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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: Eachwar percent out of Cornell right in the following. The
Speaker 2: President has now declared open war on the US institutional framework,
Speaker 2: which underpins the dollars dominance in global finance, as well
Speaker 2: as other aspects of US financial supremacy. Each war joins
Speaker 2: us now for more. Each one, Welcome back to the
Speaker 2: program sir. Let's just take your line of thinking. If
Speaker 2: we have declared open war on US institutions, where are
Speaker 2: you seeing signs of damage?
Speaker 3: So, if one thinks about, what are the key elements
Speaker 3: of the institutional framework that, as I mentioned, have underpinned
Speaker 3: the dollars supremacy and foreign investors trust, particularly in the
Speaker 3: US financial system. It includes a system of checks and
Speaker 3: balances that is institutionalized, the rule of law, and most importantly,
Speaker 3: an independent central bank. Each of these elements of the
Speaker 3: US institutional framework, you know, took some things during the
Speaker 3: first wrong term, but during the second term, Trump is
Speaker 3: really taking a hatchet to each of them. None of
Speaker 3: the checks and balances, either from Congress or to some extent,
Speaker 3: from the judicial system, seem to be working very well.
Speaker 3: The fedce independence is really crucial, and if you emphasize
Speaker 3: there is operational independence. You know, no central bank can
Speaker 3: be ultimately free of political influence, because after all, it
Speaker 3: has to serve the welfare of the people. But in
Speaker 3: the operational decision making, you know, all evidence seems to
Speaker 3: suggest that leaving the central bank alone to do its
Speaker 3: job is that I think makes it most effective and credible,
Speaker 3: and that's what Trump is attacking.
Speaker 4: The FED said that they would abide by what the
Speaker 4: court decides. I read that statement to the President live
Speaker 4: in the cabinet room, and it came out and asked him,
Speaker 4: would you abide by the courts? And he says, yes,
Speaker 4: of course he will. So if the court decides that
Speaker 4: Lisa Cook can stay. Is the damage already done or
Speaker 4: do you think that Ben just bolsters the view in
Speaker 4: America that we do have independent institutions.
Speaker 3: Well, at the moment, I think a great deal of
Speaker 3: damage has already been done, because Trump is very clear
Speaker 3: that he wants to bend every institution in the US,
Speaker 3: including a statutorily independent one like the Federal Reserve, to
Speaker 3: his will in terms of policy making and the broader
Speaker 3: elements of policy that need to line up with his desires.
Speaker 3: And that's not quite You know what has helped America
Speaker 3: maintain it's financial supremacy. It's a sense that everybody, including
Speaker 3: the government, has to play by the rules. You know,
Speaker 3: we may not like the rules, but whether you're a
Speaker 3: domestic investor or foreign investor, or the very government that
Speaker 3: sets the rules, you have to play by the rules.
Speaker 3: And that is the element that Trump is attacking now.
Speaker 3: Even a system where you have the rules very clearly
Speaker 3: laid out, ultimately it is norms that matter, because you
Speaker 3: cannot really write a rule that covers every eventuality, every
Speaker 3: circumstance of the world. And those norms are certainly being shattered.
Speaker 3: And this is I think the real concern because even
Speaker 3: if Lisa Cook does stay on the board, a certain
Speaker 3: red line has been crossed and has made it very
Speaker 3: clear that it is loyalty to him and his policies
Speaker 3: that matter is much more than technical competence, even in
Speaker 3: an institution that is supposed to be largely run in
Speaker 3: technocratic grounds.
Speaker 4: What does happen though, if, as the DOJ said last week,
Speaker 4: they're potentially going to investigate this, what happens if Governor
Speaker 4: Cook is convicted of mortgage fraud? Does she belong there?
Speaker 3: So this is a really ugly matter, and it is
Speaker 3: going to get uglier because we are seeing that these
Speaker 3: allegations seem to be swelling up without much of the
Speaker 3: evidence being presented, And of course, once the evidence comes out,
Speaker 3: things will become a lot clearer what the intentions were,
Speaker 3: what the motives were, and, as your colleague pointed out,
Speaker 3: the definition of causes very important here. Trump has argued
Speaker 3: that Lisa Quick is one of the overseers of the
Speaker 3: mortgage market and therefore any malfeasans or even the notion
Speaker 3: of malfeasance there is enough to be considered cause for
Speaker 3: firing her. But the question here is whether the real
Speaker 3: cause should be in terms of her incompetence when it
Speaker 3: comes to monetary policy issues, or some much deeper issue
Speaker 3: of malfeasance, which certainly has not been established yet, but
Speaker 3: whatever it is, it has certainly put the Fed on
Speaker 3: notice that every one of its voting members it's going
Speaker 3: to be subject to very careful scrutiny, which perhaps is
Speaker 3: not by itself a bad thing, but in a potentially
Speaker 3: very ugly way, being held to standards that certainly deviate
Speaker 3: from the past.
Speaker 2: Each way, I agree that this moment is ugly. I
Speaker 2: would also suggest in the same way that you have
Speaker 2: it's very difficult to discuss because we have hearing about
Speaker 2: the allegations, but no formal legal investigation has been opened.
Speaker 2: At the same time, Governor Kirk hasn't exactly denied anything
Speaker 2: that's been alleged, which makes it equally as complicated each
Speaker 2: wa I'm trying to understand how different this moment is
Speaker 2: to a moment we had a number of years ago
Speaker 2: of a financial disclosures of Federal Reserve officials who later
Speaker 2: resigned themselves because it became a distraction for the institution.
Speaker 2: Why do you believe this moment is different?
Speaker 3: I think Lisa Cook is making a very important stand
Speaker 3: because without the evidence being clearly revealed, and in the
Speaker 3: case of the other federal officials, there were allegations initially,
Speaker 3: but ultimately they resigned when the evidence did come out.
Speaker 3: So at this stage we do not have any clear evidence. Yet,
Speaker 3: we have a bunch of allegations by one Trump administration official,
Speaker 3: and these have largely been intermediated through the platform x
Speaker 3: So I think the real issue is whether there will
Speaker 3: be a process that is enow to take its course.
Speaker 3: So rather than firing on the basis of this allegation,
Speaker 3: if it were if it was a situation where the
Speaker 3: evidence was clearly laid out so we could all see it,
Speaker 3: and then the ramifications were teased out, and then the
Speaker 3: president took action, it will be a very different thing.
Speaker 3: And of course the context is very important here. Trump
Speaker 3: has been attacking the FED. He's already made comments about
Speaker 3: Lisa Cook not having done what he thinks she and
Speaker 3: other members of the FED board should have done, which
Speaker 3: is to cut interest rates quite aggressively. So there seems
Speaker 3: to be a mix of these allegations plus what he
Speaker 3: considers malfeasance in terms of not following his policy wishes,
Speaker 3: So I think that's one of the reasons why Lisa
Speaker 3: Cook might be making a standard. Of course, we're still
Speaker 3: agree and see how the evidence bleaves.
Speaker 2: Old stay with us. More Bloomberg surveillance coming up after this.
Speaker 2: The former Trump White House trade official Kate Colloquwitz right
Speaker 2: in the following they expanded terrifs further weaken the prospects
Speaker 2: for a near term US India trade deal, with bilateral
Speaker 2: talks stored. Kate joined us now for more, Kate, welcome
Speaker 2: back to the program. I think we have to start
Speaker 2: from the very top blurring the lines between economics and
Speaker 2: national security objectives. Can you just build on that and
Speaker 2: why India is so important right now?
Speaker 5: Yeah, the situation with India is at a place I
Speaker 5: think none of us predicted early in the president's term.
Speaker 5: You know, they had risen out of the gate really
Speaker 5: as one of the first countries with which we expected
Speaker 5: a trade deal. But these national security issues, particularly the
Speaker 5: ongoing situation with Russia and Ukraine, have really elevated them
Speaker 5: as a problem in the President's mind. And now we
Speaker 5: see terror us reaching the levels of China almost the
Speaker 5: highest of any country at present.
Speaker 2: Okay, as you know, China still buys Russian energy, the
Speaker 2: Europeans still buy Russian gas. Does consistency mats a here?
Speaker 1: Well?
Speaker 5: Apparently not. The President has made clear, of course, that
Speaker 5: he'll go after some of these other nations with this
Speaker 5: new executive order that targets buyers of Russian oil. But
Speaker 5: it's very clear only one country has received the additional penalties,
Speaker 5: and that's India. So hard to say that there's consistency here.
Speaker 4: So where do the talks stand now we know that
Speaker 4: they're basically on hold. How quickly could these two trading
Speaker 4: partners coalesce and get you an agreement?
Speaker 5: Well, as we've seen with other previously stuck agreements. I mean,
Speaker 5: I think anything can happen if you get the two
Speaker 5: leaders together. What we've seen so far, however, is that
Speaker 5: India's Prime Minister, because he has his own domestic political challenges,
Speaker 5: of course, is somewhat reluctant to get on the phone
Speaker 5: with President Trump. As you all know, that can be
Speaker 5: quite uncertain as to what the President can ask when
Speaker 5: he gets on the phone with you. But I think
Speaker 5: it could get unstuck if the two men get together
Speaker 5: and find a pathway forward. That's what We've seen happen
Speaker 5: with President Trump, and I think it could happen here
Speaker 5: with India.
Speaker 4: Is it going to potentially hurt India's chances given the
Speaker 4: fact that Prime Minister Modi is set to have a
Speaker 4: meeting and meet Shijipan in the next couple of days.
Speaker 5: Well, I think that Prime Minister Modi is trying to
Speaker 5: flex a little bit here and show that he has
Speaker 5: other options. I'm not sure it will impact President Trump's
Speaker 5: view of this. I think this still has to be
Speaker 5: an issue resolved between the United States and India, and
Speaker 5: it doesn't matter if the Indians bring the Chinese alongside.
Speaker 5: It is hard to ignore, however, that the highest tariff
Speaker 5: rates at present really are on countries aligned with China,
Speaker 5: and that's China, India, and Brazil, a group of nations
Speaker 5: the President has repeatedly targeted.
Speaker 4: When it comes to the exemptions, though this is really
Speaker 4: key the likes of Apple, which put a lot of
Speaker 4: time and effort into moving their supply chain out of
Speaker 4: China into India. Do you think that exemption stays.
Speaker 5: Well, that exemption is not really related to India so
Speaker 5: much as it is to the President's impending action on
Speaker 5: semiconductors and their derivatives like the products Apple makes, So
Speaker 5: that exception is really in place only until the President
Speaker 5: makes that move on semi conductors, which you know the
Speaker 5: White House has said is imminent. But you raise a
Speaker 5: very important point, which is in the first president and
Speaker 5: President Trump's first administration, a lot of companies moved from
Speaker 5: China and they moved to India. So you know, we
Speaker 5: could see some very dramatic consequences for those that have
Speaker 5: done their manufacturing there.
Speaker 2: I'm Marie just to build on some of that. Mexico
Speaker 2: Canada Okay, next year, how crucial are those negotiations going
Speaker 2: to be?
Speaker 3: They're really important.
Speaker 5: The US Mexico Canada Agreement, of course, is coming up
Speaker 5: under review. This was an agreement renegotiated by the first
Speaker 5: Trump administration. It's an agreement he's called the greatest trade
Speaker 5: deal ever negotiated. But the truth is the North American
Speaker 5: supply chain for American manufacturers is critical. It is crucial
Speaker 5: in this global competition with China, with India, and I
Speaker 5: think it will be very important to see that reshort
Speaker 5: essentially and restabilized well.
Speaker 4: When it comes to the goods that are going between
Speaker 4: these borders ninety percent or USMCA compliance. They're also getting
Speaker 4: this exemption when it comes to the tariff rates. What
Speaker 4: does the Trump administration want to see build upon their
Speaker 4: USMCA that they themselves struck when it comes to renegotiating
Speaker 4: that exact trade deal.
Speaker 5: Well, I think what we've seen in a number of
Speaker 5: the trade frameworks is what we're going to see in
Speaker 5: the USMCA negotiations, and that's to get rid of what
Speaker 5: we consider transhipt goods. And again, this is to ensure
Speaker 5: that Chinese inputs, Chinese goods are not somehow making their
Speaker 5: way into the United States through our North American partners.
Speaker 5: So when the USMCA was renegotiated, we did see tightened
Speaker 5: rules to ensure that all cars that benefit from USMCA
Speaker 5: are almost entirely North American content, about seventy five percent.
Speaker 5: I think the President will push Mexico and Canada for
Speaker 5: similar commitments on a range of goods to ensure that
Speaker 5: anything benefiting from this duty free treatment is actually a
Speaker 5: product of North America.
Speaker 2: Okay, we're still trying to figure out if some of
Speaker 2: these tariffs actually stand up to legal screen today and
Speaker 2: in the cabinet meeting yesterday, the Treasury Secretary talked about
Speaker 2: customs revenue of north of five hundred billion dollars a year.
Speaker 2: These tariffs and the revenue they're generating now too big
Speaker 2: to strike down.
Speaker 5: Well, it's a great question. I think we are nearing that,
Speaker 5: and certainly the president's rhetoric, the president of his cabinet
Speaker 5: really justifying the value of this tear least tariffs and
Speaker 5: what they're doing for the deficit in the United States
Speaker 5: indicate that by and large they are here to stay.
Speaker 5: We have action after action piling up which threatened to
Speaker 5: raise the tariff level. I think it's going to be
Speaker 5: very challenging in a wholesale fashion to see these tariffs
Speaker 5: coming down.
Speaker 2: Any stay with US multilindex. Savannah's coming up off to
Speaker 2: this in New York City, Max Show the form of
Speaker 2: Chief of Staff to the FULMA Vice President Mike Pench
Speaker 2: joins us now for more.
Speaker 1: Mont, good morning, good morning, thanks for having me.
Speaker 2: Thank you for big ka a much more interventionist White
Speaker 2: House over the past week and maybe the last number
Speaker 2: of months as well. Can you just weigh in how
Speaker 2: are you framing things in the moment?
Speaker 1: Well, on this pretty good topic, I actually think there
Speaker 1: is probably broader support among a lot of small government
Speaker 1: people who say, you know what, the notion of a
Speaker 1: FED truly being independent was a nice notion, went before
Speaker 1: it had seven trillion dollars of assets on his books,
Speaker 1: and so you have a lot of unlikely people with
Speaker 1: fourteen year terms have enormous influence over the economy. Having
Speaker 1: said that, I think there's probably a desire also that
Speaker 1: if there was actually effort to change it, it'd be
Speaker 1: more above board than coming up with sort of these
Speaker 1: fraudulent charge is against the board governor because there's probably
Speaker 1: plenty political pointees indministration of multiple mortgages too, and said
Speaker 1: they're both their primary residents. So I'm sure there's a
Speaker 1: double standard here, and I wish there is a more
Speaker 1: intellectual appeal about the Fed's role as a postcon with
Speaker 1: bogus chargers.
Speaker 2: I just want to pick up on the language a
Speaker 2: difference between challenges of fraud and fortullent challenges. Which one
Speaker 2: do you think it is?
Speaker 1: I think these are bogus charges. I mean, what makes
Speaker 1: you believe that, Well, I don't know how many how
Speaker 1: many homes she has or if she listed both as
Speaker 1: private resident, is that really a reason you're going to
Speaker 1: remove somebody as a board governor. And again I believe
Speaker 1: there's probably plenty of people indministration who have done the
Speaker 1: same on their mortgage file.
Speaker 3: Well.
Speaker 4: Lots of reporting over this summer about Ken Paxton, who's
Speaker 4: the Attorney General of Texas who's running to be the senator.
Speaker 4: Good point, And do you think is litmus test now
Speaker 4: for the president? He's going to decide whether or not
Speaker 4: he's going to back Ken pax then, because he has
Speaker 4: three residences listen as a primary more.
Speaker 1: You know Emory, he's very flexible in these things. I
Speaker 1: think this is this is more about his effort to
Speaker 1: exert control over the FED because I think they're concerned
Speaker 1: that their trade agenda is causing great weakness in the
Speaker 1: labor market and they want rates lower. And to be fair,
Speaker 1: this is what the President has always wanted, his lower rates.
Speaker 1: Even when he had the option to appoint Jerome Powell
Speaker 1: in the first administration, there were three options between Kevin Warsh,
Speaker 1: John Taylor, and Jerome Powell, and the President asked who's
Speaker 1: going to make rades lower? And that's one of the
Speaker 1: ironies is that he chose the person who Steve Nichen
Speaker 1: told him is going to keep rates lower, but obviously
Speaker 1: he wants even lower.
Speaker 4: They are now, how difficult is next week going to be?
Speaker 4: If the Senate Banking Committee begins their hearing of Steve
Speaker 4: Myron and you look at some of the Republicans on
Speaker 4: that committee. Are we going to see pushback not just
Speaker 4: from the likes of Elizabeth Warren but also like Tom
Speaker 4: tell Us.
Speaker 1: We haven't seen it yet, Henry. He said, I'm not
Speaker 1: so confident that it's going to be significant pushback on
Speaker 1: his appointment. And I look, again, I think this is
Speaker 1: about effort, exert control, want to have a majority so
Speaker 1: he can lower rates faster. But again, I think it's
Speaker 1: reflective of a concern about where the labor market's going.
Speaker 2: I remember Stephen Mall nominates it for a seat on
Speaker 2: the Federal sev the Senate was Republican at the time,
Speaker 2: and he didn't make it, and that was what's the
Speaker 2: difference between that first time for the president and this
Speaker 2: second thing?
Speaker 1: Yeah, yeah, great question, because I think this is much
Speaker 1: broader than the Reserve. I think it's about all of
Speaker 1: his nominations. I think that you know, you go to
Speaker 1: his cabinet and I think it'd be hard to envision
Speaker 1: that RFK would have gotten confirmed in a previous Republican
Speaker 1: controlled Senate. I think this is basically a reflection that
Speaker 1: Republicans are very worried about the president primary. He has
Speaker 1: shown his ability to engage in primaries and exert that control,
Speaker 1: and there's just an enormous fear factor, and he's using
Speaker 1: that with great leverage amongst Senate Republicans.
Speaker 2: Has the Ponzi changed.
Speaker 1: The Party's absolutely changed. I mean, I think the party
Speaker 1: has certainly become far more populous. I think you know,
Speaker 1: when you see basically the federal government looking to seize
Speaker 1: means of production and the biggest cheerleaders are Elizabeth Warren
Speaker 1: and Bernie Sanders, and there's not a Republican speaking out
Speaker 1: about the government taking over ten percent of intel. On
Speaker 1: the heels of saying, you know, in selling we have
Speaker 1: export controls, we don't want to sell these chips to China. Oh,
Speaker 1: but if you allow us to take fifteen percent of
Speaker 1: the profits of a video, it's okay. And on the
Speaker 1: heels of saying we're gonna take golden shares of Nippon
Speaker 1: Steel a US steel, It's like this is clearly moving
Speaker 1: a direction where the populism and the progressive merge, and
Speaker 1: there's been total silence among center Republicans and centered Republicans.
Speaker 4: With their silence, you say, potentially though, they're interested in
Speaker 4: revamping the Federal Reserve because they're in favor of small government.
Speaker 4: Nothing you just listed in terms of taking shares of
Speaker 4: companies is small government, he Marie.
Speaker 1: That's I think one of the shocking parts is that
Speaker 1: I do believe that the first Trump administration was predominantly
Speaker 1: small government, was deregulatory, it reduced taxes, and I feel
Speaker 1: like the second administration is exerted its influence in all
Speaker 1: sectors of the economy and looking to exert its muscle.
Speaker 1: And I think it's a very different agenda.
Speaker 4: To be more constructive on what they're doing in terms of,
Speaker 4: say intel, There's been a lot of criticism that they're
Speaker 4: mirroring what China does, or this is state capitalism like
Speaker 4: Europeans did in the nineteen sixties. What do you actually
Speaker 4: think Trump is thinking? Is this about building a sovereign
Speaker 4: well fun what is actually the strategy?
Speaker 1: I think could he kind of rejected the Sovereign Wealth
Speaker 1: Fund the other day, But I do think it's concerning,
Speaker 1: you know, the trajectory there is basically Saudi Arabia, China, Iran, Russia.
Speaker 1: Those are the ones with sovereign wealth funds. I certainly
Speaker 1: hope that's not where we're going. I do think it's
Speaker 1: more for in his mind simply about leverage and where
Speaker 1: he can have leverage. But again, the base of it
Speaker 1: was two weeks before he more or lessened s ANUWAYD
Speaker 1: the Intel CEOs and Chinese spy and then basically allowing
Speaker 1: to basically saying, Okay, well, we're not so worried about
Speaker 1: the national security and more as long as we can
Speaker 1: have ten percent. It's like, what's the justification. I feel
Speaker 1: like when you do this, you crowd out private investors.
Speaker 1: I don't think this would be good for either side.
Speaker 1: I think you can see Intel shock. Intel stock probably
Speaker 1: declined because what private investor wants to engage and they
Speaker 1: feel like the federal government can just come in and
Speaker 1: take ten percent or more.
Speaker 2: This is the Bloomberg Survendments podcast, bringing you the best
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Speaker 1: Mm hmm