1 00:00:09,720 --> 00:00:12,880 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene with 2 00:00:13,560 --> 00:00:16,520 Speaker 1: David Gura. Daily we bring you insight from the best 3 00:00:16,560 --> 00:00:22,279 Speaker 1: of economics, finance, investment, and international relations. Find Bloomberg Surveillance 4 00:00:22,320 --> 00:00:27,000 Speaker 1: on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,320 --> 00:00:34,560 Speaker 1: on the Bloomberg At the morning on a Thursday, August. 6 00:00:34,560 --> 00:00:36,920 Speaker 1: This is Bloomberg Surveillance on Bloomberg Radio. David Gurray in 7 00:00:36,960 --> 00:00:39,640 Speaker 1: New York. Francy Laca with me in London. Tom King's 8 00:00:39,680 --> 00:00:43,640 Speaker 1: summer vacation continues whereabouts unknown. Mr Keane, We'll see him 9 00:00:43,680 --> 00:00:46,040 Speaker 1: back here on Tuesday of next week. Central bank policy 10 00:00:46,040 --> 00:00:49,000 Speaker 1: makers have made their pilgrimage to northwestern Wyoming for the 11 00:00:49,040 --> 00:00:51,879 Speaker 1: Kansas City feds Annual Economic Policies and Post. He will 12 00:00:51,880 --> 00:00:53,840 Speaker 1: hear from the host of that event. Just a little 13 00:00:53,920 --> 00:00:55,880 Speaker 1: later this hour, our colleague Michael McKee sits down with 14 00:00:56,000 --> 00:00:59,480 Speaker 1: Esther George for a wide ranging conversation on monetary policy. 15 00:00:59,800 --> 00:01:02,360 Speaker 1: So Francing Lack which joins me in London, and Ron 16 00:01:02,400 --> 00:01:03,920 Speaker 1: Temple with me here in on our Bloomberg eleven three 17 00:01:03,920 --> 00:01:06,640 Speaker 1: oh studios in New York. We just got off television 18 00:01:06,640 --> 00:01:09,039 Speaker 1: with him. Had some great conversations, and let's circle back 19 00:01:09,080 --> 00:01:12,360 Speaker 1: to monetary policy if we could. I started off on 20 00:01:12,400 --> 00:01:14,280 Speaker 1: TV asking you what you're gonna be listening for from 21 00:01:14,760 --> 00:01:18,120 Speaker 1: from Jackson Hole. Uh. Do you expect the conversation here 22 00:01:18,200 --> 00:01:20,640 Speaker 1: largely to center on inflation? This is something that each 23 00:01:20,680 --> 00:01:22,920 Speaker 1: of these banks is worrying about in its own specific way. 24 00:01:23,800 --> 00:01:25,000 Speaker 1: I do think there will be quite a bit of 25 00:01:25,000 --> 00:01:27,600 Speaker 1: conversation around inflation. I do think obviously, Janet yell and 26 00:01:27,600 --> 00:01:29,600 Speaker 1: speech I believe is going to be about financial stability. 27 00:01:30,080 --> 00:01:33,480 Speaker 1: Um so, the ultimate crux of the discussion should be 28 00:01:33,520 --> 00:01:36,479 Speaker 1: around inflation and should be understanding what is structurally changed 29 00:01:36,560 --> 00:01:39,560 Speaker 1: versus cyclical um so. As a you know, I think 30 00:01:39,600 --> 00:01:40,880 Speaker 1: one of the things we've done a lot of work 31 00:01:40,920 --> 00:01:44,360 Speaker 1: here on is understanding the Phillips curve e either relationship 32 00:01:44,400 --> 00:01:48,480 Speaker 1: between unemployment wage growth, Understanding why even though unemployment has 33 00:01:48,520 --> 00:01:51,040 Speaker 1: declined so far that wage growth is not accelerated more. 34 00:01:51,360 --> 00:01:53,640 Speaker 1: It's a phenomenon across the U S, Germany and Japan. 35 00:01:53,800 --> 00:01:55,240 Speaker 1: So I think there'll be a lot of conversation around 36 00:01:55,240 --> 00:01:59,800 Speaker 1: topics like that and transitory factors affecting inflation. Hi, Ron, 37 00:01:59,800 --> 00:02:01,920 Speaker 1: it's ranting from London. Do you believe that we still 38 00:02:01,920 --> 00:02:03,760 Speaker 1: need to look at the Phillips curve or is it broken? 39 00:02:03,800 --> 00:02:07,200 Speaker 1: Will it come back? It's hard to answer that with 40 00:02:07,240 --> 00:02:09,880 Speaker 1: a high degree of confidence. In my view right now 41 00:02:09,960 --> 00:02:12,040 Speaker 1: is that we should rely on the Phillips curve, and 42 00:02:12,240 --> 00:02:14,799 Speaker 1: my base case assumption in the next one to two 43 00:02:14,880 --> 00:02:17,200 Speaker 1: years is that it will reassert itself. Now we've done 44 00:02:17,240 --> 00:02:19,720 Speaker 1: some interesting analysis here, by the way, Typically the Phillips 45 00:02:19,760 --> 00:02:21,639 Speaker 1: curves looked at at the U three i e. The 46 00:02:22,160 --> 00:02:24,880 Speaker 1: headline unemployment rate relative to wage growth. But if you 47 00:02:24,960 --> 00:02:27,160 Speaker 1: use the U six, which is what people describe as 48 00:02:27,160 --> 00:02:29,639 Speaker 1: the underemployment rate i e. People who are working part 49 00:02:29,680 --> 00:02:31,399 Speaker 1: time but wish they could work full time, where they're 50 00:02:32,160 --> 00:02:35,720 Speaker 1: discouraged workers, Um, there's actually a much higher correlation between 51 00:02:35,760 --> 00:02:38,160 Speaker 1: that U six and the wage growth. And I do 52 00:02:38,240 --> 00:02:40,720 Speaker 1: think as the U six or the underemployment rate continues 53 00:02:40,760 --> 00:02:43,520 Speaker 1: to decline, we should see the Phillips curve reassert itself 54 00:02:43,520 --> 00:02:45,880 Speaker 1: in the US over the next couple of years. Yeah. 55 00:02:45,880 --> 00:02:47,480 Speaker 1: I like that U three U six. I think it 56 00:02:47,520 --> 00:02:49,120 Speaker 1: was a Thomas chart of the year a couple of 57 00:02:49,400 --> 00:02:53,639 Speaker 1: weeks ago. You look, if you look at Jackson Hall 58 00:02:53,840 --> 00:02:56,560 Speaker 1: and we had you on TV and you basically believe 59 00:02:56,600 --> 00:02:59,520 Speaker 1: that the policy mistake would come from the FED or 60 00:02:59,520 --> 00:03:02,280 Speaker 1: anyone else was hiking too soon because they need to wait, 61 00:03:02,360 --> 00:03:04,720 Speaker 1: in your eyes, for inflation to really come through. But 62 00:03:04,760 --> 00:03:06,960 Speaker 1: where will the biggest policy mistake come from? Is it 63 00:03:07,000 --> 00:03:09,120 Speaker 1: b O J? Is it Fed? Is it B O 64 00:03:09,200 --> 00:03:12,200 Speaker 1: E or E C D? I mean that stuff it 65 00:03:12,280 --> 00:03:15,760 Speaker 1: does seem Let's let's talk about probability versus severity. So 66 00:03:15,800 --> 00:03:18,640 Speaker 1: in terms of the probability the highest probability of mistake, 67 00:03:18,680 --> 00:03:20,320 Speaker 1: I would have to say it still seems to be 68 00:03:20,360 --> 00:03:22,560 Speaker 1: the FED, because the FED is taking a very hawkish 69 00:03:22,560 --> 00:03:24,639 Speaker 1: line in terms of their commentary that they make in 70 00:03:24,680 --> 00:03:28,399 Speaker 1: the speeches. UM, it does seem that there's been an 71 00:03:28,440 --> 00:03:33,680 Speaker 1: extreme level of discomfort with the UM the unprecedented monetary 72 00:03:33,680 --> 00:03:35,600 Speaker 1: policy measures they had to take during the crisis, and 73 00:03:35,640 --> 00:03:38,480 Speaker 1: there's an eagerness to get out of those now. I 74 00:03:38,520 --> 00:03:40,960 Speaker 1: think that would be the FED would be well advised 75 00:03:40,960 --> 00:03:43,480 Speaker 1: to pull back a bit and allow their policies to 76 00:03:43,520 --> 00:03:45,640 Speaker 1: have a chance to succeed. I would argue, frankly, they 77 00:03:45,640 --> 00:03:47,560 Speaker 1: could have been more aggressive than they were. UM. In 78 00:03:47,640 --> 00:03:49,640 Speaker 1: terms of the severity of mistake, I think if the 79 00:03:49,640 --> 00:03:52,200 Speaker 1: B O J were to surprise markets by starting normalized early. 80 00:03:52,240 --> 00:03:55,360 Speaker 1: That would be an incredibly damaging UH factor. I also note, 81 00:03:55,400 --> 00:03:58,720 Speaker 1: obviously the news you've reported this morning about business encouraging 82 00:03:58,720 --> 00:04:00,520 Speaker 1: a BEY to raise taxes, I think would be a 83 00:04:00,560 --> 00:04:03,360 Speaker 1: major mistake. In Japan, we we finally got six quarters 84 00:04:03,400 --> 00:04:05,600 Speaker 1: of GDP growth. Let's not nip this recovery in the 85 00:04:05,640 --> 00:04:07,440 Speaker 1: bud front temple with us SEES the co had of 86 00:04:07,480 --> 00:04:10,840 Speaker 1: multi asset investment Lizard Asset Management. Just on the broader 87 00:04:10,880 --> 00:04:13,600 Speaker 1: subject of monetary policy and how that dovetails with with 88 00:04:13,680 --> 00:04:16,600 Speaker 1: the markets, to what degree is that the biggest influencer 89 00:04:16,640 --> 00:04:18,960 Speaker 1: of where markets are right now? You know that that's 90 00:04:19,200 --> 00:04:20,800 Speaker 1: that's one of the good news items in the last 91 00:04:20,839 --> 00:04:23,200 Speaker 1: stage six to nine months, actually nine to twelve months, 92 00:04:23,560 --> 00:04:26,080 Speaker 1: is that monetary policy has receded a bit in terms 93 00:04:26,120 --> 00:04:27,840 Speaker 1: of the background. If I look back over the last 94 00:04:27,839 --> 00:04:30,120 Speaker 1: several years, there are periods of time where it felt 95 00:04:30,160 --> 00:04:32,960 Speaker 1: like monetary policy was the singular focus of markets, and 96 00:04:33,000 --> 00:04:34,880 Speaker 1: I do think, you know, one one piece of evidence 97 00:04:34,880 --> 00:04:37,239 Speaker 1: of that is correlations within the market and cross markets 98 00:04:37,279 --> 00:04:39,600 Speaker 1: have actually declined quite a bit. Um so I think 99 00:04:39,640 --> 00:04:42,080 Speaker 1: that's been quite positive, especially for firms like ourselves that 100 00:04:42,120 --> 00:04:45,080 Speaker 1: are really focused on security. Selection is an opportunity to 101 00:04:45,120 --> 00:04:47,560 Speaker 1: see differentiation between companies that win and lose based on 102 00:04:47,600 --> 00:04:49,600 Speaker 1: the economy, not just what the FED or the C B, R, 103 00:04:49,640 --> 00:04:51,880 Speaker 1: B O J do. So I think it has received somewhat, 104 00:04:51,920 --> 00:04:55,120 Speaker 1: but it's still very important in that it could undermine 105 00:04:55,279 --> 00:04:58,400 Speaker 1: the economic recovery or that synchronized global growth we see 106 00:04:58,480 --> 00:04:59,920 Speaker 1: right now. A friend and I talked to Chris sim 107 00:05:00,080 --> 00:05:03,800 Speaker 1: Is from Princeton yesterday, the Nobel Laureate, about the handoff 108 00:05:03,880 --> 00:05:07,120 Speaker 1: between monetary policy to fiscal policy and how that's been 109 00:05:07,160 --> 00:05:09,280 Speaker 1: fumbled a little bit here in the US. I think 110 00:05:09,320 --> 00:05:11,599 Speaker 1: you could say, how long do you do you give 111 00:05:11,640 --> 00:05:13,600 Speaker 1: that to work? In other words, we've heard the clarion 112 00:05:13,640 --> 00:05:15,159 Speaker 1: call for so long that there needs to be that 113 00:05:15,160 --> 00:05:18,039 Speaker 1: shift take place here in the US, and it seemed 114 00:05:18,080 --> 00:05:19,680 Speaker 1: like there was the opportunity for it to happen, at 115 00:05:19,720 --> 00:05:22,720 Speaker 1: least in the immediate aftermath of the presidential election. Uh 116 00:05:22,839 --> 00:05:24,200 Speaker 1: do you have you if you have you given up 117 00:05:24,200 --> 00:05:26,599 Speaker 1: on that happening yet? Well? I mean to be fair, 118 00:05:26,640 --> 00:05:29,159 Speaker 1: I think that the real disappointment is that fiscal policy 119 00:05:29,160 --> 00:05:31,520 Speaker 1: should should have been much more aggressive back in two 120 00:05:31,560 --> 00:05:33,360 Speaker 1: thousand and eight and two thousand nine. I mean, that's 121 00:05:33,640 --> 00:05:36,520 Speaker 1: that's when we were basically falling into the abyss. We 122 00:05:36,600 --> 00:05:38,880 Speaker 1: did actually have a seven eighty seven billion dollar fiscal 123 00:05:38,920 --> 00:05:41,560 Speaker 1: stimulus package in the US, but it's easy to forget 124 00:05:41,560 --> 00:05:43,480 Speaker 1: that only a small part of that. I believe something 125 00:05:43,480 --> 00:05:46,320 Speaker 1: on the order of eighty billion dollars was infrastructure. UM 126 00:05:46,520 --> 00:05:48,320 Speaker 1: I could argue you should have had five hundred billion 127 00:05:48,320 --> 00:05:50,800 Speaker 1: to eight hundred billions of infrastructure alone. UM So I 128 00:05:51,120 --> 00:05:52,760 Speaker 1: do think, you know that was the time for a 129 00:05:52,800 --> 00:05:56,240 Speaker 1: major fiscal stimulus. At this point in the cycle, I 130 00:05:56,240 --> 00:05:59,400 Speaker 1: think fiscal stimulus is less necessary. But what we do 131 00:05:59,480 --> 00:06:02,600 Speaker 1: still need is investment to increase the long term productivity 132 00:06:02,600 --> 00:06:06,440 Speaker 1: of this economy through infrastructure, through job training for people 133 00:06:06,480 --> 00:06:09,640 Speaker 1: who have been displaced by trade. Um and basically we 134 00:06:09,680 --> 00:06:12,360 Speaker 1: also need tax reform to basically give businesses confidence and 135 00:06:12,400 --> 00:06:14,839 Speaker 1: how they should invest. What's pricing at the moment run, 136 00:06:14,960 --> 00:06:19,280 Speaker 1: if anything, what's pressing a price priced in? Price priced in? 137 00:06:19,440 --> 00:06:21,240 Speaker 1: I think very little is priced in In In terms of 138 00:06:21,279 --> 00:06:23,479 Speaker 1: policy change. I think the markets have basically reached the 139 00:06:23,480 --> 00:06:28,000 Speaker 1: conclusion that you know that we discussed some good ideas, 140 00:06:28,080 --> 00:06:30,880 Speaker 1: some frankly bad ideas, but very few of those ideas 141 00:06:30,920 --> 00:06:33,400 Speaker 1: will be implemented because there's not the organization in the 142 00:06:33,400 --> 00:06:36,120 Speaker 1: White House um and collaboration between the White House and 143 00:06:36,160 --> 00:06:38,560 Speaker 1: the Congress to get things done right. So if you 144 00:06:38,640 --> 00:06:41,160 Speaker 1: do see, for example, some tax reform because the Trump 145 00:06:41,160 --> 00:06:43,520 Speaker 1: administration says they need to do it a sp to 146 00:06:43,560 --> 00:06:46,479 Speaker 1: kind of get away from all the controversies, that would 147 00:06:46,480 --> 00:06:48,960 Speaker 1: play it on equities, but also affect treasuries or not, 148 00:06:49,240 --> 00:06:52,000 Speaker 1: it should affect both. I mean, let this be very 149 00:06:52,000 --> 00:06:54,000 Speaker 1: clear to in terms of semantics. I mean early on 150 00:06:54,040 --> 00:06:56,919 Speaker 1: we talked in I actually just use the term tax reform. Typically, 151 00:06:57,000 --> 00:06:59,839 Speaker 1: tax reform is intended to mean revenue neutral. I EU 152 00:07:00,200 --> 00:07:02,280 Speaker 1: some tax rates, streamline the tax code, but find ways 153 00:07:02,320 --> 00:07:04,600 Speaker 1: to replace that revenue. I think the probability of that 154 00:07:04,680 --> 00:07:06,640 Speaker 1: is less than five percent at this point. I think 155 00:07:06,680 --> 00:07:09,000 Speaker 1: what we're really talking about right now is tax cuts, 156 00:07:09,000 --> 00:07:11,720 Speaker 1: which will increase the deficit and should have a a 157 00:07:11,840 --> 00:07:14,280 Speaker 1: long term arguable depending on the structure of the tax cuts, 158 00:07:14,520 --> 00:07:18,040 Speaker 1: a negative implication for bond prices and e higher yields 159 00:07:18,080 --> 00:07:20,480 Speaker 1: because of the credit quality of the sovereign um. So 160 00:07:20,520 --> 00:07:23,560 Speaker 1: we'll see how that plays out. But even if President 161 00:07:23,560 --> 00:07:25,400 Speaker 1: Trump does come out and say I want tax cuts 162 00:07:25,480 --> 00:07:28,720 Speaker 1: right now, leadership is not a tweet. Leadership is actually 163 00:07:28,800 --> 00:07:32,080 Speaker 1: delineating what kind of tax cuts, what form, and then 164 00:07:32,200 --> 00:07:35,200 Speaker 1: actually engaging with Congress effectively on a sustained basis to 165 00:07:35,240 --> 00:07:37,440 Speaker 1: make sure it happens. And so far that's really been 166 00:07:37,480 --> 00:07:39,840 Speaker 1: missing in the policy action. I'm struck around reading your 167 00:07:39,840 --> 00:07:43,360 Speaker 1: your research, how optimistic you are about the global economy generally, 168 00:07:43,480 --> 00:07:45,920 Speaker 1: Given that, where do you see the most opportunity? Now, 169 00:07:46,720 --> 00:07:50,200 Speaker 1: I mean it's it's it's it's I think emerging markets 170 00:07:50,240 --> 00:07:54,000 Speaker 1: again still have the best opportunity, partly because they are 171 00:07:54,120 --> 00:07:57,040 Speaker 1: basically just coming off the bottom in terms of commodity 172 00:07:57,040 --> 00:08:01,520 Speaker 1: price stabilization and worries around FED policy. And the valuations 173 00:08:01,560 --> 00:08:05,760 Speaker 1: importantly are although above historical levels, not as far above 174 00:08:05,840 --> 00:08:07,280 Speaker 1: as say Europe and the US. Just give you a 175 00:08:07,320 --> 00:08:11,160 Speaker 1: sense a magnitude relative for the Ford median, the median 176 00:08:11,160 --> 00:08:13,800 Speaker 1: forward Pe over the last ten years, emerging markets is 177 00:08:13,800 --> 00:08:15,800 Speaker 1: one and a half pe multiples rich. Europe is about 178 00:08:15,800 --> 00:08:17,360 Speaker 1: two points seven rich. In the US is three and 179 00:08:17,360 --> 00:08:20,040 Speaker 1: a half multiples rich. So you are paying a premium 180 00:08:20,080 --> 00:08:22,720 Speaker 1: to history, but not as much, and earnings arguably are 181 00:08:22,720 --> 00:08:25,040 Speaker 1: still depressed in these countries. So I like the U 182 00:08:25,120 --> 00:08:27,040 Speaker 1: S and I like European equities, but I think I'm 183 00:08:27,120 --> 00:08:30,240 Speaker 1: probably offers a better, say, three year view than those 184 00:08:30,280 --> 00:08:32,520 Speaker 1: developed economies. Quick bite, If I could get you to 185 00:08:32,520 --> 00:08:34,120 Speaker 1: talk about China a little bit as well. We've been 186 00:08:34,120 --> 00:08:37,599 Speaker 1: following news about the country trying to reduce its capital outflows. 187 00:08:37,600 --> 00:08:39,559 Speaker 1: How does that how does that change the level of 188 00:08:39,600 --> 00:08:43,280 Speaker 1: opportunity there for you? Ye, China's obviously, I think for 189 00:08:43,280 --> 00:08:46,120 Speaker 1: any foreign or visiting China and investigating China, it is 190 00:08:46,360 --> 00:08:49,440 Speaker 1: more opaque than these, say, European, US Japanese economies. I 191 00:08:49,440 --> 00:08:51,319 Speaker 1: do think China has done a good job of stimulating 192 00:08:51,320 --> 00:08:53,160 Speaker 1: growth in the short term and early two thousand and 193 00:08:53,160 --> 00:08:56,720 Speaker 1: sixteen with credit and fiscal stimulus UM. But I do 194 00:08:56,800 --> 00:09:00,520 Speaker 1: think the biggest challenge facing China is the Everett humulating 195 00:09:00,520 --> 00:09:03,160 Speaker 1: pile of corporate debt um. We've seen corporate debt go 196 00:09:03,200 --> 00:09:05,120 Speaker 1: from a hundred thirty eight percent of GDP in two 197 00:09:05,120 --> 00:09:09,120 Speaker 1: thousand eleven in two thousand and sixteen. That basically implies 198 00:09:09,120 --> 00:09:11,560 Speaker 1: a hundred eighteen percent increase in corporate debt in four years, 199 00:09:11,840 --> 00:09:14,240 Speaker 1: and so China needs to basically wean itself from the 200 00:09:14,679 --> 00:09:18,559 Speaker 1: heroine of debt and basically continue rebalancing economy now. To 201 00:09:18,559 --> 00:09:19,960 Speaker 1: be fair to them, they've done a good job of 202 00:09:19,960 --> 00:09:22,720 Speaker 1: moving more to services. But but it's gonna be a challenge. 203 00:09:22,760 --> 00:09:24,960 Speaker 1: And as it relates to capital flows, I think the 204 00:09:24,960 --> 00:09:27,560 Speaker 1: biggest issue in capital flows is controlling the boom bus 205 00:09:27,559 --> 00:09:29,920 Speaker 1: cycle in real estate. Um, every time we have a 206 00:09:29,920 --> 00:09:32,440 Speaker 1: boom in real estate and proceeding follows to a bust, 207 00:09:32,640 --> 00:09:34,760 Speaker 1: we see capital flows increase. And I think the Chinese 208 00:09:34,760 --> 00:09:37,600 Speaker 1: authorities have recognized that. Ron, Thank you so much, Fron 209 00:09:37,640 --> 00:09:40,360 Speaker 1: Temple there what a way with words? He is Lazar 210 00:09:40,440 --> 00:09:43,440 Speaker 1: Asset Management Managing Director. In the meantime, the focus of 211 00:09:43,440 --> 00:09:46,280 Speaker 1: course a turn inning turning on Jackson Hole and the 212 00:09:46,320 --> 00:09:49,840 Speaker 1: central bankers meeting there, the dollar strengthening, stocks in Europe 213 00:09:49,920 --> 00:10:04,880 Speaker 1: advancing David Garry here in York, Francy in London, A 214 00:10:05,000 --> 00:10:07,839 Speaker 1: frenzy local in London. Aside, now four weeks into the shift, 215 00:10:07,920 --> 00:10:11,840 Speaker 1: begin to watch things like that. I think it's greatly 216 00:10:11,880 --> 00:10:14,480 Speaker 1: in London. Will to make the change. David Washington, there 217 00:10:14,480 --> 00:10:16,840 Speaker 1: you go, perfect, Uh want to flag some news here 218 00:10:16,880 --> 00:10:19,840 Speaker 1: out of Venezuela. Washington in Venezuela, Washington levied some sanctions 219 00:10:19,840 --> 00:10:24,280 Speaker 1: on individuals related to Venezuela they're now reportedly considering blocking 220 00:10:24,320 --> 00:10:26,960 Speaker 1: trades of Venezuela and held dollar denominated notes sold by 221 00:10:26,960 --> 00:10:28,839 Speaker 1: the government and the state run oil company. Here to 222 00:10:28,880 --> 00:10:30,599 Speaker 1: talk about this with us as Shannon O'Neill, she's a 223 00:10:30,640 --> 00:10:33,880 Speaker 1: senior fellow at the Council on Foreign Relations, And as 224 00:10:33,920 --> 00:10:35,640 Speaker 1: we get into this, I'm curious, this is a country 225 00:10:35,679 --> 00:10:38,360 Speaker 1: that has not defaulted on its debt despite the worsening 226 00:10:38,400 --> 00:10:41,720 Speaker 1: political and economic situation there. There seems to be a 227 00:10:41,720 --> 00:10:44,280 Speaker 1: a real sense of of strength or dedication here to 228 00:10:44,360 --> 00:10:47,680 Speaker 1: not defaulting. How likely is that to continue? Do you think? Well, 229 00:10:47,720 --> 00:10:50,920 Speaker 1: we have seen that they have chosen to pay their 230 00:10:51,000 --> 00:10:55,000 Speaker 1: interest and some principle over paying for basic food, in 231 00:10:55,000 --> 00:10:57,960 Speaker 1: medicine and the like, especially as oil prices will come 232 00:10:58,000 --> 00:11:00,560 Speaker 1: down there's less cash flowing around Venezuela. They've chosen to 233 00:11:00,559 --> 00:11:03,520 Speaker 1: pay creditors and not feed their people, and they will 234 00:11:03,520 --> 00:11:05,920 Speaker 1: continue to do that, I think, as long as they can. 235 00:11:06,440 --> 00:11:09,400 Speaker 1: The question is, they've been running down their reserves, they've 236 00:11:09,400 --> 00:11:11,480 Speaker 1: been selling off assets, they've been trying to get money 237 00:11:11,480 --> 00:11:13,920 Speaker 1: from Russia and China other places, and they're coming to 238 00:11:13,960 --> 00:11:16,360 Speaker 1: the point where there's really nowhere else to go for money, 239 00:11:16,360 --> 00:11:19,280 Speaker 1: and particularly if the United States would put sanctions on 240 00:11:19,280 --> 00:11:21,800 Speaker 1: and make it harder for them in financial markets, are 241 00:11:21,840 --> 00:11:23,760 Speaker 1: harder for them to sell their oil around the world. 242 00:11:24,160 --> 00:11:26,720 Speaker 1: It would be very difficult to continue servicing this debt. 243 00:11:26,480 --> 00:11:28,480 Speaker 1: I ask you about rhetoric. I spent some time in 244 00:11:28,480 --> 00:11:31,160 Speaker 1: Bolivia in the early two thousands, and strong rhetoric from 245 00:11:31,160 --> 00:11:33,200 Speaker 1: the US had a very positive effect, as I heard it, 246 00:11:33,640 --> 00:11:35,959 Speaker 1: among the rhetoric that you would hear domestically, that that 247 00:11:36,040 --> 00:11:39,200 Speaker 1: could be spun kind of countintuitively in a positive way 248 00:11:39,200 --> 00:11:42,360 Speaker 1: in that country. Here we see strengthened, harsher rhetoric from 249 00:11:42,360 --> 00:11:45,680 Speaker 1: the US with regard to Venezuela. We're hearing the word 250 00:11:45,720 --> 00:11:49,720 Speaker 1: dictatorship and dictator used now regularly by senior administration officials. 251 00:11:50,000 --> 00:11:53,199 Speaker 1: What's the effect of that been here on the situation 252 00:11:53,240 --> 00:11:56,280 Speaker 1: in Venezuela domestically, Well, it looks like it may be 253 00:11:56,320 --> 00:11:59,559 Speaker 1: providing Maduro, the president of Venezuela, a bit of a lifeline. 254 00:12:00,080 --> 00:12:03,040 Speaker 1: Um he has and those before him, have created, all 255 00:12:03,040 --> 00:12:07,200 Speaker 1: by themselves, a huge humanitarian and financial and economic crisis 256 00:12:07,200 --> 00:12:11,080 Speaker 1: that's happening, real catastrophe that is all of their own making. 257 00:12:11,120 --> 00:12:13,560 Speaker 1: But when the United States steps in and with this 258 00:12:13,640 --> 00:12:16,640 Speaker 1: kind of rhetoric or perhaps even moving further into sanctions 259 00:12:16,640 --> 00:12:19,720 Speaker 1: and the like. It gives them an excuse, it gives 260 00:12:19,760 --> 00:12:22,200 Speaker 1: them an outside enemy. And while we in the United 261 00:12:22,200 --> 00:12:24,040 Speaker 1: States tend to look to the president in the future, 262 00:12:24,200 --> 00:12:27,480 Speaker 1: Latin American countries really focus often on the past, on 263 00:12:27,600 --> 00:12:30,840 Speaker 1: history and the what they see is sort of imperials 264 00:12:30,840 --> 00:12:33,120 Speaker 1: in the United States intervening in the region. So there 265 00:12:33,200 --> 00:12:37,320 Speaker 1: is this reflex action against this tough talk. All right, 266 00:12:37,400 --> 00:12:39,439 Speaker 1: what's the best thing to do here? Shouton I mean, 267 00:12:39,520 --> 00:12:41,439 Speaker 1: you see that there's a possible but and also in 268 00:12:41,480 --> 00:12:44,439 Speaker 1: certain trades, but then that would also heard off or 269 00:12:44,520 --> 00:12:46,920 Speaker 1: cut off a lifeline to, you know, a country which 270 00:12:46,960 --> 00:12:50,959 Speaker 1: is heavily indebted. There is a real challenge for the 271 00:12:51,040 --> 00:12:53,320 Speaker 1: United States. As much as they want to do something 272 00:12:53,400 --> 00:12:56,640 Speaker 1: tough on Venezuela, as democracy ends there, as there's a 273 00:12:56,640 --> 00:12:59,600 Speaker 1: crackdown on the opposition, it's hard to know what to do. 274 00:12:59,760 --> 00:13:03,040 Speaker 1: And really the most successful policies, I would say, would 275 00:13:03,040 --> 00:13:06,400 Speaker 1: be ones that bring other Latin American nations in to 276 00:13:06,800 --> 00:13:09,240 Speaker 1: condemn this regime. And there are many options out there. 277 00:13:09,240 --> 00:13:11,760 Speaker 1: There are a lot of presidents who have stepped up, 278 00:13:11,960 --> 00:13:17,080 Speaker 1: whether Medicio Macri and Argentina, Paninieto in Mexico, the President 279 00:13:17,120 --> 00:13:19,480 Speaker 1: Peru of Chile. Many of these see the end of 280 00:13:19,480 --> 00:13:21,880 Speaker 1: democracy there as a huge problem for the region, so 281 00:13:21,920 --> 00:13:25,320 Speaker 1: their allies there, but tough funeralateral actions in the United 282 00:13:25,360 --> 00:13:27,720 Speaker 1: States will drive them away rather than bring them together. 283 00:13:28,200 --> 00:13:29,880 Speaker 1: I mean, it seems that the President has not really 284 00:13:29,920 --> 00:13:33,080 Speaker 1: ruled out a military option in Venezuela. What does that 285 00:13:33,160 --> 00:13:37,480 Speaker 1: mean for for the country. He did mention that that 286 00:13:37,640 --> 00:13:40,760 Speaker 1: this Department of Defense walked back pretty quickly from what 287 00:13:40,960 --> 00:13:44,520 Speaker 1: that might mean, um, And it's hard to imagine even 288 00:13:44,600 --> 00:13:47,439 Speaker 1: what that would look like, um, some sort of military 289 00:13:47,480 --> 00:13:51,080 Speaker 1: intervention there. I think one thing you might see is, 290 00:13:51,200 --> 00:13:55,160 Speaker 1: particularly the humanitarian crisis deepens, you could imagine the United 291 00:13:55,160 --> 00:13:58,400 Speaker 1: States government, in part the Department of Defense helping with 292 00:13:58,480 --> 00:14:01,120 Speaker 1: some of that movement of people that are flooding today 293 00:14:01,240 --> 00:14:05,640 Speaker 1: already into Columbia, Brazil and other countries nearby. Just lastly, 294 00:14:05,640 --> 00:14:07,240 Speaker 1: here in the minute we have left with you, let 295 00:14:07,240 --> 00:14:10,240 Speaker 1: me ask you about the status of the NAFTA renegotiation efforts. 296 00:14:10,280 --> 00:14:12,000 Speaker 1: We have the first round of those meetings here over 297 00:14:12,000 --> 00:14:14,360 Speaker 1: the last week or so. What are you watching, what 298 00:14:14,360 --> 00:14:16,640 Speaker 1: are you listening for? As they get underway? I gather 299 00:14:16,840 --> 00:14:18,960 Speaker 1: they meet again on September the first for the next round. 300 00:14:19,880 --> 00:14:23,480 Speaker 1: They have decided a lightning round of renegotiations here and 301 00:14:23,800 --> 00:14:26,280 Speaker 1: meetings to try to change nap TO to to update NAFTA. 302 00:14:26,280 --> 00:14:29,200 Speaker 1: And so what I'm watching is do that continue? Do 303 00:14:29,240 --> 00:14:31,360 Speaker 1: they really think they can end this by the end 304 00:14:31,400 --> 00:14:33,560 Speaker 1: of the year or beginning of two thousand eighteen. If 305 00:14:33,560 --> 00:14:36,000 Speaker 1: they stick to that schedule, then I wouldn't expect big 306 00:14:36,120 --> 00:14:38,600 Speaker 1: changes to NAFTA, or the changes I would expect would 307 00:14:38,600 --> 00:14:41,080 Speaker 1: be the ones that I have already been negotiated in TPP, 308 00:14:41,240 --> 00:14:44,040 Speaker 1: the Trans Pacific Partnership. Great to speak here, Thanks for 309 00:14:44,160 --> 00:14:45,880 Speaker 1: thanks for coming in. Shannon O'Neil from the Council on 310 00:14:45,920 --> 00:14:48,000 Speaker 1: Formulations who joined us here on Bloomberg Surveillance on Bloomberg 311 00:14:48,040 --> 00:14:49,720 Speaker 1: Radio Bloomberg Television as well. You can check out her 312 00:14:49,760 --> 00:14:53,160 Speaker 1: interview there on Bloomberg dot com or on the Bloomberg terminal. 313 00:15:04,680 --> 00:15:08,280 Speaker 1: This is the forty one Economic Symposium for the Kansas 314 00:15:08,320 --> 00:15:11,040 Speaker 1: City Fed here in Jackson Hall, and Ester George, the 315 00:15:11,040 --> 00:15:13,680 Speaker 1: President of the Kansas City Fed, is the host. And 316 00:15:13,720 --> 00:15:16,040 Speaker 1: you've been here for all No, not really, neither of IY. 317 00:15:17,360 --> 00:15:20,240 Speaker 1: This has changed significantly over the years the TV presence, 318 00:15:20,280 --> 00:15:23,080 Speaker 1: the focus on it. Janet Yellen is speaking on Friday, 319 00:15:23,240 --> 00:15:26,200 Speaker 1: Mario dragging speaking on Friday, Global Wall Street on the 320 00:15:26,280 --> 00:15:28,840 Speaker 1: edge of their chairs, expecting them to make news. But 321 00:15:29,000 --> 00:15:32,200 Speaker 1: that's not what this was designed to do. Know, the 322 00:15:32,280 --> 00:15:36,160 Speaker 1: purpose of the conference is really to dig into issues 323 00:15:36,960 --> 00:15:40,360 Speaker 1: that we think matter to central banking, matter to monetary policy, 324 00:15:40,400 --> 00:15:43,320 Speaker 1: and ultimately matter to the real economy. And so you 325 00:15:43,360 --> 00:15:46,640 Speaker 1: want people on the program that are thoughtful about those issues, 326 00:15:46,920 --> 00:15:49,880 Speaker 1: that can debate those issues, bring different perspectives to them. 327 00:15:49,880 --> 00:15:52,600 Speaker 1: And that's really our goal every year is to try 328 00:15:52,600 --> 00:15:54,680 Speaker 1: to have a relevant topic that will add to our 329 00:15:54,800 --> 00:15:58,560 Speaker 1: understanding of these issues. Well, the relevant topic for people 330 00:15:58,560 --> 00:16:01,400 Speaker 1: on Wall Street lately has been inflation. So let's talk 331 00:16:01,440 --> 00:16:04,120 Speaker 1: about that a little bit. You've long argued in favor 332 00:16:04,120 --> 00:16:07,000 Speaker 1: of higher rates to head off inflation, and people have 333 00:16:07,040 --> 00:16:10,480 Speaker 1: said Estra George is wrong because there's no inflation. What 334 00:16:10,600 --> 00:16:13,400 Speaker 1: if we flip that argument on its head and say 335 00:16:13,520 --> 00:16:16,840 Speaker 1: you've raised rates and there's no inflation, have you accomplished 336 00:16:16,840 --> 00:16:18,840 Speaker 1: what you set out to do? So? And I think 337 00:16:18,880 --> 00:16:21,720 Speaker 1: about inflation, Mike, I think about our mandate, which is 338 00:16:21,720 --> 00:16:25,280 Speaker 1: price stability and relative to an economy that's growing at 339 00:16:25,320 --> 00:16:28,800 Speaker 1: two and is adding jobs. I think we're in a 340 00:16:28,840 --> 00:16:33,160 Speaker 1: pretty good place, and we still have very accommodative monetary policy, 341 00:16:33,280 --> 00:16:36,440 Speaker 1: So that tells me we should begin to, as we've indicated, 342 00:16:36,520 --> 00:16:41,840 Speaker 1: gradually removing that accommodation as long as the outlook supports 343 00:16:42,040 --> 00:16:44,920 Speaker 1: that we are moving in the right direction, and I 344 00:16:44,920 --> 00:16:47,800 Speaker 1: think we are. So that suggests you are in favor 345 00:16:47,840 --> 00:16:50,160 Speaker 1: of yet another rate move this year, as the dot 346 00:16:50,160 --> 00:16:53,760 Speaker 1: plot would indicate. So that was my last forecast, and 347 00:16:54,040 --> 00:16:57,080 Speaker 1: each time we put those together is a new opportunity 348 00:16:57,160 --> 00:16:58,840 Speaker 1: to look at the data. So I'll be looking at 349 00:16:58,880 --> 00:17:00,760 Speaker 1: the data in the next few weeks as we get 350 00:17:00,760 --> 00:17:04,320 Speaker 1: ready for the September meeting and see whether that still 351 00:17:04,400 --> 00:17:06,960 Speaker 1: makes sense. Based on what I've seen today, I think 352 00:17:06,960 --> 00:17:09,320 Speaker 1: there's still opportunity to do that, so by the end 353 00:17:09,359 --> 00:17:11,920 Speaker 1: of the year, not necessarily in September. No, No, that's 354 00:17:12,000 --> 00:17:15,199 Speaker 1: I don't pick a meeting, and I don't consider that 355 00:17:15,320 --> 00:17:18,240 Speaker 1: rate path in those projections a commitment. So I think 356 00:17:18,280 --> 00:17:20,960 Speaker 1: it is a general sense of where rates should go 357 00:17:21,160 --> 00:17:24,320 Speaker 1: well to what extent is inflation a lagging indicator. It's 358 00:17:24,359 --> 00:17:26,359 Speaker 1: something FED officials have argued for a long time. In 359 00:17:26,400 --> 00:17:29,479 Speaker 1: other words, is the Phillips curve broken or is nayru 360 00:17:29,680 --> 00:17:33,080 Speaker 1: lower than it has been in the past. What's happened 361 00:17:33,080 --> 00:17:35,040 Speaker 1: to inflation? Well, I don't know that I'm going to 362 00:17:35,080 --> 00:17:37,200 Speaker 1: have a good answer for you there because many people 363 00:17:37,240 --> 00:17:40,280 Speaker 1: are studying that very issue. The things I look at 364 00:17:40,320 --> 00:17:44,119 Speaker 1: when I look at inflation, so goods, the price of 365 00:17:44,160 --> 00:17:47,879 Speaker 1: goods that's been falling. Maybe that's due to technology. There 366 00:17:47,880 --> 00:17:49,520 Speaker 1: are a number of factors that I think may be 367 00:17:49,640 --> 00:17:52,320 Speaker 1: pressing down. When you look at services, which is two 368 00:17:52,359 --> 00:17:56,360 Speaker 1: thirds of the economy, you see that those rates are 369 00:17:56,400 --> 00:17:59,280 Speaker 1: actually staying at two percent and higher. So in the 370 00:17:59,359 --> 00:18:02,560 Speaker 1: context of the economy we have today, that's why I 371 00:18:02,600 --> 00:18:04,840 Speaker 1: think you have to be careful getting to focus on 372 00:18:04,880 --> 00:18:07,720 Speaker 1: a point estimate as opposed to the broader trends that 373 00:18:07,800 --> 00:18:10,240 Speaker 1: you see and the expectations that are out there. Well, 374 00:18:10,280 --> 00:18:13,520 Speaker 1: speaking of expectations, with inflation not rising and you've had 375 00:18:13,560 --> 00:18:18,240 Speaker 1: five months of disappointments and the CPI market expectations are falling, 376 00:18:18,480 --> 00:18:20,359 Speaker 1: is that a problem for a FED that has always 377 00:18:20,359 --> 00:18:24,479 Speaker 1: said expectations are key to keeping prices stable. So I 378 00:18:24,480 --> 00:18:27,280 Speaker 1: think you have to pay very careful attention to that, 379 00:18:27,400 --> 00:18:30,840 Speaker 1: and I would include myself there but again you have 380 00:18:30,960 --> 00:18:34,760 Speaker 1: to know what drives those expectations, and that's the challenge 381 00:18:34,800 --> 00:18:37,320 Speaker 1: is constantly looking at what's going on in the economy, 382 00:18:37,600 --> 00:18:40,639 Speaker 1: what might be reflected in those numbers, as opposed to 383 00:18:40,680 --> 00:18:45,399 Speaker 1: overreacting to UH some specific point estimate that you see. 384 00:18:45,720 --> 00:18:48,760 Speaker 1: You do have new forecasts for growth and inflation and 385 00:18:48,840 --> 00:18:53,600 Speaker 1: unemployment coming out in September. How have yours changed or 386 00:18:53,640 --> 00:18:57,440 Speaker 1: have they changed at all as the economy has evolved? Well, 387 00:18:57,480 --> 00:19:02,080 Speaker 1: in my own case, unemployment has come down faster than 388 00:19:02,160 --> 00:19:06,320 Speaker 1: some of my projections. UM, inflation has stayed lower on 389 00:19:06,400 --> 00:19:10,280 Speaker 1: the whole, I think over this period, and the economy 390 00:19:10,400 --> 00:19:13,439 Speaker 1: did not take off, I think as many of us 391 00:19:13,520 --> 00:19:15,960 Speaker 1: hoped it would, but it's been coming in at a 392 00:19:16,040 --> 00:19:20,000 Speaker 1: two pretty steady rate of growth. So this month marks 393 00:19:21,040 --> 00:19:25,160 Speaker 1: consecutive month of growth in our economy, and I think 394 00:19:25,200 --> 00:19:27,640 Speaker 1: it gives us a better sense as we look forward 395 00:19:27,920 --> 00:19:30,000 Speaker 1: that that might be what we expect. Do you have 396 00:19:30,040 --> 00:19:32,960 Speaker 1: any reason to mark up or mark down your growth forecast? 397 00:19:33,760 --> 00:19:36,360 Speaker 1: So not at this point. I'm encouraged that the global 398 00:19:36,600 --> 00:19:40,040 Speaker 1: economy UM is looking better and you see growth beginning 399 00:19:40,040 --> 00:19:43,639 Speaker 1: to pick up. Um In terms of domestic policies that 400 00:19:43,760 --> 00:19:48,720 Speaker 1: might have posed an upside uh to whether it's infrastructure spending, 401 00:19:48,760 --> 00:19:51,160 Speaker 1: tax reform, and other things. I've always taken a weight 402 00:19:51,200 --> 00:19:53,560 Speaker 1: and see approach on that, and I'll continue to do that. 403 00:19:53,720 --> 00:19:56,920 Speaker 1: The Open Market Committee has said that it still expects 404 00:19:57,240 --> 00:19:59,719 Speaker 1: inflation to hit the two percent target, maybe not as 405 00:19:59,720 --> 00:20:02,160 Speaker 1: soon as we thought. But are you ready to throw 406 00:20:02,200 --> 00:20:04,560 Speaker 1: in the towel? I mean, at what point do you 407 00:20:04,600 --> 00:20:08,360 Speaker 1: say this is not happening, there's something wrong with our models. Well, 408 00:20:08,400 --> 00:20:10,560 Speaker 1: there may in fact be something wrong with the models. 409 00:20:11,320 --> 00:20:13,639 Speaker 1: I don't know. I think that continues to be a 410 00:20:13,720 --> 00:20:17,119 Speaker 1: question that many economists are asking. But I also know 411 00:20:17,440 --> 00:20:19,600 Speaker 1: that what we need to look to is the long run. 412 00:20:19,760 --> 00:20:23,800 Speaker 1: So whether we hit on the nose um is less 413 00:20:23,840 --> 00:20:26,960 Speaker 1: important to me than understanding how the economy is doing 414 00:20:26,960 --> 00:20:30,600 Speaker 1: more generally, And I think today the price level has 415 00:20:30,640 --> 00:20:33,840 Speaker 1: continued to grow, the rate of change has bounced around, 416 00:20:34,240 --> 00:20:39,120 Speaker 1: and right now it continues to run below two. That 417 00:20:39,160 --> 00:20:41,760 Speaker 1: doesn't concern me about the health of the economy. There 418 00:20:42,119 --> 00:20:44,640 Speaker 1: then a lot of talk about financial stability. Jennet Yellen 419 00:20:44,760 --> 00:20:47,600 Speaker 1: is going to speak on it on Friday. With financial 420 00:20:47,600 --> 00:20:52,280 Speaker 1: conditions easy, even though you've raised rates and stock prices 421 00:20:52,320 --> 00:20:55,879 Speaker 1: continuing to rise, to new records. Is that a reason 422 00:20:56,440 --> 00:20:59,960 Speaker 1: to continue raising interest rates? Do you have a concern 423 00:21:00,119 --> 00:21:04,240 Speaker 1: arn about the level of asset prices? Well, I think 424 00:21:04,720 --> 00:21:07,840 Speaker 1: the QUEUEI that was undertaken over the last ten years 425 00:21:08,520 --> 00:21:12,600 Speaker 1: aimed at boosting asset values. So when you see that 426 00:21:12,680 --> 00:21:16,840 Speaker 1: we've made four rate moves since December and financial conditions 427 00:21:16,840 --> 00:21:20,840 Speaker 1: have eased, UH, that I think points to the idea 428 00:21:20,920 --> 00:21:23,560 Speaker 1: that we need to adjust the balance sheet. That's a 429 00:21:23,600 --> 00:21:26,440 Speaker 1: tool we haven't had experience with, and so I think 430 00:21:26,480 --> 00:21:28,560 Speaker 1: that's an important next step to be looking at that. 431 00:21:28,960 --> 00:21:30,320 Speaker 1: I want to ask you about the balance sheet, but 432 00:21:30,400 --> 00:21:32,159 Speaker 1: let me just quickly follow that and ask you if 433 00:21:32,200 --> 00:21:37,560 Speaker 1: investors too complacent these days. I don't know. I think 434 00:21:37,560 --> 00:21:40,400 Speaker 1: you'll have to see where that comes out. But as 435 00:21:40,400 --> 00:21:43,800 Speaker 1: I said, when you set conditions that have had easy 436 00:21:43,840 --> 00:21:47,440 Speaker 1: monetary policy for a long time, the incentives to reach 437 00:21:47,480 --> 00:21:51,080 Speaker 1: for yield UH, the committee signals that it will be 438 00:21:51,160 --> 00:21:55,760 Speaker 1: gradual could feed into that, and UM, I watch those 439 00:21:56,440 --> 00:21:59,720 Speaker 1: asset values carefully, but I'm not sure there's anything you 440 00:21:59,720 --> 00:22:03,439 Speaker 1: can target specifically when it comes to setting policy. Right 441 00:22:03,480 --> 00:22:07,520 Speaker 1: the balance sheet taper. Wall Street is betting it's September 442 00:22:07,520 --> 00:22:10,280 Speaker 1: that you're going to announce it any reason that they 443 00:22:10,320 --> 00:22:13,080 Speaker 1: would be wrong from your point of view. Well, I've 444 00:22:13,080 --> 00:22:16,120 Speaker 1: been favored of doing this for some time, and I 445 00:22:16,160 --> 00:22:19,359 Speaker 1: think the estimates suggests that the economy is in a 446 00:22:19,400 --> 00:22:22,080 Speaker 1: good place to begin doing that. So I'll look forward 447 00:22:22,119 --> 00:22:25,560 Speaker 1: to the discussion in September about that opportunity. Do you 448 00:22:25,600 --> 00:22:29,800 Speaker 1: have any estimate of the impact on financial markets from that, 449 00:22:29,920 --> 00:22:33,879 Speaker 1: particularly yields, and whether or not it will amount to 450 00:22:33,960 --> 00:22:38,000 Speaker 1: a de facto tightening. Yeah, I've seen various estimates, and 451 00:22:38,440 --> 00:22:41,320 Speaker 1: it's hard to know, again because we don't have experience 452 00:22:41,359 --> 00:22:44,199 Speaker 1: doing this. You would expect, because of the duration of 453 00:22:44,240 --> 00:22:48,120 Speaker 1: these assets, that as you begin to shrink that balance sheet. Um, 454 00:22:48,160 --> 00:22:51,200 Speaker 1: I hope it does get reflected in the yield curve. 455 00:22:52,160 --> 00:22:55,719 Speaker 1: How sensitive will you be to market reactions to the 456 00:22:55,760 --> 00:22:59,639 Speaker 1: tapering process. Well, I think we're always taking that into account. 457 00:23:00,320 --> 00:23:03,080 Speaker 1: Um whether it alters the path of policy, I think 458 00:23:03,160 --> 00:23:05,640 Speaker 1: is a broader discussion about what else we see going on. 459 00:23:05,800 --> 00:23:09,000 Speaker 1: Do you think asset prices deflate as you shrink the 460 00:23:09,000 --> 00:23:11,159 Speaker 1: balance sheet in the way that they inflated when you 461 00:23:11,200 --> 00:23:13,000 Speaker 1: blew up the balance sheet. I don't know. I've heard 462 00:23:13,080 --> 00:23:15,480 Speaker 1: various views on that too, And again I wish I 463 00:23:15,520 --> 00:23:19,240 Speaker 1: had some experience to draw on here. UM. What I 464 00:23:19,359 --> 00:23:22,720 Speaker 1: know is the aim was to boost asset values. I 465 00:23:22,760 --> 00:23:26,159 Speaker 1: think we've seen that. UM. Whether that ends up having 466 00:23:26,760 --> 00:23:30,119 Speaker 1: a symmetric reaction on the other side, I think we 467 00:23:30,200 --> 00:23:32,760 Speaker 1: have to wait and see. But I think again, the 468 00:23:32,840 --> 00:23:37,000 Speaker 1: very gradual approach that's being taken there gives the committee time, UM, 469 00:23:37,040 --> 00:23:39,840 Speaker 1: and it's given markets time to understand where that balance 470 00:23:39,840 --> 00:23:42,200 Speaker 1: sheet is headed. The one thing you haven't told investors 471 00:23:42,280 --> 00:23:45,119 Speaker 1: is how big the balance sheet is ultimately going to be, 472 00:23:45,200 --> 00:23:48,760 Speaker 1: and that will depend on what monetary policy system you 473 00:23:48,880 --> 00:23:51,879 Speaker 1: end up using. Are you in favor of staying with 474 00:23:51,920 --> 00:23:55,320 Speaker 1: the current system of interest on access, reserves and repos 475 00:23:55,359 --> 00:23:57,840 Speaker 1: or would you go back to UH strictly setting a 476 00:23:57,880 --> 00:24:02,040 Speaker 1: FED funds target. Well, it's appealing to go back because 477 00:24:02,040 --> 00:24:04,080 Speaker 1: we know how that looks, but we are where we 478 00:24:04,119 --> 00:24:06,880 Speaker 1: are today and I think it makes sense to judge 479 00:24:07,240 --> 00:24:10,320 Speaker 1: as we move forward how we see the economy unfold. 480 00:24:10,560 --> 00:24:12,560 Speaker 1: What you don't know is you could get hit with 481 00:24:12,600 --> 00:24:14,919 Speaker 1: a shock at any time. You'll have another set of 482 00:24:15,000 --> 00:24:18,560 Speaker 1: decisions to make. So the ultimate operating framework is not 483 00:24:18,640 --> 00:24:22,639 Speaker 1: something the Committee has um opined on yet. It's talked 484 00:24:22,680 --> 00:24:26,320 Speaker 1: about it UM. There's been analysis under way, but I 485 00:24:26,359 --> 00:24:28,520 Speaker 1: think for now we have to use I O we 486 00:24:28,600 --> 00:24:33,080 Speaker 1: are we have to use the overnight reverse repo tools 487 00:24:33,119 --> 00:24:35,719 Speaker 1: as part of how we begin to normalize policy. As 488 00:24:36,280 --> 00:24:38,520 Speaker 1: part of the reasoning for why you want to do 489 00:24:38,560 --> 00:24:41,920 Speaker 1: this now and for why you want to continue raising rates, 490 00:24:42,000 --> 00:24:44,320 Speaker 1: is it because you need some cushion, you need some 491 00:24:44,440 --> 00:24:48,360 Speaker 1: tools should the economy turn down. Well, I think that 492 00:24:48,480 --> 00:24:52,040 Speaker 1: would be UM obviously attractive when you think about the 493 00:24:52,080 --> 00:24:55,120 Speaker 1: next downturn. But I wouldn't say it's my primary motivation, 494 00:24:55,640 --> 00:24:57,800 Speaker 1: because what you're trying to do is make sure that 495 00:24:57,840 --> 00:25:01,560 Speaker 1: the economy is going to benefit in the ability to 496 00:25:01,640 --> 00:25:05,160 Speaker 1: grow in a sustained fashion. So the motivation is where 497 00:25:05,280 --> 00:25:09,760 Speaker 1: is unemployment, how is inflation performing? And do those suggests 498 00:25:09,840 --> 00:25:12,880 Speaker 1: you need to begin to have interest rates reflect that? 499 00:25:12,880 --> 00:25:15,879 Speaker 1: That's my motivation. Uh, whether it gives us all the 500 00:25:15,920 --> 00:25:19,080 Speaker 1: ammunition we need at the time we next need to decide, 501 00:25:19,119 --> 00:25:21,760 Speaker 1: that would be UM an added benefit. You know you 502 00:25:21,800 --> 00:25:23,600 Speaker 1: gotta run. But let me ask you just quickly about 503 00:25:23,680 --> 00:25:27,080 Speaker 1: this conference. Uh. The theme is creating a dynamic economy. 504 00:25:27,200 --> 00:25:29,760 Speaker 1: What would esther George do? What's the most important thing 505 00:25:29,800 --> 00:25:33,280 Speaker 1: to do going forward to create a dynamic economy. Well, 506 00:25:33,400 --> 00:25:35,679 Speaker 1: we've seen in our own economy and you see this 507 00:25:35,760 --> 00:25:39,280 Speaker 1: around the world. Changes that are happening because of technology, 508 00:25:39,320 --> 00:25:42,840 Speaker 1: because of demographics, many things, and some of those will 509 00:25:42,880 --> 00:25:46,280 Speaker 1: be talked here at this conference. What you want is 510 00:25:46,320 --> 00:25:51,640 Speaker 1: sustainable growth that has broad effects, uh for the economies 511 00:25:51,680 --> 00:25:54,359 Speaker 1: that you're in. And as the world changes because of 512 00:25:54,440 --> 00:25:57,920 Speaker 1: some of these factors, um policies have to change, and 513 00:25:58,000 --> 00:26:00,280 Speaker 1: that's really what we're after with this con and just 514 00:26:00,359 --> 00:26:03,919 Speaker 1: try to bring more insight to where are those opportunities 515 00:26:04,200 --> 00:26:08,199 Speaker 1: how might policymakers think about that going forwards. Finally, just 516 00:26:08,200 --> 00:26:10,680 Speaker 1: one last quick question. I know you can't incorporate what's 517 00:26:10,680 --> 00:26:13,480 Speaker 1: happening in Washington into your forecast because nobody knows what's 518 00:26:13,480 --> 00:26:16,880 Speaker 1: happening in Washington, But do you worry about a debt 519 00:26:16,880 --> 00:26:20,159 Speaker 1: ceiling crisis? Well, we've had experience with this over the 520 00:26:20,240 --> 00:26:23,400 Speaker 1: last few years, and we know it creates uncertainty as 521 00:26:23,400 --> 00:26:25,679 Speaker 1: it did a few years ago. It can affect the 522 00:26:25,720 --> 00:26:30,760 Speaker 1: real economy. But I'm hopeful that um OUR policymakers can 523 00:26:30,800 --> 00:26:34,920 Speaker 1: come to terms with that and take actions that will 524 00:26:35,160 --> 00:26:51,840 Speaker 1: benefit the economy going forward. As I mentioned, Tim Plenty 525 00:26:51,920 --> 00:26:53,720 Speaker 1: joins us now the former governor of the State of Minnesota, 526 00:26:53,800 --> 00:26:56,480 Speaker 1: CEO and the financial services at round table. He's in 527 00:26:56,480 --> 00:26:59,840 Speaker 1: our Bloomberg Studios in Washington, d C. And I want 528 00:26:59,880 --> 00:27:01,560 Speaker 1: to sharp by just asking you to take stock at 529 00:27:01,560 --> 00:27:04,000 Speaker 1: the last week plus, as we all have been doing. 530 00:27:04,000 --> 00:27:07,040 Speaker 1: We certainly watched what unfolded in Charlottesville, Virginia, heard the 531 00:27:07,080 --> 00:27:09,720 Speaker 1: rhetorics surrounding that, heard the response to it from politicians 532 00:27:09,720 --> 00:27:12,720 Speaker 1: including the President. Listened to President Trump as he spoke 533 00:27:12,920 --> 00:27:16,159 Speaker 1: in Arizona the day before yesterday in Reno last night 534 00:27:16,200 --> 00:27:19,040 Speaker 1: with a different sort of message. What's your what's your 535 00:27:19,119 --> 00:27:22,240 Speaker 1: sense of where things stand politically in this country? Obviously 536 00:27:22,240 --> 00:27:26,000 Speaker 1: your focus now on uh largely on policymaking in Washington, 537 00:27:26,040 --> 00:27:28,720 Speaker 1: d C. How much has the politics distracted from the policy. 538 00:27:29,400 --> 00:27:31,320 Speaker 1: What's a really good question, David, Good morning to you 539 00:27:31,359 --> 00:27:33,840 Speaker 1: and to Francine. I always like to remind people that 540 00:27:33,960 --> 00:27:37,800 Speaker 1: policy follows politics, and politics reflects culture. And I don't 541 00:27:37,800 --> 00:27:40,199 Speaker 1: mean by that ethnic culture, I mean political culture. So 542 00:27:40,240 --> 00:27:43,040 Speaker 1: your question, I think is spot on to try to 543 00:27:43,080 --> 00:27:45,840 Speaker 1: assess and analyze where we are in terms of political culture, 544 00:27:45,840 --> 00:27:48,720 Speaker 1: because ultimately that leads to policy. I think obviously the 545 00:27:48,760 --> 00:27:52,560 Speaker 1: country has divided. The country is in many ways anxious, 546 00:27:52,760 --> 00:27:54,720 Speaker 1: and the events of the last few weeks with the 547 00:27:54,720 --> 00:27:57,760 Speaker 1: president that you just chronicled through, each of those events 548 00:27:57,800 --> 00:28:01,760 Speaker 1: represents different things. Obviously, his speech to the veterans group 549 00:28:01,800 --> 00:28:04,760 Speaker 1: was very different than his speech in Arizona, which of 550 00:28:04,800 --> 00:28:08,000 Speaker 1: course was uh related in some ways to some of 551 00:28:08,000 --> 00:28:11,560 Speaker 1: the tone and unfortunate content that he put out post Charlottesville. 552 00:28:12,320 --> 00:28:14,359 Speaker 1: And so I think it's it's a pause moment in 553 00:28:14,400 --> 00:28:16,560 Speaker 1: Washington because of the August recess, but I think it's 554 00:28:16,560 --> 00:28:18,400 Speaker 1: also a chance for people to step back and say, 555 00:28:18,440 --> 00:28:20,840 Speaker 1: with the debt ceiling coming, with the prospect of tax 556 00:28:20,880 --> 00:28:24,440 Speaker 1: reform coming, with the prospects of the president new chief 557 00:28:24,440 --> 00:28:26,560 Speaker 1: of staff maybe having a positive influence on how the 558 00:28:26,560 --> 00:28:29,720 Speaker 1: White House operates, perhaps this could be a moment where 559 00:28:30,040 --> 00:28:32,440 Speaker 1: you could hope for some improvement coming into the fall. 560 00:28:32,600 --> 00:28:35,160 Speaker 1: What could a group like yours do to encourage that um. 561 00:28:35,200 --> 00:28:37,639 Speaker 1: I spoke with Tim Phillips, the president of Americans for 562 00:28:37,680 --> 00:28:40,280 Speaker 1: Prosperity a few weeks back, and he talked about his 563 00:28:40,280 --> 00:28:42,800 Speaker 1: his interest here and getting the administration and lawmakers to 564 00:28:42,840 --> 00:28:46,240 Speaker 1: focus on tax reform exclusively. He's trying to interface with 565 00:28:46,320 --> 00:28:48,760 Speaker 1: lawmakers and the White House to make that happen. We 566 00:28:48,800 --> 00:28:51,240 Speaker 1: hear about the intractability of this White House. Of course, 567 00:28:51,320 --> 00:28:54,280 Speaker 1: John Kelly coming into change how things are run there. 568 00:28:54,360 --> 00:28:56,560 Speaker 1: How much influence does a group like yours have on 569 00:28:56,560 --> 00:28:58,840 Speaker 1: the way things are running the Washington of today. Well, 570 00:28:58,840 --> 00:29:00,840 Speaker 1: we don't influence things that I'm macro level, but I 571 00:29:00,840 --> 00:29:03,680 Speaker 1: do think we can at least contribute directionally to the 572 00:29:03,720 --> 00:29:06,840 Speaker 1: discussion by bringing information forward in a sense of urgency 573 00:29:06,880 --> 00:29:10,200 Speaker 1: and accountability. So tax reform, I think, is a jobs bill. 574 00:29:10,480 --> 00:29:13,160 Speaker 1: And all the politicians right and left always like to say, 575 00:29:13,200 --> 00:29:15,880 Speaker 1: I'm for the working people, I'm for middle America. I 576 00:29:15,880 --> 00:29:18,040 Speaker 1: want to get the economy moving in particularly I want 577 00:29:18,040 --> 00:29:21,200 Speaker 1: to grow good paying jobs. And so if you believe 578 00:29:21,240 --> 00:29:24,040 Speaker 1: all of that, then it's not a big leap. Get 579 00:29:24,080 --> 00:29:27,600 Speaker 1: to convince them that tax reform could help ignite the 580 00:29:27,600 --> 00:29:31,040 Speaker 1: economy and get GDP hopefully moving from its anemic level 581 00:29:31,040 --> 00:29:34,200 Speaker 1: to something better. Um, Tim, how do you do that? 582 00:29:34,400 --> 00:29:35,680 Speaker 1: I mean, how do you have to get on who 583 00:29:35,760 --> 00:29:37,600 Speaker 1: do you have to get on site actually to make 584 00:29:37,600 --> 00:29:39,960 Speaker 1: sure that I guess the you know, we move away 585 00:29:40,000 --> 00:29:43,560 Speaker 1: from the controversy and actually get something done. Yeah. Really, 586 00:29:43,600 --> 00:29:46,400 Speaker 1: it's it's the Republicans obviously control both the House and 587 00:29:46,440 --> 00:29:47,880 Speaker 1: the Senate. So I don't want to say it's easy, 588 00:29:47,920 --> 00:29:50,760 Speaker 1: because it obviously isn't. But they it's fully within their 589 00:29:50,800 --> 00:29:53,600 Speaker 1: control if they use this process called reconciliation where they 590 00:29:53,640 --> 00:29:56,320 Speaker 1: only need fifty one votes in the Senate, the Republicans, 591 00:29:56,320 --> 00:29:59,120 Speaker 1: if they want to can pass with Republican votes only. 592 00:29:59,400 --> 00:30:02,960 Speaker 1: A tax bill and tax reform has been the political 593 00:30:03,120 --> 00:30:07,280 Speaker 1: holy grail for much of the Republican Party for a generation, 594 00:30:07,680 --> 00:30:10,160 Speaker 1: and so it is in alignment with what they've been 595 00:30:10,200 --> 00:30:12,920 Speaker 1: asked to do, what they ran on. It's also good policy, 596 00:30:12,960 --> 00:30:15,360 Speaker 1: by the way, so candidly, if you just look at 597 00:30:15,360 --> 00:30:18,160 Speaker 1: it from a macro level perspective, it shouldn't be that hard. 598 00:30:18,160 --> 00:30:21,120 Speaker 1: Of course it is, but but they should get this done. 599 00:30:22,080 --> 00:30:24,600 Speaker 1: It shouldn't be that hard, but it looks pretty hard 600 00:30:24,640 --> 00:30:27,640 Speaker 1: at the moment. So who is a president kind of 601 00:30:27,720 --> 00:30:30,320 Speaker 1: instrumental to this? Is there something that he can do 602 00:30:30,640 --> 00:30:33,440 Speaker 1: and doesn't really Back to Charlottesville. I know some people 603 00:30:33,440 --> 00:30:35,800 Speaker 1: in your party have asked for him to apologize. For example, 604 00:30:36,160 --> 00:30:39,120 Speaker 1: I don't Charlottesville, of course in my view, and I 605 00:30:39,120 --> 00:30:41,840 Speaker 1: think obviously for many people, the way that he handled 606 00:30:41,880 --> 00:30:45,280 Speaker 1: that was disappointing, But I don't think that represents an 607 00:30:45,280 --> 00:30:48,560 Speaker 1: impediment in the intermediate and longer term to getting tax 608 00:30:48,720 --> 00:30:52,960 Speaker 1: reform done for the reasons I mentioned, and by the way, 609 00:30:52,800 --> 00:30:55,200 Speaker 1: that the President just needs to sign it. The Mitch 610 00:30:55,280 --> 00:30:57,920 Speaker 1: McConnell and Paul Ryan and their teams in the Congress 611 00:30:58,040 --> 00:30:59,840 Speaker 1: need to put it forward, and I don't think the 612 00:31:00,080 --> 00:31:01,800 Speaker 1: President is going to get hung up on a lot 613 00:31:01,800 --> 00:31:03,840 Speaker 1: of the details. Frankly, so if they put something on 614 00:31:04,080 --> 00:31:08,200 Speaker 1: his desk that he can plausibly agree is tax reform 615 00:31:08,240 --> 00:31:11,160 Speaker 1: and directionally helpful, there's a very high chance he's gonna 616 00:31:11,200 --> 00:31:13,480 Speaker 1: sign it. Um. So I don't I don't think he's 617 00:31:14,280 --> 00:31:17,400 Speaker 1: even with the unfortunate approach that he took to Charlottesville 618 00:31:17,400 --> 00:31:19,719 Speaker 1: and reaction to it, is an impediment to tax reform 619 00:31:19,760 --> 00:31:22,240 Speaker 1: getting done. Uh. And by the way, in terms of 620 00:31:22,240 --> 00:31:24,920 Speaker 1: the other impediments that I've always breaks down at this level, 621 00:31:25,680 --> 00:31:31,360 Speaker 1: everybody's for reducing the rates. Everybody's for cleaning up the exemptions, credits, deductions, 622 00:31:31,360 --> 00:31:34,479 Speaker 1: and preferences until it comes to their exemption, credits, deduction, 623 00:31:34,560 --> 00:31:36,840 Speaker 1: or preference, and then people head for the exits on 624 00:31:36,880 --> 00:31:39,840 Speaker 1: an overall effort when their particular thing gets put on 625 00:31:39,880 --> 00:31:42,360 Speaker 1: the chopping block. Should our listeners be disappointed that they 626 00:31:42,360 --> 00:31:44,160 Speaker 1: haven't seen more meat on the bone when it comes 627 00:31:44,160 --> 00:31:46,160 Speaker 1: to tax reform. A few months back, we got that 628 00:31:46,200 --> 00:31:48,479 Speaker 1: first one page document from the White House, really just 629 00:31:48,560 --> 00:31:50,320 Speaker 1: you know, two hundred words bullet points of what the 630 00:31:50,320 --> 00:31:52,240 Speaker 1: White House was interested in. We got something from the 631 00:31:52,240 --> 00:31:55,240 Speaker 1: Big Six before lawmakers went on recess. It's still a 632 00:31:55,240 --> 00:31:57,120 Speaker 1: page long, a bit more detail. We learned the border 633 00:31:57,160 --> 00:32:00,160 Speaker 1: adjusted tax no longer on the table as they discuss 634 00:32:00,320 --> 00:32:02,840 Speaker 1: a taxi from going forward here. But I keep thinking 635 00:32:02,880 --> 00:32:04,959 Speaker 1: of this document that we got from the Treasury Department 636 00:32:04,960 --> 00:32:08,400 Speaker 1: on financial regulation visa via the banks, the first chapter 637 00:32:08,440 --> 00:32:10,840 Speaker 1: we're told in in in other documents like it that 638 00:32:10,880 --> 00:32:12,920 Speaker 1: are going to be very detailed, very focused on what 639 00:32:12,960 --> 00:32:17,640 Speaker 1: the administration can do. Our listeners right to be disappointed 640 00:32:17,640 --> 00:32:20,240 Speaker 1: that we haven't gotten documents like that on tax reform, 641 00:32:20,440 --> 00:32:22,000 Speaker 1: on other issues that this White House, it said that 642 00:32:22,040 --> 00:32:24,280 Speaker 1: wants to take a look at. Yeah, you know, it 643 00:32:24,400 --> 00:32:28,000 Speaker 1: is not the first ninety days. It is now almost September, 644 00:32:28,080 --> 00:32:30,080 Speaker 1: So I suppose it's appropriate to say there should be 645 00:32:30,120 --> 00:32:33,200 Speaker 1: some disappointment that it hasn't gone further and faster. But 646 00:32:33,240 --> 00:32:35,800 Speaker 1: it's a once in a generation opportunity, so probably better 647 00:32:35,880 --> 00:32:38,920 Speaker 1: to cut twice. Excuse me, cut once and measure twice. 648 00:32:39,440 --> 00:32:42,000 Speaker 1: And I think there's two basic or three basic forks 649 00:32:42,000 --> 00:32:44,040 Speaker 1: in the road, but they include are they willing Are 650 00:32:44,080 --> 00:32:48,960 Speaker 1: Republicans willing to disregard or discount the CBO score on 651 00:32:49,000 --> 00:32:52,600 Speaker 1: how much red ink a bill is projected to create 652 00:32:53,000 --> 00:32:55,240 Speaker 1: and say the CBO is wrong or the CBO is 653 00:32:55,320 --> 00:32:59,920 Speaker 1: underestimating the growth potential? And then our conservatives willing to 654 00:33:00,000 --> 00:33:01,520 Speaker 1: sign up for some red ink as part of a 655 00:33:01,600 --> 00:33:04,200 Speaker 1: tax bill that remains to be seen. And now number two, 656 00:33:04,240 --> 00:33:06,360 Speaker 1: how deeply are they willing to go on reform as 657 00:33:06,360 --> 00:33:09,000 Speaker 1: opposed to just lowering rates? And the reform part is 658 00:33:09,040 --> 00:33:11,840 Speaker 1: in exchange for lowering rates? Are you willing to clean 659 00:33:11,960 --> 00:33:16,000 Speaker 1: up all of the mind numbing complexity and all those exemptions, 660 00:33:16,040 --> 00:33:18,560 Speaker 1: preferences and deductions that I mentioned earlier? That that from 661 00:33:18,560 --> 00:33:22,160 Speaker 1: a conservative standpoint also represents in many cases allegations of 662 00:33:22,320 --> 00:33:26,120 Speaker 1: chrony capitalism, that government's picking winners and losers through these 663 00:33:26,240 --> 00:33:30,520 Speaker 1: niche uh provisions that benefit narrow interests as opposed to 664 00:33:30,560 --> 00:33:32,760 Speaker 1: just a broader approach to lowering rates. You are a 665 00:33:32,800 --> 00:33:36,120 Speaker 1: Republican you're heading up this this business group representing financial 666 00:33:36,120 --> 00:33:39,240 Speaker 1: services companies. Let me ask you about the issue bipartisanship 667 00:33:39,280 --> 00:33:42,240 Speaker 1: in tax reform. There was a small olive branch in 668 00:33:42,280 --> 00:33:44,360 Speaker 1: that statement I mentioned from the Big Six, these six 669 00:33:44,480 --> 00:33:46,480 Speaker 1: leaders working on on tax reform, they'd like to see 670 00:33:46,480 --> 00:33:49,120 Speaker 1: Democrats come to the table to work work with them 671 00:33:49,240 --> 00:33:52,080 Speaker 1: or so they say, uh, we don't see that happening. 672 00:33:52,560 --> 00:33:54,400 Speaker 1: How do how do you make that happen? When you 673 00:33:54,400 --> 00:33:56,360 Speaker 1: when you look back at when we did get comprehensive 674 00:33:56,360 --> 00:33:58,920 Speaker 1: tax re form in the eighties, it was a bipartisan effort. 675 00:33:59,240 --> 00:34:01,760 Speaker 1: Senator Bill brad came onto Bloomberg Television and told me 676 00:34:02,240 --> 00:34:04,240 Speaker 1: that it was hard. It involved a lot of negotiation, 677 00:34:04,280 --> 00:34:06,360 Speaker 1: a lot of losing what one thought that he deserved 678 00:34:06,400 --> 00:34:08,479 Speaker 1: to get. How do we get back to that point 679 00:34:08,480 --> 00:34:10,840 Speaker 1: where you've got Republicans and Democrats back at the table 680 00:34:10,920 --> 00:34:13,960 Speaker 1: talking about what is a signature issue here? That's very 681 00:34:13,960 --> 00:34:17,600 Speaker 1: difficult to do, especially when the Republicans technically don't need 682 00:34:17,640 --> 00:34:20,600 Speaker 1: the Democrats to pass it, and you have such polarization 683 00:34:20,760 --> 00:34:23,480 Speaker 1: and silo mentalities in politics today. So I think the 684 00:34:23,520 --> 00:34:26,239 Speaker 1: idea of going back to a Reagan and O'Neill and 685 00:34:26,560 --> 00:34:28,759 Speaker 1: having these states men and states women come to the 686 00:34:28,800 --> 00:34:32,759 Speaker 1: middle on something that's a political hot potato is probably unlikely. 687 00:34:33,000 --> 00:34:34,799 Speaker 1: You may be able to get a small number of 688 00:34:34,840 --> 00:34:37,400 Speaker 1: Democrats to join the efforts, particularly Democrats who are up 689 00:34:37,440 --> 00:34:39,680 Speaker 1: for re election in twenty eighteen and read states like 690 00:34:39,719 --> 00:34:42,640 Speaker 1: Indiana or Wyoming or some places like that, if the 691 00:34:42,680 --> 00:34:45,960 Speaker 1: bill is, you know, generally reasonable, but if it's an 692 00:34:45,960 --> 00:34:49,960 Speaker 1: aggressive kind of pro growth republican bill, you may see 693 00:34:50,000 --> 00:34:53,440 Speaker 1: it be totally partisan, and they won't they won't necessarily 694 00:34:53,480 --> 00:34:56,040 Speaker 1: feel compelled to bring along Democrats because they don't have to. 695 00:34:57,040 --> 00:34:59,680 Speaker 1: But there was a wave of business leaders right stepping 696 00:34:59,680 --> 00:35:02,640 Speaker 1: down from advising the president last week. Carli Kun for example, 697 00:35:02,680 --> 00:35:06,280 Speaker 1: also saying he was no longer advising Mr Trump because 698 00:35:06,320 --> 00:35:09,240 Speaker 1: of regulatory concerns. And we're hearing that this is because 699 00:35:09,360 --> 00:35:12,160 Speaker 1: of the lack of tax reform and reform in general. 700 00:35:12,200 --> 00:35:15,440 Speaker 1: How do you answer that? If I understood Mr Icon's concerns, 701 00:35:15,480 --> 00:35:17,799 Speaker 1: he was involved in a bunch of business deals where 702 00:35:17,840 --> 00:35:20,560 Speaker 1: there was at least informal concerns that he was in 703 00:35:20,600 --> 00:35:22,840 Speaker 1: a conflicted position and he didn't want the headache, so 704 00:35:22,880 --> 00:35:24,360 Speaker 1: he just quit. So I don't I don't see that 705 00:35:24,440 --> 00:35:27,720 Speaker 1: as an impediment or in any sort of road bump 706 00:35:27,760 --> 00:35:30,879 Speaker 1: to the discussion or progress on tax reform. Again, keep 707 00:35:30,920 --> 00:35:33,399 Speaker 1: in mind for the Republican Party, if you're a Republican leader, 708 00:35:33,400 --> 00:35:35,640 Speaker 1: you've run around this country for a decade or more 709 00:35:35,880 --> 00:35:37,600 Speaker 1: saying if we ever get in charge, we're gonna do 710 00:35:37,640 --> 00:35:40,440 Speaker 1: at least two things. We're gonna repeal and replace Obamacare. 711 00:35:40,440 --> 00:35:42,799 Speaker 1: Obviously they didn't do that yet. But the second thing, 712 00:35:42,840 --> 00:35:46,680 Speaker 1: which is very important to the entire Republican Party and 713 00:35:46,719 --> 00:35:49,319 Speaker 1: all the people who support it financially and otherwise, is 714 00:35:49,520 --> 00:35:51,800 Speaker 1: they're going to fix and reform and streamline and improve 715 00:35:51,840 --> 00:35:54,160 Speaker 1: the tax code so they can get the economy movement. 716 00:35:54,719 --> 00:35:56,880 Speaker 1: David Guray in New York, Francy Lackaway in London. This 717 00:35:56,960 --> 00:35:59,560 Speaker 1: is Bloomberg surveillance on Bloomberg Gritty. We're having a conversation 718 00:35:59,560 --> 00:36:01,480 Speaker 1: with Temple Lenty, the former gun from Minnesota now the 719 00:36:01,480 --> 00:36:05,120 Speaker 1: CEO of the Financial Services Roundtable advocacy group for America's 720 00:36:05,120 --> 00:36:08,840 Speaker 1: financial services industry in Washington at d C and Governor Palenty. 721 00:36:08,920 --> 00:36:10,920 Speaker 1: Let me ask you about the debate over the debt ceiling. 722 00:36:10,920 --> 00:36:13,680 Speaker 1: We heard it mentioned by the President in speeches a 723 00:36:13,719 --> 00:36:16,920 Speaker 1: couple of days ago. Obviously, we're coming up to a 724 00:36:16,920 --> 00:36:19,000 Speaker 1: point where we reach that X status it's called by 725 00:36:19,000 --> 00:36:20,839 Speaker 1: the Treasury Department, when it will no longer be able 726 00:36:20,840 --> 00:36:23,440 Speaker 1: to pay its bills. The Treasure Department saying that's going 727 00:36:23,480 --> 00:36:26,080 Speaker 1: to happen at the end of September or early October. 728 00:36:26,600 --> 00:36:28,879 Speaker 1: We've been here before. Does it feel different this time 729 00:36:28,920 --> 00:36:33,080 Speaker 1: because of the composition of the government? Um? Not really. No. 730 00:36:33,200 --> 00:36:36,239 Speaker 1: I would say it's uncomfortable for Republicans who control the 731 00:36:36,280 --> 00:36:38,279 Speaker 1: Congress to have to deal with this issue because they 732 00:36:38,320 --> 00:36:41,600 Speaker 1: don't like, at least rhetorically, the idea of debt. But 733 00:36:41,600 --> 00:36:43,960 Speaker 1: they've already spent the money. And so when I was 734 00:36:44,000 --> 00:36:45,800 Speaker 1: a kid, you used to say he can't dine in dash, 735 00:36:45,800 --> 00:36:47,359 Speaker 1: which is you go eat the meal and run out 736 00:36:47,400 --> 00:36:50,359 Speaker 1: of the restaurant without paining. That's illegal, it's irresponsible. So 737 00:36:50,520 --> 00:36:53,359 Speaker 1: you can't spend the money, and then refused to authorize 738 00:36:53,400 --> 00:36:56,640 Speaker 1: the payment for the money you've already committed to to spend. 739 00:36:56,680 --> 00:36:58,760 Speaker 1: So they're gonna approve it. It's going to be ugly, 740 00:36:58,800 --> 00:37:01,400 Speaker 1: it'll be uncomfortable, it'll be a lot of squirming, But 741 00:37:01,520 --> 00:37:03,879 Speaker 1: I think there's a as Mitch McConnell as somebody said 742 00:37:03,880 --> 00:37:06,080 Speaker 1: the other day, almost zero percent chance they're actually going 743 00:37:06,120 --> 00:37:10,400 Speaker 1: to default. Uh, looking at the president's rhetoric surrounding the 744 00:37:10,640 --> 00:37:13,439 Speaker 1: debt ceilings, surrounding the prospects for government to shut down, 745 00:37:13,520 --> 00:37:16,640 Speaker 1: and and I wonder what you might say to him 746 00:37:16,640 --> 00:37:19,120 Speaker 1: about the gravity of that when when the government shuts down, 747 00:37:19,120 --> 00:37:21,520 Speaker 1: it is at a very basic level of nuisance for 748 00:37:21,520 --> 00:37:23,759 Speaker 1: for for people. It certainly has effects for those who 749 00:37:23,760 --> 00:37:26,000 Speaker 1: work within government and who rely on the government for 750 00:37:26,000 --> 00:37:27,719 Speaker 1: for services. What would you say to him at the 751 00:37:27,719 --> 00:37:30,800 Speaker 1: gravity of of seeing that happen. Well, I would distinguish 752 00:37:30,840 --> 00:37:33,600 Speaker 1: between defaulting on the debt and the government shutdown. Both 753 00:37:33,600 --> 00:37:36,359 Speaker 1: our negative developments, obviously. But I was the first time 754 00:37:36,440 --> 00:37:38,279 Speaker 1: governor in a hundred fifty years or so of a 755 00:37:38,320 --> 00:37:40,480 Speaker 1: Minnesota history that had a government shut down for a 756 00:37:40,480 --> 00:37:43,000 Speaker 1: couple of weeks over a budget battle. And it it 757 00:37:43,080 --> 00:37:46,200 Speaker 1: was certainly not helpful to the people who are working 758 00:37:46,280 --> 00:37:48,640 Speaker 1: or rely on those services. But it also is something 759 00:37:48,640 --> 00:37:50,880 Speaker 1: we were able to survive. So you don't want the 760 00:37:50,960 --> 00:37:53,480 Speaker 1: US to default on its payments. You don't want the 761 00:37:53,480 --> 00:37:55,600 Speaker 1: government to shut down. But those are two, at least 762 00:37:56,120 --> 00:37:59,399 Speaker 1: somewhat different things that we should separate. The discussion. But Governor, 763 00:37:59,440 --> 00:38:01,520 Speaker 1: when you look at the shutdown of the possible you know, 764 00:38:01,600 --> 00:38:05,200 Speaker 1: the possible shutdown of the US, what kind of indication 765 00:38:05,280 --> 00:38:07,520 Speaker 1: does it give to the rest of the world of 766 00:38:07,560 --> 00:38:10,320 Speaker 1: how the US is acting? If you're a foreign direct investor, 767 00:38:10,600 --> 00:38:13,560 Speaker 1: why go into America? Now? Well, and first of all, 768 00:38:13,560 --> 00:38:15,920 Speaker 1: relative to the rest of the world, America is still 769 00:38:16,000 --> 00:38:20,040 Speaker 1: incredibly successful, stable and desirable. So as you think about 770 00:38:20,040 --> 00:38:22,279 Speaker 1: that analysis, you got to think about it in relative terms. 771 00:38:22,320 --> 00:38:25,040 Speaker 1: And number two, we've had a brief shutdowns in the 772 00:38:25,080 --> 00:38:29,520 Speaker 1: past and most people won't even remember that they occurred. Right. 773 00:38:29,520 --> 00:38:31,840 Speaker 1: But at the same time, I mean, sure, Europe is 774 00:38:32,040 --> 00:38:34,040 Speaker 1: hasn't been as stable as a US for a long time, 775 00:38:34,040 --> 00:38:36,200 Speaker 1: but actually growth is better here. So again, if I'm 776 00:38:36,239 --> 00:38:40,680 Speaker 1: a foreign direct investor, what's the attractiveness of being in 777 00:38:40,719 --> 00:38:43,440 Speaker 1: America at the moment where it seems that the president 778 00:38:43,840 --> 00:38:48,320 Speaker 1: sometimes talks out of hand. Yeah, well, again, I would say, 779 00:38:48,880 --> 00:38:50,839 Speaker 1: I'm not arguing for a shutdown. Don't get me wrong. 780 00:38:50,840 --> 00:38:52,640 Speaker 1: I don't want to leave that impression. It would be 781 00:38:52,880 --> 00:38:55,279 Speaker 1: negative for all the reasons that you're suggesting. I'm just 782 00:38:55,360 --> 00:38:58,320 Speaker 1: not I'm saying it's not as apocalyptic if it's brief 783 00:38:58,320 --> 00:39:02,200 Speaker 1: and short, as you know some would suggest. I'm very 784 00:39:02,280 --> 00:39:06,080 Speaker 1: quickly sir, how sorry, um, Governor. What is the one 785 00:39:06,120 --> 00:39:08,319 Speaker 1: thing that the Trump administration can do in the next 786 00:39:08,560 --> 00:39:11,520 Speaker 1: six weeks to make sure that it gives a strong 787 00:39:11,560 --> 00:39:14,560 Speaker 1: message to investors around the world that they mean business. 788 00:39:15,000 --> 00:39:16,720 Speaker 1: I think the best thing that could happen, we touched 789 00:39:16,719 --> 00:39:19,279 Speaker 1: on it earlier, would be for this Congress and this 790 00:39:19,320 --> 00:39:22,719 Speaker 1: White House to work together in a crisp, hopefully productive 791 00:39:22,760 --> 00:39:24,480 Speaker 1: way between now and the end of the calendar year, 792 00:39:24,480 --> 00:39:27,280 Speaker 1: although it spills into next year. That's better than nothing, 793 00:39:27,719 --> 00:39:32,040 Speaker 1: and get comprehensive tax reform done. That's pro job, pro investment, 794 00:39:32,120 --> 00:39:34,560 Speaker 1: and it, you know, sends the message we're serious about 795 00:39:34,600 --> 00:39:38,480 Speaker 1: moving this GDP level from anemic to something better. Just 796 00:39:38,480 --> 00:39:40,399 Speaker 1: looking at Twitter now, as I want to do here, 797 00:39:40,440 --> 00:39:42,600 Speaker 1: as we have a president who likes to tweet, and 798 00:39:42,640 --> 00:39:44,680 Speaker 1: he says this is gonna be a two part or 799 00:39:44,719 --> 00:39:46,640 Speaker 1: maybe a three part tweet. But the first, the first 800 00:39:46,840 --> 00:39:48,560 Speaker 1: tweet he's fired off this money he has. I requested 801 00:39:48,560 --> 00:39:50,680 Speaker 1: that Mitch McConnell and Paul Ryan tie the death sealing 802 00:39:50,760 --> 00:39:54,120 Speaker 1: legislation into the Popular v A bill, which just passed. 803 00:39:54,120 --> 00:39:56,080 Speaker 1: And then there's an ellipses dot dot dot. But the 804 00:39:56,160 --> 00:39:58,560 Speaker 1: indicating here that would be something would make it be 805 00:39:58,600 --> 00:40:01,280 Speaker 1: approved easily. Where do you stand? Where does the Financial 806 00:40:01,280 --> 00:40:04,160 Speaker 1: Services Roundtable stand on the the prospect of a clean 807 00:40:04,200 --> 00:40:06,200 Speaker 1: death ceiling rays? Is this something that you think should 808 00:40:06,200 --> 00:40:08,839 Speaker 1: be kept separate from from other issues? We we think 809 00:40:09,000 --> 00:40:11,279 Speaker 1: and our members believe strongly we you don't mess with 810 00:40:11,320 --> 00:40:14,000 Speaker 1: the debt ceiling. Authorize it. And if you've got to 811 00:40:14,040 --> 00:40:16,040 Speaker 1: do things to increase the likelihood that you're going to 812 00:40:16,120 --> 00:40:18,359 Speaker 1: get votes to authorize it, great, But you know, clean 813 00:40:18,440 --> 00:40:20,279 Speaker 1: would be I think the wise way to go, because 814 00:40:20,320 --> 00:40:23,520 Speaker 1: then it could be potentially bipartisan and you wouldn't get uh, 815 00:40:23,560 --> 00:40:26,799 Speaker 1: you know, people either voting for against it for right 816 00:40:26,880 --> 00:40:30,080 Speaker 1: along reasons. Obviously, the President is saying, let's attach it 817 00:40:30,120 --> 00:40:32,600 Speaker 1: to something that's very popular and that people would support, 818 00:40:32,600 --> 00:40:35,080 Speaker 1: which is support for veterans men and women in the military, 819 00:40:35,120 --> 00:40:37,400 Speaker 1: and that might increase the chances of getting votes for it. 820 00:40:37,440 --> 00:40:40,880 Speaker 1: So that would be perhaps something that would draw some 821 00:40:40,960 --> 00:40:43,360 Speaker 1: votes and maybe increase the likelihood of it passing. But 822 00:40:43,400 --> 00:40:45,719 Speaker 1: it has to pass. I believe it will pass. Uh 823 00:40:46,120 --> 00:40:48,960 Speaker 1: in clean would be fine to Governor Planty really appreciate 824 00:40:49,040 --> 00:40:50,400 Speaker 1: the time of this morning. Thank you very much for 825 00:40:50,400 --> 00:40:51,920 Speaker 1: coming in. As I said to our Bloomberg nine nine 826 00:40:51,960 --> 00:40:54,440 Speaker 1: one studios there in Washington, d C. Governor Tim Planty, 827 00:40:54,520 --> 00:40:56,600 Speaker 1: former governor of the State of Minnesota, now CEO of 828 00:40:56,640 --> 00:41:00,239 Speaker 1: the Financial Services round Table, that's a advocacy group antiel 829 00:41:00,239 --> 00:41:03,320 Speaker 1: services companies, again based in Washington, d C. Great to 830 00:41:03,360 --> 00:41:06,560 Speaker 1: speak with him about a host of issues facing lawmakers 831 00:41:06,560 --> 00:41:09,640 Speaker 1: when they get back to Washington early September. Obviously, chief 832 00:41:09,640 --> 00:41:11,880 Speaker 1: among them raising the dead ceiling as we've been talking about, 833 00:41:11,960 --> 00:41:15,000 Speaker 1: and dealing with government funding as well, both of those 834 00:41:15,040 --> 00:41:18,719 Speaker 1: deadlines rapidly approaching and uh Fran, as you mentioned, we've 835 00:41:18,719 --> 00:41:21,520 Speaker 1: heard a lot from the President on these two issues 836 00:41:21,520 --> 00:41:23,880 Speaker 1: in particular here over these last few days. The President 837 00:41:23,880 --> 00:41:27,200 Speaker 1: making a trip to the western US. He spoke on 838 00:41:27,239 --> 00:41:29,560 Speaker 1: the border in Yuma, Arizona, then moved up to Phoenix 839 00:41:29,600 --> 00:41:32,319 Speaker 1: to deliver a speech at a rally on Tuesday night. 840 00:41:32,680 --> 00:41:36,320 Speaker 1: He was in Reno, Nevada yesterday to dress the American Legion. 841 00:41:36,840 --> 00:41:40,120 Speaker 1: Two very different speeches. As Governor Tim Plenty was was 842 00:41:40,200 --> 00:41:43,000 Speaker 1: highlighting for us, the one that he gave in Phoenix 843 00:41:43,040 --> 00:41:44,279 Speaker 1: and the one that he gave in Reno. This is 844 00:41:44,320 --> 00:41:46,640 Speaker 1: Bloomberg Surveillance on Bloomberg Radio. David Durray in New York, 845 00:41:46,680 --> 00:41:59,080 Speaker 1: Francine Lakwa in London. Thanks for listening to the Bloomberg 846 00:41:59,120 --> 00:42:05,440 Speaker 1: Surveillance podcast, asked Subscribe and listen to interviews on Apple Podcasts, SoundCloud, 847 00:42:05,800 --> 00:42:09,640 Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at 848 00:42:09,680 --> 00:42:14,360 Speaker 1: Tom Keene. David Gura is at David Gura. Before the podcast, 849 00:42:14,640 --> 00:42:18,040 Speaker 1: you can always catch us worldwide. I'm Bloomberg Radio