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00:00As we've been talking about, Mike, markets lower on fears of an escalating trade war.
00:04You're a macro guy.
00:05You're international economics and policy correspondent.
00:07Is this a rethink of U.S. foreign, of U.S. policy, U.S. trade policy?
00:14It's just a social media post.
00:16Yeah, I think, well, there's a couple of things going on.
00:19And I think Eric's right that the markets are using this as an excuse to sell off because we don't know exactly what's going to happen.
00:25The Chinese have said that they're going to put new restrictions on rare earths and supermagnets and things like that that have been under discussion.
00:36And Xi and Trump are supposed to meet at APEC later this month and talk about this.
00:43And there was thought that they might reach some kind of deal.
00:46Some analysts think that this is basically the Chinese trying to get some negotiating leverage.
00:52And Trump doesn't want to be back into a corner, so he's negotiating back in the kind of language that he tends to use.
01:02The Chinese, the main body of the Chinese new restrictions wouldn't hit till November or December.
01:11So it's not something that's imminent.
01:13And it could be that this is just all posturing.
01:17And one has to hope that at this point.
01:20But that may be why we've got a 2 percent fall or roughly 2 percent fall and nothing worse.
01:28I think if the president had really come out and said, I'm going to jack up these tariffs to 50, 60, 70 percent, then you would see a much bigger reaction.
01:37These comments, of course, are coming before he's set to meet with Chinese President Xi Jinping a little bit later this month.
01:45Have we heard any details about whether that meeting is still going to be taking place in the wake of the social media posts?
01:52Well, we haven't heard that it's off.
01:54The Chinese did not mention it's off.
01:55And the president said, I don't see any reason to meet right now.
01:59But he didn't say, I'm not going to.
02:01So at this point, I think we just have to wait and see how this plays out over the next couple of days.
02:07Maybe he gets it off.
02:08Maybe he's mad because of the Nobel Prize.
02:10And instead of going after Norway, which we all thought he'd do this morning, he's just taking it out on China for the time being.
02:17But he was thanked by the winner of the Nobel Peace Prize.
02:20Well, yeah.
02:21And then he reposted this.
02:23Yes.
02:24Basically, she said, we're counting on President Trump and our friends in democracies around the world to continue the struggle for Venezuela.
02:30She didn't say, thank you, President Trump.
02:33Exactly.
02:34Well, let's shift gears a little bit, Mike, and talk about reductions in force.
02:37The idea of layoffs, permanent layoffs.
02:40Russ Vogt earlier today, White House Budget Director, saying the reductions in workforces, the reductions in workforce have begun.
02:48He's referring to the federal government's term for layoffs here.
02:53Do we know how many?
02:54Do we know who?
02:55Do we know where?
02:56What we know is that the senior White House officials told Bloomberg News that it would be thousands.
03:04A representative of the American Federation of State, Local, and Government Employees said that they heard 1,300.
03:13But there's no exact number at this point.
03:15It does seem to be affecting many agencies.
03:18I've heard as many as nine, and this is obviously going to provoke lawsuits from the federal unions.
03:27The administration and vote say this is necessary because of the government shutdown, but it's not.
03:33They've never done this before.
03:35Yeah.
03:35The workers aren't being paid right now, so it doesn't – it's just – it's also theater.
03:42Now, does the administration – they could be setting this up as a bargaining chip.
03:49You know, Democrats come to the table and they concede something and the president says, all right, we won't fire these people.
03:55Because remember how this went with the Doge thing.
03:57People were on the payroll, off the payroll, on the payroll again.
04:00So, this could also be a big smokescreen.
04:05I'm wondering how you think that kind of impacts the – what could be an already weak labor market that we're seeing.
04:12We had Governor Christopher Waller from the Fed saying job growth has been negative for the last few months.
04:18The labor market is his biggest concern.
04:20Of course, that's what we've also heard from Jerome Powell.
04:24These firings, wouldn't that make the labor market even weaker, or is it not quite related?
04:28There's not enough people getting fired.
04:31I mean, it is terrible for them individually.
04:34But at this point, if you said thousands, I mean, there are something like 2 million federal employees.
04:39So, it wouldn't mean that many people are going to affect the economy.
04:44But it does contribute to the overall sense that the country is not doing well, that the economy is not doing well.
04:52And that may hit consumer confidence.
04:54And the more layoffs you have in your neighborhood, the more you start to worry about yourself.
04:59And then you cut back on spending.
05:01And that's how recessions begin, basically, is a confidence matter.
05:05So, it's not good news in that sense.
05:07But it's not something that we will really see in the economy.
05:11What ends up happening with government shutdowns is spending is delayed, but it's not completely gone.
05:17People will get their back pay, in theory.
05:20The administration has threatened that, too, but the law says they get paid.
05:24And then they'll go make the important payments that they have to make.
05:29And I'm sure they'll use their charge cards for groceries and things like that in the meantime.
05:32Well, speaking of getting paid, Argentina is about to get paid to the tune of $20 billion.
05:37Is it fair to call this a bailout?
05:39It's fair to call it a bailout, but they're not really going to get $20 billion from the U.S.
05:44Essentially, they're calling it a swap line, which it isn't exactly either.
05:48The swap line is an agreement between two central banks.
05:52One that needs dollars sends money to the Fed, and the Fed sends the equivalent amount in dollars to them
05:58so that their companies in that country can pay their dollar-denominated bills.
06:04And then they send it back when the crisis is over and the Fed sends them back their money.
06:11This is more like a rescue package along the lines of what happened with Mexico in 1994,
06:19where the U.S. used the Exchange Stabilization Fund and agreed to guarantee Mexican bonds that couldn't be sold
06:30because there was a concern about whether or not they would default.
06:34And so the U.S. guaranteed those.
06:35The U.S. bought some of the assets.
06:38They didn't give Mexico cash directly.
06:41And I don't think we're giving Argentina cash directly, but it'll be a system set up like that.
06:47Is it a little different than Mexico back then, though, because we share a border with Mexico?
06:53The stability of Mexico is in our best interest because it's such a large trading partner, at least right now.
07:00I mean, Argentina is a little bit of a different story.
07:02It seems more political.
07:04Well, there's definitely a political angle to it, and it just kind of depends on what your cynicism meter goes up to.
07:12Argentina is obviously a poster child for bad financial management.
07:16They owe the IMF billions and billions of dollars.
07:20They've defaulted something like 23 times.
07:24And you could argue that it could be a sort of economic domino in the way we saw things happen in the Asian financial crisis.
07:32But there's also the idea that a lot of the hedge fund leaders who worked with Scott Besant over the years have loaded up on Argentine debt, distressed debt, because they can buy it at a discount.
07:49And if the Argentine peso keeps falling, as it has, and is predicted to do if they lose the congressional elections coming up, then these people lose a lot of money.
08:00And if the U.S. can prop up the peso, then it helps Besant's friends.
08:05Now, I don't have any evidence one way or another, but the New York Times is reporting this.
08:11Paul Krugman did a column on it today.
08:14So that is something for the—I don't think you have to go as far as a tinfoil hat.
08:19Maybe saran wrap hat or something like that to, you know—
08:23But it could be.
08:25Maybe it's in the same drawer where you would find the tinfoil.
08:27Well, and you get—you get in these situations, you get people who are nervous about the impact on American investors and funds.
08:37We saw the same thing happen with Greece, and Greece was definitely going to default, but it was handled very gingerly so that it didn't cause systemic problems.
08:48Well, this coming from the Treasury Department, but certainly the next Fed chair might be thinking about the implications of this.
08:55And that's kind of where we want to end with you, Mike.
08:57We learned earlier today some other names that could be in the running or are in the running for Fed chair finalists.
09:07Rick Reeder, Michelle Bowman, Chris Waller, Kevin Warsh, Kevin Hassett.
09:13What's the timeline here? Is there anyone else to add?
09:15This is a CNBC report that they are the final five.
09:17Okay.
09:17And that they would do another round of interviews, and then sometime maybe in December, the president would nominate someone to the Stephen Myron seat, where the term expires at the end of January.
09:33And that person would be essentially the de facto Fed chair in waiting.
09:37And then if Jay Powell resigns, they could put Stephen Myron back in that seat or somebody else.
09:41We don't have any other outside confirmation of that, but it certainly tracks with what the president has been saying.
09:49He's called the Kevins and Chris Waller the finalists for some time.
09:54Michelle Bowman might be a little bit of a DEI here because we know they like her in the regulatory role that she's in.
10:04And Rick Reeder obviously has a good reputation in the markets.
10:08It depends on what the president ultimately ends up wanting in a Fed chair.
10:14How much of a splash does he want to make in a sense of a rock falling in the pond and sending out ripples?
10:21How much does he want to upset the apple cart, and how much can he do without upsetting the markets?
10:27So this is going to be something to watch over the next couple of weeks, because once we get to an announcement, there's going to be a lot of reaction to that as well.
10:36Well, we'll certainly be talking to you many times between now and then.
10:39Michael McKee, Bloomberg News, international economics and policy correspondent, joining us here in the Bloomberg Business Week studio.
10:44Mike, have a good weekend.
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