WEBVTT - Wall Street Week Special: A Conversation with Robert Rubin 0:00:01.000 --> 0:00:05.160 This is Bloomberg Wall Street Week with David Weston from 0:00:05.320 --> 0:00:06.439 Bloomberg Radio. 0:00:07.160 --> 0:00:09.559 The problem is that's led us two years and years 0:00:09.560 --> 0:00:12.080 of borrowing too much. We now have a debt that's 0:00:12.119 --> 0:00:14.800 about to be at record levels, interest payments that are 0:00:14.840 --> 0:00:16.840 the fastest growing part of the budget about to be 0:00:17.040 --> 0:00:18.000 larger than defense. 0:00:18.640 --> 0:00:21.520 That was Miyamaguinnis of the Committee for a Responsible Federal 0:00:21.560 --> 0:00:24.960 Budget talking about the great and growing US federal debt 0:00:25.000 --> 0:00:28.680 and deficit. This is a special Wall Street Week podcast, 0:00:28.840 --> 0:00:31.920 and we sat down with former Treasury Secretary Bob Rubin 0:00:32.120 --> 0:00:34.720 to take us through not just where we are now, 0:00:35.000 --> 0:00:37.600 but about how he helped President Clinton engineer a way 0:00:37.640 --> 0:00:40.680 out of a similar situation some thirty years ago when 0:00:40.680 --> 0:00:44.400 he ran the White House Economic Council. To fix the problem, 0:00:44.440 --> 0:00:46.680 we first have to figure out how we got here. 0:00:47.280 --> 0:00:50.640 Some like presidential candidate Nikki Haley say that the problem 0:00:50.720 --> 0:00:52.320 is that we're spending too much. 0:00:52.880 --> 0:00:56.120 Do you have to start cutting what you spend? Why 0:00:56.320 --> 0:00:58.960 is it everybody in this room balance as a budget. 0:00:59.320 --> 0:01:02.040 I balanced budget is Governor of South Carolina? Why is 0:01:02.120 --> 0:01:04.880 Congress the only group that refuses to balance a budget. 0:01:05.319 --> 0:01:08.800 Others like Willet Advisors Steve Ratner point to the Trump 0:01:08.920 --> 0:01:09.559 tax cuts. 0:01:09.880 --> 0:01:12.119 There are a lot of people who basically on Wall Street, 0:01:12.160 --> 0:01:14.559 who you and I would know, who voted for Trump 0:01:14.600 --> 0:01:17.320 once or even twice. Basically, look, I don't like the guy, 0:01:17.360 --> 0:01:19.680 but I like the policies, and they got what they wanted, 0:01:19.720 --> 0:01:22.160 the tax of the TCGA, the Tax Cut and Jobs 0:01:22.200 --> 0:01:24.280 Act being the most prominent. 0:01:24.319 --> 0:01:28.000 And the answer likely is both. That was why, according 0:01:28.000 --> 0:01:32.000 to Larry Summers, President Clinton both raised taxes and cut 0:01:32.040 --> 0:01:36.199 spending in his nineteen ninety three Omnibus Budget Reconciliation Act. 0:01:36.560 --> 0:01:39.040 That was the last time that the federal government really 0:01:39.080 --> 0:01:41.240 got serious about addressing the debt. 0:01:41.600 --> 0:01:44.920 I think he laid out the case, he brought people together, 0:01:45.480 --> 0:01:49.440 He was willing to do things that were painful for 0:01:49.560 --> 0:01:53.840 the people who were his friend. He was able to 0:01:53.920 --> 0:01:58.840 explain the case to the American people, and that's the 0:01:58.960 --> 0:02:03.080 kind of leadership we're going to need, and he reaped 0:02:03.080 --> 0:02:04.360 a benefit. 0:02:07.120 --> 0:02:08.760 And to explain to us where we are in the 0:02:08.800 --> 0:02:11.600 Debton deficit and where we were back in nineteen ninety three, 0:02:11.600 --> 0:02:12.040 were welcome. 0:02:12.120 --> 0:02:12.280 Now. 0:02:12.320 --> 0:02:15.160 One of the architects of that plan that President Clinton pursued. 0:02:15.400 --> 0:02:18.040 He is Bob rowin former Treasury Secretary. So, Bob, thank 0:02:18.080 --> 0:02:19.480 you so much for being on Wall Street. 0:02:19.560 --> 0:02:20.920 Rig David happy to be with you. 0:02:21.360 --> 0:02:23.640 So at the time, you actually were Director of National 0:02:23.639 --> 0:02:25.840 Economic Council and you helped put together a plan with 0:02:25.919 --> 0:02:29.000 Lloyd Benson the Treasury, but President Clinton really pushed it through. 0:02:29.200 --> 0:02:32.160 Give us a sense of how bad the problems were 0:02:32.200 --> 0:02:34.120 you were facing. Then what caused you to do what 0:02:34.280 --> 0:02:35.760 you did in ninety three Act. 0:02:36.200 --> 0:02:40.000 David, we met with the president elect Governor of Arkansas 0:02:40.160 --> 0:02:43.760 in Little Rock after the election, the economic team, the 0:02:43.800 --> 0:02:46.840 income economic Team, and we talked to him about what 0:02:46.919 --> 0:02:50.520 kind of an strategy he should have, and he said, 0:02:51.160 --> 0:02:55.040 listening to all this, our deficit is a threshold issue. 0:02:54.760 --> 0:02:55.839 And who want everything else? 0:02:56.080 --> 0:02:57.680 We've got to do that because we have to get 0:02:57.680 --> 0:02:59.960 our fiscal house in order, and that was really the 0:03:00.400 --> 0:03:02.320 our focus. Now we did it in the same time 0:03:02.320 --> 0:03:05.760 we did public investment. But the pressures, I think were 0:03:05.840 --> 0:03:07.959 very substantial. There was a lot of concern in the 0:03:07.960 --> 0:03:09.880 business community, there was a lot of concern in the markets, 0:03:10.280 --> 0:03:12.720 and there was a real public political environment, which unfortunate 0:03:12.760 --> 0:03:14.960 we don't have today. He not only had the substance 0:03:14.960 --> 0:03:16.720 of it, which is President Clinton, the few that this 0:03:16.800 --> 0:03:19.120 was the rest of the issue at threshold issue. We 0:03:19.160 --> 0:03:21.640 also have a political environment in which it was doable. 0:03:21.880 --> 0:03:24.000 If we can try to tease those two things out. 0:03:24.160 --> 0:03:26.400 How much of it was the market reaction what you 0:03:26.440 --> 0:03:29.320 were seeing? Basically we have the famous incidents supposedly where 0:03:29.400 --> 0:03:31.079 Jim Carvell said, I want to come back to the 0:03:31.120 --> 0:03:31.680 bond market. 0:03:31.800 --> 0:03:34.280 Well that was James said that he wanted to come well, 0:03:34.360 --> 0:03:36.680 because what happened there was we were having a debate 0:03:36.680 --> 0:03:40.400 within the administration should we focus on fiscal matters or 0:03:40.400 --> 0:03:41.760 should we focus on public investment. 0:03:41.760 --> 0:03:44.560 We end up doing both, but with a program, the ninety. 0:03:44.320 --> 0:03:46.480 Three Deaths Production program that was very heavily focused on 0:03:46.520 --> 0:03:49.840 death production. And that's when James said he wantause. We argued, 0:03:49.880 --> 0:03:51.560 and I think rightly argument and it turned out to 0:03:51.560 --> 0:03:54.480 be correct that markets would react very favorably if we 0:03:54.480 --> 0:03:57.800 were serious, and also the better reserve would react very favorably. 0:03:57.920 --> 0:04:00.080 So James and responses all that said he would I 0:04:00.160 --> 0:04:01.960 to come back in his next life is the bond market. 0:04:02.680 --> 0:04:04.920 So that is a somewhat market oriented approach. I mean, 0:04:04.920 --> 0:04:06.840 you'd come out of Goldman Sachs, you knew the markets 0:04:06.920 --> 0:04:10.280 terribly well you took that sort of approach. The whole 0:04:10.320 --> 0:04:12.080 question how much that that drove what it was? Was 0:04:12.080 --> 0:04:14.240 it really just almost dollars and cents in what was 0:04:14.280 --> 0:04:15.280 going on in the markets. 0:04:15.400 --> 0:04:17.159 It was more than just the markets, and I think 0:04:17.160 --> 0:04:19.480 this is something unfortunate that it hasn't been focused on, 0:04:19.560 --> 0:04:22.400 But it was the market's David. And when we got 0:04:22.440 --> 0:04:25.599 serious about deficit reduction, it was very favorable for the markets. 0:04:25.920 --> 0:04:28.400 And also green Spend reacted very well in terms of 0:04:29.120 --> 0:04:33.279 maintaining a relatively livable with a practical speaking, a FED 0:04:33.320 --> 0:04:35.880 funds rate that was consistent with growth, but it went 0:04:35.920 --> 0:04:36.520 way beyond that. 0:04:36.560 --> 0:04:38.480 We wanted to have the resilience after. 0:04:38.360 --> 0:04:39.760 If you're going to have if you have an economic 0:04:40.120 --> 0:04:42.520 or a noir security emergency of some sort, you want 0:04:42.520 --> 0:04:44.960 to be able to deal with it without creating fiscal havoc. 0:04:45.680 --> 0:04:47.760 And another thing, when I was at Goldman Sacks and 0:04:47.839 --> 0:04:50.360 Steve Freeman and I were the co CEOs of Coleman 0:04:50.440 --> 0:04:53.600 Sacks in ninety one and in ninety two, one thing 0:04:53.640 --> 0:04:56.680 that I had the impression was that business was very 0:04:56.680 --> 0:04:59.799 concerned about our fiscal position, not only because the fiscal position, 0:04:59.800 --> 0:05:01.919 per say, but also because it gave him the feeling 0:05:01.920 --> 0:05:05.000 government was incapable of dealing with our problems. So business confidence, 0:05:05.160 --> 0:05:08.360 I think was a very important factor. And once we acted, 0:05:08.520 --> 0:05:10.960 I think it had a really positive effect on business confidence. 0:05:11.120 --> 0:05:13.359 Giving me a sense of what that means as a pracuamatory, 0:05:13.720 --> 0:05:16.280 does that translate into investment or lack of investment? 0:05:16.480 --> 0:05:16.840 Exactly? 0:05:16.920 --> 0:05:21.120 Exactly what well investment plans in terms of expansion. John 0:05:21.160 --> 0:05:24.200 Maynor Kaine famously referred to animal spirits in his letter, 0:05:24.240 --> 0:05:27.360 his famous letter to President Roosevelt, and animal spirits make 0:05:27.400 --> 0:05:30.200 a confidence makes a very big difference. And yeah, it 0:05:30.240 --> 0:05:34.280 does in terms of hiring plans, expansion plans, investment, And 0:05:34.320 --> 0:05:35.560 that absolutely is what happened. 0:05:35.600 --> 0:05:36.680 Talk about the politics of it. 0:05:36.800 --> 0:05:39.440 You said that, then governor about to be President Clinton 0:05:39.440 --> 0:05:41.359 came in and said, that's a threshold issue of the deficit. 0:05:41.560 --> 0:05:44.000 It's hard to imagine right now an incoming president saying 0:05:44.040 --> 0:05:45.560 the same thing. But give me a sense of what 0:05:45.680 --> 0:05:48.479 was going on politically in the country that obviously President 0:05:48.520 --> 0:05:50.320 Clinton was reflecting to some extent what he thought the 0:05:50.360 --> 0:05:51.000 people felt. 0:05:51.120 --> 0:05:52.640 I think there was a feeling there was a broad 0:05:52.720 --> 0:05:56.840 public concern about our fiscal position. And then Songus ran 0:05:56.880 --> 0:06:00.040 for Paul Songus ran for president on a fiscal the 0:06:00.160 --> 0:06:03.840 unfortunately died as you know, in that process, but on 0:06:04.400 --> 0:06:07.560 a fiscal discipline plank if you want to call it that, 0:06:07.640 --> 0:06:10.000 or program, let's say, and that attracted a lot of 0:06:10.000 --> 0:06:10.719 favorable attention. 0:06:10.880 --> 0:06:14.520 Then Ross Bureau came along and he ran. 0:06:14.400 --> 0:06:17.480 Also on a fiscal discipline theory, and he got about 0:06:17.560 --> 0:06:19.200 nineteen percent of the vote if I remember correctly. 0:06:19.600 --> 0:06:21.160 President Clinton believed it to begin with. 0:06:21.720 --> 0:06:24.240 But then you had the politics I guess you call 0:06:24.320 --> 0:06:27.159 converge around this point of view as you saw songis 0:06:27.200 --> 0:06:30.320 and then as I said, Perro and President Clinton made 0:06:30.320 --> 0:06:32.559 that central to his economic program. But you know, David, 0:06:32.800 --> 0:06:36.480 he always combined it with vigorous public investment. Now, once 0:06:36.520 --> 0:06:39.599 we got there, what we found was that the prospects 0:06:39.720 --> 0:06:44.719 that the outgoing Bush omb was providing had gotten much worse, 0:06:45.160 --> 0:06:47.279 and so it forced us to cut back on what 0:06:47.279 --> 0:06:49.520 we would have done in public investment and to increase 0:06:49.600 --> 0:06:51.240 what we did on definit reduction. 0:06:51.480 --> 0:06:53.280 So when you decided to address this, I should say 0:06:53.320 --> 0:06:54.880 the president decided, The President. 0:06:54.600 --> 0:06:56.200 Absolute decided he was terrific. David. 0:06:56.760 --> 0:06:59.080 He really was steeped in this. So while all of 0:06:59.160 --> 0:07:02.520 us gathered together. We really were gathering with somebody who 0:07:02.560 --> 0:07:04.720 were ready was really very highly heavily. 0:07:04.480 --> 0:07:05.040 Informed on this. 0:07:05.560 --> 0:07:08.160 I mean by this, I mean on economic policy ramifications 0:07:08.200 --> 0:07:09.480 of various measures one might take. 0:07:09.680 --> 0:07:11.800 When one goes back and looks at the package, it 0:07:11.840 --> 0:07:16.160 looks like there was both tax increases as well as 0:07:16.320 --> 0:07:17.120 spending cuts. 0:07:17.120 --> 0:07:17.520 Correct. 0:07:17.840 --> 0:07:19.360 Was that the theory from the beginning, we have to 0:07:19.400 --> 0:07:20.880 do it both ways at the same time. 0:07:20.960 --> 0:07:23.880 The theory, well, the theory was we would do fifty 0:07:23.880 --> 0:07:25.800 to fifty, and we did do fifty to fifty. We're 0:07:25.800 --> 0:07:28.080 discussing then and not now. But if you looked at now, 0:07:28.400 --> 0:07:31.960 I think, unfortunately we face a very different empirical situation. 0:07:32.040 --> 0:07:34.240 But in those days, that exactly was our theory, and 0:07:34.240 --> 0:07:34.760 that's what we did. 0:07:35.000 --> 0:07:36.440 We're going to come back and talk about now, but 0:07:36.480 --> 0:07:39.360 before that, give us a sense of the effects once 0:07:39.400 --> 0:07:40.720 you got this through. By the way, it was a 0:07:40.760 --> 0:07:44.520 near run thing politically, as I recall the Towers we won. 0:07:44.760 --> 0:07:47.000 We had by one vote if I remember correctly, in 0:07:47.000 --> 0:07:50.680 the House of Representative and it was a tie I 0:07:50.680 --> 0:07:53.440 guess in the Senate and Gork cast inciting vote in 0:07:53.440 --> 0:07:56.320 our favor obviously, but it was a very close thing 0:07:56.360 --> 0:07:58.760 and I remember being in the Oval Office the night 0:07:58.800 --> 0:08:00.520 of the vote. You know, there's that little room that 0:08:01.080 --> 0:08:03.600 is adjacent to the Oval Office is the President's room, 0:08:03.920 --> 0:08:06.520 and we were all sitting there watching a television as 0:08:06.600 --> 0:08:08.520 people voted, and it was a very near thing, in 0:08:08.560 --> 0:08:09.360 a really nailbier. 0:08:09.600 --> 0:08:12.280 How did the results of it through the rest of 0:08:12.280 --> 0:08:12.880 the Clinton term. 0:08:12.880 --> 0:08:13.840 We're going to take it through there. 0:08:14.080 --> 0:08:16.520 Compare with what you expected when you first got it through. 0:08:16.640 --> 0:08:18.280 If you'd written down and said this is what I expect, 0:08:18.440 --> 0:08:21.200 it's good to compare with what happened. I gotta compare, 0:08:21.520 --> 0:08:22.120 you know, David. 0:08:22.440 --> 0:08:24.160 I think one thing that I saw and I think 0:08:24.240 --> 0:08:27.440 was right, was that our fiscal situation, for the reasons 0:08:27.440 --> 0:08:30.000 I already discussed, was having a real adverse effect on 0:08:30.000 --> 0:08:32.679 business confidence. And I thought if we did this, there 0:08:32.720 --> 0:08:34.800 was a reasonable chance that could affect that. But I 0:08:34.800 --> 0:08:36.360 think the effect of it was much greater than I 0:08:36.400 --> 0:08:38.560 thought it would be. President Clint went through eight years 0:08:38.880 --> 0:08:41.240 in which the business community felt that he related to 0:08:41.800 --> 0:08:44.000 the issues that they faced. They didn't always agree with them, 0:08:44.200 --> 0:08:46.199 or he didn't always agree with them, but I think 0:08:46.200 --> 0:08:47.839 they really felt that he related to their issues, and 0:08:47.880 --> 0:08:49.840 I think this played a major role in that. I 0:08:49.920 --> 0:08:52.440 thought something like that would happen, at least that would 0:08:52.440 --> 0:08:54.280 have been my expectation, But I think it happened to 0:08:54.280 --> 0:08:56.360 a greater degree than I thought. The market reacted very well, 0:08:56.360 --> 0:08:58.200 as you may or remember in terms of interest rates. 0:08:58.679 --> 0:09:01.199 One big difference between that now is we were very 0:09:01.200 --> 0:09:03.760 concerned at the time. I remember this personally with Japan. 0:09:04.160 --> 0:09:05.880 The rise of Japan is that I can have power 0:09:05.960 --> 0:09:07.640 that they basically had a better mouse. 0:09:07.400 --> 0:09:08.640 Trap than we did and they take us over. 0:09:09.080 --> 0:09:11.720 How important was that in helping drive this through to 0:09:11.720 --> 0:09:14.040 say we've got to actually catch up with Japan. 0:09:15.520 --> 0:09:18.400 As you correctly say, David, Japan reviewed as a goliath. 0:09:18.600 --> 0:09:20.000 And I can remember this so well when I was 0:09:20.000 --> 0:09:22.240 at Golden Sacks, because we were very much focused on 0:09:22.240 --> 0:09:24.480 where should our business go, where should we focus? And 0:09:24.480 --> 0:09:27.320 we very much focused on Japan for the very reason 0:09:27.320 --> 0:09:29.360 you just said, And I think that was part of it. 0:09:29.400 --> 0:09:32.040 I think there was a feeling of a real competitive urgency, 0:09:32.040 --> 0:09:35.079 if you will, imperative, real competitive imperative with respect of Japan. 0:09:35.640 --> 0:09:37.200 But it was more than that, David. 0:09:37.200 --> 0:09:39.080 I think there was just a general recognition, which we 0:09:39.080 --> 0:09:42.520 don't have today in the country that unsound, fiscal conditions 0:09:42.559 --> 0:09:45.679 were very dangerous, which I think they are very dangerous economically, 0:09:45.880 --> 0:09:48.240 and people sort of connected the dots and there was 0:09:48.320 --> 0:09:50.880 broad based support for fiscal discipline. It was a political 0:09:50.960 --> 0:09:54.400 reality within the context of which President Clinton acted and 0:09:54.400 --> 0:09:56.400 then eventually and Congress came along with it, as you said, 0:09:56.400 --> 0:09:58.200 by a very very narrow margin. 0:09:58.559 --> 0:10:01.160 You mentioned Chairman Greenspan, Alan green spent at the time. 0:10:01.280 --> 0:10:03.760 What role did he play and the FED play throughout 0:10:03.800 --> 0:10:05.000 this entire process. 0:10:05.360 --> 0:10:07.720 Well, I will tell you what it was. 0:10:07.760 --> 0:10:10.840 It's not been written this way sometimes, but Alan green 0:10:10.880 --> 0:10:13.920 Spin came down to a little rock. He conferred with 0:10:14.440 --> 0:10:17.560 the advice or President elect Clinton, and I think his 0:10:17.679 --> 0:10:20.160 advice was very sound. On the other hand, there was 0:10:20.200 --> 0:10:22.199 never although it was legs in some places that there 0:10:22.280 --> 0:10:24.760 was never a deal, and I've asked both President Clinton 0:10:24.760 --> 0:10:26.920 and Alan Greenspan about this. There was a never deal 0:10:26.960 --> 0:10:29.400 between the two of them pursuing to which, if you 0:10:29.520 --> 0:10:32.280 President Clinton will reduce the efic it, I'll keep interest 0:10:32.320 --> 0:10:32.760 rate flow. 0:10:32.840 --> 0:10:33.760 That never occurred. 0:10:33.920 --> 0:10:37.160 But what did occur was the advice that Alan green 0:10:37.200 --> 0:10:39.600 Spin gave to President Clinton and all of us, because 0:10:39.600 --> 0:10:41.520 we had a very good relationship about what at least 0:10:41.559 --> 0:10:43.280 he thought, and then we would deal with it as 0:10:43.280 --> 0:10:43.800 we saw fit. 0:10:44.400 --> 0:10:46.400 One of the key elements, as I understand it, economists 0:10:46.400 --> 0:10:50.360 tell us economic growth is productivity. Was there an effect, 0:10:50.440 --> 0:10:52.880 in your opinion, on productivity? What was the effect? How 0:10:52.960 --> 0:10:53.760 large was it? 0:10:53.800 --> 0:10:56.400 There was a substantial effect on productivity. And it's sort 0:10:56.440 --> 0:10:58.920 of interesting, at least in my opinion, David, because this 0:10:59.040 --> 0:11:00.840 was also, as you may remember, the nineties at the 0:11:00.840 --> 0:11:04.880 time the technology technology development took off, but even more important, 0:11:04.920 --> 0:11:07.840 maybe the application of technology took off. But it happened 0:11:07.840 --> 0:11:10.199 here and it didn't happen in Europe to merely the 0:11:10.240 --> 0:11:12.360 same degree. So the question is why, And I'll tell 0:11:12.400 --> 0:11:14.840 you what I think. I think the administration made enormous 0:11:15.080 --> 0:11:17.480 and President Clinton made enormous difference in this respect because 0:11:17.480 --> 0:11:20.080 I think what happened was what you were getting out before. 0:11:20.480 --> 0:11:22.800 I think there was an atmosphere of confidence. And it 0:11:22.800 --> 0:11:25.319 doesn't mean, as I said before, I'm repeating myself, it 0:11:25.320 --> 0:11:27.280 didn't mean the business agree with everything we did, because 0:11:27.280 --> 0:11:30.080 they didn't. But fundamentally they believed that this was a 0:11:30.280 --> 0:11:33.520 sound administration. And I think that had an enormous impact 0:11:33.800 --> 0:11:37.040 on investment and therefore on productivity. So we had a 0:11:37.240 --> 0:11:41.559 productivity boost from both the technology development and application, which Europe 0:11:41.559 --> 0:11:43.520 which had a different sort of political environment and a 0:11:43.559 --> 0:11:47.800 different sense of confidence in their case lack thereof. 0:11:47.880 --> 0:11:48.360 Than we did. 0:11:48.679 --> 0:11:50.959 So, Bob, we've been talking about what happened in ninety 0:11:50.960 --> 0:11:52.760 three when you were there in the White House. Now 0:11:52.800 --> 0:11:54.800 let's bring it forward to today, because there's a lot 0:11:54.800 --> 0:11:57.000 of talk about the debt and deficit, which is frankly 0:11:57.040 --> 0:12:01.080 a lot larger both and nominal now and in comparative 0:12:01.080 --> 0:12:02.199 dollars than it was back then. 0:12:02.360 --> 0:12:03.319 Let's talk about. 0:12:03.040 --> 0:12:04.839 What you learned in ninety three, what you did in 0:12:04.960 --> 0:12:07.800 ninety three, they could continuably be applied to twenty twenty four. 0:12:07.840 --> 0:12:09.720 It's also a lot bigger, David, And this is the 0:12:09.720 --> 0:12:12.000 really important thing as a percentage of GDP and the 0:12:12.000 --> 0:12:14.640 preenet of our economy, and that I think is the 0:12:14.679 --> 0:12:18.000 critical point. I think that the risks that we identified then, 0:12:18.080 --> 0:12:20.440 the multiple risks, the same as they are today. I 0:12:20.480 --> 0:12:22.640 think that the risks are even greater today because our 0:12:22.679 --> 0:12:26.240 debt GDP ratio is a proximal sumbio estimated about one 0:12:26.280 --> 0:12:27.240 hundred percent right now. 0:12:27.520 --> 0:12:29.080 It's the highest in the history of the country. 0:12:29.080 --> 0:12:31.160 Except for nineteen forty six and forty seven we were 0:12:31.200 --> 0:12:33.319 coming back out of World War Two. I think the 0:12:33.400 --> 0:12:36.360 risks are enormous, and some of them are materializing already, 0:12:36.360 --> 0:12:38.600 like higher interest rates and effect on inflation in part 0:12:38.679 --> 0:12:41.800 not full, and others haven't materialized yet, but I think 0:12:41.840 --> 0:12:44.200 they're out there and sooner related will materialize if we 0:12:44.200 --> 0:12:45.880 don't correct our our physical trajectory. 0:12:46.280 --> 0:12:48.720 You talked about some of the market indicators and even 0:12:48.800 --> 0:12:50.600 forces that you saw in ninety three that sort of 0:12:50.640 --> 0:12:52.679 pointed you in a direction quite at present, Clinton, in 0:12:52.720 --> 0:12:54.680 the direction of really making the depth set. 0:12:54.520 --> 0:12:55.280 Of special issue. 0:12:55.320 --> 0:12:57.520 Are we seeing those indicators of their forces today in 0:12:57.559 --> 0:12:58.160 the markets. 0:12:58.600 --> 0:13:01.880 I think that we are seeing the effects, but it's 0:13:02.000 --> 0:13:04.800 unfortunately from a political point of view, David, I don't 0:13:04.800 --> 0:13:07.960 think they're getting connected in a meaningful way with deficit 0:13:08.200 --> 0:13:11.040 reduction sure interest. I mean, the long the tenure was 0:13:11.080 --> 0:13:13.280 about I think one and a half percent, say two 0:13:13.360 --> 0:13:15.560 years ago, and now it's about four and a half percent. 0:13:15.800 --> 0:13:15.880 Now. 0:13:15.960 --> 0:13:17.960 That's a lot of factors that go into that, but 0:13:18.080 --> 0:13:18.600 I think. 0:13:18.400 --> 0:13:20.720 Part of it is our fiscal situation and the effect 0:13:20.720 --> 0:13:23.400 that's had on inflation. I think it's been an aggravator 0:13:23.400 --> 0:13:27.480 of he if you will an effect on inflation. And 0:13:27.559 --> 0:13:31.760 I think there's a general concern about the imbalance between 0:13:31.760 --> 0:13:35.079 supplying demand for savings and the excess demand that's created 0:13:35.080 --> 0:13:40.240 by our deficits, but it's not Unfortunately, from political point 0:13:40.240 --> 0:13:42.240 of view, I don't think the dots are being connected 0:13:42.240 --> 0:13:44.360 the way they were back in ninety two to three 0:13:44.360 --> 0:13:46.640 when we acted. Ninety three we acted, but ninety two 0:13:47.120 --> 0:13:49.079 when preddent Clinton was putting his plans together. 0:13:49.160 --> 0:13:50.600 There's a lot of talk these days when we talk 0:13:50.600 --> 0:13:54.280 about the feed about the neutral rate and debate about 0:13:54.320 --> 0:13:56.480 whether it is the neutral rate higher. And I guess 0:13:56.559 --> 0:14:00.280 my question is does the deficit and the debt normally, 0:14:00.320 --> 0:14:02.840 all the things being equal, drive the neutroid higher? 0:14:03.480 --> 0:14:05.520 I think over time, but I think you can also 0:14:05.559 --> 0:14:06.960 have a long period of time. And we had a 0:14:06.960 --> 0:14:09.280 long period of time, David, actually a long long period 0:14:09.320 --> 0:14:12.000 of time during which all this was having little effect, 0:14:12.160 --> 0:14:14.400 and then all of a sudden that the tenure went, 0:14:14.440 --> 0:14:15.959 as I said, a moment ago, from roughly one and 0:14:16.000 --> 0:14:19.160 a half to roughly four and a half. And I've 0:14:19.160 --> 0:14:22.200 been around markets, and these policies were for five decades now, 0:14:22.320 --> 0:14:25.000 and there's certainly our periods when you can have a 0:14:25.120 --> 0:14:29.480 long time when reality is out of or what's happening 0:14:29.520 --> 0:14:32.200 is out of sync with reality. But that doesn't go 0:14:32.280 --> 0:14:34.920 on forever, and when it corrects, it can correct savagely. 0:14:35.360 --> 0:14:38.560 A good example was the Eurozone, the sovereign Eurozone crisis. 0:14:38.920 --> 0:14:42.400 For years, a Greek bondstrated roughly speaking parody with ghivlie 0:14:42.480 --> 0:14:44.640 take with German buns, and then all of a sudden 0:14:44.640 --> 0:14:46.800 it exploded. And I think it's a good example of 0:14:47.280 --> 0:14:51.080 how what isn't sensible ultimately doesn't continue. 0:14:51.400 --> 0:14:53.200 There's the politics of it, which I want to talk about. 0:14:53.200 --> 0:14:55.760 Before that, Let's talk about the approach taken to it. 0:14:55.840 --> 0:14:58.120 Let's talk about, for example, the Biden administration. We can 0:14:58.160 --> 0:14:59.640 talk about the Trumpet search if you walk, but the 0:14:59.680 --> 0:15:02.560 Biden is when you were there back in the nineties, 0:15:02.680 --> 0:15:04.800 you came from Golden Sachs, you had other people there 0:15:04.800 --> 0:15:07.280 who knew the markets pretty well. There was a healthy 0:15:07.360 --> 0:15:09.480 dose of how are the markets reacting this? What does 0:15:09.520 --> 0:15:12.040 that do for us? Do we still have that or 0:15:12.120 --> 0:15:14.840 is it more ideologically driven because some people think we've 0:15:14.880 --> 0:15:18.360 sort of shifted the orientation, particularly the Democratic Party, more 0:15:18.400 --> 0:15:20.640 toward protectionism, more toward populism. 0:15:20.800 --> 0:15:22.880 Well, you've asked multiple questions, so I'll give you. I'll 0:15:22.880 --> 0:15:23.440 give you my view. 0:15:23.440 --> 0:15:25.000 I've given a lot of thought this, and I know 0:15:25.040 --> 0:15:27.200 the people there pretty well. If you look at the proposals, 0:15:27.280 --> 0:15:30.920 the major policy proposals that President Biden made, they were 0:15:30.960 --> 0:15:34.120 all paid for in the proposals. Now, ultimately they had 0:15:34.160 --> 0:15:35.800 to go through Congress, and when they went through Congress, 0:15:35.800 --> 0:15:37.640 they came out, some of them paid forwards and some 0:15:37.680 --> 0:15:40.480 of them not. I think he's actually pretty good on this. 0:15:40.800 --> 0:15:42.480 I think there are other issues were I might have 0:15:42.640 --> 0:15:45.640 a different view than he does, or maybe I would 0:15:45.640 --> 0:15:47.920 have it so say it an altered view rather than 0:15:47.920 --> 0:15:50.440 a different view. But I think on fiscal stuff, actually 0:15:50.480 --> 0:15:52.000 he's got a pretty good sense of it. I think 0:15:52.040 --> 0:15:55.120 on the proposals that they had three major bills I 0:15:55.200 --> 0:15:58.680 were chips and infrastructure, and in the original proposal and 0:15:58.720 --> 0:16:01.640 then of course for that build back better and all 0:16:01.640 --> 0:16:03.440 of those if you look at them, and this is 0:16:03.520 --> 0:16:06.520 correct because I looked at them, all of those the 0:16:06.560 --> 0:16:08.960 proposals were fully paid for that to go through Congress, 0:16:08.960 --> 0:16:11.000 and in Congress they in some cases they lost the 0:16:11.040 --> 0:16:13.000 pay for us. You know you mentioned I forgot how 0:16:13.040 --> 0:16:15.040 you put it now before? But did you say populism 0:16:15.160 --> 0:16:18.880 or progressive? Yeah, populism. If you look at what has 0:16:18.960 --> 0:16:21.160 been referred to as industrial policy, and they referred to 0:16:21.200 --> 0:16:25.040 as industrial policy, it's their label, but it's not picking 0:16:25.040 --> 0:16:27.040 winners and losers. Now it may be in the minds 0:16:27.080 --> 0:16:28.440 of some of those people, but if you look at 0:16:28.440 --> 0:16:30.480 those proposals, and I've talked to their people about this 0:16:30.520 --> 0:16:32.120 a lot, I think they actually make a lot of 0:16:32.160 --> 0:16:35.720 sense on a purely economic basis. Their externalities they basically 0:16:35.720 --> 0:16:39.880 dealt with, short for, with insecurities in our system, excuse me, 0:16:39.920 --> 0:16:42.640 in our economic system with respect to our economic security 0:16:42.760 --> 0:16:46.840 or economic function are geopolitical or national security functioning that 0:16:46.880 --> 0:16:48.320 markets were not going to meet and had to be 0:16:48.360 --> 0:16:50.840