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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: And we start with the backward looking economic conmbers of

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Speaker 2: the United States this week and the forward looking statement

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Speaker 2: of economic productions from the FED and what the chair

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Speaker 2: Jay Powell had to say about it. And we welcome

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Speaker 2: back our very special contributor. He's Larry Summers of Harvard. So, Larry,

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Speaker 2: great to have you with us. What did you make

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Speaker 2: out if we had some encouraging numbers actually on inflation.

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Speaker 2: The same time, the FED is a little reluctant to

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Speaker 2: talk too quickly about cutting.

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Speaker 1: The numbers were encouraging. It's one month, but you know,

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Speaker 1: every month is data, and I think the right posture

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Speaker 1: has to be agnosticism about where we are going forward.

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Speaker 1: It's hard to interpret the Fed's forecast speak because they

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Speaker 1: probably had a lot of inertia with everybody having set

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Speaker 1: their view coming into the meeting, so it's not really

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Speaker 1: clear that the projections that people were making genuinely reflected

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Speaker 1: the new numbers. That was a point that Chairman Bowell stressed.

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Speaker 2: We also have fiscal policy issues coming up in a

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Speaker 2: sense around the ballot come November. There's increasing discussion about

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Speaker 2: the alternatives between Joe Biden and Donald Trump. There's a

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Speaker 2: fiscal policy, and you've been outspoken on the question, as

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Speaker 2: others have been about the possibility of inflation with the

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Speaker 2: Trump economic policy. Take us through that.

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Speaker 1: Look. I don't think there's been a more inflationary presidential

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Speaker 1: economic policy platform in my lifetime. Perhaps George McGovern in

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Speaker 1: nineteen seventy two in some ways would be a comparison,

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Speaker 1: But other than that, I don't think there's been remotely

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Speaker 1: comparably irresponsible set of proposals. His tariff proposals are the

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Speaker 1: biggest supply shock, pushing up prices not just of imported goods,

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Speaker 1: but of all the goods that compete with imported goods.

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Speaker 1: That anybody who's worried about gouging should think that more competition,

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Speaker 1: including from abroad, is a very very important step. And

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Speaker 1: he's for much greater restrictions on the supply of labor,

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Speaker 1: leading to more wage inflation pressures. And he's for scaling

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Speaker 1: back the subsidies to renewable energy, raising energy costs. So

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Speaker 1: look at it from demand, look at it from supply.

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Speaker 1: This is a prescription for a major increase in inflation,

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Speaker 1: and of course, the expectation of that major increase in inflation,

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Speaker 1: and possibly the fact that the FED will be under

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Speaker 1: much more pressure to prove that it's credible. This could

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Speaker 1: easily be a prescription for a ten percent mortgage rate,

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Speaker 1: something that I lived through and I bought my first house,

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Speaker 1: but that I didn't think we were going to see

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Speaker 1: again in the United States. This is really dangerous stuff.

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Speaker 2: Literally, we pick up on the tariff's issue specifically, as

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Speaker 2: we know, President former President Trump traveled to Capitol Hill

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Speaker 2: this week and there were reports in the press that

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Speaker 2: he floated, at least as an idea replacing some are

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Speaker 2: all of income tax with tariffs. There was one report

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Speaker 2: that actually would just replace it entirely. What would that

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Speaker 2: do from an macroeconomic point of view?

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Speaker 1: Look, people miss people misspeak. Sometimes they're not serious about

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Speaker 1: the things they say. That's probably a feature of candidate Trump.

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Speaker 1: But replacing the income tax with revenue with tariff would

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Speaker 1: be the worst macroeconomic policy proposal in US history. It

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Speaker 1: of course burdens the middle class and the poor who

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Speaker 1: purchased goods goods that exist on international markets. So it's regressive,

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Speaker 1: as many economic commentators have suggested. But that is actually

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Speaker 1: the least of it. Think about it this way. The

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Speaker 1: Smoot Hawley tariffs, which did enormous damage some people would

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Speaker 1: say made the depression great, were six tenths of one

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Speaker 1: percent of GDP. If you replaced half of income tax revenues,

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Speaker 1: not all like he talked about, if you replaced half

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Speaker 1: of income tax revenues with tariffs, those would be tax

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Speaker 1: those would be tariffs six times smooth Hally levels. That's

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Speaker 1: got the potential to do enormous damage to the competitiveness

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Speaker 1: of every US exporter, to do huge damage to all

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Speaker 1: kinds of workers who use imported goods in what their

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Speaker 1: businesses produce, to create a downward spiral, as much higher

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Speaker 1: prices for everything we import means consumers have less to

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Speaker 1: spend on everything else, create worldwide economic warfare as the

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Speaker 1: rest of the world responds. This is a prescription for

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Speaker 1: the mother of all stagflations. Now, I don't think it's

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Speaker 1: likely to happen even if President Trump is elected, so

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Speaker 1: I don't know that markets should be discounting all of that.

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Speaker 1: But this is something that I think should be viewed

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Speaker 1: very ominously.

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Speaker 2: Let me turn to another subject that you and I

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Speaker 2: have talked about in the past, but we had developments

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Speaker 2: this week over in Barrie, Italy with the meeting of

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Speaker 2: the G seven as they took action actually on the

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Speaker 2: Russian assets. As I understand, it's not so much the

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Speaker 2: principle but the interest off of them that would back

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Speaker 2: a bond. You early on in this program called for

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Speaker 2: the use of those Russian assets, the central back assets,

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Speaker 2: the government assets, to be used for Ukraine. Are you

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Speaker 2: pleased with what they've done? Have they gone far enough?

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Speaker 1: There's a major step forward. I am very pleased, but

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Speaker 1: I don't think they've done everything that could be done. Look,

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Speaker 1: the best estimate is that there's in the neighborhood of

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Speaker 1: three hundred billion dollars of frozen Russian assets. Those assets

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Speaker 1: have already been frozen. Nobody thinks they're going back to Russia.

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Speaker 1: So if there are issues about expectations about fairness, any

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Speaker 1: of that, we crossed that rubicon two years ago. The

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Speaker 1: big step they took was not just authorizing the use

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Speaker 1: of the interest, but setting up a loan mechanism. Today

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Speaker 1: the Ukrainians are going to get access not just to

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Speaker 1: this year's interest payments, but to interest payments out over

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Speaker 1: quite a number of years, perhaps totaling fifty billion dollars

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Speaker 1: or more. I think ultimately the right thing to do

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Speaker 1: is going to be to simply take these assets or

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Speaker 1: take the perpetuity of all the income that they will generate.

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Speaker 1: But fifty billion dollars is a lot of money. It

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Speaker 1: comes at a very important time to provide a shot

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Speaker 1: in the arm for Ukraine. It's going to be crucial

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Speaker 1: for US, for the international financial institutions to work with

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Speaker 1: the Ukrainians to make sure that those resources are used

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Speaker 1: with maximum effectiveness. And this also David does something else

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Speaker 1: that's important. If this had not been done, I and

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Speaker 1: others were very concerned that even if resources from Ukraine

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Speaker 1: could be found in national budgets, it would come out

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Speaker 1: of other vital international expenditures to come back global warming,

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Speaker 1: to protect against pandemic threats, to reduce global poverty, and

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Speaker 1: so this is also an important step for internationalism more broadly.

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Speaker 1: It's been a long road on this, and while it

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Speaker 1: didn't start with as aggressive an effort from the US

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Speaker 1: government as I might have hoped. I really want to

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Speaker 1: congratulate Secretary Yellen, especially people at the National Security Council,

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Speaker 1: her deputy Wallyadieimo Sherpa Deleep Singh for having driven something

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Speaker 1: that is really profoundly important. This was US leadership with

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Speaker 1: others being reluctant, and it was a case study in

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Speaker 1: the last few months of effective, determined, creative economic diplomacy.

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Speaker 2: Okay, Larry, thank you so very much for being with us.

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Speaker 2: That's Larry Summers of Harvard, our very special contributor here

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Speaker 2: on Wall Street Week