: Communist Party, and I think is something that she in
Speaker 1: this sense, has shown he can do. It was extraordinary
Speaker 1: sudden flexibility, So there had been no flexibility. But then,
Speaker 1: as you say, because of so unexpected, it did seem
Speaker 1: like maybe he can be flexible when he wants to be.
Speaker 1: I mean, I think with COVID, they found themselves, they
Speaker 1: had paid themselves into a corner where there was no
Speaker 1: other choice, And I think it's very apparent to them
Speaker 1: that reopening will lead to a large number of deaths,
Speaker 1: especially among the vulnerable population, the elderly, those with underlying conditions,
Speaker 1: and they ultimately made the decision that they would reopen
Speaker 1: in spite of that, because the economy was in such
Speaker 1: a bad place, they had people protesting. They just couldn't
Speaker 1: continue to execute COVID zero without causing even more distress.
Speaker 1: And at least delta was over, so perhaps the number
Speaker 1: of deaths won't be as great as would have been
Speaker 1: if it was. The delta a variant A little bit
Speaker 1: about the economy, if you don't mind so. In terms
Speaker 1: of consumption, there's a lot of chatter about whether we'll
Speaker 1: see a V shape or an L tape recovery. These
Speaker 1: letters are back. We used to talk about them in
Speaker 1: the United States a lot before we had other things
Speaker 1: to worry about. What happens in China. I think you
Speaker 1: will see a slow economy in the first quarter because
Speaker 1: with the reopening a lot of people are getting sick.
Speaker 1: We will see absentee ism because people are sick, they
Speaker 1: won't be able to work. They won't go to the factory,
Speaker 1: they won't go to the office. I think by the
Speaker 1: end of the first quarter, you will start to see
Speaker 1: the benefits of reopening becoming more visible. People going out shopping,
Speaker 1: people going to the beach, some greater amount of confidence
Speaker 1: about spending being instilled into the economy. At the same time,
Speaker 1: the government is going to be, in terms of monetary
Speaker 1: and fiscal policy, doing more to get the economy going again,
Speaker 1: and I think that will start to show up. We
Speaker 1: talked about the embrace of private business, of of the
Speaker 1: internet companies. The government's also trying to do more to
Speaker 1: help stabilize the property market, and I think that will
Speaker 1: start to show up as the year goes on, and
Speaker 1: so I think through the second half the latter parts
Speaker 1: of the year, growth will be stronger than the first part.
Speaker 1: John lieu There Bloomberg Executive Editor for Greater China. John
Speaker 1: continues with us in moments, it has certainly a debt problem,
Speaker 1: and it is certainly a vulnerability. The government understands that.
Speaker 1: They see that very clearly. I think what we are
Speaker 1: seeing is this oscillation. When growth is good, the government
Speaker 1: will start to take steps to try and deleverage the economy.
Speaker 1: But when growth is bad, they're going to push that
Speaker 1: off to the side and pile on more debt. If
Speaker 1: it means they can help stimulate growth, they will let
Speaker 1: companies borrow more. It'll just put deleveraging and trying to
Speaker 1: fix that that problem on the back burner. More Next
Speaker 1: on Bloomberg Opinion. I'm Vannie Quinn. You're listening to Bloomberg Opinion.
Speaker 1: I'm Vonnie Quinn, and we're back with John Lieu, executive
Speaker 1: editor for Greater China in New York for the first
Speaker 1: time since the pandemic hit China and President chit and
Speaker 1: Ping locked down. We spoke about particular areas of vulnerability
Speaker 1: for China. You mentioned the property market. Will that policy
Speaker 1: pivot work. Is it clear that Chinese people are as
Speaker 1: interested as they were in property and the second property
Speaker 1: and buying properties that aren't built. So, I think the
Speaker 1: steps that the government has taken recently have been aimed
Speaker 1: at stabilizing the finances for the developers. And so one
Speaker 1: of the most striking things that's happened in the the last
Speaker 1: couple of years has been defaults by the developers ever
Speaker 1: grant for example. And so the first thing the government
Speaker 1: has been trying to do is to make sure that
Speaker 1: situation is stabilized and I think that's steps that they've taken,
Speaker 1: allowing companies to to raise money through share sells for
Speaker 1: the first time in a long time, helping companies sell
Speaker 1: debt again. That that should help stable stabilize that situation.
Speaker 1: Whether or not consumers come back into the market and
Speaker 1: buy more homes, I think is more uncertain. Uh. I
Speaker 1: think in larger cities where there is obvious demand, in
Speaker 1: places like Beijing and Shanghai shen Jin, I think you
Speaker 1: will see people coming back into the market if they
Speaker 1: see an opportunity to pick something up they want. In
Speaker 1: smaller cities, I think it's less clear if that will happen,
Speaker 1: and I think it's going to be more challenging for
Speaker 1: the government to convince people to come back and start
Speaker 1: buying again. Is it fair today that China has a
Speaker 1: debt problem and that there are vulnerabilities there. It has
Speaker 1: certainly a debt problem, and it is certainly a vulnerability.
Speaker 1: I don't. I don't think the government. The government understands that.
Speaker 1: They see that very clearly. I think what we are
Speaker 1: seeing is this oscillation. When growth is good, when GDP
Speaker 1: is five six percent, the government will start to take
Speaker 1: steps to try and deleverage the economy, but when growth
Speaker 1: is bad, they're going to push that off to the
Speaker 1: side and pile on more debt. If it means they
Speaker 1: can help stimulate growth, they will let companies borrow more.
Speaker 1: It'll just put del averaging and trying to fix that
Speaker 1: problem on the back burner. And how much of an
Speaker 1: inflation problem could that give China. China's managed to not
Speaker 1: have an inflation problem for a very long time. If ever,
Speaker 1: does it suddenly have to worry about inflation Right now,
Speaker 1: there are no signs that the inflation is a concern. Obviously,
Speaker 1: as the central bank, as the government tries to simulate
Speaker 1: the economy when it comes to monetary policy, that's a
Speaker 1: that's a risk. But I think in the in the
Speaker 1: recent past, the government has relied more on fiscal on
Speaker 1: infrastructure spending is a way to get the economy going again,
Speaker 1: and so I think they've purposely tried to avoid that
Speaker 1: risk because in the in the aftermath of the financial crisis,
Speaker 1: that became a real problem with that with the money
Speaker 1: that was flooded into the economy, it caused inflation, and
Speaker 1: I think the government has learned the lesson from that
Speaker 1: end is relying more on the fiscal side of stimulus
Speaker 1: to try and get growth going. How much room fiscally
Speaker 1: does China have so uh, there's a difference at the
Speaker 1: local level. With local governments, it's very very stretched. I mean,
Speaker 1: we have lots of cases where, for example, we have
Speaker 1: there's a story out about how some of the people
Speaker 1: who are hired to do the COVID testing mass testing
Speaker 1: during COVID's era, they have not been paid because local
Speaker 1: governments are so stressed in terms of their financing. At
Speaker 1: the central government level, there is much more room to
Speaker 1: take on debt to increase fiscal spending, and I think
Speaker 1: that's where we will see it in and deficit wise,
Speaker 1: does China have to worry about that expanding. I think
Speaker 1: we will. I think the deficit will expand. The central
Speaker 1: government deficit I think it was in the range of
Speaker 1: about three and so they have more room and I
Speaker 1: think they will take that. I don't think they're gonna
Speaker 1: blow it out, but there will be an increase I expect.
Speaker 1: For So this pivot too domestic priorities hasn't just happened
Speaker 1: in China. It happened during President Trump's era in the
Speaker 1: United States. And it's also not clear that President Biden
Speaker 1: is interested in on doing some of those changes in
Speaker 1: terms of trade policy, semiconductor policy, and so on. Where
Speaker 1: do you foresee U. S. China relations headed. I think
Speaker 1: in you will see from the Chinese side at least
Speaker 1: more of an attempt to to be uh, to try
Speaker 1: and get the relationship in a more stable footing, a
Speaker 1: better place. We've got a new foreign minister in office
Speaker 1: in China, the former ambassador to the United States. UH.
Speaker 1: Some of the commentary that's come from him has been
Speaker 1: very glowing. He was calling Americans, you know, great people, UH,
Speaker 1: really complimentary in a way that we haven't seen in
Speaker 1: a long time. I think that indicates this desire by
Speaker 1: the Chinese side to try and improve the relationship because
Speaker 1: I think they see that, you know, China in the
Speaker 1: last couple of years, during the pandemic years, has really
Speaker 1: lost its footing globally and is finding the relationship that
Speaker 1: it has with the US, with Europe, Japan, and you
Speaker 1: have lots of different countries around the world UH being
Speaker 1: in a very problematic place that that in turn makes
Speaker 1: it more difficult to get the economy going and has
Speaker 1: weighed on the economy, especially with the chip uh the
Speaker 1: chip sanctions that have been put into place by the
Speaker 1: United States. I think the government and agencies that, you know,
Speaker 1: trying to improve the relationship will have a real impact
Speaker 1: on not only economic growth, but China's own efforts to
Speaker 1: become self sufficient in technologies. Yeah, because China has a
Speaker 1: problem with US, right, China is a little bit I mean,
Speaker 1: it's not behind in much, but it does seem to
Speaker 1: be a little bit behind when it comes to technology
Speaker 1: when some technology is not all obviously, when it comes
Speaker 1: to chips, it's certainly behind. I mean it's several generations
Speaker 1: behind the cutting you know, just if you look at
Speaker 1: what happened, what has happened with Huawei. You know, Whwawi
Speaker 1: used to be one of the world's biggest mobile phone vendors,
Speaker 1: and because the United States essentially cut it off from
Speaker 1: cutting edge chips, it's no longer able to compete and
Speaker 1: it's it's actually had to unload that business. And so
Speaker 1: when it comes to chips, when it comes to various
Speaker 1: parts of software, China is not at the cutting edge.
Speaker 1: It needs access to American, European Western technologies to try
Speaker 1: and get ahead, to catch up and to you know,
Speaker 1: power its economy, and I think the government there has
Speaker 1: realized that if it continues to take a more aggressive
Speaker 1: stance when it comes to diplomacy, that it's going to
Speaker 1: see its access cut off more quickly. And so that's
Speaker 1: why I think three you probably are going to see
Speaker 1: more of a charm offensive from Beijing than anything else.
Speaker 1: Interesting in the Year of the Rabbit Um. There seems
Speaker 1: to be a determination on the part of the US
Speaker 1: to not let that happen, whether it's on national security,
Speaker 1: go out or other grounds. Does the US change its
Speaker 1: tone a little bit? I'm not sure, you know. I
Speaker 1: think there is a lot of bipartisan support for being
Speaker 1: tough on China, and I don't think that's going to change.
Speaker 1: But I would say if there was a year for
Speaker 1: the relationship to improve, the year, because in four you
Speaker 1: have the election cycle kicking off again in the United States,
Speaker 1: and I would have to think it would make it
Speaker 1: even more difficult to improve the relationship in that year.
Speaker 1: John new their executive editor for Greater China in New York.
Speaker 1: Stay tuned. We turn our attention to the eighteen Congress
Speaker 1: next with Bloomberg Opinions Jonathan Bernstein. Again, they have to
Speaker 1: actually function and what we saw with the speaker vote,
Speaker 1: and what we'd like to going forward is that this
Speaker 1: isn't the unified party that can easily keep the whole
Speaker 1: party together on the floor of the House. Some of
Speaker 1: them have specific policy preferences, but you know, anytime they
Speaker 1: can have a tantrum that works for them, you know,
Speaker 1: whether it does anything any good to anybody else or not.
Speaker 1: Some of these members seem to enjoy just disruption for
Speaker 1: disruption's sake. It's not often that they want something in particular,
Speaker 1: and we saw that through the fifteen votes. It seemed
Speaker 1: do you foresee chaos? I think that it's going to
Speaker 1: be extremely hard. Yeah. I don't think we're gonna have
Speaker 1: a different speaker every week, as some people are talking about,
Speaker 1: but it's going to be very difficult for them to
Speaker 1: do their basic responsibilities, which you know in this Congress
Speaker 1: in particular, we're talking about raising the debt limit, which
Speaker 1: will happen sometime in the second half of the year.
Speaker 1: Has to happen, with the danger being that if they
Speaker 1: don't raise the debt limit, the government could default, which
Speaker 1: will have a huge immediate catastrophic effect on the economy
Speaker 1: and passing spending bills, and if they can't do that,
Speaker 1: then we get a government shutdown, which I would say
Speaker 1: is way more than fifty fifty likely. Jonathan Bernstein continues
Speaker 1: with us in moments. I'd love to invite you to
Speaker 1: share your thoughts and opinions with us. You can email
Speaker 1: me at v Quinn at Bloomberg dot net. And also,
Speaker 1: don't forget we're available as a podcast on Apple, Spotify
Speaker 1: or your favorite podcast platform. More next on Bloomberg Opinion,
Speaker 1: I'm Vonnie Quinn. You're listening to Bloomberg Opinion. I'm Vonnie Quinn.
Speaker 1: I hope one thing is clear after this week. I
Speaker 1: never give up. Well, the show went on in d
Speaker 1: C last week, that's for sure. With markets largely ignoring
Speaker 1: the potential for dead ceiling drama later this year. If anything,
Speaker 1: market participants seem to enjoy the fifteen round speakership vote
Speaker 1: and the emergence of Kevin McCarthy's concessions for one thing,
Speaker 1: it looks like it might lead to policies friendlier to
Speaker 1: big business. But let's get an overview of where we
Speaker 1: stand now with Bloomberg Opinions and Jonathan Bernstein. So, Jonathan,
Speaker 1: we have three Freedom Caucus members now who are going
Speaker 1: to be helping set rules in the Rules Committee. Tell
Speaker 1: us how that's going to impact congressional business going forward. Well,
Speaker 1: the Rules Committee is terribly important when it acts independently
Speaker 1: of the party, which has not been the case for
Speaker 1: sixty years. But once upon a time, Rules was a
Speaker 1: powerful committee which could make or break legislation. These days,
Speaker 1: Rules for the last sixty years has served as a
Speaker 1: tool of the party leadership, therefore of the party. But
Speaker 1: every bill that passes through a regular committee on Agriculture,
Speaker 1: or Ways and Means or arm Services then goes to
Speaker 1: the Rules Committee to get what they call a rule,
Speaker 1: which is the procedures under which the bill will be
Speaker 1: considered in the House of Representatives. And rules can basically
Speaker 1: do anything. They can kill the bill entirely by refusing
Speaker 1: to write a rule for it. They can rewrite the
Speaker 1: bill as much as they want and send it to
Speaker 1: the floor rewritten, and they can decide if they are
Speaker 1: sending as the floor. They can decide which amendments are
Speaker 1: in order in which ones are not, which also has
Speaker 1: a lot of power. The people who set the agenda
Speaker 1: have the power. Right, So what this is going to
Speaker 1: do for the first time in sixty years. Is mean
Speaker 1: that an independent faction of the party, an organized faction
Speaker 1: of the party, is going to be able to disrupt
Speaker 1: what the rest of the party wants to do on
Speaker 1: the floor of the House. And that's huge. And as
Speaker 1: we've spoken about before, some of these members seem to
Speaker 1: enjoy just disruption for disruption's sake. It's not often that
Speaker 1: they want something in particular, and we saw that through
Speaker 1: the fifteen votes. It seemed. Yeah, and there's all kinds
Speaker 1: of things. Some of them have specific policy preferences, but
Speaker 1: the big thing that drives a lot of these people,
Speaker 1: as you said, is they want to be on Fox News,
Speaker 1: they want to be on the other Republican aligned media,
Speaker 1: and so you know, anytime they can have a tantrum
Speaker 1: that works for them, you know, whether it does anything
Speaker 1: and any good to anybody else or not, do you
Speaker 1: foresee chaos. I think that it's going to be extremely hard. Yeah.
Speaker 1: I don't think we're gonna have a different speaker every week,
Speaker 1: because some people are talking about, but it's going to
Speaker 1: be very difficult for them to do their basic responsibilities,
Speaker 1: which you know, in this Congress in particular, we're talking
Speaker 1: about raising the debt limit, which will happen sometime in
Speaker 1: the second half of the year, has to happen, with
Speaker 1: the danger being that if they don't raise the debt limit,
Speaker 1: the government could default, which will have a huge immediate
Speaker 1: catastrophic effect on the economy and passing spending bills. And
Speaker 1: if they can't do at then we get a government shutdown,
Speaker 1: which I would say is way more than fifty fifty likely,
Speaker 1: and were opinions. John author Is on the program last
Speaker 1: week said that markets really weren't taking this into account
Speaker 1: enough at all, But I guess part of the reason
Speaker 1: for that was that there were some small market positives.
Speaker 1: For example, the Republican representative Jason Smith from Missouri is
Speaker 1: now going to be leading the tax writing House Ways
Speaker 1: and Means Committee, which probably means that those provisions that
Speaker 1: are coming up for renewal soon will be renewed so
Speaker 1: friendly to big business. Basically, well, it's hard to tell,
Speaker 1: because you know, again they have to actually function, And
Speaker 1: what we saw with the speaker vote and what we're
Speaker 1: like to going forward is that this isn't the unified
Speaker 1: party that can easily keep the whole party together on
Speaker 1: the floor of the House. And because it's a small margin.
Speaker 1: If they lose five votes, they lose unless they take
Speaker 1: up Democrats, which is not likely for something like tax
Speaker 1: extenders unless it's part of a larger deal. And the
Speaker 1: problem is that the freedom calc has spokes the radicals
Speaker 1: in the House don't like making deals. They don't believe
Speaker 1: in compromise and bargaining, and that makes it very hard
Speaker 1: to function. Jonathan is not even actually scared of Kevin McCarthy.
Speaker 1: Isn't that a little bit of a prerequisite for doing
Speaker 1: a good job as a speaker? Well, you know, I
Speaker 1: don't think he's well suited to the job from what
Speaker 1: we can tell um. But he's also dealing with a
Speaker 1: very difficult caucus to wrangle. And John Bayner was a
Speaker 1: very good congressional leader and he couldn't deal with these people.
Speaker 1: Paul Ryan couldn't deal with them. Again, the problem is
Speaker 1: that they don't believe in normal bargaining. They like hostage taking.
Speaker 1: If there's a hostage, they want to take it. But
Speaker 1: normal you know, we like this, you like that, let's
Speaker 1: split the difference. They're sort of as a principal against
Speaker 1: that sort of thing, and so that's very difficult for
Speaker 1: any leader to deal with whether their skill or not.
Speaker 1: And you know McCarthy's history is that, well he's not
Speaker 1: all that skilled. Well it's so interesting because the hardliners
Speaker 1: feel that the US government has been weaponized. This is
Speaker 1: sort of the latest thing that they want investigated. And
Speaker 1: at the same time, they're quite happy to take sub
Speaker 1: committee spots. They want a sub miny spots. So it's
Speaker 1: hard to know how to make logic out of the
Speaker 1: fact that they're going to try to do business within
Speaker 1: the rules of how Congress works, and they do seem
Speaker 1: to be very good at the rules, right. Um, I
Speaker 1: think in some cases, yes, you know, everybody from House
Speaker 1: Ream canc has the least conservative people the middle of
Speaker 1: the party, all of them wanted to get a speaker.
Speaker 1: They were all equally hurt by not having a speaker
Speaker 1: and going through this fiasco on the House floor. But
Speaker 1: the insight of the House Fream Caucus folks, and this
Speaker 1: is shared by a lot of members of US is
Speaker 1: you know, take a hostage when you can and hold
Speaker 1: your breath until you turn blue, and somebody will come
Speaker 1: in and say, oh, we can't let you die. So
Speaker 1: you know, it's not the case that House Republicans, for example,
Speaker 1: are in favor of the government defaulting. Everybody agrees that
Speaker 1: we have to raise the debt limit when it's time,
Speaker 1: but they are willing to risk the health of the
Speaker 1: economy of the nation on the theory that somebody will
Speaker 1: blink first. And over time, that hasn't really been a
Speaker 1: very successful strategy for them in terms of getting things done.
Speaker 1: It's very good for getting publicity and for allowing them
Speaker 1: to portray themselves as the most conservative group, and everybody
Speaker 1: else has a bunch of sellouts, but as far as
Speaker 1: actually getting deals in their favor, it has at best
Speaker 1: a very mixed records well, and also it doesn't take
Speaker 1: an outright default to cause market targets in chaos. More
Speaker 1: than ten years ago when we saw something like this
Speaker 1: happened before, all we got was a downgrade, and that
Speaker 1: was enough to throw markets into absolute terror and chaos. Absolutely.
Speaker 1: As for some of the other subcommittee appointments, Jonathan or
Speaker 1: other concessions that Kevin McCarthy made, what were the important
Speaker 1: ones for you? I think that the other ones, the
Speaker 1: specific chairs of committees will see how they behave. But
Speaker 1: you know, we're talking about a party where they're all
Speaker 1: extremely conservative. So I don't think that we're going to
Speaker 1: have different policy outcomes necessarily because of one committee chair
Speaker 1: or the other. And some of the promises being made
Speaker 1: on things like they're going to allow as many amendments
Speaker 1: as people want to make on appropriations bills, on spending
Speaker 1: bills this year, that's what they've pledged. The history of
Speaker 1: these kinds of pledges is that when you actually get
Speaker 1: to it and you realize that that makes it very
Speaker 1: hard to pass a bill, those pledges tend to get broken,
Speaker 1: and everybody in the party went up saying, oh, yeah,
Speaker 1: this isn't working. We have to try something else. So
Speaker 1: a lot of the policy pledges that he made aren't
Speaker 1: donn't matter that much. And some of the other things
Speaker 1: like sending up this I think investigative is too strong
Speaker 1: award committee to well, they're gonna make a lot of
Speaker 1: claims about weaponization of government, which is all pretty much fictional.
Speaker 1: So but they're going to do that committee and it's
Speaker 1: going to be fully funded, which is a grateful employment
Speaker 1: deal for Republican opposition researchers and lawyers who are prepping
Speaker 1: to be future Supreme Court justices, for example. But I
Speaker 1: don't know that that was something that all the Republicans
Speaker 1: were against in the first place. So there were a
Speaker 1: lot of commitments that really the party has sort of
Speaker 1: agreed on, right and things like trade and so on.
Speaker 1: It's likely that we will see just continued policy. I mean,
Speaker 1: it doesn't seem like there's going to be a huge
Speaker 1: difference and things like trade and maybe you know, improving
Speaker 1: supply chains. Everybody wants that, right, Maybe more energy production independence,
Speaker 1: that might be something we'll see. Yeah, I mean those
Speaker 1: are things that were not so much concessions he made that.
Speaker 1: But where the party is so you know, there are
Speaker 1: some interesting questions about where the Republican Party is right
Speaker 1: now on trade, um, with sort of the trumpy side
Speaker 1: of things being a lot less inclined towards trade than
Speaker 1: than had been the case. But the truth is that
Speaker 1: they're the real driver. There is going to be opposing
Speaker 1: whatever Biden supports because that's how partisanship works. And then
Speaker 1: you know, the same thing happens with some of the
Speaker 1: foreign policy questions. And we have this talk about you know,
Speaker 1: bringing that the defense budget down from the and but
Speaker 1: the hand sides, it is very high right now, went
Speaker 1: up seventy five million, the billion they're talking about, um,
Speaker 1: bringing that back down. And it's not really clear that
Speaker 1: where the votes are right now within the Republican Caucus,
Speaker 1: within the Republican Conference on Defense and and on Ukraine
Speaker 1: in particular. Is it possible that we'll actually get policies
Speaker 1: from some of these people? Now? I think we're going
Speaker 1: to not get a whole lot, but we will get
Speaker 1: at some point, um, probably after extended government shutdown, we
Speaker 1: are going to get some sort of spending bills for
Speaker 1: next year. Um, and you know, perhaps they're just going
Speaker 1: to kick over what there was from this year. But
Speaker 1: it's yeah, some things will happen. And UM, I don't
Speaker 1: think that the deals that were made right now are
Speaker 1: going to really affect that very much. What's going to
Speaker 1: affect it is, you know, the leverage that different groups
Speaker 1: have and um, you know where the current Republican Party
Speaker 1: on the House side and also on the Senate side
Speaker 1: where the Republican Party is. I think it's fair today
Speaker 1: that Kevin McCarthy will probably survive as speaker, right even
Speaker 1: though one vote could potentially asked him as speaker. But
Speaker 1: it sort of suits everybody to keep him in that
Speaker 1: spot and to keep him dangling. I think that's probably likely.
Speaker 1: What we don't know is at some point this year
Speaker 1: government spending will be due. For example, they need to
Speaker 1: pass something to keep government spending going. At the end
Speaker 1: of September. At some point the House fream concuss people.
Speaker 1: The radicals are going to believe that McCarthy sold them out.
Speaker 1: Whether it's after no shutdown at all or after a
Speaker 1: three month shutdown, they're going to think, oh, if only
Speaker 1: the government closed two more weeks, we would have gotten
Speaker 1: everything we wanted. And then if they use that and decide, well,
Speaker 1: let's get rid of the speaker, they may do that.
Speaker 1: It's just real hard to tell. There have been some
Speaker 1: talk about, well, maybe the Democrats would rescue the speaker
Speaker 1: in that case. It's all speculative, so I don't expect
Speaker 1: five different speakers over the next year. But will he
Speaker 1: survive the two year term hard to know. Francis Wilkinson
Speaker 1: and Bloomberg Opinion this week makes the point that hacking
Speaker 1: Jeffrey's first speech was a tour to force. I thought
Speaker 1: i'd get your thoughts on how you viewed his speech.
Speaker 1: You know, his speech got excellent reviews, was really remarkable,
Speaker 1: and this is someplace where I think I was wrong.
Speaker 1: Several years ago. I said, well, Nancy Pelosi's one real
Speaker 1: weakness as speaker, and she was a historically terrific speaker,
Speaker 1: very skilled. Whether you like her policies or not, she
Speaker 1: was skilled at the job, is that she hadn't really
Speaker 1: provided for her own successors. Well, it turned out, of
Speaker 1: course that she had, and they brought in this new slate,
Speaker 1: the top three new people, including Jefferies as the Democratic
Speaker 1: leader and who will become the speaker if they win
Speaker 1: back the House, with no friction at all. And you know,
Speaker 1: with apparently the entire caucus, from the most conservatives to
Speaker 1: the very liberal to the squad, are all very happy,
Speaker 1: not just with him, but with the entire leadership plate.
Speaker 1: So you know, again an amazing accomplishment. Democrats are not
Speaker 1: like this. They are the old Will Rogers. I belong
Speaker 1: to an organized political party. I'm a Democrat. It just
Speaker 1: isn't true in the House these days. So I think,
Speaker 1: you know, certainly to Jeffreys credit, he is often we
Speaker 1: get started holding a party together. The truth is it's
Speaker 1: always easy to keep a party together in the minority
Speaker 1: than it is as a majority. So we'll see how
Speaker 1: it goes if and when he ever becomes speaker. Just
Speaker 1: to your point about Nancy Pelosi, it does seem to
Speaker 1: be a feature of these types of jobs not to
Speaker 1: be concerned about your successor and just a weak fear
Speaker 1: among your caucus, right. I mean, if you look at
Speaker 1: it's a different parliamentary system, obviously, but if you look
Speaker 1: at Britain, for example, people were terrified ab Alis or
Speaker 1: Campbell when he was whipped. They were terrified of Tony Blair. Yeah,
Speaker 1: you know, it's it's a different system. I don't think
Speaker 1: it works through fear as much as through compromise. And
Speaker 1: you know, it's not as top down a system, even
Speaker 1: though the commission leadership is we talked about it being
Speaker 1: very powerful. Certainly the leadership of the Congress comes from
Speaker 1: the party and the party leadership. It sounds circular, but
Speaker 1: it really isn't, because once upon a time the party
Speaker 1: leadership was almost powerless and it was the independently acting
Speaker 1: congressional committees that really were important in the House. So,
Speaker 1: you know, I wouldn't necessarily say that fear is the
Speaker 1: top thing, but it's just the skill of keeping everybody
Speaker 1: in the same page, knowing how to when to listen
Speaker 1: and when to talk, and you know how to cut
Speaker 1: deals that leave everybody reasonably happy. And Pelos, who was
Speaker 1: of course just a master of all that. Bloomberg Opinions
Speaker 1: Jonathan Bernstein. That does it for this week's Bloomberg Opinion.
Speaker 1: Do get in touch with us though, email me at
Speaker 1: v Quinn at Bloomberg dot net. We love to hear
Speaker 1: your thoughts and opinions, and don't forget we're available as
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Speaker 1: We're produced by Eric mollow. Until next time on Bloomberg
Speaker 1: Opinion