WEBVTT - Scott Bessent’s Uphill Battle Against America’s Debt 0:00:02.720 --> 0:00:07.200 Bloomberg Audio Studios, podcasts, radio news. 0:00:08.119 --> 0:00:10.360 He wants to abolish the penny. He doesn't want to 0:00:10.360 --> 0:00:12.000 abolish it as much as he wants to give his 0:00:12.119 --> 0:00:13.319 boss a reason why we can't. 0:00:13.840 --> 0:00:15.720 Well it's stupid. 0:00:15.920 --> 0:00:16.600 Yeah, The thing is. 0:00:16.520 --> 0:00:17.439 It isn't really really. 0:00:17.520 --> 0:00:20.680 Turns out, the majority of pennies not circulating, thin going jars, 0:00:20.880 --> 0:00:23.000 sock drawers. Two thirds of the pennies produced in the 0:00:23.040 --> 0:00:24.720 last thirty years have dropped out of circulation. 0:00:34.080 --> 0:00:36.320 Well, it's taken more than twenty years. But in his 0:00:36.400 --> 0:00:40.559 efforts to save federal dollars, President Donald Trump has boldly 0:00:40.640 --> 0:00:44.800 gone where no other president, fictional or otherwise you just 0:00:44.840 --> 0:00:48.160 heard from a West Wing clip, has ever dared to go. 0:00:48.880 --> 0:00:52.800 He's told the Treasury to stop printing pennies. Now, that 0:00:52.840 --> 0:00:56.120 will definitely save money, maybe as much as one hundred 0:00:56.120 --> 0:00:59.360 and seventy nine million dollars. After all, it each penny 0:00:59.360 --> 0:01:02.760 costs more than three cents to make, apparently, but pennies 0:01:02.760 --> 0:01:04.600 aren't going to fill the hole in the federal budget 0:01:04.800 --> 0:01:09.039 for that. According to Treasury Secretary Scott Bessant, you need 0:01:09.080 --> 0:01:13.720 the Department of Government Efficiency DOGE to cut spending radically, 0:01:13.880 --> 0:01:21.560 and you need deregulation to raise US growth. I'm Stephanie Flanders, 0:01:21.680 --> 0:01:24.399 head of Government and Economics at Bloomberg, and welcome to 0:01:24.560 --> 0:01:28.200 trump Anomics, the Bloomberg podcast that looks at the economic 0:01:28.240 --> 0:01:31.520 world of Donald Trump, how he's already shaped the global economy, 0:01:32.120 --> 0:01:36.920 and what on earth is going to happen next. Our 0:01:37.000 --> 0:01:41.639 question this week is could the besant Trump musk plan 0:01:42.200 --> 0:01:46.280 for keeping control of America's debt possibly work? We have 0:01:46.360 --> 0:01:49.240 the perfect Trump economists to help me do it. Bloomberg 0:01:49.280 --> 0:01:52.400 columnist and senior advisor to Bloomberg Economics, Bill Dudley, who 0:01:52.400 --> 0:01:54.760 spent quite a large part of his career thinking about 0:01:54.800 --> 0:01:57.960 the US treasury market as chief economist to Goldman Sachs 0:01:58.000 --> 0:02:00.960 and then president of the New York Federal Reserve. Bill, 0:02:01.160 --> 0:02:02.200 welcome and thank you. 0:02:02.640 --> 0:02:03.520 Great to be here. 0:02:04.520 --> 0:02:07.440 And back again. Anna Wong, chief US economist here at 0:02:07.480 --> 0:02:10.720 Bloomberg and formerly also an economist at the Federal Reserve 0:02:11.080 --> 0:02:15.480 and Donald Trump's Council of Economic Advisors in his first term. 0:02:15.480 --> 0:02:23.600 Thanks Stephanie, good to be here. 0:02:22.440 --> 0:02:25.320 Now. People listening are probably fed up with people saying 0:02:25.520 --> 0:02:28.720 Donald Trump as president is acting like the real estate 0:02:28.760 --> 0:02:31.480 developer he used to be. Well for one thing, it's 0:02:31.560 --> 0:02:33.760 just too easy to say, especially when he starts talking 0:02:33.800 --> 0:02:37.200 about all that beachfront property he's going to build in Gaza. 0:02:37.800 --> 0:02:40.400 But there is another way that President Trump has been 0:02:40.440 --> 0:02:43.480 reminding me more and more of his former self. He 0:02:43.560 --> 0:02:45.799 keeps talking as if the US government has a lot 0:02:45.840 --> 0:02:49.160 more money than it really does. We're going to buy greenland, 0:02:49.520 --> 0:02:53.600 invest hundreds of billions in Ai, do what oil rich 0:02:53.760 --> 0:02:56.800 nations like Katara and Norway do, and set up a 0:02:56.800 --> 0:02:59.600 sovereign wealth fund. Now, these are all things that require 0:02:59.680 --> 0:03:03.520 big bucks, and well, the US doesn't have a lot 0:03:03.520 --> 0:03:05.679 of free money to spend. What it has, in fact, 0:03:05.800 --> 0:03:08.360 is a whole lot of debt. Bill let me start 0:03:08.360 --> 0:03:12.320 with you. You wrote a column in November after Scott 0:03:12.360 --> 0:03:15.840 Bessont was nominated, saying he would face two big challenges 0:03:15.960 --> 0:03:19.400 if confirmed by the Senate. Ensuring that the world's largest 0:03:19.440 --> 0:03:23.440 government debt market functions properly was the first, and pursuing 0:03:23.440 --> 0:03:26.600 a fiscal policy that doesn't send the country's debt service 0:03:26.639 --> 0:03:30.000 costs soaring was the second. Now, we are obviously going 0:03:30.040 --> 0:03:32.600 to focus on that one, the fiscal challenge in a 0:03:32.600 --> 0:03:35.560 little bit, But given all the developments recently at the 0:03:35.560 --> 0:03:37.520 Department of Treasury. I guess I have to ask you, 0:03:38.840 --> 0:03:42.880 are you more or less confident today of this administration's 0:03:43.040 --> 0:03:46.760 handle on the treasury market and its ability to make 0:03:46.800 --> 0:03:49.800 sure it's functions smoothly than you were when you wrote 0:03:49.840 --> 0:03:51.160 that column in November. 0:03:51.480 --> 0:03:54.680 I actually am, Because Scott Besset is a market guy. 0:03:54.760 --> 0:03:58.760 He understands markets, He understands the importance of good communication 0:03:58.960 --> 0:04:02.440 from the Treasury to markets about what the Treasury is 0:04:02.440 --> 0:04:05.040 trying to accomplish in terms of debt issuance. And I 0:04:05.080 --> 0:04:08.160 think he's very sensitive to the level of long term meals. 0:04:08.960 --> 0:04:12.040 One of his desires is to get long term meals down, 0:04:12.080 --> 0:04:14.080 and so that's also going to make him very careful 0:04:14.080 --> 0:04:16.960 about doing anything you know, radical in terms of changing 0:04:17.200 --> 0:04:20.720 treasury debt management practices, are changing the schedule of issues. 0:04:20.800 --> 0:04:23.000 So I think the big issue on you know, the 0:04:23.040 --> 0:04:27.880 treasury market function is really about fiscal policy. Sustainable physical policy, 0:04:28.160 --> 0:04:32.400 probably pretty manageable treasury debt market. Non sustainable physical policy, 0:04:32.800 --> 0:04:34.120 then the treasure market. 0:04:34.040 --> 0:04:36.800 Is going to bark with the doge guys or the 0:04:36.800 --> 0:04:38.919 doge bags as some of them have been called. But 0:04:39.000 --> 0:04:42.240 these sort of young coders getting access to the treasuries, 0:04:42.360 --> 0:04:45.520 various systems which have had a lot more attention than 0:04:45.520 --> 0:04:47.559 they've probably ever had in their lives, or the various 0:04:47.600 --> 0:04:50.240 systems sitting in the Treasury. I've heard even from some 0:04:50.360 --> 0:04:54.440 on Wall Street, some concern about accidentally, you know, a 0:04:54.440 --> 0:04:59.680 bit of code going awry somehow, that damaging payment's going 0:04:59.680 --> 0:05:03.880 out to the global market on treasury bills or other things. 0:05:03.920 --> 0:05:08.400 We've had President Trump say they found irregularities in the 0:05:09.000 --> 0:05:10.680 some of the debt. When you were sitting in the 0:05:10.680 --> 0:05:13.240 New York Fed you were very closely involved, but certainly 0:05:13.320 --> 0:05:15.880 very close to the day to day functioning of that market. 0:05:16.080 --> 0:05:21.000 Should we take any of those sort of technical worries seriously, Well. 0:05:20.880 --> 0:05:23.600 It's hard to know exactly what's transpiring, so it's hard 0:05:23.640 --> 0:05:27.320 to evaluate how big a concern you must you might have. 0:05:27.400 --> 0:05:29.480 I mean, you know, I can focus more on sort 0:05:29.520 --> 0:05:32.680 of the treasury issuance, and I'm not very worried about 0:05:32.720 --> 0:05:36.320 that because the Federal Reserve handles the auctions of the 0:05:36.560 --> 0:05:39.720 new TI Treasury debt on behalf of the Treasury, So 0:05:39.880 --> 0:05:42.320 I don't worry that that's going to be upset to 0:05:42.320 --> 0:05:45.640 any significant degree. But obviously, you know, if the payments 0:05:45.680 --> 0:05:49.400 are you interfered with? And that reduces the confidence and 0:05:49.480 --> 0:05:53.680 the timeliness of the US government making good on its obligations. 0:05:53.480 --> 0:05:57.200 That could be obviously, you know, disturbing, But I just 0:05:57.240 --> 0:05:59.240 think it's hard for us, you know, sitting where we 0:05:59.320 --> 0:06:01.520 sit to value. Wait, I know how big of riskless is? 0:06:01.800 --> 0:06:01.880 No? 0:06:01.960 --> 0:06:04.080 I think that's right. Well, I think we can evaluate 0:06:04.120 --> 0:06:08.440 at least the plausibility of the bigger fiscal challenge that 0:06:08.520 --> 0:06:11.159 Scott Besson is facing has set himself but is also 0:06:11.279 --> 0:06:14.440 just facing in his current job. He's talked about three 0:06:14.600 --> 0:06:18.320 three three as his goal. Three percent economic growth a 0:06:18.400 --> 0:06:22.880 year for the US, a three percent budget deficit, federal borrowing, 0:06:23.600 --> 0:06:28.080 and an additional three million more barrels of oil produced today. 0:06:29.279 --> 0:06:31.400 That sounds like it would all be quite good for 0:06:32.120 --> 0:06:35.120 keeping a handle on debt service costs. But I guess 0:06:35.160 --> 0:06:37.320 the real question is can he get there? And I 0:06:37.400 --> 0:06:40.200 asked you that sort of in a very flippant version 0:06:40.200 --> 0:06:43.240 of that question on Monday night in an email, and 0:06:43.279 --> 0:06:45.800 then you, being you, spent a long time that night 0:06:45.880 --> 0:06:48.600 calculating a very non flippant response, and I felt rather 0:06:48.640 --> 0:06:50.640 guilty in the morning for having kept you up. But 0:06:51.240 --> 0:06:54.119 you did work out a way that the bestent plan 0:06:54.560 --> 0:06:57.640 could be achieved. So just tell me what needs to 0:06:57.680 --> 0:06:59.320 go right for that to happen. 0:06:59.680 --> 0:07:03.440 Okay, So to evaluate whether the mass works out, we 0:07:04.040 --> 0:07:09.000 utilize the Bloomberg Economics fiscal sustainability model, where I could 0:07:09.120 --> 0:07:14.600 input paths of nominal GDP growth and primary balances, assumptions 0:07:14.600 --> 0:07:18.320 and primary balances, and also assumptions of interest rate, the 0:07:18.400 --> 0:07:19.160 term structure. 0:07:19.400 --> 0:07:21.240 So just to go back, just to give people a sense, 0:07:21.280 --> 0:07:23.160 it's sort of a tool that we have for playing 0:07:23.240 --> 0:07:28.240 around with different scenarios for US fiscal policy. And the 0:07:28.240 --> 0:07:32.360 things that you're changing, among other things, is the cost 0:07:32.440 --> 0:07:37.800 of borrowing, the bond yield, but also the primary budget balance, 0:07:37.840 --> 0:07:41.120 which is kind of how much you're borrowing before you 0:07:41.160 --> 0:07:43.040 get to the money you need to pay off your 0:07:43.080 --> 0:07:45.960 debt to be doing servicing the debt. 0:07:46.280 --> 0:07:51.120 Correct and also GDP growth. The three pillars of besons 0:07:51.240 --> 0:07:54.960 ideal scenario or his goals in the next few years 0:07:55.480 --> 0:07:59.160 is this three three three right. The first three refers 0:07:59.240 --> 0:08:04.200 to three percent fiscal deficit currently Untracked hit about six 0:08:04.320 --> 0:08:09.320 percent this year of GDP, and our baseline forecast has 0:08:09.360 --> 0:08:12.880 it going out to nine percent of GDP in ten years. Time, 0:08:13.240 --> 0:08:15.840 and Scott Besson's goal is to reduce it to three 0:08:15.880 --> 0:08:20.040 percent of GDP. The second pillar of his three refers 0:08:20.160 --> 0:08:25.120 to three million additional barrels per day of oil production. 0:08:25.800 --> 0:08:29.280 He thinks that by doing so it will generate non 0:08:29.320 --> 0:08:35.040 inflationary growth. And the third final pillar is three percent 0:08:35.200 --> 0:08:39.040 real GDP growth. So real GDP growth in the past 0:08:39.440 --> 0:08:43.240 year was two point three percent, and it was already 0:08:43.360 --> 0:08:47.640 quite a phenomenal year. The long term potential GDP growth 0:08:47.720 --> 0:08:51.800 rate for US economy is about one point seven percent. 0:08:52.080 --> 0:08:56.760 So basically, in Besson's ideal scenario, every year we're seeing 0:08:57.040 --> 0:09:01.520 one point three percent additional percentage of growth. So I 0:09:01.559 --> 0:09:04.520 know Bill is going to talk about the plausibility of 0:09:04.600 --> 0:09:07.960 these assumptions, but you know what, I was just going 0:09:08.040 --> 0:09:12.040 to put all these three assumptions into the model and 0:09:12.120 --> 0:09:14.360 see what it spits out. So what it did spit 0:09:14.440 --> 0:09:17.920 out is that, Oh, by the way, another additional assumption 0:09:17.960 --> 0:09:21.760 I put in is DOGE. So I am assuming that 0:09:21.840 --> 0:09:26.480 DOGE is able to successfully reduce spending by four hundred 0:09:26.679 --> 0:09:30.920 billion per year. And just to give some context of 0:09:31.160 --> 0:09:35.640 what that means, So in the current fiscal year, about 0:09:35.800 --> 0:09:41.400 twenty five percent of US government spending is indiscretionary purchases 0:09:41.520 --> 0:09:46.040 versus seventy five percent in mandatory for as things such 0:09:46.080 --> 0:09:49.880 as medicare, social Security, and also paying off the interest 0:09:50.400 --> 0:09:51.640 on your fiscal debt. 0:09:51.960 --> 0:09:54.240 So what DOESE is working with is only twenty five 0:09:54.280 --> 0:09:56.240 percent of the overall spending. 0:09:56.360 --> 0:09:59.679 Correct if they want to keep Trump's promise, which is 0:09:59.840 --> 0:10:05.760 not to touch anything related to the mandatory social security payments. 0:10:06.040 --> 0:10:09.960 So even within the discretionary that twenty five percent discretionary, 0:10:10.679 --> 0:10:16.200 twelve percent is defense. And surely we cannot really reduce 0:10:16.559 --> 0:10:20.240 defense spending in the midst of elevated geopolitical tensions. 0:10:20.320 --> 0:10:22.359 What he wants to increase it in fact. 0:10:22.440 --> 0:10:26.760 Right, So really we are talking about about one trillion 0:10:27.400 --> 0:10:33.040 non defense discretionary spending. So in fact Elon Musk's original 0:10:33.080 --> 0:10:38.920 pledge of cutting by one trillion is unattainable by this, 0:10:39.320 --> 0:10:44.000 you know, if he they are really touch the right 0:10:45.240 --> 0:10:48.400 change right, right, right, But anyway, I digress. So the 0:10:48.440 --> 0:10:51.680 point is, let's assume that DOGE is able to cut 0:10:51.720 --> 0:10:54.000 spending by four hundred billion for a year, which is 0:10:54.080 --> 0:10:58.480 half of the almost half of the non defense discretionary spending. 0:10:59.120 --> 0:11:02.120 How do I come up with four hundred billion per year. 0:11:02.679 --> 0:11:06.760 Scott Besson mentioned the Grace Commission Report, which is a 0:11:06.840 --> 0:11:10.240 report commissioned by Ronald Reagan in nineteen eighty two to 0:11:10.360 --> 0:11:15.040 come up with recommendations on how to increase government efficiency 0:11:15.080 --> 0:11:20.360 and reduce fiscal spending. And that Grace Report basically came 0:11:20.440 --> 0:11:25.840 up with in today's dollar, one point three trillion dollar 0:11:26.000 --> 0:11:30.600 of cost saving across three years, which average to be 0:11:30.640 --> 0:11:32.280 about four hundred billion per year. 0:11:32.480 --> 0:11:34.400 And I think if he managed that, he would declare 0:11:34.400 --> 0:11:36.280 a great success because he said a trillion. He never 0:11:36.320 --> 0:11:38.959 said a trillion a year, I guess, so yeah, he 0:11:39.000 --> 0:11:41.880 would count four hundred billion as a massive win. 0:11:42.200 --> 0:11:45.600 Yes, four hundred billion would be a massive, massive win 0:11:46.160 --> 0:11:49.600 because that is forty percent of non defense discretionary spending. 0:11:49.920 --> 0:11:53.160 So in putting all of that into our model, what 0:11:53.200 --> 0:11:56.040 we were able to find is that whoe that indeed 0:11:56.160 --> 0:12:00.559 could lower the federal debt to GDP ratio from our 0:12:00.600 --> 0:12:05.080 current baseline of one point thirty do about one hundred 0:12:05.120 --> 0:12:10.120 percent of GDP growth, So thirty percentage point decline in 0:12:10.440 --> 0:12:11.840 debt to GDP ratio. 0:12:12.120 --> 0:12:14.320 So just to be clear, it's we're nearly at one 0:12:14.360 --> 0:12:18.280 hundred now, So the stock of debt is almost the 0:12:18.320 --> 0:12:22.160 whole value of our annual output. In our sort of 0:12:22.200 --> 0:12:25.800 what we would consider to be more plausible scenario without 0:12:25.800 --> 0:12:29.720 all of this happening, groat's not picking up massively, without 0:12:30.320 --> 0:12:34.240 having an enormous reduction in non discretionary spending. We thought 0:12:34.440 --> 0:12:36.560 that debt was going to go to about one hundred 0:12:36.600 --> 0:12:41.000 and third thirty. Yes, and you could basically stop all 0:12:41.040 --> 0:12:44.479 of that by doing by following this scenario. 0:12:45.200 --> 0:12:50.760 Yes, exactly, it's not going to go down. No, it's no, No, 0:12:50.880 --> 0:12:53.840 it's unfortunately it's not going to go down. But when 0:12:53.880 --> 0:13:00.199 you further look into what component of these I deal 0:13:00.280 --> 0:13:04.640 scenariow generate this thirty percentage point decline in debt to 0:13:04.679 --> 0:13:09.680 GDP ratio rather relative to baseline, the most important part 0:13:09.840 --> 0:13:13.840 really is the nominal GDP growth part, the growth pillar 0:13:14.040 --> 0:13:18.800 of Scott Besson's three three three. Because without the growth pillars, 0:13:19.280 --> 0:13:24.240 just DOSH alone, which possibly four hundred billion per year 0:13:24.240 --> 0:13:29.560 in savings, would reduce primary balance by about point nine 0:13:29.600 --> 0:13:33.320 percent of GDP per year. That will get you their 0:13:33.440 --> 0:13:37.280 debt to GDP racial down by ten percentage point over 0:13:37.320 --> 0:13:40.840 ten years. But to get the other twenty percentage point, 0:13:40.960 --> 0:13:45.920 it's really interest payments getting the interest long term interest 0:13:46.040 --> 0:13:50.320 rightdown and GDP growth up. And one of the most 0:13:50.920 --> 0:13:55.839 challenging part of this debt dynamics. It is indeed the 0:13:55.880 --> 0:13:59.080 interest payment, the debt servicing part of US debt because 0:13:59.120 --> 0:14:03.280 of the stock of debt and the increasing flow of that. 0:14:03.440 --> 0:14:08.440 Even with doche assuming four hundred billion reduction and fiscal spending, 0:14:09.040 --> 0:14:13.800 and in fact, by twenty seven, our net interest payment 0:14:14.320 --> 0:14:19.760 will exceed how much we're spending in non defense discretionary payments. 0:14:19.840 --> 0:14:22.400 So our net interest payments on our debt would be 0:14:22.520 --> 0:14:26.560 one point one trillion as of twenty twenty eight. 0:14:26.800 --> 0:14:29.360 That's if they didn't go up significantly. I mean that's 0:14:29.360 --> 0:14:32.760 of interest rates stay broadly on the path we're expecting. 0:14:33.120 --> 0:14:37.120 Correct, Okay, I think Bill might get into this why 0:14:37.160 --> 0:14:40.040 it is that the debt service payment is blowing up. 0:14:40.320 --> 0:14:43.800 So I think that the bottom line of this exercise 0:14:44.400 --> 0:14:48.040 that I did is that it reveals what an uphill 0:14:48.160 --> 0:14:54.040 battle the new administration has to contain the fiscal situation. 0:14:54.920 --> 0:14:58.000 Just because even if they do everything right they are, 0:14:58.360 --> 0:15:03.000 interest costs paid is set to rise and will become 0:15:03.040 --> 0:15:09.120 about a fifth of US GDP every year. US would 0:15:09.120 --> 0:15:13.960 be spending about twenty percent of the GDP in paying interest. 0:15:14.400 --> 0:15:18.240 And on top of that, even in Scott Besson's ideal scenario, 0:15:18.840 --> 0:15:22.520 the fiscal deficit would still be at six percent by 0:15:22.840 --> 0:15:27.280 twenty thirty five, where four percent of those six percent 0:15:27.360 --> 0:15:29.160 of the deficit would be interest payments. 0:15:29.960 --> 0:15:33.800 Okay, so this is pretty salutary for those who think 0:15:33.880 --> 0:15:36.800 that even the slash and burn will at least have 0:15:36.880 --> 0:15:39.520 this sort of positive side that you'll get control of 0:15:39.760 --> 0:15:45.000 America's debt bill. You've been around the block a few 0:15:45.000 --> 0:15:48.080 times when you hear that kind of arithmetic, and we 0:15:48.120 --> 0:15:51.400 still end up with a pretty large debt service cost. 0:15:51.760 --> 0:15:54.920 How plausible do you think any of this conversation is not. 0:15:55.040 --> 0:15:58.360 Very plausible, probably for the numbers that to an outline, 0:15:58.360 --> 0:16:01.160 But it's also not plausible because think about the three 0:16:01.320 --> 0:16:04.880 percent GDP growth target. We're starting to deport workers from 0:16:04.920 --> 0:16:08.000 the United States, so we're actually lowering the growth rate 0:16:08.040 --> 0:16:09.560 of the labor force. The layor force isn't going to 0:16:09.560 --> 0:16:11.520 grow at all, probably over the next couple of years, 0:16:11.640 --> 0:16:14.400 both because of deportations and because of the retirement of 0:16:14.440 --> 0:16:17.960 the Baby Boom generation. So to get to three percent 0:16:18.040 --> 0:16:20.600 GDP growth, it's got to all be come through productivity. 0:16:20.640 --> 0:16:22.960 You need enormous productivity games to get to three percent 0:16:23.280 --> 0:16:26.400 GDP growth. I don't see how that happens, especially when 0:16:26.400 --> 0:16:29.640 you're disrupting the global trading system by putting teris on 0:16:30.720 --> 0:16:33.120 across a lot of different products and it against a 0:16:33.120 --> 0:16:35.840 lot of different countries. So you're introducing a lot of 0:16:35.880 --> 0:16:39.560 friction into the global economy, into the US economy. So 0:16:39.920 --> 0:16:43.600 I think the three percent GDP goal is not feasible. 0:16:43.680 --> 0:16:46.920 We're at full employment today, so GDP growth is going 0:16:47.000 --> 0:16:50.480 to be basically labor force growth and productivity. No labor 0:16:50.520 --> 0:16:53.840 force growth, so you're talking about productivity growth. Productivity growth 0:16:53.880 --> 0:16:55.480 is good, maybe you can get one and a half 0:16:55.520 --> 0:16:58.520 two percent. So I think three percent GDP growth is 0:16:58.800 --> 0:17:01.960 not doable under the current regime. So the deficit, you're 0:17:01.960 --> 0:17:04.040 going to have slower GDP growth, you can have less 0:17:04.080 --> 0:17:07.080 tax revenue from a faster GDP. You can have the 0:17:07.119 --> 0:17:10.000 retirement of the baby boom generations that drives up entitlement 0:17:10.040 --> 0:17:13.800 spending sor automatically on Medicare and Social Security, which the 0:17:13.840 --> 0:17:17.359 Trump administration has ruled is off off out of bounds. 0:17:17.400 --> 0:17:19.920 They can't they're not going to touch that. And then 0:17:19.920 --> 0:17:21.919 we have the repricing of all the debt that was 0:17:22.200 --> 0:17:25.119 issued over the last few years at much lower interest rates. 0:17:25.520 --> 0:17:28.440 Death service costs are going to go significantly. So it's 0:17:28.480 --> 0:17:31.480 a cleverest slogan, the three three three, But I think 0:17:31.520 --> 0:17:34.640 the chances of it actually being accomplished is very remote. 0:17:34.960 --> 0:17:39.040 If this was an emerging market economy, you might say, well, 0:17:39.040 --> 0:17:41.560 hang on a minute, with numbers like this, surely they're 0:17:41.560 --> 0:17:44.240 just going to inflate away the debt. What would a 0:17:44.240 --> 0:17:46.760 bit of higher inflation. I mean, it certainly helps with that. 0:17:46.760 --> 0:17:49.600 That Anna was talking through the arithmetic of the nominal GDP, 0:17:49.720 --> 0:17:53.359 the cash GDP that gets bigger relative to the debt 0:17:53.440 --> 0:17:54.640 if you have inflation. 0:17:55.280 --> 0:17:58.960 Bill Well, absolutely, we saw the debt to GDP ratio 0:17:59.000 --> 0:18:01.879 go down during the pandemic, not because the counting was 0:18:01.880 --> 0:18:04.920 doing well, but because nonmal GDP was growing very quickly 0:18:05.000 --> 0:18:08.520 because of very high inflation. So yeah, higher inflation, faster 0:18:08.600 --> 0:18:11.480 nomal GDP growth, that you can actually reduce debt. But 0:18:11.880 --> 0:18:14.800 as we've seen, that's not really a politically feasible solution 0:18:14.960 --> 0:18:19.440 because we've seen that people hate inflation. So if the 0:18:20.440 --> 0:18:23.000 Trump administration goes down the path of sort of saying 0:18:23.040 --> 0:18:26.359 let's have more inflation, and that will inflate away the 0:18:26.400 --> 0:18:29.280 debt that's not going to be politically feasible. Also, you know, 0:18:29.280 --> 0:18:31.080 the Fed Reserve is going to continue to do their job. 0:18:31.119 --> 0:18:33.240 I mean, there is a lot of questions about, you know, 0:18:33.400 --> 0:18:36.520 the Trump administration raining in the independence of the FED, 0:18:37.160 --> 0:18:40.280 But first of all, I don't think that's easily easy 0:18:40.320 --> 0:18:43.600 to accomplish, and before it's accomplished, the FED is going 0:18:43.640 --> 0:18:46.199 to continue to be on the case of trying to 0:18:46.200 --> 0:18:50.160 push inflation back sustainably down to two percent. I think 0:18:50.200 --> 0:18:53.000 the Fed's credibility is still quite high, and you can 0:18:53.040 --> 0:18:56.280 see that by the fact that despite inflation running above 0:18:56.320 --> 0:18:59.560 the FED subjective for four years now, long term inflation 0:18:59.680 --> 0:19:02.359 expert dictations are still pretty well anchored around two percent. 0:19:02.480 --> 0:19:04.840 So markets believe that the Federal Reserve is going to 0:19:04.840 --> 0:19:07.040 do their job. I believe that the Federal Reserve is 0:19:07.040 --> 0:19:09.160 going to do their job. Doing their job, though will 0:19:09.200 --> 0:19:12.520 probably make the Trump administration unhappy with the FED. 0:19:12.800 --> 0:19:14.920 I suspect if I was Elon Musk, I would think 0:19:14.960 --> 0:19:19.000 that all of us, and certainly you and Anna were 0:19:19.000 --> 0:19:22.560 sort of trapped in a very kind of narrow mindset 0:19:22.600 --> 0:19:26.080 that you weren't realizing the potential of this exciting world, 0:19:26.160 --> 0:19:30.840 you know, deregulation, AI, all of those things could transform 0:19:30.880 --> 0:19:32.000 productivity in growth. 0:19:32.040 --> 0:19:34.679 Now they could, but it takes these things take a 0:19:34.680 --> 0:19:37.119 long time to sort of play out. I mean, you 0:19:37.200 --> 0:19:40.200 look at you know, the in the development of electricity 0:19:40.280 --> 0:19:43.480 generation in the US in the late nineteenth century. It 0:19:43.520 --> 0:19:45.920 took about twenty years for that actually to change how 0:19:45.960 --> 0:19:47.840 we actually did man in factoring. So you have the 0:19:47.880 --> 0:19:50.639 invention and then and then and you have to figure 0:19:50.640 --> 0:19:54.480 out how do you actually use it in your business processes, 0:19:54.840 --> 0:19:57.879 And to really get the benefits of things like artificial intelligence, 0:19:57.920 --> 0:20:00.600 you actually have to change how you're organized, how you 0:20:00.640 --> 0:20:03.919 conduct business, and that takes quite a bit of time. So, 0:20:04.119 --> 0:20:05.720 you know, we can, you know, we can debate about 0:20:05.720 --> 0:20:07.439 how big AI is going to turn out to be, 0:20:07.520 --> 0:20:10.240 but even if it does turn out to be transformational, 0:20:10.560 --> 0:20:12.440 I think it's going to take quite a long time 0:20:12.480 --> 0:20:14.520 to play on. And I think that same it's true 0:20:14.560 --> 0:20:17.960 for deregulation. I don't think you you know, can deregulate, 0:20:18.280 --> 0:20:21.720 you know, very quickly. And even if you deregulate, how 0:20:21.800 --> 0:20:24.280 much benefit are you going to get it? People think about, well, 0:20:24.280 --> 0:20:26.440 what's going to happen four years from now, when maybe 0:20:26.440 --> 0:20:30.320 the Trump administration is not empowered and all those regulations 0:20:30.400 --> 0:20:32.760 come back. Are you really going to change your investment 0:20:32.800 --> 0:20:35.800 behavior because things are better now? Or are you going 0:20:35.840 --> 0:20:39.399 to be concerned that this deregulation effort is going to 0:20:39.440 --> 0:20:43.200 fade away once we get to the to the next administration. 0:20:43.880 --> 0:20:47.280 Anna, I will say, looking at your numbers, it did 0:20:47.359 --> 0:20:50.280 make sense to me why Scott Besendon his interview that 0:20:50.359 --> 0:20:54.359 he did with US with Salaiah Mosen last week, he 0:20:54.520 --> 0:20:58.520 was focused so much on bond yields, on long term 0:20:58.680 --> 0:21:01.720 borrowing costs for the government. That's the key factor in 0:21:01.960 --> 0:21:04.879 even making your numbers add up right exactly. 0:21:05.119 --> 0:21:09.520 I mean, after I conducted that exercise, it's clear why 0:21:10.119 --> 0:21:13.120 It's not just Scott Bessons. We also have heard from 0:21:13.480 --> 0:21:17.480 Trump a week agode that all of a sudden he 0:21:17.600 --> 0:21:21.400 approved the way that Federal Reserve is conducting monetary policy. 0:21:21.440 --> 0:21:24.920 He said he thinks the Fed is correct to keep 0:21:25.040 --> 0:21:30.200 rates constant, which was a very surprising thing because. 0:21:30.000 --> 0:21:31.760 Just so earlier this week he seems to have gone 0:21:31.760 --> 0:21:38.119 back on that. He's tweeted or truthed that he wanted 0:21:38.240 --> 0:21:41.120 he thought interestrates should go down as he's putting tariffs in. 0:21:41.560 --> 0:21:43.160 Well, don't expect consistency here. 0:21:45.200 --> 0:21:47.960 Is he saying that Fed should lower rates or is 0:21:48.000 --> 0:21:49.639 he referring to the tenure yields? 0:21:49.720 --> 0:21:51.840 Yeah, it's a good question. I don't know that he's. 0:21:51.760 --> 0:21:56.000 Actually talking to the market now because he realized after 0:21:56.200 --> 0:21:59.119 the one hundred bases point spike in ten year yields 0:21:59.080 --> 0:22:03.000 since the Fed started reducing rates, Trump realized that the 0:22:03.040 --> 0:22:06.399 Fed doesn't hold the key to long term interest rates. 0:22:06.640 --> 0:22:12.119 H that's interesting. So the final thought, I think we 0:22:12.560 --> 0:22:16.719 all agree that making growth, getting growth up, increasing productivity 0:22:16.800 --> 0:22:21.520 is really hard. Seriously slowing the path of spending and 0:22:21.520 --> 0:22:24.360 cutting the budget deficit, it's hard. Actually, the last time 0:22:24.400 --> 0:22:26.480 we did both of those things we saw a significant 0:22:26.480 --> 0:22:29.160 increase in productivity and a significant reduction in the budget 0:22:29.200 --> 0:22:32.480 deficit was in the Clinton years, as Anna pointed out 0:22:32.520 --> 0:22:34.800 on doing Boy Television the other day. And you know, 0:22:34.920 --> 0:22:38.760 times were very different then, especially in Washington, and people 0:22:38.760 --> 0:22:40.880 tend to say, oh, he could do that, he could 0:22:40.920 --> 0:22:44.399 cut the deficit because politics was much less polarized. But 0:22:44.480 --> 0:22:47.520 I was reminding myself that actually there wasn't much bipartisanship 0:22:47.560 --> 0:22:49.480 in that area. Even then, there was not a single 0:22:49.520 --> 0:22:53.520 Republican who voted for the Clinton Deficit Reduction Act. So 0:22:54.160 --> 0:22:56.400 I guess i'd ask both of you, whatever we think 0:22:56.440 --> 0:23:03.639 about the way that DOGE is going about well constitutionality 0:23:03.680 --> 0:23:06.119 of some of what's happened, is there an advantage to 0:23:06.200 --> 0:23:10.040 having a strong executive and a rather supine Congress if 0:23:10.080 --> 0:23:12.560 you're going to actually make progress on any of these things. 0:23:12.600 --> 0:23:14.080 I guess I'll start with you Anna. 0:23:14.280 --> 0:23:17.800 Well, Stephanie. You know, it's funny because the other day 0:23:17.840 --> 0:23:22.640 I met with somebody who actually tried to deregulate but failed, 0:23:23.160 --> 0:23:26.680 and I asked him what's the lessons? Were the lessons? 0:23:26.840 --> 0:23:31.520