WEBVTT - Rebooting the China Relationship 0:00:03.680 --> 0:00:07.120 Scrap on your parachute. It's time for What Goes Up 0:00:07.360 --> 0:00:14.920 with Sarah Ponza and Mike Reagan. Hello, and welcome to 0:00:15.000 --> 0:00:18.280 What Goes Up, a Bloomberg Weekly Markets podcast. I'm Sarah 0:00:18.280 --> 0:00:21.439 pons a reporter on the Cross Asset team, and I'm 0:00:21.440 --> 0:00:24.640 Mike Reagan, a senior editor at Bloomberg. And you can 0:00:24.640 --> 0:00:28.800 think of me as the Louise to Sarah's Thelma. You know, 0:00:28.840 --> 0:00:31.720 I love how I don't have any warning that these 0:00:31.760 --> 0:00:34.879 are coming, Mike. It's maybe every three weeks, every two weeks, 0:00:34.880 --> 0:00:39.400 every five weeks. You just throw them in there. Yeah, 0:00:39.479 --> 0:00:42.360 it's good, it's good. Well this week on the show. 0:00:42.600 --> 0:00:46.239 Come next week, President elect Joe Biden will become the 0:00:46.360 --> 0:00:50.199 forty six president of the United States. Our guests this 0:00:50.240 --> 0:00:53.120 week has worked in senior economic and trade policy roles 0:00:53.200 --> 0:00:55.639 under five different US presidents and he spent twenty five 0:00:55.680 --> 0:00:58.080 years of golden sacks. He'll walk us through with the 0:00:58.120 --> 0:01:02.000 new administration's policy proposed could mean for both the economy 0:01:02.040 --> 0:01:05.520 and markets, and as usual, we will finish the episode 0:01:05.520 --> 0:01:08.840 with our tradition, the craziest thing I saw in markets 0:01:08.920 --> 0:01:12.479 this week, Sarah, I'll give you one teaser. Uh, once again. 0:01:12.680 --> 0:01:15.560 My craziest thing in markets is bitcoin related. I know 0:01:15.600 --> 0:01:18.959 a lot of listeners crave that bitcoin content. And for 0:01:19.000 --> 0:01:21.240 the craziest thing segment, it's a it's a deep well 0:01:22.000 --> 0:01:24.120 to go to. For sure. I'm gonna go ahead and 0:01:24.120 --> 0:01:26.840 say I did have a listener reach out to me 0:01:26.880 --> 0:01:30.200 on Twitter, and I have a feeling that your crazy 0:01:30.240 --> 0:01:32.640 thing might be the same as his. All Right, you might. 0:01:32.760 --> 0:01:34.640 You may think so. You may think so, but I 0:01:34.680 --> 0:01:36.360 think I gotta I think it's gonna be a curveball. 0:01:36.880 --> 0:01:39.240 But before we get to that, let's talk about the 0:01:39.240 --> 0:01:41.479 the important issues of the day. As Sarah pointed out, 0:01:41.480 --> 0:01:44.199 our guest this week, UM has one of the most 0:01:44.240 --> 0:01:47.480 fascinating resumes. I think I've I've ever read uh five 0:01:47.560 --> 0:01:52.280 different US presidents from Nixon all the way up to Obama. Sarah, 0:01:52.360 --> 0:01:55.560 I think the way you define yourself in this day 0:01:55.560 --> 0:01:59.320 and age is by the company you keep over zoom uh. 0:01:59.320 --> 0:02:01.400 And I'll give you an example. I read My last 0:02:01.480 --> 0:02:03.200 zoom call was with a bunch of guys I went 0:02:03.240 --> 0:02:05.880 to high school with. And it was a Saturday night. 0:02:06.120 --> 0:02:10.240 I think a guy's had a few drinks. Maybe one 0:02:10.280 --> 0:02:13.680 guy fell asleep during the zoom and started snoring and 0:02:13.720 --> 0:02:19.720 if if if you zoom a talent, but if you 0:02:19.760 --> 0:02:21.720 know al zoom works as we all do by now, 0:02:22.200 --> 0:02:26.000 the microphone and the video follows who's ever making the noise. 0:02:26.440 --> 0:02:28.240 So we'd be trying to talk and catch up and 0:02:28.320 --> 0:02:31.639 this guy would start snoring, and that he'd dominate and 0:02:31.680 --> 0:02:32.960 then we don't have to wait for him to get 0:02:32.960 --> 0:02:35.239 his snore out, and then we start talking about we 0:02:35.320 --> 0:02:37.919 try to rush it in and then another big storm comes. 0:02:38.000 --> 0:02:42.440 Our guest, on the other hand, has a much better 0:02:42.840 --> 0:02:47.240 zoom uh story for us. He was recently zooming with 0:02:47.360 --> 0:02:52.239 the Foreign Minister of China, So hopefully no one fell 0:02:52.280 --> 0:02:55.760 asleep and started snorting snoring on that zoom call. But 0:02:56.080 --> 0:02:58.280 we're very happy to have him back on the show. 0:02:58.520 --> 0:03:02.359 He is started mentioned just a really phenomenal interesting career, 0:03:02.800 --> 0:03:07.160 long time at Goldman Uh, several really interesting white house jobs. 0:03:07.680 --> 0:03:12.040 He's currently managing director at Taman Advisers. His name is 0:03:12.040 --> 0:03:15.520 Bob Hormetts. Bob, welcome back to the show. Thank you 0:03:15.639 --> 0:03:17.760 very much. It's always a pleasure to be on this 0:03:17.840 --> 0:03:22.480 show and I enjoy Bloomberg. I particularly enjoyed it when 0:03:23.160 --> 0:03:25.480 I get up in the morning at six am, come 0:03:25.480 --> 0:03:32.080 in and drink a triple Lotte Espresso. These days, Bob, 0:03:32.480 --> 0:03:34.920 we go to expresso to go on Tom Kean show. 0:03:35.480 --> 0:03:39.120 You needed at least three expressos or three latdays to 0:03:40.200 --> 0:03:44.360 get up to that level of proficiency and energy that 0:03:44.440 --> 0:03:48.080 Tom exods, right. I think I'm not I'm still not 0:03:48.160 --> 0:03:50.360 ready for Tom after that many lattases. So I don't know. 0:03:50.600 --> 0:03:53.400 I think I think you need the latte's and a 0:03:53.560 --> 0:03:55.480 and a and a resume like hers to talk to 0:03:55.480 --> 0:03:58.080 Tom at that hour, Bob. So, uh, but let's talk 0:03:58.080 --> 0:04:02.880 about that. I think China, the relationship with China right now, 0:04:02.920 --> 0:04:05.600 I think is is at such a fascinating point, obviously 0:04:05.680 --> 0:04:09.040 with the change of the administration. So tell us, you know, 0:04:09.080 --> 0:04:10.760 tell us about that zoom call. I hope no one 0:04:10.800 --> 0:04:13.800 was snoring. But also what's your sense of sort of 0:04:13.880 --> 0:04:17.320 you know, how Beijing is viewing the relationship with the 0:04:17.400 --> 0:04:19.440 US as we sort of turned the page on on 0:04:19.480 --> 0:04:23.200 this White House. Well, there are different levels, uh, in 0:04:23.240 --> 0:04:32.480 this relationship. One clearly, President Jijiping has aspirations of Chinese 0:04:32.600 --> 0:04:38.960 leadership of the global economic order, uh and perhaps political 0:04:39.080 --> 0:04:42.360 order of the first part of the twenty one century, 0:04:42.440 --> 0:04:46.159 and really wants China to play a global leadership role 0:04:46.480 --> 0:04:51.359 and help shape the global political and economic order of 0:04:51.480 --> 0:04:54.640 this period, and in part over the last several years, 0:04:54.680 --> 0:04:58.000 because the US has really not played a very proactive 0:04:58.120 --> 0:05:03.520 role in shaping the order or in supporting alliances or 0:05:03.520 --> 0:05:08.480 international institutions, the Chinese have seen the opportunity to take 0:05:08.560 --> 0:05:13.679 advantage of this opening and to exert leadership. So that's 0:05:13.720 --> 0:05:19.159 really part one. Part two is that shi Jin Pain 0:05:19.320 --> 0:05:25.400 has strengths and the role of the Communist Party in China. Uh. 0:05:25.440 --> 0:05:33.680 He is clearly um one of the most dominant UH 0:05:33.920 --> 0:05:40.760 personalities and strongest leaders China has had since the revolution 0:05:40.880 --> 0:05:43.960 in four in the hand of the revolution the Declaration 0:05:43.960 --> 0:05:48.320 of the Peoples Republic of China in nine. Uh, you know, 0:05:48.360 --> 0:05:52.039 there was mouth, there was Don chall Pain, and now 0:05:52.120 --> 0:05:58.560 we have the very powerful leadership of Shijin Pain. And 0:05:58.640 --> 0:06:02.920 he wants to not only ensure the strength of his leadership, 0:06:03.000 --> 0:06:09.200 but the continued strong role of the Communist Party. And three, 0:06:09.360 --> 0:06:16.440 he is clearly intent on developing China's role as a 0:06:16.520 --> 0:06:22.040 global technological power of the first order in AI, quantum computing, 0:06:22.279 --> 0:06:27.480 five G, any number of things. He feels that China 0:06:27.680 --> 0:06:32.240 was passed over because of its own internal weakness and 0:06:32.360 --> 0:06:38.000 because of the West sort of um leaping ahead in 0:06:38.160 --> 0:06:41.960 the last two industrial revolutions. He wants China to be 0:06:42.120 --> 0:06:46.880 a leader in the technological revolution of the twenty one century, 0:06:46.880 --> 0:06:50.320 and that means competing very hard with the United States 0:06:50.440 --> 0:06:54.320 and putting a lot of money into this competitive effort. 0:06:55.080 --> 0:06:58.960 Uh And and there's certainly a greater degree of nationalism 0:06:59.000 --> 0:07:02.120 in China than before, and a lot of tensions with 0:07:02.279 --> 0:07:07.360 the US over intellectual property protection, how to deal with businesses, 0:07:08.480 --> 0:07:12.440 trade secrets, a whole range of things. But the last 0:07:12.440 --> 0:07:16.120 point is that the Chinese also and this was emphasized 0:07:16.120 --> 0:07:21.440 by the Foreign Minister h also want to be able 0:07:21.480 --> 0:07:24.240 to work with the United States in certain areas where 0:07:24.280 --> 0:07:28.560 there is the potential for collaboration. Certainly there has been 0:07:28.600 --> 0:07:33.679 a history of cooperation on medical issues. Chinese doctors work 0:07:33.720 --> 0:07:37.440 in virtually every hospital in this country. China is working 0:07:37.480 --> 0:07:44.240 on advanced medicines, including vaccines and therapeutics. China also wants 0:07:44.320 --> 0:07:49.880 to play a major leadership role on environmental issues. And 0:07:49.960 --> 0:07:54.040 if the US, now under Biden, wants to regain its 0:07:54.160 --> 0:07:58.360 leadership on environmental issues, we're gonna have to find some 0:07:58.440 --> 0:08:02.600 way of working with China, as the Obama administration did. 0:08:03.240 --> 0:08:07.080 And then there's the financial area, where if you go 0:08:07.160 --> 0:08:10.520 back to two thousand and eight, the financial crisis of 0:08:10.640 --> 0:08:14.240 that era was resolved in large measure because of the 0:08:14.280 --> 0:08:17.320 cooperation between the United States and China. The People's Bank 0:08:17.360 --> 0:08:20.720 of China and the FED, the US Treasury in the 0:08:20.800 --> 0:08:24.000 Chinese Finance Ministry worked very close to the other. So 0:08:24.560 --> 0:08:29.000 it's a competitive relationship. We're dealing with a country that 0:08:29.200 --> 0:08:33.320 is far more competitive and far more areas than the 0:08:33.400 --> 0:08:37.520 United States has faced at any time during the postwar period, 0:08:38.240 --> 0:08:40.960 and we have to figure out how we can strengthen 0:08:41.040 --> 0:08:45.760 our own competitive capabilities if we're going to compete with China, 0:08:45.800 --> 0:08:48.280 and that I think is one of the things that 0:08:48.800 --> 0:09:01.120 President Biden will want to emphasize. So what's the expectation 0:09:01.240 --> 0:09:04.160 do you feel on how the Biden administration is going 0:09:04.200 --> 0:09:08.439 to go about walking that line between competition and cooperation. 0:09:08.520 --> 0:09:11.480 I think of the last four years, and clearly tariffs 0:09:11.520 --> 0:09:14.959 had effect an effect on the economy and markets. We've 0:09:14.960 --> 0:09:17.960 heard of stock delistings back and forth and back and 0:09:18.040 --> 0:09:21.320 forth whether or not those in the US can invest 0:09:21.360 --> 0:09:24.959 in Chinese companies. What do you think the Biden administration 0:09:25.040 --> 0:09:28.360 is going to target here well, I think as the 0:09:28.679 --> 0:09:32.960 Biden administration's tone each to each China will not be 0:09:33.040 --> 0:09:38.360 as strident as um the Trump administration's tone. But I 0:09:38.400 --> 0:09:44.000 do think that Biden and both Republicans and Democrats and 0:09:44.080 --> 0:09:49.560 the business community in general want a tougher line on China. 0:09:49.600 --> 0:09:52.840 And then the United States has displayed before on such 0:09:52.880 --> 0:09:59.040 things as intellectual property, the rules with respected data privacy, 0:09:59.360 --> 0:10:04.520 how far earned companies are dealt with a whole range 0:10:04.559 --> 0:10:09.440 of things for trade secrets of American companies. So I 0:10:09.480 --> 0:10:14.679 think he's going to uh not revert back to the 0:10:14.800 --> 0:10:19.760 uh softer period of of the past, but we'll take 0:10:19.760 --> 0:10:24.000 a harder line. I don't expect an immediate withdrawal of 0:10:24.080 --> 0:10:27.720 some of the tariffs uh. And I don't expect another 0:10:28.120 --> 0:10:32.960 grand round of trade negotiations is so called Round two. 0:10:33.040 --> 0:10:35.760 I think you will try to get China to comply 0:10:35.960 --> 0:10:39.839 with the commitments of Round one. But I do think 0:10:40.120 --> 0:10:43.120 two things will happen. First, the United States has to 0:10:43.160 --> 0:10:47.240 decide what it really wants from China. Can't just present 0:10:47.320 --> 0:10:53.880 a whole menu so called Chinese menu uh and say 0:10:53.920 --> 0:10:55.960 we want you do all these things. We have to 0:10:56.040 --> 0:11:02.120 figure out, preferably on a bipartisan basis, what the priorities 0:11:02.160 --> 0:11:07.800 are from our own part point of view. Second, how 0:11:08.000 --> 0:11:10.720 we work with our friends and allies. And I think 0:11:10.760 --> 0:11:14.959 this has been a deficiency over the last several years, 0:11:15.000 --> 0:11:19.640 that we we have so many trade hassles with our 0:11:19.720 --> 0:11:25.319 friends and allies using various parts of Trade Act or 0:11:25.360 --> 0:11:28.640 Trade Act, that they are not in a mood to 0:11:28.720 --> 0:11:32.160 really work with the United States on China, even though 0:11:32.240 --> 0:11:35.800 many of our objectives vias of each China are similar 0:11:36.120 --> 0:11:40.200 to the objectives of other countries like Germany. For instance, 0:11:40.240 --> 0:11:44.560 the Chinese book this big robotics company called Puca, and 0:11:44.600 --> 0:11:47.840 then the Germans wanted to buy a large, comparable, not 0:11:48.000 --> 0:11:51.280 the same, but comparable Chinese company. Chinese said no, and 0:11:51.320 --> 0:11:54.480 of course the Germans said, this is not fair, it's 0:11:54.520 --> 0:11:57.440 not a level of playing field. So I think that 0:11:57.920 --> 0:12:01.880 if we're smart, will not only develop our own sets 0:12:01.920 --> 0:12:05.040 of objectives, to find out what other countries objectives are 0:12:05.520 --> 0:12:08.520 and figure out where there are ways of working with 0:12:09.320 --> 0:12:15.360 other countries collectively to convince China to adhere to certain 0:12:15.480 --> 0:12:19.760 rules and norms and practices. And that means working with Japan, 0:12:20.880 --> 0:12:26.640 South Korea, the EU, and countries such as India and others, 0:12:27.200 --> 0:12:30.559 and related to that, I don't think the Biden administration 0:12:30.640 --> 0:12:34.120 is going to immediately in part for domestic political reasons. 0:12:34.920 --> 0:12:38.600 Um they're the Republicans who don't like it, Democrats who 0:12:38.640 --> 0:12:41.079 don't like it. That is to say, a new t 0:12:41.280 --> 0:12:44.839 p P or the new t p P M. I 0:12:44.880 --> 0:12:46.920 don't think Asas is going to come back and join 0:12:47.040 --> 0:12:50.680 that right away. But I think there are elements of 0:12:50.920 --> 0:12:55.800 the current tpp that the United States can support, and 0:12:56.000 --> 0:12:59.720 the United States can certainly work the other with members 0:12:59.800 --> 0:13:03.520 of the new t p P on these of each China, 0:13:03.600 --> 0:13:06.920 on issues where there is common ground, there's a certain 0:13:07.040 --> 0:13:11.040 common sense of a mutual objective, so we don't have 0:13:11.120 --> 0:13:14.000 to rejoin it, but we do need to work with 0:13:14.080 --> 0:13:17.400 it in the in the near term. In the medium term, 0:13:17.480 --> 0:13:19.040 I think there'll be a lot of talked about the 0:13:19.080 --> 0:13:24.440 United States rejoining some kind of t p P like 0:13:24.840 --> 0:13:31.480 mechanism because it shows cohesion economically in the Pacific, but 0:13:31.559 --> 0:13:35.800 are also demonstrates that the United States is back as 0:13:35.840 --> 0:13:40.520 a major player instead of pulling back on the economic front, 0:13:40.760 --> 0:13:45.520 is collaborating in a more effective way on the economic front. 0:13:45.520 --> 0:13:47.520 And the t p P is a vehicle that was 0:13:47.600 --> 0:13:50.640 designed to do that, and since the United States pulled 0:13:50.640 --> 0:13:54.400 away from it, we have sort of left that vehicle 0:13:54.520 --> 0:13:57.120 to others. The Japanese have done a great job of 0:13:57.800 --> 0:14:01.880 leadership of that, but the United States still needs to 0:14:01.920 --> 0:14:05.720 play a role in it, Bob. So many of President 0:14:05.760 --> 0:14:10.400 Trump's policies were motivated by the trade deficit. Um and here, 0:14:10.480 --> 0:14:12.400 you know, as he prepares to sort of right off 0:14:12.400 --> 0:14:16.439 into the sunset China's last trade report, it looks like 0:14:16.520 --> 0:14:20.640 their exports, UH, their their trade surplus UH is at 0:14:20.680 --> 0:14:23.200 a record high. I mean, I guess you can, you know, 0:14:23.240 --> 0:14:24.760 you can look at some of the U S data 0:14:24.800 --> 0:14:27.400 and see that our exports to China as as a 0:14:27.440 --> 0:14:31.800 percentage of of exports have have risen significantly. And obviously 0:14:31.840 --> 0:14:37.280 the virus has just uh really clouded these numbers pretty severely. 0:14:38.000 --> 0:14:40.560 But I wonder, you know, when you look back on 0:14:40.640 --> 0:14:45.760 everything that was done to shrink that trade deficit, I wonder, a, um, 0:14:47.320 --> 0:14:50.400 will it work eventually once we're through the other side 0:14:50.400 --> 0:14:53.560 of this virus? And b is that sort of hyper 0:14:53.640 --> 0:14:57.680 focus on the trade deficit a good idea from the 0:14:57.720 --> 0:15:01.000 American perspective? Is it sort of our our main problem 0:15:01.120 --> 0:15:03.520 or is there you know, is it? Is it kind 0:15:03.520 --> 0:15:07.120 of overblown that to focus on it so so severely, Well, 0:15:07.160 --> 0:15:09.200 I would, but this way it would be nice to 0:15:09.280 --> 0:15:16.600 have a trade relationship with China that is more imbalanced 0:15:16.640 --> 0:15:23.280 than currently. But the fact is that trade deficits or 0:15:23.280 --> 0:15:29.200 surpluses in this case deficits really are The economists will 0:15:29.240 --> 0:15:32.640 have models that demonstrate this, that there is between what 0:15:32.720 --> 0:15:37.520 we save and what we spend, because what we if 0:15:37.560 --> 0:15:43.360 we spend a lot more, the economy grows and we 0:15:43.360 --> 0:15:48.080 we import more from abroad, and then we have to 0:15:48.200 --> 0:15:50.800 borrow the money to make up the difference, which is 0:15:50.840 --> 0:15:53.920 why we're able and why we have to in effect 0:15:54.040 --> 0:15:57.760 sell more farm bonds, the far the bonds, some more 0:15:57.760 --> 0:16:02.200 bonds abroad, and that essentially it means that we are 0:16:02.600 --> 0:16:06.160 increasingly in debt, not only to our own people, but 0:16:06.240 --> 0:16:09.080 if we're going to be borrowing more and more money, 0:16:09.240 --> 0:16:11.720 as we probably have to do to get the economy 0:16:11.760 --> 0:16:15.960 going and to deal with COVID relief, then we have 0:16:16.040 --> 0:16:18.920 to get some money to pay for the treasury. Someone 0:16:18.920 --> 0:16:23.040 has to buy these treasuries, and it comes from abroad, 0:16:23.400 --> 0:16:26.800 whether it comes from China which has not been buying 0:16:26.840 --> 0:16:29.560 a lot of treasuries lately, or other countries like Japan, 0:16:29.640 --> 0:16:34.240 which has where we're going to have a financial deficit 0:16:34.320 --> 0:16:38.880 and a trade deficit um if we do not generate 0:16:38.920 --> 0:16:42.040 a higher level of savings than before, and if we 0:16:42.080 --> 0:16:45.280 continue to borrow a lot of money as as we 0:16:45.360 --> 0:16:50.280 are now. So I'm not particularly worried about um this 0:16:50.480 --> 0:16:54.760 in the near term, but I think over the medium term, 0:16:54.960 --> 0:16:57.400 the key point for me is not so much the 0:16:57.520 --> 0:17:01.960 numbers of the deficit, but are we competitive in the 0:17:02.120 --> 0:17:08.280 key areas that are the essential twenty one century technologies 0:17:08.800 --> 0:17:11.120 that are going to be important from our own economic 0:17:11.160 --> 0:17:14.439 point of view, and other countries like China consider them 0:17:14.480 --> 0:17:16.920 important from a Chinese point of view. So it's our 0:17:17.000 --> 0:17:21.840 competitive strength in these new areas of technology and in 0:17:21.920 --> 0:17:27.040 manufacturing in general, and in services that are critical to me, 0:17:27.200 --> 0:17:32.720 not some numerical uh metric, but our competitive strengths. And 0:17:33.119 --> 0:17:39.359 that's where we have to put more money into science, technology, mathematics, physics, 0:17:39.520 --> 0:17:44.400 and and all the so called stems to make ourselves 0:17:44.440 --> 0:17:47.960 more competitive in a very competitive world. And we're we 0:17:48.760 --> 0:17:52.800 That means investing in education, That means more training, That 0:17:52.880 --> 0:17:56.960 means people who have not had the benefit of training 0:17:57.000 --> 0:18:02.720 and technology get opportunities to do that, which means improving 0:18:02.760 --> 0:18:07.119 the school system, not just very high quality schools like 0:18:07.160 --> 0:18:11.520 Wrong Science and Stuyvesant here in New York, but strengthening 0:18:11.560 --> 0:18:16.280 community college is strengthening schools and getting people energized about 0:18:16.400 --> 0:18:21.320 mathematics and physics and science and technology. Because we're competing 0:18:21.320 --> 0:18:24.360 with a lot of very competitive Chinese. If we want 0:18:24.359 --> 0:18:29.600 to compete, we have to have competitive workers and researchers 0:18:29.640 --> 0:18:33.080 and others in the United States. That's the challenge. Then, 0:18:33.400 --> 0:18:36.919 more to me, more than a given number, Can you 0:18:37.000 --> 0:18:39.040 break down the thinking on that a little bit more? 0:18:39.119 --> 0:18:41.520 For us? The idea that you can have a higher 0:18:41.560 --> 0:18:44.760 deficit and more spending as long as you are competitive, 0:18:44.840 --> 0:18:48.720 is it? Is it simply the return on investment? Well, 0:18:49.160 --> 0:18:52.880 and then it gets complicated because you if you have 0:18:53.000 --> 0:18:56.520 if you have large deficits for a sustained period of time, 0:18:56.880 --> 0:18:59.760 you're building up a lot of debt to other countries. 0:19:00.240 --> 0:19:02.880 Of course, you have to pay that debt. Now at 0:19:02.880 --> 0:19:05.720 the moment, it's not so hard to do because interest 0:19:05.840 --> 0:19:10.560 rates on treasuries, which is what foreign investors had to 0:19:10.560 --> 0:19:13.600 buy a lot of uh that interest rates quite low. 0:19:13.880 --> 0:19:17.520 When interest rates start going up, as now many predicts 0:19:17.560 --> 0:19:22.040 they will with all this borrowing. Then the debt servicing 0:19:23.000 --> 0:19:25.639 becomes a bigger burden, and it becomes a bigger burden 0:19:25.680 --> 0:19:29.120 to the federal government because it crowds out other programs, 0:19:29.800 --> 0:19:32.840 and it means the United States has to in effect 0:19:32.880 --> 0:19:36.399 pay more to other countries that will led us the money, 0:19:37.359 --> 0:19:41.920 which is money that's not spent here. So I think 0:19:41.920 --> 0:19:44.560 what Bob is saying is that my English degree did 0:19:44.600 --> 0:19:49.119 not really help this nation become more competitive. I should 0:19:49.119 --> 0:19:52.680 have majored in accounting. I knew it, or or science 0:19:52.760 --> 0:20:13.480 or something stem. You know, Bob, you mentioned the fiscal 0:20:13.560 --> 0:20:16.400 deficit and the federal debt and who's going to buy 0:20:16.440 --> 0:20:19.280 all these treasuries. I mean, obviously the Federal Reserve is 0:20:19.320 --> 0:20:22.600 the big the big buyer these days, you know, and 0:20:22.800 --> 0:20:26.760 sort of the notion of modern monetary theory has really 0:20:26.760 --> 0:20:30.639 picked up a lot of steam lately. People say, you know, 0:20:30.800 --> 0:20:34.800 don't don't fret over the debt and the deficit. Um, 0:20:34.840 --> 0:20:37.120 if you issue your own currency, you can always pay 0:20:37.119 --> 0:20:40.000 it back, that that sort of thing. Um. I'm guessing 0:20:40.080 --> 0:20:43.480 you're not in that that camp. I would assume, well, I, 0:20:43.480 --> 0:20:46.840 I you know, it's a time issue more than anything, 0:20:47.320 --> 0:20:51.160 I do think that we need while we're in this 0:20:52.040 --> 0:20:56.120 UH period of COVID and and a lot of people's 0:20:56.200 --> 0:21:00.000 lives are being disrupted, a lot of companies are closed 0:21:00.160 --> 0:21:03.320 and down, and there's a lot of pain the cities 0:21:03.359 --> 0:21:05.840 and states. And I want to add this as an 0:21:05.840 --> 0:21:11.399 important underlying underlying point. We're gonna need legislation that helps 0:21:11.960 --> 0:21:16.480 individuals who are harmed by the shutdown and by COVID. 0:21:16.520 --> 0:21:21.119 We're gonna need to help companies of a wide range 0:21:21.119 --> 0:21:24.680 of companies in fact, but particularly small and medium sized businesses. 0:21:25.119 --> 0:21:27.800 Many of them are being forced to shut down. We're 0:21:27.840 --> 0:21:30.879 going to We're gonna also need to help cities and states. 0:21:30.920 --> 0:21:34.520 They're absorbing a huge amount of the burden, you know, 0:21:34.840 --> 0:21:38.560 Medicaid and and and the states. This is a very 0:21:38.600 --> 0:21:42.280 expensive proposition in these states. Unlike the federal government, the 0:21:42.320 --> 0:21:44.720 states can't print money, and many of them are forbidden 0:21:44.720 --> 0:21:50.960 to have deficits by their constitutions, so they are having 0:21:51.000 --> 0:21:55.040 to lay off people. They're having to cut back on 0:21:55.200 --> 0:21:59.680 services that in an effect is particularly harmful to low 0:21:59.760 --> 0:22:04.639 end people. It is in New York and UH and 0:22:04.640 --> 0:22:11.240 and and and disadvantaged UH socioeconomic groups. So I think, UH, 0:22:11.280 --> 0:22:13.560 if money needs to be spent, obviously it shouldn't be 0:22:13.600 --> 0:22:16.680 spent wisely. But if money needs to be spent now 0:22:17.680 --> 0:22:20.359 UH to deal with these issues, it should be And 0:22:20.400 --> 0:22:24.760 I'm all for UH President elect Biden seem to be 0:22:24.800 --> 0:22:28.719 President Biden coming up with a bold spending program for 0:22:28.800 --> 0:22:33.080 COVID relief, for state and local governments and for other things. 0:22:33.160 --> 0:22:39.680 And I'm also of the view that UM infrastructure is 0:22:40.000 --> 0:22:43.840 critically important. Eisen Our understood this after the World A 0:22:44.000 --> 0:22:46.600 World War two in the Korean where he launched the 0:22:46.640 --> 0:22:49.720 Interstate Highway program. Why did he do this? Obviously we 0:22:49.760 --> 0:22:52.879 needed new highways, but he wanted to be able to 0:22:52.920 --> 0:22:58.399 create jobs for people who were coming back from the wars. 0:22:59.119 --> 0:23:01.560 So we're really a now in a similar situation where 0:23:01.600 --> 0:23:03.159 a lot of jobs have been lost. We've got to 0:23:03.200 --> 0:23:07.200 create new jobs, and we need to deal with people 0:23:07.240 --> 0:23:11.959 who were hurt by COVID, whose companies are being forced 0:23:12.000 --> 0:23:15.040 out of business, who are losing their jobs, and state 0:23:15.080 --> 0:23:18.000 and local governments in particular need a lot of help, 0:23:18.080 --> 0:23:21.320 and that should be a critical part of this built 0:23:21.560 --> 0:23:25.359 because these states and local governments, if they off people 0:23:25.359 --> 0:23:28.159 and they cut back on services, there's going to be 0:23:28.240 --> 0:23:31.800 a lot of social unrest in many of these cities 0:23:32.160 --> 0:23:37.879 and states. So, UM, that's the current environment. Said it 0:23:37.920 --> 0:23:41.880 was a timing issue. Over the longer term, UM, there 0:23:41.920 --> 0:23:47.320 needs to be a way of of paying back at 0:23:47.400 --> 0:23:50.720 least some I don't expect all, but at least some 0:23:51.359 --> 0:23:55.000 of the money that's been borrowed. Now. I don't think 0:23:55.040 --> 0:23:56.920 this is gonna be easy, and I don't really know 0:23:57.040 --> 0:23:58.720 that they're easy ways of doing it. In the past, 0:23:58.720 --> 0:24:01.879 there was you create a lot of inflation, and inflation 0:24:02.080 --> 0:24:04.119 enables the federal government to get more money because you 0:24:04.200 --> 0:24:06.760 people move up in the tax bracket, and then they 0:24:06.800 --> 0:24:10.600 can help pay off the debt. But I think for 0:24:10.680 --> 0:24:14.320 the moment, the reality is we're going to have a 0:24:14.600 --> 0:24:20.520 large debt for a long period of time and and 0:24:20.680 --> 0:24:29.280 big uh growth, high growth expectations or high inflationary expectations, 0:24:29.840 --> 0:24:35.160 or very substantial increases and taxes are probably not likely. 0:24:36.000 --> 0:24:39.119 And therefore we're going to probably have to learn to 0:24:39.160 --> 0:24:43.320 live with these deficits and the these debts and and 0:24:43.520 --> 0:24:47.679 perhaps deficits, but certainly debts. And the FED, as you 0:24:47.760 --> 0:24:50.679 pointed out earlier, is going to be putting more and 0:24:50.760 --> 0:24:53.439 more paper on its books, is going to be in 0:24:53.480 --> 0:24:56.240 effect printing more money. So the FED is going to 0:24:56.359 --> 0:24:59.760 have a very very high balance sheet for a long 0:25:00.000 --> 0:25:04.160 piod of time. And on modern monetary theory, um, whether 0:25:04.240 --> 0:25:07.240 one believes in it or not, and there it's controversial. 0:25:07.720 --> 0:25:11.640 The reality is the FED is forced into it because 0:25:11.680 --> 0:25:14.800 it has to lend at low rates because people need 0:25:15.160 --> 0:25:18.840 the money and may can't service debts at high rates 0:25:19.240 --> 0:25:24.719 federal government included, So the FED prints money um in 0:25:24.720 --> 0:25:28.240 effect buys bonds with at very low interest rates, which 0:25:28.240 --> 0:25:33.720 effectively is spreading money and UM. And that's gonna happen 0:25:33.920 --> 0:25:36.320 for a long time. If the Fed starts raising rates 0:25:36.400 --> 0:25:39.040 or rates started going up, all these people who are 0:25:39.119 --> 0:25:45.639 leveraged to low rates, companies, individuals, homeowners are going to 0:25:45.800 --> 0:25:48.840 start having to use a lot of the money they 0:25:48.880 --> 0:25:52.240 make to repay debts. It will slow the economy down. 0:25:53.160 --> 0:25:55.600 So the FED actually is sort of forced the position 0:25:55.640 --> 0:25:58.160 where it can't really allow rates to go too much 0:25:58.600 --> 0:26:01.240 because it was slowly economy down very quickly, and then 0:26:01.840 --> 0:26:04.639 the federal government would be at state local governments would 0:26:04.640 --> 0:26:08.280 be paying out more money, which means other programs would suffer. 0:26:08.800 --> 0:26:12.119 And I'd add one caveat However, and that is these 0:26:12.240 --> 0:26:18.080 low rates are very painful to savers, particularly the elderly, 0:26:18.280 --> 0:26:21.520 because they you know, they thought, gee, if I've if 0:26:21.560 --> 0:26:24.080 I've made twenty dollars in my life, I have two 0:26:24.040 --> 0:26:27.040 thousand dollars in savings I put in the bank, or 0:26:27.080 --> 0:26:29.840 I buy treasuries, I get a nice interest rates. That's 0:26:29.840 --> 0:26:32.680 what they thought several years ago. And I get a 0:26:32.760 --> 0:26:36.600 nice interest rate of maybe two or three percent. That's 0:26:36.640 --> 0:26:40.000 what a lot of people would have thought several years ago. 0:26:40.359 --> 0:26:43.080 But it turns out now that the interest rate that 0:26:43.160 --> 0:26:46.240 they get is you know, a fraction of that. And 0:26:47.040 --> 0:26:52.120 so for savers, particularly conservative or elderly people who've saved 0:26:52.160 --> 0:26:55.640