Speaker 1: This is Bloomberg Wall Street Week. Market shruggle, higher consumer prices,
Speaker 1: the economy is in the process of rebounding. Will the
Speaker 1: flutter reserve have its own digital currency? The financial stories
Speaker 1: that cheap hard work. Many people think the eels are
Speaker 1: just going to keep marching up. We have more spending
Speaker 1: coming out of Congress. One of the big questions I
Speaker 1: think on investor's minds inflations through the eyes of the
Speaker 1: most influential voices, Larry Summers, the former Treasury Secretary, Bryan
Speaker 1: Wynahan back of America, Will Smart, CEO of Charlie Sharp.
Speaker 1: Bloomberg wool Street Week with David Weston from Bloomberg Radio.
Speaker 1: It was the dog that didn't bark, at least not yet,
Speaker 1: as natural gas prices, a Chinese property collapse, and a
Speaker 1: US debt default all reared their ugly heads and then
Speaker 1: went back to sleep. This is Bloomberg Wall Street Week.
Speaker 1: I'm David Weston. Despite those disappointing jobs numbers of Volatile
Speaker 1: Week and equities showed a modest gain for the week overall,
Speaker 1: with the SMP up a bit under one percent in
Speaker 1: the Dow up a bit more than one percent, But
Speaker 1: there was more action with the ten year tree as
Speaker 1: yields went up for the seventh straight week, ending up
Speaker 1: over one point six percent. To take us through the
Speaker 1: week and the longer term prospects for investors, Welcome to
Speaker 1: Stephen Ratner. He's chairman and CEO of Will and Advisors,
Speaker 1: which invests the personal and philanthropic assets of Michael Bloomberg.
Speaker 1: He's the founder majority owner of our parent company, and
Speaker 1: Joe Anne Feenie, partner in Advisors Capital Management. Joe, and
Speaker 1: let me start with you. As I said, there were
Speaker 1: a lot of little spooks this week. We're a little
Speaker 1: nervous about things. Are there real risks out there that
Speaker 1: just happen to go away for the time being, or
Speaker 1: did we overreact? You know, David, it's as if investors
Speaker 1: just woke up and realized that the stock market is
Speaker 1: a risky place. You know, you see COVID having surged
Speaker 1: for a while, You see a slowdown economic growth because
Speaker 1: of all the shortages we're having. You know, people are
Speaker 1: now paying more attention to inflation and recognizing that interest
Speaker 1: rates will eventually have to move higher, and you know
Speaker 1: that that has created a bit of volatility. It's volatility
Speaker 1: that you know, if we think back is actually pretty normal. Uh,
Speaker 1: And so you know, yes, investors got a little bit nervous.
Speaker 1: We saw also volatile little we've seen you know, growth
Speaker 1: Bow continuing to outperform as investors run to some of
Speaker 1: the bigger cap stocks that appear to have a longer
Speaker 1: runway of secular growth ahead of them. So, Steve, what
Speaker 1: about you, you're a longer term investor, as you sort
Speaker 1: through this, which are the false negatives and which are
Speaker 1: the ones that you're really worried about in the longer term.
Speaker 1: Let me start with the ones that I worry about.
Speaker 1: The thing I worry most about is inflation transmitting itself
Speaker 1: into higher interest rates, interest higher interest rates being the
Speaker 1: enemy of the stock market and of investing in general,
Speaker 1: and that, to me is the singular biggest risk. There
Speaker 1: plenty of other risks, but I do think for the
Speaker 1: foreseeable future we're on a positive growth growth trajectory. Is
Speaker 1: still an enormous amount of excell calling you can call
Speaker 1: it access or surplus or whatever you want to call it,
Speaker 1: money rattling around in the economy. Government transfers money that
Speaker 1: people didn't spend last year during the lockdown and so forth,
Speaker 1: And so I don't think there's any growth issue, but
Speaker 1: I do think there's a serious inflation interest rate risk
Speaker 1: out there. So Joan, let's pick up on of that specifically.
Speaker 1: I talked to see the Nut in the former Treasury
Speaker 1: sectary this week and he said he thinks the ten
Speaker 1: years going to three point five in part because he
Speaker 1: agrees with Steve he's really concerned about inflation. Is the
Speaker 1: stock market ready for three point five percent in the
Speaker 1: ten year yield? Well, we've already seen some pullbacks in
Speaker 1: some of those higher multiple stocks because investors are finally
Speaker 1: realizing that market interest rates right here are too low,
Speaker 1: and the fan has made it clear they're gonna get
Speaker 1: the taper their purchases and they're gonna hold away from
Speaker 1: raising short term rates. But as they taper, the long
Speaker 1: term rates are are going to start to rise, and
Speaker 1: we should expect that the filter into higher multiple stocks.
Speaker 1: Those are the stocks are going to see the biggest
Speaker 1: declines in their multiples. And that's why we advise our
Speaker 1: clients to make sure if you're gonna own expensive stocks
Speaker 1: like that, make sure they have very good growth profiles,
Speaker 1: you know, which a lot of them do. But yeah,
Speaker 1: it's a risk. I think it's an asymmetric risk across
Speaker 1: the stock market because not all stocks trade at multiples
Speaker 1: that are vulnerable to rising interest rates, but some of
Speaker 1: them really are, and so investors really need to stay
Speaker 1: away from owning concentrated positions and all those stocks that
Speaker 1: it's so well during the heart of the COVID crisis,
Speaker 1: So Steve, the consensus seemed to be in response to
Speaker 1: those very disappointing jobs numbers that in fact, it wasn't
Speaker 1: going to deter the FED, which seems to attracted to
Speaker 1: start tapering perhaps November, the next meeting they have. At
Speaker 1: the same time, if the inflation really is worse than
Speaker 1: what the FED is understanding, is there a danger they'll
Speaker 1: have to really react much more violently when it comes
Speaker 1: Well first, I think it's I think it's risk you
Speaker 1: to try to read too much into any month of
Speaker 1: jobs numbers. This month had a bunch of abnormalities in
Speaker 1: it relating to UH people teachers and school employees going
Speaker 1: back to work in September and so on and so forth. UH.
Speaker 1: The labor force participation number was very disappointing that people
Speaker 1: are actually still dropping out of the labor force, not
Speaker 1: coming back into the labor force, So all of that
Speaker 1: obviously does push you onto the slower side of the economy.
Speaker 1: But on the other side, um, I do think I
Speaker 1: don't think it's a question of when the FED decides
Speaker 1: the taper. I think it's a question of when the
Speaker 1: bond market decides that inflation is now the biggest concern
Speaker 1: rather than slower growth, and the FETE is going to
Speaker 1: end up, perhaps in a reactive position rather than a
Speaker 1: leading position on that issue. Joanne, if that is a
Speaker 1: risk taking in account of all the other risks as well,
Speaker 1: what specific stocks do you do you like at this point, Well,
Speaker 1: there there are several to choose from, depending on what
Speaker 1: you're trying to accomplish. We try to add a few
Speaker 1: different elements secular growth stocks that can hold up against
Speaker 1: those inflation increases and interested increases. Steve, I understood you
Speaker 1: were saying at the beginning, you're not so worried about
Speaker 1: the growth pattern as you are about possible inflation. But
Speaker 1: talk to me about China. Am I overly focused on
Speaker 1: Evergrand and the Chinese property market, because I've seen some
Speaker 1: remarkable numbers about how much of Chinese growth is depending
Speaker 1: upon that property market, and therefore how much of global
Speaker 1: growth is because we defended so much on China over
Speaker 1: recent years. Well, you're certainly right to worry about everywhere,
Speaker 1: and the problem with China in general, Ever Grand certainly
Speaker 1: being an example of it, is there's so much opacity
Speaker 1: in China that it's really hard to know what the
Speaker 1: facts are, what we should even be worrying about. I
Speaker 1: think the Chinese. Look, I think everybody on the planet
Speaker 1: is aware of the ever Grand problem. I think the
Speaker 1: Chinese is certainly aware of it. I think they're trying
Speaker 1: to manage their way through it. I would be cautiously
Speaker 1: optimistic that they will be able to manage their way
Speaker 1: through it. They have a lot of tools at their disposal,
Speaker 1: they don't have to deal with Congress and so on
Speaker 1: and so forth. But but it is certainly, it is
Speaker 1: certainly a risk. But let me mention just one of
Speaker 1: the risk quickly, which I've meant to mention before, which
Speaker 1: is the risk of corporate profit margins. So I agree
Speaker 1: that as or as I said, growth is definitely happening
Speaker 1: out there. But the question is really where the companies
Speaker 1: are going to continue to be able to pass along
Speaker 1: the increasing costs of their raw materials and their other
Speaker 1: and their other supplies, and that is an issue for
Speaker 1: corporate profits and then obviously for the stock market. After
Speaker 1: that reassuring note to finish on, thank you so much
Speaker 1: to Joe and Feenie of Advisor's Capital Management. Thank you
Speaker 1: so much to Steve Ratner of will A Advisors. Coming up,
Speaker 1: the investment opportunities in fintech and the need for crypto
Speaker 1: regulation from a new player in the space, former Treasury
Speaker 1: Secretary Stephen Manuchin. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. Fintech, everybody's talking about it, even if we're
Speaker 1: not always sure what it is we're talking about. For some,
Speaker 1: it's all about cryptocurrencies with all the promise and all
Speaker 1: the uncertainty. Here's Don Fitzpatrick, Sorrow's fund management CEO. There's
Speaker 1: two million users around the world. Um so I think
Speaker 1: this has gone mainstream. For some, like Citadel CEO Ken Griffin,
Speaker 1: all that uncertainty keeps them from even touching crypto. We
Speaker 1: don't trade crypto because of the regulatory uncertainty. For others,
Speaker 1: it's not about cryptocurrency as such, but about a better
Speaker 1: way to transfer money and settle accounts. Here's Bank of
Speaker 1: America's Brian moynihan and Aperture investors Peter Krauss. One half
Speaker 1: the money moved by consumers today a Bank America today
Speaker 1: has moved digital one half. The more interesting aspect of
Speaker 1: cryptocurrency is not the fact that it is a speculative value,
Speaker 1: but did it's a mechanism by which you can actually trade, settle,
Speaker 1: and effectively record transactions immediately or instantaneously. That's the much
Speaker 1: more valuable part of crypto, and some see the move
Speaker 1: to digital currencies as a way to democratize all the finance,
Speaker 1: removing some of the costs and frictions that keep much
Speaker 1: of the world's population out of the system. That are
Speaker 1: many frictions and international finance and domestic finance. Many people
Speaker 1: don't have easy access to digital payments. You know, in
Speaker 1: the US you need a debit or credit card or
Speaker 1: a bank account to have access to digital payments. International
Speaker 1: payments are still beset by lots of impediments. They're expensive,
Speaker 1: they are very time consuming, it's very difficult to track payments.
Speaker 1: So there is a real need for better digital payments.
Speaker 1: That was Cornell professors. But however, you regard the move
Speaker 1: to digital of our financial systems, the one thing that's
Speaker 1: for certain is that it is coming, and that as
Speaker 1: it comes, we will see regulations shape its future. Something
Speaker 1: SEC Chair Gary Ginstler, Investor Ken Griffin, and Senator Elizabeth
Speaker 1: Warren all agree is needed. Many of these tokens do
Speaker 1: meet the tests of being an investment contract or a
Speaker 1: note or some other form of security that we bring
Speaker 1: them within the investor protection remit of the SEC. Chairperson
Speaker 1: Ginstler is spot on on the need to have thought
Speaker 1: for regulation around cryptocurrency. If people are going to be
Speaker 1: out there trading in it, there needs to be a
Speaker 1: cop on the b Whatever we mean by fintech. Former
Speaker 1: Treasury Secretary Steve Manuchin means to invest in it through
Speaker 1: his new two point five billion dollar fund called Liberty
Speaker 1: Strategic Capital, And for the former secretary, it all begins
Speaker 1: with payment systems. But we really like the payment space.
Speaker 1: We think that's a gigantic opportunity, particularly for real time
Speaker 1: cross border occurrences. I think the underlying technology of blockchain
Speaker 1: and using stable coins is something that's very interesting. But
Speaker 1: let me just comment because I saw a Bloomberg article
Speaker 1: on one of the big stable coins. In my view,
Speaker 1: you know, one, some of these stable coins should most
Speaker 1: likely be regulated. In two, if they're backed by dollars,
Speaker 1: they should be freely transferable, and we should make sure
Speaker 1: that they're really backed by dollars, so that dollars are
Speaker 1: held by a custodian bank and that they're secure. Let's
Speaker 1: go exactly. I'm glad you raised that because it was
Speaker 1: a piece on Bloombergs about Tether, specifically saying that right
Speaker 1: now they have sixty nine billion tether's outstanding and forty
Speaker 1: eight billion of them were issued this year. Theoretically, that
Speaker 1: means they have six and nine billion dollars of more
Speaker 1: or less US cash somewhere. How sured are we that
Speaker 1: they actually have that money. Well, I don't know much
Speaker 1: about Tether other than what I wrote about, and I
Speaker 1: thought the piece was actually quite interesting, but again that
Speaker 1: they shouldn't be like casino chips, that they should be
Speaker 1: in my opinion, if you're going to issue a stable coin,
Speaker 1: the actual money should go be held in a regulated bank,
Speaker 1: uh in a trust account, and the people who hold
Speaker 1: the stable coins should be able to exchange those for
Speaker 1: real dollars at any time, So the stable coins should
Speaker 1: be invested in US treasuries or things that look like
Speaker 1: US treasuries, money markets of highly liquid backed investments. As
Speaker 1: soon as not your job anymore. It was your job.
Speaker 1: Now it's Janet Gellen's job to figure out how you
Speaker 1: should best regulate that. She's had some meetings, as you know,
Speaker 1: to try to figure out regulation of things like stable coins.
Speaker 1: From your point of view, is that something that should
Speaker 1: be the FED responsibility? Is that the SEC? Where does
Speaker 1: that responsibly lie? Well, the Secretary of Treasury oversees a
Speaker 1: committee of all the different regulators, and that's the right place.
Speaker 1: So these issues cross different regulators. Some of them are
Speaker 1: Treasury regulations through Finsen, some of them are the o
Speaker 1: c C for banks, some of them are the FED,
Speaker 1: and some of them are the SEC. And in general, um,
Speaker 1: you know, I'm fine if people want to trade bitcoin
Speaker 1: and cryptocurrencies, but I think there should be full transparency.
Speaker 1: These shouldn't be the equivalent of a Swiss numbered bank account,
Speaker 1: So if you're going to trade in these, they should
Speaker 1: be fully regulatory compliant, fully b s A compliant. And
Speaker 1: one of our big issues is to focus on cyber security,
Speaker 1: and again one of the problems with ransomware is right
Speaker 1: now it's way too easy to pay a twenty five
Speaker 1: million dollar ransom payment in bitcoin. You know, you can't
Speaker 1: wire twillion dollars to people who you don't know, you
Speaker 1: can't deliver cash. I believe the regulation should be same
Speaker 1: on these other cryptocurrencies. So as you look to make
Speaker 1: investments with your fun in this area, how vulnerable are
Speaker 1: your investments to sort of regulatory changes? I mean, is
Speaker 1: that a risk and opportunity a little bit of both well,
Speaker 1: As I like to say, I've been regulated when I
Speaker 1: ran a O c C bank, and I've been a
Speaker 1: regulate tour, so I understand both sides. We actually like
Speaker 1: investing in companies in regulated entities because we think the
Speaker 1: legal and political risk is a lot less and we
Speaker 1: think their safety in a regulated institution, particularly whether a
Speaker 1: US institution, whether it's a regulated by the O c C,
Speaker 1: you are regulated by finn Send or or regulated by
Speaker 1: the SEC. So I as an investor, would be very
Speaker 1: careful investing in unregulated entities. There are clearly places where
Speaker 1: it makes sense to do that, but one has to
Speaker 1: be aware of the regulatory risk. To do you have
Speaker 1: a sense of the possibility of contagion. Let me be specific.
Speaker 1: Let's go back to tether promote. There's a suggestion that
Speaker 1: perhaps if tether collapse, I'm not saying it will, but
Speaker 1: if it did, it could affect other currencies. Is there
Speaker 1: a danger of contagion across cryptocurrencies, Well, let me just
Speaker 1: say I'm less focused on the contagion. I'm more focused
Speaker 1: on there are people who are buying that thinking they're
Speaker 1: buying the equivalent of US dollars. So when you say
Speaker 1: you're buying into a stable coin backed by US dollars,
Speaker 1: there should really be US dollars there. So, whether it's
Speaker 1: an issue that drifts into other things, or whether it's
Speaker 1: just investors can't get their money back, I think that's
Speaker 1: a big problem, and that's a regulatory concern. That was
Speaker 1: former US treasure Secretary Stephen Manuchin coming up a look
Speaker 1: inside the future of electric vehicles with the CEO of
Speaker 1: General Motors. That's next on Wall Street Week on Bloomberg.
Speaker 1: This is Bloomberg Wall Street Week with David Weston from
Speaker 1: Bloomberg Radio. General Motors held its Investors Day in Detroit
Speaker 1: this week with a series of announcements, including the debut
Speaker 1: it's much anticipated electric Silverado pickup. We talked with GM
Speaker 1: CEO and chair Mary Barra about GM's position in the
Speaker 1: race to an electric vehicle future with the scale that
Speaker 1: General Motors has. As we continue to leverage l t M,
Speaker 1: we get the scale, we keep leveraging the science to
Speaker 1: get the cost of the battery cells down. Yes, we
Speaker 1: we have a plan is and that's why we're very
Speaker 1: confident that as we move forward through the end of
Speaker 1: the decade, we're going to see margin growth. Mary, I
Speaker 1: want to skip over the Silverado you mentioned it there
Speaker 1: in brief. Everybody's been waiting for this. Now we've seen
Speaker 1: some pictures of it. I know you're gonna have a
Speaker 1: formal unveiling. I think at c Yes coming up at
Speaker 1: the beginning of next year. Why glass roof, Well, I
Speaker 1: think UM one because we can UM and I think
Speaker 1: when you see the entire Silverado E, you're going to
Speaker 1: see what doing a truck off at all electric platform,
Speaker 1: not trying to retrofit off of an existing platform, opens
Speaker 1: up all new design capability functionality. I'm so excited because
Speaker 1: I think the Silverado E will be a very strong
Speaker 1: reforming truck, but it's going to bring new buyers into
Speaker 1: the truck market, into General Motors truck portfolio. Give us
Speaker 1: a sense of what you need General Motors needs from
Speaker 1: the government, and particularly talking about charging stations, because the
Speaker 1: budget proposals that's being kicked around a capital hill includes
Speaker 1: some serious money for charging stations. Do you need that
Speaker 1: in order for General Motors to be a true leader
Speaker 1: in electric vehicles? Well, we're investing in infrastructure, but we
Speaker 1: do think that the federal government is going to play
Speaker 1: a very important part because think about it, David, we
Speaker 1: need to make sure that someone who only owns one vehicle,
Speaker 1: who may live somewhere where they don't have designated parking,
Speaker 1: to have access to reliable charging because that's what is
Speaker 1: going to enable them to buy an electric vehicles. So
Speaker 1: we think it's a partnership between business and UH the
Speaker 1: government to make sure we provide that infrastructure across the country.
Speaker 1: And in addition to that, we want to make sure
Speaker 1: that we see the revisions to the e V tax
Speaker 1: credit that currently right now, um you know penalizes first
Speaker 1: movers in the way it was originally constructed. So you
Speaker 1: do need some help again in the affordability from from
Speaker 1: the government in terms of tax credits. But we think
Speaker 1: that's just going to accelerate e V adoption and we
Speaker 1: think that's a very important part of accomplishing the president's
Speaker 1: goals for from a climate change perspective, and that will
Speaker 1: expedite the adoption of e V s. And again when
Speaker 1: we have a full portfolio with many different entries at
Speaker 1: different price points, that's why we're well positioned. Mary. One
Speaker 1: of the things we've talked about before is we think
Speaker 1: of General Or as a vehicle company, a car company,
Speaker 1: if you will, but you can see it somewhat differently.
Speaker 1: It's a platform company, and sever your announcements go to
Speaker 1: some of the software that can be put onto this platform.
Speaker 1: Talked to us, particularly about for example, Ultra Cruz. Sure, well,
Speaker 1: you know, if if I start with looking at what
Speaker 1: our ultim platform gives us, this platform to do not
Speaker 1: only a full range of electric vehicles, but also into
Speaker 1: other markets other transportation type vehicles. On top of that,
Speaker 1: then we have the Vehicle Intelligent platform that really allows
Speaker 1: for over the error updates to almost any um you know,
Speaker 1: part of the vehicle. Now we're launching Altify, which gives
Speaker 1: us really a platform that we could offer services subscriptions
Speaker 1: like super Cruise. You know that it's not just you
Speaker 1: buy it in the vehicle, but it can be one
Speaker 1: of those things that you you use it on demand
Speaker 1: with a subscription. So we're very excited about the business
Speaker 1: that we're unlocking. We really feel General Motors is moved
Speaker 1: from being an automaker to really a platform innovator and
Speaker 1: the vehicle itself has become a software defined vehicle that
Speaker 1: it really is going to unlock a lot of revenue
Speaker 1: that's at different margins and really serves the customer. You
Speaker 1: said at different margins. Give us a sense put to
Speaker 1: put aside revenue and talk about profit contribution. At what
Speaker 1: point will those services contribute as much as the vehicles
Speaker 1: will to the profits of General Motors. Well, I think
Speaker 1: if you look at you know, our internal combustion business
Speaker 1: or e V business, um, the services are are going
Speaker 1: to play a very material role. But then on top
Speaker 1: of that, there's also cruise, and we think there's tremendous
Speaker 1: growth potential as we commercialize as crews in addition to
Speaker 1: OnStar insurance, Bright Drop and our GM defense operations. So
Speaker 1: that's why there's so much growth, and there's a different
Speaker 1: margin profile for each of those businesses that I think
Speaker 1: is going to lead to improve profitability. You mentioned bright Drop.
Speaker 1: I want to focus on that for a moment because
Speaker 1: one of the things that I think I see with
Speaker 1: General Motors is a move as well from B to
Speaker 1: C business or consumer to be to be business. You
Speaker 1: have the bright Drop situation and their arrangement. FedEx take
Speaker 1: us through that where you are on it all again
Speaker 1: as as we look at bright Drop, what to me
Speaker 1: is so important about bright Drop. It's not simply taking
Speaker 1: an internal combustion light commercial vehicle and making it electric.
Speaker 1: It's really creating an ecosystem and allowing our customers to
Speaker 1: be more efficient. You know, for example, in some of
Speaker 1: the piloting work we've done with fed X, you know,
Speaker 1: really working with their their truck, their drivers, and then
Speaker 1: how they do deliveries. Were able with our e palette
Speaker 1: system to drive more efficiency so they can actually deliver
Speaker 1: more packages in the same amount of time. And then
Speaker 1: providing a whole uh software system to manage all aspects
Speaker 1: of managing the fleet. So it's really an ecosystem. It's
Speaker 1: a total solution for these customers and we've been working
Speaker 1: with them, and that's what they say they want, We're
Speaker 1: going to deliver. That's GM CEO Mary Barrow coming up.
Speaker 1: We wrap up the week as we always do with
Speaker 1: contributor Larry Summers of Harvard. That's next on Wall Street
Speaker 1: Week on Bloomberg. This is Bloomberg Wall Street Week with
Speaker 1: David Weston from Bloomberg Radio. This is Wall Stree Week.
Speaker 1: I'm David Weston. We're going to conclude our week as
Speaker 1: we always do with our special contributor in Walltere Week.
Speaker 1: He is Larry Summers of Harvard. So, Larry, thank you
Speaker 1: so much for being back with us. Let's start with
Speaker 1: the jobs numbers came out on Friday this week, disappointing
Speaker 1: by quite a margin, I must say, although some people
Speaker 1: thought underlying it, the numbers weren't as bad as maybe
Speaker 1: they appeared. David looked. I think this fit the story
Speaker 1: that we've been telling on this show almost exactly. We
Speaker 1: got a lot of demand, we don't have so much supply.
Speaker 1: That's why the unemployment rate came down more than people expected.
Speaker 1: That's why the wage growth was much higher than people expected.
Speaker 1: We don't have a soft economy in terms of demand.
Speaker 1: We have more of a more damage to people's willingness
Speaker 1: to work than people expected a few months ago. The
Speaker 1: problem is that this points in favor of the inflationary diagnosis. Look,
Speaker 1: average hourly earnings this week this month rose at a
Speaker 1: seven and a half percent annual rate. That's not consistent
Speaker 1: with any reasonable theory of inflation. And with the unemployment
Speaker 1: rate lower and falling, it may even get the situation
Speaker 1: may even get worse. So I think we're in a
Speaker 1: uh very uh difficult situation. Here's one way to think
Speaker 1: about it. We've got interest rates way below their neutral level.
Speaker 1: The FED thinks the neutral level of interest rates like
Speaker 1: two and a quarter percent. They've got interest rates close
Speaker 1: to a half percent. They've got interest rates close to zero.
Speaker 1: And I think given the vast structural changes under way
Speaker 1: after COVID, we've probably got unemployment below the natural or
Speaker 1: neutral rate of unemployment. And that's just not a combination
Speaker 1: that adds up to anything other than taking a big
Speaker 1: risk on the inflation side. So I'm pretty concerned about
Speaker 1: where we are. So I want to turn to a
Speaker 1: different subject. Something you wrote on in the Washingt post
Speaker 1: at the end of the week, and it's this proposal
Speaker 1: actually as part of the Biden Packe aconomic page, that
Speaker 1: that the banks report to the I r S on
Speaker 1: the overall inflows on outflows, as I understand that the
Speaker 1: deposits being held basically as a way to get at
Speaker 1: some income that otherwise doesn't show up, for example on
Speaker 1: your W two or your ten and nine. You wrote
Speaker 1: and you were pretty forceful about it, I must say
Speaker 1: in the Washington Post, explain your point of view on this, David,
Speaker 1: I think this is really an easy one. Right now,
Speaker 1: if you or I have an account in a bank,
Speaker 1: the bank reports on that account by reporting interest, so
Speaker 1: we're already sharing that information with the government, and the
Speaker 1: I r S is already learning about our bank account.
Speaker 1: The proposal that's made is that in addition to reporting
Speaker 1: on the interest, state pay the report on the inflow
Speaker 1: when the money comes in. And the reason for that
Speaker 1: report is that we've got an epidemic of tax and
Speaker 1: non payment in this country on income that you get
Speaker 1: in a wage or a salary on a W two
Speaker 1: compliances above an income where you don't have information reporting
Speaker 1: by businesses it's below fifty and in total, the tax
Speaker 1: gap is going to cost a seven trillion dollars over
Speaker 1: the next ten years. So the proposal is that when
Speaker 1: banks get substantial deposits, they have to report them. There's
Speaker 1: plenty of room for argument about exempting the little guy.
Speaker 1: There's plenty of room for argument about how if it's
Speaker 1: a paycheck, it's already being reported on, so you shouldn't
Speaker 1: have to report it again. Those are details that can
Speaker 1: be worked out. But when the banking industry is saying
Speaker 1: that this is some kind of major invasion of people's privacy,
Speaker 1: this is something that's impossible to do. I mean, these
Speaker 1: are people who are like incredibly proud of the fact
Speaker 1: that they're letting you buy a fraction of a stock
Speaker 1: on your cell phone into and a half seconds. The
Speaker 1: idea that it's some kind of big burden to report
Speaker 1: a basic inflow to the I r S on an
Speaker 1: account where you already report is absurd. So Hilary speculate
Speaker 1: with me, you know these banks trely, well, what's driving
Speaker 1: if it's not the administrative word? And you sort of
Speaker 1: dismissed that. If it's not the privacy concerns, why are
Speaker 1: they protesting so strongly. Some of it is probably that
Speaker 1: they want to maintain good relations with their customers who
Speaker 1: aren't only is honest about the tax law and don't
Speaker 1: want to be UH report reported on. You know, when
Speaker 1: you see a business do an unreasonable thing, it's often
Speaker 1: because they're in service of uh their customers. That's one possibility.
Speaker 1: Another possibility is that they're people who just don't like
Speaker 1: taxes and don't like anything about about out taxes. Look,
Speaker 1: I think in fairness, UM, the i r S has
Speaker 1: had some privacy problems. Some of these revelations that have
Speaker 1: been show shocking have also been wrong, and I think
Speaker 1: that contributes to uh this ethos. But I sure think
Speaker 1: that the thing everybody ought to be able to agree on,
Speaker 1: democratic and republican whatever exactly. You think seven trillion dollars
Speaker 1: over the next decade in taxes that are legally owed,
Speaker 1: legally owed under the tax law legislated by Donald Trump
Speaker 1: and not paid, that's got to be a scandal that
Speaker 1: calls for us to do much more than we're doing.
Speaker 1: And information reporting is one part of that, and strengthening
Speaker 1: the i r S is another. One of the big
Speaker 1: developments potentially this week had to do with that Global
Speaker 1: minimum corporate tax. Ireland surprised at least me you by
Speaker 1: saying yes, we'll go along with it, and now we
Speaker 1: know in fact it will go forward. Tell us about
Speaker 1: the significance of that potentially, David, I think this is
Speaker 1: the most important global economic agreement of the century so far.
Speaker 1: It's important in reality because it's going to fortify tax
Speaker 1: collections from corporations for companies all over the world. It's
Speaker 1: important in principle because instead of countries running a race
Speaker 1: to the bottom with respect to taxing business income, they're
Speaker 1: now going to level up in a way that's going
Speaker 1: to be fairer and permit tax reductions on working people
Speaker 1: all over the world. And it's important in showing that
Speaker 1: global economic diplomacy can be something that's not just about
Speaker 1: the people who are in Davos, but about working people everywhere.
Speaker 1: Joe Biden's talked about a middle class based farm policy.
Speaker 1: This is a huge triumph of for that. It's a
Speaker 1: great credit to the President who created the environment, to
Speaker 1: Secretary Yellen, who drove the agreement, and to a large
Speaker 1: number of officials who've been working in this area for many,
Speaker 1: many years. This is really a big uh deal for
Speaker 1: international economic diplomacy. Okay, Larry Summers, Harvard thank you so
Speaker 1: very much for being back with us. Larry, of course,
Speaker 1: is our special contributor here at Wall Street Week. Finally,
Speaker 1: one more thought. Call it the mount Rushmore of tax havens. Taxes,
Speaker 1: none of us wants to pay them. But what's even
Speaker 1: worse is when you think you're paying yours and the
Speaker 1: other guy isn't, which is why it's red meat every
Speaker 1: time Democratic lawmakers pointed out to constituents when they want
Speaker 1: to close loopholes. From Senator Amy Klobuchar of Minnesota, there
Speaker 1: are just too many people that have been using things
Speaker 1: that are maybe well meant in the tax code, or
Speaker 1: many times not well meant um, and they use it
Speaker 1: to make a lot of money at the expense of
Speaker 1: other people. It's just not fair. The Senator Elizabeth Warren
Speaker 1: of Massachusetts. Jeff Bezos is a billionaire grifter, and so
Speaker 1: are the rist of these hugely wealthy people who pay
Speaker 1: next to nothing in taxes, and all the way up
Speaker 1: to President Biden himself. I'm not anti corporate, but it's
Speaker 1: about time they start paying their fair share. That wealthy
Speaker 1: people want to avoid paying taxes. There's nothing new, Let's
Speaker 1: be honest. Here's President Obama back in two thousand nine,
Speaker 1: pledging to close offshore tax loopholes. For years, we've talked
Speaker 1: about stopping Americans from illegally hiding their money overseas and
Speaker 1: getting tough with the financial institutions that let them get
Speaker 1: away with it. Around the same time, US prosecutors went
Speaker 1: after Swiss banks because they claimed bank secrecy laws were
Speaker 1: protecting some of their clients from paying the taxes they owed.
Speaker 1: U b s will hand over the names of American
Speaker 1: account holders suspected of tax evasion. Now, other Swiss and
Speaker 1: European banks may be part of the government's crackdown on
Speaker 1: this practice. But now news comes with a new tax haven.
Speaker 1: Not the Cayman Islands, not the Channel Islands, not an
Speaker 1: island at all. No, it's good old South Dakota, where
Speaker 1: the Washington Post reports that trust companies in the state
Speaker 1: have more than quadrupled their assets in the last ten years,
Speaker 1: up to three and sixty billion dollars, and a good
Speaker 1: part of that money comes from overseas. How are they
Speaker 1: doing It's the good old fashioned way. They're providing state
Speaker 1: laws protecting assets from creditors and from taxing authorities. This
Speaker 1: is all based on millions of documents obtained by the
Speaker 1: Post and the International Consortium of Investigative Journalists, And although
Speaker 1: the money deposited itself may not have come from any
Speaker 1: illegal activity, it did come from some pretty controversial figures
Speaker 1: like the Colombian textiles are caught laundering international drug money,
Speaker 1: or a wealthy Brazilian alleged to have colluded to underpay
Speaker 1: local farmers, or the family of the former head of
Speaker 1: a sugar company in the Dominican Republic accused of exploiting
Speaker 1: workers there. So, before we get too high and mighty
Speaker 1: about how other countries are letting wealthy taxpayers get out
Speaker 1: of paying their taxes, maybe we should look closer to home,
Speaker 1: like in the Shadow of Mount Rushmore. That does it
Speaker 1: for this episode of Wall Street Week. I'm David Weston.
Speaker 1: This is Bloomberg. See you next week.