00:00David, it has to be recognized that it's a big legislative accomplishment.
00:04It's a larger bill passed sooner than other presidents have achieved.
00:10But I don't think it's going to take the country in the right direction.
00:14I think it's going to grow our budget deficits in the future very substantially.
00:19And you're already seeing some market reaction to that.
00:24And I think that what it does to our social safety net is really going to be devastating relative to the path the country would have been on.
00:35If you look at cutbacks in the social safety net, there were cutbacks in the welfare reform bill that was passed during Bill Clinton's presidency.
00:46There were cutbacks made by President Reagan and his original tax and budget legislation.
00:53This is the largest cutback in the social safety net that anybody has been able to find.
01:03And it's coming at a time when we appear to be on a trajectory to massive cutbacks in spending on scientific research,
01:15massive cutbacks in support for the arts and humanities,
01:23maximum cutbacks in support for foreign assistance programs,
01:28including ones on which large numbers of AIDS patients in Africa are dependent for their life-saving medicines.
01:40So this is legislation that, to my mind, both compromises our capacity to defend ourselves as a country because of all of the debt,
01:52and frankly compromises what makes our country worth defending in terms of being a humane force in terms of the world,
02:01in terms of our sense of national community and protecting everybody,
02:07in terms of some of our greatest contributions to humanity in both the sciences and the arts.
02:17And so I think this is a very troubling piece of legislation in ways that go beyond the problematic immediate economics.
02:29This one big, beautiful bill is one part of a more sweeping plan that President Trump has for,
02:35I think it's fair to say, really redoing the American economy.
02:38And yet we don't see much reaction yet from the economy in the numbers.
02:42And I'll give you an example in the tariffs, a lot of talk about tariffs, a lot of fear about tariffs.
02:46And yet, if you look at the CPI numbers, the PPI numbers that are coming out,
02:50they don't indicate the inflation that most economists predicted.
02:54I think it's early days.
02:57It may be that there are a set of other developments going on through artificial intelligence,
03:05through technology that are exerting a deflationary force.
03:12It may be that people, given all the huge uncertainties about tariffs,
03:19are waiting to see how it shakes out before they establish their new price structures.
03:26It may be that, for a time, it's possible for the people in the middle to eat the tariff increases
03:35in order to try to get market share.
03:40I agree with you, David.
03:42I would have expected more inflation.
03:46And what you always have to do as an economist is watch the data and be prepared to change your mind.
03:55But for now, I think that I wouldn't want to rush to a judgment that these tariffs are innocuous for inflation.
04:05I think the more likely thing is that they're going to be somewhat more delayed in their impact.
04:14Certainly, there have been many careful studies that compared the sectors that were tariffed
04:22tariffed and the sectors that were not tariffed during the president's first term
04:26and found that tariffs did translate into higher prices.
04:32So I would rather wait and see on this.
04:38I think that's the approach that the Federal Reserve is taking.
04:42And I think, frankly, that is the right approach.
04:47I mean, we've really seen a move up in the 30-year yield.
04:51We're above 5% relatively constantly now.
04:54There are some who are concerned about exactly what that's telling us,
04:57about inflation expectations and term premium.
04:59David, you know, I look at the 10-year market relative to the 20-year or 30-year market
05:08as a sign of where the markets see rates going over the very long term,
05:17what market participants call the forward rate.
05:21And we now have forward rates on regular bonds that are well above 5%
05:30and forward rates on tips, on bonds linked to inflation, that are well above 3%.
05:39And those are ominous indicators about our nation's credibility over the medium term.
05:46They're ominous indicators with respect to the government's ability to issue long-term debt.
05:55They're ominous indicators with respect to the deficit,
06:00because if you look at the projections people quote from the Congressional Budget Office,
06:06from other places, they're building in much lower interest rate assumptions.
06:12So I think if you look at what's happened to bond markets,
06:18if you look at what's happened to the dollar,
06:22you have to view our nation's fiscal situation with considerable trepidation and concern.
06:31While the government grapples with all that debt it's taking on,
06:34consumers and small businesses have their own responses to Trump administration policies.
06:39As Bank of America chairman and CEO Brian Moynihan explained.
06:43So if you look on the consumer side in our 70 million consumers who engage with the economy every day
06:50and they send through their accounts and spend the cash and everything,
06:55about $4 trillion, $5 trillion a year,
06:57that grew up 4% plus the second quarter, 25 or the second quarter, 24.
07:03So they, because they're employed and because of wage growth, and that's not every single consumer,
07:07but in the large, in the main, they are continuing to grow and spend more, and that helps the economy.
07:14And so you're seeing in some of the moderate income households,
07:19there's a little bit of shuffle moving around to different things.
07:21You're seeing people trade from one thing to another, less planes, more cruises earlier, that's leveling out.
07:26Now, a lot more going to movies because the movies are good.
07:28But at the end of the day, they're spending discretionary necessary at about the same percentage they traditionally spent.
07:34They've got money in their accounts, they're employed, and the wage growth has been relatively strong.
07:39And, you know, so they're in pretty good shape.
07:41The credit quality is good.
07:42They have equity in their homes.
07:44They're low rate financing in their mortgage.
07:46So consumers are pretty good.
07:47When you go to small businesses, that's more the question, small, medium-sized businesses,
07:50because the interest rate environment hits them harder because they borrow on lines of credit short term for a lot of their activities.
07:57And that rate went up substantially.
08:00And then you think about if I'm a $100 million company or $50 million company here in North Carolina,
08:05and I'm engaging in the world finance, I'm importing goods and manufacturing them, further manufacturing them, selling them.
08:12You know, it got pretty interesting here trying to figure out all the trade and tariffs.
08:15So I think the certainty on the tax rate helps them, meaning the big, beautiful bill passing and the tax rate.
08:21That's a very good thing.
08:21The alternative would not have been good if their tax rates would have changed.
08:25A satisfactory resolution to the trade so that they can learn the rules of the road over the next 30, 60, 90 days
08:31and get their plans for next year put together.
08:34And I think ultimately we're going to have to have a satisfactory resolution on immigration and population growth
08:39because at the end of the day what I'm hearing more from the construction companies, farming companies and travel entertainment type companies
08:46is I'm starting to worry about I'm starting to struggle with labor availability at any price.
08:51And that's not that we've got to make sure they have the workers because they will supply a great service economy and continue to grow.
Be the first to comment