Transcription
Welcome, Mr. Secretary. Thanks for doing this. And first, I just want to clear the air on one point. There was an editorial we wrote a while back. You took some uh umbrage at um not the first time that's happened in my career, but uh uh >> won't be the last. >> Yeah. You called us, I think you said the editorial board is is run by grumpy old men. And just for the record, I can accept old. Okay. Uh I concede in my case that's true. but grumpy. I'm the epitome of cheerfulness. >> I don't know. I I I I think if you were in the movie, Walter Matau would play you. >> Ouch. >> And and I can say that that maybe the women are grumpier. No, I think Kevin Cosner is my guy just so look um so uh today you you uh uh you launched Operation Economic Fury uh which is uh part of the uh economic pressure on Iran that the quarantine on its exports uh involves. Tell us what specifically you're going to do with this.
Well, so since last March, the the president gave the order uh for maximum pressure campaign and we've started uh pressuring the the Iranian assets around the world, cutting off uh their supply lines which in December culminated in one of their major banks going under. the central bank had to print money uh large inflation and then the riots that we s saw out on the street and uh to increase our negotiating leverage and finally put an end to uh the cash that is flowing into the IRGC coffers and into the country. Uh we are uh partnering with our Gulf allies uh who having been fired upon for almost 40 days uh are much more willing to share uh the bank accounts of uh members of the Iranian regime in their countries. Uh we are reaching out to banks including Chinese banks to remind them of uh that any Iranian goods and the purchases thereof are forbidden and that the uh the dollars would be sanctioned and that we will press for secondary sanctions if there's a problem. So the Gulf countries uh UAE and uh uh others are done uh uh trying to uh uh use Iranian assets and accept them.
>> Uh I I I believe that there's been a real uh step function change in their willingness uh to tolerate their neighbor which you know one one understood. But now h having uh been um I think Qatar has had 14% of their GDP destroyed with just a a few missiles. Uh UAE I think it's taken over 1,200 uh hits and you know Saudi the same.
So >> interesting. So I want to ask you something I don't think I've heard you comment on which is this talk a lot of talk in the markets about how Iran has been insisting that when it flows through the Gulf that the oil be paid for in remnant B Chinese currency or crypto but not petro dollars and that this is the Chinese and Iranian attempt to uh replace the dollar. What do you think of that effort and how uh is is is that at all realistic?
>> Uh I I think it probably uh imagines a coordination that doesn't exist and I think that may maybe the Chinese were pay paying the Iranians uh in R&B or CNY. And look, there's there's no doubt that the Chinese are trying to create a I I don't know if they want to be the reserve currency, but they're trying to push the US out of it. different difficult to be a reserve currency when uh you're not fully convertible and uh their capital controls and you know again you know with the R&B I I traded currencies pretty well for 35 years and >> made a little money on it too >> a little here and there uh but with the R&B it's very very difficult to tell what what's the the stable value what's the equilibrium value because it really exists in three equilibrium on on an academic model would be considered cheap. They've done a big internal devaluation. Real estate's down. Uh lab labor is is down. Um on the other two equilibria, you have 1.4 billion people who want to get their money out of the country and the the government stopping that. And then the third equilibria would be um what percent chance do you put that one day they won't give you your money >> and when you try to calibrate all three of those it's very difficult to know to know the price.
>> All right. Um you said yesterday in a in an interview that uh you thought the economy would have grown uh 4% this year if we didn't have the war. What's your projection now? And uh uh what's your safety valve if somehow growth stumbles as this war uh carries on?
>> Look, I I think the the underlying economy remains strong. I think you classical economic theory would tell you that there will be catchup. I I just can't plug in a day, a date certain when the war will end, how long it will take things to normalize. But you know what what we can see is that core inflation continues to come down and headline uh is just influenced by uh energy prices and those will come down. So uh but I I do think that the growth could easily exceed three three and a half this year still.
>> Still okay. Wow. Um All right. the um uh uh Congress is considering reconciliation 2.0, maybe 3.0, but um let's assume that the economy is uh is not as robust as you expect and it's, you know, bumping along. Uh do you want to see any progrowth provisions in that reconciliation bill, economic measures?
>> I I think there there's nothing specifically that I I have in mind that I want to see. I think that there are a lot of things that will be working on a lag that you know if we think about the president's economic agenda I always say it's a three-legged stool trade tax and deregulation. So trade um we had a setback at the Supreme Court in terms of the tariff policy. Um but we will uh be implementing or conducting section 301 studies so that the tariffs um could be back in place uh at the previous level uh by beginning of July. Uh but what we found and it's counterintuitive that a lot of corporates had held up uh their cap some of their capex because of the lawsuit that eventually made its way to the Supreme Court.
>> Right?
>> So now uh using section 301 which has survived more than 5,000 legal challenges, they will be certain of what the tariff policy is. So, I'm expecting we're already seeing a pickup in capex. You know, I I get a lot of questions on the Sunday morning show from people aren't as friendly as you, Paul. Um, and they said, "Well, where's this factory bone?" And I said, "Well, you know, in my old days on Wall Street, you could push a button and a billion dollars could move with corporate capex. There's a planning cycle, a decision cycle. And now we are starting to see construction jobs are picking up, capex intentions are picking up. So I think we will really see that the capex and the construction kick in. And you know, again, I I said last night that I think the Fed has been wrong on inflation and the core inflation is coming down, but I understand if they want to wait till the data is clear, but that will mean that interest rates should come down a lot more.
>> There's still no manufacturing job increase, though. You haven't seen that.
>> It it was last month >> a little bit, you know, a couple of, but not if you look at the six-month trend or the three-month trend even.
>> Yeah. Oh, three or three or six months is the, you know, it's not like you pushing a button on your word processor. You know, it can't I I was just down in my hometown of Charleston, South Carolina, and Boeing because of international orders, is going to expand their Dreamliner facility by 50%, it's a thousand manufacturing jobs, but before that, it's 400 construction jobs.
>> All right. Uh uh one thing a lot of folks some folks in Congress float is the idea that in a reconciliation bill they might want to index capital gains for inflation. After all, we've had a big inflation. Uh here uh going back to the ear early Biden years. What do you uh what do you think about that idea? Is that something you want?
>> Uh not now.
>> Not now.
>> Not now.
>> No.
>> Um any reason?
>> Uh well why why would why would we do it now? And >> big boost for the stock market. uh stock start stock market is doing fine. I know you're not called the Main Street Journal. Uh so, but you know, we're we're focused on Main Street for right now. And you know, I I think that group has done well. 38% of American households don't own stocks or have any participation in the equity market.
>> But that means 62% of the public does.
>> They they do and and they they've done really well. All right, let me talk about >> and the I I I'm just going to point out that the the S&P is now higher today, but was effective uh yesterday morning that is higher than when the bombing started on February 28th.
>> Uh it's notable. So you mentioned the Fed. I want to ask you a particular you got a big transition coming up, but Kevin Worsh's hearing at the banking committee in the Senate next Tuesday. Now, I think it's been announced, but his uh the timing on his confirmation is uncertain. Now, assuming for the sake of argument that Tom Tillis still holds out and says, "I'm not going to confirm him until the legal case uh is done with involving the Fed." Uh, and Midmay comes around, Kevin Worsh hasn't been confirmed. Uh, the uh current chair's term formally expires. Who do you think should run uh the Fed at that juncture?
>> Uh I'm going to stay out of that. That they >> J Pal says he should be running it.
>> Well, again, uh that's unclear that, you know, I I think in terms of being the chair, pro Tim, he could be. Uh vice chair Philip Jefferson could be. Uh Chris Waller could be lot lot of people could be. I think the president of the United States probably has a preference.
>> Probably not Jay Pal.
>> I I think the president of the United States uh does have a preference, but you know, we we'll see what happens. I I'm confident that that Kevin will be uh in situ the by by that.
>> Well, can you tell us about conversations about that legal case then? I mean, how do why should we we why should that happen? because right now Tillis is holding a very firm line and uh uh he says I'm not going to vote for confirmation unless this case goes away.
I >> I think Senator Tillis believes that Kevin Worsh is an excellent candidate.
>> He has said that but uh still no no vote. Well, I want to ask you about something that, you know, Kevin Wars has talked about a lot and that is this idea of reducing the Fed's balance sheet of assets and some a new accord between the Treasury and the Fed where the Fed would uh basically get out of the business of fiscal policy, hand those assets to you in some fashion where you control them. You make the decisions about whether to hold MBS's mortgage back securities and whatnot and they would just do monetary policy. Is that the kind of deal you could see yourself supporting?
>> I I've talked a lot about the the the Fed's balance sheet. I probably written 20,000 words on the Fed in the past 10 years. And look, you the the regime they're in now of plentiful reserves. It is very difficult to get to a much smaller balance sheet from here. It's also the size of the balance sheet pre GFC. We all forget that there were very different banking regulations and so I think we will have to see a change in the banking regulations to shrink the balance sheet. There will have to be the decision to go back to the ample reserves regime where the the banks uh get their reserves from one another. So I I think it will be a long process. I I I'm not against it.
Mhm.
>> And you know, I I do think that we can think about more of a a look through balance sheet in terms of, you know, duration and what does it look like? What what are we doing with the QR or quarterly refunding announcement and our quarterly, you know, our cadence with that? You know, what what is the Fed doing? I I have said that I think QE that one of the things I admire about the Bank of England is their QE policy. They they step in during a market dislocation. They stabilize the market and then they move away. They've done that several times. And by the way, I I don't have insight into their balance sheet, but I think they probably made a lot of money on their bond trading that the Fed was losing a hundred billion dollars a year because they purchased so much at such terrible prices.
>> That those regulatory changes, are those something that the Treasury can do through your own rule making or Fed Fed rulem or do you have to go to Congress?
>> Uh it it could be done through the agencies. through the agencies. Okay. Well, that's interesting.
>> All right. You've got a big trip to China coming up uh and the president the summit in in uh in in May.
>> Um what do you and the president want to see out of this summit when it comes to economics and trade from China? What's your what's your ask?
>> Look, I I don't think there's a there's a big ask. I I think we have great stability in the relationship now. Uh we The two leaders met in Busousan, Korea in October. That agreement is working well. I I give it a B+ A minus on the Chinese side. So, as if I go back to my professor days, good job. Room for improvement. So, I I think we'll be perfecting that. I think that there are things that we can trade with each other. So, we're going to be looking at that. you can we do some kind of a 30 by 30 or 40 by 40 billion agreement in terms of tariff-free goods >> mutual mutual purchases >> mutual purchases the president always asked for more a purchases and you know I I would think that the Chinese would be much more interested the in American oil and LNG after their experience with the the choke point in the Gulf.
>> That word stability seems to be uh important when you're talking about what the president wants out of this Chinese relationship now and I have to say it's notably different than the first term where the president was uh uh you know often criticizing China imposing new tariffs. Is there a change in the thinking about the USChina relationship that you just want to kind of keep things on a more even keel uh and uh China is not something that fundamentally we have to decouple from the economy or change fundamentally the relationship with China?
>> Well, I I think a lot to unpack there. I think the word decouple is wrong. I think derisk is a better word. So uh we want to derisk in certain critical areas. A lot of that came to light during COVID that the Chinese were not reliable suppliers. They closed down their economy. But the all the things you complain about us subsidizing the semiconductors, ship building, rarers. um those are strategic and we have to reshore those uh medicines the the precursors for 80 or 90% of US medicines come from India and China so we we need to reshort that so we we want to derisk uh we do believe that the Chinese imbalances are getting excessive very tough for the world to have a China with a trillion dollar trade surplus we put up our tariff wall the goods have gone to the rest of the world. So our trade deficit with China the is down substantially.
>> But uh as you say with the rest of the world it uh uh it uh it hasn't gone down it's gone up. What uh I mean when the US when you talk to your counterparts on on China uh and you make this point about uh the their big surpluses in manufacturing what do they what do they tell you? We have a lot of people to employ. We we have to do this. Look, I I I just think that it's it's very difficult. I I went to Japan the first time in 1990 911. I think I got there within a month of the peak of the stock market in the bubble economy. And I remember in 2002 thinking, well, it's been a decade, they probably had enough of this. And then it wasn't until uh 2012 with AB that they changed. So it took 20 years. So I I've learned like that that the the Asian mentality is a bit slower moving than ours. Chinese are probably even slower moving than the Japanese. I I think in their heart of hearts, they know they have to do it, but they they have a lot of constituencies. The stateowned enterprises, they're they're running a very large uh aggregate budget deficit, probably 10% of GDP.
So >> um, all right, let's talk a little bit about the the the current competition on artificial intelligence between the US and China. I'd really like to hear your view because we had another report out today by HA, which does an annual report about uh uh AI and uh uh and they say that uh the United States lead is essentially over that we're now at rough at parody. What do you where where do you think we are in terms of the competition with China?
>> I I strongly disagree with that. I I think that it's moving quickly. uh but we we are 3 to six months ahead and uh couple of factors there is the the way the compounding of these models learning >> works uh this anthropic uh mythos model was a step function change the and abilities learning uh capabilities and you know like if you think you go from it's all logarithmic you go from x to the 10th hour to x to the 12th and then it was very difficult to catch up and also you can see the share the US compute share so it's not not only what do you have in the software what's your ability to run it what's your ability to generate tokens so.
>> That's and those are semiconductors the advanced chips as well.
>> A lot a lot of that.
>> And um that you know I I've seen studies that say that in a in a few years the US is going to have 70 80% of the global computing power. So we we were in the 30s, now I think we're in the 50s and we're well well on our way.
>> And uh but that puts all the more focus on production fabs for semicvanced chips in Taiwan. Uh have we made how much progress have we made in diversifying our our production lines, bringing more back to the United States? It seems like we're still very dependent on TSMC.
Oh, well, we're very dependent. 90% of the high value chips are still made on the island of Taiwan. Uh the the Biden Chips Act, no money went out the door. The nothing nothing was the created.
>> A lot went out the door for New York State with Chuck Schumer. I think.
>> I the I I think you'd be surprised to see where some of the family members were, but uh and former staffers.
>> That's interesting. Well, we should pursue that.
>> Yep. uh but uh I I we we are moving as quickly as we can and I I think that that will also be a step function change big facilities being built in Arizona but it's a big ecosystem so that the Taiwanese have the history but they really have the ecosystem they have this just surfit of uh technicians with master's degrees in in chip techn technology just because they've been there so long. Uh so we have to not only build the fab, you have to surround it with all the suppliers and be able to train the workforce.
>> The other problem is workforce. You know, you talk to the CEOs of some of these companies and they tell you we just have a terrible time finding skilled workers for these positions and that's why some of the investment has has slowed. Do we really have to uh improve our legal immigration system to allow more talent to come in instead of putting more barriers up?
>> I I think that we I I I think the there are a lot of unfortunate aspects to the Biden the open borders, but I think one of them is the backlash against all immigration legal the and otherwise. And look, there are a lot of aspects of the H-1B system that they uh are not robust. Some would call it a scam. And the those are not high value jobs. But should we create a level or should we do something where the workers come for X number of years, train our workers, and then maybe go home? Sure.
>> But with you control the the border, nobody's really coming in anymore. you've imposed, you know, ICE is doing whatever it's doing. Uh I think something like a million illegal migrants maybe out of the country and and two million. Okay, that's a big number.
>> Um the uh um uh but we need talent and uh is there any appetite in the White House? I mean the president sometimes talks about it that he would like to see it. Is there any appetite to make this a priority uh or at least part of the legislative agenda? If not this year, maybe after the next Congress.
>> Well, you know, we we'll see. All All I keep hearing about is the AI apocalypse for jobs. So, I I don't know if we should wait.
>> Not from not from us.
>> Well, not not from you, but the uh from others.
>> But do you believe that? You don't believe in AI apocalypse, do you?
>> I I don't believe that AI is going to take people's jobs. I think people who know how to use AI is going to take people's jobs. Uh well, is it going to be a net negative for the labor force?
>> No. Like look, in the history, I am mercifully not an economist. I'm an economic historian. So in the history of economies, innovation always leads to more jobs. I I think we'd agree on that.
>> I I would agree with that. And and on that optimistic note, I want to thank you uh Mr. Secretary for being here. It's been enlightening and I sure appreciate it. Thank you. Let's He's been generous with his time. Let's give him a big go.