Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We have Treasure Secretary Stephen Mnushan with us here. Thank
Speaker 2: you so much for joining.
Speaker 3: Thank you, it's great to be here with you.
Speaker 2: You have a unique insight into this administration because you
Speaker 2: served all four years during the first term for President Trump.
Speaker 2: I wonder what you make of a difference that we're
Speaker 2: seeing with Trump this time around. He is a little
Speaker 2: less concerned about day to day market swings. We've seen
Speaker 2: big tarff talk two hundred percent tariffs, twenty five percent tariffs,
Speaker 2: ten percent across the board, and the S and P
Speaker 2: five hundred has wiped out five trillion dollars in part
Speaker 2: because of this. What do you make in the shift
Speaker 2: in Trump's thinking about markets.
Speaker 3: I think the execution is slightly different, but I think
Speaker 3: the fundamental economic policies are actually the same. And this
Speaker 3: goes back to what the President campaigned on in twenty sixteen.
Speaker 3: Tax cuts, regulatory relief, and trade, and those are the
Speaker 3: same things you're hearing about today.
Speaker 1: I would say it's critically.
Speaker 3: Important that the tax cuts are extended, and I know
Speaker 3: President Trump wants to add additional tax cuts. He's always
Speaker 3: been very focused on trade. I think that you're seeing
Speaker 3: a more aggressive trade policy in this administration. And I
Speaker 3: think one of the questions is does the president want
Speaker 3: to use this to negotiate or does he want to
Speaker 3: use this to raise tariff revenue, which he's talked about significantly.
Speaker 3: Which if he's going to do that and use that
Speaker 3: to create tax cuts or pay down debt, is an
Speaker 3: interesting strategy for effectively creating a consumption tax on foreign goods.
Speaker 2: Do you think that some of the tariff threats pulling
Speaker 2: things back bringing them back up, do you think that's
Speaker 2: a good policy.
Speaker 3: Well, I think the market is adjusting to his negotiating,
Speaker 3: which I think in the beginning the market thought that
Speaker 3: he wasn't serious about tariffs, despite the fact that I
Speaker 3: think and I've been saying, he's very serious about tariffs.
Speaker 3: So I've suggested that if he wants to raise revenue,
Speaker 3: a ten percent tariff across the board on everything would
Speaker 3: be very effective. They could score that as part of reconciliation,
Speaker 3: probably raise about two and a half trillion dollars, and
Speaker 3: that would be very effective in terms of creating tax
Speaker 3: cuts and paying down debt.
Speaker 2: It's been a lot though for investors and business leaders
Speaker 2: and CEOs to absorb. What's your What would your advice
Speaker 2: be to some of this constituency as they try to
Speaker 2: deal with and they get worried about all the stock
Speaker 2: market gyrations from these taror threats.
Speaker 3: Well, my first advice would be, don't overreact. I know
Speaker 3: there's some talk about are we going to go into
Speaker 3: a recession. I don't see us at all going into
Speaker 3: a recession. I think we could have a little bit
Speaker 3: of a slowdown in the economy as we pull back
Speaker 3: on government spending, but I don't think investors should be
Speaker 3: concerned about a recession. The second thing I would say
Speaker 3: is we came in with the market being fully priced,
Speaker 3: so I think a five to ten percent correction on
Speaker 3: the S and P or the NASTAC actually makes sense.
Speaker 3: The market's been really fueled by massive amounts of tech spending,
Speaker 3: particularly around AI, So some of this is a natural
Speaker 3: correction in the market, and some of this is the
Speaker 3: market worrying about tariffs and the impact on tariffs.
Speaker 2: We're talking a lot about tariffs. You mentioned taxes as well.
Speaker 2: What do you make of Trump's strategy to do tariffs
Speaker 2: before tax cuts this year.
Speaker 1: Well, I think it's just a timing issue.
Speaker 3: I think they're actually moving on what seems like an
Speaker 3: incredibly fast agenda, which is encouraging that Speaker Johnson says
Speaker 3: he's going to get a bill to the floor before Easter, which,
Speaker 3: if that's the case, that includes both tax cuts and
Speaker 3: border that's a very impressive timing. I mean, my concern
Speaker 3: about this one big, beautiful bill was it was going
Speaker 3: to take too long and that the President could get
Speaker 3: a quick, easy win on the border and the tax issues,
Speaker 3: as you know, Selea, are quite complicated, so these things
Speaker 3: have to be thought through carefully and balanced.
Speaker 2: You, as treasure Secretary in twenty seventeen, were the face
Speaker 2: of the administration's efforts to get that tax bill through Congress.
Speaker 2: Knowing based on that experience and what you know and
Speaker 2: see now of Washington, what do you think the chances
Speaker 2: are that there will be a successful extension of the
Speaker 2: tax cuts that Trump seeks.
Speaker 3: Oh, I definitely think there'll be a successful extension. I
Speaker 3: think it just depends what it includes. And look, we're
Speaker 3: very proud of the work we did in the first administration,
Speaker 3: and obviously the tax cuts and job TEC was sweeping reform.
Speaker 3: I mean, it took all year because it impacted almost
Speaker 3: every single part of the economy. It dealt with domestic
Speaker 3: taxes at lowered corporate taxes, at lowered individual taxes, It
Speaker 3: had business tax credits. Right now they're dealing with a
Speaker 3: much smaller segment. The most important priority is, in my mind,
Speaker 3: extending the tax cuts, which from an operational standpoint is
Speaker 3: actually quite easy to do, and then they have to
Speaker 3: consider some of these other ideas that the President has
Speaker 3: thrown out and figure out how they could pay for
Speaker 3: them as well.
Speaker 2: Do you think that the salt cap is something that needs.
Speaker 3: To be part of the bill, Well, it only needs
Speaker 3: to be part of the bill if that's what you
Speaker 3: need to do to get Republican votes to get the
Speaker 3: bill over the finish line. So there's no question that,
Speaker 3: you know, removing the putting a cap on salt was
Speaker 3: a fundamental issue that we thought of fairness treating all
Speaker 3: the states similarly. Having said that, you know, I recognize
Speaker 3: there's a small majority in the House and this clearly
Speaker 3: impacts places like New York disproportionately, and I understand why
Speaker 3: the New York members want to see that raised.
Speaker 2: So far, it seems like that might be one of
Speaker 2: the sticking points. Are there any other sticking points that
Speaker 2: you see bubbling up as this tax bill comes together.
Speaker 3: I think the bigger issue is the pay force. So
Speaker 3: you have some people who say this should be scored
Speaker 3: against current policy and it doesn't cost anything. The traditional
Speaker 3: way of scoring this is against what's the current law
Speaker 3: after with with the reduction of the tax cuts, and
Speaker 3: that would be over four trillion dollars. So obviously if
Speaker 3: you score it that way, the pay fors are very significant.
Speaker 3: I am concerned, and you know you've heard Treasury Secretary
Speaker 3: Vesant and others talk about the deficit. I think the
Speaker 3: deficit is our number one problem today. So I think
Speaker 3: that whatever tax cuts are passed, at least some of
Speaker 3: them have to be paid for.
Speaker 2: That's one of the larger differences between twenty seventeen when
Speaker 2: you worked on this and now that the deficit is
Speaker 2: just so big. How much harder does that make dessence job?
Speaker 1: I think it's quite significant.
Speaker 3: And you know, if you put this in context, when
Speaker 3: we did this, the entire tax bill cost a trillion
Speaker 3: and a half dollars, there was about five hundred billion
Speaker 3: that we thought that was the difference between dynamic in
Speaker 3: scoring and there was another five hundred billion of things
Speaker 3: that were extenders. So I thought the true cost was
Speaker 3: closer to five hundred billion and that we could easily
Speaker 3: grow the economy to pay for that. You're now talking
Speaker 3: about an economy that's much bigger.
Speaker 1: The numbers are much bigger.
Speaker 3: So the personal side alone is over four trillion dollars,
Speaker 3: so the payfars are much more significant. We also have
Speaker 3: a much bigger budget deficit. We had much more fiscal
Speaker 3: room in twenty seventeen, and we had lower interest rates,
Speaker 3: so the interest on the debt wasn't.
Speaker 1: As big of a problem.
Speaker 3: So you add all those things up, and yes, it's
Speaker 3: more difficult today, but it's also simpler, and that the
Speaker 3: tax cuts themselves are much simpler.
Speaker 2: You know this so well. In twenty seventeen, you were
Speaker 2: a key negotiator. You were the face of the administration's efforts.
Speaker 2: Like I said, how important do you think it is
Speaker 2: for the Treasury Secretary to lead the charge on tax
Speaker 2: bill creation and negotiation.
Speaker 3: I think it's very important because it's the president's signature
Speaker 3: achievement and extending it is critically important for the administration.
Speaker 2: We got to know each other during those four years
Speaker 2: when you were in office. But one area that we
Speaker 2: never talked about that was never a big deal when
Speaker 2: you were there was the payments system. With your four
Speaker 2: years of experience, you know how sensitive and significant the
Speaker 2: work at the Bureau of Fiscal Service is. Are you
Speaker 2: concerned at all about doge's access to the payment system.
Speaker 3: Well, let's step back and just talk about the payment system,
Speaker 3: and you're right, we didn't.
Speaker 1: Talk about it much.
Speaker 3: Treasury is a gigantic payment processor for the federal government.
Speaker 3: So this is an important part of Treasury. But Treasury's role,
Speaker 3: as you can think of as the bank. So what
Speaker 3: Treasury does is it takes in files from other parts
Speaker 3: of the government. The other departments certify those files, Treasury
Speaker 3: make sure that it's in the proper form that it
Speaker 3: can execute them, and it executes them. So it's not
Speaker 3: Treasury's job to determine whether those payments are good payments
Speaker 3: or bad payments. You know, I'm very comfortable with what
Speaker 3: I understand Treasury Secretary has said in regards to the
Speaker 3: controls over the payment system. That's the most important tissue.
Speaker 3: I think some of the things that Dealon has said
Speaker 3: make a lot of sense. I mean, does it make
Speaker 3: sense that you put a category payment around the payment.
Speaker 3: Of course, now those are things that should be easily added,
Speaker 3: you know. I will say what we did work on
Speaker 3: was the transparency issues associated with this that you know,
Speaker 3: we put up on the internet a system where you
Speaker 3: could see most of the government payments. So, you know,
Speaker 3: I think a lot of this topic today makes a
Speaker 3: lot of sense. But I'm comfortable today the system appears
Speaker 3: to be very safe.
Speaker 2: Do you think that investors should be worried about the
Speaker 2: US's ability to fulfill its debt obligations considering how much
Speaker 2: activity there is around the payment system right now with.
Speaker 3: Doge in there a I know there were some concerns
Speaker 3: about dose in the beginning. That seems to be taken
Speaker 3: care of and not an issue.
Speaker 1: Obviously. The bigger problem.
Speaker 3: With the payments is going to be the government debt
Speaker 3: and the debt ceiling.
Speaker 2: One thing I've noticed that Secretary Beston is doing that's
Speaker 2: a little bit different than years past, is putting a
Speaker 2: focus on lowering long term bond yields instead of looking
Speaker 2: to the Federal Reserve to lower interest rates. I'm curious
Speaker 2: what you make of the strategy.
Speaker 3: Well, I think he's right in the sense of a
Speaker 3: large part of the economy is tied to longer term rates,
Speaker 3: So whether it's mortgages or other things, and whether it's
Speaker 3: the five year or the ten year, there's a large
Speaker 3: part of the economy. For a long time we had
Speaker 3: a very flat yield curve. Ultimately, what the Fed does
Speaker 3: will have an impact on long term rates. I think
Speaker 3: if you actually look at the market today and you
Speaker 3: look at the dot plot, the is telling you basically
Speaker 3: their expectation is that they will lower rates down to
Speaker 3: three and a half percent.
Speaker 1: It's just a question of when they get there.
Speaker 3: Right now, that's projected next year, and I think the
Speaker 3: ten year treasury already has that priced in, so I
Speaker 3: think it's it's built into the market today.
Speaker 2: In the last couple of weeks we have seen yields
Speaker 2: drop due to recession fears. Do you think that Bessett
Speaker 2: might be getting what he wanted but for the wrong reasons.
Speaker 3: Well, I think he wants long term treasuries to come down,
Speaker 3: and I think part of that is around creating as
Speaker 3: there's less government spending, there's no question, and they can
Speaker 3: they can convince the market that they're going to cut
Speaker 3: the data set that will help long term rates. But
Speaker 3: you know, i'd say, look that the ten year has
Speaker 3: been bouncing around in a twenty basis point range, which
Speaker 3: I consider to be a market range.
Speaker 2: One of my favorite things to ask current and former
Speaker 2: Treasure secretaries is about currency policy, something that we've spoken
Speaker 2: about as well. We're expecting, at least in the next
Speaker 2: couple of weeks, the first foreign exchange policy report coming
Speaker 2: out of the Treasure Department when you were in office,
Speaker 2: you labeled China a currency manipulator. I wonder if you
Speaker 2: think that that is an effective tag to apply.
Speaker 3: I think it's one of the effective tags to apply.
Speaker 3: It's not the only effective tag, but I think it
Speaker 3: was one of the tools in the toolbox. And now
Speaker 3: it's more fun talking about currencies because I think, as
Speaker 3: you know, kind of like Treasury Secretary one oh one,
Speaker 3: as everybody's supposed to just say, oh, strong dollar, strong
Speaker 3: dollar is you remember when I was at Davos, I
Speaker 3: made for the first time a comment more on a
Speaker 3: stable dollar and the benefits of a strong dollar and
Speaker 3: the problems with a strong dollar in the market reacted accordingly.
Speaker 3: But I really do think the policy should be a
Speaker 3: stable dollar policy. That's what's good for the US, that's
Speaker 3: what's good for the world. I think the dollar will
Speaker 3: be the reserve currency before the foreseeable future. But you
Speaker 3: don't want a dollar that's too strong, that that hurts
Speaker 3: us from an economic standpoint.
Speaker 2: Well, you can speak much more freely about currency policy now.
Speaker 2: Thank you so much for joining