WEBVTT - UPDATE: Yellen Warns The US Will Be A 'Deadbeat Country' if It Defaults

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<v Speaker 1>This is Bloomberg Daybreak you up for this Friday, the

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<v Speaker 1>twelfth of May in London.

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<v Speaker 2>Coming up today, Yellen out loud.

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<v Speaker 3>US Treasury Secretary Janet Yellen says America has to raise

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<v Speaker 3>the debtlimit to avoid being labeled a dead beat country.

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<v Speaker 1>Bumping along the bottom. The UK posts anemic growth but

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<v Speaker 1>no recession. As the Bank of England's Bailey tells Bloomberg,

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<v Speaker 1>he hopes rates have peaked.

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<v Speaker 2>Get ready to feel the squeeze.

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<v Speaker 3>Soop gen Ceo says rates are impacting the economy.

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<v Speaker 2>And it's going to get worse for banks.

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<v Speaker 1>Jamie Diamond says that lenders should expect more regulation.

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<v Speaker 4>That's all straight ahead on Bloomberg Daybreak Europe, the business

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<v Speaker 4>news you need to start your day in just one

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<v Speaker 4>fifteen minute podcast on Apple, Spotify, the Bloomberg Business App

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<v Speaker 4>and everywhere you get your podcasts.

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<v Speaker 2>Good morning from London.

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<v Speaker 3>I'm Caroline Hepca and I'm Tom McKenzie. You're listening to

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<v Speaker 3>day Break Europe. Let's get brought up then with the

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<v Speaker 3>top stories of the day and Yellen, of course front center.

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<v Speaker 3>Given that exclusive interview, the US Treasury Secretary Jality Anna

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<v Speaker 3>saying that there is no good fix for the debt

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<v Speaker 3>limits short of lifting the ceiling. Speaking to US exclusively,

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<v Speaker 3>Yellen said that markets need to see a decision.

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<v Speaker 5>What global markets and American households and businesses need to

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<v Speaker 5>see is that we have for Congress that's committed to

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<v Speaker 5>paying the bills that we've incurred as a consequence of

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<v Speaker 5>our legislation. That we're not a dead beat country.

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<v Speaker 3>Not a dead beat country. Yellen, speaking to Bloomberg in

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<v Speaker 3>that exclusive one on one interview after a meeting between

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<v Speaker 3>President Joe Biden and US House Speaker Kevin McCarthy was

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<v Speaker 3>pushed back. According to White House officials, the decision to

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<v Speaker 3>delay the meeting is a sign that negotiations are making progress,

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<v Speaker 3>at least at a staff level.

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<v Speaker 1>Now to the UK, the economy here out a small

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<v Speaker 1>gain in the first quarter, so further reducing the risk

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<v Speaker 1>of a recession. GDP did rise by tenth of one

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<v Speaker 1>percent from the fourth quarter, but strikes curtailed activity in March.

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<v Speaker 1>Output declined by three tens of one per cent in

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<v Speaker 1>that month, but it was nullified by an upward revision

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<v Speaker 1>for January. The figures do leave the UK on track

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<v Speaker 1>for anemic growth for the first half of this year,

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<v Speaker 1>as sawing inflation and rising interest rates eat into consumer

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<v Speaker 1>spending power.

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<v Speaker 3>Meanwhile, Bank of England Governor Andrew Bailey says rates are

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<v Speaker 3>now getting close to their peak. Speaking to Bloomberg after

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<v Speaker 3>announcing a twenty five basis point hike, Bailey was asked

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<v Speaker 3>whether the BOE is close to a pause.

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<v Speaker 2>I'm going to say I hope we are. This is

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<v Speaker 2>the twelfth consecutive increase and rates.

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<v Speaker 3>I'll be very clear that we will be guided by

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<v Speaker 3>the effort once as it comes to us. Andrew Bailey

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<v Speaker 3>was speaking to Bloomberg's Guy Johnson after the BOE raised

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<v Speaker 3>its benchmark raat two four point five percent. That's the

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<v Speaker 3>highest since two thousand. Markets anticipate the central Bank may

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<v Speaker 3>push the base rate to five percent this summer. We'll

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<v Speaker 3>bring you more of our interview with the Bank of

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<v Speaker 3>England governor in a moment.

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<v Speaker 1>So General's fixed income trading unit outperformed most of its

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<v Speaker 1>peers in the first quarter. Income from debt and currencies

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<v Speaker 1>trading at the French bank jumped sixteen percent from a

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<v Speaker 1>year earlier to eight hundred and ninety million euros. This

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<v Speaker 1>is the last earnings report under the CEO of Fred Guder,

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<v Speaker 1>who's stepping down later this month. Speaking exclusively to Bloomberg,

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<v Speaker 1>he says he believes rates will squeeze the economy soon.

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<v Speaker 6>The central banks started a bit late compared with the

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<v Speaker 6>existing inflation twelve to fifteen months ago. They are catched up.

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<v Speaker 6>But I think that we see certainly the impact and

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<v Speaker 6>we will see the impact on the economy, and I

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<v Speaker 6>tend to think that the central banks will then be

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<v Speaker 6>comfortable to stop and then probably start decreasing progressively their

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<v Speaker 6>short term interest rates.

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<v Speaker 1>UDAYA will be succeeded by a slavom crooper who currently

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<v Speaker 1>runs SoC Gen's investment banking business.

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<v Speaker 3>Now struggling US regional banks are about to get hit

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<v Speaker 3>with more red tape. That's according to Jamie Diamond, speaking

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<v Speaker 3>exclusively to Bloombogs transling like what the JP Morgan chief said,

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<v Speaker 3>he expects policymakers to take the.

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<v Speaker 2>Wrong lessons from this year's upheaval.

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<v Speaker 7>He to get worse for banks. They're just more regulations

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<v Speaker 7>and more rules and more requirements. I hope they do

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<v Speaker 7>it very thoughtful, you because you know, if we love

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<v Speaker 7>the community banks, the regional banks, we're the biggest banks

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<v Speaker 7>of those folks. But you know, if you overd certain rules, requirements, regulations,

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<v Speaker 7>there are so many community banks tell me they have

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<v Speaker 7>more compliance people than loan officers, you know, and so

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<v Speaker 7>at one point and make it harder for.

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<v Speaker 2>Them to do business.

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<v Speaker 3>Diamonds warning comes just weeks after JP Morgan stepped in

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<v Speaker 3>to buy troubled lender First Republic. At the time, he

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<v Speaker 3>declared that the crisis is over, but those comments did

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<v Speaker 3>little to quell invest a concern, and regional banking shares

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<v Speaker 3>have since dropped considerably well.

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<v Speaker 1>Our interview with the boss of America's largest lender comes

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<v Speaker 1>as news emerged at the country's biggest banks face billions

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<v Speaker 1>of dollars in extra fees in order to replenish the

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<v Speaker 1>US government's deposit Insurance Fund. The assessment from the FDIC

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<v Speaker 1>stems from the regulator's decision to ensure all deposits at

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<v Speaker 1>Silicon Valley Bank and Signature Bank. The FDIC estimates that

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<v Speaker 1>that move costs its deposit insurance fund around fifteen point

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<v Speaker 1>eight billion dollars.

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<v Speaker 3>NBC Universal's head of advertising, Linda Yaraquino, is in talks

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<v Speaker 3>to become Twitter's new CEO. That's according to The Wall

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<v Speaker 3>Street Journal. The report comes after Elon Musk tweeted that

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<v Speaker 3>he's leaving the job the top job at the social network,

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<v Speaker 3>to become executive chair and CTO, where he will oversee product,

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<v Speaker 3>software and system operations.

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<v Speaker 2>Bloomberg's Ed Ludlow has the details.

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<v Speaker 8>Boiler. Musk says in the tweet that the new CEO

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<v Speaker 8>she will be starting in the role in around six weeks.

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<v Speaker 8>Muscat actually said in February that he may need a

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<v Speaker 8>year to fix Twitter before handing over the rain to

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<v Speaker 8>someone else. What he is doing in the second paragraph

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<v Speaker 8>on the tweet you see on your screen is reiterracing

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<v Speaker 8>something he's done said before that irrespect of his title,

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<v Speaker 8>he wanted to be involved on the engineering, product and

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<v Speaker 8>functionality side of Twitter.

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<v Speaker 3>Massport Twitter for forty four billion dollars last October at

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<v Speaker 3>the time, said he would only be in charge for

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<v Speaker 3>a limited time to complete an organizational overhaul.

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<v Speaker 1>That story is the last in our roundup of top

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<v Speaker 1>news stories. So it's kind of funny, really, isn't it,

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<v Speaker 1>Because Elon Musk talked about, you know, whoever would be

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<v Speaker 1>foolish enough to take over that top job at Twitter.

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<v Speaker 1>But it looks as if he's found somebody actually potentially incredible,

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<v Speaker 1>quite credible obviously to lead the business.

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<v Speaker 3>Yeah, credible of course, with a very strong background in

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<v Speaker 3>advertising and sales, which is going to be important for Twitter.

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<v Speaker 3>They are a smaller buyer, much smaller buyer than the

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<v Speaker 3>likes of Meta, but still of course consequential, crucial for

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<v Speaker 3>that business if they're actually going to get back to

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<v Speaker 3>kind of the levels of valuations for which he paid.

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<v Speaker 3>But also interestingly importantly, a female CEO a rare thing,

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<v Speaker 3>still disappointingly in the tech world. Yes, but that's good

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<v Speaker 3>news on that front. Yeah.

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<v Speaker 2>Absolutely.

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<v Speaker 1>I also want to mention the rand this morning is

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<v Speaker 1>plunging at the moment one point two percent. The currency

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<v Speaker 1>also for the week has done incredibly badly. It's just

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<v Speaker 1>another issue for South Africa. There is this diplomatic spart

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<v Speaker 1>that's going on between the US and South Africa, the

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<v Speaker 1>accusation that South Africa supplied weapons and ammunition to Russia

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<v Speaker 1>in the war in Ukraine. This has really sent government

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<v Speaker 1>bond yields sowing and the rand slumping to the lowest

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<v Speaker 1>level against the dollar frankly on record. So there's now

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<v Speaker 1>an investigation by the president, but there's still the s

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<v Speaker 1>com power supply issue in South Africa going on.

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<v Speaker 3>So it's just a fascinating twist. Not even China has

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<v Speaker 3>supplied weapons to Russia, but now accusations that potentially South

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<v Speaker 3>Africa has. They've taken a quote unquote neutral stance on Ukraine.

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<v Speaker 3>Maybe that's coming back to bite them. And this, by

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<v Speaker 3>the way, the pressure on the rand coming despite the

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<v Speaker 3>fact that the US dollar, the Bloomber dollar is down

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<v Speaker 3>about ten percents in September.

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<v Speaker 4>Yeah.

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<v Speaker 1>Absolutely, Okay, that's something we're watching in the markets for you.

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<v Speaker 1>But let's get back to that fascinating interview with the

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<v Speaker 1>US Traasury Secretary Janet Yellen speaking to Bloomberg's A Mui

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<v Speaker 1>Hordan in an exclusive interview. Now, Yellen made clear that

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<v Speaker 1>she believes that is only one solution to the debt

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<v Speaker 1>ceiling in pass in Washington.

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<v Speaker 5>All I can say is that there is no satisfactory

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<v Speaker 5>solution for the United States, a solution that will be

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<v Speaker 5>good for the economy and financial markets, or through the

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<v Speaker 5>in Congress acting to raise the debt ceiling. There are

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<v Speaker 5>potential different paths that could be taken if it doesn't happen,

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<v Speaker 5>but there is not a single thing that can be

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<v Speaker 5>done that will save the United States from considerable economic

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<v Speaker 5>and financial damage.

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<v Speaker 9>But this planned was outlining back in twenty eleven, and

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<v Speaker 9>you were there at the FOMC meeting about it, and

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<v Speaker 9>it's said that Treasury principles and securities would be paid.

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<v Speaker 9>Is this something that at least for contingency plan has

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<v Speaker 9>been discussed with the President?

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<v Speaker 5>So my understanding I was at the FED in twenty

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<v Speaker 5>eleven is that this plan was never presented to the

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<v Speaker 5>President and never approved.

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<v Speaker 10>And but would you present it now? Look, we would.

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<v Speaker 10>We were working full time to work with Congress to

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<v Speaker 10>raise the debt ceiling. That's where our focus is.

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<v Speaker 5>We know that the only good outcome is one in

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<v Speaker 5>which Congress act acts, as it has many times, almost

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<v Speaker 5>eighty times since nineteen sixty, to raise the debt ceiling.

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<v Speaker 5>What global markets and American households and businesses need to

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<v Speaker 5>see is that we have a Congress that's committed to

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<v Speaker 5>paying the bills that we have incurred as a consequence

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<v Speaker 5>of our legislation, that we're not a dead beat country.

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<v Speaker 5>And if Congress fails to do that, it really impairs

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<v Speaker 5>our credit rating. We have to default on some obligation,

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<v Speaker 5>whether it's treasuries or payments to social security recipients. That's

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<v Speaker 5>something America hasn't done since seventeen eighty nine, and we

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<v Speaker 5>shouldn't start now. So we've not discussed what to do

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<v Speaker 5>if that doesn't occur with the president. Our focus is

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<v Speaker 5>on getting it done.

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<v Speaker 9>Because, as you know, treasuries are the bedrock of the

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<v Speaker 9>global financial system and the asset managers I speak to

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<v Speaker 9>the investors, they don't have the luxury of not contingency planning,

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<v Speaker 9>So at this point should they assume that debt may

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<v Speaker 9>not be serviced if there's no deal.

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<v Speaker 5>If Congress doesn't raise the debt ceiling, we face economic

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<v Speaker 5>and financial catastrophe one way or the other. And that's

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<v Speaker 5>why our focus is on making sure the Congress does

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<v Speaker 5>raise the debt ceiling. I feel that that's something we're

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<v Speaker 5>going to succeed at doing, and we're working hard to

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<v Speaker 5>make sure that that gets done.

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<v Speaker 9>As we get closer to June first, will you alert

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<v Speaker 9>Congress on a more precise date.

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<v Speaker 5>Yes, I will update Congress as we have available information, But.

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<v Speaker 11>Anything new now or still June first, Well, what I've

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<v Speaker 11>said is early June and potentially as early as June one,

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<v Speaker 11>as we get closer, I may be able to provide

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<v Speaker 11>more refined guidance.

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<v Speaker 5>But you know, there is a lot of uncertainty about

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<v Speaker 5>the exact level of cash balances and payments that we

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<v Speaker 5>have to make from day to day, and so theory

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<v Speaker 5>means level of uncertainty about precisely when we would run

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<v Speaker 5>out of cash to be able to pay the government's bills.

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<v Speaker 1>So that was Janet Yellen, the US Treasury Secretary, speaking

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<v Speaker 1>exclusively to Bloomberg's and mury hal Dan.

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<v Speaker 3>Okay, let's get some context analysis there and bring in

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<v Speaker 3>our senior Asia Economy reporter of Michelle Jehn Risco from

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<v Speaker 3>some context on this. Michelle, the warning is getting loud

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<v Speaker 3>and not a surprise from Janet Yell and the austrocial

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<v Speaker 3>sector to kind of drum beat on the warnings around this,

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<v Speaker 3>but really kind of insight, fascinating insight in terms of

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<v Speaker 3>the color and.

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<v Speaker 2>Some of the details.

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<v Speaker 3>At a time when we're at the staff level, will

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<v Speaker 3>being told that there is a little bit of traction.

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<v Speaker 12>At least, well, that's right, and she has to really

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<v Speaker 12>tread this delicate balanced time. I mean, she's upping the stakes,

0:12:46.040 --> 0:12:49.000
<v Speaker 12>as you say, talking about it being catastrophic. Yesterday in

0:12:49.040 --> 0:12:51.720
<v Speaker 12>her press conference, she talked about, you know, a potential

0:12:51.720 --> 0:12:54.040
<v Speaker 12>of a default leading to a global meltdown. I mean,

0:12:54.559 --> 0:12:57.560
<v Speaker 12>there's no shortage of you know, I won't say hyperbole,

0:12:57.600 --> 0:13:01.199
<v Speaker 12>but you know, these big, big, big talk about what

0:13:01.520 --> 0:13:04.040
<v Speaker 12>could happen if they do reach that X date. Now,

0:13:04.080 --> 0:13:06.560
<v Speaker 12>she also has to reassure, as she did in this

0:13:06.600 --> 0:13:09.280
<v Speaker 12>interview with Anne Marie, that you know, they're doing everything

0:13:09.440 --> 0:13:12.200
<v Speaker 12>possible and she does have confidence that they will avoid that.

0:13:12.679 --> 0:13:14.720
<v Speaker 12>But at the same time, she's not tipping her hand.

0:13:14.720 --> 0:13:17.240
<v Speaker 12>She's not telling which course of action they would take

0:13:17.320 --> 0:13:19.959
<v Speaker 12>or what they're favoring. She does lay out some options there,

0:13:19.960 --> 0:13:22.920
<v Speaker 12>as you heard, and what our reporters have been looking

0:13:22.960 --> 0:13:25.600
<v Speaker 12>at is the different things that could happen at that

0:13:25.840 --> 0:13:28.760
<v Speaker 12>X date, the fourteenth Amendment potentially being invoked, even though

0:13:28.760 --> 0:13:32.480
<v Speaker 12>that's a pretty legally fraught decision. There, payments on the debt,

0:13:33.240 --> 0:13:35.599
<v Speaker 12>you know, being a top priority, as Yellen mentioned in

0:13:35.640 --> 0:13:38.560
<v Speaker 12>that interview, and then from there it's a reduction of

0:13:38.559 --> 0:13:40.719
<v Speaker 12>payments on any number of obligations that could be in

0:13:40.760 --> 0:13:43.120
<v Speaker 12>the crossfire. A lot of things that are politically sensitive,

0:13:43.120 --> 0:13:46.960
<v Speaker 12>like social security, federal salaries, and critical agencies like the

0:13:46.960 --> 0:13:50.440
<v Speaker 12>Federal Aviation Administration. So a lot at stake here and

0:13:50.520 --> 0:13:53.600
<v Speaker 12>little certainty going forward, but we are fast approaching that's

0:13:53.600 --> 0:13:54.440
<v Speaker 12>so called X date.

0:13:55.520 --> 0:13:56.240
<v Speaker 2>Yes, we are.

0:13:57.440 --> 0:14:01.000
<v Speaker 1>The fourteenth Amendment also we should be besides relate to

0:14:01.600 --> 0:14:06.079
<v Speaker 1>the US upholding and paying its debts effectively a very

0:14:06.160 --> 0:14:09.160
<v Speaker 1>much shortened and boiled down version of the fourteenth Amendment.

0:14:09.920 --> 0:14:10.280
<v Speaker 6>Look.

0:14:10.800 --> 0:14:15.760
<v Speaker 1>Theuretic on the Republican side, though, is also equally quite

0:14:15.880 --> 0:14:21.440
<v Speaker 1>firm and noteworthy the House Speaker Kevin McCarthy talking about

0:14:21.480 --> 0:14:25.760
<v Speaker 1>President Biden Senator Schumer are stuck on no. And then

0:14:25.800 --> 0:14:29.200
<v Speaker 1>also I think it's worth underlying that the former President

0:14:29.200 --> 0:14:33.040
<v Speaker 1>Donald Trump at a CNN town hall talked about, you

0:14:33.040 --> 0:14:36.160
<v Speaker 1>know that the Republicans are going to have to default

0:14:36.200 --> 0:14:42.160
<v Speaker 1>if Democrats don't give massive cuts. Here's the front runner

0:14:42.160 --> 0:14:46.200
<v Speaker 1>in the Republican potentially for the Republican presidential nomination.

0:14:46.360 --> 0:14:48.360
<v Speaker 2>So it's very fought politically.

0:14:49.160 --> 0:14:49.400
<v Speaker 6>Yeah.

0:14:49.480 --> 0:14:51.960
<v Speaker 12>No, absolutely, And this is the same sort of game

0:14:52.000 --> 0:14:54.120
<v Speaker 12>that we've been playing for years and that you know,

0:14:54.280 --> 0:14:57.520
<v Speaker 12>more pragmatic and callerminds are saying like this is ridiculous.

0:14:57.560 --> 0:15:00.560
<v Speaker 12>I mean, even a Yellen in her press conference yesterday

0:15:00.640 --> 0:15:03.560
<v Speaker 12>was asked about how we should do this going forward,

0:15:03.560 --> 0:15:05.480
<v Speaker 12>and she said personally, I think we need to change

0:15:05.760 --> 0:15:08.520
<v Speaker 12>all of how full fiscal policy is conducted. I mean,

0:15:08.560 --> 0:15:11.160
<v Speaker 12>this just isn't sustainable. So I mean, yes, it's very

0:15:11.160 --> 0:15:13.440
<v Speaker 12>politically fraud especially right now as we're heading into the

0:15:13.560 --> 0:15:16.680
<v Speaker 12>US presidential election season, which you know, in some ways

0:15:16.720 --> 0:15:19.200
<v Speaker 12>has no end, but is really heating up leading up

0:15:19.240 --> 0:15:22.600
<v Speaker 12>to the twenty twenty four and we're hearing things as

0:15:22.600 --> 0:15:27.680
<v Speaker 12>you mentioned, Speaker McCarthy even after that somewhat upbeat postponement

0:15:27.720 --> 0:15:29.520
<v Speaker 12>of the meeting on Friday because it was a sign

0:15:29.600 --> 0:15:32.520
<v Speaker 12>that AIDS were making progress, he came out and said

0:15:33.240 --> 0:15:36.080
<v Speaker 12>what you quoted and talked about Democrats not wanting to

0:15:36.120 --> 0:15:38.840
<v Speaker 12>actually avoid default and having no plan and no desire

0:15:39.200 --> 0:15:42.000
<v Speaker 12>to get there. So there are going to be a

0:15:42.040 --> 0:15:46.320
<v Speaker 12>lot of expectations, setting comments, and I can imagine between

0:15:46.320 --> 0:15:49.760
<v Speaker 12>now and whenever McCarthy and Biden meet again, you know,

0:15:49.800 --> 0:15:52.840
<v Speaker 12>supposedly next week, we will hear more from both sides

0:15:52.840 --> 0:15:55.680
<v Speaker 12>about you know, the sort of blame game and what

0:15:56.360 --> 0:15:59.000
<v Speaker 12>is at stake and trying to kind of save face

0:15:59.320 --> 0:16:01.840
<v Speaker 12>as we lurch toward that critical ding.

0:16:02.400 --> 0:16:05.320
<v Speaker 3>And for the markets. At Michelle, we were speaking to

0:16:05.560 --> 0:16:08.400
<v Speaker 3>UBS's chief European equity stratsus. She was making the call

0:16:08.400 --> 0:16:11.200
<v Speaker 3>that maybe you want to lean into gold at this

0:16:11.280 --> 0:16:14.160
<v Speaker 3>point as a bit of a risk, diversify maybe higher

0:16:14.200 --> 0:16:18.240
<v Speaker 3>quality bonds bill gross saying, look, this is ultimately going

0:16:18.320 --> 0:16:20.840
<v Speaker 3>to get solved. This is an opportunity to buy short

0:16:20.920 --> 0:16:24.000
<v Speaker 3>dated T bills and the kind of two three month range.

0:16:24.120 --> 0:16:26.960
<v Speaker 3>How are markets How challenging is it for markets to

0:16:27.000 --> 0:16:28.240
<v Speaker 3>position around this risk?

0:16:28.440 --> 0:16:28.640
<v Speaker 5>Yeah?

0:16:28.720 --> 0:16:30.800
<v Speaker 12>I mean among many days, Tom, this is a day

0:16:30.840 --> 0:16:33.560
<v Speaker 12>where I do not envy money managers. I have no

0:16:33.640 --> 0:16:36.280
<v Speaker 12>idea what you should be doing, but I can say

0:16:36.320 --> 0:16:38.560
<v Speaker 12>that a lot of them are. You know, you know,

0:16:38.600 --> 0:16:42.360
<v Speaker 12>there are comparisons made to previous debt ceiling standoffs. It

0:16:42.400 --> 0:16:44.960
<v Speaker 12>seems like, you know, in some ways some are thinking

0:16:44.960 --> 0:16:47.960
<v Speaker 12>this could be more serious. There's it's more intractable, and

0:16:48.000 --> 0:16:49.840
<v Speaker 12>in other ways, you know, you do hear a lot

0:16:49.880 --> 0:16:52.080
<v Speaker 12>of people saying, well, this is kind of similar. We

0:16:52.120 --> 0:16:54.320
<v Speaker 12>do hold out hope that they'll get it, and might

0:16:54.320 --> 0:16:56.240
<v Speaker 12>be in the eleventh hour, might be in the twelfth hour,

0:16:56.320 --> 0:16:59.520
<v Speaker 12>but they'll they'll get there, and you know, all investments

0:16:59.520 --> 0:17:01.680
<v Speaker 12>will be to say, in the meantime, but it is

0:17:01.960 --> 0:17:04.359
<v Speaker 12>highly fraught and what we heard from Jamie Diamond in

0:17:04.400 --> 0:17:07.120
<v Speaker 12>that interview yesterday was he's got a so called war

0:17:07.200 --> 0:17:10.320
<v Speaker 12>room of contingency. So they're taking this very seriously, and

0:17:10.320 --> 0:17:16.120
<v Speaker 12>everyone's very on edge.