Moody's Talks - Inside Economics - Holtz-Eakin on Tariffs, Immigration and Debt

Episode Date: October 25, 2024

Douglas Holtz-Eakin, President of the American Action Forum and former Director of the Congressional Budget Office, joins Mark and Cris to discuss vexillology, potential election outcomes, and the impact of proposed immigration and tariff policies on the economy.  After a quick statistics game, Doug shared his insights on the national debt and how the government's fiscal imbalances may ultimately be resolved. Guest: Douglas Holtz-Eakin, President of American Action ForumRead this week's "Week in Regulation" from the American Action Forum: Latest Cybersecurity Rule Leaves a MarkRead Mark's Article in the Philadelphia Inquirer: Weighing the Merits of Broad-Based Tariffs Hosts: Mark Zandi – Chief Economist, Moody’s Analytics, Cris deRitis – Deputy Chief Economist, Moody’s Analytics, and Marisa DiNatale – Senior Director - Head of Global Forecasting, Moody’s AnalyticsFollow Mark Zandi on 'X' @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 Sandy, the chief economist of Moody's Analytics, and I'm joined by one of my two trusty co-host, Chris Duretis. Hey, Chris. Hey, Mark, I was here. And where's our other trusty co-host? She'll be back soon. It was good to see you in Chicago. We had our conference there. What'd you think? How'd go? Yeah, always good to see you live and make sure you're not an AI. So that's good. But it was a good conference. All right, we saw a lot of people, a lot of great.

clients, good sessions. And I think I won the productivity debate again. So. And it's always good. And I helped you out there. You did. You did. A little unfair, you know, a little thumb on the scale. Right. Right. Well, what did you learn? What's the one thing you, the top of the list of things that you learned, what was on, what would you call out? You know, we have a lot of commercial real estate folks at that conference in Chicago. And I was, I guess, happily surprised that they're not as dower on the market. It's still not great, but, you know, the general sense is perhaps the very worst is behind us.

We'll kind of muddle through here and things will improve. Yeah, with those CRE folks, they're always predisposed to be on the sunny side, aren't they? I mean, that's kind of in their DNA. To their credit, that it kind of reinvents itself every day. They go through these cycles and figure things out. Yeah, there's a dark period, but then it's followed by a boom. So, yeah, it's encouraged.

I think a principle is never underestimate the creativity of a commercial real estate developer, owner. They always figure it out. So I was hearing office buildings are being turned into data centers. Did I get that right? Somebody mentioned that in Chicago, I guess there's something. Yeah. And we've got a guest. Hey, Doug.

Good to see you. Good to see you. Thanks for having me. Absolutely. Doug Holts Ekin, you've been with us now. This is your second visit. Second time. Yes.

Yes. I would never come back. I am here. You know, and Sarah, our producer, was telling us, telling me that this was two years ago. It's hard to believe. That is hard to believe. Yeah.

Wow. Right? Yes. You haven't changed. You look great. You look fantastic. I was prematurely old. It's a huge advantage.

That's what it is. And the thing is, you're wearing a tie. I haven't seen a tie in like a long time. It's good to see. I get my tie. I wear a tie every day. Every day. Oh, you do?

Every day. Very cool. Because why exactly? Habit. Habit. I put on a suit and tie and I go to the office. I mean, that's what I do. I also have a TV studio in my office.

And so I never know for sure if there isn't going to be the chance I'll be asked to go on TV. So I want to look good. Oh, there you go. That makes a lot of sense. That makes a lot of sense. And you were just telling us that before we went on that your office is right across from the World Bank and a lot of stuff going on out there today because of the World Bank IMF meetings. World Bank IMF meetings, just a ton of protesters.

The World Bank always has protesters, but this meeting is a big deal. and, you know, the streets filled with people protesting the existence of debt. They want it gone. Yeah. Good luck with that. Yeah, good luck with that. But I don't know who they are. Their sign has no affiliation.

So I don't know. This could be a loose coalition of anti-debt people. I don't know exactly who they are. I didn't even know that was such a thing, anti-debt people. Everybody protests the World Bank. It's amazing. I mean, honestly, it's amazing. There's something all the time.

And we've, I was telling, Chris has telling Mark that I, we've learned all the flags by watching the protesters. That's how I've learned the flags of the globe, right? You know, I didn't know what the flag of Eritrea looked like until we got regular Eritrea. Right. Okay, Doug, Doug, here's the real question. What's the capital of Eritrea? I don't know what the capital is. I just do flag.

But would you be impressive? Would you be impressive I knew it? Yeah. I think it's Asmara. Yeah. I think it's probably right. That sounds right. You know, somehow in the deep recesses of my mind, it just came out as Mara.

I think that's right. Maybe Sarah can look that up. But you were telling us there's a actual study of flags. It's like a science. Vexillology. Oh, cool. Almost not say it. Vexillology, yes.

So you could get a master's or maybe even a PhD? You can get, yes. PhD. I have thought about seeing if I can get credit for, you know, my practice and be a professor of practice in vexelology. That's great. That's great. Do you have a new favorite place?

I didn't know I had this on my bucket list, but suddenly I realize I do. You were asking, Chris? Do you have a new favorite flag after? No. You know, what I have learned is that there's not a lot of creativity in the national flag business. A lot of reusing the same colors, a lot of rewriting of triangles and stripes. You know, every now and then he gets something exotic, but more often it's the same stuff.

Yeah, yeah. I'm partial to Nepal, right? Because they've got those triangular shape. Yes. Yes. Different shapes stand out. A lot of rectangles in the world, you know? Well, let's go back to the more mundane.

Oh, and I should say you're you founded and are. Would you say the president of the American X-Fer. I started this thing tank because I was the policy director in the McCain campaign, which is the same thing as being unemployed in 2000. This is the result of that. Right, right, right. And we got to know each other because you, on the McCain campaign, I don't know exactly how, I think it was Kevin Hassett,

who said, hey, I'm working on the campaign. Would you like to help out? We need some help kind of monitoring a broader economic conditions. I think he's the guy who ultimately invited me to participate, but got to know you pretty well in that campaign. In fact, I'd say before that, I was pretty under the radar screen, but after that. Yes, it's true. Yeah.

You really, it was very critical to my career, I would have to say. I think it was very critical to my career. So Kevin was the policy director on the 2000 campaign, and that's why you probably heard from him first. But being the policy director on the McCain campaign in 2007, 2008, changed my career. Yeah. Yeah.

And of course, you were also the director of the Congressional Budget Office. Yes. And what years were you at CBO? 2003 through 2005. 2003 to 2000 so okay so that was kind of the the bush years i guess right those were bush years but those are the that's where i met john mccain um he was investigating an air force purchase of uh air refueling tankers uh a deal that was ultimately found to be highly corrupt people went to jail and he asked us to do a financial analysis of it and uh it was pretty nron-esque you sort of set up

a company in Delaware to buy the planes and then lease them to the Air Force. And when all of a sudden, then it costs twice what it normally would. So that deal went away. Yeah, he was a great man. Yeah. It's a wonderful man. Yeah. It kind of sort of like just got a wrong place, wrong time, right?

I mean, because the financial crisis came out of nowhere and it just kind of. That was very unhelpful. Yeah. Yeah. I think our only major mistake was not holding the election two days after the convention. We were up by five. And if we just held up a day, we're good. Yeah.

Well, talking about elections, we've got to talk about this one before we get there, obviously is top of mind here. But before we get there, let's just kind of an open-ended question about the economy. How are you feeling about the economy? How do you think things are going? Economy is in remarkably good shape. So, you know, full disclosure to the listeners and Chris, Mark and I have been on any number of panels together over the years. And over two years ago, we were at a bipartisan policy center housing summit. And Mark boldly predicted there would not be

a recession that the Fed would engineer is soft landing. And I boldly predict that Mark was wrong. And for the record. So far, I'd say mark his head on that one. And I really did that. If you go to last year, you know, I'm looking at the data. And what I saw was, you know, household sectors tearing the economy, business fixed investment looked very weak. Third quarter looked flat in the water.

Fourth quarter didn't look great. Most, well, all but the pandemic, recession starts with downturn and in CAPEX business fixed investment. So I was quite pessimistic that with sustained. high rates and the inflation fight and a weak cap-ex outlook, we were going to dodge the bullet. I thought we're going to see a very traditional modest downturn. I think it would be bad, and then the Fed would sort of have to step in and reverse course. It didn't happen.

I mean, it didn't. 2024, if the business investment firm dried up, and as we talk, we have pretty balanced growth between the household sector and the business sector. every reason to be confident about the near-term outlook. The Fed talked about supporting the labor market, but there's no obvious cracks in the labor market. New claims keep coming in pretty good shape. On planet rates at 4.1%.

This is an inflation is coming toward two. I know you're the king of throwing out enough of the data to get it to two. I want to do that. sure. But, you know, it's obviously been an enormously successful disinflation effort. I think you have to say that. And so, so I think the near-term outlook is more about the risks to it than about the central tendency. The central tendency is fine. It's the risks. And most of the risks are policy risks. I mean, they're at, they are what's going to happen after the election. And, And then there's the international risks that are ever present, you know, with the conflicts

around the globe and China being a bit of a mystery to me, to be honest. I can't keep track of what exactly is happening there. But global conditions will matter as well. You know, one argument I hear for the economy's good performance is the deficits. You know, the deficit to GDP ratio is high, 6% and very uncomfortably high in the context of full employment, your 4% unemployment. Terrible, to be honest. Do you think that's a major contributor, a meaningful contributor to the strong economy,

those large deficits? The $5 trillion of fiscal stimulus over the course of the pandemic response, unquestionably, the other things that have happened since, bipartisan infrastructure bill that turned into law, chips and science act, those have been appropriated. and in some cases, some of the contracts have been let, but the money hasn't really gone out. So that hasn't hit the economy. It's sort of slow-moving money and we'll hit later.

So I don't think there's been in 20, 23, 4, a big fiscal component at all. It's just the household and business sectors. And as, you know, I just recently saw a market at conference and he was talking about the revisions to the NIPA data. And one of the things that happened was they revised away my deep concerns about the fourth quarter of last year. Now it looks like they were doing much better than we thought. And they certainly revised upward the amount of income that's out there and the amount that the household saved. And so everything looks to be in much better shape as a result.

Yeah, your NEPA being national income product accounts, kind of the GDP data was, well, everything was kind of, it was okay, it was pretty good. And then the revisions upward by the Bureau of Economic Analysis made the economy look really good. Strong growth, more income, saving rates didn't fall as much. Profits are much higher. So the whole picture changed, kind of changed with that. As an aside, since we were in Princeton for this conference, and Alan Blinder was there. Alan was one of my professors. When I was a graduate student in the 1980s, some people were obsessing about the U.S. saving rate,

he said that, you know, the fastest way to raise the saving rate is just revised the national economic product accounts. It remains true. That typically happens. It may be true. Yeah. I mean, the 35 years of my career, the saving rates are always revised up. It says. They find more income.

They just find more income. Yeah. In fact, that was a great conference. It was on a Saturday, Friday night and a Saturday. And you gave the keynote at the end of the day at lunch. And I'll have to tell you that was just a really moving. Because you were a grad and you were recounting how important Princeton was to your career.

And I thought it was just fabulous, really, really moving. Yeah, I mean, I didn't know what I wanted to do. I mean, I went to grad school because my undergraduate advisors literally said to me, you're not ready to have a job. You better go to graduate school. So I did. And I got into Princeton. And they gave me a full ride in a stipend.

So I went there in economics because of that. And I just turned out to be very, very, very fortunate. they paid for my graduate education. And it turned out I liked economics and it's very useful. And, you know, I don't know what happens if I don't go there. Yeah. Of course, Alan's great. He's such a great economist.

Okay, so you're feeling pretty good about the economy. As you pointed out, the top of the list of concerns, there's others, but at the top of the list is that we could literally just screw this up. But, you know, because of the election and the outcome and what happens on the other side, we could really mess this thing up. How do you think, how are you thinking about this election in terms of the possible outcomes? And this is obviously critical to the economic policy on the other side. And ultimately what that means for the economy. So how are you handicapping things?

How are you framing this in your own mind? Okay. So the first set of things are essentially the calendar. And the election figures in that a little bit, but it's not everything. We'll come back to the presidentials. First thing to check is do Republicans hold the House? Yeah. Republicans hold the House of Representatives.

Then current Speaker Mike Johnson cannot agree to an omnibus spending bill and put the 20205 approach behind him. Because if he wants to run for Speaker again, that's a death wish. You can't get elected speaker having signed off on an omnibus, which means that, if they hold the house, we have a funding fight somewhere between now on December 20th, which probably ends up with a temporary CR into next year. We have a funding fight at the beginning of next year. So we get off on what I view as an unhelpful start, right? Then the calendar says you get to-

Does that depend, though? I mean, if former President Trump wins and he's now president. It doesn't matter. This is- If he holds the house, he has a chance to continue being speaker, but he has to be reelected in January. Right. Do that. If he's sat down with Chuck Schumer and signed off on something on the West Vanity Bill, he'll lose.

Okay. That's a. So you're saying in the lame duck, there's, there's, you're saying in this lame duck session that he's got, there's a problem. There's, there could potentially be a problem. Yeah. We think it's gone and, you know, they'll just come back and we'll go to next year. It's not that clean. If they lose the house, then it's over.

Jeffries is going to be the speaker, and that's obvious. And he can sign off on anything on his way out. it's fine. So that's a concern. That's not a big one. We've been through funding battles before. They don't shake the economy very much. They're nuisance. But that's political energy that can't be devoted to other things. And there are other things. Next thing up is debt limit. Right. That starts first of January. We're right back to that. And so I don't like the idea of a funding fight and a debt limit fight sucking all the energy out of a new Congress and administration, regardless of who they are, because there are other things you might want to take care of,

like the looming sunset of most of the tax provisions of the 17 Act and some health subsidies in the Affordable Care Act markets, that's really hard work for our Congresses. It would take a year of sustained effort to come to a deal on that front. And if they waste half the year fighting over keeping the government open and not defaulting, I worry about that getting done in an expeditious and, and, you know, I'd have good policy, too. Like, let's not just do something hastily that it will regret. So I'm concerned with that. And then you have the-

Can I ask, can I ask, though, on that, again, on that one, does it really depend on who wins the presidency? I mean, and I'm just taking this as given that the Senate in almost any scenario is going to remain, is going to go Republican. It's going to flip over to the report. I think that's right. So if you have a Trump one, win and the Senate is Republican and the House is Republican, do you think we'll have a debt

limit battle? Probably not, right? Probably not. Okay. Really? You really pause there. You hesitated. That's interesting. Again, what I have heard is that if Trump, if that's how it plays out, Trump's going

to want them to take care of the debt limit and the lame duck. He doesn't even want to have it on his watch. I see. I don't think he's being realistic. Again, Johnson can't go raise the debt limits. That's one of those really, really difficult things in the House. Interesting. So I just don't see how that.

I think they have to deal with the debt limits. And we'll see what it looks like. So just to put all my cards on the table, sort of on the operations of the House and the Senate, yes, the Senate will be Republican. How big a margin they have matters enormously, because Mitch McConnell is gone as leader. He has been extraordinarily successful at keeping Republicans unified and they can vote as a block and someone like that with 51 senators can do things. I don't see any way that either John Thune or John Cornyn has the same effectiveness right out the door in keeping them together.

So they need to allow some room for defectors because on any given day, take your list, whether it's Rand Paul or Josh Holly or Tom Cotton or Mike Lee or Ted crews. I mean, you run the risk of a, of, you know, a maverick renegade saying, I'm not going to vote. So they need to have some margins to govern effectively. And that means for the debt limit and everything else. So I just view this is all sort of at the moment up in the air more than most people do, I think. Even if it doesn't matter. Of course, if Harris wins in his president and the Senate is Republican. And again, that seems like the thing we can say with the most confidence. Yes.

Then these things you're talking about for sure. Yeah. No, there's going to be a problem, right? It's easier to get them to unify against a Democrat in the presidency than to keep them on the same page as a Republican bloc. You know, suppose you want to do everything in reconciliation. You have the House, the Senate, the White House, and you've only got 51 senators. can you keep them all happy and get it through?

Yeah, you will, but I bet it's not easy. Right, right. On the other hand, if they say, you know, can you block the hopes and dreams of Vice President Harris? They'll be like, oh, yeah, I can do that. Right, right. It rolls off the tongue. It's a different calculus.

Yeah. So just to paraphrase, though, what you're saying is regardless, almost regardless of how this plays out in terms of who's president, it feels like it's this battle over the debt limit, which, as you say, is reinstated at the start of next year. And Treasury is going to run out of cash under most scenarios by next summer. Yeah. And also keeping the government open, you know, funding the government, all of that's still going to be a heavy lift, almost regardless of, you know, but heavy your lift if it's a, it's not automatic. It's not automatic. It's going to eat up, most importantly,

time and and maybe some political capital. Like, you know, suppose, you know, Trump is elected and he's got the House and the White House and he wants to get on with his agenda. And they've had these other things they have to do. What political capital is he going to spend getting those things done before he gets to his agenda? I mean, you know, that will affect, you know, what you ultimately do in that first year. The first year is a president sees are where all the action is.

Right. Right. And how do you, I mean, there's obviously a lot of different scenarios here in terms of how the election plays out. How can, do you have a can you, this may be pushing you too much, but do you have like probabilities attached to different scenarios as to what the makeup of government will look like on the other side? I mean, presumably, you, you don't know who's going to win the president, do you? I do not. I do not. Oh, damn. I wish you needed to answer that. So I live in a world that includes a super PAC, the Congressional Leadership Fund, and I talk to them all the time. And, you know, the most recent polling that they did showed 218 for the Republicans in the House, 217 for the Democrats, but all of those races within the margin of error, practically. And so they have no idea.

No idea. And I believe they think they only present me with the most favorable polling. So I don't think I'm going to think that. like in their heart of hearts, I think they're worried, deeply worried about the House. So, and, you know, I think they should be. The one big change that happened with the entrance of Harris is the enthusiasm went up on the Democratic side. She's going to win the popular vote. And that drives a lot more in the House than the Senate.

So that matters a lot. So they're Democrats are engaged in about 30% more races than they thought they'd be at this point. And so that that that's that that's so that I think my probability my biggest probability is mixed government. It really is mixed government. Okay. I think that. So that would be most likely a Harris presidency and then Harris presidency and house Republicans

in the Senate. Uh-huh. Okay. Smaller probability of Trump in the White House in the Senate and then, you know, Democrats still take the house. I think Republicans taking the house in the clean sweep is the lowest probability. Oh, you. do. Oh, that's interesting.

Oh, no, no. Democrat sweeping is the lowest. Yeah, yeah, yeah, yeah. But you're saying the second level. Highest probability. I'm putting it as zero, so I'm not even counting it. Oh, yeah, zero. Okay, fine. Okay. Yeah. But positive probabilities, the lowest, I think, is the Republican Clean Sweep. I think people are talking too much about that. They're getting ahead of themselves.

Oh, that's fascinating. So you think the most likely scenario, and these scenarios probably have pretty probabilities are roughly equal to each other. but the one that you put at the top is Harris with divided Congress. Second would be Trump with the divided Congress. And then the third would be Trump Republican sweep. And so first two are roughly equal probabilities and the third is half of them. So you can figure out. Yeah, yeah. Okay.

So interesting. So the one that's surprising me the most different than the probabilities we were attaching is the Trump divided government. Why do you think that's the case? Because the House is so close? She'll win the popular vote, even if he manages to squeak through the college. And the popular vote will drive the House results. Got it, got it. Especially think California and New York where Republicans picked up a whole bunch of seats two years ago, and they'll lose them all.

Right. Interesting. Okay. So those scenarios, which of those scenarios? And again, I might be asking a question that is pushing too hard. Just tell me, Mark, I'm not answering that question. Little button down here says leave. Right, right.

Okay. So which of those scenarios result in, for lack of a better term, the best economic policy on the other side? And I say that in the context of the, you know, resulting in the best economic outcome. Which of those scenarios would you feel most comfortable with in terms of the economic result? I guess probably Harris and mixed government. Is that right? Interesting. I mean, look, the very big threat is the Trump tariff proposals.

And those can be done by executive action. And so the way you reduce that outcome is not have him in office. That's the key. It's not a deep insight. Mixed government produces the worst fiscal outcome because they'll go back to bribing each other. So I'm not happy about that aspect of it. So we're going to have two persons just blow out deficits. And then we don't know what.

Although a sweep would also. I'm not super happy about a sweep. No, there will be no good fiscal outcomes. Don't get me. Okay, no good fiscal. Right. It's a ranking of bad ones. And so.

And we'll come back to that later because I do want to talk about deficits and debt in the economic implications of that. I think of Harris as a status quo candidate. She's going to continue Biden. The proposals that you can point to most dramatically are going to be higher taxes on capital for high income individuals. I'm not a big fan of that. The Senate will stop that.

So we'll just get sort of more of the same. Yeah, it almost feels like the tax cuts will just be extended, right? I mean, the status, as you said, I think you used the word status quo. It just feels like the status quo. Okay. So that's the best outcome of all the possible outcomes here. And you're saying you're more uncomfortable with President Trump, either in the divided government or in a suite because of his proposal to significantly increase terrorists. And across the board 10 or 20.

Like, I don't know exactly what he will do, but he will do something. And that's the one thing I believe. And the other thing that will be on the immigration right. I know we'll talk about that that later. But he's, you know, so I saw an interesting analysis done by a friend of mine who should, I'll leave nameless so that. But there is a repository of all Trump's campaigns. beaches, which you could search. And with the magic of AI, he went through and checked for any sentence that said, on my first day, in my first week, in the first hundred days, he looks for all

the firsts. Yeah. Right. And then what came next? So what is it? Because the only way to understand what Trump policy is to listen to him talk. There's, you know, there's no real documentation, no platform or anything. So what does he say? And it turns out that the thing he talks about most is immigration. on my first day. So it's either the deportation or I'm going to close the border. It's immigration related. Tariffs are like sixth. Oh, is that right?

Yeah. Surprise me. He gets to that later in his rallies. So, you know, but it is the one thing he's believed in this whole career and I'm thoroughly convinced he's going to do something. And I'm quite worried about it. And I'd love your guy's reaction to this. So there's obviously a lot of thought being given to potential retaliation, global fallout,

internet regulations, kerf muffles that are going to result. That's what everyone in the, you know, here at the World Bank and IMF meetings wants to talk about. I want to know how you think about the Fed. Because I'm the Fed and I've got the potential that this guy is going to come in and have this, say, 10% tariff across the board and all imports. What do you do? Right. Right. I've got a view, but I'll turn to Chris. Chris, how would you answer that question? Do you mean, preemptively or after that? No, I mean, you could do something preemptively, do you?

I don't think you could do. Okay. So that's step one. But policy risks are the big thing in my view. And this is a big part of it, right? Yeah. You've had a very successful disinflation. They are where they are. What happens? Yeah. I mean, I think it's a negative supply. shock, right? It's like a, so you're stuck in between, if you're the Fed, do I respond to the slower growth because tariffs will result in higher inflation, higher and weaker growth? So what do I do? Do I respond to the weaker growth or do I respond to the higher inflation? I think the instinct will be to freeze in place. I'm just going to, I'm going to stop cutting interest rate because I've told everyone I'm cutting rates. I'm on a path to cut rates. Now I'm not going to do that. I'm just going to, I'm

to freeze and to see which of these, you know, these countervailing forces prevail, the inflation or the or the, the, the impacts on growth and, and it's forestall rate cuts. I don't know that they start raising rates. They only start raising rates if it feels like the higher tariffs and the resulting inflation is becoming more entrenched again into kind of wage price dynamics. Does that sound, sound like a reasonable strategy? I think it's the right analysis, right? Yeah, yeah, but it's a good, great question. Great question. So you, because I, you say you're convinced. So the other thing I'm going to throw out there is I think the Fed at this point is hyper sensitive to its credibility.

And so, you know, do you raise rates and look like you had to do a U-turn in fighting inflation? Now, we all know it's the tariffs. And if they're smart, they do it preemptively, so it doesn't turn into inflationary tendency. But now it looks like you're doing a U-turn. So you got it wrong again. I don't think they want to look like that. I think I'm in a terrible mess. I, I, I, I, yeah.

Well, while we're on the topic before I forget, President Trump has also talked about the president having input into the decision-making process of the Federal Reserve. Do you think he really means that or can he act on that? Should we be worried about that as an issue? I don't think that's a real threat. You don't. Okay. I think that's him some bluster.

he will publicly question the Fed in ways that I don't like and which are not the tradition. He did that in his, when he's in office before. But everything else, you know, he has a lot of influence on the Fed, right? You appoint people subject to Senate confirmation that the Fed chairman has lunch with the Secretary of Treasury and, you know, they can tell the Fed chairman that he or she is an idiot and is endangering their boss's job. And that goes on all the time. And a good Fed chairman then just ignores them and goes back.

and does their job. And so that'll all go on. The only difference will be he'll be badgering them publicly and they'll just have to develop a thick skin about it. Okay. Okay. So on that one, probably not on tariffs. He's going to do something. I think so. Probably not 10% across the board, 60% on China, but something that amounts to significant increase in tariffs. And I think it's the character of the tariff that matters. I mean, 60% on China actually doesn't keep me awake at night. You know, we've seen the China tariff. We've seen the trade diversion that resulted in the accommodation by our companies that were affected.

I think they can run that playbook again. It didn't change China's behavior one bit, so it's kind of pointless. But that'll happen. and it's an across the board. It's a tariff wall. We want to have a unified protectionist view, and they do. And I think that's the difference. And that raises a whole slew of issues about what happens to Canada and Mexico.

I mean, USMCA is up for a renegotiation in 2026. You know, there's a lot that would come out of that kind of a move. And I just think it's a negative risk that we don't need to take, but he seems dead set on pursuing. There's a, oh, sorry, go ahead, Chris. Quick question. If there's a violent stock market reaction as a result of tariffs going, and do you see them backing off or reversing course pretty quickly? He reacts to the stock market. He does.

And so that's a good observation. It's funny. I forget that sometimes. I actually don't pay any attention to the stock market. I know I'm supposed to. Economists and equities are somehow important. I've read that. But, you know, when I, I'm tracking the economy.

I'm looking at the real side. And I'm, you know, focused on that. I don't pay too much attention for near-term outlook kind of things on the stock market. But he clearly does. Right. One argument you hear from President Trump and some of those advisors is around tariffs. He goes, hey, look, I imposed. tariffs in my first term, nothing bad happened. In fact, I got the China to, you know,

relent and I got the USMCA, you know, deal done. So I got stuff done and without any economic fallout. What do you think of that argument? How do you, how would you think about that? So what did we accomplish with the tariffs? So I was in the Bush White House 2001. We imposed steel tariffs to say the U.S. deal industry. Oh, my goodness, here we are. 20 years later doing the same thing, still needs saving, maybe this isn't the solution. So I don't think he changed the trajectory of the U.S. steel industry or the aluminum industry. The Biden administration did a serious review of the China tariffs and concluded that they did not accomplish their intent, which is to change their behavior. Yeah.

I didn't like that. They kept them. I don't see what he got for it. I really don't. So I don't buy that. And the USMCA, I think, was dragged across the finish line by the U.S. business community despite his sort of lack of leadership to get it done. That was a hard, hard thing to get done.

Right. What did that point out? Just didn't give you my biases on him. He doesn't have any legislative accomplishments from his time in office. The tax reform was started by Republicans prior to the him. Oh, interesting. That was Dave Camp. and Paul Ryan and Kevin Brady, they led that effort in the House for years.

And House Republicans and Senate Republicans got it done almost despite what the White House was doing. And so I can't think of a single thing where he stood up and said, this is important in the country. I'm going to ask Congress to do it and it went through. He doesn't do that. So that's why the executive actions are so important. They're not good at working the Congress. I don't think he has the mindset for it. He views that he has sort of, you know,

6,000 little emperors who are just, hearing with his desires. So he doesn't have the patience to work that system. And of course, tax policy is pretty complicated. That's why the, I think you're right. Among the really high probability outcomes is they just throw up their hands in exhaustion. Okay, let's extend it to pass the next presidential and try again. Right. Or maybe in the 26th election. You just see how Congress. Yeah. Okay. So tariffs can be done to a significant degree under executive order. They might be challenged in the courts, but that, you know, who knows? I think he'd welcome that. He'll welcome that. Yeah. Yeah. I'll do it. And then we'll get them in place. And, you know, they're going to have to make me take them down. And that'll take a long time.

Yeah. The other policy, what you pointed out was at the top of the things he's talking about is immigration policy. That must drive you crazy as well, right? Because this is an area that you do a lot of work. I know you've done over the years. And so it's real clear from, you know, if you look at the demography and the longer term outlook, immigration is everything. Like the native-born population has sub-replacement fertility. We only grow in the aggregates. through our immigration decisions. We also then get to pick the composition of the population and the labor force. That is an enormously powerful tool of economic policy if it's deployed effectively. And we've chosen to not. And he wants to go the other way and have less immigration. And that's a recipe to be, you know, a bad old Japan, getting old, small, and having a less vibrant economy.

I don't see that as a good idea at all. So I am worried about that. And that's on the legal immigration. How many and what kind of visas do you grant? Nobody should support illegal immigration. How you deal with that is a whole separate bucket of policy issues. But that legal immigration system is a big deal. And I would say this, you know, this is my view of what one of the things that went on in 2023.

We get this enormously beneficial set of supply shocks. One of which was 4.1 million immigrants. who were not the mental image that I think a lot of people have. This isn't 2001, 2002, 2003, when it's Mexicans coming across the border temporarily and then going back. That was the Bush-era immigration issue. Then in Obama, it turned into caravan starting in Central and South America and coming up. Very low-skilled, often refugee and asylum seekers. This is a broad-based source of immigration of all sorts of.

skill classes. This is folks, you know, the DHS report say that we've got like 25,000 people fleeing Putin. They're Russians. They want to be here. Another 25,000 fleeing Xi. They're Chinese. They don't want to be in China. They don't like what they're seeing there. A whole bunch of Africans coming through South America up, many of whom are college graduates. They want to work in the U.S. And so we got, we got, and then many low income and asylum seekers as well. I mean, no question. But we got this really beneficial supply shock. We got the labor force with all skills rolled in in 2023. And productivity went from negative to positive, the biggest jump in 10 years, the second biggest in the 21st century.

That was hugely helpful to the Fed for disinflation. I mean, you just, you got to love that. And you would think, given the pressure on the Trump guys to deal with, you know, inflation's legacy and. to have good growth that they'd sort of at least do the numbers and figure this out. I mean, going the other way doesn't seem wise. Yeah. And, of course, the most contentious aspect of what Trump is talking about with regard to his immigration policy is deportation, right?

You've got a wide range of estimates of how many unauthorized immigrants in the country, say anywhere from 10, 11 million to 15 million. He's talking about, I don't think there's any way he can deport all those folks. but he's going to go down the path of trying to deport as many as he can. I guess two questions. One, do you think he can do that? I mean, can he logistically able to do anything along the lines he's talking about? And secondly, what does that mean for the economy?

So I don't know whether it's taking him at his word on that or not. So he said the same thing in 2016. He did. And we took him seriously. You can go back and find it on our website. We actually did a serious scrub of how many ICE employees would you have to hire to actually go find everyone here illegally. How many detention centers would you have to build to house them? How many administrative law judges would you need to see their cases and get them deportation orders? How many charter buses and chartered areas? airplanes, things would take to return to their country of origin. And it was our honest best estimate at that time. It would cost something like four to six hundred billion dollars and take about 15 years to get rid of the 11 million immigrants. That was the estimate at the time. And in the process, you would take out 6% of the labor force and probably have a big recession. So it didn't seem like a winner. And he didn't do it. Right. So we have not really,

repeated the calculation. I've decided it's not worth it. Right. It was just something. Maybe there will be some symbolic deportations to say I follow through, but I don't buy the large-scale deportation story at all. It is incredibly disruptive. I mean, those numbers I just gave you tell you, it's expensive, it takes a long time. It cannot get disruptive. It also destroys the social fabric country. I mean, it does. Right.

So I'm not putting a lot of weight on that. Okay. Did you see the New York Times piece yesterday on the same? issue, Stephen Miller, you know, spearheading, the former, you might want to take a look. It might change your thinking just a little bit when you, when you listen to it. I often don't agree. Let's just say that. Yeah.

Well, understandable, understandable. So can he do these things he's talking about under executive order, or is it just like tariffs? Maybe probably not. He'll get sued. He'll go into the courts and get adjudicated, but that, that, that, could take time. The same, same kind of deal, or is there more legal constraints on his ability to execute on kind of the immigration policy he's talking about? An informal survey of the trade lawyers,

D.C. is full of them. About 50-50. Half of the people think, yeah, he can do it. Oh, wow. Okay. Half like, no, not quite. All of them think that he can do it temporarily under some emergency powers. He could declare emergency and get temporary across-the-board tariffs. that would last a year or something. Congress has delegated to the president an enormous amount of authority in the trade area. They might want to think about that. Okay. Okay.

I want to move on. I want to play the stats game because you agree. Yeah, yeah, yeah. I got killed. Did you? I don't remember that. I was horrible with this. So we'll play that.

And then I want to come back and talk about deficits in debt kind of in a broader context. because clearly we're often running here on deficit and debt and, you know, it doesn't feel like under any scenario we're going to make any progress addressing our long-term fiscal situation. So let's play the game. The game is we each before a stat. The rest of the group tries to figure it out through clues, deductive reasoning, questioning. And the best stat is one that's not so easy. We get it immediately. One that's not so hard.

We never get it. If it's apropos to the topic at it. hand, you know, all the better. But Marissa generally goes first, so I'm a little bit of loss. So, Chris, would you mind stepping up, be number one? I'll try. Okay, try. It's been a busy week, so I may violate your first rule. This is one might be pretty easy. Pretty easy. Okay. 738,000. I know what that is. I knew you would. Yeah. Do you want to, should I put, should I go ahead and show you my prowess? Oh, what did you say? Oh, what did you say? say existing home sales no not existing new homes sales new home sales yeah that's very good that's great

yeah uh actually we we also got existing home sales three i know million or something it was it was down a lot yeah existing yeah three point eight right so yeah three point eight million yeah why did you pick that Chris uh that's a strong number for new home sales yeah um it's above pre-pandemic levels yeah um it's above pre-pandemic levels, right? So we had been, you know, sales had shot up early on in the pandemic, then they fell, and now they're kind of climbing back up. And they remain robust in contrast to the existing home sales, which remain depressed, right? So you do have builders who are being very creative with financing and, you know, we have buyers who can't find another home. So they're, they're going to the new market. So I see this as certainly a positive in terms of your kind of

overall assessment of the economy. Yes. And certainly housing is at Fordwell housing. is a big deal. Absolutely. I don't know if you saw these numbers. These were in a Bloomberg article. These are stunning numbers. Fannie and Freddie did calculations that basically used the National Association of Realtors Affordability Index and said, if we want to get back to affordability as it was on

average between 2016 and 19th, house prices have to fall by 38%. Really? Median income has to go up by 60%. Or mortgage rates need to go to 2.35% or something like that. I mean, like, it's mind-bogglingly big moves. It was a very sobering calculation. Wow. Boy, I knew it was a lot.

I didn't realize it was that. Wow. Wow. Hey, you know, going from housing back to immigration policy, the Trump campaign has talked about easing the pressure on the housing market. by deportation, if I deport all these immigrants, presumably that reduces, you know, the demand for housing because these, the immigrants have to live somewhere, and that will make housing more affordable for Native-born Americans. That that's the strategy for addressing the housing

crisis. What do you think about that? This assumes, of course. Did I get that right? I got that right, Chris. That's the theory. That's the theory. Only Native-born Americans do housing construction. That's the key. Right. Yeah. Like there are two sides to this market, the supply and demand. And just looking at one side never gets you very far.

I don't think that's going to work. Yeah. Well, here's a stat. 30% of construction workers are foreign born or foreign born, 30%. The highest of any industry construction. So if you're kicking out immigrants, you're kicking out the guys who are going to, and women who are going to be building the home. Yeah. Okay. All right. Gotcha.

738. Oh, I thought, Chris, the one reason, at least in my mind, why we've seen new home sales hang in better than existing, because new home sale prices have actually effectively been cut that builders are offering interest rate buy down deals. So effectively, we've seen a 10 to 15% price cut on new homes. Is that right? That's right. So the builders can offer better financial terms. They can buy down. down the interest rates. And you've also seen the builders kind of responding. They're building more affordable homes or, you know, they're not sticking with the multimillion dollar home, certainly. They're, they are building more town homes or, you know, trying to address the affordability in other ways. Okay, good one. Doug, you want to go next? Sure. One point seven trillion. It's not the deficit, is it? No, because that's $1.83 trillion. Yeah. Is it really? Is it Related to the budget?

No. No. No. Is that the, the, oh, it's not related to like the tax cuts, the cost of the tax. No. No. We're back to the economy then, the real economy. It's, it's, it's matter for the economy.

It's something, the hint I'll give you is something that we at AF spent a lot of time tracking. And then, oh, wow. Is it trade-related? No. Is it immigration related? No. Huh. It's not budget related.

It's not tax related. Here's the other tip. It is probably the biggest difference between the two candidates for president. Spending related? Not spending. Oh. The biggest difference between the two candidates. But that's the I keep going back to tax policy.

It's not related. tax policy. Put us out of our misery, Doug. What is it? We should know, I'm sure. 1.7 trillion is the total to date of regulatory costs imposed on the economy by the Biden administration. Oh.

How did you calculate that? That's interesting. Track of every regulation issued by the federal government. Right. The agency, if it's a major regulation, the agency is responsible for delivering an estimate of the burden imposed on the private government. private sector, the burden costs. I'm going to get them up.

So Obama in eight years did $190 billion of regulatory costs. How much? 890, $100 billion a year. Okay. The Biden administration has done at $1.7 trillion already. Interesting. And is that? And Trump did in four years 40.

And all of that was in response to the pandemic. He was at zero net after three years. Oh, no. That's interesting. So the sort of, when he talks about regulations and deregulating stuff, that's a real difference, the way they ran things. And it's one of the least, I think, appreciated features of the economic landscape that play in the election. Well, totally. It wasn't on my radar screen. Yeah. Is it one set of regulations or is it just under Biden? There's a broad set of it. They're across the board. They've been busy. everywhere. So it's not any single thing, but climate stuff is a big. No question. So they have, for example, a cafe rule. It's designed to drive gasoline power cars into extinction. That turns out to be

expensive. And so, you know, that, so that one jumps out. You sort of know about that. But it's a lot of stuff. Financial services bank, because I know after the bank. They've been busy. They've been busy. Obama had that big number, but it was really. two things. It was implementation of Dodd-Frank and the Affordable Care Act. Right. It was all concentrated in those two. So he had to do that. This isn't that. It's like, there's not a lot of regulatory costs to implement the infrastructure bill or the chips science bill. I mean, it's just their desire to sort of change the rules of the road. And can I ask, is that kind of a net estimate? I mean, because there are costs, but there's

also presumably benefit. I'm reducing CO2 emission. So there's got to be. It's not a, a, a rigorous net benefit. It's a cost estimate. It's just one side of it. Okay. Okay. Because if you say this, what they'll say is, yeah, but it's worth it because the benefits are bigger. Right. And that can be true. Right.

But often the benefits are non-marketed and the costs are born by market participants, largely firms. And, you know, that's a real compliance cost for small businesses. I mean, that especially. Yeah, got it. I mean, on regulation, the one thing I've always had a difficult time. doing is connecting the dots back to the macroeconomy. I've never seen any research that connects those dots. We've done a little bit of work. I see. Yeah. I'm good with you. So I always do things

as a tax analogy. I was trained as a tax economist. So, you know, the tax has both the cost, the revenue you raise, but also the incentive effects. And it's the deadweight loss you care about from tax. So you want to keep that. Same sure of regulations, right? We're measuring essentially the the equivalent to the tax revenue that sort of cost. But we're not capturing the deadweight loss. How much have you changed the way people configure their businesses in response to the regulations that are out there and what do we give up in productivity as a result? Things like it.

That would be really good to know. When you say you track this, is this on your website? Oh, I need to look. That's kind of cool. And we have a weekly email on the weekend regulation, very cleverly named. And we do running totals. Well, maybe we can get your link and we'll link it to the notes to the podcast so that people can go go get that. Because that sounds very interesting.

I didn't even know that we were doing that. That's great. It's something we've done since I started it. I thought it was important to take of tax spending and regulation because what I've observed, and we've seen this, if you get like big budget deficits and or some concerns, about spending more money, there are other ways to implement your policy desires, and they go right to the regulatory front. So it's a substitute in the sort of policymaking world. Well, that's a good one. Let me, I'll give you mine, and this will be as a hint, a segue into the

next conversation around deficits and debt, 3.39%. It is an interest rate, 3.39%. It's related to That the average on the treasury portfolio? Yes, yes. You said you didn't do what. You're killing it, man. You're killing it. I thought that was going to be a really hard one too. You just seen Chris's face.

He was a thousand years from getting that one. Yeah, that's exactly right. That's exactly right. You take the average interest, you take the average interest payments and divide by the amount of debt outstanding and the effective interest rate is 3.3. And of course, it's now rising here pretty quickly. That's right.

It's still low, still below the nominal growth rate of the economy, G, you know, the R versus G, which is a good thing. That's a good thing. It's a good thing. But we're definitely moving in the wrong direction here with no interest rates as high as they are. So that was a great.

Fantastic. We have a huge amount of debt outstanding. I mean, that's the problem. So if you think about this, deficit for 2024 was $1.8 trillion, $7,3% of GDP. For the first time, net interest costs exceeded a trillion dollars in a fiscal year. So the primary deficits, $800 billion. And if you actually go forward and start looking at the actual projections by the CBO, the deficits are just interest costs.

Right. Yeah. If we, the primary deficits are not particularly large. Yeah. The primary deficit being the deficit X, the interest payments that we're making on that debt. Taxes,

raised, spending done, excluding you. But among the things that would be great to do, it would be to sort of, you know, get the base down a little bit and not have so much debt. Yeah,

particularly in the context, again, we're at full employment. When you're at full employment, that kind of the economy is, there's nowhere for the economy to go, but kind of lower. So we could get lucky.

We could get lucky. You mentioned if we got good immigration policy, for example, you know, that could change the picture. Yeah. Or we get lucky with AI generates more productivity growth and that could be helpful, potentially, if it's not too dystopic. I'm not. I mean, not yet on AI. Not yet. Not yet.

So this is what I remember from my professional youth, right? So in the 80s, basically all of CAPEX was IT equipment. Like, you know, that was the invention of computers and a bunch of other things. And off we went. But we didn't get any great productivity growth out until the 90s. Right. I think AI is going to be the same way. We're going to sink a lot of money into this.

And after five or six years, we're going to be like, what do we get for that? And after 15 years, we're like, wow. Yeah. That's how it feels to me. It's super expensive. Yeah, the only difference, and I'm on board with your perspective, it's kind of sort of how we're thinking about it, and that's the way we have it in our forecast. It takes a while, it takes time for the technology to diffuse. In fact, it's really only through business formation when new businesses optimize around the new technology really things start to take off.

And that takes time. So I'm on board with that. I listened to the, you know, the AI proselytizers, and there's a bunch of them, and they're really smart people. They kind of look at you like, you're an idiot. You have no idea what's going to happen. And it makes me very nervous that I've got this wrong. But we'll see. I'm wrong all the time.

And people are like an idiot. I guess that has stopped bothering me as much. Okay. I just think it makes me very nervous. Okay. But, okay, deficits in debt. So just to frame it, the Congressional Budget Office, CBO, the non-person group that you ran a couple decades ago, say if we don't, if we stick to current law, which includes the end of the tax cuts for individuals under the TCGA, the Trump tax cuts,

we're going to have the debt to GDP ratio I'm rounding goes from 100% today, which by the way is double what it was before the financial crisis. So we were at 50, we're now at 100. And that's going to go to 160 or 170 over the next 30 years. I think that's the end of their forecast. But you can do your own forecast after that. It's just parabolic, right? It keeps on going. Is it fair to think that that's not sustainable?

It's not sustainable. It's not just to pay interest in previous borrowing, right? That's what we're doing. And that blows up. And so that is absolutely not sustainable. We absolutely have to change course. at some point. People always ask when we have to change course. And I would emphasize that I don't know and I don't want to find out.

Like there's running the experiment. How bad can we make it before global capital markets give up? Right. I don't want to know. Right. That's not an interesting experiment to run. Let's try putting it on a, so, you know, my terms of, you need, if you want to have a discipline policy. When I talk to like master's students, I would say, look, look at the Fed.

They, you know, they made a mistake, I think, in 2021. Inflation got out of control. Fine. What have they done? They said, here's our target. We're going to get back to 2% target. Here are the instruments we're going to use. We have a strategy. We have nothing like that in fiscal policy. Like, nothing. So what is the target? And what instruments are going to use? Taxes are spending. There's no agreement. There's no, it's, we're just lost. as a nation. So I think the target, the near-term target should be stabilized debt relative to GDP and point it south, just a little bit. It doesn't have to fall dramatically, but take off the table any fears of sovereign debt crisis, loss of faith in the dollar, all those things

you hear so much chatter about, do that. And then you have just a serious value judgment of how far do you want to go back? Because it's just an intergenerational equity issue at that point. You're going south and do you take it back to 30%, which is where we were when we entered the 21st century? My answer will be yes, I think we should do that, but that's a long way off. It takes a long time to get there. Maybe you stop it at 60%, 50%, get back to where it was before the financial crisis. That's a fair debate, and people have lost different views in that. But I think we should quickly do the thing where you can stabilize it and point it south.

And that'll take both taxes spending efforts. and it'll be great if we grew faster. Be great. Is that possible, though, Doug, without a crisis? I mean, can, it just doesn't feel like lawmakers can generate the political will to, because those are tough, tough things you're talking about, spending restraint, maybe even cuts and tax increases. I mean, that takes a lot of political courage and will.

And how can we do that unless there's something, some forcing mechanism? What's the forcing mechanism for going down that path? First of all, it's got to include Social Security and Medicare. And currently those have been taken off the table. So we're not, you're correct, in the current political environment, there's no way we get this done. Because if you look at the 10-year projections at CBO, Social Security and Medicare are more than half of non-interest spending. They're $36 trillion out of $71 trillion in non-interest spending. So they're the whole game.

And they're growing faster than everything else. Social Security grows at 5.5% of years, Medicare, it's seven. And revenues are going to grow at the pace of nominal GDP. So if we get 4% nominal GDP growth on average over 10 years, I think that'd be great. They're still diverging. So the whole game, the whole game, is get Social Security and Medicare to grow more slowly, closer to the nominal economy. And what you hear is people having these, I'm going to pick one thing or another. So you hear Trump talks, we're just going to grow. We're going to grow fast. Well, you're not going to move that four. to seven. Okay, I'm sorry. Not going to happen. And other people say, we're just going to raise taxes. And that's true. You can raise taxes. I think we're going to have to. But if you just raise the level of taxes, you close the gap and then it begins diverging again. You have to do those things and slow the growth of those programs. That's it. And that will do it. But you're right. We are not in a position to do that. And most of the parlor game is telling yourself stories about how we will develop the political will to do that. And I have a vast array of such tales.

This is a thousand and one Arabian nights for economists. I mean, I can just, but I think the key is that, you know, just as there will be forcing action on the tax cuts next year, there is forcing action on Medicare, a trust fund exhaust, on Social Security, a trust fund exhaust. And so something has to happen in the next decade. And given that something has to happen, You can now make the case for doing things which are better versus worse. And I think that's how this, we stand a chance of getting this done. Oh, interesting. So you actually think the exhaustion of the trust funds is a forcing mechanism.

It's not just an accounting exercise. Econ, I don't think it's an accounting exercise, but legally they can't pay benefits if the trust fund exhaust. They have to cut it back to the level of the payroll taxes. That's a 21% across the board cut. So they have to change the law, which is. is the Social Security law, and you can't change Social Security law and reconciliation. So they have to do it in regular order with both parties signing off. And that means they have to agree to, you know, hold hands to jump off the cliff.

And that's what we need. And, you know, I tell people this. If you think about it, we know that they're never going to let the cut happen. Like so even if they wait to late, they're not going to let it actually happen. that means they will do Social Security reform somewhere in the next 10 years. And that means that if you're 55 and want to retire in 10 years, you don't know what your benefit is. Because you don't know what the Congress is actually going to do. And that's a terrible way to run a pension program. And I think as you march toward the exhaustion date and more and more people are in the position of saying, I would like to retire and I don't know what I'm going to get, they're going to start hearing that.

And when the town hall is, you're going to lose your job if you don't fix Social Security, that's completely different than you're going to lose your job if you touch Social Security. That's what happened. You have to have something change on the ground. Actually, that's a kind of a hopeful kind of. Oh, I'm Mr. I'm an optimist. You know. I mean, it feels like that's a kind of, you know, a way to address the fundamental issues, right?

I mean. I mean, you know, we have a lot of deficits. But Social Security is $3 trillion of cash flow deficits over the next 10 years. It's, it's a real issue. Yeah. Right. Right. Well, I wanted to try one other. And when we talk about crises, correct me if I'm wrong, but what you're talking about is bond investors, the folks that are buying this debt slow up. They say, look, you guys, you know, I don't think you're going to be in a position to pay me, at least not pay me on time at some point down the road, particularly in the context of all the governance problems you got, debt limits and budget battles and government shutdowns. You're going to mess up at some point. I'm not going to, to get a check when you told me I'm going to get a check, therefore you got to pay me a much higher interest rate. And then that starts to feed on itself, as you say, or it rises above G, and then

this becomes a real thing start to explode. That's the crisis you're talking about. Right. I would prefer to not have that. Prefer not to have that. I think the appropriate crisis to have is the loss of some congressman's job. That's a real crisis in some congressman's. Got it. That's that way. Let me just, because I've got you and very much value your perspective, paint a scenario where this could all play out sooner rather than later. Let's say we go back to the initials most likely scenario for the election. Harris wins divided Congress.

We get into next year, the debt limits reinstated. We get into a pitched battle over the debt limit. The Treasury can't issue debt, you know, until. the limits and reinstate or increased. You know, at the same time, the Fed is exiting out of the bond market, treasury market, right, because they're quantitative tightening. And that other central banks are not coming in. The Chinese definitely are not coming in.

The Japanese are pulling away because they've got now a positive interest rate on their own debt. Yep. Those are the two big players globally. Banks are kind of out of the game because of the problems they had last year, you know, and their security portfolios are upside down. So hedge funds are coming in and filling the void, and they're very price sensitive. You know, they're there when times are good.

They're out of there all mass when times are bad. When they throw up on something, bad, you know, markets freeze. So you got this kind of confluence of things that are, you know, kind of coming together by the summer of next year when the Treasury is going to run out of cash. And, you know, you could, you know, this is, I have no inside information here, but, you know, not inconceivable. You see more rating downgrades and that could become more of an issue. I think that's highly possible. Yeah.

Again, I have no inside information. I'm just saying, look, you know, given what's going on here and all in the budget trajectory, we could have that, that crisis, you know, oh, here's the other thing. it's in all likelihood they the the the lawmakers will ultimately agree to something on the debt limit before we go over presumably but when that happens the treasury is going to come into the market with a you know trillions of dollars of they have a whole bunch to roll over early yes it's a that's how they got out of the last debt limit they pulled everything yeah from maturities to get out of it but this case they can only go down that path you know that take that road

one. So here you are, the bond market is a complete mess at that point. Does that sound like a plausible scenario? Yeah. So the scenarios that I laid out are political scenarios. And the political pressure is going to build slowly. Anything that's going to happen quicker is going to have to involve sharp economic pain. And I hate to say that out loud, but that's probably true. And it's going to, So it's going to be some sort of bond market reaction that makes it harder to carry that we have, rates are higher, makes the rollover a nightmare, impacts the real economy and scares people, and sends them to the representative, they fixed this. And that was part of the recipe in the, you know, in the 80s and 90s.

There's, that was there. You know, they did. They paid attention to financial market reactions and they fixed things. So, yeah, I don't think you get the genuine sovereign debt meltdown, right? Because it's still too soon that they have nowhere else to go, the dollars that they need treasuries. So you don't get the complete thing, but you could get some real stress in the bond market that forces them to move. And then the downgrade is over our ability to manage our finances, which is downgrading us on our politics. Well, that seems like a real likelihood going forward.

No brainer. Yeah. Okay. All right. Well, I've kept you long enough. You covered a boatload of ground. I really appreciate it. You know, anything you, I miss Chris that you want to bring up with Doug.

I kind of monopolize the conversation. I apologize. But anything? No, I think you covered it all. Hey, Doug, anything you want to say that I just. I just want to say thanks for having me. I appreciate it. You're great.

It's fun to have a reasoned and in-depth conversation about the things that we do every day because not every conversation is that way. Oh, you're so kind. I really appreciate it. And I really appreciate our friendship and our collaboration over the year. So thank you so much for that. Likewise. And this Chris guy seems okay, too. Yeah, he's not bad.

He's not bad. It's not bad. And you think, Marissa wasn't here, but next time. Okay. Absolutely. And with that, dear listener, we're going to call this a podcast. We'll talk to you next week. Take care now.