Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you,
Speaker 1: along with my co host Lisa Brahma wits. Each day
Speaker 1: we bring you the most noteworthy and useful interviews for
Speaker 1: you and your money, whether at the grocery store or
Speaker 1: the trading floor. Find a Bloomberg Penil podcast on Apple
Speaker 1: podcast or wherever you listen to podcasts, as well as
Speaker 1: at Bloomberg dot com. Police and I've been talking about
Speaker 1: really over the last several days. You know, we're somewhat
Speaker 1: surprised at how well the equity markets are kind of discounting,
Speaker 1: if you will, the coronavirus and the economic income economic
Speaker 1: impact that may have going forward. Help us kind of
Speaker 1: put into perspective kind of what's going on out there
Speaker 1: in the world. We welcome, as always, our good friend
Speaker 1: Barry Ridholtz, Bloomberg Opinion columist and host of Masters in
Speaker 1: Business on Bloomberg Radio, also the founder and chairman and
Speaker 1: chief investment officer Rid Holtz Wealth Management, joining us here
Speaker 1: on our Bloomberg Interactive Broker Studio. So, Barry, one of
Speaker 1: the things that you know, people have been were ten
Speaker 1: or eleven years into this economic cycle, and people were
Speaker 1: thinking about what's going to cause or push us into
Speaker 1: the next recession. What are your thoughts on that as
Speaker 1: we think about the coronavirus and all the other crazy
Speaker 1: things going on out in the world. So, the two
Speaker 1: big things I keep hearing from pundits and investors and economists.
Speaker 1: One is a geopolitical event, and certainly the coronavirus qualifies
Speaker 1: as that. And the other is this. You know, look
Speaker 1: at Tesla, This this crazy tech boom and bubble is
Speaker 1: going to lead us to a recession. And I don't
Speaker 1: think either of those are genuine recessionary factors. Let's start
Speaker 1: with the coronavirus, which I know you guys can't get
Speaker 1: enough of. You been talking about it for solidly for
Speaker 1: a week. Look, this is gonna be the case. He well,
Speaker 1: he wants to be. Version. The a version is the
Speaker 1: is the problematic. Look at that. You think we're obsessed.
Speaker 1: You actually light here. So when you look at the
Speaker 1: impact of this, it's going to affect imports and exports
Speaker 1: out of China, It'll affect Australia and Korea and Vietnam. Um,
Speaker 1: there'll be some knock on effect in the United States.
Speaker 1: But this isn't the sort of thing without its spiraling
Speaker 1: wildly out of control. This isn't the sort of thing
Speaker 1: that leads to a recession. So we have less than
Speaker 1: a thousand deaths, right, which are tragic, and we have
Speaker 1: about ten thousand cases, and I think the death rate
Speaker 1: is somewhere around two p which is high. But last
Speaker 1: year in the United States were ten thousand influenza deaths.
Speaker 1: The flu kills ten thousand people a year out of
Speaker 1: admittedly much higher infection rates. It's a it's about a
Speaker 1: tenth or so. This doesn't cause a global recession. But
Speaker 1: this is basically what's being priced into the market today
Speaker 1: that people are saying, we hear you. Valuations in the
Speaker 1: tech companies high, and yet this is the future, so well,
Speaker 1: why not? And it seems to be justified to some
Speaker 1: degree by some of the results. It's much it's more
Speaker 1: than that. I'm gonna jump up right here, all right.
Speaker 1: It's much more than that, because if you look at
Speaker 1: the trailing five year returns, the SMP five hundred is
Speaker 1: up sixty over the past five years. The tech sector
Speaker 1: a lot more growth, a lot more potential. It's up
Speaker 1: a hundred and twenty, which sounds like a lot. Look
Speaker 1: at the exact same five year period only instead of
Speaker 1: going back from February, look at it from February two thousand,
Speaker 1: the previous five years, the NASDAC gained eight hundred and
Speaker 1: sixty five seven times the past five years growth of
Speaker 1: the NASDAC. Now. And let me also point out that
Speaker 1: tech stocks are making bootles and bootles of money. They're
Speaker 1: enormously profitable. Look at look at Apple, Microsoft, Amazon, go
Speaker 1: down the list of the amount of cash on the
Speaker 1: balance sheet. This is not the dot com era, This
Speaker 1: isn't even remotely close. These are large, profitable companies, some
Speaker 1: of which are monopolies Google, Facebook arguably monopolies or essentially
Speaker 1: I just pointed out something that Danielle DiMartino booth um
Speaker 1: Um just retweeted. She appears on our show often basically
Speaker 1: just kind of referencing what's going on in the repo
Speaker 1: market and the fact that the Fed's injecting money into
Speaker 1: the short end of the market, and she says that
Speaker 1: is what's driving the markets. Everybody is entitled to be
Speaker 1: as wrong as they want, and I have been arguing
Speaker 1: with daniel de Martino about this for a solid decade.
Speaker 1: Let's assume she's right Okay, so the Fed is doing this.
Speaker 1: Now you know the Fed is driving the market higher
Speaker 1: than you must really like stocks because there is no
Speaker 1: sign the Fed's gonna stop doing this. I don't believe
Speaker 1: the repo market directly in equity value, but put the
Speaker 1: repo market aside, because a lot of people say that
Speaker 1: that's just completely a structural issue. It's not necessarily pumping
Speaker 1: liquidity into markets. Uh. There have been a lot of
Speaker 1: arguments build Dudley in particular, making it in a Bloomberg
Speaker 1: opinion column recently in former New York FED president. But
Speaker 1: just on a larger point here, this concept of Fed stimulus,
Speaker 1: I think it's poignant at a time when Christine Lagarde
Speaker 1: came out overnight the ECB president and said, we don't
Speaker 1: have that much more leverage to lower rates to stimulate
Speaker 1: the economy. Hey, lawmakers, it's your turn, and that's what
Speaker 1: she was saying. And you're hearing this increasingly, this feeling
Speaker 1: that yeah, they're in there supporting the market, but they're
Speaker 1: running out of ammunition. That doesn't concern you. The fact
Speaker 1: that they're running out of ammunition and they haven't gotten
Speaker 1: inflation up further, and you're seeing capex go down. I mean,
Speaker 1: there are a whole host of things you can point
Speaker 1: to to be barished. So I have a post of
Speaker 1: on the blog a couple of years ago with a quote,
Speaker 1: the FETE is running out of ammunition. Central bankers running
Speaker 1: out of communition. This is a slide in the presentation
Speaker 1: I do. Every year for the past twelve years, someone
Speaker 1: has come out and said the FETE is running out
Speaker 1: of ammunition, And as far as I can tell, they
Speaker 1: have an infinite amount of ammunition. Because they issue credit
Speaker 1: and they affect rates ps. Nobody is making buy or
Speaker 1: cell decisions these days, about capex, about homes, about any
Speaker 1: large purchase um because of we're its are if rates
Speaker 1: go up a percent, they're still historically cheap, so that
Speaker 1: that's not the issue. When we'd say the FED is
Speaker 1: running out of ammo, the question is how low are
Speaker 1: they going to keep rates and for how long? And
Speaker 1: how much is that affecting other people's UM purchase decisions,
Speaker 1: consumer demand, etcetera. I don't like the entire FED argument,
Speaker 1: the central bank argument. It's clear the economy is instill
Speaker 1: in a post credit crisis state and it is not
Speaker 1: the most robust. Contrary to what you may have heard
Speaker 1: at the State of the Union address, the global economy
Speaker 1: and the U S economy have been highly dependent on
Speaker 1: monetary policy. I'll give that much to Danielle. She's right
Speaker 1: about that. And where Christine Legard is half right is
Speaker 1: that we understand the Kinsian playbook in a crisis, when
Speaker 1: when demand from consumers and demand from UH the business
Speaker 1: sector drops, the government should step in with fiscal stimulus.
Speaker 1: The fact that we've gone so long relying mostly on
Speaker 1: monetary policy is a giant policy mistake. It should have
Speaker 1: been fiscal stimulus from day one, with monetary stimulus right
Speaker 1: behind it. Christine Legarde is absolutely right, albeit a decade late,
Speaker 1: and it is remember the Austerians in the UK and Europe.
Speaker 1: They took a bad situation and said, how could we
Speaker 1: make this much much worse? I know, let's cut back
Speaker 1: spending right into the teeth of a drop of demands,
Speaker 1: and they very successfully made the circumstances in Europe much worse.
Speaker 1: There is a reason why the US recovery preceded that
Speaker 1: in Japan and then in Europe. We recognize this immediately
Speaker 1: for what it was. We had Bernanke doing monetary stimulus,
Speaker 1: and we still did a modest seven or eight hundred
Speaker 1: billion dollar stimulus should have been three or four trillion.
Speaker 1: But let's hold that aside. Barry rid Holts, founder of
Speaker 1: red Holts Wealth Management, Bloomberg opinion columnist, founder of rit Holts,
Speaker 1: while the management and incredible orator on the woes and
Speaker 1: the lack of fiscal stimulus, I will say, I love
Speaker 1: them sitting around thinking how can we make this much
Speaker 1: much worse? Here we go, we're gonna be hearing from
Speaker 1: President Trump after he was acquitted of the impeachment charges
Speaker 1: brought to him by the House of Representatives. Senators, particularly
Speaker 1: the Republicans, really joined forces and voted to acquit him.
Speaker 1: Joining us now to discuss Preneur, a senior editor for
Speaker 1: the National Review, also a Bloomberg opinion columnist, coming to
Speaker 1: us from Washington, d C. I just want to start
Speaker 1: a mesh uh your opinion of the stance that Republicans took.
Speaker 1: Do you think that they did the right thing in
Speaker 1: acquitting President Trump. I think that Senator Romney had the
Speaker 1: better of the argument among Republicans. I think that President
Speaker 1: Trump abused his power, and even some of the Republicans
Speaker 1: who voted to acquit him agreed with that. Uh and UH.
Speaker 1: The impeachment power was put into the Constitution by the
Speaker 1: founders precisely to deal with presidential abuses of power of
Speaker 1: this nature. So I think he should have been convicted. Remesh.
Speaker 1: The National Review is thought of as a right leaning,
Speaker 1: a conservative leaning, typically Republican publication. How much pushback do
Speaker 1: you get when you say things like this given the
Speaker 1: fact that President Trump has a near record amount of
Speaker 1: support among Republicans, Well, the official editorial position of the
Speaker 1: magazine is on the other side. For me, most of
Speaker 1: my colleagues are on the other side, So I do
Speaker 1: get a lot of uh, pushback, disagreement, um, sometimes very
Speaker 1: politefully politely and thoughtfully expressed uh from our readers, sometimes
Speaker 1: less so so. Remesh. Let's look forward a little bit.
Speaker 1: Do you think the acquittal or the in the Senate
Speaker 1: means for President Trump and the Democrats? How do you
Speaker 1: think that's going to kind of play out for the election?
Speaker 1: I suspect that it will not be a top of
Speaker 1: mind issue by the time of the election. UM. I
Speaker 1: just think that we have a lot of time between
Speaker 1: now and November, and media cycles and news cycles are
Speaker 1: just a lot faster than they used to be, so
Speaker 1: I think we'll all probably be obsessing about something else
Speaker 1: in the last weeks of October in the beginning of November.
Speaker 1: Do you think that going forward that this will actually
Speaker 1: solidify President trump space behind him or do you think
Speaker 1: that this will just sort of be a side note
Speaker 1: as we proceed towards November. President Trump has been extremely
Speaker 1: careful to keep his base together. He has done a
Speaker 1: lot of things that previous Republican presidents would not have done,
Speaker 1: but on the core issues that mattered Republican voters, like
Speaker 1: guns and taxes and abortion, he has been a completely
Speaker 1: orthodox Republican and so he had a unified base even
Speaker 1: before impeachment. Impeachment may have slightly solidified that base, but
Speaker 1: the partisan dynamic of a presidential election was likely to
Speaker 1: generate that result anyway. What do you make of Senator
Speaker 1: Mitt Romney's decision to vote to convict Well, I think
Speaker 1: that it surprised a lot of people who had just
Speaker 1: resigned themselves to this being uh an almost completely perfectly
Speaker 1: uh party line vote. Um. I think um. Senator Romney
Speaker 1: made a good case for his decision. Uh, it's not uh,
Speaker 1: you know, obviously doesn't have change the outcome. UM, but
Speaker 1: it just sort of puts him on record about, UM,
Speaker 1: what the appropriate norms for presidential conduct ought to be.
Speaker 1: Considering your stance that you thought that President Trump should
Speaker 1: have been convicted, do you think that he should lose
Speaker 1: or are you voting for someone else in November? Well,
Speaker 1: I don't even know who the Democratic nominee is going
Speaker 1: to be. UM. I certainly think it's unlikely, UM, that
Speaker 1: I am going to vote for President Trump. I didn't
Speaker 1: vote for him last time. Uh, and I continue to
Speaker 1: have UM serious objections to the way he has conducted
Speaker 1: himself in office. Do you think there are any Democrats
Speaker 1: as we as currently currently constituted in the field that
Speaker 1: can be President Trump? Oh? You know, UM, right now,
Speaker 1: I'd say that President Trump is probably favored to win,
Speaker 1: but I wouldn't say that he's an inevitably going to win.
Speaker 1: And I think a number of the Democratic candidates could
Speaker 1: potentially defeat him. Um. Some are I think riskier than others.
Speaker 1: I think Senator Sanders UM would be a risky nominee
Speaker 1: for the Democratic Party given the historic and continuing on
Speaker 1: popularity of socialism in the United States. Thank you so
Speaker 1: much for joining us. We appreciate your thoughts. Peuro was
Speaker 1: a senior editor for the National Review, also Bloomberg opinion
Speaker 1: columnist as well, and you could read the work from
Speaker 1: Remesh and the other Bloomberg opinion columnists at Bloomberg dot com,
Speaker 1: slash Opinion and on the terminal O p I n Go.
Speaker 1: Tex shares absolutely surging after better than expected earnings from
Speaker 1: a lot of the giants, plus looking at the trajectory
Speaker 1: forward that they are the future. Big question, could the
Speaker 1: coronavirus and the spread there disrupt supply chains enough to
Speaker 1: make a material DNT for these companies? And just how
Speaker 1: much good news has already been priced in without perhaps
Speaker 1: that good news actually happening. Bradstone joining us here in
Speaker 1: our interactive broker studios we're so glad to have. Do
Speaker 1: you hear in New York normally San San Francisco, Senior
Speaker 1: Executive editor of Global Tech for bloom Bloomberg News. Brad,
Speaker 1: Let's just start with what we've seen in terms of
Speaker 1: the supply chain challenges UH stemming from the coronavirus for
Speaker 1: big tech. We've heard from Apple. What else are we
Speaker 1: hearing with with chips? With other areas? Thankfully so well.
Speaker 1: I mean, I think there's a lot of ambiguity, there's
Speaker 1: a lot of concern, uh and and and doubt. I
Speaker 1: mean just like the World Health Organization you know, is
Speaker 1: saying it doesn't quite know, you know, how this virus operates, Um,
Speaker 1: how it started, whether we're at peak infection. You know,
Speaker 1: the tech companies don't know what's coming. And so we've
Speaker 1: seen a lot of of the of the big suppliers
Speaker 1: kind of warren. Uh, not much concrete evidence yet. So
Speaker 1: so Fox con Right, the maker of the iPhone, saying
Speaker 1: it expects one to three or sent growth and set
Speaker 1: us three to five. You know, qual Calm warning that
Speaker 1: it could be material materially impacted. We've seen LG Electronics
Speaker 1: withdraw from the big Mobile World Congress trade show in Barcelona. Um.
Speaker 1: You know, so if you're a tech company with the exposure,
Speaker 1: if you're supply chains in China, you know you're watching
Speaker 1: it and it's sort of up in the air what
Speaker 1: what the impact is going to be and whether it
Speaker 1: will impact global demand. So Brad, you and your the
Speaker 1: technology team out on the West coast to cover this
Speaker 1: so so well, uh, thinking about all the supply chain
Speaker 1: of global technology. First, we had the trade uncertainty, which
Speaker 1: I guess still is there between the US and China
Speaker 1: despite the Phase one deal. Now we've got this virus.
Speaker 1: A lot of times company has been talking about trying
Speaker 1: to de emphasize or take some of the supply chain
Speaker 1: out of China, maybe move with the Vietnam or other
Speaker 1: areas in Asia. Is there any evidence that that they're
Speaker 1: going to follow through with that or that they can
Speaker 1: actually do that to move the needle. I mean, I
Speaker 1: think they will follow through, but that's such a long
Speaker 1: term process, right, and you've got you know, you've got
Speaker 1: thirty years of the supply chain consolidating in China, in
Speaker 1: particular in areas of China like shen Zen, and and
Speaker 1: you're it's not gonna it's not gonna happen anytime soon.
Speaker 1: And some of the you know, the politically motivated promises
Speaker 1: like Fox Con saying it's going to build a facility
Speaker 1: in Wisconsin. Uh, you know, that's been a little more
Speaker 1: hyped than reality. So none of these companies can adjust
Speaker 1: fast enough to contend with what's happening now in China.
Speaker 1: So you talked about some of the supply chain challenges,
Speaker 1: and yet we're looking at the NASDAC up six point
Speaker 1: six percent. We're looking at a Fang plus index having
Speaker 1: its biggest run in the most valuation relative to the
Speaker 1: S and P I think in history. I mean, we're
Speaker 1: looking at some pretty extreme valuations. When you talk to people,
Speaker 1: is there a sense that there's too much good news
Speaker 1: baked in? No? I think. I think it's really driven
Speaker 1: by the kind of consolidation of of tech into you know,
Speaker 1: into a few companies, and like you have the virus,
Speaker 1: and you have the regulatory overhang, and yet right Apple
Speaker 1: Blockbuster iPhone sales, you know, the dock near an all
Speaker 1: time high, you know, Amazon, the re acceleration of the
Speaker 1: cloud business despite all the fear and uncertainty around like Microsoft,
Speaker 1: you know, winning the Jedi contract and whether Amazon's cloud
Speaker 1: growth was slowing down, and are re acceleration in retail right,
Speaker 1: more people becoming prime members and so yeah, you're right,
Speaker 1: it seems oversold, I mean, and of course you have
Speaker 1: examples where that is true, like Tesla right over overbought um.
Speaker 1: And yet you know, when you look at the performance
Speaker 1: of these companies, despite the sort of bad news and
Speaker 1: the regulatory concerns, they're still doing really well. All right,
Speaker 1: So can that enthusiasm translate and spill back over to
Speaker 1: the unicorn world, which had some of its shine taken
Speaker 1: off at the end of last year after a couple
Speaker 1: of less than happy IPO situations. That's right now and
Speaker 1: then and then we're sort of into a different discussion,
Speaker 1: right because you know, when you when you look at
Speaker 1: the companies I'm on public last year, Uber and Peloton
Speaker 1: and then of course we Work, which didn't even make
Speaker 1: it out, you had a situation where the hype did
Speaker 1: collide with reality and a lot of the value was
Speaker 1: taken out already by private equity, by soft bank, by
Speaker 1: the venture capital firms. So you know, there you have
Speaker 1: a situation where you've got companies like Airbnb or or
Speaker 1: or the fintech company robin Hood, which are probably looking
Speaker 1: at this market with a lot of anxiety, wondering and
Speaker 1: cast for the Mattress company of course, today, you know,
Speaker 1: how are the public markets going to react, particularly if
Speaker 1: they if they remain unprofitable. So one of the issues
Speaker 1: that has kind of crept into the technology discussion over
Speaker 1: the last year or two has been regulatory overhang. Now,
Speaker 1: historically the U. S Government has taken I think pretty
Speaker 1: light touch to the U S. Tech industry that might
Speaker 1: be changing. How what's the feeling in the valley. There
Speaker 1: is this a paradigm shift, and they've got to really
Speaker 1: start thinking about this. I think that's right, Paul. I
Speaker 1: mean storm clouds. Right, it's coming at them from all angles.
Speaker 1: You've you've got the EU, which is obviously the most
Speaker 1: active over the last few years. UM. But then in
Speaker 1: the US, the Justice Department seeming to increase the pace
Speaker 1: of its investigation, particularly of Google. UM. But then and
Speaker 1: particularly with the guards. So it's third party ad network.
Speaker 1: You know, we've reported on the Wall Street Journal has
Speaker 1: reported that they're interviewing publishers looking at Google's ad dominance.
Speaker 1: Then you've got the FDC, You've got Attorneys General. Um,
Speaker 1: you've got the David Cellini, uh, the the the House
Speaker 1: member from Rhode Island, you know, leading these discussion panel
Speaker 1: discussions looking at big tech. And so yeah, I think
Speaker 1: we're sort of at peak or we're close to peak. Um,
Speaker 1: you know, scrutiny of the big tech companies, and that's
Speaker 1: not that's what we're just getting started there. And it
Speaker 1: does seem to be the one thing that all the
Speaker 1: presidential candidates kind of agree on right now markets basically
Speaker 1: saying it doesn't look like those politicians are going to
Speaker 1: move soon on anything. And it seems like tech companies
Speaker 1: believe that as well. Is there a sign, any sign
Speaker 1: whatsoever that they're wrong, that there is some kind of
Speaker 1: push to get some regulation passed in the near term.
Speaker 1: I think you're I don't think they're wrong. I think
Speaker 1: this is a long term process, you know. And and
Speaker 1: we saw it with the Microsoft case in the nineties.
Speaker 1: It takes years, it's appealed, the Supreme Court often has
Speaker 1: to get into these things. But you know, when we
Speaker 1: saw Makon del Rahim, the head of the d o
Speaker 1: j Antitrust Division, recused himself from the Google investigation, there
Speaker 1: are signs that things are accelerating, you know. And he
Speaker 1: was involved in the sale of double click to Google.
Speaker 1: So it's one reason why you'd want to step back.
Speaker 1: But things like that, you know, suggests that we're we're
Speaker 1: no longer in the realm of the hypothetical. It might
Speaker 1: take a long time, but these companies are girding for battle.
Speaker 1: Brad Stone, thanks so much for joining us. To really
Speaker 1: appreciate you coming into our Bloomberg studios, usually based in
Speaker 1: San Francisco. Brad Senior Executive editor of Global Technology for
Speaker 1: Bloomberg News. He in a team do a great job
Speaker 1: covering everything on the tech space. They've been very busy
Speaker 1: with all these I p o s and all these
Speaker 1: big issues affecting big tech. The Treasury Department gave details
Speaker 1: about their issuance of twenty year treasuries for the first time,
Speaker 1: as they laid out a plan to find as a
Speaker 1: deficit for the federal government that should reach one trillion
Speaker 1: dollars annually over the next ten years. Is according to
Speaker 1: independent analyzes. The question is doesn't matter and this has
Speaker 1: been a subject of huge debate. Joining us now the
Speaker 1: way in Chris Edwards, director of tax policy Studies at
Speaker 1: the Cato Institute an editor of Downsizing Government dot org. Chris,
Speaker 1: you have come out with some pretty stark warnings about
Speaker 1: the federal deficit. Can we just start about why a
Speaker 1: federal deficit is so problematic? A lot of people challenging
Speaker 1: that concept in an era where there is an encouragement
Speaker 1: for more fiscal stimulus. Well, what the federal government is
Speaker 1: doing right now is completely unique in in our two
Speaker 1: stories of history in the past We've had spikes in
Speaker 1: federal government that usually during wars, you know, the Civil
Speaker 1: War and World War One and World War Two, but
Speaker 1: the government has always paid the debt back down again.
Speaker 1: Now we are not at war. We're in the eleventh
Speaker 1: year of economic expansion. Now we should be down our debt.
Speaker 1: But our debt is the highest in our peacetime history,
Speaker 1: and it is going up. The latest Congressional Budget Office
Speaker 1: data shows that the annual deficit is going from a
Speaker 1: trillion this year to one point seven trillion ten years
Speaker 1: from now. And I think that's optimistic. For one thing,
Speaker 1: the CBO doesn't put any recessions in its projections, and
Speaker 1: yet we probably will have a recession in coming years sometime,
Speaker 1: and that will blow an even bigger hole. So I
Speaker 1: think the outlook is very scary. Chris. Are you surprised
Speaker 1: that the Republican Party hasn't made this bigger of an
Speaker 1: issue and and really tried to work harder to uh
Speaker 1: shrink the size the government to deal with this deficit.
Speaker 1: It is remarkable. There's been huge responsibility on both sides.
Speaker 1: You know, the Republicans they just want to cut taxes,
Speaker 1: which increases deficits that the Democrats and Republicans want to
Speaker 1: increase spending. So we've got the situation where there's irresponsibility
Speaker 1: on all sides. What's remarkable is if you go back
Speaker 1: and you look at the federal budget document and so
Speaker 1: say President Reagan or President Clinton, they were there's a
Speaker 1: lot of concern about deficits. There was a focus on,
Speaker 1: you know, creating new mechanisms to try to reduce debt
Speaker 1: and deficits. That has all gone out the window. And
Speaker 1: I think what has happened is pretty clear that we
Speaker 1: have global capital markets these days, and you are gonna
Speaker 1: be able to borrow at very low interest rates, and
Speaker 1: politicians don't have any fears about the death. It used
Speaker 1: to be the politicians thought if they ran big deficits,
Speaker 1: it would push up mortgage interest rates, it would cause inflation,
Speaker 1: and it would create political pain for them. But I
Speaker 1: think all the political pain has gone and so they're
Speaker 1: just their natural spending instincts have come out and they're irresponsible, Chris.
Speaker 1: But to that exact point, they have blown up the
Speaker 1: deficit and it hasn't mattered. In fact, we just got
Speaker 1: to read today, uh that mortgage rates in the United
Speaker 1: States have fall into their lowest in sixteen. So why
Speaker 1: is it a problem to have a big deficit. Uh,
Speaker 1: The first problem is that all this all this borrowing
Speaker 1: is cost pushed to the future. The pain doesn't come now.
Speaker 1: The government borrows another one billion or ten billion, or
Speaker 1: hundred billion, that is all a cost on the next
Speaker 1: generation of young taxpayers. Taxes will to be higher twenty
Speaker 1: trillion in the future because we've got this giant twenty
Speaker 1: trillion dollar debt now. So it means that and as
Speaker 1: you know, just somewhat a bit less than half of
Speaker 1: all our debt is borrowed from abroad. So that means
Speaker 1: that young American workers in incoming decades will be working,
Speaker 1: their taxes will be going to Washington siphoned off from
Speaker 1: them and paid the foreign creditors. So they're gonna be working,
Speaker 1: and we're not even going to get the benefit of
Speaker 1: that work here in the US economy. So that's where
Speaker 1: the rubber hits the road, the costs on the future.
Speaker 1: So Chris in hindsight, A little bit of hindsight here
Speaker 1: with tax cuts a mistake from an economic perspective, I
Speaker 1: think that the corporate tax cut was absolutely needed. You
Speaker 1: have to be globally competitive on our corporate tax rape
Speaker 1: the individual tax cuts, I think we're much more of
Speaker 1: a mixed bag. As you know, the individual tax cuts
Speaker 1: expire at the end of and I think there's gonna
Speaker 1: be and there should be a good debate at that
Speaker 1: time whether they're worth extending, because if Congress keeps spending
Speaker 1: like uh, the money like this, those individual tax cuts,
Speaker 1: in a way, they're not really tax cuts. All they're
Speaker 1: doing is deferring a giant tax burton that's going to
Speaker 1: come in the future anyway. Chris. There's also though an
Speaker 1: argument here that if there is some sort of fiscal
Speaker 1: stimulus ongoing, that it will continue to grow the economy
Speaker 1: enough to finance some of the tax bills that will
Speaker 1: come do later on, that the consequences of not taking
Speaker 1: action now could potentially be more detrimental to the U.
Speaker 1: S economy than ballooning the deficit. What do you say
Speaker 1: to those arguments, It doesn't make any sense. Look in
Speaker 1: the in the under President Clinton, we had some of
Speaker 1: the strongest growth we've had over the last half century,
Speaker 1: and we've balance the budget. Clinton balanced the budget four
Speaker 1: years in a row, and we had strong economic growth.
Speaker 1: The idea that we're getting stimulus from the massive deficits
Speaker 1: now doesn't make any sense. I think what it does
Speaker 1: is it scares investors and scares businesses about the future
Speaker 1: credit worthiness of the U. S. Economy. So I don't
Speaker 1: And and look, we've only got modest economic growth right
Speaker 1: now despite this giant so called stimulus, So I don't
Speaker 1: buy the stimulus argument. Chris Edwards, thanks so much for
Speaker 1: joining us. We appreciate your thoughts here. Chris Edwards, director
Speaker 1: of Tax Policy Studies at the Cato Institute, also an
Speaker 1: editor of Downsizing Government dot org based in Washington, d C.
Speaker 1: Raising the specter of how this, potentially the federal deficit
Speaker 1: could end badly UH for the U. S. Government, and
Speaker 1: it's populous. Look, whichever way you you believe, it's a
Speaker 1: really interesting debate to be having, because for a long time,
Speaker 1: to Chris's point, people did believe if you balloon the deficit,
Speaker 1: you'd end up with much higher rates, which would lead
Speaker 1: to uh some sort of economic slow down in their
Speaker 1: own right. But the problem is we've seen exactly the opposite,
Speaker 1: that major developed nations have gone out there and they
Speaker 1: have ballooned their deficits and their rates have dropped, so
Speaker 1: kind of calling into questions some of the old theory here,
Speaker 1: I'd raising questions about helicopter money, etcetera. It's an interesting
Speaker 1: debate one that will be definitely had increasingly fervently. Yes, exactly.
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
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Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on
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Speaker 1: can always catch us worldwide on Bloomberg Radio