Moody's Talks - Inside Economics - Channeling Trump

Episode Date: April 9, 2025

Breitbart’s Economic and Finance Editor, John Carney, and the Urban Institute’s Jim Parrott return to Inside Economics to discuss the motivations and endgame of President Trump’s global trade war, tax and spending policy, and what will happen with Fannie and Freddie. The upshot of the conversation: the trade war isn’t going to end soon, and a recession is dead-ahead.Guests: John Carney, Finance and Economics Editor at Breitbart & Jim Parrott, Nonresident Fellow at the Urban Institute  Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X', BlueSky or LinkedIn @MarkZandi, Cris deRitis on LinkedIn, and Marisa DiNatale on LinkedIn Questions or Comments, please email us at [e-mail]. We would love to hear from you.  To stay informed and follow the insights of Moody's Analytics economists, visit Economic View. Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

Welcome to Inside Economics. I'm Mark Zandi, the chief economist of Moody's Analytics, and I'm joined by my two trusty co-host, Marissa Dina Talley and Chris Drudies. Hi, guys. Hi, Mark. This is a special bonus podcast. We've got two guests,

and they're coming back for a reprise. Is it reprise? Reprise, right? A reprise? Mercia, do you know? I think he's pronounced it either way. Okay. All right, well, it's Jim Parrott and John Carney.

Hey, guys. Good to have you back. Thanks for having us. Yeah, we were just. discussing when was the last time you're on. It was, I think, I think this was Jim's joke. It was, it's like a month in real time. It's like 10 years in President Trump time. A lot has happened over the last month or so. I can't believe Donald Trump has only been president for, what is it, two months now, right? Two and a half months. Yeah, something like that.

Well, let me introduce you guys just to make sure that we level set. Jim, Jim and I are collaborative. on lots of research over the years. Jim was a former Obama official, did a lot of work on housing, housing finance, and now has his own consultancy and is a senior fellow at the Urban Institute, and we still collaborate. We're working on a paper

that we can't seem to get across the finish line, and I blame that on Chris. Chris. Damn you, Chris. Yeah. What? Exactly. See?

See how he's shirks. He's shirking already. He's Jerker. No? I'm ready to go. I already know the conclusion, so now we just need the data. Okay. Yeah, we're getting close. We're getting close. And John, John, of course, is the economics editor. Are you the editor-in-chief at Breitbart? No, I'm the, I am the economics and finance editor. It might be finance and economics editor. I can't really keep it straight. That's right. Tell people different answers, then you can, you know, just keep everybody guessing.

John, are you a White Lotus fan? Do you watch White Lotus? I do, although I'm not. totally up to date on this season. So I've watched the rest, but I intermittently cancel my various subscriptions. Oh, you're one of those kind of people. Yeah, I'm a, you know, I turn it on if there's a bunch of things I want to watch. And then I, you know, shut it back off as soon as there's like not a maximum density of things to watch on a, you know, I've never done that. Is there any transaction costs? I mean, no, no.

It's done. It's just, you just got to remember. to do it. And so, you know, it takes about five seconds. Actually, some companies, Apple makes it really easy to cancel things if you subscribe through Apple. They'll give you a list to your subscriptions. I just have a list up because, you know, like a lot of people, there are so many subscriptions online to things that you end up, you know, you look at your credit card statement or whatever, and you're like, what is I subscribed to? Yes, I totally lose track. And so every few years, I cancel my visa number, my card.

And I had them all on the same visa. And it just, one after another, they all notify me that I've got to keep paying. I'm like, oh, shit, Paramount Plus, what is that? And so then I get to go back in selectively. But it takes several years of like weed growth in my financial profile to trigger that. I guess the transaction cost is actually signing on, which is a bit painful. Like you go, you get on, you're ready to watch some shit. you're all excited.

Oh, I'm not, I got to subscribe to this thing. Then you go subscribe. Takes a while. So I guess that's the transaction cost. Yeah. And you, it does, you do have to think about, you know, remember, oh, to cancel this. I mean, I end up subscribing to way too many substacks for people, you know, because I'm like, oh, I want to read that article.

And then you click the button. Very often they're like, oh, you get a seven day free trial. And then four months later, you're like, oh, wait. I read that one article. Right. I'm still saying. But, you know, that's going to people who I, at least with the substack stuff, it's going to writers and support the writers.

According the writers. Yeah, absolutely. Well, it's good to have you back. I thought we tackle and, you know, we labeled the last time you're on that episode, the Trump whisperer. And I think you're kind of okay with that, right? Yeah, I think that's fair. Fair.

Yeah. You kind of channel the president, which is a. it ceased from kind of my vantage, a kind of a rare talent, you know, because that's not, again, from my prism, not easy to do to channel the president. So that's really, you know, very important. And I know you talked a lot of folks in the administration. And I thought we tackle three topics. And Jim put a nice outline together. First would be obvious, the trade war, the terrorists, what's going on there. The second would be, you know, no one's talking about this, but the next thing up on the agenda is tax and spending policy, the reconciliation bill, fiscal policy, a lot going on and we're just not

focused on it because of the trade war. And then third, and we were joking about this, no one cares except this group, but what's going on with the GSEs, Fannie Mae and Freddie Mac, a lot of interest in our little world about that. And I thought we'd get your sense of what's going on there. Does that sound like a good game plan? Yeah, that does. On the last one, I think people will get really interested in that because even in the background, people are really interested in housing prices. and really upset about housing affordability. So maybe once we get through the tariff and the trade war chaos and we get through the tax bill, you know,

that might actually be a pretty good thing. So this will be a, you know, prescient episode where people will look back and be like, oh, those guys. Oh, yeah, they talked about this first here. I heard it here first. Right. Excellent, good job. That would be great.

So on to the trade war. I guess just the first, question is what the hell's going on, John? What is what is the motivation or the goal? What do you think? And I'm sure they're multiple, but what do you kind of, how do you frame that? How are you thinking about that? So what I would say is that there is an attempt to reorient the rules of the global economy. I mean, this is a very big project. It's not a small thing. And the way I would put it is, we did this twice before. Once right after World War II, we had Bretton Woods. We basically the U.S. set the rules of the road for the way the global economy would develop. More or less,

that was, you know, we're going to have the U.S. allies. NATO was part of this. It was economic and security. Then we did it again, you know, about 40 years later, actually, under Ronald Reagan, where we actually expanded the bubble of allies, is the way I would put it, where we grew, we threw various things, the plaza accords, through a, you know, we'd already abandoned the bread and wood system. But we expanded, you know, from, we went to Gat and then the WTO. So we expanded the realm of friendly countries, the countries that were going to get favorable trade deals from us. Now it's where about 40 years later. So I guess we're overdue for another reset of the rules of the road. Each time, by the way, the U.S. has been the leader in this. We were the leader

in setting up the original system. We were where everybody was going to peg their currencies to the dollar. We were the leader in the sort of Reagan-Thatcher era. And now we are taking the lead again, in setting new rules for the road for how the global economy will develop going forward. So, okay, but what does that mean exactly? I mean, I know what Bretton Woods means. You know, I'm not sure about Ronald Reagan, but okay, I don't know that that was a big reset, but, you know, fair enough. Right. What exactly does it mean in the current context?

Right. So what it means is that we wanted the rest to just again, from this historical perspective, one of the things we really wanted to do was win the Cold War. We wanted our allies to become super wealthy nations, and they did. Europe was a wreck. We said we will open our markets to you so that you can have a thriving economy. That worked. It really worked well.

And part of the reason we did that, one was just strategic. We wanted to win the Cold War, but two was also the idea that if we enrich the rest of the world, we will be creating markets for U.S. goods, that we will, that a rich Europe, a rich Asia, will be a great market for us. That was part of the idea also of letting China into the WTO. This will be great. We will open the Chinese market to us. Well, that part of opening the markets is now.

We did the part where we made the rest of the world rich by opening our markets to, them. So what Donald Trump wants to do and the purpose of the reciprocal tariffs in particular is to say, now is the time where you open your markets to U.S. goods. So let me just give a quick example. Indonesia. Indonesia is a pretty, you know, a lot of people think, oh, what does it's Indonesia even need from the United States? We have a trade deficit of Indonesia. Well, they buy, they import around $220 billion worth of goods every year. So they're not a very very very poor nation. They are, they buy lots of stuff, most of it from China. They buy very little of it from the U.S. They have a zero percent tariff rate on machinery and electronics from China and a 9

percent tariff rate for machinery and electronics from the U.S. So what we are saying to the world is no more. We are not going to do this anymore. You are going to open your market to the U.S. or you will find that there are very high tariffs when you try to sell into the U.S. The idea that we are giving more favorable treatment to the manufacturers of foreign nations is coming to an end. That's what Donald Trump is doing. So a couple things. One, I mean, the terrorists are a tax on the American people, right?

So what you're saying is, I want to reorder the world and we can come back to what that means because I'm still not sure what that means. but we can do that. But I'm doing that by taxing the American people to the tune of, you know, several hundred billion, depends on how you do the arithmetic, depends how high the tariff rates go, five, six hundred billion. You know, you hear the kind of the comparison to the tax increase in 1968 or the tax increases in the World War II.

I mean, that's how big these tax increases are. So you're asking American people to pay for this reordering because you're worried about a 0% tariff on Indonesian products from China versus a 9% on the to the American product? Yeah, we're not actually taxed to the American people. We tax importers who are American companies, right? So the tax is paid by people who import the goods. Where the tax burden lies, where the, where who actually ends up bearing the burden of that is very contingent.

So one of the things that we're, that's happening right now, Walmart is out there telling its suppliers around the world that we will not raise our prices on our customers. We need you, supplier, to lower your prices so that we don't, it doesn't squeeze our margin and we don't have to try to pass on any price increase to our customers. So first of all, it's not really that the American people pay. It is American importers. But those are Americans. So I'm not saying it's not a tax on America.

It is. some of it will be born, as I was say, by foreign producers. One of the things that does, though, is it says to the rest of the world, you can manufacture here, right, that you can build your stuff here and avoid the tariff. So companies that are saying, well, I'd like building in Indonesia, but maybe I should build it in the U.S. to avoid that tariff. Or they can say, well, I also want to be able to, but I notice that my ability, ability to sell into the U.S. has gone down a lot. So if you're an Indonesian company and you're

making this stuff in Indonesia, you say, well, man, they raise the tariff up to, I don't remember what the Indonesian number is. They raise the tariff up to, call it like 47%. What am I going to do about that? Well, now I'm having a lot of trouble selling to the U.S. and they're going to other places. So how can I fix that? Well, I can reduce the tariff that I charge for U.S. goods coming to my country, rebalance the trade, and make sure I bring down all my non-trade barriers. And if I get a more balanced trade with the U.S., then my tariffs will come down. So it does incentivize other countries to react to the tariff. Yes, it's a tax on what we can tax. We can't tell Indonesia you have to pay us this, right? What we can say is we are going to make it more

expensive for U.S. importers to import your goods or the U.S. importers will make. make it so that it's less rewarding for your goods to be sold into the U.S. Either way, it incentivizes Indonesia to come to the table. And frankly, that's what we're seeing. If this was just a tax on Americans, why would the rest of the world care? They would say, oh, let them tax themselves. But that's not how they're reacting. They're either reacting with, we want to come to the negotiating table and get our tariffs lowered,

or we're very angry about this and we're going to, China says we're going to raise our tariffs. They clearly don't think of it as just a tax on the American people. They think of it as a tax on their manufacturing. Well, they think they're going to sell less because of the tax. Yeah. But let me just play a bit of a game, a statement and then a bit of a game. You know, if you look at the research that has been done of the tariffs imposed under President Trump's first term. And there's been a fair amount of academic.

Fed research, 100% of the research shows that the incidence of the tariff is the American consumer. No, that is totally incorrect, actually. Oh, really? What am I missing? Yeah, no. So what they said is they found 100% pass through to U.S. import prices, but very little pass through to retail prices. So if you look at what the Fed found, there is very little increase.

in the prices of goods that people, consumers are buying. Okay, there's this is where the game comes in because I suspected that we'd have some debate around this. Let's assume if I'm right and you're wrong, just play the game. Sure. Do you still hold to I'm that this is a policy, is a good policy? I mean, if in fact the American consumer is bearing the brunt of this, would you say this is still a good policy, something we should be pursuing? So it may be. It depends on exactly how much of the price is coming through to the American consumer. Okay. And what the effects on the trade balance are and the effects

on U.S. employment. In other words, yes, if we have to pay a higher price for goods, that may be worth it if the aggregate effect of it is a better economy for the U.S. So if there's more employment, if wages are higher, if wealth is more evenly distributed across the United States, then maybe a higher price for goods is fine. But again, I don't want to concede that. I'll do it for the sake of argument. Yeah. No, that's okay. I read all the, I read all of the studies on this. And what they, some of them are very flawed, but the ones that aren't that flawed, then I pick the one that, the main one that you're probably thinking of, that found a very high pass-through rate for, tariffs, it fell on importers. They actually did not find a very high pass-through rate to retail prices.

One other question for me, and then I'll just turn it over to Jim. And the next, I think, line of questioning, I think our discussion should be around, you know, how this is going to play out. How do you think this is actually going to play out? Is back to your Indonesian example, implicit in that, I think, is you're saying it's not fair, that trade is not fair, that the U.S. is getting ripped off. And I, you know, I'm with you that with some countries we're getting ripped off, no doubt about it. Right. And there's ways in the past that we've dealt with that.

In fact, in the case of China, I would have done the Trans-Pacific Partnership, you know, the free trade deal. That I thought was a much better strategy than, you know, the kind of game of chicken we're now playing with each other, which could be quite, devastating if we keep on running at each other. But if you look at the, and again, this goes back to data that I look at, from the OECD, they've done some very careful work, very different than work done to calculate the reciprocal tariffs, but very careful work calculating the cost of tariffs and non-tariff trade barriers. Right. And the U.S. is kind of in the middle of the pack. you know, you know, some countries have higher tariff, non-tariff trade barriers. Some have low, but we're kind of in the middle. So it doesn't feel like, at least in the aggregate, you can make

this case that, you know, we've been closed off walled off unfairly from the rest of the world in trade. Does that, does that make, does that resonate with you? Well, so a couple of responses to that. When I actually don't like the framing that the Trump administration uses about America being ripped off or other countries. cheating because we actually designed this system. The WTO was created more or less in America. I would say, you know, this historical example going back. This is an American design global trading system with our allies. So the idea, and I think the countries are actually, with some exceptions, and I think China is an exception, are actually not cheating the system. They are

operating rationally within the system that we set up. So I don't want to blame. I don't want to blame countries for doing more or less what we said we want them to do. It's a little, you know, the same thing happened with NATO as well, right? We had like quotas about what they were supposed, how much they were supposed to contribute to NATO, and they didn't do it, and we were okay with that. And so getting angry or upset or calling them cheaters, I don't think it's very constructive. I think it's actually better to say, hey, guys, look, we understand we were running things one way and now we're going to run things a different way. And I think that's the better framing for this, not just, you know, you're cheating, you're ripping us off. I understood that as a

visceral thing and I know why politicians talk that way. But I think if you want to look at it more rationally, it's better to say people were responding to the system. The system was, however, rigged against us, but rigged by us. Okay. It was rigged. But rigged by us against U.S. manufacturing. And the fact that we have had, even if our trade barriers might be high, we still have run these immense, persistent trade deficits that normal economics tells us shouldn't persist forever. And so what I, so, and I agree with that. They're not going to persist forever.

This is the end of them. We are now going to move maybe not to a completely balanced trade. The U.S. is still probably going to absorb some of the excess production of the world. But we are not going to absorb the excess production that we have to the extent this far. And the rest of the world is going to have to absorb more of the U.S. production. One quick. And now I'll turn over to Jim, I promise. Is the, just listening to you, is the KPI here, you know, the goal, the metric for success, the trade.

It sounds like it's a trade deficit. Is that right? Yeah, well, so that's definitely Donald Trump's view of it. He really does look at it when a lot of people are like, oh, well, you should have done it just against tariffs or, you know, somehow calculated the non-tariff barriers, which I think actually is an unreasonable request when people are like, you should have put a number on the non-tariff barriers. That's really hard to do. Even just calculating what every other country's tariff is is almost impossible. There are three million tariffs in the world. And so when you try to wrap your minds around it, it's really hard.

And yet, you know, the people who study this spend a lot of time just trying to figure out what the tariffs that exist are. That's why I was like, I was confused as how they could come up with anything for these reciprocal tariffs in the time that they had. And they obviously, they made stuff up. It didn't really matter. Well, the way I would put it is they really got down to what they care about, right? They said, you know what.

Trade deficit. Right. When it comes down to it, we want to get rid of the trade. Whether it has any new with unfair trade, fair trade, that's irrelevant, you know, comparative advantage. It's irrelevant. Well, one way of putting it is comparative advantage shouldn't create persistent trade deficits, right? Every country should be pursuing the thing that it has the least opportunity cost to pursue. So it should actually result in balance trade, at least in theory.

So if there are persistent trade deficits, it is a sign that there is something. And I'm not, you know, we don't have to figure out what. And this is what the Trump administration would say. You may have Byzantine hidden trade barriers that we can't even get to. Maybe it's frankly just a cultural trade barrier that people say, I prefer to not to hold dollars and to not buy stuff from the U.S. That could be part of it. Maybe it's that your entire economic system depends on you having a trade surplus

and you taking in more dollars than you are willing to spend on U.S. goods and services. So whatever the cause of it is, I think it makes sense to say, what we really care about in the end is the trade deficit. We're not sticklers for rules. This isn't just a particular objection to the procedure that got us the trade deficit. It's an objection at its heart to the trade deficit. John, just I'm going to make a prediction. Just put this, let's mark this. Yes.

You know, when we come back five years from now, even if President Trump is halfway, a quarter, are way successful in imposing these tariffs, the trade deficits is going to be just as large as a share of the economy. You know, it goes up and down with the business cycle. None of this is going to affect that whatsoever. But anyway, I'm going to turn it over to Jim. I can't wait for that. Let's just say it.

Mark that down. We got to mark it down. Mark it down. In the middle of Trump's third term, we'll come back. April 2030, we will revisit this. We will revisit. And to the listener, this may sound like we're teaming up on John, and we are. No, I'm kidding.

Actually, John and Jim are good friends. Yeah. Well, let's give that away. I'll be the arbiter. So as a segue of that to what Mark just said, in thinking about where all this is going over the next few weeks, few months, and it's a little hard to have a conversation without playing through what you guys were just debating a little bit. but to try to set that aside for the moment. It sounds like the motivation is pretty structural in nature. You know, you're talking about moving the macro economy,

at least as it affects us in a pretty fundamental sort of way. And in the previous shifts that you talked about, you know, they were, it took a fair amount of time for that to play out in a way that, you know, hit an equilibrium, as it were. In a world in which the markets are jumping around in the way that they are, I wonder, we're talking to this a little bit in the last go-round. I'm curious about what you think the tolerance for disruption in the administration in holding the line is.

And so two versions of that. One is if the markets are pining for some sort of, clear endgame and they go up every time, Besson even hints that, you know, we're negotiating and tomorrow's the day when everybody's going to have a new number and we all can go back to sleep at night easily. In that world, then any sort of deep and at least in the interim painful transition process, you know, we'll have a pretty volatile feel to it for weeks and months, I would assume. So there's that. What does that world feel like to you from administration's point of view. And then the second version is, or is it the case that you feel

like the markets will, well, A, countries will respond in a way that will change their numbers pretty quickly and give the markets a sense of how we're going to get from here to the end game. And then a spin on that is, does the market begin to, you know, reprice companies based on this new set of rules. Is that the way to get to a bottom of sorts? Like how do you think about the uncertainty in this transition period that seems to be, by design, pretty disruptive, I guess? So I think the biggest risk is to the entire plan is what you just said.

The political tolerance for turbulence. You know, can the, and I wasn't sure. when the, I was telling people that I thought that it was a bad bet to say that the stock market had a veto over Trump's trade policies. But that was a minority view two weeks ago. A lot of people said there's a Trump put, right? If we go down, Trump will say, oh, you know, no moss. Like, you know, I'm done. We're putting on hold for another 90 days, right?

That actually was one of the things that set the market up the other day was people said, oh, you know, maybe Trump will back off. Trump has actually made it very clear now, I think, that he's not going to back off, that there is no put. And I think this is partly a second term president thing. He is now thinking about his legacy. And that's stuff I was talking about, about reorienting the global trading system.

That's what he wants. So the stock market going down isn't going to push him off the legacy of being the guy who is, restructuring the global economic order. Now, there are questions like, is everybody in his administration okay with that? You know, if you're the Treasury Secretary or the Commerce Secretary, do you want to oversee a, you know, giant decline in the stock market? They may be debates within the administration, and there are about people saying, well, you know, what can we do to try to ease some of this tolerance? It can't make American people feel good to wake up.

See, you know, stock market down, you know, bear market hits. However, I think that they have a pretty high tolerance for allowing the stock market, at least, to see some turbulence. A bigger question for me is how much tolerance do they have for the real economy? So if the unemployment rate were to climb above 5%, I think that sets off a lot of alarm bells. If the unemployment rate stays low, I think there's a lot fewer alarm bells. If GDP growth crashed, then I think there will be alarm bells. If we have 1.8 or 1.5% GDP for a couple quarters, I think they're willing to do that. So they have a tolerance for a downturn, but I don't think that they would stick through it

through a dramatic, you know, through something that looked like it was becoming a very bad recession. Would they tolerate a, you know, a quarter or two of contraction? Probably. But would they, you know, that would probably eventually start to force them to off that. But your answer, though, before you get to the end, it's, it's really interesting because it implies these are medium-term cost-benefit assessments. They're not near-term. I think what folks are scrambling to sort out is the risk tolerance in the next 48 hours in the next six days, right? And so what you're talking about is, you know, how does the next quarter go? How do the next two quarters go?

That implies that they're okay with the volatility we're seeing or some version of it, you know, for weeks, if not months until the macro stuff settles to some degree. And then only if that settles in a way that impacts employment rates and unemployment rates and GDP and the like, then they might toggle back. Like, that's a pretty big, that's not the way the markets think about this at all, I wouldn't think. I think that's right. I think that the market, I think that actually probably the next downturn in markets is

when the market finally comes to terms, capitulates, as I like to say, to the idea that Trump isn't backing off because of the market, right? As long as people think that there's like a floor, then the market can, you know, will hold out because they say, well, you know, we're not going to go down that far. When people come to the realization that there is no floor, you'll probably get another downward leg in markets. And the Trump administration is prepared for that. They were ready for a lot of volatility coming into this. They thought of that they actually made a mistake last time of over emphasizing, you know, that the market will, you know, the market loves us, right? If you do that too much, you're basically

giving the stock market a veto over your policies. They don't. So two questions related to that. It's really interesting. One is what over the near term would be sufficiently contrary to what they're expecting that they would course correct? And I'm asking that as an empirical thing, not as a, you know, the way the market folks are, which is, you know, please, what will it take writing on the wall for you to see you, you, you,

you've gone, gone astray. But what empirically is something which, if they saw it happen, they say, okay, well, our assessment of how this was going to play out was incorrect, so we've got to go with plan B. That's first question. And the second question, related is why I'm asking them together, is how much of what we're going through was sort of in the realm of the expected for these guys coming into this? I think it's surprised a lot of us on the outside. I'm curious how much of it is a surprise to them and how much of it is, well, of course,

this is how the market's going to react because we're shifting the rules regime of the global economy. Yeah, so I think they actually expected a lot of volatility. I've had conversations with people inside the administration where they use an analogy that I've been using a lot, which is Fed surprises, right? When the Fed turns more hawkish than people think it's going to, you often get a pretty severe market correction. Remember when Jay Powell gave his speech at Jackson Hole and talked about pain and suddenly everybody realized,

all right, the Fed is not untransatory anymore. They are really going to crack down on inflation. This sent markets down. That wasn't a sign. Jay Powell did not read that as a sign that he had made a mistake. The market going down wasn't going to force the Fed off of its position. They said, no, we know that that will be the reaction. We're not going to allow that to force us off the position.

That is how the Trump administration is thinking about this, that we are going to do the right policy. And if the stock market doesn't like it at first, that's fine. Remember also a lot of people make a kind of, they say, well, if the stock market's down, that must mean that this is bad for the long term. Because doesn't the stock market price in future cash flows? So again, go back to the Fed analogy. When the Fed hikes, is that bad for the long term?

Would we have been better off if they just let inflation keep going? No, we wouldn't have been. So in this sense, I would say they are absolutely prepared for volatility. Do they expect it to go as much as they did on Thursday and Friday? I think they did because they knew that they were announcing tariffs that were much higher than the market had priced in. They could have actually, you know, like if they were doing Fed-style communication strategy, they probably would have talked the markets down a lot more than they did before.

And they did a little bit, right? But they really surprised everybody with having a 10% across-the-board tariff plus these very high reciprocal tariffs. So they knew that that was going to cause a reaction and they were willing to go forward with it. So I don't think there really is a level that the stock market can move that is going to say, you know, no, we're not going to do it. I think maybe if the stock market didn't react to other countries coming forward and saying we want to negotiate, right? So right now what we saw early in the day on Tuesday and what we'll probably see going forward is that when you have countries saying, all right, we want to get rid of these tariffs.

We're going to come talk to you. We're not going to do a trade war, right? We are not going to say, well, you raised our tariffs. So now we're raising yours. I think that they do have that built into their informal mental models as well where they say, yeah, we'll go down. But as it becomes clear that we are actually not heading to a, you know, global perpetual trade war where everybody has, you know, autocratic, you know, economies and nobody trades with each other. But in fact, we're moving to a place where markets are opening

to the U.S. and the U.S. will be able to keep its markets open to the rest of the world. That will be actually the correction for equities. So I don't think that they think, just go down forever. I think they thought things would go down. But as the picture of what they think is going to happen happens, then things go back up. But to flip it around, the counterfactual, if I'm just trying to tease out like what if things shift, we end up in a slightly different trajectory. If others follow the course of China, say, and got their backs up more and we wound up with, you know, a spiral upwards rather than downwards of terrorists. Is that sufficiently sort of contrary to what they would have assumed into how they want this to go that they would reassess a little bit?

So they were very optimistic about this, I'll say. I thought we were, what, John? They were optimistic. Yeah. I think they really believed that the power of having access to the U.S. consumer market was enough. that other countries would, especially if they acted tough enough, right? This is part of it. They really needed to convince Europe, the rest of the world, that they aren't bluffing here, right?

That they were very cognizant of this risk, that if they acted as if, you know, yeah, we're going to do this, but we don't really mean it, then they wouldn't get a deal. That they had to convince the world that, you know, Donald Trump might be able to. little crazy and that he was willing to, you know, threaten whatever you want to, you know, think of it as in order to get them to come to the table, they had to act tough. So they had that, but they were optimistic that that would work, that people would come to the table. And I had asked them, going back months, actually, before they even came in. Okay, so what happens, right? Like, what if the rest of the world just reacts with fury and anger? Is it, well, we might have to go through a tough period, right? Then yeah, that'll be bad for us and it'll be bad for them,

but we think it'll be worse from them and eventually they will come around. I'm hoping, and right now it seems like that's not the world we're going to go into, that their optimistic scenario rather than my pessimistic one may actually end up being correct. There's so much. There's just so much to talk about. But, you know, my, I, As I'm listening to you, my probability that we're going into recession is rising. It's rising. We are going in, baby. And, you know, China is not as dug in as the U.S. is.

You can feel it. You can sense it. They're not scared, or at least they're not showing any fear. They're not going to change. The two largest economies on the planet, and they're paying a game of chicken, and it's the global economy and the balance, and it's going to be a mess. And by the way, the stock market's got two legs down. The first leg down is when they realize there is no put, they haven't figured that out yet.

They've been listening to you, I'm thinking I'm figuring that out. The second is once you get bad economic data and you see job loss, that's a whole other level of hurt that's coming. Although, you know, it may be based on what I was just saying, you could actually have a sort of buy the rumor or sell the rumor by the news thing with bad economic news, just like we get with the Fed reaction. right? When you get bad, when you get bad economic news, people say, oh, the Fed's going to cut, right? And so then the market goes up. If you get a really bad employment report, you may get the revival of the idea of a Trump put where people will be like, oh, like unemployment just jumped from 4.2 to 4.6. Maybe that means Trump backs off. Maybe the first time. Yeah, but I'll say that's a mistake. Like, they do that and that'll be a mistake. And, because Trump is not the Federal Reserve. He's not Jay Powell. I don't think you should try to like model in that mechanically of like,

oh, unemployment went up this much. That increased the odds of Fed cut. And so they're, you know, like you shouldn't do that with the other thing, John, on the retaliation. And I, you know, I sense that other than the Chinese, now the Canadians are kind of backing off because Trump did back down. He backed down. He was saying, I'm going to impose these across the board tariffs.

And they said, And now he's back down to not your defective tariff rate on Canada is what, six, seven percent. So they're back, they back down on that. These other countries like the EU, they're waiting and they're seeing exactly how this plays out. And if Trump continues down the path and continues to put a 20 percent tariff on on the Europeans, and they realize just like you're articulating that this is, this is not going away, this is a reordering, meaning it's going to be here forever, they are going to respond. And once they respond, you know, it's a whole new ballgame.

So the 20% tariff, though, just to be clear, is not forever. Yeah. 20% tariff is designed to come down. It's designed to force them to say, yeah, look, sorry, guys, we will buy. And for Europe is actually- Anything? I mean, why wouldn't Trump a year from now? He's mad at something else.

He's mad at them giving money to Ukraine. Why are you giving money to Ukraine? I'm going to impose another 20% tariff on you. So why in the world? would Europeans trust anything that that's being said here? I don't. I don't. Why would they? I think so I think they will because basically Donald Trump has been very consistent on this. He has said, I want access to your markets. That's the deal, right? I want to resolve this trade imbalance. No, no. He's saying, I want fentanyl. I want you to stop immigration. I want Greenland. I want the 51st state.

He's saying all these things. Well, he says these things. And the fentanyl, there are at least three different kinds of tariffs. I think we talked about that last time. But so on the trade specific tariffs, the 20%, right, he is saying those are designed to come down. There's a 10% baseline that I think there will always from now on until the end of history be a baseline entry fee to U.S. markets. I think that is set. I don't think it goes away under the next administration, whether that's Republican or Democrat. I think that is now a permanent part of the American tax code. That will be, and I expect it to get enacted by Congress eventually as well, that Congress will say, yes, actually, this is a better way of having taxation. We will have the external revenue service in addition to the internal revenue service and we will collect taxes.

We will use that revenue to do whatever we want, whether it's, you know, cut taxes, you know, provide, you know, more generous Medicare to people. whatever your priorities are, we can use that revenue to make happen. Donald Trump's going to use it to cut taxes. So one of the things that, and that will be pro-growth, but the 20% tariff is meant to come down. It's not meant to be permanent. It is a tariff that is meant to say to the rest of the world to the 20% is the EU tariff. Yes, we will do a deal with you. If you bring down, if you make enough concessions that your trade depressive,

our trade deficit with you, your trade surplus with us, comes down. Then this tariff level will come down. And it's pretty mechanical. They might say, oh, no, what happens if Donald Trump changes his mind? But they can deal with that later. Frankly, the Europeans have been so unreliable about this. In the first Trump administration, they tried really hard to get the Europeans to allow more access to their markets. And they said, yes, over and over again and never changed a thing.

So they're the ones who are actually the unreliable partners. And that's why Donald Trump is saying to everybody right now. Also, China proved unreliable. They never lived up to their side of the trade deals we cut with them. Donald Trump is saying, I'm not going to just listen to you, tell me. Oh, yeah, no, we'll do it, right? Like lower our tariff. He's now setting the baseline that the tariff's going to be there until we see real evidence that you have opened your markets.

to U.S. products. Can I try to summarize where we're going a little bit at 30,000 feet? Because for me, the takeaway is more that than it is the sort of philosophical underpinning of it just to anticipate what the next three months is like. It feels like, from what you said, sounds like from what you said,

that the, the, The trade-related tariffs, so extract the other ones that are, make to solve other things, will remain in place likely for months because it's going to take time for the counterparties, the other countries, to either come back with a proposal that the administration has confidence will lead to a leveling of the deficit, trade deficit, or with an actual leveling of the deficit, either one of which will take, you know, we're talking well into the summer, fall, before all of that plays out. And so the big question would be, so for them, ideally, that that then settles in a place where

you've got largely a level playing field, neutralized tariffs or quasi-terrorists or, you know, unfair playing or whatever one's doing. the way Navarro talks about it from these other nefarious trade partners. Anyway, that gets leveled out. And it's manifested in a way that we can see in the leveling of trade deficits. That takes months, not weeks to sort out. And so if that's the objective and what you're striving for, then the big question is, is there something that happens between now and then probably politically that is so, again,

what you'd expected and costly that you're forced to revisit. Does that kind of feel like where we are? Yes. So there are two things that I'll add to that. One, it is possible that even though the tariffs stay on, that you provide some relief to people who are very worried about the tariffs staying as high as they are because you say, okay, look, well, here's our plan with Europe and we think this brings the tariff down to 12% or 10%. So that in other words, even though the tariff will be there still for a little while, there's an exit plan.

And I think that would actually go a long way to reassuring people that there's not a going to be a crash. So even though, as I'm saying, I think they hold on to the tariffs. And just let me make it clear. I don't work for the administration. This is my expectation based on what I've talked to people about. But I am, you know, I'm not in control of this.

They could change their minds. But I think what ends, very likely is that they end up releasing plans. So, you know, we met with Japan. Here's what Japan's going to do. And when, as we do that, that will bring down the tariff rate to acts, right? Here's, we met with the Europeans. Here's what they're going to do. So what could derail all of this?

I actually think, and this leads into the conversation we wanted to have, if the Republicans fail to pass tax cuts. And so all that we have is this enormous. tax hike through the tariffs. So that is an almost an economic calamity of unprecedented proportions, because not only will you have the tariff tax hike, you will have the expiration of the Trump tax cuts. So you will get this, you know, unprecedented size of tax hike in the economy. I think that brings the economy to an immediate stop, and that would derail everything. So yes, the tax cuts and probably not just the tax preservation of the previous tax cuts,

but the extension of them, Trump has talked about 50% manufacturing, you know, corporate tax rate, obviously things like the no tax on Social Security wages, overtime wages and tips. If we don't get the Trump tax cuts in place, I do think that is the political thing that could derail everything. That's a good segue. Let's move on to fiscal policy, tax and spending policy. And I think everyone takes as given that the individual tax cuts under the Tax Cut and Jobs Act, the TCGA, a piece of legislation passed under President Trump's first term. Those tax cuts expire at the end of this year if there's nothing done. But everyone takes as given that that will be extended, right?

I mean. I mean, I'm worried. You are worried. I am worried because, you know, politics is tricky and you don't know, you know, the Republican majorities are very thin. It doesn't take a lot. Like, so you could get people saying, you know what, I don't like the fact that you didn't raise the salt, you know, like you didn't do salt good enough for me.

So I'm going to hold out against it. And, you know, I'm, you know, I'm the Republican. I don't really want the tax cut or the tax hike to happen, but I'm going to hold out, right? people have played chicken in politics and to disasters results in the past. And I actually think that there's a problem that you could develop serious economic problems even before the expiration of the tax cuts. If we get to September and we have all these tariffs and people still aren't sure whether we're going to get the tax cuts either extended forever, made permanent,

or at least extended out to some reasonable horizon, I think actually you start to get a, you know, something that will make the tariff tantrum that just happened even worse in financial markets. And I think you will have a big slowdown in the real economy is people anticipate this tax hike happening. So I am slightly worried. I want them to accelerate this because I think the longer it waits, the more chance there is that something goes wrong. Going back, though, to the tariffs, one of the narratives you hear is that the tariffs will raise revenue, no doubt about it. Not as much as advertised, but, you know, it'll raise revenue. Sure.

And that will, if they remain in place, and who knows, but if they remain in place. And that is a way to appease those folks in the Republican side. We're worried about the budget deficit. Yeah, and they say, look, look, we're going to pay for it with tariffs. Now, in the official budget accounting, they're not going to be counted because CBO will not count, and I think appropriately. So CBO being the Congressional Budget Office, kind of the budgeteers, the nonpartisan budgeteers. Oh, Doge hasn't gotten there yet. Yeah, Doge.

Oh, that's good to know. Don't tell Swagel. They're coming up. Yeah. But the thing is that. You just did it, Jim. They're going to watch this. Oh, no.

Yeah. Put a target on them. Yeah. But CBO won't count anything done under executive order, in my view, good reasons. because they can be done away with the stroke of a pen. Right. These may be turned out to be illegal anyway, it's struck down by the courts a year from now. Who knows?

So you can't count on that. It's not in legislation, at least not yet. And as such, it's not counted. But the slide of hand, it's kind of slide of hands, not the right word. The way to sell it, you know, to the deficit hawks on the Republican side to say, look, you know, we're going to generate all this tariff revenue. Therefore, you know, don't worry about the size of the tax cuts and the other things that will raise a deficit otherwise.

Is that fair? Is that? Can I add a piece to that? Because I think there's another piece to the CBO part that's worth plugging into that, which is given the crossroads they are reaching with how to count the making the Trump tax cuts permanent that they're reaching with CBO,

it feels increasingly like. likely CBO gets sort of thrown under the bus and all this. That is CBO has already determined that, you know, in their baseline, they're going to assume that the tax cuts expire because it's supposed to expire by law. And they estimated that to cost, you know, $4.5 trillion to make it permanent. It's not clear that Republicans, I don't know anything like that, you know, by way of pay for. If they can't come up with enough of a pay for to cover that, then it can't go through reconciliation because it pulls the cost out beyond the 10-year window. So they would either need to come up with enough to pay for that just to make it permanent.

Forget the expansion you're talking about. Or they'd have to go through regular order, which they can't do. So it seems increasingly like you play this out much farther and they're going to have to just ignore what CBO's done on that piece. And if they've done it on that piece, then that opens a door to sort of doing the math very differently. And so Mark's point about whether or not you count tariffs towards how you score a proposal, it becomes moot because, yeah, CBO doesn't use it in their calculation, but, you know, they will have already thrown CBO under the bus. I don't know how they're going to think about the new baseline and the new math, but it does seem to open things up to a different kind of accounting argument. Yeah, I mean, I'm personally really bothered by the fact that stuff can turn on how the CBO accounts things. Because, again, so they won't, you know, everybody knows what the revenue affects the way the CBO calculates it is going to be on, you know, for extending the tax cuts.

Whether or not you make them, you know, force them to change the baseline so that it's the current thing. That doesn't change what the economic effects are going. going to be, right? So I'm bothered by the fact that we have these like really dumb debates about, you know, which version of the accounting of tax cuts are going to be. You should either be for them because you think they're going to be good for the country or against them because you think they're going to be bad regardless of how it's scored. And I understand that there are technical issues about, as you were saying, whether you can pass it through reconciliation. And the same thing with the tariffs. You should just figure out what you think the tariff is going to be and ignore whether

the CBO is going to, you know, calculate that into the score. I don't like giving, you know, the CBO more or less like a veto on our tax plan. But you've just raised a point that is this is one of the ways maybe we don't get the tax cuts, right? Like if people say, you know, oh, no, we have to use the current law baseline that assumes the sun setting. So it increases it by, you know, trillions of dollars. It takes it outside the window. You can't do it. through reconciliation, then we don't get, then we don't get it. We have the giant tax hike. Democrats will, you know, maybe are willing to, I would hope they wouldn't, but maybe are willing to play a game of chicken here where they say, we'll allow this amazing, huge tax hike to

happen on top of the tariffs that will bring the economy to a sudden halt and right in time for the midterm elections and we'll win everything and, you know, we'll blame the Republicans in a right. I don't want them to do that. I think that's really, really, really irresponsible. I think that they should vote for the tax cut. I think we need it particularly if they don't like the tariffs. One way of putting it is, if you're a Democrat, you should start thinking like the Federal Reserve. You might not like the tariffs. And I don't know when Democrats started hating tariffs. But if you don't like the tariffs, then you, that's fine. You can still say you don't like them, but you have to make policy even though they're there.

You can't pretend they're not there and then say, oh, and we're going to do another giant tax hike on top of that and then crash the economy. You know, John, I agree with you on the CBO is just doing the accounting, doing the arithmetic. Right. You know, I don't know that and I don't think it should be the arbiter of do I do policy or don't do policy. That's a different ballgame. But I think the concern here from a, you know, fundamental perspective is tax cuts are permanent. You know, they're in law. they're we know what they're going to cost you know they're there the tariffs not so much we have

no idea what the tariffs because as you said they're they're they're going to come down assuming other people play boy so we don't know where they're going to land or how yeah and it's very hard and i actually this is john just to say you know again this is under executive where it can be changed in an instant president can change his mind tomorrow and uh we don't know if they're legal or not they're going to be challenging we're going to have a new president in a few years. Yes, exactly. And I, so this is actually a criticism I have.

I do not like the doing all of this through executive orders. I don't, I actually think Congress should take back some of its authority. And actually, when I say this, a lot of people freak out because they think it might be even worse if Congress did this. But Congress used to set the tariff rates. There's a reason why Smoot Hawley is called that because these were lawmakers who were setting the tariff rates. We haven't done that for a long time.

because the free traders worried that they actually thought presidents would be free traders, so they put the presidents in charge of the tariff rates. I think that we would be better off having legislative tariff rates. We're nowhere near that. Congress doesn't want that authority. Even the ones who say, well, we're going to do it, they don't really mean it. They really like not being accountable for tariff rates. They really like not having to answer to the public for them. So they will leave it in the hands of the president. But they're like if we left it to Congress, they would never have passed the tariffs. That would not have happened.

This would, we would not even be here if this was alleged. I think if we left it to Congress, we would have much higher tariffs. I think that terrorists would never, not Congress. No, not right now. Oh. I mean, historic that we would have never, you know, that that it was granting the president, the power that allowed the tariffs to come down in the first place and we would have higher tariffs.

And John, just to, I, I think. my concerns are take your concern and multiply by negative one. It's the opposite. This is a license to create bigger budget deficits and debt. And that's what we're, because you'll get those taxes, they'll never go away. And these tariffs are going to go away eventually.

And you're going to be left with a much bigger deficit. So I don't think this is, the timing, who knows, but in terms of where this lands is 10 years from now, I think it makes our fiscal situation even worse. So I'll just add, I think that actually it makes it better because I think the demand for government spending is actually caused by the trade deficit. So this is related to our earlier question here. If the trade deficit comes down, the budget deficit will come down as well because you

will, that basically one of the- So interesting. One of the purposes of the budget deficit is to fill the whole created in national income by the trade deficit. If you lower the trade deficit, then the demand for a budget deficit comes way down. And only be- Okay, okay. So therefore, I think,

we will end up, you know, when we get to my world with a lower trade deficit, we will also then have a lower budget deficit. But I agree with you from your model where you think the trade deficit doesn't come down, we will have a lower, we will have an even higher budget deficit as well. Can we get back to the political economy of this or the near term, given what you just said, just remember, you got 15 minutes. You want to get to the GSE. Oh, yeah, right. Yeah, go ahead. So, and this is more of where things are headed question for the tax negotiation. So there seems to be a group of fiscal conservatives in the House, some in the Senate that are anxious, maybe a little bit about game of the ref with the CBO, but more about just the size of the deficit

spending commitment one would make with making the tax cuts permanent and then extending them without, you know, without comparable sort of cuts coming out of musk and company. How do you, do those guys get rolled? Like, where does all this go over the next two, three months, you think? Yeah, I think they get rolled. I think we say that we get this in place. And then next year, let's have a fight about the budget, right? Like, let's do the spending cuts once we've secured the fact that we're not going to

crash the economy by having the biggest tax hike in, you know, American history. And so, you know, and I do think maybe we do get serious cuts next year, the year after that, if the Republican majority survived the midterms, maybe that's when it happens. What I think the coming from the administration and a lot of people on the right is the most important thing is to get the tax cuts. Don't worry about the budget cuts. So they'll set a committee, they'll set it, the deal will be, they'll set a committee that the Freedom Caucus gets to run or chair.

and they'll be responsible for finding, you know, X percent cuts across the- Superdose, right? They'll be, yeah, they'll be told they can look at Social Security and Medicare and Medicaid. No, they won't. I mean, Donald Trump actually has a 100 percent, you know, he will veto any attempt to cut Social Security and Medicaid benefits. So they have to find- Medicare and Medicaid, John?

Oh, Medicare. Sorry. Not Medicaid. Okay, that's fair. Medicaid is probably more on the table. although he's not really into cutting Medicaid either, by the way. He really does not, he does not want to cut these things that are, you know, that really help people in their old age, help the sick and help the very poor. He is not the, you know, Paul Ryan or Mitt Romney Republic.

He's better at reading polls than those two. He's a lot better at reading polls. But also it's just, it's not his thing, right? He's, you know, he has not clued into what I would call like the, the, like, you know, sustainable fiscal situation consensus where people say, you know, if you were really serious about the budget, you would cut Social Security. Man, the fiscal hawks are doomed then. They're going to get rolled by a giant Mack truck steamroller, you name it.

Bigger deficits in debt, you know. But anyway, sorry, I had to get that back in. Let's move on to the GSEs and let Jim, why don't you frame this? Yeah, so, gosh, we're going to begin with the GSEs. So when Trump got elected, during the transition, there was all of this noise about the inevitability of Trump leading them out of conservatorship. And it was not without reason that one heard this noise. You know, you had in Trump 1.0, you had clobbering company making a fair amount of

progress to that end. And then you had Trump himself writing a letter to Ram Paul saying, you know, I would have gotten him out if you'd just give me more time. You know, if that evil Mel Watt hadn't, you know, been in my way. Right. And so there was reason to think that the noise wasn't, you know, utterly ill-informed. But then the folks like Bill Ackman got out there and banned the flames as was in their interest to do. And so we came into the Trump regime with a fair amount of tailwind behind that narrative,

at least. but then once you get into the regime itself, Bassett seems to throw a little bit of cold water on it or at least some caution pointing out that that wasn't going to be party number one, that he's worried at mortgage rates and the like. And then the nomination of Pulte seems to also not be much of a tailwind for it, if only in the sense that it just doesn't seem to be as background

to be a, you know, to have the kind of expertise one would typically look to to lead one out through that kind of complicated thicket. And then once he gets there, of course, he, you know, fires half the board, puts himself as the chair of both. And none of that seems conducive. That's hardly, that's hardly being, oh, I'm treating them like private companies thing, right? The government guy comes in and fires the boards, right? Right.

Well, he's just a proxy for all of industry, maybe in that role. But anyway, but that seems to suggest that the way in which one ought to think about sort of GSC reform, I put quotes around that, and the Trump administration is complicated a bit. And so how does one think about it now, not just in terms of like where it is as a priority, obviously given what we just talked about for the last hour, it's got to be at least in the not the top three, which puts it out six months or so. But what's the right frame of reference ideologically, practically for sort of gaming out where Trump administration might take all this? Right. So one thing is the Trump administration is very keyed into the political risks of low home affordability.

They realized that this was a very big problem for the Biden administration and they have inherited this problem. They and that, you know, that the the ability to say, well, that's not, we didn't do this, right? That's the other guy. That doesn't work, right? People want you. They elected you. You've got to, you've got to make this problem. You've got to solve this. So anything that any plan that anybody has for privatizing GSCs that says, well, you know, sure people will have to pay more for their mortgages is almost a non-starter, right? At least until interest rates fall by a lot, which I don't see them happening very, you know, that happening very soon. So they do want to bring, you know, the 10 year down. Scott Desson has talked about that. But as long as interest rates are, you know, mortgage rates are as high as,

they are, there's not a lot of tolerance for anything that's going to raise that. The other problem is that there just isn't a lot of interest in this. When I, you know, I go around talking to administration people and treasury people, that's so low on their priorities that they, and there's not a lot of lawmaker interest in it. When Pulte had his confirmation hearing, it didn't come up at all. He brought it up eventually, you know, but it was not, you know, lawmakers used to be, Back during the Obama administration, there were tons of plans circulating around on Capitol Hill, right? Like, there were very, you guys were involved in it.

We wrote six of them. Right. And so, but that's nowhere now, right? There's, there's, like, you, like, you guys, you know, come out with your next paper. Maybe you'll get something started. But there's very little energy behind this. When people talk about it, like, it really doesn't go very far in Capitol Hill. there's still a big, there's still a institutional knowledge on the part of conservatives

that we really don't want to recreate anything where you have an implicit guarantee again. That if, you know, whatever happens next either has to be something explicit where you say, okay, yeah, we're backing them. But conservatives don't tend to like that. That undermines the idea of like, you know, the collaborative idea of we're just going to move to, you know, whatever the private market is able to. to do. Or you're going to have, you know, and if you release them, but you pretend, you know, oh, we'll sign a million documents that says there's no guarantee. We actually have that.

I mean, if you look at the papers from the, from the mortgage back securities or from the GFC, you know, funding bonds that were issued, they all say, this is not guaranteed by the United States government, right? And, you know, the old joke used to be you could just put your thumb over the word not. and it would say this is guaranteed by the United States government because it was. And it turned out to be that was correct. People are very hesitant to recreate that situation. And the constituencies for what we saw during the Obama administration and then even in the first Trump administration was that it was very hard to build a coalition of people to decide what to do next because so many, the investors, the Bill Acman's of the world, have one vision for the way they want things to go.

And they may be able to form some kind of coalition, but on the details, they're in absolute clash with each other. The traditional left-wing home affordability housing advocates do not want Bill Ackman's vision for the GSEs. Bill Ackman says, yeah, we're just going to get, you know, it'll just be middle-class mortgages. No more mortgages for those poor people guaranteed by the GSEs. The housing advocates are like, wait, what are you crazy? Why? Like, this is one of the reasons we have it to cross-subsidize the mortgages for the less well-being people of the United States. We're not going to do that.

So even though they may agree, like, we would like it if these things could operate independently. They have such conflicting visions that it's hard to see them really coming together on a plan to make things get out of government. So where do you think it goes? Like, where do you? I mean, it's a, it's speculative. upon speculative, but assuming that the next six months is all tariffs and taxes, as it were, at least for Treasury, it really does leave the playing field to Pulte, I assume. And he's sort of jumped in with sleeves rolled up to take a pretty hands-on approach to his role. So, like, how does one

think about the next, I don't know, two years in conservatorship? What do they solve? for what direction they're trying to swim in? I think the Trump administration is actually going to find, and probably all future administration, so perhaps we're, you know, conservatorship forever. One, because it kind of works right now. Remember, people used to say, they can't last in conservatorship, or if the government keeps them, it'll erase mortgage funding for everybody because people will be afraid. It actually, the threat was it was going to erase corporate funding, right?

People will be afraid the government can seize anybody. if you if you have to inject $180 billion into your company yeah the government can seize you that's that's a pretty good boy I never heard that one really that was oh yeah okay that was that was one of the things the hedge fund guys were saying that you really oh okay hedge fund guys okay they were saying if you did not release them right and and reward the shareholders you know basically erase all of the senior preferred shares then all of America would never fund a bank again never fund

any corporation because they would be afraid that the government, they used to say to me all the time, what happens if the government sees his apple? Yeah, that would be pretty bad, right? Jim, you remember, they said that was. Yeah, oh, yeah, yeah. No, they made the private, the, the property rights argument over and over and over again. And they did this slippery slope, you know, into the abyss. And it never happened. Those two institutions failed in enormous, took out the, in my view, the- Well, but they don't even agree with that. They have this whole other narrative about what actually happened and it's a little. Somehow, somehow the Bush administration, the Obama administration, the Trump administration,

and then the Biden administration all cooperated to conceal their plan to steal the GSEs from, you know, whoever, right? Anyway, that's all nonsense. What I think actually happens to get to your real question, I think that they want, that Pulte's assignment is going to be, how can we use Fannie and Freddie to expand the housing supply in the United States? How do we, what we really need to do is build more houses. Now, by the way, that shocks me a little bit because I remember when the big fear was that we had too many houses, right?

In 2008, 2009, the narrative was that we had overbuilt. Right now, it's very clear that more supply would be a welcome thing to many Americans because it would make homes, particularly first-time home buyers, a lot more affordable. And I think we're going to see the Trump administration, again, not this year, maybe next year, maybe after that, try to use Fannie and Freddie to encourage.

And so maybe part of it is, you know, we used to have all sorts of, you know, if you lend to a, you know, in this kind of zip code, you'll get this. Maybe it's, we, want more lending for home, you know, a quota for home for first time home buyers, right? That pushing home affordability for people trying to enter young people trying to do family, by the this is also a conservative natalist argument that one of the things that's depressing fertility

is the fact that young people can't marry and buy a home at a young age. So they have their children later in life. So that therefore there's fewer children being born. Did you say conservative natalist? That's a first. Oh, yeah. This is a preview of what's happening. Conservative natalism.

Yes. Not nativism. Natalism. No. Natalism. Trying to, you know, increase the, find out what are the barriers to fertility and, you know, birth in the United States. And one of them is from the people who are really interested in this is the high price of

home ownership in the U.S. So if you had people able to buy homes as younger couples, you would have more children. So you could have a idea of like, look, we want you to be lending more, you know, buying the loans. They don't make, they don't lend. But, you know, encouraging lending into the market of, you know, first time home buyers. And then also, I mean, if you want to go even further, the hard coordinator list would say, we also want to make sure that they're lending to homes that have enough bedrooms for six children. Not six bedrooms.

You know, kids can bunk. But, you know, but, you know, but the idea of being. being, you know, these things are, I think, going to become more and more tools of accomplishing public policy, maybe not as far out as the ones I'm saying, like, you know, build homes for eight is enough style families. But build, but, you know, make sure that young people can buy homes so that they can get married and start having families. Well, I hate to do this, guys, but we're going to, we go on forever. A lot to chat about. But John and Jim, I really want to thank you guys.

for, you know, and particularly John, because you were on the hot seat. You were getting it from both sides. I appreciate it. This has been great. Great. I really appreciate you coming on and it would be good to hear your voice back on. Before five years. I mean, we definitely have to do it in five years. Oh, yeah, definitely before five years. Yes. So with that, with that, we're going to call this a podcast, dear listener, and we'll talk to you soon.

Take care now.