P&L: Trump Faces Difficulty in Forming Russia Strategy

and what the potential implications are. This is something that's been very much on my mind, as well as a lot of people's minds. I'm pleased to bring in Richard Kahn, managing partner at your Asia Advisors, who is an expert on Russian relations and has extensive experience kind of deciphering some of the tea leaves. So, Richard, you know, what's your take on the sort of steps that have been

taken since the assassination of the Russian ambassador to Turkey. Well, I think the reactions have to date been quite predictable. Russia and Turkey have some time ago sort of moved beyond the official position that there and uh, you know, basically in a state of proxy war, uh, neither the

Syria being on opposite side. That had really changed, And this recent terrorist incident underscores the alliance that they have and which Russia basically is allowing and supporting the efforts of Syria to deal with sing of Turkey to deal with their problems on the Syrian border with Kurdish groups that are within Syria and which are supporting Kurdish terrorist

activities within Turkey. And for the perspective of Russia, Russia received from this deal the support, if you will, don't know Turkey in um um basically the agenda that Russia has in supporting assad in Syria. So it's uh. It makes um sort of uh. Scenarios that or will envisioned look quite simplistic when you when you consider how the official positions really do not match with what is taking place on the ground, and this the terrorist activity really

underscores those themes. Well, Richard. One thing that's taking place on the ground and indeed under the sea is energy. Right. The Russian government putting together a proposal and it has passed to carry Russian natural gas under the Black Sea to Turkey. Can you explain a little bit about the the sort of strategy, energy strategy and the energy relationship

between Turkey and Russia. Well, this is in one of the foundations for their relationship and the reason why even after they're shooting down by you know, by the urgon regime of Russian planes a year or ago, aggression plane a year or so ago, that Putin nonetheless wanted to

find a way to move forward. There's been tremendous competition in terms of how Russian oil would head towards Europe, and certainly Turkey has you know, wanted it to pass through uh their borders and and receive some compensation for that. So it's been, um, it's been a relationship of practicality between Putin and Urtagon, and I would expect at the stage that the you know, they're going to continue to signal that nothing is going to come between them. How

does the US factor into this? You know that President elect Donald Trump is expected to have a closer relationship or at least a better relationship with Vladimir put the Russian head of Russia than previous administrations. Um, what will that look like and what would be gained potentially from a close relationship between the nations for these of the

situations we're describing right now in Turkey and Syrious. I think part of the challenge that the Trump team are going to have is figuring out what they really want to do um and how to become more relevant to to the resolution of these situations. Of Trump has historically been, you know, quite critical of the Obama administration for their handling, and so that they'll get a chance now to come

up with a game plan. By the way, I should just say perhaps part of the game plan it has to do with Twitter, because President elect Trump did say today there were terror attacks in Turkey, Switzerland, and Germany and it is only getting worse. The civilized world must change thinking. So that was his contribution. Yes, that has been his contribution. And obviously it's it's the old story.

It's one thing to be an outsider criticizing. What's always challenging when you have someone actually succeed in gaining power.

At that point they need to govern and he's going to have to come up with solutions, then go further than just identify problems as being terrorists related, which this instant it certainly seems they are, and but to then move from there to a relationship, so particularly with Russia, that reflects his instincts to men's senses, and try to come up come up with solutions that's going to be I think far more complex than he you may may

recognize at this stage. Russia, while perhaps being willing to show a little bit of leg uh you know, it is not is not instantly going to aband and they're not going to instantly decide, you know, to abandon all long health positions. And because those positions just is hours are have been based on on real concerns and on the strategic interests and so but that doesn't mean that he should not try. I certainly look forward to seeing his efforts to UM utilize the prospect of lifting sanctions

to tackle UM in a fresh way. The problems that we faced was Russia and Ukraine, and obviously to see if we can do some things to benefit the region in Syria and and you know all the refugees there, so you know, these are these would be noble things to accomplish, and I suspect that that somewhere in his mind, but uh, tactically to do that is going to be extremely difficult. And then coming up with an overarching strategy will be even more complex, I think for for Trump

and his advisors. Richard, the Turkish economy contracted for the first time in seven years during the third quarter that was revealed last week. This sputtering economy also includes a collapse in private domestic consumption, dropping more than three percent year over a year. What's the future of the Turkish economy, Let's say the next six months, give me about thirty seconds. Well, it looks it looks awfully gloomy, doesn't it. You know,

it's as we spoke of on previous occasions. You know, these these terroristic activities obviously have a dramatic impact on tourism. I can tell you we were planning to fly through istanbul Uh within the last half year, and my wife certainly commented to me that even a connection, there was something that caused her, you know, some concern, and I

don't blame her. Ultimately, the tourism industry drives many nations, in Turkey is certainly among those, so I would expect to see an ongoing decline in tourism just because of these terrorist incidents. Thanks very much. Richard Kahan is managing partner at Eurasia Advisors, telling us about the relationship between Turkey and Russia. One of the latest nominees of President elect Donald Trump to his cabinet is Representative Mick Mulvaney to oversee the office and charged of the US budget.

This is going to be a hot spot for debate and frankly for policy. I want to bring in Billy House, who covers the White House, for Bloomberg, to talk a little bit about what this pick means for the budget of the United States going forward. Billy Uh. Representative Mick mulvaney is not known for being a fiscally liberal on any level, and yet a lot of President Elect Trump's policies would really require a certain expansion of the budget.

Do you expect there to be some kind of fight that's being set up ahead, Well, that's absolutely a possibility. Mc mulvany, a South Carolina congressman, has been one of the most aggressive, pugilistic advocate advocates for cutting government spending, particularly military spending. And as we know, the President elect has said he's going to bolster the military. So there's one key area right off the back that you gotta wonder, how did these two guys. Mesh mulvaney has made a

career out of going after military spending and uh. Uh so it remains to be seen how they're going to get together on that. Billy. What's his relationship with the Speaker of the House of Paul Ryan. Uh, it's strained. Uh. Mulvaney was part of the group of outspoken fiscal conservatives known as the House freedm Coccus, who basically forced the previous speaker out of office, John Bayner. Um. The relationship

has been a little better with Paul Ryan. Paul Ryan has only been Speaker for a little more than a year, but already there had been growing streams on on some of the promises that this group thought Ryan had made and did not see through in this early part of his tenure. Uh. There's some tension there, and there'll be some tension as they discussed uh financial things together as

now as a member of the administration and the Speaker. So, Billy, one thing that I'm looking at is if you have this fiscal conservative who has come out aggressively in favor of cutting the budget um, and then you have President elect Trump who is looking for fiscal expansion infrastructure spending. This is adding up to a lot of cuts and a lot of difficult decisions that have to be made in the upcoming months. Where do you what units of the government do people expect to get cut the most, Well,

that's the good question. Uh. And is it cuts really or is it hopes that the tax cuts generate that, you know, revenue that could help pay for these things. So, but you know, I just have to say the logic of tax cuts generating revenue. Uh. You know a lot of people wonder about that. In other words, that the logic that tax cuts will be sufficient to ignite the economy enough too then subsequently provide even greater tax revenues going forward, correct exactly. And it's dubious that that could

occur very fast, much less occur at all. Uh. There is some talk of repatriation of corporations who have located outside of the country, allowing them to come back with either no penalty or less penalty, and that way bringing back maybe a portion of the tax money they would have had paid. That could help boost them. But you're right, Uh, Mint Mulvaney's gonna go after an agency spending and and cuts and and and Paul ryan Is wants to go

after entitlement spending and cuts. But at the same time, and as you've pointed out, the President elect and said, he doesn't only go after entitlements like Medicare and and uh social Security. So uh, it really is who gets to who's going to control this agenda, and nobody knows

right now. Well, part of that agenda has to do with immigration policy, and I was reading some past notes about a representative Congressman Multveney, and he has been a supporter of amnesty that puts some at odds with Senator Jeff Sessions, who was slated to be the head of the Attorney General, head of the Justice Department. And indeed, he's got a quote I remember he said there are jobs that American citizens will not do. He says, we have businesses in his district that rely on migrant legal

migrant workers and a lot of them are in this state. Absolutely. I mean, in February he even did a town hall. He learned Spanish to be able to do this town hall partly in Spanish, correct in his district. So he's open to that. And and that again is another area where he clashes with at least what has been you know, said during the campaign by Mr Trump himself. Uh, it's it's another wrinkle, another piece of the emerging Trump administration

that seemed to not all fit together. And it's and it's representative because the executive orders that have been used by President Obama on immigration policy. Uh, those are entered into the federal registry. Right, that's actually correct. But Mr Mulvaney has also been critical though of Obama's unilaterally making changes to the system. So in a functional way, he's opposed some of the Obama administration efforts, even though made

generally he kind of agrees with the ideas. Billy, is this typical for an incoming administration to have so many different key members of the cabinet that frankly are at odds with each other. It's it's usually president reflects, cabinet reflects the philosophy of the president. Here we have multi philosophies, different viewpoints, and you know, maybe that's a good thing when they get together. They ever do, will get together.

But it's certainly confusing, and it's certainly confusing to those on Capitol Hills who will have to put the president in his administration's visions into actual legislation and therefore, center for Joey leader, Mitch McConnell, and Paul Ryan, who has his own he's not a potty plant. Have to come to grips with what they all mean when they all talk about things. What we're gonna look forward to more

of your reporting. Many thanks. Billy House, Congressional reporter for Bloomberg News, joining us from Washington, d c our Nation's capital, home to a Bloomberg one and one oh five point seven h D two. All right now to give us a look at some of the pointees for President elect Donald Trump's future cabinet. I want to bring in Tyler Cowen.

He is a Bloomberg View columnist. He's also professor of economics at George Mason University, writes for the blog mar General Revolution, and his books include Averages Overpowering America Beyond the Age of the Great Stagnation. Tyler Cowen, thank you for being with us. Go ahead, set out your thoughts here about the nominees, the appointees for President elect Donald Trump's cabinet and what skills they might bring to their jobs that are different than the skills we may be

used to in these positions. Overall, I think Trump is taking a lot of chances with these picks. But that's based on an understanding of Washington gridlock. If in most cases your agency heads don't get that much done anyway, arguably you should take a lot of chances. So he's picked people who have some credibility and influence with him, who are good communicators, who in some cases, such as Ben Carson, are pretty famous, and said, you know, narrow

expertise isn't always the main thing. So my overall assessment is this is actually going to end up being effective, whether or not you agree with Trump's use. Okay, Tyler, you know, I read your column and I thought it was fascinating the expect Trump's appointees to have a big impact.

And the reason why I thought it was so interesting is because it raises a question of what matters more for a cabinet member their ability to be famous and to have a big persona and to be a Sylvester Saloon with the big name recognition and good media presence, or the knowledge, experience and capability of crafting legislations or legislation or policies that will be effective. Well, again, this

is a gamble. But if the people at the top of the agencies or appointments know that they don't know all of the details, they can assign that two subordinates, so there's a chance they think they know more than they really do, and then you're in for a lot of trouble. But again keep in mind, in a gridlocked world, arguably an administration should be willing to take more chances. Well, so you know, it raises yet another question just about

whether these uh, these cabinet members will delegate. I mean, do we have any sense of whether first of all, they will be able to delegate their sort of have the nature to delegate some of the the tasks, and also whether some of the institutional Washington crowd will stick around. That's hard to assess, But keep in mind a lot of the picks they have more business experience and military experience than It's difficult, and those are areas where you

do have to learn to delegate to be effective. So again I'm not saying you have to like Trump's ideas or his picks. I'm saying, don't assume this is some strategy list, you know, stabbing in the dark way to approach the problem. I think it's actually pretty well thought out. Tyler One, if you could use an example of Larry Cuddlow as a contender to chair the Council of Economic

Advisors and how that fits into your perspective. Well, let me first just say I know Larry, so my view here may be biased, but I've seen a lot of professional economists criticize him for not being a member of the guild in the in a proper way. Larry is a very smart guy. He's a very clear to sucker. He has tremendous television experience in terms of being both a communicator and someone Trump will listen to. You know, that may end up being much more important. So I'm

actually pretty optimistic about that pick. Is there any pick that you're less optimistic about? Well, the one that worries me most is Michael Flynn as National Security Advisor. The notion of him controlling the flow of information to Trump on foreign policy. H That to me is the worst of the picks. Is there any criteria that you would suggest has changed because we now live in a Twitter

in chief environment. Well, most of the picks are surprises, and it wasn't just drawing into the pool and picking all the normal people from the Washington establishment. Uh So, I think Trump in general is saying, look, the whole world has changed. I won that shock you all. You've all got to realize that's not the last thing to

have changed. Here's the next step of surprises. Have you ever seen this type of cats in a bag approach to cabinet members with lots of different views represented at all sizes and kind of thrown together come up with a coherent policy. Not in my lifetime now, So this is uh something different. Okay, good, alright, son' say Tyler, I just wanted to press you a little bit because, um, this all sounds rhetorically, you know, great, and it knits together.

But if you were going out to hire someone to run one of these large government agencies and departments, wouldn't you want expertise previously running something like that. My personal picks would be more along the line of traditional expertise. But keep in mind Trump views himself as a disruptor in a way that I personally would not endorse. I've used stability as a higher priority. So given Trump's underlying preference for disruption, these are what disruption picks look like.

But what I, as a whole make the same choices? No, Tyler Cowen, thank you so much for joining Tell Collin Bloomberg View columnist. He's also professor of economics at George Mason University and writes for the blog Marginal Revolution. Since the Fellow reserved A raised rates, interest rates on new credit cards have increased by about a half a percentage point. They were previously about fifteen point eight percent. Now they

average more than sixteen and a quarter percent. Here to tell us more about consumer credit is Needy Verma, Senior director of Research and Consulting with TransUnion, joining us from Chicago. Needy, thank you very much for being with us. Tell us about this consumer credit market forecast for seventeen. What does it look to find? Good morning, Thanks for having me

here about this time of the year. We predict what will happen in the marketplace in the next four quarters to come in two thousand seventeen, to look into credit performance as well as average debt levels for US borrowers. And as you've already seen the rise in interest rate that we saw last week, um that combination of the interest rate rise and more to be expected in two thousand seventeen, along with what we've seen as more and

more subprime borrowers in the consumer learning market. We're expecting those two factors are going to spur delinquency rates UM spurs linquistator, it rises into doound seventeen four, specifically auto loans releases as well as credit cards UM. If you look at the percent of sub prime accounts who have a credit card UM in the US at the end of third quarter of tow Down sixteen, that's really the highest level that we've seen since the end of two

thousand and ten. When you look at auto finance for that factor, it's the highest point since the conclusion of two thousand thirteen. So we believe that with these anticipated further rises in prime rate, along with the combination of subprime consumer participation in the market, we are going to see rising delinquency rates for auto as well as credit cards in two thousand seventeen. So who's going to suffer

the losses from this? Will there be losses? I mean, is it going to be the captive auto lenders or will it be uh, perhaps big investment firms. I think from an auto finance perspective, we do believe that independent lenders have the highest share of sub prime accounts, so definitely those lenders will be needed to be well prepared UM, you know, just to make sure their underwriting strategies are maintaining a good balance between expected losses, credit access and

investor returns and what have you. Who are the independent lenders you're talking about, who are the biggest in this space? These are going to be your independent lenders who only do auto finance like sentendera auto essentially outside of banks, credit unions and captives, everybody else is just lending auto finance in the market. Those are those are considered your independent lenders. How fast will the past a long be

for increased interest rates? We've gotten hints that the Federal Reserve could raise interest rates as much as three times in Yeah. Well, well, I can't speak for what to anticipate in terms of rate rises. What I can share is that our forecast includes about a fifty basis points rise between Q four two thousand sixteen, which we've already seen that UM as well as two thousands seventeen UM.

And then I think importantly we do understand there's an impact from primary there's also an impact from contribution of subprime borrowers gaining access in the market. I think it's really important to not only look at the trajectory which is going to be rising. But also look at the levels itself. You look at the levels of auto loan delinquencies. You know, we we reached the peak even at one point six percent, which is quite low considering where we

saw saw mortgage ellinquencies. Mortgage relinquencies peaked at seven point two at the beginning of two thousand and ten. We never really saw those peaks in autos. So in in overall, I think where we look at the levels for card delinquency, which is expected to be one point four percent at the end of two thousand seventeen, it was as high as three both levels are still quite manageable despite the

fact there is more access available to subprime borrowers. And I think that's really a factor to take into a pound with very positive economic forces such as your better employment picture, rising median household income um, we see increasing in personal spending as a result of that. So those are some of the offsets that we do need to keep in mind along with the anticipated rise in prime rates. Right.

You know, one thing, as you speak media, I was thinking to myself, well, you know you talk about rates rising and how that tightens credit conditions. It makes it more challenging for people to UH to to refinance at low rates. And on the other hand, a lot of people are baking into the stock market. Certainly uh this sort of very optimistic picture of the U S economy

in the coming year. Can you square those two things, Because, as you were saying, I mean, typically in a positive economic backdrop, usually it will be easier for consumers to pay off their loans. I mean, how much this is the tightening going to really matter? Yes? So overall, you know, the decent rates rises that we've we are expecting for next year need to be really balanced by that positive

economic picture that you talked about. While it may be difficult from a refinance market perspective for consumers to come and get better rates, but if you look at the unemployment rate and the fact that people are employed and they have traps, and they have medium household income rising, that those are also positive forces that are really helping a very large market of US credit consumers, that is mortgage.

Look at mortgage for example. You know we're going to hit about a two point one percent of inquancy rate at the end of two thousand seventeen. That is a very normal rate of delinquency that we should expect if we are going to be in the lending business, and that rate of delinquency is really supported by the fact

that people have more confidence in their homes. Home values that rise, thinking a few more confident paying towards their mortgages, UM law unemployment rates support those steady improvements over those these several years we've seen and continued improvement in the market. So while it may impact your refinance activity, it is going to really bolster um the purchase market is going

to enable more first time home bars. In fact that we predict will be quite dominant in the market next year because of those positive economic forces enabling a strong foundation for our economy. Uh needed. I understand that the total dollar amount of credit card debt for consumers in the United States that they're carrying is approaching a trillion dollars. The last time we were at this level was two thousand seven. Does that tell you anything about where we

are in the cycle. So just as a fact, we we measured debts for every single credit active consumer in the United States, and we look at cards both private label cards meaning your merchant cards, as as well as we look at general purpose card that consumers can use at any location. UM. When we look at those depth levels, they're not quite at a trillion dollars. Just looking at consumer debt alone, UM, I can tell you we're about seven eight billion dollars in credit card debt. These are

balances that consumers carry on their credit card statement. UM, that shows up in your mailbox every month. UM, that's seven or eighty billion dollars. Isn't as alarming. We've seen those levels in the past, and really what we've seen the last few years is personal spending, which has really been increasing as a result of that better employment picture we talked about, has continued to grow. And personal spending does benefit card balances because people like using their cards

for the transactional convenience. I even buy my four dollar lat on a credit card, and that's the personal spending is benefiting the card balances. UM. So I think we do have to keep in mind that balances are a factor of sent as well as what consumers need for their credit. We're gonna have to leave it there. Thank you so much. Needy Verma, Transunion's senior director of Research and Consulting, off to get a latte. This is Bloomberg

Thanks for listening to the Bloomberg pien L podcast. You can subscribe and listen to interviews at iTunes, SoundCloud, or whatever podcast platform you prefer. I'm Pim Fox. I'm out there on Twitter at pim Fox. I'm out there on Twitter at Lisa Abramo. It's one before the podcast. You can always catch us worldwide on Bloomberg Radio