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Is This America's Liz Truss Moment? · Trumponomics

0:02
Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
0:08
Speaker 2: The US financial system in terms of currency, bonds, and
0:12
Speaker 2: equity are potentially at risk of unraveling in a very
0:17
Speaker 2: precipitous way if you get to that point of no return,
0:21
Speaker 2: and we just don't know where that is.
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Speaker 3: I'm Stephanie Flanders, head of Government and Economics at Bloomberg,
0:35
Speaker 3: and welcome to Trump Economics, the podcast that looks at
0:38
Speaker 3: the economic world of Donald Trump, how he's already shaped
0:41
Speaker 3: the global economy and what on earth is going to
0:43
Speaker 3: happen next. So some stuff has happened since we recorded
0:48
Speaker 3: our last episode with Martin Wolf, as we knew it
0:51
Speaker 3: would when we recorded that episode. We step back to
0:55
Speaker 3: consider the root cause of America's big trade deficits with
0:58
Speaker 3: the rest of the world. President Trump was getting ready
1:01
Speaker 3: to bring out that big poster board of tariff rates
1:04
Speaker 3: in the Rose Garden that was supposed to get rid
1:06
Speaker 3: of all of its deficits with everyone. Well, we're not
1:09
Speaker 3: going to go into the fine print of that plan today,
1:11
Speaker 3: or the infamous formula, if you can call it that,
1:14
Speaker 3: which produced the numbers. You would have heard that from
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Speaker 3: plenty of other people. Plus the numbers might well have
1:19
Speaker 3: changed by the time this goes out. But I did
1:22
Speaker 3: want to think about what that big announcement has taught
1:26
Speaker 3: us about the Trump White House and what will it
1:28
Speaker 3: mean for the US economy. Put it another way, are
1:31
Speaker 3: we now looking at a US recession coming down the track?
1:35
Speaker 3: And if so, how much does Donald Trump actually care?
1:39
Speaker 3: Such small questions, but we have big brains to answer them.
1:42
Speaker 3: Here in the form of two friends of the show,
1:45
Speaker 3: Bloomberg's senior national political correspondent, Nancy Cook, welcome.
1:49
Speaker 1: Back, Thanks so much for having me, and we're in.
1:51
Speaker 3: The same room for once in the DC bureau. And
1:54
Speaker 3: Ed Harrison, senior editor and author of Bloomberg's Everything Risk newsletter, Ed,
1:59
Speaker 3: great to see hello. And you haven't been busy in
2:02
Speaker 3: the last few days at all, led Everything Risk.
2:06
Speaker 4: No, not at all. There are no risks whatsoever.
2:15
Speaker 3: Well, let me start with you give us a sense
2:18
Speaker 3: of where we've been in the last few days, as
2:21
Speaker 3: investors were trying to absorb what had happened last week,
2:25
Speaker 3: the announcements coming out of the administration and the president's
2:28
Speaker 3: steadfastness around this plan which has really taken a lot
2:33
Speaker 3: of people by surprise.
2:35
Speaker 2: Yeah, I think that last week you could characterize as
2:38
Speaker 2: a panic that was centered around the equity market. Basically,
2:42
Speaker 2: the tariffs were a lot more robust than people had anticipated,
2:46
Speaker 2: and as a result of that, equity sold off on
2:49
Speaker 2: the day after that. Then there was talk about retaliation
2:54
Speaker 2: against China, which as of this recording is about to
2:58
Speaker 2: go into effect, and that precipitated another sell off on Friday,
3:04
Speaker 2: in particular because people did not want to go into
3:07
Speaker 2: the weekend heavy on stocks with potentially bad news coming,
3:12
Speaker 2: and so then we reverse some of that on Monday.
3:15
Speaker 2: Things have been very choppy, but really I think most
3:18
Speaker 2: of the first salvo is done, and now we're at
3:21
Speaker 2: a point where people they don't know what to think,
3:24
Speaker 2: but they're waiting for the economic effects to start to
3:28
Speaker 2: occur because these tariffs are going to go into effect
3:31
Speaker 2: almost immediately.
3:33
Speaker 3: What has been interesting, and I guess this is particularly
3:35
Speaker 3: a kind of a trumpnomics topic, is what's happened in
3:38
Speaker 3: the treasury market. I think our first ever episode was
3:41
Speaker 3: about how important the US bond market was going to
3:45
Speaker 3: be to this administration. I think we will quite precent
3:48
Speaker 3: on some of that. But you have a bunch of
3:50
Speaker 3: tariffs come out, which other things equal, you'd expect to
3:54
Speaker 3: increase inflation, and actually the pet of the US Central
3:59
Speaker 3: Bank of the ED gave a speech on Friday that
4:02
Speaker 3: suggested he was still quite focused on inflation even with
4:05
Speaker 3: everything else going on. And yet ED, we didn't see
4:08
Speaker 3: necessarily the people buying US debt necessarily expecting more inflation
4:14
Speaker 3: and sort of steady interest rates. We saw a bit
4:16
Speaker 3: more confusion.
4:18
Speaker 2: Yeah, And I think the reason for that is because
4:20
Speaker 2: of the panic inequities that really it was just a
4:23
Speaker 2: knee jerk reaction to grab other assets you could at
4:28
Speaker 2: that particular juncture, you know, flight to quality, and Treasury's
4:32
Speaker 2: benefited from that. But now that we have a chance
4:35
Speaker 2: to sit back and watch the effects play out, I
4:38
Speaker 2: think we're going to see a quite different story coming
4:40
Speaker 2: into play the one that you mentioned with regard to
4:43
Speaker 2: the FED. The Fed's in a very difficult position here,
4:46
Speaker 2: in particular because the inflationary impact of the tariffs are
4:51
Speaker 2: probably going to proceed the negative impacts on the labor market,
4:56
Speaker 2: just because the labor market is really relatively solid right
4:59
Speaker 2: now and it's going to take a little while for
5:02
Speaker 2: that to dissipate, and so the FED is going to
5:04
Speaker 2: therefore be challenged with three percent, four percent, who knows
5:09
Speaker 2: it could be as high as five percent inflation at
5:12
Speaker 2: some point, and that is going to limit their ability
5:16
Speaker 2: to ride to the rescue.
5:18
Speaker 3: Nancy. Going back a few steps, the market seemed to
5:21
Speaker 3: have been very surprised by what he announced last week,
5:24
Speaker 3: even though in many ways he'd said even on the
5:26
Speaker 3: campaign trail that this is exactly what he was going
5:29
Speaker 3: to do. What was your thought when you saw those
5:32
Speaker 3: very high numbers, much higher than expected, for the tariff
5:35
Speaker 3: rates on every country, not just the countries with particularly
5:39
Speaker 3: large deficits. What did you conclude in terms of what's
5:43
Speaker 3: been driving this administration? Who's been close to the president?
5:47
Speaker 1: Yeah, the markets were very surprised by how high the
5:49
Speaker 1: tariffs were and the fact that there were tariffs on
5:52
Speaker 1: countries but also these universal baseline tariffs. And what happened
5:56
Speaker 1: was that Peter Navarro, who has been a huge advocate
5:59
Speaker 1: of of these baseline tariffs and really doing high tariffs
6:02
Speaker 1: on countries, has so much power in this White House
6:06
Speaker 1: at this particular moment.
6:07
Speaker 3: Just tell us a bit about him, what's his job now,
6:09
Speaker 3: and maybe a bit more about some of the other
6:12
Speaker 3: stuff he said.
6:13
Speaker 1: So he's a senior advisor to the President. He is
6:16
Speaker 1: supposed to be working on trade. You have to remember
6:19
Speaker 1: that he also worked on trade in the first Trump
6:21
Speaker 1: White House. But there were epic battles in the first
6:24
Speaker 1: Trump White House between different people in the administration, Gary Cohen,
6:28
Speaker 1: who was the National Economic Director at the time, Treasury
6:31
Speaker 1: Secretary Stephen Mnuchin, and they were more of a voice
6:34
Speaker 1: inside the West Wing who were advocates of free trade.
6:38
Speaker 1: And so it was like these constant battles between Peter
6:40
Speaker 1: Navarro and Robert Leitthheuser, who is the US trade representative,
6:43
Speaker 1: and Minuchin and Cohen and going back and forth, and
6:46
Speaker 1: the trade policy sort of swung back and forth based
6:49
Speaker 1: on who had the most influence. This time, there is
6:52
Speaker 1: not that same sort of checks and balances from the
6:55
Speaker 1: free trade perspective, and everybody is basically on board with tears,
7:00
Speaker 1: including people who you wouldn't necessarily think of, like Treasury
7:03
Speaker 1: Secretary of Scott Bessant or the National Economic Council Director
7:07
Speaker 1: Kevin Hassett. But Navarro has so much influence because he
7:11
Speaker 1: went to jail for Trump. He divided a subpoena to
7:15
Speaker 1: appear before the January sixth Committee and serve four months
7:18
Speaker 1: in prison. What Trump values most in the second term
7:21
Speaker 1: is loyalty, and what expresses loyalty more to him than
7:25
Speaker 1: someone who went but served behind bars, And so Peter's
7:29
Speaker 1: influence just can't be overstated. Now. My sources were telling
7:33
Speaker 1: me the Tuesday before the big tariffs came out that
7:37
Speaker 1: Wednesday that Navarro had gotten with Trump and had convinced
7:40
Speaker 1: him of this idea of the universal baseline tariffs, and
7:43
Speaker 1: that the two of them had doubled down. I covered
7:46
Speaker 1: Trump since twenty sixteen. What has surprised me this time
7:49
Speaker 1: is how undeterred they are by the market volatility, the
7:54
Speaker 1: calls from Wall Street and CEOs, businesses freaking out, just
7:59
Speaker 1: calling anyone they can find it the administration that Trump
8:02
Speaker 1: people feel like he talked about this in the campaign.
8:05
Speaker 1: You should have known this was coming. He's not up
8:08
Speaker 1: for a re election. You know, he really believes in
8:10
Speaker 1: these tariffs and think they're going to change the economy,
8:13
Speaker 1: and he and Peter Navarro are really doubling down.
8:17
Speaker 3: I don't think I had fully absorbed that Peter Navarro
8:20
Speaker 3: was running the trade ship inside the White House. Were
8:24
Speaker 3: we aware of quite how influentially.
8:26
Speaker 1: Be So I would say a few months ago, there
8:29
Speaker 1: was reporting coming out. I was talking to people, and
8:32
Speaker 1: it took a while for the Treasury Secretary and the
8:34
Speaker 1: Commerce Secretary to get confirmed. So what was happening in
8:37
Speaker 1: that vacuum was that Peter Navarro and Stephen Miller, who
8:41
Speaker 1: is a deputy chief of Staff. You'll remember him from
8:43
Speaker 1: all of the most controversial immigration issues from the first term.
8:47
Speaker 1: That two of them were basically the lone voices on
8:50
Speaker 1: trade for the first several weeks at the administration, and
8:53
Speaker 1: they were the ones driving the agenda. And to me,
8:56
Speaker 1: it's very clear that the White House is much more
8:58
Speaker 1: comfortable with Peter Navarro this time around than they were
9:01
Speaker 1: last time. Last time, they didn't really let him go
9:04
Speaker 1: on TV that much. They sort of hid him away. Sure,
9:06
Speaker 1: he was close to Trump, but he wasn't like the frontman.
9:09
Speaker 1: This time, he is going on TV almost every day
9:12
Speaker 1: representing the administration's trade policy, and I just think that
9:16
Speaker 1: that's a sign of how much influence he has and
9:19
Speaker 1: how much they are doubling down on this.
9:22
Speaker 3: At least one person who was also hanging out the
9:24
Speaker 3: White House a lot in the first few weeks of
9:26
Speaker 3: the administration was Elon Musk and then he and Navarro
9:29
Speaker 3: seem to now be getting at it in an entertaining
9:32
Speaker 3: but not very mature fashion. Shall we see?
9:35
Speaker 1: Well, I think Elon must Stock is dropping in the
9:38
Speaker 1: White House and him picking a fight with Peter Navarro
9:41
Speaker 1: is part of this. He was not in the final
9:44
Speaker 1: meetings on trade that was really sort of the economic aids.
9:47
Speaker 1: The Chief of Staff Susie Wilds Stephen Miller was in that.
9:51
Speaker 1: Elon has not been part of sort of the final
9:54
Speaker 1: decisions on trade. And although he likes to be the president's,
9:57
Speaker 1: you know, first best friend, and is on Air Force
10:00
Speaker 1: one and is a mar A Lago and it is
10:02
Speaker 1: in Marshington a lot and has real walk in privileges
10:04
Speaker 1: in the West Wing, trade is not his lane. And
10:06
Speaker 1: I think that they are not taking his advice seriously
10:09
Speaker 1: on it.
10:11
Speaker 3: It sounds like the White House that Nancy is describing
10:15
Speaker 3: is not one that's going to back down, at least
10:20
Speaker 3: to any serious extent. We'll wait to see. So given that,
10:25
Speaker 3: how are you looking at the risks of recession and
10:29
Speaker 3: that challenge for the FED of whether it can actually
10:32
Speaker 3: do anything to prevent one.
10:34
Speaker 2: Yeah, the recession car is a big one because I
10:37
Speaker 2: think that people now realize how serious Trump was and
10:40
Speaker 2: that it's not just ten percent tariffs, these across the
10:44
Speaker 2: board baseline tarffs, which the likes of Bill Ackman said
10:47
Speaker 2: they can get behind, but rather something more severe, doubling down.
10:51
Speaker 3: On one hundred and six percent or one hundred and
10:53
Speaker 3: four whatever it is on top. That's definitely a bit more.
10:55
Speaker 2: Severe going into effect literally as we are taping this.
11:00
Speaker 2: And so I think that if recession is not your
11:02
Speaker 2: base case, it's a very high probability case.
11:05
Speaker 4: And that's what the markets are saying.
11:07
Speaker 2: You know, the equity markets are down and treasury yields
11:11
Speaker 2: are down as well. What I find interesting in terms
11:14
Speaker 2: of the recession trade and how this is all playing
11:17
Speaker 2: out is currencies. The Japanese yen and the Swiss franc
11:24
Speaker 2: are really appreciating in value versus the US dollar. Not
11:29
Speaker 2: just as this has played out, but in the last
11:32
Speaker 2: day or so, as the one hundred and four percent
11:36
Speaker 2: Chinese tariffs have come into play, the Swiss franc has
11:39
Speaker 2: really gone ballistic, as if suddenly the United States is
11:43
Speaker 2: not the safe haven currency in these kinds of times
11:48
Speaker 2: of difficulty. This is a huge transition that the market's
11:53
Speaker 2: going to have to deal with and understand what the
11:55
Speaker 2: implications are, especially if we have a recession that's not
11:58
Speaker 2: just in the United States but global.
12:01
Speaker 3: Is there a natural difference of view between the Fed
12:05
Speaker 3: and the markets. I say that because if the FED
12:08
Speaker 3: is thinking, Hm, we've still got an inflation problem, so
12:11
Speaker 3: we're going to have to wait a bit before we
12:14
Speaker 3: provide the support for the economy even as the market's falling,
12:17
Speaker 3: And if the market's expecting the FED to be late,
12:21
Speaker 3: then I guess there's no disagreement. But we are looking
12:23
Speaker 3: at a recession.
12:24
Speaker 2: Well, I think that the markets are front running so
12:29
Speaker 2: many cuts that it's going to be very difficult for
12:32
Speaker 2: the FED to deliver them in the timeframe that the
12:34
Speaker 2: markets are talking about. Unless it's a very onerous recession.
12:38
Speaker 2: It's more likely that they will be late, as you're saying,
12:41
Speaker 2: and that they'll be more aggressive if things fall apart,
12:45
Speaker 2: because their hands are going to be tied in the
12:46
Speaker 2: near term by the inflation that is likely to happen
12:51
Speaker 2: almost immediately.
12:52
Speaker 4: It was interesting what Power was saying.
12:54
Speaker 2: He didn't say it directly, but he was essentially saying,
12:57
Speaker 2: we're going to wait. We're not going to make any
13:00
Speaker 2: moves whatsoever until we find out what the actual for
13:05
Speaker 2: ramifications of the policies are and what the policies themselves are.
13:09
Speaker 2: They don't know what the policies are, and so what
13:12
Speaker 2: that means is an extended hold period at a minimum,
13:15
Speaker 2: and that's not what the market has priced in.
13:18
Speaker 3: Yeah, it's interesting. I mean, our own Anawong, who we've
13:21
Speaker 3: heard several times on this podcast, is a former FARED economist,
13:24
Speaker 3: is our chief US economist. She put out a great
13:26
Speaker 3: preace actually just as markets were going through their girations
13:30
Speaker 3: on Monday and treasury yields had gone down quite far,
13:33
Speaker 3: apparently on the anticipation of lower rates, saying, you know,
13:38
Speaker 3: markets are hoping for a FED put and this is
13:40
Speaker 3: why that's unlikely, and she went through all of the things.
13:44
Speaker 3: I think the fact that the FED is focused on
13:45
Speaker 3: hard data, the fact that the Fed's own inflation forecasts
13:50
Speaker 3: and inflation risks are thinks that the Fed's very concerned about,
13:53
Speaker 3: and certainly J. Powell, the chair, doesn't want to be
13:57
Speaker 3: seen to be making the same mistake that was made
14:00
Speaker 3: in twenty twenty two when they were quite slow to
14:03
Speaker 3: raise rates in the face of inflation. I mean, I
14:05
Speaker 3: found that pretty convincing. Nancy, How do you think the
14:08
Speaker 3: administration's thinking about the FED? I mean, could they potentially
14:11
Speaker 3: rescue the economy provide some kind of flaw even with
14:16
Speaker 3: this tariff plan? And I guess the other side of
14:19
Speaker 3: that if they don't. Is he going to be a
14:20
Speaker 3: useful kind of whipping boy for putting all the blame
14:23
Speaker 3: on I.
14:24
Speaker 1: Mean, the FED is already a whipping boy for President Trump.
14:27
Speaker 1: I mean he has come out already last week and
14:30
Speaker 1: said Powell should do something. He's posting messages on truth
14:33
Speaker 1: social he is willing to use his bully pulpit from
14:36
Speaker 1: the White House to try to act like this is
14:38
Speaker 1: the Fed's problem, even though these tariffs are one hundred
14:42
Speaker 1: percent of policy of the administration. It's not Congress. It
14:45
Speaker 1: is a self inflicted wound or whatever you want to
14:48
Speaker 1: call it on the part of the administration.
14:50
Speaker 3: They did this.
14:51
Speaker 1: He has long had J. Powell in his sight. And
14:55
Speaker 1: when I interviewed Trump during the campaign, or different people did,
14:58
Speaker 1: there was constantly question like are you going to fire J?
15:01
Speaker 4: Powell?
15:02
Speaker 1: And do you believe in the independence of the FED?
15:04
Speaker 1: And he sort of went back and forth honestly months
15:07
Speaker 1: month on the importance of the independence of the FED
15:10
Speaker 1: and whether or not he would let Powell serve out
15:12
Speaker 1: his term.
15:12
Speaker 3: Did he said to us, he said, oh, yeah, as
15:14
Speaker 3: long as I think he's doing a good joke exactly. Yeah,
15:16
Speaker 3: he's still the safe as long as I think so.
15:18
Speaker 1: So I think that that will just continue to be
15:20
Speaker 1: a point of tension. And even Treasury Secretary of Scott Besson,
15:23
Speaker 1: who I think before what happened with the tariffs, was
15:26
Speaker 1: seen as like a grown up who could speak to
15:29
Speaker 1: the markets. I don't know exactly how he's viewed by
15:31
Speaker 1: Wall Street now. I think that's been muddied a bit.
15:33
Speaker 1: But even he sort of had a plan for replacing
15:37
Speaker 1: Powell and did not think that Powell needed to serve
15:40
Speaker 1: out his term. So I think even Bessen is not
15:42
Speaker 1: fully on board with the idea that the FED should
15:44
Speaker 1: be as independent as it should be, and it just really,
15:47
Speaker 1: I think marks a huge shift. There's so many shifts
15:50
Speaker 1: in the Republican Party on how Trump approaches economic issues,
15:54
Speaker 1: and the FED is just one of them.
15:56
Speaker 3: We've talked a few times on this podcast about kind
16:00
Speaker 3: of ordering of things in this administration and how you
16:03
Speaker 3: could make the argument that in the first term, Trump
16:07
Speaker 3: kind of did the positive things of the economy first,
16:09
Speaker 3: and then the negative stuff, the bigger tariffs other things
16:13
Speaker 3: came later and actually caused the economy to weaken even
16:16
Speaker 3: before COVID, when arguably, from a political standpoint, you'd want
16:19
Speaker 3: to get your costly things and at the beginning and
16:21
Speaker 3: then have the more positive things. We've certainly got some
16:25
Speaker 3: pain coming down the track. We've had the Doge cuts,
16:28
Speaker 3: but also most fundamentally, these big tariff increases tax cuts,
16:34
Speaker 3: making the Trump tax cuts permanent, maybe some other tax
16:37
Speaker 3: cuts on top of that. I mean, that does seem
16:39
Speaker 3: to be something the administration is now turning its mind
16:42
Speaker 3: to and wanting Congress to act on as fast as possible. Nancy,
16:46
Speaker 3: do you think that can be a source of support
16:49
Speaker 3: for the economy and the administration.
16:51
Speaker 1: I have written a lot of tax stories lately, and
16:53
Speaker 1: Republicans now have moved up the timeframe of when they
16:56
Speaker 1: want to get tax reformed done given what's happening with
16:58
Speaker 1: the tariffs. Where they thought, oh, they could do it
17:01
Speaker 1: at the end of twenty twenty five when the tax
17:03
Speaker 1: cuts actually expire, now they want to do it as
17:06
Speaker 1: soon as possible, hopefully by even July fourth. I think
17:10
Speaker 1: that's a little optimistic, but people on Capitol Hill think, okay,
17:13
Speaker 1: maybe by you know, Midsummer or towards the end of summer.
17:16
Speaker 3: So August there was a bit of movement on this.
17:18
Speaker 3: Even this weekend on the Hill.
17:20
Speaker 1: Yeah, there was the Senate passed a budget resolution which
17:23
Speaker 1: will give them a vehicle to do tax reform and
17:25
Speaker 1: some parameters about how much money they can spend. And
17:28
Speaker 1: I think that the Trump people, including Peter Navarro, are
17:31
Speaker 1: going on TV and saying, well, look, these tariffs are
17:33
Speaker 1: just one part of the economic package. We also have
17:37
Speaker 1: you know, less restrictions on energy deregulation, the tax cuts.
17:40
Speaker 1: I think the question about the tax cuts is, yes,
17:43
Speaker 1: they want to do a big tax bill, but a
17:45
Speaker 1: lot of those tax cuts are just going to be
17:47
Speaker 1: extending existing ones. And I don't know if that is
17:52
Speaker 1: going to be you know, extending people's existing tax cuts
17:55
Speaker 1: is going to be a giving them a tax increase, right,
17:58
Speaker 1: not giving them a.
17:59
Speaker 3: Taxing cust car because I didn't have a tax right.
18:02
Speaker 4: That's not how.
18:02
Speaker 1: People think about it. And so I just don't know
18:05
Speaker 1: if that is going to be enough to actually juice
18:07
Speaker 1: the economy the way that they think it will compared
18:11
Speaker 1: to the stark policies that they did on tariffs, which
18:14
Speaker 1: were really surprising and quite large and ed.
18:18
Speaker 3: I guess this gets us back to how the financial
18:21
Speaker 3: markets would view this. I mean, I have to mention
18:24
Speaker 3: that that Senate resolution contained a really not very responsible
18:29
Speaker 3: approach to scoring the cost of making those tax cuts permanent.
18:34
Speaker 3: I think we're talking extra five trillion dollars in debt,
18:38
Speaker 3: but it was scored as almost zero on rules that
18:41
Speaker 3: no one thinks make any sense. But even if this
18:45
Speaker 3: gets past this tax cut bill or the making permanent
18:49
Speaker 3: of the previous tax cuts, if it sends a message
18:53
Speaker 3: that there is no physical restraint of any kind of
18:56
Speaker 3: serious degree in this White House or the country, and
19:02
Speaker 3: an ocean of red ink way more than is even
19:05
Speaker 3: in the existing numbers. We look at our numbers, our
19:08
Speaker 3: forecast for the US debt, they're about one hundred percent
19:11
Speaker 3: of GDP. Now it's going to maybe one hundred and
19:14
Speaker 3: fifty percent of GDP over the next twenty thirty years.
19:17
Speaker 3: And that's assuming that the text cuts are not made permanent.
19:20
Speaker 3: So surely that's not going to put a floor under
19:23
Speaker 3: the sort of confidence in the US.
19:25
Speaker 2: As you were saying that, I'm thinking about Liz Trust
19:29
Speaker 2: and what happened there, when suddenly you're looking at oceans
19:34
Speaker 2: of red ink. Over the longer term, it's going to
19:37
Speaker 2: lead to a depreciation of the currency, greater inflation, and
19:42
Speaker 2: ultimately it could create a crisis of confidence about the
19:48
Speaker 2: United States ability to govern itself and its finances. The
19:52
Speaker 2: numbers that we're talking about really are are mind boggling.
19:56
Speaker 2: Because we're already at six percent debt to GDP in
20:00
Speaker 2: a booming situation where growth was at three percent. What
20:06
Speaker 2: if you add tax cuts on top of that, the
20:08
Speaker 2: baseline being three percent are being six percent, and you
20:12
Speaker 2: add tax cuts that are going to make that even greater,
20:16
Speaker 2: then you're looking at permanent deficits of eight nine percent.
20:21
Speaker 2: It's just absolutely mind boggling. I think the markets would
20:24
Speaker 2: throw its dizzy and it could be very destabilizing.
20:29
Speaker 3: It's interesting you mentioned this trust. We had a great
20:31
Speaker 3: column that was by our columnists in Europe, Lionel Laurent
20:34
Speaker 3: and Marcus Ashworth. Imagine the UK Liz Trust moment only global.
20:39
Speaker 3: They're saying, the US is the closest thing to a
20:41
Speaker 3: global superpower we have, and that means when it's leaders
20:44
Speaker 3: are in the grip of excessive over confidence, similar to
20:47
Speaker 3: that scene in the UK's Liz Trust meltdown, Everyone not
20:51
Speaker 3: just America, pays the price. I guess I'll give a
20:53
Speaker 3: final word to you, Ed. You mentioned something about the
20:56
Speaker 3: safe haven status for the US.
21:00
Speaker 4: That's what I was thinking as you were reading that. Well.
21:03
Speaker 3: Donald Trump has said he doesn't like this dollar being
21:05
Speaker 3: so strong, so be careful what you wish for. But
21:07
Speaker 3: I guess that the risk is the combination of you know,
21:11
Speaker 3: question marks around central bank independence, question marks about runaway
21:16
Speaker 3: borrowing and debt, not to mention stepping out of the
21:21
Speaker 3: global trading system in the way that he has now done,
21:24
Speaker 3: or at least appears set on doing. That's quite a
21:27
Speaker 3: trifecta that could really be very damaging to the US
21:30
Speaker 3: standing in global financial markets as well.
21:33
Speaker 2: Yeah, I think that George Soros would talk about reflexivity,
21:37
Speaker 2: that you get to sort of a point where things
21:39
Speaker 2: start to feed on themselves, and we don't know where
21:43
Speaker 2: that point is on various levels, both in terms of equities,
21:46
Speaker 2: in terms of people pulling their money out of US
21:50
Speaker 2: dollar assets. We don't know what that means in terms
21:53
Speaker 2: of the US dollars falling, and we also don't know
21:56
Speaker 2: what that means in terms of foreigners owning bond and
22:00
Speaker 2: what that means for interest rates. So all three of
22:03
Speaker 2: those things the US financial system, in terms of currency, bond,
22:07
Speaker 2: and equity are potentially at risk of unraveling in a
22:13
Speaker 2: very precipitous way if you get to that reflexive point,
22:17
Speaker 2: to that point of no return, and we just don't
22:20
Speaker 2: know where that is.
22:22
Speaker 3: And on that bombshell. Ed Harrison, thank you very much,
22:25
Speaker 3: Nancy Cook, thank you, thank you for listening. We focused
22:34
Speaker 3: a lot on America in this episode, and particularly on
22:38
Speaker 3: Wall Street and the White House. I'm thinking, even as
22:41
Speaker 3: I said here, that we should think about how the
22:43
Speaker 3: rest of the world should respond next week. Note to self.
22:50
Speaker 3: Trumpernomics is produced by Moses and Dam and Summer Sadi,
22:53
Speaker 3: with help from Chris martinlu Amy Kean Cale Brooks, Rachel
22:57
Speaker 3: Lewis Chrisky and Jared Rudderman. Sound design owned by Blake
23:00
Speaker 3: Maples and Brendan Francis Newnham is our executive producer.