Latest / Bloomberg Intelligence / Coronavirus Won't Be The Thing To Cause A Recession

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Coronavirus Won't Be The Thing To Cause A Recession · Bloomberg Intelligence

0:02
Speaker 1: Welcome to the Bloomberg Penel Podcast. I'm Paul swing you,
0:05
Speaker 1: along with my co host Lisa Brahma wits. Each day
0:07
Speaker 1: we bring you the most noteworthy and useful interviews for
0:10
Speaker 1: you and your money, whether at the grocery store or
0:12
Speaker 1: the trading floor. Find a Bloomberg Penil podcast on Apple
0:15
Speaker 1: podcast or wherever you listen to podcasts, as well as
0:17
Speaker 1: at Bloomberg dot com. Police and I've been talking about
0:20
Speaker 1: really over the last several days. You know, we're somewhat
0:23
Speaker 1: surprised at how well the equity markets are kind of discounting,
0:27
Speaker 1: if you will, the coronavirus and the economic income economic
0:31
Speaker 1: impact that may have going forward. Help us kind of
0:35
Speaker 1: put into perspective kind of what's going on out there
0:37
Speaker 1: in the world. We welcome, as always, our good friend
0:38
Speaker 1: Barry Ridholtz, Bloomberg Opinion columist and host of Masters in
0:42
Speaker 1: Business on Bloomberg Radio, also the founder and chairman and
0:44
Speaker 1: chief investment officer Rid Holtz Wealth Management, joining us here
0:47
Speaker 1: on our Bloomberg Interactive Broker Studio. So, Barry, one of
0:51
Speaker 1: the things that you know, people have been were ten
0:53
Speaker 1: or eleven years into this economic cycle, and people were
0:55
Speaker 1: thinking about what's going to cause or push us into
0:58
Speaker 1: the next recession. What are your thoughts on that as
1:00
Speaker 1: we think about the coronavirus and all the other crazy
1:03
Speaker 1: things going on out in the world. So, the two
1:05
Speaker 1: big things I keep hearing from pundits and investors and economists.
1:12
Speaker 1: One is a geopolitical event, and certainly the coronavirus qualifies
1:16
Speaker 1: as that. And the other is this. You know, look
1:19
Speaker 1: at Tesla, This this crazy tech boom and bubble is
1:24
Speaker 1: going to lead us to a recession. And I don't
1:26
Speaker 1: think either of those are genuine recessionary factors. Let's start
1:32
Speaker 1: with the coronavirus, which I know you guys can't get
1:34
Speaker 1: enough of. You been talking about it for solidly for
1:37
Speaker 1: a week. Look, this is gonna be the case. He well,
1:40
Speaker 1: he wants to be. Version. The a version is the
1:43
Speaker 1: is the problematic. Look at that. You think we're obsessed.
1:45
Speaker 1: You actually light here. So when you look at the
1:53
Speaker 1: impact of this, it's going to affect imports and exports
1:56
Speaker 1: out of China, It'll affect Australia and Korea and Vietnam. Um,
2:00
Speaker 1: there'll be some knock on effect in the United States.
2:03
Speaker 1: But this isn't the sort of thing without its spiraling
2:08
Speaker 1: wildly out of control. This isn't the sort of thing
2:11
Speaker 1: that leads to a recession. So we have less than
2:13
Speaker 1: a thousand deaths, right, which are tragic, and we have
2:17
Speaker 1: about ten thousand cases, and I think the death rate
2:21
Speaker 1: is somewhere around two p which is high. But last
2:25
Speaker 1: year in the United States were ten thousand influenza deaths.
2:29
Speaker 1: The flu kills ten thousand people a year out of
2:32
Speaker 1: admittedly much higher infection rates. It's a it's about a
2:35
Speaker 1: tenth or so. This doesn't cause a global recession. But
2:40
Speaker 1: this is basically what's being priced into the market today
2:42
Speaker 1: that people are saying, we hear you. Valuations in the
2:45
Speaker 1: tech companies high, and yet this is the future, so well,
2:49
Speaker 1: why not? And it seems to be justified to some
2:51
Speaker 1: degree by some of the results. It's much it's more
2:53
Speaker 1: than that. I'm gonna jump up right here, all right.
2:55
Speaker 1: It's much more than that, because if you look at
2:57
Speaker 1: the trailing five year returns, the SMP five hundred is
3:01
Speaker 1: up sixty over the past five years. The tech sector
3:06
Speaker 1: a lot more growth, a lot more potential. It's up
3:09
Speaker 1: a hundred and twenty, which sounds like a lot. Look
3:13
Speaker 1: at the exact same five year period only instead of
3:15
Speaker 1: going back from February, look at it from February two thousand,
3:21
Speaker 1: the previous five years, the NASDAC gained eight hundred and
3:25
Speaker 1: sixty five seven times the past five years growth of
3:29
Speaker 1: the NASDAC. Now. And let me also point out that
3:32
Speaker 1: tech stocks are making bootles and bootles of money. They're
3:36
Speaker 1: enormously profitable. Look at look at Apple, Microsoft, Amazon, go
3:41
Speaker 1: down the list of the amount of cash on the
3:43
Speaker 1: balance sheet. This is not the dot com era, This
3:47
Speaker 1: isn't even remotely close. These are large, profitable companies, some
3:52
Speaker 1: of which are monopolies Google, Facebook arguably monopolies or essentially
3:57
Speaker 1: I just pointed out something that Danielle DiMartino booth um
4:01
Speaker 1: Um just retweeted. She appears on our show often basically
4:04
Speaker 1: just kind of referencing what's going on in the repo
4:06
Speaker 1: market and the fact that the Fed's injecting money into
4:09
Speaker 1: the short end of the market, and she says that
4:12
Speaker 1: is what's driving the markets. Everybody is entitled to be
4:15
Speaker 1: as wrong as they want, and I have been arguing
4:17
Speaker 1: with daniel de Martino about this for a solid decade.
4:22
Speaker 1: Let's assume she's right Okay, so the Fed is doing this.
4:25
Speaker 1: Now you know the Fed is driving the market higher
4:28
Speaker 1: than you must really like stocks because there is no
4:30
Speaker 1: sign the Fed's gonna stop doing this. I don't believe
4:33
Speaker 1: the repo market directly in equity value, but put the
4:37
Speaker 1: repo market aside, because a lot of people say that
4:39
Speaker 1: that's just completely a structural issue. It's not necessarily pumping
4:42
Speaker 1: liquidity into markets. Uh. There have been a lot of
4:44
Speaker 1: arguments build Dudley in particular, making it in a Bloomberg
4:47
Speaker 1: opinion column recently in former New York FED president. But
4:50
Speaker 1: just on a larger point here, this concept of Fed stimulus,
4:53
Speaker 1: I think it's poignant at a time when Christine Lagarde
4:55
Speaker 1: came out overnight the ECB president and said, we don't
4:59
Speaker 1: have that much more leverage to lower rates to stimulate
5:03
Speaker 1: the economy. Hey, lawmakers, it's your turn, and that's what
5:07
Speaker 1: she was saying. And you're hearing this increasingly, this feeling
5:10
Speaker 1: that yeah, they're in there supporting the market, but they're
5:13
Speaker 1: running out of ammunition. That doesn't concern you. The fact
5:16
Speaker 1: that they're running out of ammunition and they haven't gotten
5:18
Speaker 1: inflation up further, and you're seeing capex go down. I mean,
5:23
Speaker 1: there are a whole host of things you can point
5:24
Speaker 1: to to be barished. So I have a post of
5:26
Speaker 1: on the blog a couple of years ago with a quote,
5:30
Speaker 1: the FETE is running out of ammunition. Central bankers running
5:32
Speaker 1: out of communition. This is a slide in the presentation
5:35
Speaker 1: I do. Every year for the past twelve years, someone
5:38
Speaker 1: has come out and said the FETE is running out
5:39
Speaker 1: of ammunition, And as far as I can tell, they
5:42
Speaker 1: have an infinite amount of ammunition. Because they issue credit
5:47
Speaker 1: and they affect rates ps. Nobody is making buy or
5:51
Speaker 1: cell decisions these days, about capex, about homes, about any
5:56
Speaker 1: large purchase um because of we're its are if rates
6:01
Speaker 1: go up a percent, they're still historically cheap, so that
6:04
Speaker 1: that's not the issue. When we'd say the FED is
6:07
Speaker 1: running out of ammo, the question is how low are
6:11
Speaker 1: they going to keep rates and for how long? And
6:14
Speaker 1: how much is that affecting other people's UM purchase decisions,
6:18
Speaker 1: consumer demand, etcetera. I don't like the entire FED argument,
6:23
Speaker 1: the central bank argument. It's clear the economy is instill
6:28
Speaker 1: in a post credit crisis state and it is not
6:31
Speaker 1: the most robust. Contrary to what you may have heard
6:33
Speaker 1: at the State of the Union address, the global economy
6:37
Speaker 1: and the U S economy have been highly dependent on
6:40
Speaker 1: monetary policy. I'll give that much to Danielle. She's right
6:43
Speaker 1: about that. And where Christine Legard is half right is
6:47
Speaker 1: that we understand the Kinsian playbook in a crisis, when
6:52
Speaker 1: when demand from consumers and demand from UH the business
6:56
Speaker 1: sector drops, the government should step in with fiscal stimulus.
7:00
Speaker 1: The fact that we've gone so long relying mostly on
7:03
Speaker 1: monetary policy is a giant policy mistake. It should have
7:07
Speaker 1: been fiscal stimulus from day one, with monetary stimulus right
7:11
Speaker 1: behind it. Christine Legarde is absolutely right, albeit a decade late,
7:17
Speaker 1: and it is remember the Austerians in the UK and Europe.
7:20
Speaker 1: They took a bad situation and said, how could we
7:23
Speaker 1: make this much much worse? I know, let's cut back
7:27
Speaker 1: spending right into the teeth of a drop of demands,
7:31
Speaker 1: and they very successfully made the circumstances in Europe much worse.
7:36
Speaker 1: There is a reason why the US recovery preceded that
7:40
Speaker 1: in Japan and then in Europe. We recognize this immediately
7:44
Speaker 1: for what it was. We had Bernanke doing monetary stimulus,
7:47
Speaker 1: and we still did a modest seven or eight hundred
7:50
Speaker 1: billion dollar stimulus should have been three or four trillion.
7:53
Speaker 1: But let's hold that aside. Barry rid Holts, founder of
7:55
Speaker 1: red Holts Wealth Management, Bloomberg opinion columnist, founder of rit Holts,
7:59
Speaker 1: while the management and incredible orator on the woes and
8:04
Speaker 1: the lack of fiscal stimulus, I will say, I love
8:07
Speaker 1: them sitting around thinking how can we make this much
8:10
Speaker 1: much worse? Here we go, we're gonna be hearing from
8:24
Speaker 1: President Trump after he was acquitted of the impeachment charges
8:28
Speaker 1: brought to him by the House of Representatives. Senators, particularly
8:32
Speaker 1: the Republicans, really joined forces and voted to acquit him.
8:36
Speaker 1: Joining us now to discuss Preneur, a senior editor for
8:39
Speaker 1: the National Review, also a Bloomberg opinion columnist, coming to
8:42
Speaker 1: us from Washington, d C. I just want to start
8:45
Speaker 1: a mesh uh your opinion of the stance that Republicans took.
8:49
Speaker 1: Do you think that they did the right thing in
8:52
Speaker 1: acquitting President Trump. I think that Senator Romney had the
8:57
Speaker 1: better of the argument among Republicans. I think that President
9:02
Speaker 1: Trump abused his power, and even some of the Republicans
9:05
Speaker 1: who voted to acquit him agreed with that. Uh and UH.
9:10
Speaker 1: The impeachment power was put into the Constitution by the
9:13
Speaker 1: founders precisely to deal with presidential abuses of power of
9:18
Speaker 1: this nature. So I think he should have been convicted. Remesh.
9:22
Speaker 1: The National Review is thought of as a right leaning,
9:25
Speaker 1: a conservative leaning, typically Republican publication. How much pushback do
9:30
Speaker 1: you get when you say things like this given the
9:32
Speaker 1: fact that President Trump has a near record amount of
9:36
Speaker 1: support among Republicans, Well, the official editorial position of the
9:40
Speaker 1: magazine is on the other side. For me, most of
9:42
Speaker 1: my colleagues are on the other side, So I do
9:45
Speaker 1: get a lot of uh, pushback, disagreement, um, sometimes very
9:51
Speaker 1: politefully politely and thoughtfully expressed uh from our readers, sometimes
9:56
Speaker 1: less so so. Remesh. Let's look forward a little bit.
10:00
Speaker 1: Do you think the acquittal or the in the Senate
10:04
Speaker 1: means for President Trump and the Democrats? How do you
10:06
Speaker 1: think that's going to kind of play out for the election?
10:10
Speaker 1: I suspect that it will not be a top of
10:13
Speaker 1: mind issue by the time of the election. UM. I
10:18
Speaker 1: just think that we have a lot of time between
10:20
Speaker 1: now and November, and media cycles and news cycles are
10:24
Speaker 1: just a lot faster than they used to be, so
10:27
Speaker 1: I think we'll all probably be obsessing about something else
10:30
Speaker 1: in the last weeks of October in the beginning of November.
10:33
Speaker 1: Do you think that going forward that this will actually
10:37
Speaker 1: solidify President trump space behind him or do you think
10:40
Speaker 1: that this will just sort of be a side note
10:42
Speaker 1: as we proceed towards November. President Trump has been extremely
10:50
Speaker 1: careful to keep his base together. He has done a
10:54
Speaker 1: lot of things that previous Republican presidents would not have done,
10:58
Speaker 1: but on the core issues that mattered Republican voters, like
11:03
Speaker 1: guns and taxes and abortion, he has been a completely
11:06
Speaker 1: orthodox Republican and so he had a unified base even
11:11
Speaker 1: before impeachment. Impeachment may have slightly solidified that base, but
11:16
Speaker 1: the partisan dynamic of a presidential election was likely to
11:21
Speaker 1: generate that result anyway. What do you make of Senator
11:25
Speaker 1: Mitt Romney's decision to vote to convict Well, I think
11:30
Speaker 1: that it surprised a lot of people who had just
11:34
Speaker 1: resigned themselves to this being uh an almost completely perfectly
11:40
Speaker 1: uh party line vote. Um. I think um. Senator Romney
11:45
Speaker 1: made a good case for his decision. Uh, it's not uh,
11:50
Speaker 1: you know, obviously doesn't have change the outcome. UM, but
11:53
Speaker 1: it just sort of puts him on record about, UM,
11:57
Speaker 1: what the appropriate norms for presidential conduct ought to be.
12:03
Speaker 1: Considering your stance that you thought that President Trump should
12:06
Speaker 1: have been convicted, do you think that he should lose
12:10
Speaker 1: or are you voting for someone else in November? Well,
12:15
Speaker 1: I don't even know who the Democratic nominee is going
12:18
Speaker 1: to be. UM. I certainly think it's unlikely, UM, that
12:23
Speaker 1: I am going to vote for President Trump. I didn't
12:26
Speaker 1: vote for him last time. Uh, and I continue to
12:30
Speaker 1: have UM serious objections to the way he has conducted
12:35
Speaker 1: himself in office. Do you think there are any Democrats
12:38
Speaker 1: as we as currently currently constituted in the field that
12:41
Speaker 1: can be President Trump? Oh? You know, UM, right now,
12:46
Speaker 1: I'd say that President Trump is probably favored to win,
12:51
Speaker 1: but I wouldn't say that he's an inevitably going to win.
12:55
Speaker 1: And I think a number of the Democratic candidates could
12:58
Speaker 1: potentially defeat him. Um. Some are I think riskier than others.
13:03
Speaker 1: I think Senator Sanders UM would be a risky nominee
13:08
Speaker 1: for the Democratic Party given the historic and continuing on
13:12
Speaker 1: popularity of socialism in the United States. Thank you so
13:16
Speaker 1: much for joining us. We appreciate your thoughts. Peuro was
13:20
Speaker 1: a senior editor for the National Review, also Bloomberg opinion
13:23
Speaker 1: columnist as well, and you could read the work from
13:26
Speaker 1: Remesh and the other Bloomberg opinion columnists at Bloomberg dot com,
13:29
Speaker 1: slash Opinion and on the terminal O p I n Go.
13:46
Speaker 1: Tex shares absolutely surging after better than expected earnings from
13:50
Speaker 1: a lot of the giants, plus looking at the trajectory
13:54
Speaker 1: forward that they are the future. Big question, could the
13:57
Speaker 1: coronavirus and the spread there disrupt supply chains enough to
14:01
Speaker 1: make a material DNT for these companies? And just how
14:05
Speaker 1: much good news has already been priced in without perhaps
14:08
Speaker 1: that good news actually happening. Bradstone joining us here in
14:11
Speaker 1: our interactive broker studios we're so glad to have. Do
14:13
Speaker 1: you hear in New York normally San San Francisco, Senior
14:16
Speaker 1: Executive editor of Global Tech for bloom Bloomberg News. Brad,
14:19
Speaker 1: Let's just start with what we've seen in terms of
14:22
Speaker 1: the supply chain challenges UH stemming from the coronavirus for
14:27
Speaker 1: big tech. We've heard from Apple. What else are we
14:29
Speaker 1: hearing with with chips? With other areas? Thankfully so well.
14:32
Speaker 1: I mean, I think there's a lot of ambiguity, there's
14:34
Speaker 1: a lot of concern, uh and and and doubt. I
14:38
Speaker 1: mean just like the World Health Organization you know, is
14:40
Speaker 1: saying it doesn't quite know, you know, how this virus operates, Um,
14:44
Speaker 1: how it started, whether we're at peak infection. You know,
14:47
Speaker 1: the tech companies don't know what's coming. And so we've
14:49
Speaker 1: seen a lot of of the of the big suppliers
14:52
Speaker 1: kind of warren. Uh, not much concrete evidence yet. So
14:56
Speaker 1: so Fox con Right, the maker of the iPhone, saying
14:58
Speaker 1: it expects one to three or sent growth and set
15:00
Speaker 1: us three to five. You know, qual Calm warning that
15:03
Speaker 1: it could be material materially impacted. We've seen LG Electronics
15:08
Speaker 1: withdraw from the big Mobile World Congress trade show in Barcelona. Um.
15:13
Speaker 1: You know, so if you're a tech company with the exposure,
15:16
Speaker 1: if you're supply chains in China, you know you're watching
15:18
Speaker 1: it and it's sort of up in the air what
15:20
Speaker 1: what the impact is going to be and whether it
15:22
Speaker 1: will impact global demand. So Brad, you and your the
15:25
Speaker 1: technology team out on the West coast to cover this
15:27
Speaker 1: so so well, uh, thinking about all the supply chain
15:30
Speaker 1: of global technology. First, we had the trade uncertainty, which
15:34
Speaker 1: I guess still is there between the US and China
15:36
Speaker 1: despite the Phase one deal. Now we've got this virus.
15:39
Speaker 1: A lot of times company has been talking about trying
15:41
Speaker 1: to de emphasize or take some of the supply chain
15:44
Speaker 1: out of China, maybe move with the Vietnam or other
15:46
Speaker 1: areas in Asia. Is there any evidence that that they're
15:48
Speaker 1: going to follow through with that or that they can
15:50
Speaker 1: actually do that to move the needle. I mean, I
15:52
Speaker 1: think they will follow through, but that's such a long
15:54
Speaker 1: term process, right, and you've got you know, you've got
15:56
Speaker 1: thirty years of the supply chain consolidating in China, in
16:00
Speaker 1: particular in areas of China like shen Zen, and and
16:03
Speaker 1: you're it's not gonna it's not gonna happen anytime soon.
16:05
Speaker 1: And some of the you know, the politically motivated promises
16:08
Speaker 1: like Fox Con saying it's going to build a facility
16:11
Speaker 1: in Wisconsin. Uh, you know, that's been a little more
16:14
Speaker 1: hyped than reality. So none of these companies can adjust
16:17
Speaker 1: fast enough to contend with what's happening now in China.
16:20
Speaker 1: So you talked about some of the supply chain challenges,
16:22
Speaker 1: and yet we're looking at the NASDAC up six point
16:24
Speaker 1: six percent. We're looking at a Fang plus index having
16:29
Speaker 1: its biggest run in the most valuation relative to the
16:33
Speaker 1: S and P I think in history. I mean, we're
16:35
Speaker 1: looking at some pretty extreme valuations. When you talk to people,
16:39
Speaker 1: is there a sense that there's too much good news
16:41
Speaker 1: baked in? No? I think. I think it's really driven
16:45
Speaker 1: by the kind of consolidation of of tech into you know,
16:51
Speaker 1: into a few companies, and like you have the virus,
16:53
Speaker 1: and you have the regulatory overhang, and yet right Apple
16:57
Speaker 1: Blockbuster iPhone sales, you know, the dock near an all
17:00
Speaker 1: time high, you know, Amazon, the re acceleration of the
17:03
Speaker 1: cloud business despite all the fear and uncertainty around like Microsoft,
17:08
Speaker 1: you know, winning the Jedi contract and whether Amazon's cloud
17:10
Speaker 1: growth was slowing down, and are re acceleration in retail right,
17:14
Speaker 1: more people becoming prime members and so yeah, you're right,
17:17
Speaker 1: it seems oversold, I mean, and of course you have
17:19
Speaker 1: examples where that is true, like Tesla right over overbought um.
17:23
Speaker 1: And yet you know, when you look at the performance
17:25
Speaker 1: of these companies, despite the sort of bad news and
17:28
Speaker 1: the regulatory concerns, they're still doing really well. All right,
17:31
Speaker 1: So can that enthusiasm translate and spill back over to
17:35
Speaker 1: the unicorn world, which had some of its shine taken
17:38
Speaker 1: off at the end of last year after a couple
17:40
Speaker 1: of less than happy IPO situations. That's right now and
17:43
Speaker 1: then and then we're sort of into a different discussion,
17:46
Speaker 1: right because you know, when you when you look at
17:48
Speaker 1: the companies I'm on public last year, Uber and Peloton
17:51
Speaker 1: and then of course we Work, which didn't even make
17:53
Speaker 1: it out, you had a situation where the hype did
17:55
Speaker 1: collide with reality and a lot of the value was
17:57
Speaker 1: taken out already by private equity, by soft bank, by
18:01
Speaker 1: the venture capital firms. So you know, there you have
18:04
Speaker 1: a situation where you've got companies like Airbnb or or
18:08
Speaker 1: or the fintech company robin Hood, which are probably looking
18:11
Speaker 1: at this market with a lot of anxiety, wondering and
18:14
Speaker 1: cast for the Mattress company of course, today, you know,
18:16
Speaker 1: how are the public markets going to react, particularly if
18:19
Speaker 1: they if they remain unprofitable. So one of the issues
18:22
Speaker 1: that has kind of crept into the technology discussion over
18:26
Speaker 1: the last year or two has been regulatory overhang. Now,
18:30
Speaker 1: historically the U. S Government has taken I think pretty
18:33
Speaker 1: light touch to the U S. Tech industry that might
18:36
Speaker 1: be changing. How what's the feeling in the valley. There
18:38
Speaker 1: is this a paradigm shift, and they've got to really
18:40
Speaker 1: start thinking about this. I think that's right, Paul. I
18:42
Speaker 1: mean storm clouds. Right, it's coming at them from all angles.
18:45
Speaker 1: You've you've got the EU, which is obviously the most
18:48
Speaker 1: active over the last few years. UM. But then in
18:51
Speaker 1: the US, the Justice Department seeming to increase the pace
18:55
Speaker 1: of its investigation, particularly of Google. UM. But then and
18:59
Speaker 1: particularly with the guards. So it's third party ad network.
19:02
Speaker 1: You know, we've reported on the Wall Street Journal has
19:04
Speaker 1: reported that they're interviewing publishers looking at Google's ad dominance.
19:08
Speaker 1: Then you've got the FDC, You've got Attorneys General. Um,
19:11
Speaker 1: you've got the David Cellini, uh, the the the House
19:16
Speaker 1: member from Rhode Island, you know, leading these discussion panel
19:20
Speaker 1: discussions looking at big tech. And so yeah, I think
19:24
Speaker 1: we're sort of at peak or we're close to peak. Um,
19:27
Speaker 1: you know, scrutiny of the big tech companies, and that's
19:29
Speaker 1: not that's what we're just getting started there. And it
19:31
Speaker 1: does seem to be the one thing that all the
19:33
Speaker 1: presidential candidates kind of agree on right now markets basically
19:36
Speaker 1: saying it doesn't look like those politicians are going to
19:38
Speaker 1: move soon on anything. And it seems like tech companies
19:41
Speaker 1: believe that as well. Is there a sign, any sign
19:44
Speaker 1: whatsoever that they're wrong, that there is some kind of
19:46
Speaker 1: push to get some regulation passed in the near term.
19:49
Speaker 1: I think you're I don't think they're wrong. I think
19:52
Speaker 1: this is a long term process, you know. And and
19:54
Speaker 1: we saw it with the Microsoft case in the nineties.
19:56
Speaker 1: It takes years, it's appealed, the Supreme Court often has
19:59
Speaker 1: to get into these things. But you know, when we
20:02
Speaker 1: saw Makon del Rahim, the head of the d o
20:05
Speaker 1: j Antitrust Division, recused himself from the Google investigation, there
20:09
Speaker 1: are signs that things are accelerating, you know. And he
20:12
Speaker 1: was involved in the sale of double click to Google.
20:14
Speaker 1: So it's one reason why you'd want to step back.
20:16
Speaker 1: But things like that, you know, suggests that we're we're
20:19
Speaker 1: no longer in the realm of the hypothetical. It might
20:21
Speaker 1: take a long time, but these companies are girding for battle.
20:24
Speaker 1: Brad Stone, thanks so much for joining us. To really
20:26
Speaker 1: appreciate you coming into our Bloomberg studios, usually based in
20:30
Speaker 1: San Francisco. Brad Senior Executive editor of Global Technology for
20:33
Speaker 1: Bloomberg News. He in a team do a great job
20:35
Speaker 1: covering everything on the tech space. They've been very busy
20:37
Speaker 1: with all these I p o s and all these
20:39
Speaker 1: big issues affecting big tech. The Treasury Department gave details
20:54
Speaker 1: about their issuance of twenty year treasuries for the first time,
20:57
Speaker 1: as they laid out a plan to find as a
21:00
Speaker 1: deficit for the federal government that should reach one trillion
21:04
Speaker 1: dollars annually over the next ten years. Is according to
21:07
Speaker 1: independent analyzes. The question is doesn't matter and this has
21:11
Speaker 1: been a subject of huge debate. Joining us now the
21:14
Speaker 1: way in Chris Edwards, director of tax policy Studies at
21:17
Speaker 1: the Cato Institute an editor of Downsizing Government dot org. Chris,
21:22
Speaker 1: you have come out with some pretty stark warnings about
21:25
Speaker 1: the federal deficit. Can we just start about why a
21:28
Speaker 1: federal deficit is so problematic? A lot of people challenging
21:31
Speaker 1: that concept in an era where there is an encouragement
21:34
Speaker 1: for more fiscal stimulus. Well, what the federal government is
21:38
Speaker 1: doing right now is completely unique in in our two
21:41
Speaker 1: stories of history in the past We've had spikes in
21:44
Speaker 1: federal government that usually during wars, you know, the Civil
21:47
Speaker 1: War and World War One and World War Two, but
21:49
Speaker 1: the government has always paid the debt back down again.
21:53
Speaker 1: Now we are not at war. We're in the eleventh
21:55
Speaker 1: year of economic expansion. Now we should be down our debt.
22:00
Speaker 1: But our debt is the highest in our peacetime history,
22:03
Speaker 1: and it is going up. The latest Congressional Budget Office
22:06
Speaker 1: data shows that the annual deficit is going from a
22:10
Speaker 1: trillion this year to one point seven trillion ten years
22:13
Speaker 1: from now. And I think that's optimistic. For one thing,
22:16
Speaker 1: the CBO doesn't put any recessions in its projections, and
22:21
Speaker 1: yet we probably will have a recession in coming years sometime,
22:24
Speaker 1: and that will blow an even bigger hole. So I
22:27
Speaker 1: think the outlook is very scary. Chris. Are you surprised
22:30
Speaker 1: that the Republican Party hasn't made this bigger of an
22:33
Speaker 1: issue and and really tried to work harder to uh
22:37
Speaker 1: shrink the size the government to deal with this deficit.
22:40
Speaker 1: It is remarkable. There's been huge responsibility on both sides.
22:44
Speaker 1: You know, the Republicans they just want to cut taxes,
22:46
Speaker 1: which increases deficits that the Democrats and Republicans want to
22:50
Speaker 1: increase spending. So we've got the situation where there's irresponsibility
22:54
Speaker 1: on all sides. What's remarkable is if you go back
22:57
Speaker 1: and you look at the federal budget document and so
23:00
Speaker 1: say President Reagan or President Clinton, they were there's a
23:03
Speaker 1: lot of concern about deficits. There was a focus on,
23:07
Speaker 1: you know, creating new mechanisms to try to reduce debt
23:10
Speaker 1: and deficits. That has all gone out the window. And
23:13
Speaker 1: I think what has happened is pretty clear that we
23:16
Speaker 1: have global capital markets these days, and you are gonna
23:19
Speaker 1: be able to borrow at very low interest rates, and
23:22
Speaker 1: politicians don't have any fears about the death. It used
23:26
Speaker 1: to be the politicians thought if they ran big deficits,
23:29
Speaker 1: it would push up mortgage interest rates, it would cause inflation,
23:32
Speaker 1: and it would create political pain for them. But I
23:35
Speaker 1: think all the political pain has gone and so they're
23:38
Speaker 1: just their natural spending instincts have come out and they're irresponsible, Chris.
23:43
Speaker 1: But to that exact point, they have blown up the
23:47
Speaker 1: deficit and it hasn't mattered. In fact, we just got
23:49
Speaker 1: to read today, uh that mortgage rates in the United
23:52
Speaker 1: States have fall into their lowest in sixteen. So why
23:56
Speaker 1: is it a problem to have a big deficit. Uh,
24:00
Speaker 1: The first problem is that all this all this borrowing
24:05
Speaker 1: is cost pushed to the future. The pain doesn't come now.
24:09
Speaker 1: The government borrows another one billion or ten billion, or
24:12
Speaker 1: hundred billion, that is all a cost on the next
24:14
Speaker 1: generation of young taxpayers. Taxes will to be higher twenty
24:19
Speaker 1: trillion in the future because we've got this giant twenty
24:22
Speaker 1: trillion dollar debt now. So it means that and as
24:24
Speaker 1: you know, just somewhat a bit less than half of
24:27
Speaker 1: all our debt is borrowed from abroad. So that means
24:30
Speaker 1: that young American workers in incoming decades will be working,
24:35
Speaker 1: their taxes will be going to Washington siphoned off from
24:38
Speaker 1: them and paid the foreign creditors. So they're gonna be working,
24:41
Speaker 1: and we're not even going to get the benefit of
24:43
Speaker 1: that work here in the US economy. So that's where
24:46
Speaker 1: the rubber hits the road, the costs on the future.
24:50
Speaker 1: So Chris in hindsight, A little bit of hindsight here
24:52
Speaker 1: with tax cuts a mistake from an economic perspective, I
24:57
Speaker 1: think that the corporate tax cut was absolutely needed. You
25:00
Speaker 1: have to be globally competitive on our corporate tax rape
25:03
Speaker 1: the individual tax cuts, I think we're much more of
25:05
Speaker 1: a mixed bag. As you know, the individual tax cuts
25:08
Speaker 1: expire at the end of and I think there's gonna
25:11
Speaker 1: be and there should be a good debate at that
25:13
Speaker 1: time whether they're worth extending, because if Congress keeps spending
25:16
Speaker 1: like uh, the money like this, those individual tax cuts,
25:20
Speaker 1: in a way, they're not really tax cuts. All they're
25:22
Speaker 1: doing is deferring a giant tax burton that's going to
25:25
Speaker 1: come in the future anyway. Chris. There's also though an
25:28
Speaker 1: argument here that if there is some sort of fiscal
25:31
Speaker 1: stimulus ongoing, that it will continue to grow the economy
25:36
Speaker 1: enough to finance some of the tax bills that will
25:38
Speaker 1: come do later on, that the consequences of not taking
25:42
Speaker 1: action now could potentially be more detrimental to the U.
25:46
Speaker 1: S economy than ballooning the deficit. What do you say
25:49
Speaker 1: to those arguments, It doesn't make any sense. Look in
25:52
Speaker 1: the in the under President Clinton, we had some of
25:56
Speaker 1: the strongest growth we've had over the last half century,
25:59
Speaker 1: and we've balance the budget. Clinton balanced the budget four
26:02
Speaker 1: years in a row, and we had strong economic growth.
26:05
Speaker 1: The idea that we're getting stimulus from the massive deficits
26:08
Speaker 1: now doesn't make any sense. I think what it does
26:10
Speaker 1: is it scares investors and scares businesses about the future
26:14
Speaker 1: credit worthiness of the U. S. Economy. So I don't
26:17
Speaker 1: And and look, we've only got modest economic growth right
26:20
Speaker 1: now despite this giant so called stimulus, So I don't
26:23
Speaker 1: buy the stimulus argument. Chris Edwards, thanks so much for
26:27
Speaker 1: joining us. We appreciate your thoughts here. Chris Edwards, director
26:30
Speaker 1: of Tax Policy Studies at the Cato Institute, also an
26:33
Speaker 1: editor of Downsizing Government dot org based in Washington, d C.
26:37
Speaker 1: Raising the specter of how this, potentially the federal deficit
26:41
Speaker 1: could end badly UH for the U. S. Government, and
26:45
Speaker 1: it's populous. Look, whichever way you you believe, it's a
26:49
Speaker 1: really interesting debate to be having, because for a long time,
26:52
Speaker 1: to Chris's point, people did believe if you balloon the deficit,
26:55
Speaker 1: you'd end up with much higher rates, which would lead
26:58
Speaker 1: to uh some sort of economic slow down in their
27:00
Speaker 1: own right. But the problem is we've seen exactly the opposite,
27:03
Speaker 1: that major developed nations have gone out there and they
27:07
Speaker 1: have ballooned their deficits and their rates have dropped, so
27:10
Speaker 1: kind of calling into questions some of the old theory here,
27:14
Speaker 1: I'd raising questions about helicopter money, etcetera. It's an interesting
27:17
Speaker 1: debate one that will be definitely had increasingly fervently. Yes, exactly.
27:22
Speaker 1: Thanks for listening to the Bloomberg P and L podcast.
27:24
Speaker 1: You can subscribe and listen to interviews at Apple Podcasts
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Speaker 1: or whatever podcast platform you prefer. Paul Sweeney, I'm on
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Speaker 1: Twitter at pt Sweeney. I'm Lisa abram Woyds. I'm on
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Speaker 1: Twitter at Lisa bramwo wits one Before the podcast, you
27:36
Speaker 1: can always catch us worldwide on Bloomberg Radio