Amazon-Whole Foods Deal Could Be Tech or Grocery, Profusek Says

and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg Will be Control. As I said, head a public policy at CLOM that joins me now at last week, Infrastructure Week, this week Workforce Development Week at the White House, they're eager to shift focus onto these economic initiatives. Is that working? Is that making any kind of a difference with them getting uh their agenda back front and center. Yeah, I mean,

you know, it's um, there's certainly not for lack of trying. Um. You know, I think there is a lot of focus and fanfare around Infrastructure Week, for example last week and

then this week with the Apprenticeship Executive Order. But I think, you know the reality is that this administration is being plagued by the Russia, Um, the Russia investigation, and even if there's nothing that is conclusive that comes out of that and the President and his administration and campaign are completely exonerated, you know it just it is yet another headwind um to getting done a very difficult and ambitious

policy agenda under the best of circumstances. Honestly, so, Um, you know, they're the Congress, as you said, there's making some progress on healthcare, but certainly I think at this point, um, right after the election, they would have assumed that they

would have been much farther. Has something changed about the level of engagement the administration has with business with executives in light of perhaps the president's trip to the Middle East in Europe were designed to withdraw from the Paris Agreement. I remember early on in the administration's tenure it seemed

like big executives were coming through Washington very regularly. And again with these two weeks that we've had theme weeks focused on the economy, it doesn't seem like it had the star power, for lack of a better term, that the past weeks it had. Yeah, And I think that's

I think that's exactly right. And I think there's UM, there's this business counsel that the President has put together, and you're to his credit, he started his administration really soliciting a lot of feedback from many different stakeholders, including folks in corporate America. I mean, it does seem like

that solicitation has slowed down. And you're right. I mean, I think that there are some companies and you've already seen some folks even on Twitter and other forms of social media, sort of come out against the president UM around you know, around the Paris UH Treaty and other other more controversial items. So yes, and I think that's it's sort of anecdotal. You have seen a slowing down

of engagement from from corporate America. With that said, I think folks are still hopeful that we will see some progress under regulation, that we will see some form of fiscal stimulus, tax reform, infrastructure. Though as you know, we both know, you know, every day is important and UM and the legislative calendar is incredibly tight and not in the favor of getting these ambitious things done. It strikes

me you mentioned regulation. When you look at all this administration is trying to do, it is on regulation that we've gotten the most clarity. Of course, we have the House voting on this Financial Choice Act a few days ago, passing the House apparently dead on arrival in the Senate. But we did get this hundred fifty page document from the Treasury Department on regulation with instruction to regulatory agencies

to reevaluate rules that are in place. Now, when you compare that, say to the principles for tax reform, there is more detail. Uh, and it seems likely that might lead to some change. Yeah, for sure. And um, you know we've we've been actually evaluating in our Investment committee in other places in PIMCO. You know that report in detail, and it was smart because that report, the bulk of the recommendations are things that the administration can do without Congress. Um,

can do through the regulatory channels. But in a big butt here. Um. Anyone is familiar with Washington, especially on the regulatory side, these things take a long time. They have to go through the Administrative Procedures Act Notice for public comment. Uh. You know, it's just a long way of saying it will take time. So will we see some regulatory softening. We are expecting that you will, but probably not until the later part of twenty eighteen or

twenty nineteen. How do you assess the level of engagement the White House has with Republicans and Democrats on on Capitol Hill right now somewhere invited to the White House earlier this week, it seems like the President's making an attempt to have overtures to members of Congress to to keep them involved in all this. How much do they want the White House involved when it comes to tax reform, when it comes to healthcare reform? Do they want it to be a in glove relationship that they want to

work closely with the White House? Yeah, I mean, for I think they do. UM. But you know, at least at the sort of the beginning days of the administration, I think there was a lot of hope that, you know, unlike maybe the Obama administration, who did not necessarily have great relationships on the Hill on both sides of the aisle, that this would be sort of a new paradigm um again on both sides of the aisle, that this would maybe be there'll be some more bipartisanship, biparson comedy ushered

in by the Trump administration. Unfortunately, we haven't seen that. Um and again this has to do with the approval rating among of Trump among Democrats, and it's around seven percent according to the last Gallop Pole. And as a result, there is no political adventive for Democrats to negotiate with the administration. Good morning, let be cantral with us. It's a really you know, it's sort of like David, It's

a Friday where it's like briefing Friday. I feel like I need to read all weekends just to keep up with things. It's good to have Libby Cantra with Pimco with us. I I I look at Liberty and I have to go back to a guy I believe he dark in the door or at your shop a few years ago, a guy named el Arian. I think it took some courses at Cambridge a while back. Dr el Arian believes in the unknown unknowns. That's a really good

concept for your Washington. What's your unknown unknown within all that we're being confronted with, right, I think there's the only certainty is uncertainty at this point. I mean there every day, as we were talking about before, I mean, the the news cycle is just um so replete with new developments that on their own would be major stories. Um, I think people are becoming a little bit desensitized. You know,

I do think that the Russiest story. Again, we don't have a view on that and how that will turn out, but that will continue to play the president you mailed you mail. But the issue here is Robert Mueller is not going to be desensitized. That's the issue. All of us are. But David Garral helped me here. You're the Washington next as well. I can't believe Mr Mueller is

going to be desensitized. No, in my sense of the investigation is it since very early stages, and so in terms of unknow unknowns, I think a huge X factor, Tom is just how long this is going to take. And so then we could go to the X files and if you see, you know, any leaks into your point, if this thing draw is sort of longer dated and

is into I mean it is going to be. Um. It's so your question about engaging with the administration terms of members of Congress, it then becomes politically more difficult for Republicans to really um take up the mantle for

the administration. And I think you're already seeing some distancing from Republican members but at this point they want to see things get done, and for for now, it does seem that aligning themselves with the administration still works to their advantage, although I don't know how long that will last. I mentioned this congressional baseball game glancingly at the top of the show, but a line stood out to me

from some remarks the President made yesterday. He said, Steve Scalise, the injured majority whip, in his own way, may have brought some immunity to our long divided country. I have a feeling that Steve made a great sacrifice, but there could be some unity being brought to our country, let's hope. So how optimistic are you of that we we we have seen in these days since that terrible incident, Republicans

Democrats sitting together, doing things together. Of course, an interview in the middle of that game last night with how Speaker Paul Ryan and that Minority leader Nancy Pelosi? Are you optimistic it's going to lead to to more comedy as you mentioned a few moments ago, And I hope, and I think most Americans hope. So I think, you know, a big difference between the Washington of today, even versus the Washington of ten or fifteen years ago, is that

it's become political and personal. There are always political divisions, there's always some partisanship, but at the end of the day, it wasn't necessarily personal among members because they already had a foundation a relationship. They would go out to dinner together, their staffs to each other. I think that has changed with sort of the toxicity of the politics, and it's

become much more personal. So as a result, these folks don't necessarily have as good relationships as I think they used to, and so they don't have a foundation for a negotiation. UM. So hopefully this type of you know, it's tragic event that could have a silver lining. I'm just not necessarily optimistic. Want to come back in redex healthcare as well. We talked about it earlier today with Libby Control, and it's so urgent here and immediate that we should do that one more time. Libby cantrol is

with PIMCO. I guess I want to talk about something non inflammatory like healthcare, except let's start with a basic why why is it so secret in the Senate? I don't understand what does it? Two people know about it, and it's it's like in Raiders of the Lost Art, it's in the Covenant, eight stories down in the Pentagon. Well, I mean, and as we were talking about a little bit earlier, this this differs quite a bit from the Obamacare process, in which there were hundred hearings of the Senate,

almost ninety hearings in the House. Um it was you know, arguably too public in that everybody had a point of view. I think Mitch McConnell, as we were talking about before, is trying to thread the needle here, and it is a um it is a small needle and a small hole because he is trying to pass a bill that is fundamentally unpopular with the American public um less than approve of the bill. But at the same time, he feels like if he doesn't then they are not fulfilling

an important campaign promise. So this is really difficult politics here. I think that the conventional wisdom at this point is that Senator McConnell will may just bring up the bill, regardless if he has the votes or not, just to get some resolution on this. And we can talk about this in a little bit, but the sequencing of healthcare or the or the passage of healthcare predicates or the sequencing of these other things like the budget resolution, like

tax reform. So they need to dispose of healthcare one way or the other in the next few months, or then their whole agenda could potentially be hijacked. The issue here is the ven diagram of it, all right, and I guess the capital is nothing but a giant than diagramy. From the House on one side the Senate on the other, they meet in the middle. When it comes to healthcare.

Senate is starting from scratch on its own bill. What's the likelihood that that's going to resemble in any form what the House has put forward and that the House is going to be willing to accept whatever comes up? Well, and like like the House that has in terms of the Republican caucus, you know, the House has very conservative members, has very more moderate members. The Senate has the same dynamic. Uh So, I think it just depends on, you know,

kind of whose fingerprints are on that bill. Um. That the hard thing, and again another political headwind here is what can pass the Senate may not be able to pass the House. However, I think if the Senate is able to get a bill out with you know, fifty and fifty two votes, right, this is going to be a partisan vote, fifty two Republicans in the Senate, so fifty six percent. You have to get of your caucus

on board. If they can get that out, you know, my sort of presumption is that the House will feel like they have to pass it just again, get this off there, off their agenda. There are routines to Washington. Something that used to drive me crazy about it was how regularly the story was the same. And that's especially true when it comes to the death ceiling. With the debt limit, it would come up again and again and again in the debate. The conversation would be the same

each time. What do you tie to it? If anything? Is this something that should be raised, etcetera, etcetera. Were there again? What are we hearing from this administration about that? And I say, we're there again. We really don't know when the actual date is that we're going to be up against that ceiling. Yeah, exactly. Um, so that's sort of the the ex date, the unknown date where Treasury exhaust its extraordinary efforts in terms of um, you know,

the death ceiling limit to take a setback. It actually the deadline was March fifteenth, but then Treasury has been using extraordinary measures to delay that. Uh. You know, there's some thinking that it could be as early as August, although Secretary Minuchin was on the House testifying and saying that it probably was September. I think that, you know, the big question, here's what their strategy is going to be. And and to your point, there hasn't been a coherent

strategy at least as of yet. Secretary Minutition wants a clean debt ceiling bill. Um mcmulvaney, oh and B director has said that he wants to have some provisions in terms of reducing spending. The problem with that is no Democrat will vote for it, and you need Democrats in order to lift the debt ceiling. I will just add to that the debt ceiling did not used to be as much of an issue. Um. It was a hard

vote for members to take. But before two thousand eleven, this idea of adding things to it was really unpopular. Um and uh. And so you know, it's only really become a big issue over the last few years. But to your point, it could potentially be a big issue from the market's perspective, given the compression of the congressional calendar that you mentioned a few minutes ago. Do you think it's likely we're going to see changes to the the August recess. I know that lawmakers are love that recess,

but there's take a note. Mr Gurr has just discovered the politicians only work thirty days a year. Well, I hope they take August recess because I want to take some vacation during August. But uh yeah, so you know, the August recess is sacro sanc among members of Congress. And I think you know, and I will I'll defend members here a little bit. And everyone thinks that they're on the beach. They really are going back to their districts.

And you know, they of course they take some vacation with their families, but they really are going back to their districts and meeting the constituents. But I did work for a member of Congress um. But but I saw this, I mean I witnessed this live, that there were events in in the district. You know, regardless of what they're doing,

they are it is sacro sanc. So I think under only extraordinary circumstances, I just I mean, it goes and it goes back, of course when it used to be by horseback and then by training where you had to go back and see people. This has been great. Let me carntil very generous of you be with us this morning with David Gura and time keeneild you where this worldwide coast to coast, this is bloomber. Let's get to

our guests. Um, and he knows very much about the cf A. He is a c f A. As I am seeing Josephs with State Street Global Advisors with a particular look from Singapore on Southeast Asia and of course all of Asia and particularly on his Malaysia as well. Wonderful to speak to you this morning. Tell us the Southeast Asia policy towards China, not only Singapore and Malaysia, but is there a region, is a sphere? What is their relationship with China? I would say that the relationship

is uh, it's been mixed. Adding on on the Jeo political side, as you've probably aware, there's always the South China see tension thing going on. So you know, while they're trying to defend you know, their sovereignty rights, um, you know, they could also be careful not to really antagonized China. When it comes to the economic front, Um, all these Southeast Asian countries certainly would welcome the Chinese participation. And as you know, the trade flows we did Nascia

and as well as China is also very important. So so I would say that you know, from that perspective, the kind of view China as uh as as A as a big brother, um, that is going to be beneficial for economic terms, but also equally cautious when it comes to the the kind of geopolitical sphere. Yeah, we we we talked about the One Belt, One Road initiative in geopolitical terms largely, but what could it mean economically for the countries that stand to benefit or get resources

from this, this Chinese Pact initiative. I think first that comes to mind would be on the infrastructure side. Um, you know, on the infrastructure side, it could be you know, in some cases would be pot it could be real roads constructions as well as the financing that comes to it. So I think in some of the areas, like the construction sectors, they could also benefit along the way. So I think that's going to create a second round effects for the economic growth. Let me ask you a bit

about the Bank of Japan. As I mentioned, we've got a rate decision from the bo J just a few hours ago, capping off a week with a lot of central bank activity here in the US, we got more clearity, got some semblance of a roadmap for how the FED is going to begin to unwind its its balance sheet. How much eagerness is there from you and others to get more clarity on tapering from the b o J at this point. I think at this point BOG is playing a very careful game here close um, you know,

choosing to keep the cards close to their chest. Um. Clearly, they are continuing to support the bond buying program. Uh, there's no sign that's going to ease at East at this stage. But equally they are fully aware of the fact that as the balance sheet continues to build at the central bank, at some point they will need to wind down. At this point, I do thing they are ready to do anything yet. So at this point I don't think they want to send a very clear signal

to the market when that timeline comes. But I think they want to remain very flexible and to allow them more time to assess what are the options they have, What is the weapon of currency across Asia right now, we personal surveillance Asia d X, why the that Asian basket ex Japan or we look at Rettman, we look at the end. Is currency a weapon for the nations of Asia right now? I think it can be both

to edge swords, so to speak. Now at this point in time, obviously the you know, at the beginning of the year, we're looking for a strong dollar, which it did happen, but subsequently now we're seeing a bit of a soft dollar. So from that standpoint, you know, generally the Asian countries will look for a dresdently reasonably kind of weak currencies to help to support the exports. But did would not want it to be two weeks that would create any sense of fear among investors, that would

leave the countries from the capitol con perspective. So I think it's kind of like a double edged sword that they could do played very happily, and I don't think they want to really play too hot at this point. Thank you so much, Ken, seeing whether Saeson State Global Advisors out of Singapore with a great perspective. We don't do that enough, David, We don't do Southeast Asia enough. Runch you by Bank of America Mary Lynch. With virtual reality,

virtually everything will change. Discover opportunities in a transforming world VI of a mL dot Com slash VR, Mary Lynch, Pierce, Fenner and Smith Incorporated. What I would suggest, David is our next guest is the absolute personification of application of math skills, the only equivalent and the sphere that we have of government tax analysis. Jane Sterley maybe at the legendary at the Urban Institute, and James Perturba, his colleague long ago at m I T this. This is a

wonderful guy. Absolutely. Donald Marrin that joins us now. He's a director of Economic Policy Initiatives at the Urban Institute in Washington, d C. Former acting director of the Congressional Budget Office, from our deputy director of the Council of Economic Advisors at the White House. He joins us now on our phone line. Stunner and great to speak with you once again. And let's start with taxes, if we could. You for so long, the head of the Joint Urban

Brookings Tax Policy Center. We've heard a lot about the border adjusted tax, the so called border adjusted tax. It was not something that was included on that list of principles the White House handed out at a briefing. Now a couple of months ago, there was a sense that maybe the White House might come around to it. What's what's your sense of the longevity of the vitality of the border adjusted tax in Washington, d C. Today? I think it's going to be much more vital in the

analyst community than in the political community. The BAT, as we now call it, Uh, doesn't seem to have gotten the political attraction necessary to go forward. We saw House Ways and Means Committee Chairman Kevin Brady the other day beginning to talk about, well, maybe you can phase it in over time, things like that. Uh, And I gotta I gotta say I view that as sort of a

sign of its impending demise politically. Yeah. How integral is it when you when you look at the Bryan Brady Blueprint, which I think is the fullest document we have, the fullest proposal we have for tax reform from the Republican side. How essential is the inclusion of a BAT of a border adjusted tax? Well, you should you should think about You know that the folks in the House want to do revenue neutral tax reform, so fundamental tax reform without

changing how much money comes in. And so that's an exercise in giving people ice cream and getting them to eat spinach. And we mostly talk about the ice cream, right, you know, cutting the corporate rate, etcetera, etcetera. But you need some spinach in. There are some tax some revenue increases to offset that, and the BAT has been that way of doing it over ten years and round numbers that that was expected to bring in around a trillion dollars. That's a lot of money, even in Washington, and it

was really essential to the goal of revenue neutrality. If if the BAT goes away, you're left with the question of, well, where does the money come from? Or do we give up on revenue neutral tax reform and just embrace a big tax cut. Tom. I just want to tell you in Park Slope now you can get asparagus gelato. So maybe the days of few of the future of spache ice cream, it's not that not that far away. Donald, Mary,

let me ask you. I'm sorry, you know, just John and I do a number two value meal and from McDonald's here, just to keep raising our culinari. We had a sy can we go for ice cream? You ended up getting chocolate last we were there. Never seen this man? Uh, Donald, Mary, you mentioned a revenue new chality. Is this something that the White House has embraced? In other words, it's a component part of that Ryan Brady blueprint. Is Is it something the white House says it wants to see as well?

So the White House says many things I think is the fair statement. Uh. Sometimes the White House talks about revenue neutral tax reform, you know, with some of that coming and unspecified asterisk ways from economic growth. Uh. Sometimes the President will tweet that, you know, he wants to do the biggest tax cut in American history. Uh. If you look at their budget, it was really hard to see how you got all the numbers to add up

to revenue neutral tax reform. And so I guess the answer is yes, occasionally they talk about doing revenue neutral tax reform, but an awful lot of the signals you see are more tax cut than reform. I'm recalling an interview that our colleagues, Market Talvin Jennifer Jacobs did with the President a few weeks back. One of the things they asked him about was whether he would consider raising the gas tax, and he said, in fact, he was

which was going against some orthodoxy there. When when you look at alternatives to the bad or other ways to to to pay for tax or for more tax cuts, what are they and do you think that Republicans are approaching them with with real seriousness? So next on the list is rolling back you know, more controversial tax provisions like rolling back deductibility of interest for business. Uh. If you were aggressive in doing that, you could raise around

a trillion dollars. But that again is something that of course companies that rely on a lot of debt to finance their business have noticed that have organized against it. And you've seen that that would that would face a lot of political challenges on the hill. Uh. You could try to cut back spending as a way to offset the tax the tax cuts. We saw a few members of Congress float that in recent weeks. I think politically

that's that's going to be a dead end. You can't you know, cut you know, food stamps or whatever in order to finance tax cuts. But that's out there. UM. I periodically go to secret meetings around Washington where the top you know, at least the ones I'm invited to tend to all be about carbon tax. Uh. That sort of you know, if you're if you if you believe that you know, climate change is the problem that we

need to respond to. We're seeling seeing some rollback in regulations, but uh, you know, there's kind of a two birds, one stone thing you could do with a carbon taxes help reduce carbon emissions, uh, combat climate change, and at the same time, you know, a reasonable carbon tax could easily bring in a trillion or more over the next decade, and that that's money that could definitely make make doing

a tax reform easier. Obviously, the political viability of the carbon tax and the current environment is very low, not zero, but very low. But so you hear people talk about that. Uh. You hear people talk about the magic of a dynamic scoring and whether that means you can have, you know,

tax cuts that pay for themselves. Happily, we have professional agencies, the Joint Committee on Taxation and the Congressional Budget Office that you know, have the right approach to doing dynamic scoring, which gives you a little bit of an effect, but nowhere near a tax cuts pay for self kind of result. Uh. And then increasingly in recent weeks we've seen more discussion of not paying for tax cuts or you know, doing things like using a really long budget window and having

temporary tax cuts that last, you know, for fifteen years. Uh, and then you know, be revenue neutral beyond that, which is kind of gimmickry. Can you can you get tax reform without it being bipartisan? In other words, Tom was talking a few minutes ago with Libby can Trill about the secrecy surrounding the negotiations over a healthcare bill in the Senate. Uh. It seems like I won't even say

that things are on parallel tracks. It seems like Republicans are doing the bulk of the writing of this legislation and there isn't much democratic involvement. Can you have full tax reform, comprehensive tax reform without the involvement of both parties? So I guess, I guess there are two questions there. The first is whether you could pass tax reform, And the answer is yes. You know, we have this budget procedure known as reconciliation that avoid selobusters in the Senate.

And so if you could literally get you know, enough Republicans in the House and you know, at least fifty Republicans in the standard on board for something that the President was willing to sign. Uh. In principle, you can do a tax reform as long as it's satisfied it's the requirements of reconciliation. Uh. And one of those is that it has to be uh not increase the deficits

beyond the budget window. And then that leads to this whole discussion about, well, we usually use a tenure budget window, but if you made it longer, maybe you could have temporary thing. Um. But but the second piece is that, UM, it's hard to see how you have a permanent, persistent

tax reform if you do it in a fully partisan manner. Um. You know, if your goal is to let's move us to a tax system that's going to guide us for decades into the future, uh, you know, you'd want that to be bipartisan and have by inn from both sides. And that's that's not where we are at the moment. Very quickly here, if you and I were stuck at Reagan Airport on a Friday afternoon's GOP understorm and hair Don Marin might ted, this is going to go up?

Yeah not not? Not? Is he? Is he going to die? John? That was the PhD from the Massachusetts Institute of Technology, the Perturbitat and that. Yeah, they're gonna go up. We're going to continue with Don uh Marin David uh, it's it's great to get these guys. What a week it's been. Yeah, Richard Clarida, are you see have you recovered from our interview with Professor Clarena? You know, always at the printer. I've got like hundreds of pages printed out of the

old Maren. Sorry if the old the old clarator put it on for the weekend, I know there'll be a quick on. The only one that got the math inaper was done, Maren. Let me turn to the budget if I could, Donald Marron, we have a budget proposal from the White House on the heels of a list of principles and later a skinny budget. Now we've got the full thing. Where do we go from here? The members of both parties on Capitol Hill Live expressed muted enthusiasm.

Let's let's say, for the document that the White House has put forward. Where are we in the budget process? Yeah? So yeah, muted enthusiasm was probably generous to the to the reaction, uh you know, uh right, not a lot of support for the president's budget overall up on the hill, you know. So obviously the big driving thing is a we need to figure out how we're going to fund

the government by September. Right end of September, we have the usual need to to finance things for the next year, and so we're gonna have this debate about defense spending domestic spending. President wants to increase defense spending and cut domestic expending UH at levels neither of which are politically viable. But so Congress is going to be trying to work forward to to something that's doable and remains to be

seen whether that's possible UM. And then separately, you know, going back to the tax reform discussion, if you want to do tax reform in a partisan way, you need to get this structure known as reconciliation in place. And to get reconciliation in place, you have to pass a budget. UH. And so there's a lot of pressure on on the House in the Senate Republicans to come up with a budget that will outline specifically what the parameters are of

what an allowable tax reform would look like. And tax reform really can't go forward unless they're able to do that Donaldman will have a guest on from the foreign policy world and talk about the the the code or newly formed Trump doctrine. When it comes to Trump's attitude towards the budget, can you can you draw some sense of direction from the proposal that we saw? Was this a Donald Trump budget or a Mick mulvaney budget. So

a couple of things I'd say about the budget. So the first is, Uh, this administration isn't as constrained as recent ones by trying to have a budget that adds up. Uh. There's a giant asterisk in the middle of this budget for two trillion dollars over the next ten years, which is an enormous amount of money. Uh, it's very difficult to see how you make all the pieces fit together. And we've seen since the budget came out a lot of confusion commentary out of different parts of the administration

about exactly what they want to do. So, you know, this is not like an Obama or Bush or Clinton budget where there was a lot of effort to put together something that was integral and whole and you know, maybe had a little hand waving, but nothing on the scale of what we see here. Uh. You know, it has enormous economic growth assumptions that are very hard to justify given our given our kind of you know, aging

population and slowing labor force growth. So the first thing is kind of big picture, it doesn't all add up, and that seems to be from their point of view, I think, a feature rather than than a bug. Uh. Second, clearly this focus on shifting discretionary spending towards defense in a way from domestic programs UH and domestic operations of agencies UH, and clearly at levels that are beyond what's

going to be politically viable. Obviously, hope that various proposals will will encourage economic growth, but again assumptions about success on that front that seem wildly optimistic. Help me with it with a phrase I've heard here over these last few weeks, that is the double count. People saying that within this budget proposal is a double count. What does it mean and why is it's so problematic? Sure, so

that's the two trillion dollars. I mentioned that there there's a line item in the budget which is two trillion dollars of mostly revenue, a little bit spending decreases, but mostly incoming revenue. That comes from the stronger economic growth assumptions they have, which I should note are very very strong. They're they're assuming economic growth over the next ten years about one percentage point higher per year than the Congressional

Budget Office. You know, that's a difference bigger than any we've seen at least I don't know years. Uh. And they've talked about doing revenue neutral tax reform, and they talked originally about some of that revenue neutrality coming from economic growth, so that in principle would be included in their tax reform proposal. But if you look in the budget, they claim that they're going to have tax reform that's revenue neutral, and then they have the separate line item

for for the benefits of economic growth. And so the double counting is, well, can you have revenue neutral tax reform and have this two trillion of benefits from economic growth? A little unclear what the administration has been saying, but they seem to have pivoted now to saying that they're going to have tax reform that pays for itself. You know, there is revenue neutral um without including economic growth, but

it's very unclear. You know, it's a highly unusual document from that perspective, Donald's that mentioned you were the acting head of the Congressional Budget Office for some time, and I was struck by the comments from mcmulvanity, the head of the Office of Management Budget a few weeks ago, commenting on the role of that office. Essentially he said

that it is less relevant than it was. And you know, maybe it's it's it's time has passed, sheds some life for us, if you would, on the roll that it has played in d does play in policy making in Washington, and how extraordinary I think it might be the right word. It was the way that the House health Care bill was passed without going to the CBO first, That is

out of custom. Let's say, sure. Uh. And so you know, if you jet back forward five years ago and the Watergate scandal, which I believe if I have my dates right, actually started today, uh, forty five years ago. Uh. A backdrop for that was not just the the criminal activities and concerns about the Nixon administration, but also there was great budget concerns about how he handled budget policy relative

to Congress. And so Congress stepped up and said, you know what, we the Congress are going to exercise more control, more more discipline over how the government allocates its money, raises its money, and does its budget. And as part of that, it said, you know what to help us do that, Congress needs an office, the Congressional Budget Office, that is going to be our chief source of estimates

and numbers about the budget implications of policy. And over the last forty five forty years, forty plus years, UH CBO has developed into a very trusted, nonpartisan source of objective analysis of the budget implications of policy. It's been very useful to policymakers to understand the implications of ideas they've been considering. And it's been incredibly useful in disciplining UH.

The Office of Manage been a budget right the executive branch UH that you know, they know that if they put out estimates or something, the folks at CBO are going to put out estimates too. And if there's two wide, you know, to wide a gap there, people are going to look at scance or what what the executive branch

is suggesting. So CBO has played this great role of both informing Congress about the budget implications of policy ideas and legislation, and also of disciplining the larger process so that people in the White House can't be too outlandish in their claims about the budget benefits of the policies they propose. How much can can can can Congress? Can lawmakers focus on on the budget as they're up against

this funding deadline, the September funding deadline? In other words, do they do they have to prioritize that over the budget? Can they work on two things in tandem? I was struck again. I lived in Washington for some time. When I left, it seemed like we were in the era of the Continuing Resolution, that there were these sort of

stop gap funding bills that had become the norm. Given that, how radical departure would it be to return to regular order to get a you know, a budget in place as they used to get them in place for many, many, many,

many many decades. Yes, that would be a big departure, right, As you say, we've been in continuing resolution land for quite a while now, uh, and you know, and even that sometimes hard, right, So you know, when September comes around, we may again be at least having rhetorically a government shutdown discussion as folks work towards that deadline. You know, you can imagine that there's some parts of the budget

where they're going to be able to do appropriations. Military construction is one that often has a lot of support, maybe some other pockets. Uh, But you know, clearly we're still going to be having discussions about how to spend money well beyond the September deadline. I'm sure at least parts of things are going to be done under a continuing resolution. Uh. But you know, step one is they need to pass a budget. And the budget would really

have two broad pieces of information. And at first they would have the the instructions, the reconciliation instructions that can guide the tax reform debate. And then second it should have the top level spending numbers for the for you know, the various agencies and activities of the sederal government that could then uh spark the conversation about how exactly we're

going to allocate that spending. So a lot of pressure on them to get a budget in place if they want to make any progress on tax reform and if they want to have a coherent funding the government discussion. But yeah, don't don't expect everything to be done by September. Donald Maren great to speak with you at this point I really appreciate at the time. That's Donald Marin. He is the director of the Economic Policy Initiatives at the Urban Institute think tank in Washington, d C. David Gurray

here in New York. This is Bloomberg Surveillance on Bloomberg Radio. And let's pick things up right where we left and they're talking about housing with one Lindsay peg that she's the chief economist as stephile joining us today, Lindsay, great to talk to you, as always, any there detailing the weak housing starts numbers this morning, Let's let's go broad first. When you look at the housing market, the housing economy here in the US right now, how does it look well?

If if we look at housing starts and housing permits, you can clearly see a declining trend. This is not a one off month of weakness, but we've actually seen now three consecutive months of waning activity in terms of new construction coming online. And in fact, we've now dragged that annual page of new construction down into net negative territory. So it doesn't necessarily bode well for the idea that the FETE has really been touting that the U S economy is on the track to gain momentum in some

of these key sectors. As we look to the end of the second quarter and beyond into the second half of the year. Building permits down four point nine percent, well below what was what was expected. Fold this into the greater economy. You were beginning to do that there in your answer to the first question. But how important is housing to the overall health of the U s economy here in June of two tho seventeen. Well, housing

is a very key contributor. It's not necessarily the large driver of economic activity as it was prior to the Great Recession. Of course, it's also no longer the large net drag on economic activity as it was in the aftermath of the Great Recession. But housing has been a consistent positive driver of top line growth, and it appears to be losing a significant amount of momentum. So when we take that out of the equation, it is housing is not contributing to top line growth. What are we

left with? While the consumer the consumer, as we saw earlier this week very disappointing retail sales numbers, the consumer is still under pressure. Business investment is still very soft, Domestic manufacturing is still under pressure amid a very stagnant global economy and strong US dollars. So there's very few green shoots, if you will, that we can hang our hat on to say that the U. S. Economy is going to be gaining improvement or gaining momentum from this

current very moderate pace. Lindsay, how much attention do you pay to the soft data? We've been focused on the divide, that sort of yawning divide between the soft data and the hard data over these last few months. Um, what what role does that play for you? To do the do the soft data play for you as you assess the health of the U. S. Economy? Well, if you had asked me a few years ago, I would have

said it plays a much larger role. But what we see now is when we look at the soft data and for listeners, that meaning the survey data, asking consumers, asking businesses how they feel, what their plans are in terms of spending and investing, we have seen a growing divergence over what people say and what people do in more recent times, and so asking consumers how do you feel about your financial footing? They see much more upbeat. But then when we actually look at what they're spending

patterns are. We see them continuing to curtail what they're purchasing on a months and months basis. So I would expect that growing divide to remain for quite some time and not necessarily translate into much stronger consumption or investment figures despite the improvement in the soft data as of late. And we'll get some figures from the University of Michigan on sentiment a little later this morning at ten o'clock

at Wall Street time. Let me pivot here to ask you about what we heard from the Fed Reserve this week. From Fed Church Janet Yelling and her colleagues on the Federal Open Market Committee, I wonder how their sense of the US economy squares with yours, In other words, that

do you share their view of the U s economy. Well, it's very clear that SET officials are acknowledging the recent soft data, particularly on the inflation side, but they did seem to sort of override that with their general sense of optimism that the economy is on relatively moderate footing and their expectation that the economy will continue to gain momentum. So it was as if the Federal reserve was watching.

It was even walking this very thin line between recognizing the more dismal reality and continuing to tout their more positive expectations to support their more aggressive pathway for additional rate increases in the remaining six months of the year. Now, of course, if the data continues to disappoint, I do suspect that the FED will be forced to more realistically look at the economy and far back some of their expectations as well as their expectations for additional rate increases.

To ask you quickly, We'll come back with you in just a moment, but in the thirty seconds we have left you before going to to break how much of this has to do with momentum? In other words, that the FED has begun to normalize and it wants to continue to normalize just because of that. It's it's on a particular path. Oh, absolutely, the FED doesn't want to look as if they made a mistake early on and

now they have to arrest this pathway to normalization. So from the Fed's point of view, any sign of moderation, not solid, not strength, but moderation is good enough at this point to continue down the pathway to hire rate Let's see, we were talking a bit about the transitory. The excuse the excuse of transitory sists from the FED

Reserve Chairwoman Janet Yellen. She outlined that in her comments following the f o MC announcement on Wednesday afternoon, what are the consequences of the FED were to get this wrong?

In other words, if what they see as transitory isn't well, the concern is that I continue to raise rates and remove accommodative support for the economy at a time when we're actually losing momentum, so raising rates too fast and actually cooling what little activity levels that we're seeing in the U. S economy at this point, so essentially squashing the recovery, the very delicate recovery that we're still seeing.

Now we're still, of course talking about very historically low rates, So I don't think we're at a level of concern

at this point. But going forward, if the FED were to follow through with their more aggressive pathway, meaning an additional two rate increases by the end of the year, three or four rate increases within the bounds, that could be enough to again restrain the very modest levels of growth that we're seeing in the U s economy and force us into either a non accelerating pathway or worse,

into recession. Lindsie, we were talking with Matt Tom's of Void, head of Fixed Income at Voyage just a few moments ago. I asked him what his expectation was for when the FED is going to begin to unwind the balance sheet. We got some clarity on the path forward from the Fed this week, we didn't get a specific a date. What's your sense of when it will begin and how

long this process is going to take. Well, certainly at this week's meeting we did get some welcome details surrounding the process, surrounding the expectations in terms of caps being implemented and very gradually stepping up those caps, But you're right, we didn't get any specific commitment to a timeline of

when this process is set to begin. Now. We did see a broad generality talking about if the economy evolved as expected, most committee members anticipated that this would begin by the end of the year, but that really was very squishy language. And if the economy does continue to show weakness as we expect, I think it's very likely that we push out balance sheet normalization into or beyond just is your expectation here We're going to get even

more detail on this going forward. I gather it was somewhat of a surprise what we did learn on Wednesday when it comes to unwanting the balance sheet. Is there more that you would like to know that you expect we will hear from Janet yelling her colleagues and before this begins to go into effect. Well, certainly the market wants to be fed to be as transparent as possible. We certainly want to understand exactly the process that they're going to be putting in place to avoid any sort

of adverse market reaction. But many of the questions that we have left in terms of the timing, how long will this take, the start date, the end date, the target level on the balance sheet once they're done tapering, All of these questions really can't be answered until the Fed knows exactly one when they're going to begin the process, and to how the markets evolving to this tapering process, because remember, even the details that we saw this week

were a guideline. They were not a hard commitment, So if the market begins to show signs of weakness, they could easily taper the taper going forward. So again, a lot of these pieces are are moving pieces, and we won't know a firm answer until the FET initiates this process. Lindsay, hope to talk to you again soon. Great to speak with you as always. That's Lindsay Pie. She's the chief economist at step. David grew here in New York with someone we found by the salad bar at the Whole

Foods on Columbus Circle. Tom came back with us here just couldn't say. You go out, folks, You go out for four minutes, and there's a fourteen billion dollar transaction. Retail world Chase a man, a man very familiar with the multibillion dollar transactions, as Robert Perfusa. He is with Jones Day m and a attorney there of course. Yeh. He handled Procter and Gamble's sale of its beauty business and Southern Company's acquisition of a g L Resources. He

joins us now on our phone line, SPOB. Great to speak with you once again. Here. We've talked about what this means for Amazon, what this means for Whole Foods. Let's look at the deal itself. You're thirteen point seven billion dollars including Whole foods markets that give us your reaction to what we're earning this morning from these two companies, Well, it's pretty extraordinary because I can't figure out if this is a retail story, a text story, or a a grocery story,

or an activist story. Maybe it's just all of the above. Um, it's quite an interesting development, and the market reaction, especially to the other grocery store retailers, is pretty dramatic. But um, it's I think we ought to like take a deep

breath and say, gee, what is this? Well, Amazon, of course has been um moving to the grocery space, both in terms of its uh I think it's called fresh direct delivery model, and also the Amazon Go concept that you walk in you wouldn't have a have to stand in line at the cash register on the way out, So it's not new for them. And of course Whole Foods has had some pressure. It's had an activist actually activists for two years. You're you're deeply experienced it merging

like company is and not like companies. I'm looking at the Bloomberg at the income statements, and this is Mars and venus. I got a grower, maybe a grower in Amazon and with Whole Foods. I got a low single digit disaster. How do you buy into a company on hope and faith if the revenue growth so mismatches is Amazon and Whole Foods. You know, the grocery business is a tough business. It's a low margin, low growth. I

mean it's gonna be there. I mean people have to eat, after all, so eat no matter what they general economic conditions are. People are going to eat, whether they spend lots of money at the grocery store on an upscale brand or whether they go someplace else. In fact, as you know, uh, Whole food itself was thinking about a lower price point UM chain. So it's a tough business.

It'll be interesting to see how this fits. Cultural dissimilarity in the merger context can lead to different results, and I'm not predicting that here necessarily, but you know, the M and A is uh littered with situations where companies have with very disparate cultures where it hasn't worked out so well. But we'll see. Um. I go back to the point I made earlier to me. The the the idea that that you should be shorting everybody else in the space just because of this deal is gosh, it

just seems to me to be a real reaction. But one we're a question before you get onto your billable day. I want to know if Janet Yelling just bought Whole Foods is the reason this funny money is going on because the chair of the Fed has given you guys negative interest rates. The financial repression that everybody else has means that Mr Bezos can affect trans transactions like this. Well, there's no question that the low cost the capital of not just debt but but equity to um is feeling

a lot of activity. In fact, but for the uncertainty and tax rates, I think we'd be in an astonishingly active m and an environment most mostly because of the overall gd the environment. We look forward to speaking to you in the coming days on this transaction and many others to come. Barbarafect with Jones day uh this morning. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast

platform you prefer. I'm on Twitter at Tom Keene. David Gura is at David Gura. Before the podcast, you can always catch us worldwide. I'm Bloomberg Radio brought you by Bank of America Mary Lynch. With virtual reality, virtually everything will change. Discover opportunities in a transforming world, be of a m L dot com, slash VR, Mary Lynch, Pierce, Fenner and Smith, Incorporated,