1 00:00:02,440 --> 00:00:06,800 Speaker 1: Bloomberg Audio Studios, Podcasts, radio News. 2 00:00:11,640 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,480 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,280 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,920 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,720 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,320 --> 00:00:33,960 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,040 --> 00:00:37,400 Speaker 2: Terminal and the Bloomberg Business app. Let Me Cantrell with 10 00:00:37,440 --> 00:00:39,920 Speaker 2: Pimco joins us around the table, Libby, how does the 11 00:00:39,960 --> 00:00:41,760 Speaker 2: President of the United States come back from that? 12 00:00:43,159 --> 00:00:43,479 Speaker 1: Well? 13 00:00:43,920 --> 00:00:45,919 Speaker 3: That is the I think the question for a lot 14 00:00:45,960 --> 00:00:50,280 Speaker 3: of democratic strategies and for the White House. You know, Interestingly, John, 15 00:00:51,280 --> 00:00:53,720 Speaker 3: you know, even though I think we all saw the 16 00:00:53,720 --> 00:00:57,680 Speaker 3: same debate and you know, arguably the president really did 17 00:00:57,720 --> 00:01:01,920 Speaker 3: not meet the very low expectations that were established for 18 00:01:02,000 --> 00:01:05,480 Speaker 3: him by President Trump. You know, the the you know, 19 00:01:05,520 --> 00:01:08,520 Speaker 3: the Biden campaign is acknowledging that he you know, as 20 00:01:08,640 --> 00:01:11,160 Speaker 3: as Vice President Kamala Harris said, he had a slow start, 21 00:01:11,600 --> 00:01:12,800 Speaker 3: but he finished strong. 22 00:01:13,240 --> 00:01:14,200 Speaker 1: This is one debate. 23 00:01:14,319 --> 00:01:18,119 Speaker 3: There will be another opportunity for another debate on September tenth. 24 00:01:18,240 --> 00:01:21,640 Speaker 3: I doubt that debate happens at this point, honestly, So 25 00:01:21,760 --> 00:01:24,200 Speaker 3: I think that they are, you know, they are at 26 00:01:24,280 --> 00:01:28,560 Speaker 3: least indicating that this is, you know, this is going 27 00:01:28,600 --> 00:01:31,000 Speaker 3: according to plan, and I do you know, I just 28 00:01:31,000 --> 00:01:33,560 Speaker 3: think from a process perspective, it's really important to keep 29 00:01:33,600 --> 00:01:38,080 Speaker 3: in mind here that there is no you know, party 30 00:01:38,160 --> 00:01:41,160 Speaker 3: elder in the back room smoking a cigar deciding who 31 00:01:41,160 --> 00:01:43,240 Speaker 3: the next Democratic nominee is going to be. 32 00:01:43,760 --> 00:01:45,000 Speaker 1: This is Joe Biden. 33 00:01:45,080 --> 00:01:49,280 Speaker 3: Joe Biden will be the nominee unless he steps down. 34 00:01:49,440 --> 00:01:53,600 Speaker 3: Unless he decides, really in the next two weeks or so, 35 00:01:54,000 --> 00:01:56,120 Speaker 3: that he is no longer going to run. That has 36 00:01:56,160 --> 00:01:59,000 Speaker 3: to be his decision. That is nobody else's decision. That 37 00:01:59,040 --> 00:02:01,080 Speaker 3: is not the donor's decision, it is not the Democratic 38 00:02:01,080 --> 00:02:03,640 Speaker 3: strategy decision. That has to be Joe Biden's decision. And 39 00:02:03,640 --> 00:02:06,680 Speaker 3: then even then there is no consensus candidate. So the 40 00:02:07,000 --> 00:02:09,680 Speaker 3: thing that the Democrats risk here is that they don't 41 00:02:10,120 --> 00:02:13,239 Speaker 3: if Joe Biden does decide not to run, that there 42 00:02:13,240 --> 00:02:16,800 Speaker 3: could just be chaos, and that then undermines their whole 43 00:02:16,800 --> 00:02:19,200 Speaker 3: pitch to the American people that they are the Party 44 00:02:19,280 --> 00:02:23,240 Speaker 3: of stability, but it was very objectively an incredibly bad 45 00:02:23,320 --> 00:02:24,000 Speaker 3: night for the president. 46 00:02:24,080 --> 00:02:26,079 Speaker 2: You've indicated to us repeatedly that a lot of the 47 00:02:26,160 --> 00:02:28,200 Speaker 2: questions you get asked is about who is going to 48 00:02:28,520 --> 00:02:31,400 Speaker 2: ultimately be the candidate for the Democrats, And the words 49 00:02:31,400 --> 00:02:34,120 Speaker 2: that you hear repeatedly from clients is not Joe Biden. 50 00:02:34,160 --> 00:02:36,480 Speaker 2: You hear things like Michelle Obama, even Jamie Dimond. I 51 00:02:36,480 --> 00:02:37,960 Speaker 2: think you shared with us a number of months ago. 52 00:02:38,160 --> 00:02:41,000 Speaker 2: What do those conversations sound like now, particularly yesterday evening. 53 00:02:41,200 --> 00:02:43,160 Speaker 3: Yeah, well, I would say that our traders had lots 54 00:02:43,160 --> 00:02:45,880 Speaker 3: of ideas, had lots of views last night, and we're 55 00:02:45,880 --> 00:02:50,240 Speaker 3: sharing with them with me, you know, in a very 56 00:02:50,280 --> 00:02:54,000 Speaker 3: generous way that you know. I think that that, of course, 57 00:02:54,240 --> 00:02:57,840 Speaker 3: is that narrative John is going to probably is going 58 00:02:57,840 --> 00:03:00,400 Speaker 3: to reach a fevered pitch if it hasn't already. I 59 00:03:00,440 --> 00:03:03,160 Speaker 3: just think people have to really understand though, that there 60 00:03:03,240 --> 00:03:06,799 Speaker 3: is a process here that the Democratic Party has established 61 00:03:06,840 --> 00:03:09,120 Speaker 3: and they have put their thumb on the scale. Joe 62 00:03:09,120 --> 00:03:12,600 Speaker 3: Biden is going to be their nominee again unless the 63 00:03:12,600 --> 00:03:14,760 Speaker 3: President of the United States takes it not this can 64 00:03:14,880 --> 00:03:16,480 Speaker 3: only be his decision. 65 00:03:16,520 --> 00:03:17,839 Speaker 1: I just can't reinforce that enough. 66 00:03:17,919 --> 00:03:18,800 Speaker 4: So yes, I do. 67 00:03:18,880 --> 00:03:21,600 Speaker 3: I think that the narratives around Michelle Obama and Jamie 68 00:03:21,639 --> 00:03:26,440 Speaker 3: Diamond are going to just accelerate, for sure, But I 69 00:03:26,440 --> 00:03:29,639 Speaker 3: don't think that changes the reality that this is likely 70 00:03:29,720 --> 00:03:32,160 Speaker 3: what this is, and if it's not going to be, 71 00:03:32,240 --> 00:03:34,720 Speaker 3: the decision has to be made really within the next. 72 00:03:34,480 --> 00:03:35,000 Speaker 1: Week or so. 73 00:03:35,560 --> 00:03:37,640 Speaker 5: Libby, you broke up the fact that Biden camp is 74 00:03:37,640 --> 00:03:40,600 Speaker 5: saying he finished strong. Arguably he didn't. He didn't even 75 00:03:40,760 --> 00:03:42,920 Speaker 5: end with a real pitch. The American people didn't bring 76 00:03:43,000 --> 00:03:44,800 Speaker 5: up abortion. It's supposed to be all this money they're 77 00:03:44,840 --> 00:03:46,520 Speaker 5: going to spend on trying to get out the vote. 78 00:03:47,040 --> 00:03:49,360 Speaker 5: At the same time, I'm sure your phone was blowing 79 00:03:49,440 --> 00:03:53,520 Speaker 5: up like mine with Democrats saying this is an unmitigated disaster. 80 00:03:54,040 --> 00:03:57,520 Speaker 5: Do you see a schism now between Democrats and the 81 00:03:57,520 --> 00:03:58,680 Speaker 5: White House and the campaign? 82 00:03:59,400 --> 00:04:02,080 Speaker 3: Well, I do think that the down ballot Democrats, and 83 00:04:02,240 --> 00:04:04,440 Speaker 3: you know we've talked about this before that, of course, 84 00:04:04,480 --> 00:04:08,320 Speaker 3: the Democrats are much more vulnerable in the US Senate. 85 00:04:08,400 --> 00:04:10,720 Speaker 3: They only control the Senate by one vote. Right now, 86 00:04:11,200 --> 00:04:13,600 Speaker 3: twenty three of the thirty four seats are being defended 87 00:04:13,600 --> 00:04:16,200 Speaker 3: by Democrats. Of those twenty three eight are vulnerable. So 88 00:04:16,279 --> 00:04:19,320 Speaker 3: for those folks and Marie who are in these vulnerable 89 00:04:19,400 --> 00:04:21,960 Speaker 3: races in the Senate and then also in the House, 90 00:04:22,000 --> 00:04:24,640 Speaker 3: of course, I think that the Democrats are hoping that 91 00:04:24,680 --> 00:04:26,920 Speaker 3: they can flip the House. There is a lot of 92 00:04:26,960 --> 00:04:30,600 Speaker 3: concern that even though the polling shows that those Democrats 93 00:04:30,640 --> 00:04:34,440 Speaker 3: are actually outperforming Biden by a pretty significant margin, that 94 00:04:34,520 --> 00:04:38,040 Speaker 3: Biden's performance last night will just you know, continue to 95 00:04:39,080 --> 00:04:42,200 Speaker 3: weigh not only on him but on their candidacy. 96 00:04:42,279 --> 00:04:43,160 Speaker 4: But again, I. 97 00:04:43,080 --> 00:04:46,960 Speaker 3: Just think this is the reality here is this is 98 00:04:47,040 --> 00:04:49,360 Speaker 3: very difficult to change at this late in the game. 99 00:04:49,520 --> 00:04:53,000 Speaker 3: This was not some sort of again just going to 100 00:04:53,040 --> 00:04:55,800 Speaker 3: the conspiracy theories, This was not some plan by the 101 00:04:55,839 --> 00:04:59,159 Speaker 3: Democrats to show Joe Biden's weakness and then to try 102 00:04:59,200 --> 00:05:01,919 Speaker 3: to change the taicket. This is I think this was 103 00:05:01,920 --> 00:05:05,640 Speaker 3: a mistake. This was sort of a political miscalculation. They 104 00:05:05,680 --> 00:05:08,000 Speaker 3: really were, as you said earlier, they were really trying 105 00:05:08,040 --> 00:05:10,640 Speaker 3: to reset the race. They wanted this, They set the 106 00:05:10,720 --> 00:05:12,760 Speaker 3: terms for the debate. They were hoping that this would 107 00:05:12,800 --> 00:05:13,800 Speaker 3: be able to recalibrate. 108 00:05:14,279 --> 00:05:14,640 Speaker 4: And it's not. 109 00:05:14,880 --> 00:05:16,320 Speaker 1: I think from a market's perspective. 110 00:05:16,560 --> 00:05:18,839 Speaker 3: Let's see what happens I mean, there was some discussion 111 00:05:18,880 --> 00:05:22,560 Speaker 3: about terroriffs yesterday, there was some sort of brief discussion 112 00:05:22,800 --> 00:05:27,240 Speaker 3: about deficits. I didn't hear anything about that either candidate 113 00:05:27,360 --> 00:05:29,200 Speaker 3: is going to be there's going to be any fiscal 114 00:05:29,200 --> 00:05:32,120 Speaker 3: consolidation right there. They did not talk about deficit reduction. 115 00:05:32,680 --> 00:05:35,560 Speaker 3: Only thing they did talk about was reinforcing the importance 116 00:05:35,600 --> 00:05:38,720 Speaker 3: of Medicare and Social Security and not touching those entitlement programs. 117 00:05:38,760 --> 00:05:40,640 Speaker 3: And as we know, that's a big source of the deficit. So, 118 00:05:40,960 --> 00:05:43,520 Speaker 3: you know, maybe the market starts pricing in some of 119 00:05:43,560 --> 00:05:45,720 Speaker 3: the terror risks that they've been sort of ignoring at 120 00:05:45,720 --> 00:05:48,400 Speaker 3: this point. Maybe, you know, yields, you know, maybe the 121 00:05:48,440 --> 00:05:51,680 Speaker 3: yield curve starts normalizing a little bit with this sort 122 00:05:51,680 --> 00:05:53,440 Speaker 3: of the expectation that we're going to see, you know, 123 00:05:53,480 --> 00:05:54,240 Speaker 3: even more spending. 124 00:05:54,320 --> 00:05:56,440 Speaker 6: Yeah, yields are up a couple of basis points four 125 00:05:56,440 --> 00:05:59,040 Speaker 6: point two eight percent yesterday on the ten year today. 126 00:05:58,800 --> 00:05:59,839 Speaker 1: It's four point three percent. 127 00:06:00,080 --> 00:06:03,400 Speaker 6: Whoo big fear, especially compared to what's going on in 128 00:06:03,440 --> 00:06:04,480 Speaker 6: French bond markets. 129 00:06:04,640 --> 00:06:06,480 Speaker 1: We talk a lot about Biden this morning. We didn't 130 00:06:06,480 --> 00:06:08,159 Speaker 1: talk about Trump. We didn't talk. 131 00:06:08,040 --> 00:06:10,680 Speaker 6: About the fact that it was really the focus on Biden, 132 00:06:10,720 --> 00:06:14,120 Speaker 6: but it wasn't though Trump really representing the stellar performance. 133 00:06:14,440 --> 00:06:17,719 Speaker 6: I am wondering about what this does to embolden him 134 00:06:17,760 --> 00:06:20,760 Speaker 6: with respect to his choices for vice president, whether he 135 00:06:20,839 --> 00:06:23,440 Speaker 6: leans more to a populist rather than a centrist, whether 136 00:06:23,480 --> 00:06:26,560 Speaker 6: he feels like he has more of a mandate to 137 00:06:26,960 --> 00:06:29,840 Speaker 6: cater more to the fringes in a way because there 138 00:06:29,880 --> 00:06:31,400 Speaker 6: is a sort of a vacuum on. 139 00:06:31,360 --> 00:06:32,360 Speaker 1: The other side of the ticket. 140 00:06:32,960 --> 00:06:35,880 Speaker 3: Yeah, I think it's a great point. If Joe Biden 141 00:06:36,279 --> 00:06:38,960 Speaker 3: did not meet the very low expectations that were established 142 00:06:39,000 --> 00:06:43,080 Speaker 3: for him, and I think arguably President Trump did outperform expectations. 143 00:06:43,160 --> 00:06:47,080 Speaker 3: He was more disciplined than certainly he was in those 144 00:06:47,120 --> 00:06:51,160 Speaker 3: first debates in twenty twenty. He was more moderated. I 145 00:06:51,200 --> 00:06:53,600 Speaker 3: actually think the format probably helped him, the fact that 146 00:06:53,600 --> 00:06:55,880 Speaker 3: the mics were being muted. But I do think your 147 00:06:55,920 --> 00:07:00,280 Speaker 3: point about vice president this is it puts his aper 148 00:07:00,320 --> 00:07:03,640 Speaker 3: focus now because you know, folks are now, because of 149 00:07:03,680 --> 00:07:06,200 Speaker 3: concerns around Biden's age, are going to make this much 150 00:07:06,240 --> 00:07:09,120 Speaker 3: more of a referendum on the vice president than even 151 00:07:09,160 --> 00:07:12,160 Speaker 3: it was before. And as a result, who Trump's vice 152 00:07:12,200 --> 00:07:14,560 Speaker 3: president is going to be, it's probably even more important 153 00:07:14,600 --> 00:07:17,160 Speaker 3: as well, because that debate that is likely to happen 154 00:07:17,240 --> 00:07:20,480 Speaker 3: either an end of July or August is going to 155 00:07:20,520 --> 00:07:24,240 Speaker 3: be you know again, more important. So so I do 156 00:07:24,360 --> 00:07:26,120 Speaker 3: think that this is, you know, this is this was 157 00:07:26,120 --> 00:07:28,720 Speaker 3: a win for for President Trump. As we all know, 158 00:07:28,960 --> 00:07:33,160 Speaker 3: debates are more performed performative. They're more about performance than 159 00:07:33,160 --> 00:07:35,600 Speaker 3: they are about style. And I think on style, you know, 160 00:07:36,520 --> 00:07:38,920 Speaker 3: he you know, he definitely he won. 161 00:07:39,120 --> 00:07:39,440 Speaker 7: All right. 162 00:07:39,480 --> 00:07:42,440 Speaker 6: So you also said that the fiscal is coming into focus, 163 00:07:42,640 --> 00:07:44,360 Speaker 6: and I want to get a sense from you, given 164 00:07:44,400 --> 00:07:46,520 Speaker 6: what we didn't here yesterday, which is any discussion about 165 00:07:46,520 --> 00:07:49,840 Speaker 6: taming this, how long can the United States remain, as 166 00:07:50,040 --> 00:07:53,800 Speaker 6: John has mentioned many many times before, in this place 167 00:07:53,800 --> 00:07:56,640 Speaker 6: of being able to have the privilege of acting recklessly. 168 00:07:56,720 --> 00:07:59,200 Speaker 6: How long before the US starts to feel the same 169 00:07:59,240 --> 00:08:03,320 Speaker 6: pressure of France does Yeah, And I think that is. 170 00:08:03,680 --> 00:08:05,000 Speaker 1: The big question for sure. 171 00:08:05,360 --> 00:08:08,120 Speaker 3: Again, you know what we've talked about this many times 172 00:08:08,240 --> 00:08:10,800 Speaker 3: that you know, you can't replace something with nothing. And 173 00:08:10,840 --> 00:08:13,160 Speaker 3: the fact that the US is the reserve currency, the 174 00:08:13,160 --> 00:08:16,040 Speaker 3: fact that the treasury is the reserve asset of the world, 175 00:08:16,120 --> 00:08:19,920 Speaker 3: the fact that central banks still hold treasuries, that the 176 00:08:19,920 --> 00:08:22,480 Speaker 3: fact that they still have this flight to quality characteristics. 177 00:08:22,600 --> 00:08:24,160 Speaker 3: I mean, all of this just sort of speaks to 178 00:08:24,160 --> 00:08:26,720 Speaker 3: the fact that this privilege is still extended to the 179 00:08:26,840 --> 00:08:29,720 Speaker 3: United States. And what we do expect, though, what we're 180 00:08:29,760 --> 00:08:33,200 Speaker 3: telling our clients is that while we're not expecting the 181 00:08:33,200 --> 00:08:37,120 Speaker 3: bond vigilanties necessarily to come back and to sort of enforce, 182 00:08:38,120 --> 00:08:41,559 Speaker 3: you know, spending restraints on Washington anytime soon, we would 183 00:08:41,559 --> 00:08:43,960 Speaker 3: expect that there would be some term premium that would 184 00:08:44,000 --> 00:08:45,840 Speaker 3: increase at the long end of the curve. Right so, 185 00:08:45,920 --> 00:08:48,360 Speaker 3: right now, the curve has been flat inverted for the 186 00:08:48,440 --> 00:08:51,600 Speaker 3: last two years. You haven't, as an investor, been getting 187 00:08:51,640 --> 00:08:54,240 Speaker 3: that premium to hold longer. 188 00:08:54,000 --> 00:08:55,920 Speaker 1: Dated paper with deficits. 189 00:08:55,920 --> 00:08:57,560 Speaker 3: And I think this is interesting. This didn't really come 190 00:08:57,600 --> 00:09:01,760 Speaker 3: up last night, but the CBO last we upgraded their 191 00:09:01,800 --> 00:09:05,040 Speaker 3: deficit projections for the United States and that they're numbers 192 00:09:05,040 --> 00:09:08,440 Speaker 3: that are just really, you know, pretty surprising. They're six percent, 193 00:09:08,520 --> 00:09:11,480 Speaker 3: seven percent, eight percent. You add back the cost of 194 00:09:11,520 --> 00:09:14,320 Speaker 3: the Trump task cuts should the if and when they 195 00:09:14,360 --> 00:09:17,520 Speaker 3: get extended, and then you're talking about eight percent deficits. 196 00:09:17,920 --> 00:09:20,480 Speaker 3: And yet the markets don't really move. So we are 197 00:09:20,600 --> 00:09:23,600 Speaker 3: expecting this to the markets to sort of internalize this 198 00:09:23,720 --> 00:09:26,440 Speaker 3: at some point and be reflected again and increasing term 199 00:09:26,440 --> 00:09:28,400 Speaker 3: premu at the long end of the curve. But in 200 00:09:28,480 --> 00:09:31,240 Speaker 3: terms of the reserve currency status, the reserve assets status, 201 00:09:31,280 --> 00:09:33,480 Speaker 3: that does not seem like it's going away, because as 202 00:09:33,520 --> 00:09:36,040 Speaker 3: we've been mentioning, I mean, look at the other developed countries, 203 00:09:36,080 --> 00:09:38,520 Speaker 3: look at the alternatives, right, you know, as we've talked 204 00:09:38,559 --> 00:09:41,360 Speaker 3: about a lot Bill Gross's you know, you know assertion 205 00:09:41,480 --> 00:09:45,200 Speaker 3: about the cleanest dirty shirt, the US is the cleanest 206 00:09:45,200 --> 00:09:47,840 Speaker 3: dirty shirt. It's not clean, but it's a lot less 207 00:09:47,880 --> 00:09:49,760 Speaker 3: dirty than a lot of the other alternatives. 208 00:09:49,920 --> 00:09:52,240 Speaker 2: The best thing about treasuries this morning than not French bumps. 209 00:09:52,440 --> 00:09:55,080 Speaker 2: I mean, that's kind of it, right. But what Lebby said, well, 210 00:09:55,160 --> 00:09:57,319 Speaker 2: Libby said, I think is absolutely vine. So Deutsche Band 211 00:09:57,320 --> 00:09:59,120 Speaker 2: could talk to about this as well. The extent to 212 00:09:59,160 --> 00:10:01,920 Speaker 2: which is going to go on to pursue a very 213 00:10:01,960 --> 00:10:05,360 Speaker 2: aggressive protectionist trade policy is something you have to take 214 00:10:05,679 --> 00:10:08,760 Speaker 2: much more seriously this morning, based after what we saw 215 00:10:08,840 --> 00:10:09,320 Speaker 2: last night. 216 00:10:09,559 --> 00:10:12,680 Speaker 6: Even an independent government agency, as Libby was talking about, 217 00:10:12,840 --> 00:10:14,640 Speaker 6: is ringing the alarm bells and saying that we're going 218 00:10:14,640 --> 00:10:16,679 Speaker 6: to see deficits unlike what we have ever seen in 219 00:10:16,720 --> 00:10:20,040 Speaker 6: our history. That is akin to more of an emerging market, 220 00:10:20,280 --> 00:10:22,640 Speaker 6: and nobody's really noticing it, saying we'll be able to 221 00:10:22,720 --> 00:10:23,280 Speaker 6: work it out. 222 00:10:23,440 --> 00:10:24,600 Speaker 1: When do they start to notice? 223 00:10:24,760 --> 00:10:26,440 Speaker 4: Lebby, thank you, it's good to see you. Thank you. 224 00:10:26,559 --> 00:10:36,360 Speaker 2: A focus on the process, let me Cantrell of Pinco. 225 00:10:38,000 --> 00:10:40,280 Speaker 2: The former World Bank president David Malpas writ in this 226 00:10:40,360 --> 00:10:43,000 Speaker 2: in the Wall Street Journal, Mister Biden has blamed everything 227 00:10:43,160 --> 00:10:47,640 Speaker 2: except the actual cause, expensive regulations and massive government spending. 228 00:10:47,760 --> 00:10:51,000 Speaker 2: Donald Trump's approach to inflation should be he returned to 229 00:10:51,080 --> 00:10:54,160 Speaker 2: office is likely to be different. Let markets produce more 230 00:10:54,240 --> 00:10:56,960 Speaker 2: so that growth goes up and prices go down. David 231 00:10:57,040 --> 00:10:59,000 Speaker 2: joins us now for more, David wonder for to get 232 00:10:59,000 --> 00:11:01,160 Speaker 2: your perspective on the program. So I'm sure you've read 233 00:11:01,160 --> 00:11:03,200 Speaker 2: the piece, the letter that came from the sixteen Nobel 234 00:11:03,240 --> 00:11:06,640 Speaker 2: laureates earlier in the week warning about the risk associated 235 00:11:06,679 --> 00:11:09,600 Speaker 2: with a Trump presidency and how it would reignite inflation. 236 00:11:09,840 --> 00:11:11,440 Speaker 4: What would you say back to that this morning? 237 00:11:13,520 --> 00:11:16,680 Speaker 8: That Trump was pretty clear on how you could get 238 00:11:16,760 --> 00:11:19,400 Speaker 8: more growth and that's going to have a big impact 239 00:11:19,559 --> 00:11:22,760 Speaker 8: on whether you have inflation. I think you know, I 240 00:11:22,800 --> 00:11:27,920 Speaker 8: don't want to say PhD economists are off base, but 241 00:11:28,440 --> 00:11:31,800 Speaker 8: the group really has a model that hasn't been working. 242 00:11:32,120 --> 00:11:34,760 Speaker 8: Think of all the huge mistakes that have been made 243 00:11:34,800 --> 00:11:39,080 Speaker 8: on inflation forecasts in the past. So what we know 244 00:11:40,040 --> 00:11:45,000 Speaker 8: is that Trump articulated this plan where you have more energy, 245 00:11:45,480 --> 00:11:50,040 Speaker 8: that holds down prices, that allows interest rate cuts, and 246 00:11:50,160 --> 00:11:53,400 Speaker 8: you have more growth within the economy. He was really 247 00:11:53,440 --> 00:11:56,800 Speaker 8: clear on how do you get jobs for minorities, you 248 00:11:57,280 --> 00:12:00,200 Speaker 8: cut off illegal immigration, and you have more growth than 249 00:12:00,240 --> 00:12:03,920 Speaker 8: the economy. I was surprised by the contrast with Biden, 250 00:12:04,120 --> 00:12:07,240 Speaker 8: who was talking it seemed like almost as a senator 251 00:12:07,559 --> 00:12:11,480 Speaker 8: talking about pell grants, talking about first time home buyer credits, 252 00:12:11,960 --> 00:12:14,960 Speaker 8: the small things that aren't really getting to the core 253 00:12:15,040 --> 00:12:18,120 Speaker 8: of the affordability crisis that we're in right now. 254 00:12:18,280 --> 00:12:20,800 Speaker 2: David, let's just go through some of the policies extending 255 00:12:20,840 --> 00:12:25,080 Speaker 2: the twenty seventeen tax cuts, potentially implementing a flat tariff. 256 00:12:25,320 --> 00:12:27,520 Speaker 2: You've heard those same economists talk about why that would 257 00:12:27,600 --> 00:12:30,000 Speaker 2: lead to higher inflation on those two specific issues, why 258 00:12:30,040 --> 00:12:32,160 Speaker 2: wouldn't they contribute to higher prices. 259 00:12:33,559 --> 00:12:36,120 Speaker 8: Yeah, I think if you raise taxes, you're going to 260 00:12:36,160 --> 00:12:40,559 Speaker 8: get less production, and that actually will be inflationary. And 261 00:12:41,120 --> 00:12:46,320 Speaker 8: Biden is proposing big tax increases and that's factored into 262 00:12:46,320 --> 00:12:49,400 Speaker 8: the growth forecasts that CBO put out. You know, the 263 00:12:49,520 --> 00:12:53,720 Speaker 8: deficit forecasts that they're projecting under Biden are dependent on 264 00:12:54,080 --> 00:12:57,000 Speaker 8: the idea that the economy will stay slow growing into 265 00:12:57,080 --> 00:13:01,120 Speaker 8: the future. Trump is really going the opposite way and saying, no, 266 00:13:01,280 --> 00:13:04,800 Speaker 8: that's not the economy that we want. We want a 267 00:13:04,840 --> 00:13:08,559 Speaker 8: better economy that would generate more tax revenues and also 268 00:13:08,679 --> 00:13:10,160 Speaker 8: more prosperity for people. 269 00:13:10,520 --> 00:13:12,520 Speaker 6: David, this is something that we've just discussed before, and 270 00:13:12,520 --> 00:13:15,600 Speaker 6: it's a controversial point, the idea that you can grow 271 00:13:15,640 --> 00:13:18,360 Speaker 6: your way into the deficit by cutting taxes versus having 272 00:13:18,360 --> 00:13:20,600 Speaker 6: to raise revenues. I don't want to have that debate 273 00:13:20,720 --> 00:13:22,560 Speaker 6: right now. I do want to talk about the idea 274 00:13:22,559 --> 00:13:24,839 Speaker 6: of tariffs and what that does going forward, which is 275 00:13:24,880 --> 00:13:27,959 Speaker 6: something that Donald Trump could unilaterally do. Do you believe 276 00:13:28,160 --> 00:13:31,360 Speaker 6: in your core that if the former president does become 277 00:13:31,400 --> 00:13:34,840 Speaker 6: elected and does engage with pretty significant tariffs across the board, 278 00:13:34,840 --> 00:13:37,760 Speaker 6: which you can do unilaterally, that if the market sells off, 279 00:13:37,840 --> 00:13:38,800 Speaker 6: h would reverse course. 280 00:13:41,559 --> 00:13:45,200 Speaker 8: We've seen Biden continue the tariffs that were on China, 281 00:13:46,000 --> 00:13:48,600 Speaker 8: and the market is able to digest a whole lot 282 00:13:48,640 --> 00:13:50,440 Speaker 8: of things, as it's doing this morning. 283 00:13:50,720 --> 00:13:51,360 Speaker 9: So I think the. 284 00:13:51,840 --> 00:13:56,360 Speaker 8: Market adjusts to the policies, and the overall question is 285 00:13:56,360 --> 00:13:58,480 Speaker 8: is the US going to be a strong player on 286 00:13:58,520 --> 00:14:02,880 Speaker 8: the international scene. Trump talked to I thought very effectively 287 00:14:02,960 --> 00:14:07,120 Speaker 8: last night about Afghanistan and the disaster that that created, 288 00:14:07,200 --> 00:14:09,920 Speaker 8: and it's spilling over to all the other world situations. 289 00:14:10,160 --> 00:14:13,480 Speaker 8: So you can create a better world by having an 290 00:14:13,480 --> 00:14:17,200 Speaker 8: actual plan that's based on production. And so you're saying, 291 00:14:17,240 --> 00:14:20,480 Speaker 8: what about tariffs, Well, there's a whole there's a whole plan, 292 00:14:20,840 --> 00:14:24,480 Speaker 8: or excuse me, there are lots of things that can 293 00:14:24,520 --> 00:14:27,280 Speaker 8: be done in the US to really allow this strong 294 00:14:27,360 --> 00:14:28,640 Speaker 8: economy to move forward. 295 00:14:28,680 --> 00:14:30,760 Speaker 6: Well, but David, just to sort of pick up on 296 00:14:30,840 --> 00:14:33,120 Speaker 6: the tariff point and what I was getting at, there 297 00:14:33,160 --> 00:14:36,360 Speaker 6: is a belief in markets that potentially the former president 298 00:14:36,400 --> 00:14:39,560 Speaker 6: would reverse course on tariffs that were highly negative for 299 00:14:39,720 --> 00:14:41,160 Speaker 6: the market. A lot of people have come on the 300 00:14:41,200 --> 00:14:43,240 Speaker 6: show and said a lot of the tariffs that have 301 00:14:43,240 --> 00:14:46,840 Speaker 6: been proposed would increase inflation in this country and would 302 00:14:46,880 --> 00:14:50,040 Speaker 6: actually create a real negative situation for a number of companies. 303 00:14:50,680 --> 00:14:52,880 Speaker 6: Do you believe that if the market does sell off, 304 00:14:53,080 --> 00:14:55,480 Speaker 6: that will provide a check to the former president and 305 00:14:55,480 --> 00:14:56,560 Speaker 6: the hue reverse course. 306 00:14:57,080 --> 00:15:02,080 Speaker 8: Huh, Well, that's a real hypothet. So really, I think 307 00:15:02,400 --> 00:15:05,000 Speaker 8: what we have to do is over the next five months, 308 00:15:05,200 --> 00:15:08,560 Speaker 8: survive and then see how do you resolve some of 309 00:15:08,560 --> 00:15:13,680 Speaker 8: the wars and how meaning resolve them quickly and allow 310 00:15:13,960 --> 00:15:17,760 Speaker 8: energy production to start. And then as you look at tariffs, 311 00:15:18,240 --> 00:15:21,040 Speaker 8: I think there needs to be a real rethink of 312 00:15:21,360 --> 00:15:24,080 Speaker 8: how do we interact with China, who has been this 313 00:15:24,280 --> 00:15:30,960 Speaker 8: giant overproducer or very successful industrial producer that takes away 314 00:15:31,040 --> 00:15:33,320 Speaker 8: jobs from rest of the world. There needs to be 315 00:15:33,360 --> 00:15:36,880 Speaker 8: a world discussion of that. You're seeing the politics in Europe. 316 00:15:37,120 --> 00:15:39,960 Speaker 8: You were just referring to it of people in Europe 317 00:15:40,080 --> 00:15:45,880 Speaker 8: realizing that this cost on climate is really hurting their competitiveness. 318 00:15:46,000 --> 00:15:49,160 Speaker 8: So Germany's economy is in deep trouble in part because 319 00:15:49,280 --> 00:15:52,720 Speaker 8: energy costs are so high, So that drives people to 320 00:15:53,040 --> 00:15:57,040 Speaker 8: other answers to try to deal with and interact with 321 00:15:57,160 --> 00:16:00,000 Speaker 8: China into the future. I think that'll be an important 322 00:16:00,080 --> 00:16:02,200 Speaker 8: part of a new administration. 323 00:16:02,720 --> 00:16:05,000 Speaker 5: David, Let's go where you almost went though. What is 324 00:16:05,040 --> 00:16:07,720 Speaker 5: the plan on tariffs? Are these just talking points right 325 00:16:07,760 --> 00:16:09,960 Speaker 5: now or is this a plan? If we were to 326 00:16:09,960 --> 00:16:12,400 Speaker 5: get Trump to be president again, that is going to 327 00:16:12,440 --> 00:16:15,600 Speaker 5: be ten percent tarifful for all imported goods and fifty 328 00:16:15,640 --> 00:16:17,720 Speaker 5: plus on Chinese imported goods. 329 00:16:20,080 --> 00:16:21,920 Speaker 8: You have to have a room with people in it, 330 00:16:21,960 --> 00:16:24,160 Speaker 8: with lawyers in it, with how do you what is 331 00:16:24,200 --> 00:16:28,280 Speaker 8: the legislative process with it? So I think there will 332 00:16:28,320 --> 00:16:33,200 Speaker 8: be a very detailed discussion of how do we protect 333 00:16:33,720 --> 00:16:37,560 Speaker 8: or excuse me, how do we have sectors in the 334 00:16:37,720 --> 00:16:41,000 Speaker 8: US that are able to stand up to subsidize production 335 00:16:41,400 --> 00:16:44,680 Speaker 8: from abroad. And that's a valid discussion to have, should 336 00:16:44,680 --> 00:16:48,200 Speaker 8: have been happening already and needs to be done more deeply. 337 00:16:48,880 --> 00:16:52,400 Speaker 5: We had on Miyamaguinness today from the Committee for Our 338 00:16:52,600 --> 00:16:55,600 Speaker 5: Responsible Federal Budget. I'm sure you know her well, and 339 00:16:55,880 --> 00:16:58,400 Speaker 5: they put out some numbers this week about how President 340 00:16:58,520 --> 00:17:01,360 Speaker 5: Trump approved eight point four trillion dollars of new tenure 341 00:17:01,400 --> 00:17:04,280 Speaker 5: barring during his full term and Biden during his first 342 00:17:04,280 --> 00:17:07,000 Speaker 5: three years and five months approved four point three trillion 343 00:17:07,000 --> 00:17:09,840 Speaker 5: of new ten yure barring. Do you honestly think either 344 00:17:09,880 --> 00:17:12,760 Speaker 5: of these individuals are not going to add a substantial 345 00:17:12,800 --> 00:17:13,800 Speaker 5: amount of money. 346 00:17:13,720 --> 00:17:14,480 Speaker 1: To the deficit. 347 00:17:16,800 --> 00:17:21,200 Speaker 8: To the deficit, so let's talk about debt and deficit. 348 00:17:21,440 --> 00:17:24,399 Speaker 8: If you have a faster growing economy, you won't have 349 00:17:24,440 --> 00:17:27,200 Speaker 8: as big a deficit, as Biden is projected to have. 350 00:17:27,520 --> 00:17:31,320 Speaker 8: CBO is operating from the economic plan that's in place now, 351 00:17:31,520 --> 00:17:33,760 Speaker 8: which is one where and you heard it all last 352 00:17:33,840 --> 00:17:36,960 Speaker 8: night in great detail. The government is going to be 353 00:17:37,040 --> 00:17:39,840 Speaker 8: the solution for each thing. And interest rates are going 354 00:17:39,880 --> 00:17:42,720 Speaker 8: to stay high for a long time because of the inflation. 355 00:17:43,040 --> 00:17:45,360 Speaker 8: So if you project that out, you're going to get 356 00:17:45,480 --> 00:17:48,520 Speaker 8: huge deficits into the future, which is what shows up 357 00:17:48,520 --> 00:17:51,879 Speaker 8: in the CBO forecast. If you redo the forecast based 358 00:17:51,880 --> 00:17:55,600 Speaker 8: on a growth program, you don't get those deficits now. 359 00:17:56,480 --> 00:17:59,680 Speaker 8: I think there also has to be very strong restraint 360 00:17:59,760 --> 00:18:04,280 Speaker 8: on spending. Washington is spending like crazy, and it's out 361 00:18:04,320 --> 00:18:08,360 Speaker 8: into the future. It's every month, it's trillions of dollars 362 00:18:08,400 --> 00:18:11,560 Speaker 8: going out the door. President Trump talked about the Paris 363 00:18:11,600 --> 00:18:16,040 Speaker 8: Agreement costing one trillion dollars. I think he's understating it. 364 00:18:16,040 --> 00:18:19,000 Speaker 8: It's worse than that. So on the energy front alone, 365 00:18:19,520 --> 00:18:24,760 Speaker 8: that's the The subsidies and credits that are being put 366 00:18:24,800 --> 00:18:28,400 Speaker 8: out on that side are super expensive. Some of that 367 00:18:28,520 --> 00:18:32,800 Speaker 8: can be saved still, and the market will react positively 368 00:18:33,119 --> 00:18:36,600 Speaker 8: if you say anything that causes them to think you're 369 00:18:36,600 --> 00:18:39,080 Speaker 8: going to have some restraint. Right now, they're operating on 370 00:18:39,160 --> 00:18:42,520 Speaker 8: the idea of no restraint and that keeps interest rights high. 371 00:18:42,880 --> 00:18:44,720 Speaker 2: David, you're close to the campaign. It's all quite on 372 00:18:44,760 --> 00:18:46,960 Speaker 2: the VP front. Who should we be focused on? 373 00:18:47,040 --> 00:18:47,480 Speaker 4: Do you think? 374 00:18:49,160 --> 00:18:52,879 Speaker 8: No, I don't have a you know, that's up to 375 00:18:52,960 --> 00:18:55,560 Speaker 8: President Trump, and I think what you saw last night 376 00:18:55,640 --> 00:18:57,720 Speaker 8: is somebody that's going to make a lot of decisions 377 00:18:57,960 --> 00:19:01,280 Speaker 8: on things. He landed a lot of blows, and one 378 00:19:01,320 --> 00:19:05,439 Speaker 8: of them was that Biden hasn't fired anyone. You know, 379 00:19:05,920 --> 00:19:10,040 Speaker 8: this is a really important part of management and of governing, 380 00:19:10,320 --> 00:19:14,040 Speaker 8: of choosing people, and Trump will have the chance to 381 00:19:14,080 --> 00:19:17,520 Speaker 8: have really strong people in across the board, and I 382 00:19:17,520 --> 00:19:21,320 Speaker 8: think that can really help. There just hasn't been enough 383 00:19:21,359 --> 00:19:25,600 Speaker 8: strength within the US administration. That's that's operating now, and 384 00:19:25,640 --> 00:19:29,199 Speaker 8: you see it in every policy meeting that that I 385 00:19:29,359 --> 00:19:33,480 Speaker 8: was in. You see it in the results that came 386 00:19:33,520 --> 00:19:36,520 Speaker 8: out of those programs. It's not working and so we 387 00:19:36,560 --> 00:19:37,199 Speaker 8: need change. 388 00:19:37,440 --> 00:19:39,760 Speaker 2: David scrat a catch ups as always, and I will 389 00:19:39,760 --> 00:19:42,040 Speaker 2: continue this conversation over the next four months or so. 390 00:19:42,320 --> 00:19:53,479 Speaker 2: David Malpass, the former Will Bank president, joining us now 391 00:19:53,520 --> 00:19:56,720 Speaker 2: to continue this conversation. And police are Saize Mohammed Aaron 392 00:19:56,760 --> 00:19:59,720 Speaker 2: of Queen's College, Cambridge Mohamed, Let's talk about the fatality 393 00:19:59,720 --> 00:20:00,000 Speaker 2: of the day. 394 00:20:00,200 --> 00:20:01,440 Speaker 4: I'm going to sound like a FED official. 395 00:20:01,800 --> 00:20:03,719 Speaker 2: When you look at the totality of the data, are 396 00:20:03,760 --> 00:20:06,479 Speaker 2: you seeing concrete signs of the economic slow down, a 397 00:20:06,520 --> 00:20:09,240 Speaker 2: loss of momentum? And do you think a conversation about 398 00:20:09,240 --> 00:20:12,080 Speaker 2: reducing interest rates as soon as next month is warranted? 399 00:20:13,440 --> 00:20:13,640 Speaker 9: Yes? 400 00:20:13,720 --> 00:20:16,240 Speaker 7: And yes, John, So if you look at the data 401 00:20:16,280 --> 00:20:19,879 Speaker 7: as a whole, the economy is slowing, and it's slowing 402 00:20:19,960 --> 00:20:24,119 Speaker 7: faster than most economists expect, and certainly more faster than 403 00:20:24,160 --> 00:20:27,159 Speaker 7: what the FED expects. So yes, on the whole, the 404 00:20:27,280 --> 00:20:30,920 Speaker 7: economy is slowing. And let's remember this is an economy 405 00:20:30,920 --> 00:20:33,919 Speaker 7: that has very few buffers. Most of the buffers that 406 00:20:33,920 --> 00:20:36,840 Speaker 7: we've had in terms of personal savings, in terms of 407 00:20:36,920 --> 00:20:40,560 Speaker 7: debt capacity, they've been run down. And that leads you 408 00:20:40,600 --> 00:20:44,320 Speaker 7: to the second question, which is a forward looking FED 409 00:20:45,080 --> 00:20:48,320 Speaker 7: would certainly have the possibility of a July cut on 410 00:20:48,359 --> 00:20:48,879 Speaker 7: the table. 411 00:20:49,400 --> 00:20:51,239 Speaker 2: How much daylight do you think there is between what 412 00:20:51,280 --> 00:20:53,040 Speaker 2: you think they should do and what they will do? 413 00:20:55,080 --> 00:20:55,560 Speaker 9: Too much? 414 00:20:57,000 --> 00:20:58,880 Speaker 7: You know, if I were them, I would seriously look 415 00:20:58,920 --> 00:21:02,680 Speaker 7: at July as being a live meeting. I don't think 416 00:21:02,680 --> 00:21:04,680 Speaker 7: that's the case. I think that's even a question mark 417 00:21:04,720 --> 00:21:07,560 Speaker 7: in the market. And certainly if you look at what 418 00:21:07,720 --> 00:21:10,800 Speaker 7: the narrative of the last few days by FED official 419 00:21:11,080 --> 00:21:13,600 Speaker 7: as to whether even September is alive. Right now, the 420 00:21:13,640 --> 00:21:16,959 Speaker 7: market gives less than a fifty percent probability of a 421 00:21:16,960 --> 00:21:20,680 Speaker 7: weight cut in September. So the narrative has been pushing 422 00:21:20,760 --> 00:21:24,359 Speaker 7: back the weight increase towards the end of the year. 423 00:21:25,080 --> 00:21:27,359 Speaker 7: Had one or two federal officials would like to keep 424 00:21:27,440 --> 00:21:30,159 Speaker 7: open the pusibility of a hike, and I think that 425 00:21:30,280 --> 00:21:34,119 Speaker 7: is a long way from where they should be based 426 00:21:34,119 --> 00:21:37,240 Speaker 7: on what's happening to the economy. But unfortunately, John, that've 427 00:21:37,280 --> 00:21:41,520 Speaker 7: been burnt a couple of times or ready. And let's 428 00:21:41,560 --> 00:21:44,720 Speaker 7: not forget there's still excessively data dependence, so it it 429 00:21:44,720 --> 00:21:47,160 Speaker 7: takes quite a bit of historic data to get them 430 00:21:47,160 --> 00:21:47,760 Speaker 7: to change. 431 00:21:47,920 --> 00:21:49,359 Speaker 1: So I'm not going to sound like John here. 432 00:21:49,440 --> 00:21:51,480 Speaker 6: Let's not talk about the totality of the data or 433 00:21:51,520 --> 00:21:52,200 Speaker 6: a FED official. 434 00:21:52,359 --> 00:21:53,040 Speaker 1: Let's cherry pick. 435 00:21:53,119 --> 00:21:55,480 Speaker 6: Let's talk about some very specific numbers. I want to 436 00:21:55,520 --> 00:21:58,439 Speaker 6: cherry pick personal income coming at zero point five percent 437 00:21:58,560 --> 00:22:01,480 Speaker 6: versus the expectation of zero point four percent, that is 438 00:22:01,680 --> 00:22:03,880 Speaker 6: up from zero point three percent in the. 439 00:22:03,840 --> 00:22:05,080 Speaker 1: Prior month, Mohammed. 440 00:22:05,119 --> 00:22:07,440 Speaker 6: Just looking at personal income and the fact that it's 441 00:22:07,560 --> 00:22:11,879 Speaker 6: increasing even as personal spending declines, does that give you 442 00:22:11,880 --> 00:22:14,200 Speaker 6: a sense if we just wanted to cherry pick that number, 443 00:22:14,359 --> 00:22:17,160 Speaker 6: understanding the totality of the data is different, that maybe 444 00:22:17,200 --> 00:22:19,919 Speaker 6: people are actually in a better place and have a 445 00:22:19,960 --> 00:22:24,199 Speaker 6: greater ammunition and set of financial tools to keep spending 446 00:22:24,240 --> 00:22:25,399 Speaker 6: at a pretty robust pace. 447 00:22:26,920 --> 00:22:29,600 Speaker 7: Lisa, I'd love to be where you are, okay, But 448 00:22:29,800 --> 00:22:32,160 Speaker 7: there's a problem even if we cherry pick, and even 449 00:22:32,200 --> 00:22:34,760 Speaker 7: if we say one month's data has a ton of 450 00:22:34,760 --> 00:22:35,719 Speaker 7: information content. 451 00:22:35,960 --> 00:22:37,840 Speaker 9: So these are big, two big assumptions. 452 00:22:38,600 --> 00:22:42,760 Speaker 7: I wouldn't know if the increased savings that comes from 453 00:22:42,920 --> 00:22:46,280 Speaker 7: income going more than spending is it voluntary or is 454 00:22:46,320 --> 00:22:50,680 Speaker 7: it forced? Are people voluntarily saving more or do people 455 00:22:50,720 --> 00:22:53,600 Speaker 7: feel forced to save more. So, as much as I 456 00:22:53,640 --> 00:22:56,040 Speaker 7: would like to go to where you are in terms 457 00:22:56,040 --> 00:22:59,119 Speaker 7: of that number, I hesitate because you first you have 458 00:22:59,200 --> 00:23:02,480 Speaker 7: to assume a way some pretty important things. But secondly, 459 00:23:02,920 --> 00:23:04,800 Speaker 7: we don't know whether it's voluntary or forced. 460 00:23:05,880 --> 00:23:06,920 Speaker 1: That's a fascinating point. 461 00:23:06,960 --> 00:23:09,320 Speaker 6: I'm sitting here thinking about that at a time what 462 00:23:09,400 --> 00:23:11,320 Speaker 6: other people might say the reason why they're not spending 463 00:23:11,359 --> 00:23:13,240 Speaker 6: is because they're not buying homes and they're not feeling 464 00:23:13,280 --> 00:23:15,880 Speaker 6: like they have the capacity and the mobility to do so. 465 00:23:16,160 --> 00:23:19,640 Speaker 6: One argument that some of the more inflationistas out there 466 00:23:19,680 --> 00:23:21,360 Speaker 6: have made is that if the FED were to cut 467 00:23:21,440 --> 00:23:25,040 Speaker 6: rates by twenty twenty five basis points next month, that 468 00:23:25,080 --> 00:23:28,200 Speaker 6: would reignite a surge of interest in the housing market 469 00:23:28,240 --> 00:23:30,480 Speaker 6: and then you could see actually prices climb much more 470 00:23:30,480 --> 00:23:32,280 Speaker 6: substantially as a result. 471 00:23:32,320 --> 00:23:35,040 Speaker 1: Do you believe that to be the case, and if not, 472 00:23:35,080 --> 00:23:36,679 Speaker 1: why so? 473 00:23:36,680 --> 00:23:38,359 Speaker 7: I don't think twenty five basis points is going to 474 00:23:38,359 --> 00:23:40,200 Speaker 7: make that much of a difference sort of housing market. 475 00:23:41,119 --> 00:23:43,400 Speaker 7: That's the first issue. I think you'd need a lot 476 00:23:43,400 --> 00:23:45,600 Speaker 7: more than twenty five basis points. Don't forget how much 477 00:23:45,640 --> 00:23:50,040 Speaker 7: we've moved the other way. That's the first point. And second, 478 00:23:50,680 --> 00:23:54,160 Speaker 7: on housing, it gets even more complicated because supply has 479 00:23:54,200 --> 00:23:57,600 Speaker 7: been impacted in a way that most people didn't expect. 480 00:23:57,640 --> 00:24:00,520 Speaker 7: So most people thought that the demand for would come 481 00:24:00,600 --> 00:24:03,639 Speaker 7: down as weates went up. What they didn't realize is 482 00:24:03,640 --> 00:24:06,040 Speaker 7: that the supply of housing would also come down as 483 00:24:06,119 --> 00:24:10,400 Speaker 7: people hesitated from going from a very low weight mortgage 484 00:24:10,840 --> 00:24:15,119 Speaker 7: to a current mortgage. So you know, again that market 485 00:24:15,160 --> 00:24:20,200 Speaker 7: has been distorted by what happened during this long period 486 00:24:20,800 --> 00:24:24,480 Speaker 7: of rock bottom rates, and we must not forget that 487 00:24:24,560 --> 00:24:29,439 Speaker 7: a lot of distortions occurred, and in slower moving asset 488 00:24:29,440 --> 00:24:32,240 Speaker 7: classes like housing, it takes time to get these distortions 489 00:24:32,359 --> 00:24:33,480 Speaker 7: out of the system. 490 00:24:34,040 --> 00:24:36,800 Speaker 6: I'm just wondering if twenty five basis points wouldn't necessarily 491 00:24:36,800 --> 00:24:41,240 Speaker 6: reignite the housing market. Is there still a reverse argument 492 00:24:41,400 --> 00:24:43,960 Speaker 6: that if they don't cut by twenty five basis points 493 00:24:44,000 --> 00:24:46,920 Speaker 6: next month, that they could be accelerating a tipping point 494 00:24:46,920 --> 00:24:48,879 Speaker 6: that the US labor market is already reaching. 495 00:24:50,160 --> 00:24:51,040 Speaker 9: So that's where I am. 496 00:24:51,119 --> 00:24:53,800 Speaker 7: I think if you look at the tails of the distribution, 497 00:24:54,520 --> 00:24:56,480 Speaker 7: or if you look at type one eraror type two 498 00:24:56,600 --> 00:25:01,560 Speaker 7: error right now, the one that scares more is that 499 00:25:01,600 --> 00:25:05,000 Speaker 7: they are too slow. They are too high for too long, 500 00:25:05,359 --> 00:25:07,959 Speaker 7: and that economy slows in such an extent that two 501 00:25:08,000 --> 00:25:12,800 Speaker 7: things happen. First, they can't moderate the slowing, and second 502 00:25:13,040 --> 00:25:15,600 Speaker 7: they end up by having to cut weights much more 503 00:25:15,800 --> 00:25:18,240 Speaker 7: than they would have otherwise, just like they ended up 504 00:25:18,400 --> 00:25:20,920 Speaker 7: by hiking weights much more than they would have had 505 00:25:20,960 --> 00:25:23,520 Speaker 7: otherwise because they were so late. So when I look 506 00:25:23,520 --> 00:25:26,200 Speaker 7: at the tails of the distribution, and remember I put 507 00:25:26,240 --> 00:25:28,960 Speaker 7: on the table the notion that a soft landing is 508 00:25:28,960 --> 00:25:32,560 Speaker 7: fifty percent thirty five percent is that we end up 509 00:25:32,840 --> 00:25:36,040 Speaker 7: in recession because the FED doesn't react quickly enough, and 510 00:25:36,119 --> 00:25:39,159 Speaker 7: fifteen percent is the bigger but not hotter that you 511 00:25:39,200 --> 00:25:41,800 Speaker 7: get a supply, a positive supply shop something like that. 512 00:25:41,840 --> 00:25:44,399 Speaker 9: When I look at that distribution, yeah, I do worry. 513 00:25:44,440 --> 00:25:46,920 Speaker 7: I do worry that the more likely error right now 514 00:25:47,359 --> 00:25:49,800 Speaker 7: is that the FED will not start cutting early enough, 515 00:25:50,320 --> 00:25:54,600 Speaker 7: and then we'll be forced into cutting aggressively, but it's 516 00:25:54,640 --> 00:25:58,080 Speaker 7: not going to have the impact in terms of slowing 517 00:25:58,359 --> 00:26:00,760 Speaker 7: or moderating the slow down, and then will overshoot on 518 00:26:00,760 --> 00:26:01,240 Speaker 7: the way down. 519 00:26:01,320 --> 00:26:03,080 Speaker 4: Yet again, maham, there's a new wrinkle. 520 00:26:03,440 --> 00:26:07,240 Speaker 2: How independent is all of this from policy out of 521 00:26:07,280 --> 00:26:09,400 Speaker 2: the White House in twenty twenty five? 522 00:26:11,320 --> 00:26:13,840 Speaker 7: So, John, I've been fascinated by the discussion you've had 523 00:26:13,920 --> 00:26:18,880 Speaker 7: as to why are markets so calm about US politics? 524 00:26:18,960 --> 00:26:20,840 Speaker 7: Why are so market calm when the yen is at 525 00:26:20,840 --> 00:26:23,480 Speaker 7: one sixty? Why are so markets calm when French Germany 526 00:26:23,800 --> 00:26:26,280 Speaker 7: the spread is at eighty four basis points? And the 527 00:26:26,320 --> 00:26:29,200 Speaker 7: list goes on and on. Why are they so calm 528 00:26:29,280 --> 00:26:33,240 Speaker 7: on the Middle East conflict? Can intensify. And I think 529 00:26:33,240 --> 00:26:36,520 Speaker 7: the reason is because we here in the US have 530 00:26:36,600 --> 00:26:39,199 Speaker 7: three things going for us. One is it belief in 531 00:26:39,280 --> 00:26:44,119 Speaker 7: economic exceptionalism that we can soft land the economy or 532 00:26:44,160 --> 00:26:47,800 Speaker 7: even no land at all. That's still actually the central 533 00:26:47,800 --> 00:26:50,760 Speaker 7: scenario for a lot of people. That's number one. Two 534 00:26:50,880 --> 00:26:55,000 Speaker 7: that we ultimately believe the FED will cut. And three 535 00:26:55,400 --> 00:27:00,520 Speaker 7: we believe that in Video and the Ai revolution is 536 00:27:00,560 --> 00:27:03,200 Speaker 7: such a positive supply shock that it's going to keep on. 537 00:27:03,119 --> 00:27:05,159 Speaker 9: Giving and giving and giving. You know. 538 00:27:05,359 --> 00:27:09,120 Speaker 7: On the three I worry most about the economic assumption. 539 00:27:09,960 --> 00:27:13,680 Speaker 7: And that's why if that economic assumption is tested in 540 00:27:13,920 --> 00:27:19,119 Speaker 7: the months ahead, then the politics, what's happening around the world, 541 00:27:19,320 --> 00:27:23,280 Speaker 7: suddenly all these things will become will capture much more 542 00:27:23,320 --> 00:27:25,200 Speaker 7: attention in the marketplace than they have so far. 543 00:27:25,560 --> 00:27:27,520 Speaker 5: Muhammad, that we're waking up after a moment where the 544 00:27:27,560 --> 00:27:30,840 Speaker 5: sitting president had what everyone is calling a disastrous debate. 545 00:27:31,560 --> 00:27:34,679 Speaker 5: Obama's former campaign manager went on MSNBC and called it 546 00:27:34,760 --> 00:27:38,399 Speaker 5: def Con one. Alarm bells are ringing what would be 547 00:27:38,520 --> 00:27:41,679 Speaker 5: enough between now and November, or potentially what political movement 548 00:27:41,840 --> 00:27:44,160 Speaker 5: could move the markets between now and November. 549 00:27:46,240 --> 00:27:50,120 Speaker 7: So this is your world and much more than mine. 550 00:27:50,480 --> 00:27:53,360 Speaker 7: I think the market truly believes, despite what they hear 551 00:27:53,359 --> 00:27:56,640 Speaker 7: from some economists, that when push comes to shove, whether 552 00:27:56,680 --> 00:28:00,439 Speaker 7: it's President Biden re elected or whether it's President Trump 553 00:28:00,480 --> 00:28:03,360 Speaker 7: comes back into the White House, the degrees of freedom 554 00:28:03,760 --> 00:28:05,879 Speaker 7: is not going to be as much the degree of 555 00:28:05,880 --> 00:28:09,040 Speaker 7: freedom what there will be maybe on tariffs, but we've 556 00:28:09,080 --> 00:28:11,879 Speaker 7: seen that both of them actually are very similar in 557 00:28:11,920 --> 00:28:15,640 Speaker 7: what they end up doing. So the market i think 558 00:28:15,840 --> 00:28:19,760 Speaker 7: senses that despite what the economs are telling them about 559 00:28:20,480 --> 00:28:25,080 Speaker 7: fiscal policy, tariffs, everything else, that when push comes to show, 560 00:28:25,680 --> 00:28:31,240 Speaker 7: these two individuals when in power, will be relatively similar 561 00:28:31,280 --> 00:28:36,119 Speaker 7: in economic policies. Why because we've had four years of 562 00:28:36,160 --> 00:28:39,600 Speaker 7: each and the market has been able to observe what 563 00:28:39,640 --> 00:28:44,400 Speaker 7: they've done. Now bring in the possibility of someone new, 564 00:28:45,360 --> 00:28:48,080 Speaker 7: and that suddenly changes that whole construct. 565 00:28:48,160 --> 00:28:51,040 Speaker 9: So reponding to your question, you know, that's the big 566 00:28:51,120 --> 00:28:52,040 Speaker 9: question is that if. 567 00:28:51,920 --> 00:28:54,960 Speaker 7: You bring someone new into the equation, how will the 568 00:28:55,000 --> 00:28:57,880 Speaker 7: market evaluate and what degree of confidence will markets have? 569 00:28:58,920 --> 00:29:01,760 Speaker 7: It really helps them out that they saw both individuals 570 00:29:01,840 --> 00:29:02,600 Speaker 7: in the White House. 571 00:29:03,240 --> 00:29:04,680 Speaker 2: MA, I'm gonna just want to finish on this and 572 00:29:04,800 --> 00:29:08,800 Speaker 2: get you to elaborate on a final detail. In the UK, 573 00:29:08,880 --> 00:29:12,600 Speaker 2: the guilt market has been a constraining regulating force on 574 00:29:12,800 --> 00:29:15,080 Speaker 2: all kinds of policies coming out of either party in 575 00:29:15,120 --> 00:29:17,120 Speaker 2: this election race, and you can see that in the 576 00:29:17,200 --> 00:29:20,600 Speaker 2: nervousness they have talking about the deficit. You're seeing a 577 00:29:20,600 --> 00:29:23,040 Speaker 2: similar thing take place in France right now. Do you 578 00:29:23,080 --> 00:29:26,760 Speaker 2: think this treasury market could become a regulating force over 579 00:29:26,800 --> 00:29:30,240 Speaker 2: the next administration in this country in the United States? 580 00:29:30,400 --> 00:29:33,200 Speaker 2: Or will we retain that unique privilege to do other things? 581 00:29:34,920 --> 00:29:37,720 Speaker 7: We will unique that we will retain that unique privilege, John, 582 00:29:37,760 --> 00:29:40,239 Speaker 7: because the rest of the world is so messy. So 583 00:29:40,360 --> 00:29:43,400 Speaker 7: I think of it very simply. Whether it's France, whether 584 00:29:43,560 --> 00:29:47,280 Speaker 7: it's the UK, they solve an absolute space. If there 585 00:29:47,440 --> 00:29:52,880 Speaker 7: is physical irresponsibility, then they will feel it regardless of 586 00:29:52,880 --> 00:29:57,040 Speaker 7: what's happening elsewhere. The US solves, the US bond market 587 00:29:57,120 --> 00:30:00,920 Speaker 7: solves in a relative space. As as long as other 588 00:30:00,960 --> 00:30:05,280 Speaker 7: countries are more irresponsible than us, then we can continue 589 00:30:05,320 --> 00:30:06,360 Speaker 7: being irresponsible. 590 00:30:06,480 --> 00:30:10,760 Speaker 2: Muhammed al erin that This is the Bloomberg Surveillance Podcast, 591 00:30:10,880 --> 00:30:14,800 Speaker 2: bringing you the best in markets, economics, and geopolitics. You 592 00:30:14,800 --> 00:30:17,600 Speaker 2: can watch the show live on Bloomberg TV weekday mornings 593 00:30:17,600 --> 00:30:20,560 Speaker 2: from six am to nine am. Eastern, Subscribe to the 594 00:30:20,560 --> 00:30:24,080 Speaker 2: podcast on Apple, Spotify or anywhere else you listen, and 595 00:30:24,120 --> 00:30:27,200 Speaker 2: as always, on the Bloomberg terminal and the Bloomberg Business app.