1 00:00:13,720 --> 00:00:16,880 Speaker 1: This is Wall Street Week, bringing you a special edition 2 00:00:17,200 --> 00:00:20,120 Speaker 1: on what the new Trump administration could mean for global 3 00:00:20,120 --> 00:00:23,200 Speaker 1: Wall Street. Coming to you from the Cornell Tech Campus 4 00:00:23,320 --> 00:00:28,880 Speaker 1: on Roosevelve Island. I'm David Weston. Growth was a recurrent 5 00:00:28,920 --> 00:00:31,400 Speaker 1: theme for Donald Trump and running for president, this time 6 00:00:31,720 --> 00:00:34,400 Speaker 1: growth in the economy, growth in employment, and growth in 7 00:00:34,440 --> 00:00:37,920 Speaker 1: the stock market. His pick for treasure Secretary, Scott Bessen, 8 00:00:38,120 --> 00:00:40,360 Speaker 1: laid out for us at least part of his plan 9 00:00:40,479 --> 00:00:41,120 Speaker 1: to get there. 10 00:00:41,479 --> 00:00:47,159 Speaker 2: I'm a big believer that for Trump two point zero, 11 00:00:47,560 --> 00:00:52,879 Speaker 2: that we can control spending by freezing the discretionary component 12 00:00:53,040 --> 00:00:57,959 Speaker 2: except for defense and moving toward a three percent deficit 13 00:00:58,080 --> 00:01:01,120 Speaker 2: by twenty twenty eight. I think that would be music 14 00:01:01,200 --> 00:01:05,080 Speaker 2: to the market's ears. I think the debt market would 15 00:01:05,160 --> 00:01:07,240 Speaker 2: respond to that. I think rates would go down. I 16 00:01:07,240 --> 00:01:10,720 Speaker 2: think inflation would go down. So there's a chance here 17 00:01:10,760 --> 00:01:12,440 Speaker 2: for a self reinforcing cycle. 18 00:01:14,160 --> 00:01:16,640 Speaker 1: Take us through how Wall Street looks at what Trump 19 00:01:16,680 --> 00:01:19,560 Speaker 1: policies could mean for that growth. We welcome back now, 20 00:01:19,680 --> 00:01:23,920 Speaker 1: Rick reader Blackrock Global CIO Flicating income and if it's 21 00:01:24,040 --> 00:01:26,720 Speaker 1: Global Allocation Investment Team, great to have you back. 22 00:01:26,800 --> 00:01:27,760 Speaker 3: Thanks for so. 23 00:01:27,800 --> 00:01:30,640 Speaker 1: I think it's your ears that mister Pssant was trying 24 00:01:30,640 --> 00:01:32,960 Speaker 1: to appeal to is he right that if he could 25 00:01:32,959 --> 00:01:34,640 Speaker 1: bring that off, it would be music to your ears? 26 00:01:34,640 --> 00:01:35,600 Speaker 1: And is it doable? 27 00:01:36,000 --> 00:01:38,160 Speaker 3: So I don't know about music. It's more of a symphony. 28 00:01:38,200 --> 00:01:40,679 Speaker 3: I mean that is I mean, it can't be any better. 29 00:01:41,080 --> 00:01:43,440 Speaker 3: You know what the markets care about is is there 30 00:01:43,520 --> 00:01:45,280 Speaker 3: a plan? And I thought one of the key things 31 00:01:45,400 --> 00:01:48,400 Speaker 3: we said by twenty twenty eight there's a plan in place. 32 00:01:48,480 --> 00:01:51,800 Speaker 3: Oftentimes you have elected officials like we're gonna spend and 33 00:01:51,800 --> 00:01:54,680 Speaker 3: we're gonna do it now. It has to be a progression, 34 00:01:55,040 --> 00:01:57,120 Speaker 3: but it has to be a thoughtful progression around how 35 00:01:57,120 --> 00:01:59,480 Speaker 3: do we get spending down? But we don't do it 36 00:01:59,560 --> 00:02:03,000 Speaker 3: to real disrupt the system, but they're thoughtful ways to 37 00:02:03,040 --> 00:02:04,760 Speaker 3: get there. On my senses, there is a series of 38 00:02:04,800 --> 00:02:06,960 Speaker 3: initiatives they're thinking about about how to get it down, 39 00:02:07,240 --> 00:02:09,640 Speaker 3: how to restrain spending and then come up with a 40 00:02:09,639 --> 00:02:12,679 Speaker 3: consistent plan. Listen, the debt is the biggest problem in 41 00:02:12,680 --> 00:02:14,959 Speaker 3: the US economy is an incredible shape. I mean, the 42 00:02:15,040 --> 00:02:17,760 Speaker 3: vibrance of this economy blows people why. I mean how 43 00:02:17,760 --> 00:02:20,440 Speaker 3: many times last year the rest of the recession economy 44 00:02:20,480 --> 00:02:23,560 Speaker 3: just moves along. There's one risk that's out there, and 45 00:02:23,600 --> 00:02:26,079 Speaker 3: that is the debt burden. If we have a plan 46 00:02:26,160 --> 00:02:29,040 Speaker 3: to bring it down. Markets are all about confidence and 47 00:02:29,080 --> 00:02:31,680 Speaker 3: confidence that we see the plan, we see the balance, 48 00:02:31,960 --> 00:02:34,720 Speaker 3: we see how we can create equilibrium over time, and 49 00:02:34,760 --> 00:02:35,960 Speaker 3: that can't be any better. 50 00:02:36,320 --> 00:02:38,760 Speaker 1: So it's a tall order I think everyone would agree to, 51 00:02:38,880 --> 00:02:41,160 Speaker 1: even as we say we'd love to have it. But 52 00:02:41,280 --> 00:02:45,000 Speaker 1: right now we have above trend growth. Can we sustain 53 00:02:45,080 --> 00:02:47,240 Speaker 1: that over the next two, three, four years? 54 00:02:47,400 --> 00:02:48,880 Speaker 3: So I think the harder one is can you do 55 00:02:48,919 --> 00:02:51,519 Speaker 3: it without any price pressure? So the US economy and 56 00:02:51,560 --> 00:02:54,200 Speaker 3: think about we've run I was looking at you almost 57 00:02:54,240 --> 00:02:56,320 Speaker 3: every single month for the last year. Long was the 58 00:02:56,360 --> 00:02:58,520 Speaker 3: last couple of years income or if you take the 59 00:02:58,520 --> 00:03:01,000 Speaker 3: payroll and you look at where income is, it's five 60 00:03:01,080 --> 00:03:05,919 Speaker 3: percent almost every single month. It's amazingly stable. So can 61 00:03:05,960 --> 00:03:10,079 Speaker 3: we still run at two three percent real GDP? If 62 00:03:10,120 --> 00:03:13,080 Speaker 3: you see some initiatives around deregulation, if you see some 63 00:03:13,200 --> 00:03:18,000 Speaker 3: initiatives that are incentivize people to invest both globally into 64 00:03:18,040 --> 00:03:20,960 Speaker 3: the US and domestically, you can still grow. 65 00:03:21,080 --> 00:03:23,519 Speaker 1: So economist tell us that there's a potential for the economy, 66 00:03:23,560 --> 00:03:25,640 Speaker 1: and it's largely a function of how many workers you've 67 00:03:25,680 --> 00:03:27,919 Speaker 1: got and how much productivity you have for those workers. 68 00:03:28,440 --> 00:03:30,280 Speaker 1: Right now we're talking about, if anything, potentially I think 69 00:03:30,440 --> 00:03:35,080 Speaker 1: fewer workers demographics, but also on immigration, So can productivity 70 00:03:35,120 --> 00:03:36,400 Speaker 1: really kick up that much? 71 00:03:36,920 --> 00:03:38,960 Speaker 3: So, first of all, I would argue that the best 72 00:03:38,960 --> 00:03:43,000 Speaker 3: indicator of growth over the intermediate term is demographics. When 73 00:03:43,000 --> 00:03:48,920 Speaker 3: you track what GDP does, it's amazingly sympathetic to the demographics, 74 00:03:48,960 --> 00:03:52,640 Speaker 3: including like you say, immigration, et cetera, the age dynamics 75 00:03:52,640 --> 00:03:55,440 Speaker 3: in the country. But that's over the intermediate term. You 76 00:03:55,480 --> 00:03:59,760 Speaker 3: can come off that demographic curve because of stimulus one way. 77 00:03:59,840 --> 00:04:01,320 Speaker 3: The So think about what's going to be So will 78 00:04:01,360 --> 00:04:05,160 Speaker 3: we have immigration, Will you have some modest reversal and immigration, probably, 79 00:04:05,920 --> 00:04:07,800 Speaker 3: but I don't think it'll be significant in terms of 80 00:04:07,840 --> 00:04:11,080 Speaker 3: aggregate demand, and really can't and I can't believe the 81 00:04:11,080 --> 00:04:13,200 Speaker 3: president will want there's some real initiative they're trying to 82 00:04:13,240 --> 00:04:14,720 Speaker 3: solve for. But I don't think there's going to be 83 00:04:14,760 --> 00:04:17,000 Speaker 3: a mass deportation of people. So I don't think that 84 00:04:17,120 --> 00:04:19,640 Speaker 3: is going to be that significant. What I am energized 85 00:04:19,680 --> 00:04:22,320 Speaker 3: about is I think, and I think people think it's 86 00:04:22,320 --> 00:04:24,960 Speaker 3: going to take longer. I think productivity, you know, it 87 00:04:25,000 --> 00:04:30,560 Speaker 3: really talks about AI, but software, inventory management, logistics, technology 88 00:04:30,640 --> 00:04:33,240 Speaker 3: is changing. You know, people talk about the high profile 89 00:04:33,320 --> 00:04:36,400 Speaker 3: things like we're going to driverless cars, but I don't 90 00:04:36,400 --> 00:04:38,920 Speaker 3: think people talk about other ways that we do business. 91 00:04:38,960 --> 00:04:40,800 Speaker 3: And I mean even in our business, how we think 92 00:04:40,839 --> 00:04:46,040 Speaker 3: about documentation, how we think about how we create HR 93 00:04:46,480 --> 00:04:48,880 Speaker 3: human resource reviews, and things like, all of a sudden, 94 00:04:48,920 --> 00:04:51,080 Speaker 3: we're implementing a whole series of things. We're going to 95 00:04:51,120 --> 00:04:54,000 Speaker 3: hit an inflection point on inflation, and it's hard to 96 00:04:54,000 --> 00:04:55,400 Speaker 3: say is that's six months from now, a year and 97 00:04:55,440 --> 00:04:57,280 Speaker 3: a half from now, But productivity is going to be 98 00:04:57,440 --> 00:04:59,560 Speaker 3: is going to be the vehicle we're going to drive 99 00:04:59,600 --> 00:05:00,839 Speaker 3: on to get there. 100 00:05:01,240 --> 00:05:03,839 Speaker 1: What does this mean for rates? What do you anticipate 101 00:05:03,920 --> 00:05:06,000 Speaker 1: given everything that Donald Trump is likely to do. 102 00:05:07,200 --> 00:05:08,640 Speaker 3: So I think that, you know, there's a near term 103 00:05:08,640 --> 00:05:10,599 Speaker 3: in the longer term, So I think the near term 104 00:05:10,720 --> 00:05:12,640 Speaker 3: is Listen, I don't think the Federal Reserve can cut 105 00:05:12,720 --> 00:05:15,280 Speaker 3: rates anytime soon. You know, maybe the back half of 106 00:05:15,320 --> 00:05:17,960 Speaker 3: this year. We've got to see because you've got this 107 00:05:17,960 --> 00:05:20,360 Speaker 3: this growth I think this growth stimulus that's in there, 108 00:05:20,640 --> 00:05:23,640 Speaker 3: and you've got what is you know, nominal GDP that 109 00:05:23,680 --> 00:05:25,960 Speaker 3: could run at about five percent pretty hard for them 110 00:05:25,960 --> 00:05:28,000 Speaker 3: the cut rates, and they did, which I would argue 111 00:05:28,040 --> 00:05:30,320 Speaker 3: was a great call to get rates down to a 112 00:05:30,440 --> 00:05:33,000 Speaker 3: level that's not that restrictive and just leave it there 113 00:05:33,040 --> 00:05:35,360 Speaker 3: for a long time. So usually it takes the FED 114 00:05:35,480 --> 00:05:37,400 Speaker 3: moving to get rates down. So I don't think rates 115 00:05:37,400 --> 00:05:39,680 Speaker 3: are going anywhere anytime soon. I certainly don't think they're 116 00:05:39,680 --> 00:05:41,919 Speaker 3: going down. The other side of it, it's hard in 117 00:05:41,920 --> 00:05:44,600 Speaker 3: the near term to get inflation down. So with all 118 00:05:44,600 --> 00:05:47,039 Speaker 3: these in issues, including you know, there is a near 119 00:05:47,160 --> 00:05:48,920 Speaker 3: term effect. I don't think it's a long term effect 120 00:05:48,960 --> 00:05:52,120 Speaker 3: around tariff that is a price level adjustment, but in 121 00:05:52,160 --> 00:05:55,520 Speaker 3: the near term that does affect it some deglobalization because 122 00:05:55,520 --> 00:05:57,240 Speaker 3: you're gonna have some build in the US as we 123 00:05:57,320 --> 00:06:00,640 Speaker 3: bring some of the manufacturing and other product back. So 124 00:06:00,839 --> 00:06:02,919 Speaker 3: near term I think inflation stays a bit higher. So 125 00:06:02,960 --> 00:06:05,080 Speaker 3: what does that mean. Listen, don't think anybody's gonna make 126 00:06:05,120 --> 00:06:07,920 Speaker 3: any money on interest rates rallying anytime soon. If anything, 127 00:06:08,240 --> 00:06:10,440 Speaker 3: I could see them migrate a bit higher in the 128 00:06:10,480 --> 00:06:12,680 Speaker 3: near term. But I think what's going to happen is 129 00:06:12,680 --> 00:06:14,200 Speaker 3: you're going to have this in the near term, and 130 00:06:14,200 --> 00:06:16,200 Speaker 3: then I think we're going to hit this inflection point 131 00:06:16,240 --> 00:06:19,720 Speaker 3: alongside the productivity enhancement, but I think will be quite real. 132 00:06:19,760 --> 00:06:22,360 Speaker 3: But in the interim, I like staying shorter in terms 133 00:06:22,360 --> 00:06:24,440 Speaker 3: of my interest rate exposure. And by the way, it's 134 00:06:24,480 --> 00:06:26,800 Speaker 3: a pretty historic point in time. With interestrates where they 135 00:06:26,800 --> 00:06:29,400 Speaker 3: are and the yield curve as flat as it is, 136 00:06:29,400 --> 00:06:31,240 Speaker 3: you can you can sit in the very front end 137 00:06:31,240 --> 00:06:33,599 Speaker 3: of the yield curve, clip a lot of coupon, a 138 00:06:33,600 --> 00:06:35,520 Speaker 3: lot of income. We run the CTF for the go 139 00:06:35,640 --> 00:06:38,239 Speaker 3: bink that we just we just clip coupon and income 140 00:06:38,520 --> 00:06:40,200 Speaker 3: and you don't have to. Traditionally, as a lender, you 141 00:06:40,240 --> 00:06:42,120 Speaker 3: have to go way out, you have to lend long. 142 00:06:42,600 --> 00:06:43,760 Speaker 3: You don't have to do that today. 143 00:06:44,520 --> 00:06:47,720 Speaker 1: How different may this Trump administration be than what we've 144 00:06:47,720 --> 00:06:49,240 Speaker 1: seen in the past. A lot of things you describe, 145 00:06:49,279 --> 00:06:51,240 Speaker 1: I've been around for a long time, things like the 146 00:06:51,240 --> 00:06:53,400 Speaker 1: debt and deficit you think are so big nobody's be 147 00:06:53,400 --> 00:06:55,960 Speaker 1: able to fix it. Can we really expect them to 148 00:06:56,000 --> 00:06:59,600 Speaker 1: find new approaches? And let me introduce for example, Elon Musk. 149 00:06:59,720 --> 00:07:02,440 Speaker 1: It's the must affected all this in sort of different 150 00:07:02,520 --> 00:07:03,360 Speaker 1: sorts of thinking. 151 00:07:04,480 --> 00:07:07,360 Speaker 3: So I'm hoping that sound. I mean, I think the 152 00:07:07,440 --> 00:07:10,400 Speaker 3: traditional the way traditional economics work in the traditional how 153 00:07:10,400 --> 00:07:12,920 Speaker 3: we thought about tariffs, how we thought about some of 154 00:07:12,960 --> 00:07:15,840 Speaker 3: these initiatives. I actually think there's going to be some 155 00:07:16,000 --> 00:07:18,160 Speaker 3: vibrant thinking, some new thinking that will be You know, 156 00:07:18,200 --> 00:07:20,080 Speaker 3: if you think about what tariffs are, do you get 157 00:07:20,120 --> 00:07:24,120 Speaker 3: an initial price level adjustment, but you can actually create 158 00:07:24,200 --> 00:07:26,120 Speaker 3: growth around it if you're going to see more product 159 00:07:26,200 --> 00:07:30,360 Speaker 3: produced domestically, there are certain products that are efficient for 160 00:07:30,480 --> 00:07:33,800 Speaker 3: us to continue to expert how you utilize tariffs can 161 00:07:33,960 --> 00:07:37,360 Speaker 3: quite frankly not be that. People say the normal traditional 162 00:07:37,400 --> 00:07:40,600 Speaker 3: economic thesis is, you know, lift inflation and then it'll 163 00:07:40,640 --> 00:07:43,640 Speaker 3: slow growth. I'm actually not sure. And I think a 164 00:07:43,680 --> 00:07:47,000 Speaker 3: lot of in the type of economy we operate in today, 165 00:07:47,480 --> 00:07:50,280 Speaker 3: service economy different than the past. I think the historic 166 00:07:50,840 --> 00:07:54,120 Speaker 3: algorithms of how you thought about how economies respond. Think 167 00:07:54,160 --> 00:07:55,480 Speaker 3: about the interest rates, we talk all all the time. 168 00:07:55,480 --> 00:07:57,120 Speaker 3: People that got rates are going high, the economy is 169 00:07:57,160 --> 00:07:59,280 Speaker 3: going to tank, doesn't happen. I think you'll see some 170 00:07:59,360 --> 00:08:02,600 Speaker 3: innovation in this administration, and I think you'll see some 171 00:08:02,640 --> 00:08:05,160 Speaker 3: things that are different, and I think they're going to 172 00:08:05,240 --> 00:08:09,120 Speaker 3: quite frankly try some things and make it and determine 173 00:08:09,480 --> 00:08:11,760 Speaker 3: you know, where is And I'm hoping quite Frankly, some 174 00:08:11,800 --> 00:08:14,160 Speaker 3: of these initiatis, as we talked about earlier, have a 175 00:08:14,200 --> 00:08:17,680 Speaker 3: longer timepective, longer term perspective to them, like not just 176 00:08:17,720 --> 00:08:19,800 Speaker 3: focus on the next week, the next month, but how 177 00:08:19,840 --> 00:08:22,400 Speaker 3: do you put in place some initiatives that are creative, 178 00:08:22,440 --> 00:08:25,600 Speaker 3: thoughtful and create what I call velocity, that are durable 179 00:08:25,640 --> 00:08:27,720 Speaker 3: and actually put the economy on a pretty good spot 180 00:08:27,760 --> 00:08:29,880 Speaker 3: longer term versus gosh, we got to succeed in the 181 00:08:29,880 --> 00:08:31,560 Speaker 3: next month or so. 182 00:08:31,720 --> 00:08:34,560 Speaker 1: We've spent several years now fixate on the FED, what 183 00:08:34,600 --> 00:08:37,120 Speaker 1: it's going to do, what it has done every month 184 00:08:37,480 --> 00:08:39,920 Speaker 1: we talk with you about exactly what's going on. Are 185 00:08:39,920 --> 00:08:41,719 Speaker 1: we looking at a time that actually FED maybe a 186 00:08:41,760 --> 00:08:44,040 Speaker 1: little less relevant that will we focus more on the 187 00:08:44,040 --> 00:08:46,400 Speaker 1: White House into somebody Saint Congress a little bit less 188 00:08:46,440 --> 00:08:47,640 Speaker 1: on what the FOMC does. 189 00:08:48,160 --> 00:08:50,439 Speaker 3: So, David, I mean, we've lived in markets for a 190 00:08:50,640 --> 00:08:54,480 Speaker 3: decade or more in this dynamic of everything's on the 191 00:08:54,520 --> 00:08:57,680 Speaker 3: back of the monetary policy mechanism, not just in the US, 192 00:08:57,720 --> 00:09:01,760 Speaker 3: in Europe, Bank in Japan, Bank of England, and it 193 00:09:01,800 --> 00:09:05,440 Speaker 3: has been because normally for years we've thought about the 194 00:09:05,480 --> 00:09:08,840 Speaker 3: way policy should work, is monetary fiscal policy work hand 195 00:09:08,840 --> 00:09:12,280 Speaker 3: and glove. Fiscal creates some initiative on the to stimulate, 196 00:09:12,600 --> 00:09:15,240 Speaker 3: and then the central bank pulls back, and then vice versa, 197 00:09:15,320 --> 00:09:18,319 Speaker 3: and you get this pendulum effect. We've lived in a 198 00:09:18,360 --> 00:09:22,199 Speaker 3: world where there's been functionally no effective fiscal and it's 199 00:09:22,200 --> 00:09:24,400 Speaker 3: all been on the back of policy making of monetary 200 00:09:24,440 --> 00:09:29,480 Speaker 3: policy way too much today. I actually think today central bank, 201 00:09:29,520 --> 00:09:32,480 Speaker 3: the FED should go on holiday for a while and 202 00:09:32,679 --> 00:09:34,480 Speaker 3: let the fiscal do what it's going to do and 203 00:09:34,480 --> 00:09:37,320 Speaker 3: then react. If inflation is a bit higher, then maybe 204 00:09:37,360 --> 00:09:40,200 Speaker 3: you have to react that. If in fact we're getting productivity, 205 00:09:40,240 --> 00:09:41,559 Speaker 3: then you come in to look at it. I think 206 00:09:41,600 --> 00:09:45,959 Speaker 3: today it'd be great to have a different decade than 207 00:09:46,000 --> 00:09:47,960 Speaker 3: we just had of where it just had to be 208 00:09:48,000 --> 00:09:50,320 Speaker 3: the monetary policy tool and it doesn't work. I mean, 209 00:09:50,320 --> 00:09:52,719 Speaker 3: there's singular think about negative interest rates in Europe. It 210 00:09:52,760 --> 00:09:55,319 Speaker 3: didn't do anything other than hurt the banking system, of 211 00:09:55,400 --> 00:09:58,880 Speaker 3: pension system. It doesn't work. Extremes of central bank policy 212 00:09:58,920 --> 00:10:01,319 Speaker 3: does not do not work. So I think the extending 213 00:10:01,400 --> 00:10:02,880 Speaker 3: of some fiscal it's quite healthy. 214 00:10:04,600 --> 00:10:07,040 Speaker 1: Many things to Rick reader of Blackrock. Coming up, we 215 00:10:07,120 --> 00:10:10,880 Speaker 1: continue our special edition anticipating what lies ahead during President 216 00:10:10,920 --> 00:10:14,880 Speaker 1: Trump's second term, focusing on fiscal policy with Torsten's lack 217 00:10:14,880 --> 00:10:17,520 Speaker 1: of Apollo and Maya McGuinness of the Committee for a 218 00:10:17,559 --> 00:10:28,880 Speaker 1: Responsible Federal Budget here on Wall Street Week. This is 219 00:10:28,920 --> 00:10:31,080 Speaker 1: a special edition of Wall Street Week focused on what 220 00:10:31,200 --> 00:10:34,160 Speaker 1: President Trump's return to the White House will mean for investors. 221 00:10:34,440 --> 00:10:37,959 Speaker 1: I'm David weston President Trump returns to office having committed 222 00:10:38,000 --> 00:10:41,360 Speaker 1: his administration to cutting two things, taxes and the cost 223 00:10:41,440 --> 00:10:45,160 Speaker 1: of government. Mitch Daniels ran the omb for President George W. 224 00:10:45,240 --> 00:10:49,040 Speaker 1: Bush before becoming Governor of Indiana and head of Purdue University, 225 00:10:49,200 --> 00:10:52,760 Speaker 1: and he says cutting the cost of government is long overdue. 226 00:10:54,480 --> 00:10:56,520 Speaker 4: It's not a bad place to start. You're right that 227 00:10:56,559 --> 00:11:00,000 Speaker 4: the money's not as big, But for the reasons we've discussed, 228 00:11:00,800 --> 00:11:02,920 Speaker 4: I think it is a more straightforward case to make 229 00:11:03,320 --> 00:11:07,360 Speaker 4: that the federal government needn't be doing many of these things. 230 00:11:07,400 --> 00:11:09,920 Speaker 4: And we're going to have to get into a mode 231 00:11:10,040 --> 00:11:14,319 Speaker 4: where the federal government limits itself to must do items, 232 00:11:14,440 --> 00:11:17,480 Speaker 4: nice to do items or optional ones we simply can't 233 00:11:17,480 --> 00:11:19,880 Speaker 4: afford anymore. We haven't really afforded them for quite a 234 00:11:19,880 --> 00:11:24,640 Speaker 4: long time. As I've sometimes glibly said, you'd be amazed 235 00:11:24,679 --> 00:11:26,000 Speaker 4: how much government you'd never missed. 236 00:11:26,120 --> 00:11:27,040 Speaker 1: You would not miss. 237 00:11:27,880 --> 00:11:32,040 Speaker 4: You'd hear the screams of the clients and recipients of 238 00:11:32,120 --> 00:11:36,880 Speaker 4: the money, but the average person would not see any 239 00:11:36,920 --> 00:11:40,600 Speaker 4: difference in their lives, and that might embolden the country 240 00:11:40,640 --> 00:11:45,559 Speaker 4: to support other trimming and reductions and modernizations of the 241 00:11:45,640 --> 00:11:46,440 Speaker 4: kind we really need. 242 00:11:48,160 --> 00:11:51,120 Speaker 1: That was Mitch Daniels explaining why we might not miss 243 00:11:51,200 --> 00:11:53,440 Speaker 1: the Department Education if it went away. To take us 244 00:11:53,440 --> 00:11:56,120 Speaker 1: through the income statement and balance sheet of the federal government, 245 00:11:56,160 --> 00:11:59,520 Speaker 1: we turned out to torst and Slock Apollo, chief economist 246 00:12:00,160 --> 00:12:03,240 Speaker 1: again as president of the Committee for a Responsible Federal Budget. 247 00:12:03,240 --> 00:12:05,440 Speaker 1: So welcome to Wall Street. We're good to have you here. Min. 248 00:12:05,559 --> 00:12:07,200 Speaker 1: Let me start with you, and before we get to 249 00:12:07,240 --> 00:12:09,560 Speaker 1: what we can do about cutting costs and fixing the 250 00:12:09,600 --> 00:12:11,720 Speaker 1: deficit problem we have. How big a problem is it? 251 00:12:11,760 --> 00:12:13,719 Speaker 1: How do we define it? 252 00:12:13,720 --> 00:12:15,160 Speaker 5: It's big, It's a big. 253 00:12:15,240 --> 00:12:17,520 Speaker 6: So we're basically we've waited till the last minute to 254 00:12:17,559 --> 00:12:18,880 Speaker 6: start to try to turn this ship around. 255 00:12:18,920 --> 00:12:20,160 Speaker 5: We should have done this years ago. 256 00:12:20,640 --> 00:12:23,240 Speaker 6: Debt to GDP, which is probably the most important metric 257 00:12:23,720 --> 00:12:26,880 Speaker 6: right now, is about one hundred percent of GDP. The 258 00:12:26,920 --> 00:12:28,920 Speaker 6: record we ever had in this country right after World 259 00:12:28,960 --> 00:12:31,280 Speaker 6: War Two was one hundred and six we'll surpass that 260 00:12:31,360 --> 00:12:33,760 Speaker 6: in two years. That was right after a world war. 261 00:12:33,920 --> 00:12:36,800 Speaker 6: This is during a time of economic growth and stability. 262 00:12:37,200 --> 00:12:39,680 Speaker 6: More worrying, I think is interest payments on the debt, 263 00:12:39,720 --> 00:12:41,960 Speaker 6: which really signal the health of the fiscal situation. 264 00:12:42,320 --> 00:12:44,280 Speaker 5: But they're the fastest growing part of the budget. 265 00:12:44,600 --> 00:12:47,240 Speaker 6: They are the second largest item in the budget, larger 266 00:12:47,280 --> 00:12:51,079 Speaker 6: even than spending on defense. And so all these numbers 267 00:12:51,120 --> 00:12:53,640 Speaker 6: are projected to get worse over time, with our borrowing 268 00:12:53,920 --> 00:12:57,120 Speaker 6: about twenty two trillion dollars over the next decade if 269 00:12:57,160 --> 00:13:00,280 Speaker 6: we don't do anything to make the situation worse, which, 270 00:13:00,320 --> 00:13:03,040 Speaker 6: if you know, Congress, I wouldn't bet on. So the 271 00:13:03,080 --> 00:13:05,440 Speaker 6: fiscal situation is now at the point where it's having 272 00:13:05,480 --> 00:13:08,960 Speaker 6: profoundly negative effects throughout both our economy and I would 273 00:13:09,000 --> 00:13:10,439 Speaker 6: even say our national security. 274 00:13:10,480 --> 00:13:12,679 Speaker 5: We've got to make changes really quickly at this point. 275 00:13:13,320 --> 00:13:16,240 Speaker 1: Torsa Azmaya says, the problem is bad and it's getting 276 00:13:16,240 --> 00:13:19,160 Speaker 1: worse now. President Trump assures us he's going to somehow 277 00:13:19,160 --> 00:13:21,720 Speaker 1: address it. But how do we see the problem in 278 00:13:21,760 --> 00:13:24,240 Speaker 1: our everyday life, in the markets, in the value of assets. 279 00:13:24,320 --> 00:13:26,520 Speaker 7: Well, one thing that has been unusual in the last 280 00:13:26,559 --> 00:13:29,440 Speaker 7: few months is that Normally, when the Federal Reserve lowest 281 00:13:29,440 --> 00:13:32,360 Speaker 7: interest rates, you begin to also see long term interest 282 00:13:32,440 --> 00:13:35,240 Speaker 7: rates come down. But since the FIT started lowing interest 283 00:13:35,320 --> 00:13:38,439 Speaker 7: rates on September the eighteenth last year, we have seen 284 00:13:38,679 --> 00:13:41,040 Speaker 7: short term interstrates have come down, of course, around one 285 00:13:41,080 --> 00:13:43,800 Speaker 7: hundred basis points, but long term interest rates have gone 286 00:13:43,920 --> 00:13:46,040 Speaker 7: up one hundred basis points. And this has opened the 287 00:13:46,080 --> 00:13:49,439 Speaker 7: conversation in markets about why are long term interestrates going 288 00:13:49,520 --> 00:13:51,800 Speaker 7: up when the FIT is cutting interest rates? And the 289 00:13:51,880 --> 00:13:54,559 Speaker 7: worries and some of the debate is is this because 290 00:13:54,640 --> 00:13:55,559 Speaker 7: of fiscal worries? 291 00:13:55,840 --> 00:13:57,800 Speaker 1: Is this because of other factors? 292 00:13:58,040 --> 00:14:00,600 Speaker 7: And some of the quantifications suggest that may be there is, 293 00:14:00,720 --> 00:14:02,960 Speaker 7: at least in some of the term premium estermates from 294 00:14:02,960 --> 00:14:05,280 Speaker 7: the Federal Reserve Bank of New York, there is some 295 00:14:05,480 --> 00:14:08,040 Speaker 7: reasons to worry about that. Maybe as much as eighty 296 00:14:08,080 --> 00:14:10,520 Speaker 7: percent of the rise in long term interest rates has 297 00:14:10,559 --> 00:14:13,720 Speaker 7: been driven by not what the FIT expectations have been doing, 298 00:14:13,840 --> 00:14:17,079 Speaker 7: but by other factors, including, of course, what the fiscal 299 00:14:17,160 --> 00:14:18,440 Speaker 7: outlook is at the moment. 300 00:14:18,720 --> 00:14:20,920 Speaker 1: Maya, you've dealt with the federal budget and the deficit 301 00:14:20,960 --> 00:14:23,400 Speaker 1: for a good long time now. We remember the so 302 00:14:23,480 --> 00:14:26,600 Speaker 1: called bond vigilantes what brings those out. Are we in 303 00:14:26,680 --> 00:14:29,080 Speaker 1: danger at all of bringing out bond vigilantis. 304 00:14:29,280 --> 00:14:33,120 Speaker 6: Well, my highly non scientific method would say things are changing. 305 00:14:33,200 --> 00:14:35,680 Speaker 5: I'm hearing, We're hearing from market people all the time. 306 00:14:35,760 --> 00:14:38,240 Speaker 6: While this issue was kind of in the wilderness for 307 00:14:38,280 --> 00:14:40,320 Speaker 6: a long time there, even when our debt was growing, 308 00:14:40,400 --> 00:14:42,960 Speaker 6: even when we were clearly borrowing beyond our means and 309 00:14:43,000 --> 00:14:45,800 Speaker 6: we didn't need to, interest rates are incredibly low. 310 00:14:46,080 --> 00:14:48,880 Speaker 5: Markets weren't worried. Now they seem to be very worried, 311 00:14:49,680 --> 00:14:51,040 Speaker 5: and we're hearing about it. 312 00:14:51,080 --> 00:14:53,200 Speaker 6: We're interacting with them much more in terms of the 313 00:14:53,240 --> 00:14:56,320 Speaker 6: policy level. The problem is what I get, the sense 314 00:14:56,360 --> 00:15:00,760 Speaker 6: I get is that markets want lower debt and lower taxes. 315 00:15:01,240 --> 00:15:03,960 Speaker 6: Citizens want lower debt kind of they like that talking 316 00:15:04,000 --> 00:15:07,880 Speaker 6: point lower taxes and higher spending. Politicians don't want to 317 00:15:07,880 --> 00:15:10,360 Speaker 6: do anything hard. So you can see that there's a 318 00:15:10,440 --> 00:15:12,800 Speaker 6: real understanding that we need to make changes, but the 319 00:15:12,840 --> 00:15:15,760 Speaker 6: political will to get us there is really challenging at 320 00:15:15,760 --> 00:15:18,720 Speaker 6: this time because those changes we can cut a lot 321 00:15:18,760 --> 00:15:21,360 Speaker 6: that people wouldn't notice, like Governor Daniels said, but if 322 00:15:21,400 --> 00:15:23,040 Speaker 6: we're going to actually make a difference, this is going 323 00:15:23,080 --> 00:15:24,520 Speaker 6: to start to have real effects in some of these 324 00:15:24,560 --> 00:15:27,480 Speaker 6: bigger programs that politicians have said they're not willing to touch. 325 00:15:27,920 --> 00:15:30,560 Speaker 6: So we're going to have a political tension about whether 326 00:15:30,560 --> 00:15:31,840 Speaker 6: we're going to do this for real or not. 327 00:15:32,160 --> 00:15:35,160 Speaker 1: That political will is almost always an issue in Washington. 328 00:15:35,400 --> 00:15:37,280 Speaker 5: But let's assign that's help though. 329 00:15:37,400 --> 00:15:39,360 Speaker 1: Well, let's put that to what side. If we wanted 330 00:15:39,400 --> 00:15:41,600 Speaker 1: to fix the problem, what are the things that would 331 00:15:41,600 --> 00:15:42,840 Speaker 1: make the biggest difference. There are a lot of things 332 00:15:42,840 --> 00:15:45,160 Speaker 1: we could do, but where to get the most bang 333 00:15:45,240 --> 00:15:45,680 Speaker 1: for the buck. 334 00:15:46,000 --> 00:15:48,320 Speaker 6: Yeah, the three things that people have said they absolutely 335 00:15:48,320 --> 00:15:50,120 Speaker 6: will not do is what we should really start with. 336 00:15:50,160 --> 00:15:53,680 Speaker 6: So the biggest items are Social Security and medicare, both 337 00:15:53,720 --> 00:15:57,080 Speaker 6: of which are the largest government programs and have trust 338 00:15:57,080 --> 00:16:00,200 Speaker 6: funds which are headed towards insolvency. So not only for 339 00:16:00,240 --> 00:16:03,120 Speaker 6: the fiscal situation do we need to make changes, but 340 00:16:03,160 --> 00:16:06,520 Speaker 6: if we do not take social Security in about a decade, 341 00:16:06,680 --> 00:16:08,680 Speaker 6: it will be insolvent and there will be across the 342 00:16:08,680 --> 00:16:11,200 Speaker 6: board benefit cuts for the people who depend on the program. 343 00:16:11,440 --> 00:16:14,120 Speaker 5: So political points are scored for people who promise not 344 00:16:14,240 --> 00:16:15,040 Speaker 5: to touch it. 345 00:16:15,040 --> 00:16:17,920 Speaker 6: It really leaves everybody vulnerable, and it harms the budget 346 00:16:17,960 --> 00:16:20,920 Speaker 6: because we're repaying trillions of dollars to those trust friends 347 00:16:20,960 --> 00:16:23,400 Speaker 6: every year with no plan to make it structurally sound. 348 00:16:23,840 --> 00:16:26,000 Speaker 6: At the same time, the promise, the belief we can 349 00:16:26,040 --> 00:16:29,840 Speaker 6: do this without raising revenue is completely at odds with 350 00:16:29,960 --> 00:16:32,840 Speaker 6: the general size of the problem. So I would start 351 00:16:32,880 --> 00:16:36,040 Speaker 6: by looking at Social Security, raising the retirement age, thinking 352 00:16:36,120 --> 00:16:41,040 Speaker 6: about means testing, changing the way you calculate inflation, medicare. 353 00:16:41,040 --> 00:16:42,520 Speaker 6: There are a lot of changes that we can make 354 00:16:42,520 --> 00:16:46,800 Speaker 6: because the healthcare industry itself is remarkably inefficient. And finally, 355 00:16:46,800 --> 00:16:50,040 Speaker 6: there's almost two trillion dollars in tax expenditures a year 356 00:16:50,200 --> 00:16:54,680 Speaker 6: lost revenue from exclusions, exemptions, deductions. They are inefficient, they 357 00:16:54,680 --> 00:16:57,200 Speaker 6: are regressive, they are not transparent. They pay us to 358 00:16:57,200 --> 00:16:59,840 Speaker 6: do things we would do anyhow. So those are the 359 00:17:00,000 --> 00:17:01,440 Speaker 6: three areas I would start. 360 00:17:02,240 --> 00:17:05,840 Speaker 1: Torston helped me understand when we talk about things like medicare, 361 00:17:05,920 --> 00:17:08,560 Speaker 1: and we talk about Social Security for a long time, 362 00:17:09,040 --> 00:17:11,520 Speaker 1: does that factor into the term premium you talked about. 363 00:17:11,560 --> 00:17:13,520 Speaker 1: As the term premium goes up, are the markets really 364 00:17:13,520 --> 00:17:15,800 Speaker 1: anticipating that as well as the short of how much 365 00:17:15,840 --> 00:17:17,600 Speaker 1: money we're spending week by week. 366 00:17:17,720 --> 00:17:19,840 Speaker 7: I do think that they do, because the market is 367 00:17:19,880 --> 00:17:23,000 Speaker 7: looking at the Congressional Budget Office forecast and also MAAS 368 00:17:23,000 --> 00:17:25,399 Speaker 7: and the Community for a Responsible Federal Budget forecast, and 369 00:17:25,440 --> 00:17:27,320 Speaker 7: they are all showing that we're going from one hundred 370 00:17:27,320 --> 00:17:30,200 Speaker 7: percent debt to GDP to two hundred percent that to GDP. 371 00:17:30,640 --> 00:17:34,439 Speaker 7: And the biggest component of that increase is indeed mandatory spending, 372 00:17:34,640 --> 00:17:37,840 Speaker 7: meaning social security and Medicare and medicate And if you 373 00:17:38,000 --> 00:17:40,159 Speaker 7: think about that, there's about seventy three million people in 374 00:17:40,160 --> 00:17:42,679 Speaker 7: the US who get soci security and supplemental income from 375 00:17:42,720 --> 00:17:44,480 Speaker 7: the government. That's a lot of voters. 376 00:17:44,480 --> 00:17:45,320 Speaker 1: That's a lot of people. 377 00:17:45,560 --> 00:17:47,800 Speaker 7: And if you begin to think about what the path 378 00:17:47,880 --> 00:17:50,840 Speaker 7: looks like for demographics going forward, it is the case 379 00:17:50,880 --> 00:17:53,080 Speaker 7: that this is by far the most important driver of 380 00:17:53,119 --> 00:17:55,440 Speaker 7: why dead levels are going up. So that's why from 381 00:17:55,440 --> 00:17:58,879 Speaker 7: a market perspective, it becomes in some sense, it doesn't 382 00:17:58,880 --> 00:18:01,199 Speaker 7: matter for the market where the cuts or how we 383 00:18:01,200 --> 00:18:04,080 Speaker 7: are going to reverse the trend as long as auction 384 00:18:04,240 --> 00:18:08,159 Speaker 7: sizes do not grow dramatically, as long as treasury auctions 385 00:18:08,160 --> 00:18:10,920 Speaker 7: and the metrics coming out of how treasury debt is 386 00:18:10,960 --> 00:18:14,280 Speaker 7: auction begin to potentially look better at least down the road, 387 00:18:14,320 --> 00:18:16,600 Speaker 7: because it is clear, as J. Powlo also has said 388 00:18:16,720 --> 00:18:19,040 Speaker 7: numerous times, we are on a sustainable path. 389 00:18:19,119 --> 00:18:22,240 Speaker 1: At the moment, Meyer, we have now a president coming 390 00:18:22,280 --> 00:18:24,239 Speaker 1: in office who says that he really wants to do 391 00:18:24,280 --> 00:18:27,160 Speaker 1: something about the deficit. Now, to be sure, it seems 392 00:18:27,160 --> 00:18:29,280 Speaker 1: to be on the cost side, not on the revenue side. 393 00:18:29,400 --> 00:18:31,159 Speaker 1: But let's assume he does have the political Really he 394 00:18:31,240 --> 00:18:33,800 Speaker 1: has two people who are going to help him on that, 395 00:18:34,400 --> 00:18:37,800 Speaker 1: mister Mosk and mister mederical swaming. How difficult will it 396 00:18:37,840 --> 00:18:41,040 Speaker 1: be to really make a substantial reduction in the deficit 397 00:18:41,080 --> 00:18:41,879 Speaker 1: through cost cuts. 398 00:18:42,119 --> 00:18:44,320 Speaker 6: If they are not concerned about politics, we can get 399 00:18:44,359 --> 00:18:46,080 Speaker 6: a lot done. I think the real challenge is going 400 00:18:46,119 --> 00:18:47,800 Speaker 6: to be what they recommend where I think they'll have 401 00:18:47,960 --> 00:18:51,479 Speaker 6: very sound and probably aggressive recommendations with what the President 402 00:18:51,560 --> 00:18:53,880 Speaker 6: and Congress is willing to do. But if they want 403 00:18:53,880 --> 00:18:56,200 Speaker 6: to be serious about this again, they would not take 404 00:18:56,200 --> 00:18:58,520 Speaker 6: social scurity and medicare off the table. But there are 405 00:18:58,560 --> 00:19:00,480 Speaker 6: so many areas where we can change the way the 406 00:19:00,520 --> 00:19:04,200 Speaker 6: government does its business, starting in healthcare reform, so looking 407 00:19:04,200 --> 00:19:07,760 Speaker 6: at the hospitals, looking at the various associations prescription drugs, 408 00:19:07,800 --> 00:19:10,479 Speaker 6: the insures, tons of money to be saved there if 409 00:19:10,520 --> 00:19:14,800 Speaker 6: we redo the way the entire industry is set up, right. 410 00:19:14,640 --> 00:19:17,520 Speaker 5: Now where there's many inefficiencies, likewise. 411 00:19:18,520 --> 00:19:22,119 Speaker 6: Procurement in the national security field. Huge savings can be 412 00:19:22,200 --> 00:19:26,000 Speaker 6: had there. But these are very vested interests. They're incredibly powerful, 413 00:19:26,640 --> 00:19:28,040 Speaker 6: and like you were just saying, there are going to 414 00:19:28,040 --> 00:19:30,720 Speaker 6: be more and more seniors who are voting. THEARP is 415 00:19:30,760 --> 00:19:32,600 Speaker 6: also going to push back on them if they do 416 00:19:32,760 --> 00:19:36,360 Speaker 6: go into that area where they should so I think 417 00:19:36,359 --> 00:19:38,840 Speaker 6: they'll take I think they'll come up with real savings. 418 00:19:39,040 --> 00:19:42,399 Speaker 6: I think their disruptive approach is exactly what's needed. I 419 00:19:42,560 --> 00:19:44,639 Speaker 6: worry that they have conflicts with the government and that 420 00:19:44,680 --> 00:19:46,600 Speaker 6: we're going to have to have a lot of transparency 421 00:19:46,640 --> 00:19:48,679 Speaker 6: around this effort. But I think they can come up 422 00:19:48,680 --> 00:19:50,719 Speaker 6: with not that two trillion in a year that they 423 00:19:50,760 --> 00:19:53,119 Speaker 6: originally were talking about, but they've backed that to about 424 00:19:53,160 --> 00:19:54,200 Speaker 6: one trillion or less. 425 00:19:54,440 --> 00:19:57,399 Speaker 5: That's very aggressive and reasonable at the same time. 426 00:19:57,800 --> 00:20:00,520 Speaker 6: But it's once it goes into the political propu where 427 00:20:00,520 --> 00:20:02,080 Speaker 6: I think we're going to see pushback because there are 428 00:20:02,119 --> 00:20:05,760 Speaker 6: constituencies for every single program in the budget. 429 00:20:06,240 --> 00:20:07,400 Speaker 5: Why hope they succeed. 430 00:20:07,760 --> 00:20:10,040 Speaker 1: What about cutting the federal payroll. That's something that's been 431 00:20:10,080 --> 00:20:12,359 Speaker 1: put out there, actually is something that would really help us. 432 00:20:12,480 --> 00:20:14,760 Speaker 6: Absolutely, we should do that if you talk to anybody 433 00:20:14,800 --> 00:20:17,479 Speaker 6: who works in government, the bureaucracy is bloated. There are 434 00:20:17,480 --> 00:20:19,920 Speaker 6: certainly savings to be had there. It's not going to 435 00:20:19,960 --> 00:20:21,359 Speaker 6: save a tremendous amount of money. 436 00:20:21,359 --> 00:20:21,560 Speaker 4: Though. 437 00:20:21,760 --> 00:20:23,240 Speaker 6: One of the things that we've heard out of the 438 00:20:23,280 --> 00:20:25,760 Speaker 6: dose folks so far is pointing to the things where 439 00:20:25,800 --> 00:20:27,800 Speaker 6: the savings seems kind of easy, like let's cut the 440 00:20:27,880 --> 00:20:30,840 Speaker 6: huge bureaucracy, let's save money in the silly stuff like 441 00:20:31,000 --> 00:20:35,000 Speaker 6: gerbil racing, you know, and all the laugh lines out there. 442 00:20:35,119 --> 00:20:36,400 Speaker 5: Those aren't where the dollars are. 443 00:20:36,440 --> 00:20:40,520 Speaker 6: The dollars are in interest these days. But the things 444 00:20:40,520 --> 00:20:44,159 Speaker 6: that you can control social security, medicare, medicaid, and national 445 00:20:44,200 --> 00:20:47,200 Speaker 6: security where there's a lot of savings. But I would 446 00:20:47,400 --> 00:20:49,359 Speaker 6: say those savings are going to end up being plowed 447 00:20:49,400 --> 00:20:51,160 Speaker 6: back into that area of the budget where I think 448 00:20:51,240 --> 00:20:53,320 Speaker 6: is very likely to grow, and we. 449 00:20:53,280 --> 00:20:54,640 Speaker 5: Probably have to think about that too. 450 00:20:54,920 --> 00:20:58,639 Speaker 6: National security and climate related disasters are likely to absorb 451 00:20:58,680 --> 00:21:00,840 Speaker 6: more and more of our resources going forward, would put 452 00:21:00,960 --> 00:21:03,080 Speaker 6: on an even bigger squeeze than we already have. 453 00:21:03,800 --> 00:21:06,359 Speaker 1: Torsten, how worried should we be about this? Because there 454 00:21:06,359 --> 00:21:08,639 Speaker 1: are members of your profession economists who say, you know, 455 00:21:08,760 --> 00:21:10,840 Speaker 1: as long as we have the reserve currency, you don't 456 00:21:10,840 --> 00:21:12,280 Speaker 1: really have to worry about it that much. We can 457 00:21:12,320 --> 00:21:16,600 Speaker 1: continue to borrow going forward. Should we be worried about this, 458 00:21:16,640 --> 00:21:19,080 Speaker 1: are there consequences that really hurt our economy? Well? 459 00:21:19,119 --> 00:21:21,200 Speaker 7: The good news is that the rest of the world 460 00:21:21,440 --> 00:21:24,360 Speaker 7: is not in good shape when it comes to this discussion, 461 00:21:24,400 --> 00:21:26,440 Speaker 7: both when it comes to the fiscal outlook, but also 462 00:21:26,480 --> 00:21:27,040 Speaker 7: when it comes. 463 00:21:26,880 --> 00:21:27,720 Speaker 1: To the business cycle. 464 00:21:28,080 --> 00:21:30,640 Speaker 7: Europe from a business cycle perspective, is not doing very well. 465 00:21:30,840 --> 00:21:32,880 Speaker 7: UK is not doing very well, China is not doing 466 00:21:32,920 --> 00:21:34,439 Speaker 7: well very well. Japan is doing a. 467 00:21:34,440 --> 00:21:35,040 Speaker 1: Little bit better. 468 00:21:35,440 --> 00:21:38,159 Speaker 7: But for global investors, they still want to invest in 469 00:21:38,240 --> 00:21:40,960 Speaker 7: US financial markets. It is the biggest financial markets, both 470 00:21:41,000 --> 00:21:43,119 Speaker 7: on the debt and the equity side. So that is 471 00:21:43,160 --> 00:21:44,840 Speaker 7: to a last degree, helping us a lot at the 472 00:21:44,840 --> 00:21:46,800 Speaker 7: moment and a very important reason why it all that 473 00:21:46,880 --> 00:21:47,360 Speaker 7: is going up. 474 00:21:47,440 --> 00:21:48,360 Speaker 1: Are we going to get it done? 475 00:21:48,880 --> 00:21:53,040 Speaker 6: Oh no, We're not going to get enough of it done. 476 00:21:53,040 --> 00:21:54,760 Speaker 6: I mean, right now, you would need to save nine 477 00:21:54,840 --> 00:21:58,080 Speaker 6: trillion dollars over ten years just to stabilize the debt 478 00:21:58,119 --> 00:22:00,040 Speaker 6: as a share of GDP where it currently is. We 479 00:22:00,160 --> 00:22:03,920 Speaker 6: need seventeen trillion to balance the budget. That's not happening. Luckily, 480 00:22:03,960 --> 00:22:06,240 Speaker 6: we don't have to balance the budget. But what's discouraging 481 00:22:06,320 --> 00:22:08,679 Speaker 6: is that a decade ago that was the goal, and 482 00:22:08,720 --> 00:22:09,680 Speaker 6: it was a reasonable goal. 483 00:22:09,960 --> 00:22:13,359 Speaker 5: Now it's not. Nine trillion in savings is a tremendous amount. 484 00:22:13,440 --> 00:22:15,720 Speaker 6: When we put in place the Fiscal Responsibility Act as 485 00:22:15,760 --> 00:22:17,720 Speaker 6: part of the debt ceiling last time around, that saved 486 00:22:17,760 --> 00:22:20,240 Speaker 6: one to two trillion. That was difficult to do, and 487 00:22:20,280 --> 00:22:22,879 Speaker 6: that was the easiest part of the budget discretionary. So 488 00:22:22,960 --> 00:22:24,639 Speaker 6: now we're moving into savings that are going to have 489 00:22:24,680 --> 00:22:25,760 Speaker 6: to come from the harder parts. 490 00:22:26,000 --> 00:22:28,840 Speaker 1: Many thanks to Miamiguinness of the Committee for a Responsible 491 00:22:28,840 --> 00:22:31,560 Speaker 1: Federal Budget and to tourist the slack of Apollo. One 492 00:22:31,640 --> 00:22:33,720 Speaker 1: of the changes President Trump has promised is in the 493 00:22:33,800 --> 00:22:36,760 Speaker 1: US approach to trade and tariffs. To explain where we 494 00:22:36,760 --> 00:22:38,960 Speaker 1: may be headed, We're going to talk with Ambassador Michael 495 00:22:39,040 --> 00:22:42,240 Speaker 1: Frohman of the Counsul and Foreign Relations and Libby Cantrell 496 00:22:42,400 --> 00:22:46,160 Speaker 1: from PIMCO. That's next on our special Trump Administration edition 497 00:22:46,480 --> 00:22:47,320 Speaker 1: of Wall Street Week. 498 00:22:57,560 --> 00:23:00,760 Speaker 8: Every economist I know who's not employed by labor union 499 00:23:01,119 --> 00:23:03,959 Speaker 8: is in favor of free trade. Every congressman I know 500 00:23:04,040 --> 00:23:08,320 Speaker 8: is advocating some restrictions on trade. Can we survive without 501 00:23:08,359 --> 00:23:09,680 Speaker 8: putting new restrictions on trade? 502 00:23:10,680 --> 00:23:13,199 Speaker 3: Well, I don't think we have to put new restrictions 503 00:23:13,240 --> 00:23:14,960 Speaker 3: on trade, but we sure got to get a better 504 00:23:15,040 --> 00:23:18,639 Speaker 3: deal out there. We are absolutely the world's worst negotiators 505 00:23:18,680 --> 00:23:19,520 Speaker 3: on trade. 506 00:23:20,680 --> 00:23:23,159 Speaker 1: That was Lewis Rockeiser on Wall Street Week talking with 507 00:23:23,240 --> 00:23:27,320 Speaker 1: GM CEO Roger Smith back in nineteen eighty seven, back 508 00:23:27,320 --> 00:23:30,600 Speaker 1: when free trade was still in fashion and before Michael 509 00:23:30,640 --> 00:23:34,320 Speaker 1: Moore made mister Smith the centerpiece of his mockumentary Roger 510 00:23:34,400 --> 00:23:37,480 Speaker 1: and Me. As we anticipate what the second Trump administration 511 00:23:37,600 --> 00:23:40,560 Speaker 1: may mean for investors, we have to consider the pledges 512 00:23:40,600 --> 00:23:43,959 Speaker 1: he has made to raise various tariffs on trade with others. 513 00:23:44,280 --> 00:23:47,679 Speaker 1: Here to sort it out, we turned to Ambassador Michael Frohman, 514 00:23:47,760 --> 00:23:51,520 Speaker 1: president of the Council on Formulations, and Libby Cantrell, head 515 00:23:51,560 --> 00:23:54,399 Speaker 1: of US Public Policy for PIMCO. So welcome both of you. 516 00:23:54,480 --> 00:23:56,280 Speaker 1: Is great to have you here. So first we'll start 517 00:23:56,320 --> 00:23:59,440 Speaker 1: with exactly what the Trump administration did the first time 518 00:24:00,080 --> 00:24:01,439 Speaker 1: seventeen What actually happened. 519 00:24:01,520 --> 00:24:03,560 Speaker 9: Yeah, So, what we saw them do is move forward 520 00:24:03,600 --> 00:24:08,600 Speaker 9: with tariffs, limited tariffs on limited products from China. On average, 521 00:24:08,640 --> 00:24:11,399 Speaker 9: the effective tariff freight increased from about two percent to 522 00:24:11,520 --> 00:24:16,240 Speaker 9: about twelve percent on Chinese products, but it was still 523 00:24:16,320 --> 00:24:20,040 Speaker 9: limited and it was sequenced, it had exceptions, so it 524 00:24:20,119 --> 00:24:23,119 Speaker 9: was quite different from what he has indicated that he 525 00:24:23,160 --> 00:24:25,000 Speaker 9: wants to do under Trump two point zero. 526 00:24:25,240 --> 00:24:27,320 Speaker 1: So it was limited, Michael, but did have effects on 527 00:24:27,320 --> 00:24:30,160 Speaker 1: the economy to affect the stock market, did to affect values. 528 00:24:30,320 --> 00:24:32,000 Speaker 10: You know, I don't think it affected the stock market 529 00:24:32,000 --> 00:24:33,640 Speaker 10: because the stock market took a lot of other things 530 00:24:33,680 --> 00:24:39,800 Speaker 10: into consideration, including tax policy, deregulation, and other issues. It 531 00:24:39,840 --> 00:24:42,719 Speaker 10: didn't necessarily have the effect that was desired though, in 532 00:24:42,760 --> 00:24:45,800 Speaker 10: that for example, steel, he put tariffs on steel not 533 00:24:45,840 --> 00:24:47,879 Speaker 10: just coming from China but from around the world, and 534 00:24:47,960 --> 00:24:50,720 Speaker 10: we didn't see that much more steel production or that 535 00:24:50,840 --> 00:24:53,280 Speaker 10: much more steel employment in the United States than we 536 00:24:53,359 --> 00:24:56,280 Speaker 10: had before. What it ends up doing is diverting trade. 537 00:24:56,440 --> 00:24:59,840 Speaker 10: So rather than importing from China, we're deporting. We're importing 538 00:25:00,080 --> 00:25:03,600 Speaker 10: us from China and importing more from Vietnam from Mexico. 539 00:25:03,720 --> 00:25:07,200 Speaker 10: Mexico is now our number one trading partner, and we're 540 00:25:07,200 --> 00:25:09,439 Speaker 10: still importing though more or less the same amount. 541 00:25:09,600 --> 00:25:12,920 Speaker 1: Yeah, but President Trump has a solution to the Mexico problem. Right, 542 00:25:14,080 --> 00:25:15,679 Speaker 1: He's going to go after Canada and Mexico. 543 00:25:15,840 --> 00:25:18,800 Speaker 10: Right, Tariffs on maritaris for everybody. Look, I think he 544 00:25:18,880 --> 00:25:21,119 Speaker 10: starts from the premise, and this is a core belief 545 00:25:21,160 --> 00:25:24,920 Speaker 10: of President Trump. He's been focused on tariffs for decades. 546 00:25:25,080 --> 00:25:27,920 Speaker 10: He starts with the premise that bioladical trade deficits are bad. 547 00:25:28,320 --> 00:25:31,240 Speaker 10: It's a measure of who's winning and who's losing in 548 00:25:31,280 --> 00:25:34,440 Speaker 10: a relationship. And the tariffs are intended to set the 549 00:25:35,040 --> 00:25:37,840 Speaker 10: standard that we want to eliminate bio level trade deficits, 550 00:25:38,000 --> 00:25:40,520 Speaker 10: either by those countries buying more of our goods or 551 00:25:41,200 --> 00:25:43,080 Speaker 10: those could be selling less of their goods to us. 552 00:25:43,359 --> 00:25:45,840 Speaker 10: And then it's beginning of a negotiation. And now he's 553 00:25:45,840 --> 00:25:47,920 Speaker 10: also said tariffs are a very useful tool for a 554 00:25:47,960 --> 00:25:51,000 Speaker 10: lot of non economic issues, whether it's migration or fence 555 00:25:51,040 --> 00:25:54,919 Speaker 10: and al or to deter countries from invading one another. 556 00:25:55,160 --> 00:25:58,600 Speaker 10: So it's become a tool of choice for the incoming administration. 557 00:25:59,040 --> 00:26:02,600 Speaker 1: How much can President Trump as president do without Congress? 558 00:26:02,680 --> 00:26:04,720 Speaker 5: Liby Michael knows this well. I mean, he can do 559 00:26:04,760 --> 00:26:05,080 Speaker 5: a lot. 560 00:26:05,480 --> 00:26:09,679 Speaker 9: The Congress has bequeathed a lot of authorities to the 561 00:26:09,720 --> 00:26:13,920 Speaker 9: executive branch. Meaning that much of what he has threatened 562 00:26:13,960 --> 00:26:16,960 Speaker 9: to do, whether that is just just empty threats, whether 563 00:26:17,000 --> 00:26:19,800 Speaker 9: that's just bark or not bite, he could actually do 564 00:26:19,920 --> 00:26:22,160 Speaker 9: and he could do it without Congress. So, for instance, 565 00:26:22,760 --> 00:26:27,879 Speaker 9: he can increase tariffs on China. He can potentially declare 566 00:26:27,920 --> 00:26:31,720 Speaker 9: a national emergency and put a universal tariff on under 567 00:26:32,200 --> 00:26:35,199 Speaker 9: powers that are afford to him by AIPA, a very 568 00:26:35,600 --> 00:26:39,639 Speaker 9: esoteric statute that hasn't actually is not typically used. And 569 00:26:39,720 --> 00:26:43,520 Speaker 9: then there are other, honestly other statutory authorities that were 570 00:26:43,560 --> 00:26:46,239 Speaker 9: provided by the Congress to the executive brands digging back 571 00:26:46,240 --> 00:26:49,200 Speaker 9: into the nineteen thirties, and we actually haven't seen use 572 00:26:49,320 --> 00:26:51,679 Speaker 9: of those since the nineteen thirties. But again, I think 573 00:26:51,720 --> 00:26:55,359 Speaker 9: the punchline for investors here is that on mostly on 574 00:26:55,400 --> 00:26:58,199 Speaker 9: fiscal issues, on taxes and spending, you have to go 575 00:26:58,240 --> 00:26:59,000 Speaker 9: through Congress. 576 00:26:59,200 --> 00:27:00,800 Speaker 5: But in terms of the. 577 00:27:00,800 --> 00:27:04,200 Speaker 9: Executive branch and the president specifically can do a lot 578 00:27:04,320 --> 00:27:06,080 Speaker 9: and basically can do it unchecked. 579 00:27:06,760 --> 00:27:09,840 Speaker 1: Michael, why did Congress seed so much authority to presidents 580 00:27:09,880 --> 00:27:10,760 Speaker 1: through the years. 581 00:27:10,480 --> 00:27:12,280 Speaker 10: Well, how do we get sure they I'm not sure 582 00:27:12,280 --> 00:27:14,600 Speaker 10: they realized how much authority they seed it. And in fact, 583 00:27:14,600 --> 00:27:17,360 Speaker 10: there's a debate going on in Congress because they read 584 00:27:17,359 --> 00:27:21,440 Speaker 10: the Constitution as giving them authorities to regulate interstay trade 585 00:27:21,560 --> 00:27:24,359 Speaker 10: and trade policy by custom has always been a partnership 586 00:27:24,359 --> 00:27:28,320 Speaker 10: between the executive and Congress. But as as Libby said, 587 00:27:28,320 --> 00:27:32,320 Speaker 10: they between the various trade the trade laws, but also AIPA, 588 00:27:32,400 --> 00:27:36,560 Speaker 10: the International Economic Emergency Powers Act. If he chooses to 589 00:27:36,600 --> 00:27:39,800 Speaker 10: invoke it, he has really pretty much unchecked power. It 590 00:27:39,840 --> 00:27:43,360 Speaker 10: may be questioned in courts, but my guess is there'll 591 00:27:43,359 --> 00:27:45,080 Speaker 10: be a fair amount of difference to the executive. 592 00:27:45,400 --> 00:27:48,080 Speaker 1: You mentioned that Donald Trump indicates that he may use 593 00:27:48,080 --> 00:27:51,080 Speaker 1: these for purposes other than purely economic purposes, all sorts 594 00:27:51,080 --> 00:27:54,400 Speaker 1: of geopolitical political issues might be. How effective is that. 595 00:27:54,480 --> 00:27:56,480 Speaker 1: I mean, some people say he doesn't really want to 596 00:27:56,520 --> 00:27:58,680 Speaker 1: impose the tariffs, he just wants to use it as 597 00:27:58,680 --> 00:28:00,440 Speaker 1: a bargaining chip. That's right. 598 00:28:00,480 --> 00:28:01,800 Speaker 10: Look, I think we have to first of all take 599 00:28:01,880 --> 00:28:04,400 Speaker 10: him at his word and take what he says seriously, 600 00:28:04,480 --> 00:28:07,920 Speaker 10: because he does have a very strong belief in this area. 601 00:28:07,960 --> 00:28:10,800 Speaker 10: But he does love to negotiate the deal, as we 602 00:28:10,840 --> 00:28:13,080 Speaker 10: all know, and he wants to negotiate from a position 603 00:28:13,119 --> 00:28:16,400 Speaker 10: of strength, and thus far he's been really quite successful 604 00:28:16,800 --> 00:28:18,159 Speaker 10: in that. When he announced that he was going to 605 00:28:18,160 --> 00:28:21,639 Speaker 10: impose tariffs on Canada. Canada immediately up their budget for 606 00:28:21,680 --> 00:28:24,639 Speaker 10: border security, and my guess is that they announced the 607 00:28:24,640 --> 00:28:27,679 Speaker 10: tariffs on Mexico will lead to a conversation with the 608 00:28:27,720 --> 00:28:29,959 Speaker 10: government of Mexico about what more they can do on 609 00:28:30,080 --> 00:28:34,080 Speaker 10: migration and on pentanol issues, and really country by country, 610 00:28:34,320 --> 00:28:37,359 Speaker 10: my guess is tariffs are intended first and foremost to 611 00:28:37,359 --> 00:28:39,640 Speaker 10: bring the other country to the table, and then if 612 00:28:39,640 --> 00:28:42,320 Speaker 10: they can't reach an adequate agreement on the outstanding issues, 613 00:28:42,520 --> 00:28:43,880 Speaker 10: he may ultimately impose them. 614 00:28:44,560 --> 00:28:47,400 Speaker 1: Donald Trump seems to think they're also there to raise revenue. 615 00:28:47,760 --> 00:28:49,400 Speaker 1: He has said that he thinks he can replace a 616 00:28:49,440 --> 00:28:52,040 Speaker 1: lot of the Internal Revenue Code essentially with tarifs. How 617 00:28:52,080 --> 00:28:54,320 Speaker 1: big are tariffs? Can they really make up a bit lot? 618 00:28:54,360 --> 00:28:56,480 Speaker 9: So this is actually something I do think that's quite important. 619 00:28:56,480 --> 00:28:58,840 Speaker 9: I think the margage just views tariffs as a problem, 620 00:28:59,320 --> 00:29:01,400 Speaker 9: but I think in a lot of ways, President Trump 621 00:29:01,520 --> 00:29:04,880 Speaker 9: used tariffs as partly a solution, not only to get 622 00:29:04,960 --> 00:29:07,640 Speaker 9: concessions from our trading partners and maybe to kind of 623 00:29:07,720 --> 00:29:10,760 Speaker 9: right or wrong, but also to raise revenue. And if 624 00:29:10,800 --> 00:29:13,840 Speaker 9: you look at actually current customs revenue, the US is 625 00:29:13,880 --> 00:29:17,120 Speaker 9: generating about one hundred billion dollars of revenue a year 626 00:29:17,600 --> 00:29:22,000 Speaker 9: from existing tariffs, so it could go up much more. Now, 627 00:29:22,040 --> 00:29:26,200 Speaker 9: of course, tariffs could have an inflationary and could impact 628 00:29:26,320 --> 00:29:28,280 Speaker 9: growth as well, so it does have sort of a 629 00:29:28,320 --> 00:29:31,720 Speaker 9: double sided effect, and that could actually affect. 630 00:29:31,400 --> 00:29:32,640 Speaker 5: Revenues just generally. 631 00:29:32,840 --> 00:29:34,400 Speaker 9: But if you just look at it sort of steady 632 00:29:34,440 --> 00:29:38,280 Speaker 9: state your tariffs, I mean, they're basically to tax and 633 00:29:38,320 --> 00:29:41,520 Speaker 9: they can increase revenue quite a bit. And this is actually, 634 00:29:41,560 --> 00:29:44,480 Speaker 9: think on the Hill something that's pretty salient because you 635 00:29:44,480 --> 00:29:47,080 Speaker 9: know they are looking at this as a potentially relatively 636 00:29:47,080 --> 00:29:48,880 Speaker 9: big source of source of revenue. 637 00:29:48,920 --> 00:29:54,720 Speaker 1: Does that make extension of the Trump attack TCGA right? 638 00:29:54,760 --> 00:29:57,000 Speaker 9: If the task cuts and job did you. 639 00:29:57,000 --> 00:29:58,440 Speaker 1: Make it easier to get that extension done? 640 00:29:58,720 --> 00:30:00,720 Speaker 9: And I think that it sort of depends on whether 641 00:30:00,800 --> 00:30:03,880 Speaker 9: the CBO, the Congressional Budget Office, incorporates that in the 642 00:30:03,920 --> 00:30:06,360 Speaker 9: overall score. And as you know, members of Congress are 643 00:30:06,360 --> 00:30:08,480 Speaker 9: really focused on the cost of the bill with the 644 00:30:08,480 --> 00:30:11,240 Speaker 9: score of the bill according to the CBO. But I 645 00:30:11,280 --> 00:30:12,440 Speaker 9: do think it's going to be in the back of 646 00:30:12,480 --> 00:30:14,640 Speaker 9: the minds, even if it's not legislated so that can't 647 00:30:14,640 --> 00:30:16,680 Speaker 9: be scored by the CBO. I do think it'll be 648 00:30:16,720 --> 00:30:18,680 Speaker 9: the back of the minds of members of Congress when 649 00:30:18,680 --> 00:30:21,719 Speaker 9: they go vote for a big tax cut bill that 650 00:30:21,800 --> 00:30:23,600 Speaker 9: will likely add to the deficit. I think in the 651 00:30:23,600 --> 00:30:25,880 Speaker 9: back of their minds they'll think, well, we also will 652 00:30:25,920 --> 00:30:27,040 Speaker 9: be increasing some regvan. 653 00:30:27,040 --> 00:30:30,800 Speaker 10: There's some mirony there though, because either tariffs work, in 654 00:30:30,800 --> 00:30:33,959 Speaker 10: which case you're going to reduce imports and therefore have 655 00:30:34,040 --> 00:30:37,120 Speaker 10: no tariffs to pay, or they don't really work. They're 656 00:30:37,120 --> 00:30:40,280 Speaker 10: going to increase the cost of goods that consumers and 657 00:30:40,520 --> 00:30:44,880 Speaker 10: manufacturers that import inputs into their manufacturing processes have to pay. 658 00:30:44,920 --> 00:30:47,560 Speaker 10: And so I think it's of limited use really as 659 00:30:47,600 --> 00:30:50,200 Speaker 10: a revenue tool. I mean, even one hundred billion dollars 660 00:30:50,240 --> 00:30:52,120 Speaker 10: when you have a Trump tax cut, which might cost 661 00:30:52,160 --> 00:30:55,360 Speaker 10: five trillion dollars over ten years. Tariffs are not a 662 00:30:55,400 --> 00:30:58,360 Speaker 10: substitute for income tax, either corporate or individual income tax. 663 00:30:58,520 --> 00:31:00,320 Speaker 1: But make it the other side to the take. But 664 00:31:00,360 --> 00:31:02,240 Speaker 1: you might not like what the other side has to say. 665 00:31:02,280 --> 00:31:04,120 Speaker 1: There is retaliation because of it. 666 00:31:04,360 --> 00:31:06,120 Speaker 10: When we look at the cost of tariffs, we tend 667 00:31:06,120 --> 00:31:08,200 Speaker 10: to look just at the direct cost of tariffs. How 668 00:31:08,280 --> 00:31:11,320 Speaker 10: much more a consumer or an importing manufacturer might have 669 00:31:11,360 --> 00:31:14,400 Speaker 10: to pay for their products. There's a cost of retaliation, 670 00:31:14,480 --> 00:31:16,400 Speaker 10: And as you said, countries don't tend to just sit 671 00:31:16,480 --> 00:31:19,920 Speaker 10: back and let countries impost tariffs on them without responding 672 00:31:20,000 --> 00:31:23,200 Speaker 10: with an equivalent amount of retaliation. And then I think 673 00:31:23,200 --> 00:31:26,120 Speaker 10: there's a third cost, which is the cost of imitation, 674 00:31:26,560 --> 00:31:29,080 Speaker 10: which is that other countries around the world look and say, well, 675 00:31:29,080 --> 00:31:32,240 Speaker 10: see if the US can invoke the national security exception 676 00:31:32,320 --> 00:31:34,720 Speaker 10: and impost tariffs on anything they want, why don't. 677 00:31:34,560 --> 00:31:38,640 Speaker 1: We Let mean at another time, in another place, Congress 678 00:31:38,720 --> 00:31:41,680 Speaker 1: might get really upset about retaliation and trade wars and 679 00:31:41,760 --> 00:31:43,840 Speaker 1: things like that. How much of this is really filtered 680 00:31:43,840 --> 00:31:45,640 Speaker 1: through the China lens, if I can call it that, 681 00:31:45,640 --> 00:31:48,640 Speaker 1: that really changes the entire dynamic on Capitol Hill. 682 00:31:48,680 --> 00:31:50,800 Speaker 9: I mean, I think a lot is. Honestly, if you 683 00:31:50,880 --> 00:31:53,960 Speaker 9: ask the average number of Congress back in twenty seventeen 684 00:31:54,000 --> 00:31:56,560 Speaker 9: about tariffs, I would say, you know, ninety percent of 685 00:31:56,640 --> 00:31:58,720 Speaker 9: members would say, there, this is a bad thing. This 686 00:31:58,760 --> 00:32:01,000 Speaker 9: is going to hurt inflation, will hurt growth. I will 687 00:32:01,040 --> 00:32:03,880 Speaker 9: heard our relationship with China. Now you fast forward to 688 00:32:03,920 --> 00:32:06,600 Speaker 9: twenty twenty five, I'd say ninety percent of members will 689 00:32:06,600 --> 00:32:10,560 Speaker 9: say that, actually they're more supportive, PARTICULARI of tariffs on China. 690 00:32:11,160 --> 00:32:13,120 Speaker 9: And because I think that they haven't really seen the 691 00:32:13,160 --> 00:32:17,120 Speaker 9: economic impacts that are kind of the worst case scenarios 692 00:32:17,160 --> 00:32:19,120 Speaker 9: that some of the folks have talked about in terms 693 00:32:19,120 --> 00:32:21,320 Speaker 9: of the kind of negative impacts from tariff. So in 694 00:32:21,320 --> 00:32:24,960 Speaker 9: some ways, you know, I think that the proof has 695 00:32:25,000 --> 00:32:27,200 Speaker 9: been in the pudding if you're a member of Congress, 696 00:32:27,480 --> 00:32:29,640 Speaker 9: and it really there hasn't been as much friction as 697 00:32:29,680 --> 00:32:31,880 Speaker 9: I think was expected, and again there's been this sort 698 00:32:31,880 --> 00:32:35,760 Speaker 9: of upside on the revenue. I think the fallacy though 699 00:32:36,080 --> 00:32:39,840 Speaker 9: in that thinking, potentially could be if there's a universal tariff. 700 00:32:39,880 --> 00:32:42,200 Speaker 9: And while we didn't really see a much of a 701 00:32:42,280 --> 00:32:45,040 Speaker 9: pass through from a CPI perspective on the first round 702 00:32:45,040 --> 00:32:47,959 Speaker 9: of tariffs on China under Trump one point zero, if 703 00:32:47,960 --> 00:32:50,920 Speaker 9: there's a sort of a universal tariff, mean you really 704 00:32:50,920 --> 00:32:55,120 Speaker 9: can't substitute goods that you don't have a currency offsetting 705 00:32:55,160 --> 00:32:58,040 Speaker 9: effect that actually could potentially be inflationary, and I do 706 00:32:58,080 --> 00:33:01,440 Speaker 9: think that members of Congress may have a different a different. 707 00:33:01,160 --> 00:33:01,560 Speaker 5: View on that. 708 00:33:02,200 --> 00:33:07,280 Speaker 1: Michael, as a true international economics expert in trade, explain 709 00:33:07,520 --> 00:33:10,840 Speaker 1: FX and its function here, because why don't other people 710 00:33:10,920 --> 00:33:13,960 Speaker 1: just devalue their currency? And that's not something President Trump 711 00:33:13,960 --> 00:33:16,240 Speaker 1: particularly wants. He doesn't want a stronger dollar. That's not 712 00:33:16,280 --> 00:33:17,920 Speaker 1: going to help his bilateral trade devils. 713 00:33:17,920 --> 00:33:19,640 Speaker 10: No, and a lot of the policies that he is 714 00:33:19,680 --> 00:33:22,760 Speaker 10: proposing could well lead to a stronger dollar could lead 715 00:33:22,800 --> 00:33:26,880 Speaker 10: to higher inflation here as well, And so you're going 716 00:33:26,960 --> 00:33:29,720 Speaker 10: to see a lot of FX volatility potentially depending on 717 00:33:29,760 --> 00:33:33,880 Speaker 10: what actually gets announced and what gets what gets implemented. 718 00:33:34,280 --> 00:33:34,440 Speaker 1: You know. 719 00:33:34,480 --> 00:33:37,600 Speaker 10: The other thing I would say to say Amplifyabliby said 720 00:33:37,640 --> 00:33:40,440 Speaker 10: is one thing that the tariffs on China did. First 721 00:33:40,480 --> 00:33:42,640 Speaker 10: of all, it's tarifs on both strategic. 722 00:33:42,160 --> 00:33:43,479 Speaker 1: And non strategic goods. 723 00:33:43,680 --> 00:33:46,200 Speaker 10: You know, becasibe one can make a case that goods 724 00:33:46,200 --> 00:33:49,000 Speaker 10: that we really want to see made in America or 725 00:33:49,040 --> 00:33:50,680 Speaker 10: that we don't want to be dependent on China for 726 00:33:51,160 --> 00:33:53,760 Speaker 10: we could impose tarras on There's a case to be 727 00:33:53,800 --> 00:33:56,760 Speaker 10: made for that, whether it should apply to T shirts 728 00:33:56,800 --> 00:34:01,000 Speaker 10: and footwear and sneakers, all of which are being predominantly 729 00:34:01,440 --> 00:34:03,600 Speaker 10: you know, it's low income Americans who spend a larger 730 00:34:03,640 --> 00:34:06,760 Speaker 10: portion of their disposable income on important goods like that. 731 00:34:06,920 --> 00:34:10,640 Speaker 10: So it's a regressive tax on low income Americans on 732 00:34:10,680 --> 00:34:13,160 Speaker 10: a non strategic set of goods which we don't really 733 00:34:13,239 --> 00:34:15,600 Speaker 10: care about whether we make T shirts in America or 734 00:34:15,640 --> 00:34:19,080 Speaker 10: pajamas in America. And I think the Bide administration kept 735 00:34:19,080 --> 00:34:22,360 Speaker 10: the Trump tariffs on despite a lot of efforts to 736 00:34:22,640 --> 00:34:25,319 Speaker 10: have people to say, why don't you separate strategic from 737 00:34:25,320 --> 00:34:28,040 Speaker 10: non strategic and at least relieve the tax burden of 738 00:34:28,080 --> 00:34:29,880 Speaker 10: the non strategic I was just going to. 739 00:34:29,880 --> 00:34:31,680 Speaker 9: Go back to the FX point, which I do think 740 00:34:31,680 --> 00:34:33,520 Speaker 9: that one of the reasons why you didn't see that 741 00:34:33,560 --> 00:34:37,200 Speaker 9: consumer passed through was because the Chinese did actually devalue 742 00:34:37,200 --> 00:34:41,759 Speaker 9: their currency, you know, incrementally, and that actually absorbed some 743 00:34:41,840 --> 00:34:43,960 Speaker 9: of the impacts, some of the sort of a deleterious 744 00:34:43,960 --> 00:34:47,240 Speaker 9: impact of those round of tariffs. I think the issue 745 00:34:47,440 --> 00:34:49,279 Speaker 9: kind of fast forward to twenty twenty five is the 746 00:34:49,400 --> 00:34:53,360 Speaker 9: Chinese currency is already very weak. They've already actually devalued 747 00:34:53,360 --> 00:34:56,360 Speaker 9: it as they're trying to revive their economy, and so 748 00:34:56,760 --> 00:35:00,600 Speaker 9: their flexibility in terms of actually changing their currency is, 749 00:35:00,719 --> 00:35:00,880 Speaker 9: you know. 750 00:35:01,160 --> 00:35:01,840 Speaker 5: Is more limited. 751 00:35:01,880 --> 00:35:04,759 Speaker 9: And as a result, if in extreme if he does 752 00:35:04,880 --> 00:35:06,520 Speaker 9: exactly what he said he's going to do, and I 753 00:35:06,520 --> 00:35:08,640 Speaker 9: don't think any of us actually think he is, but 754 00:35:08,640 --> 00:35:10,600 Speaker 9: I do think we should take him seriously for sure 755 00:35:10,640 --> 00:35:13,800 Speaker 9: on this. This is a deeply ideological issue for the president, 756 00:35:14,360 --> 00:35:15,680 Speaker 9: But I do think that you're not going to be 757 00:35:15,680 --> 00:35:18,759 Speaker 9: able to kind of count on that currency kind of 758 00:35:18,800 --> 00:35:21,640 Speaker 9: adjustment as a buffer, just given what's happening in China. 759 00:35:21,880 --> 00:35:24,359 Speaker 1: Many thanks to Michael Froehman of the Council on Foreign 760 00:35:24,400 --> 00:35:28,080 Speaker 1: Relations and Libby Cantrell from PIMCO. That does it for 761 00:35:28,200 --> 00:35:30,520 Speaker 1: us here at Wall Street Week, I'm David Weston. This 762 00:35:30,640 --> 00:35:43,960 Speaker 1: is Bloomberg. See you next week for more stories of capitalism.