U.S. Won't Default on Debt, But Expect a Shutdown, Steve Bell Says

border wall funding? Here to explain more is Steve Bell. He is senior adviser the Bipartisan Policy Center. He's a former Senate Budget Committee staff director for Republican Pete Dominici. And that was in four eighties six. Steve Bell, Boy, that seems like ancient times, doesn't it. Well, it really does things. Nothing is golden except in our memories, but

those were much easier years than now. Explain how the contrast has informed your understanding of what President Trump said in Phoenix about shutting down the government and connecting that to funding for a potential border wall. Well, he said it several times now, and so I'm beginning to think that he means it quite seriously. Uh, let me just

distinguish between two things. Shutting Down the government would mean that we just didn't pass the twelve spending bills or appropriation bills for the upcoming fiscal year by October one. That is much different than defaulting on the debt. And I just want to make sure everyone understands there are two different things. Um, I think the President will if he doesn't get a bill that has funding directly for

the wall, I think he will not sign it. And I think that we will have on the twenty nine um of September, I think we will have beginning of what I believe will be e relatively short government shutdown. So, Steve, can you talk about the distinction that you just mentioned, because when I look at bond markets, they certainly are not expecting any kind of default and they're not frankly

expecting even a close call. I mean, I'm just looking at, for example, three months and six month treasury bills and they're not showing any distortions like we've seen in the past. So is there a show is explained to us how we could see a government shut down but not a default, and tell us why you think this would play well with President Trump's base, well, at least I think I think you saw in Phoenix a couple of nights ago. Uh,

what the president is doing with the base. And if he had to shut down spending and shut down the government and the the swamp with all the bureaucracy because they wouldn't give him a border wall, I think that plays very well with his base, and I think it's something they'll remember. You can blame it on the Congress and um. I think that gets him a pretty much

a free ride on that. But a different question is what happens if we have any kind of default in the debt, which I do not believe we will have. We will pass a debt extension. It may not be for a couple of years, it may only be for ninety days, but we will pass a debt extension in time. We will not pass, in my view, any of these twelve appropriation bills on time, and it will be something we call a big omnibus spending bill that will be

sent to the president. If it doesn't have roll funding, I think it will fail and he will shut down the government. Steve, do you believe that there's going to be any movement, any activity on tax reform. I think it's going to be very, very difficult. I wrote something about this yesterday. Um, the challenges ahead are really very difficult because you need bipartisan support to get a tax bill out, and that means you're going to have to

move towards whatever Democrats want in their tax bill. Will that be higher rates on the top five, Will that be an expansion of the earned income tax credit. No one really knows what they will demand, but it's pretty clear to most of us now that a Republican only tax plan cannot pass the Senate under current circumstances, and that's going to be I think a big time fight. I consider that to be something that might happen in

the first quarter of two eighteen. But people should understand that the legislative process and the Senate on taxes is very complex. Uh, Steve, you're talking about the likelihood of a government shutdown and the likely unwillingness of Republican senators and House representatives to pass a bill that does have some kind of provision for the while funding. I'm wondering why would a government shut down due for the relation s ship between GOP senators and congressmen with President Trump?

Especially as the evident battle between Mitch McConnell and President Trump Piazza up. Well, I think it would have more of an impact on the relationship, which is already quite poor between the Senate Republican Caucus and the President. Um. I think that this will have some impact, but not a lot on such things as the tax reform possibility, some sort of initiative on infrastructure, those kinds of things,

but they're going to be delayed anyway. What what bothers me more is if what I'm saying comes through, we have a government shutdown, the President blames the Congress and says it's all over the law, you know, that kind of stuff, that it will probably endanger him getting anything done that he wants to get done, as far as sort of a big infrastructure initiative, spending more for defense, which I think already is a steep hield to climb. All in all, there are three people you ought not

to make mad in this town. That's the intelligence community and he's done that, And it's the FBI and he's done that. And the third one is Mitch McDonald Because only Mr McConnell's desire to have a tax bill to help his senators get reelected next year. Only that one fact really helps the possibility of a tax bill passing. Steve, I just want to break in and just give you everyone this headline from Bloomberg that the smartphone maker HTC

is said to explore strategic options. We'll get more details and pass them along, Steve once you to just continue because I'm sure you've got ongoing relationships friendships in d C. With lawmakers and staffers. What have you heard in their reaction to some of the President's comments about the border wall and in general about his relationship with the Republican leadership.

His relationship with the Republican leadership is quite strained. You just don't take on a Jeff Flake Senator Flake uh and encourage a person to run against him in the primary and have a group associated with you raising money against him, and make friends with the Republican Senate caucus. And you don't do it with with Mr Heller in Nevada. So he's got about seven or eight people that he's

directly made mad. The president has and in private, staff simply doesn't know how much real effort the President will put into a tax plan or into funding the wall will it be sort of like it was in healthcare, where ever so often he would talk about where we

need to get the healthcare bill finished. Um, if we're going to get a help, if we're going to get a tax reform bill passed by the first quarter of this coming year, then the President is going to have to devote all of his energy and all of his

remarks towards that goal. Otherwise there just will not be the momentum in six when we passed the tax bill, Remember, we had Reagan a hundred percent behind it, We had Congress that have been negotiating behind the scenes for a couple of years behind it, and it was still tough to do. Steve Bell, thank you so much for joining

us and for your insights into this. Steve Bell as Senior adviser for the Bipartisan Policy Center, also a former Senate Budget Committee staff director for Republican Pete Dominici from six. There are a couple of new employment laws that are set to take effect in New York City later this year, and I'm very interested to learn more about them, because somehow they totally flew under my radar, and I'm sure that they have a lot of other people as well,

Ronnie has said Home joins us now. She's a managing partner at set Home Law Group, which is based in New York, and has been tracking these changes which potentially could have some significant effects in particular businesses. So Ronnie, thank you so much for joining us. Can you just first lay out what the main rules are employment rules that you're tracking, and what the potential consequences in your

view will be sure so effective. On Halloween, October thirty one interesting day to choose, employers will no longer be able to ask about salary history. And the theory behind this is that by not asking about salary history, women and minorities in particular will fare better. Now, as a woman who is a minority, I want us to all fare better, but I just don't see how this is

going to to help us. Um wait, wait, just before we go on, So in another word, can you just elaborate why do you think that that it won't necessarily help the situation? Well, I think it's we need to change people's thinking and help them understand how benefit show it is to have women in the workplace and minorities in the workplace, and by simply not asking someone excuse me, how much are you currently making? It doesn't help them

at all. I mean, for example, if you have no intention of hiring a female minority person and you're interviewing them. In your head, you're saying, Okay, this job, I'm going to be able to spend between eighty and a hundred and twenty thousand dollars on a salary in walks a

female and in walks a white male. And you decide that you're going to only pay females and minorities the eighty thousand, never having asked a question about their previous salary history at all, and in your mind you are going to offer this white male a hundred and twenty thousand. Can you just give us a sense of what the other side of that is and why was it implemented?

What was the thinking? Uh? Was it just simply that because there would be a sort of range, so that if somebody walked in and had been paid less than their prior job, which studies have shown that sometimes women and minorities have been paid less, that if they come in, if you have a range, then you have to stick with that range. That's exactly it. It's because when you are asked what are you currently making if you're a

female or a minority, are likely making less. So even if you obtain a substantial raise, it's still substantially less than you would otherwise earn if you're a white male in the same position. But again, it's all about the mindset. Why not just not have such a large band? How about a band of one ten to one twenty in your head? I mean I just hired somebody and my band was about five thousand dollars. Well, I think also you just want to hire the best person. Well, of

course you do, of course you do. And I think the real messages that females and minorities are just as great as others. Yeah, I mean I don't think that. I I you don't segregate people when they come in the door, you know, you go in one interview room in another interview room. Of course not. But I think that those individuals who are holding back, you know, minorities and females aren't going to be hindered simply because they can't ask one question. Instead of doing in posing a

ban on a question help people think better. Well, hold on a second, there are a couple of other rules that are going into effect as well, at one effects fast food workers basically saying, uh that they need more advanced notice about their schedules and things can't just be shifted on them at the last minute. Then a similar type of thing within retail, and that you had a similar complaint in theory, I get you know, you get it, but it won't actually have the practical effect that was intended.

Can I just get ask for a little bit of history into why these rules are getting implemented? Now? Who is behind them and who is the big lobby behind them? I guess is my other question? Well, I think you know union groups probably if I had to guess, I would say, you know, thirty two b JS is partially part of this. I think there's um a lot of progressive cooperatives for back of lack of a better term, that are behind it. I think the reason behind these

laws are they're good, they're well intentioned. I just don't know if the lawmakers had enough foresight to understand how this is practically impacting companies. So, if you are working in retail as a salesperson not in the executive office, or you're working in a fast food chain in the same vein, you know at the store, at the restaurant, at the franchise. You're likely a low income wage earner, and right now you have no way of knowing how

much you're going to make in a particular week. You could have forty hour shift, you could have a twenty hour shift. And of course it's difficult to make ends meet when you're living like that, paycheck to paycheck and not even knowing how steady it will be. So that's

the reason. The reason is we want to help these you know, workers at least know how much they're going to earn, because you can't, you know, force them to get paid a certain amount, except with minimum wage, of course, but no one is telling you you have to employ them for fifty hours a week. The law says, if you're in fast food, you have to give someone their schedule fourteen days in advance, and if you don't, you have to pay a premium. Yeah, I have to wonder.

I wonder if certain retailers and fast food restaurants will cut back on that. Maybe their response, you know, running I wo just want to get your the last point here, which is the Fair Work Week Act. This is about on call scheduling. What is that on call scheduling is when you it's in the retail space, you call it and you say hi, you know, I'm I'm calling in to see if there's a job for me today that's

on call scheduling. You have to make yourself available. I think it's a term that came from the union labor field where they used to say you have to be ready, willing, and able, and he used to do something called shaping. It was the same thing. And this is this is going to be bad. Correct, This is the no, no more. I need to give you the schedule seventy two hours in advance if you're a retail employee. Thank you very

much for being here and enlightening us. Well done. Set Home managing partner of set Home Law Group talking about three new laws that are going to be put into effect that really change the way employers and employees deal with each other. Thank you very much. Here a lot about big retailers trying to compete with the albatross of Amazon,

but Costco is perhaps not playing the same game. Here to explain its approach and some of the controversy over it is Matt Boyle, us retail reporter for Bloomberg News who joins us in our Bloomberg eleven three oh studios. Matt, can you give us a little bit of a sense of why Costco is opting out of this race to online sales and what that has meant for its performance. Well, it really gets down to their business model. I mean, this is a company we've all I'm sure we've all

shopped there. You know, you walk in, it's a treasure home experience. You've got your you know, your big tubs of mayo and your paper towels on the outside, and you grab those. But then it's all about the stuff you find in the middle of the store. You know, you could find a margarita maker, you could find a kayak.

I mean there's stuff. They change the stuff out all the time, and a lot of it is tailor made us only available at Costco, So they know that people are going to be keep going in there for those treasure hunt items as well as the bulk purchases of you know, the really big tubs of mayo and the

you know, forty packs of Gillette razors. But that is a business model that is not very conducive to selling online, particularly the treasure hunt model where your things are changing constantly like that, and so for those reasons, Costco has felt that, well, our store real estate is so valuable, we have so many more areas that we might be able to conquer. For example, they just opened in France,

they just opened in Iceland. They've decided to too, and I think wisely thus far, to spend a lot of their capital expenditure on just expanding geographically in the US, in North America and also internationally, rather than going you know, hog wild on the web like other retailers have done. So is this going to benefit them? I mean, you know, we're raising the issue because everyone seems to be running scared from anything that Amazon touches. You've got to remember him.

I mean, selling online is very it's very hard to be possible. Walmart is doing a lot online, but they're not making a heck of a lot of money online and they're making a lot of noise. They're buying Jet and they're doing you know, easy reorder, and had that agreement with Google. That then with Google this week, so they're now selling on on Google's online shopping mall. But it is still extremely hard to make money on these sales.

You make a lot more money a lot more profits in your store, and Costco knows this well, but I think that a lot of the retailers, to be fair, the Walmarts and the targets of the world, aren't doing this for short term profits. When I say this, I mean doing it for long terms, right and for long terms of weather. They're beefing up their online presence is so that they can be a viable competitor to whatever Amazon morphs into. And it's sort of the question mark

around Costco's model. Perhaps it's working now, perhaps it makes sense right now, but what happens when the consumer all of a sudden gets used to being able to order something and just go to the store and pick it up and not spend two hours hunting for treasure. That's the question we asked, and that's why we thought it was timely to do this story right now, because it's

a fair question. Analysts are starting to ask it, especially in the wake of the Amazon whole food steal, where you now have Amazon going heavily into grocery and surveys have been done. The reason people go to Costco more than anything else. I know. I talked about kayaks and margarita machines, but people go to Costco for grocery. I mean they go there to buy big cuts of meat, They go there to buy produce that's fresh and very good. They go there to buy wine and cheese and all that,

all those great items. And now with Amazon buying whole foods, people now have a reason. Wait a minute, do I need to go to Costco as often? Maybe not? And this is where an online offering would really help. But thus far Costco has really just kind of done the basics online. I was looking at the basics online and things like you can buy a shed from Costco for teen hundred bucks, but then you can also buy uh, you know, a Lenovo laptop for about a thousand bucks

and then get a two ll rebate. So I mean their prices seem to be pretty comparable to what other issue is not. The prices are amazing, you know. That's why they are so sick. And they got their private label brand, Kirkland. Kirkland is a bona fide brand. I wouldn't even call it a private label. It is a bona fide brand and you could find it another store. K I think Kirkland is you know, a real brand like a Nike or Tiffany or something like that. So the issue is more about what they need to do

in the long term. Do they need to be spending a little bit more. Do they need to be adding let's say, a online order pickup desk. And I asked the CFL of Costco this he said, and he's answered this question many times. He says, Look, our space in the store is so valuable. Whatever we put there is going to sell so quickly. I'd rather not sit somebody behind a desk and just deliver online orders because somebody coming in might just grab whatever they ordered online and

then walk out. Costco doesn't want you walking out. They want you wandering around eating food samples, stuff like that. So far, does it seem like their sales are accelerating or are they starting to see someone? Their sales are doing very well. The issue that we've noted and we saw in the story is their online sales growth of about eleven twelve. It's well beyond Walmart, well beyond Target. It's even lower than the broader e commerce market, which

is growing. And if you can't grow faster than the broader market, you know you might need to catch up a little bit. But they're in store sales what they called the same store sales, which is the key metric and retail they're they're doing gangbusters there, you know, five percent, six percent, those are numbers that any other retailer would

kill for right now in the midst of this retail apocalypse. Well, I'm just looking at a comparison to Amazon sales, where we're talking about about a hundred and fifty billion a year right now. The run rate for Costco is about a hundred and twenty three billion, So you know there's there's some comparable uh business execution. Yeah, they you know, they do need to do a little bit more online.

I think they acknowledge this. I think we'll see more from Costco in months ahead online, but you know, culturally, it's just something that they're a bit resistant to. Shares a Costco excuse me, shares a Costco down stock is up three and a quarter percent so far this year. Thanks very much for being with us. Always a pleasure, Matt Boyle. I want to bring in Stephen Englander, head

of research and strategy at Rafiki Capital Management. He was formerly uh the head of G ten f X strategy at City Group, and Stephen joins us now Stephen, what do you make of this ongoing trade, especially uh, the idea that a lot of hedge funds are doubling down, that the US dollar will continue to weaken. Good morning, Lisa and Tim. Um. Look, you know, I think that a lot of things are changing here. In particular, UM,

what's different. Setting aside the the you know, Trump election victory, UM, which is mostly fated from the market, I think the big surprise is how persistent disinflationary shocks are at this stage of the business cycle, and the market is really debating, um, how much necessity there is of the set to keep raising rates and how successful they're going to be at

hitting their two percent inflation target. I think, by contrast, the surprise in Europe is just how well the European economy, how fast the unemployment trade is dropping, um, how quickly things are improving there. And a lot of European officials, not necessarily Mario Draggy, but others on the governing council, you know, the the Bundestank representative for example, are looking at this and saying, why do we still have um

monetary policy settings at emergency measures? And it's this big long term question mark about US inflation and the beginning of this shift in e c B. I think it's moving markets more than the Trump trade. Well, you know, Steve, I wonder if you could just explain a little bit about what the what value you know, comes from let's say, these confabs like the Jackson Hall, Wyoming meeting and so on. I mean, it seems as though many investors they're looking

at the details of their investments. They're not necessary they've done with this big macro trade because we know what the future is. They're gonna unwind the balance sheet, and then we wait for Mario drag you to figure out when they're going to stop buying bonds. Well, I think that they're waiting for to see if there's any big surprise.

Quite often, what the market reaction that you see after these events, you know, and it can be even the Neffluence meeting or FOMC minutes is not whether or not they surprised, but that investors have been holding back from putting on a position or taking off a position because they um really, I mean, but Stephen, really, you you know investors who will wait based on what they hear from a central bank. No, no, but the if you think that the uh, there's a lot of uncertainty over

the next three days. You may ask yourself, why make an investment today when I can do it on Monday, when this is all passed, and you know, if everything goes according to plan perfectly fine. But if they throw a wrench into the system, you know I will have my powder dry to react accordingly, and many investors behave

that way, Stephen. I wanted to touch what you were talking about, which is that there have been disinflationary surprises in the US or the economic data hasn't been as good as many people have been expecting, whereas in Europe there have been a number of positive surprises. At this point, given where earnings have been in the past season, which have actually been pretty good. Do you think that the bulk of the disinflationary surprises are behind us in the US?

Not necessarily, you know, one that's it's a very difficult question because these are very difficult trends to unravel. But I think what we're seeing is that the disinflationary surprises are not caused by um the types of demand shocks like we have when we have a recession and the output falls on unemployment rises Um, they're being caused by

technological innovation. And the idea that that innovation or the impact of that innovation would be concentrated in a three or four month period and then stop, I think is unlikely. So I think it's quite possible that we're going to continue to see these shocks UH related to innovation, largely related to our ability to use capital more efficiently. And um, it's going to be a battle. The labor market is

tighter than it used to be. But on the other hand, I think that these shocks are are going to be with us for some time. All right, So what what

kinds of shocks are you talking about? What would be an example, Well, for example, the if you think of you know, the ride sharing, if you think of apartments sharing, UM, tremendous economies of scale in all of these adventures, the ability to use capital efficiently, and that puts downward pressure on you know, these traditional sources you know, to hotels, whether taxis and so on, and we're seeing this in many areas. All right, we're gonna leave it there, thanks

very much. As Stephen england Or, he is the head of research and Strategy at Rafiki Capital Management, based in New York. They are a cross asset hedge fund. Thanks for listening to the Bloomberg P and L podcast. You can subscribe and listen to interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer. I'm pim Fox. I'm on Twitter at pim Fox. I'm on Twitter at Lisa abramowits one before the podcast. You can always catch us worldwide on Bloomberg Radio