00:00So I got to start with the shutdown and what's happening here in the U.S.
00:03We've become pretty inured to these shutdowns beyond this time being the Democrats who are refusing to sign a clean continuing resolution.
00:12Does the current impasse feel different in tone or consequence from slowdowns in the past?
00:17Well, I think if you look back historically, slowdowns or shutdowns have been short and there's been a path to resolution.
00:28What's different this time is the parties don't seem to be talking a whole lot.
00:33They seem to be talking past each other, which would suggest it might be a little bit longer.
00:39And second, that the president is using this perhaps to shrink the size of government, which could have a greater than normal effect on GDP.
00:55Normally, the effect is relatively small and it gets made up because back pay is always paid.
01:03Right, right.
01:04So this time might be different because of those factors.
01:06So do you think that that could turn this shutdown into a market moving event?
01:11It's possible.
01:12I think the thing to watch is October 15th, the next military payday.
01:18I think both parties are going to want to avoid the risk that they're blamed for our troops not being paid.
01:28And the hope would be is that there's some group in the middle who can, and there are fewer and fewer of those, unfortunately, who can resolve this and get us back into functioning government.
01:43Well, at what point does a shutdown feed into recession risk or further credit rating downgrades given the current fiscal backdrop?
01:50Yeah, I think the risk of recession caused by a shutdown is quite minor because, as I said earlier, these are generally short.
02:02The effect is really just to delay a little bit of spending and then it gets made up.
02:07So that's not the sort of thing that typically causes a recession.
02:12If you had a massive scaling back of government, then that risk would change.
02:17But I don't really see that happening.
02:21I don't even think the Republicans in the Congress want that.
02:24What about credit rating companies downgrading U.S. debt?
02:27That's happened.
02:27All three have done that so far, pointing to shutdowns and political dysfunction overall.
02:33For global investors, what does yet another shutdown signal to them when it comes to U.S. fiscal governance?
02:39Well, I think the effect on the actual finances of the government in terms of a rating agency perspective is virtually nil.
02:49However, the thing the rating agencies also look at is not only the resources that the government has to draw upon, but how well is the government functioning?
03:01And so a persistence of dysfunction in Washington certainly makes the rating agencies wonder whether the massive resources of the United States will, in fact, be tapped to maintain the ratings.
03:18In the past, you told us that you expect the U.S. government to maintain the status quo of undertaxing and overspending until that likely ends in, I'm going to quote you here, driving off a cliff, then rolling down a hill.
03:28Do you see anything in the future that changes that course?
03:32I think we're currently on an unsustainable fiscal path.
03:38I have no idea what will be the catalyst that will cause an end to that, but I'm pretty confident that when it does end, the end will be pretty ugly and it will cause a pretty significant adjustment.
03:54And then we'll all be sitting there saying, of course, this was unsustainable.
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