Surveillance: Extraordinary Support Needed, Yellen Says

some of the most difficult years of this nation. Of course we mentioned earlier her work on an American labor economy to bring it out of that slack of course, yelling of Yale of a time of Tobin and Stiglets, and now after the FED at the Brookings Institution with important work with a group of thirty on climate. I want to get to that chair yelling in a moment, but I really must ask about the weekend speculation of Treasury Secretary Yelling. If we were to get a Biden administration,

would you be willing to serve for a President Biden? Um. I appreciate your asking and the notion that it's a job I can do, but I really have no comment on that. I'm sorry. Well, that would be good and we, of course I knew that would be the gracious answer from Janet yelling show Yellen away from the monetary discussion, and maybe we'll touch on that a bit. Here. We must speak about this important research you are steeped in.

This long ago and far away. A Nobel laureate introduced us to auction theory speaking about Richards Scary and children's books at a Nobel Price speech in Stockholm. This is long ago and far away. You're very right. That was my Spause who won the Nobel prize, and um uh discussed the relevance of Richard's area to um his work. Mr Acker, last wonderful speech there that really advent with

stiglets of what we're talking about here. Wilson and Milgram there at a small school across the Poncher yelling just to just took the trophy as well. Can auction theory help us solve climate change by fixing carbon pricing? I see no evidence that it can do it. Can we actually get to a legitimate, workable auction market for climate change through carbon pricing? Well, um let me let me say, referring to the group of thirty reports that we just

put out. Um we urge governments to take the steps that are necessary to get a transition to nit zero, and carbon pricing is central to that. So we strongly believe that every government should price emissions. And uh, well that's not the only policy that's necessary. That is a critical um tool to create the right incentives for UM for a transition to KNIT zero. There are different ways

of doing it. You said auction theory. So one way to do this is to limit emissions by requiring permits to amid greenhouse gases and uh, those they would create a market in which they would be priced. It's possible to auction the permits if the permits are auctions. I'm not aware of any country that's doing that now, but that would generate revenue that could be used for many

different purposes, including compensating low income people. But a more straightforward way to do this, and it's what I would recommend for the United States that hopefully we will in the years ahead go in this direction, is simply to put in place a carbon tax. UM. A very efficient way to price carbon would be uh, to go to the mind head, the well um where where energy that creates carbon emissions enters the economy and to simply livy attacks. So UM, I think that's an easier and more efficient

way than auctioning permits. But one way or another, UM, we think carbon pricing is important. With your report with Governor Carney and with all of the efforts Jacob Frankel and all of the Group of thirty. If we say that auction pricing has failed, where is the evidence that these societies will do a carbon tax? Are you optimi stick we can get a carbon tax initiated country to country. Well, different countries have taken different approaches, and what we're looking

for is carbon pricing. UH. For the United States that doesn't have this in place, I would, and other countries that have not started going down this route, I think carbon carbon tax is a reasonable way to go. But UM auctioning off permits or simply putting in place a system where there needs to be a permit to admit. That's that's UM an approach that we see in many European countries, and we're not criticizing that is an alternative.

Cherry Elen, As I was reading this report, I was struck by the firepower of the people who co authored this. It's who's who in Central banking weighing and on important policy, and I know you've been called on to weigh in on other important policy in the United States. In August, it was reported that you've had conversations with the Biden Harris camp about how to fix the economy going forward. Can you share anything from what you think we should

do to get the economy back on track from here right? Well, let me say that I did meet with Biden and Harris and brief them about financial sector issues, but I'm not working with the campaign. UM. But you you asked me what I think we need to do to get the economy back on track. UM, so I would say what hits my list is dealing more effectively with the pandemic, with the health related issues, getting the infection level under control through contact tracing testing, UM, isolation of people who

have it. I think we need a much more effective effort than we've had, and UM, if we have that will be good not only for health but for being able to open up the economy. And we've seen that in countries ranging from Germany to Korea to China that have been successful. And then we need UM support for the economy, both for monetary and fiscal policy and monetary policy has already done a huge amount. Fiscal policy response

in the United States has been extremely impressive. But UM, actually it's it's much larger the fiscal support than what was done after the two thousand and eight nine financial crisis. But UM the fiscal support has now lapsed and UM so far spending has held up UM. Unemployed workers who got that extra six hundred dollars a week through the end of July UM they use that to stay current

on their bills to support UM they're spending. They even stashed some of it away so that they've been able to get through this last couple of months and pay their bills. But it's running out, and I think we need to do that. And state and local governments also face huge budget shortfalls. I'm working on the task force with the governor of California to address the pandemic. They face a fifty four billion dollars shortfall this year. I

think that's very important too. So in in the meantime, Steve Shoodo of Miszoojo just was on He said that if the if Congress were to pass a two trillion dollar fiscal support plan, that he expects the Federal Reserved potentially buy up all of that in order to help things along. Do you think that that's an advisable step? So the Federal Reserve's asset purchases, UM, they have not made clear their plans going forward, and I'm expecting them

to offer more guidance. But their objective there is going to be to try to keep both long and short interest rates at low levels to support in economic recovery. UM. It is not their objective ever to directly try to help the federal government finance its um budget deficit, and that would be a very dangerous kind of support to provide. But I do expect I think asset purchases have worked there.

They're holding down longer term rates, and I expect there to be ongoing purchases, but probably not geared to the federal deficit. Sure yell. And we are rebuilding our institutions out of this natural disaster. I want to go back to James Hope and a few years ago, who you took your PhD with, where he introduced with Nordhouse, the measure of our welfare system, just simply thinking about the

welfare state within a capitalistic market. We now come up to where we are now with this historic election, and we've got the Democrats trying to get back to some form of social construct and Mr Trump and others with a lackey and individualistic nature as well. How do you perceive how we move forward with our new capitalism, our new welfare state, Given the fiscal deficits, given the trade deficit where it is, and given a monetary theory that seems to be extended and exhausted. What does the new

system look like for you and the next few years. So, UM, that's a hard that's a very hard and comprehensive question, but I would save that I think fiscal policy needs to play an active role. UM. Once upon a time, UH, starting in the nineteen eighties, UM, there was a view that UM, the Fed can handle the job of keeping the economy operating at full employment, and fiscal policy should focus on allocative issues. And now we're faced with the

world characterized by secular stagnation. There is a surfeit too much saving in the global economy, especially among developed countries, and weak investment demand, and it's been pushing down real rates of interest and depriving monetary policy of UM a lot of the ability it had to address um to

address economic weakness. And uh, you know, I would never have imagined when two thousand and eight crisis hit that short rates would stay at zero for seven full years, and here we are back again with zero short rates. And of course there are unconventional tools as it purchases forward guidance that expand what monetary policy can do, but there are some limits and it's important for fiscal policy

to um fill in that gap. And um, you know, I believe while the pandemic is still seriously affecting the economy, we need to continue extraordinary fiscal support. But even beyond that, I think it will be necessary. But a good side of low interest rates is that it reduces the interest burden of the debt, and I think it makes it possible. And it's not a short run phenomenon short rates. It's something that's going to probably be with us for many years to come, and we can afford to have more

debt than we used to think was sustainable. Yellen, thank you so much, and most generous conversation, of course, and celebration of a group of thirty report with Governor Kearney on our place forward with climate control. The charge no principal Global Investors chief strategies seem were welcome to the goat rodeo. I'm sure that's what other people think. This is at the moment, seem as fantastic to see you.

First question to you, I asked at the top of the hour, how much hinges on the next two weeks as you put togethers not that much? You know, we see this time. Sorry I'm discussing them. Yeah, we see this time and time again. You know, if you look at all the election years through time and actually you know the volatility tempt to ever way, the returns typically move with fundamentals. So at the end of all of this,

won't you pass through the noise? The markets just go back to what really drive them, which, as we've seen this year, is going to be that demic and it's going to be central banks and a little bit of fiscal stimulats if we can see that. But those are the key drivers. It's not really going to be what happens in the next two weeks, Throve in the next three or four weeks, have long take SMA. We've been doing a lot on equity. Tell me what's tradeable and

fixed income? Where he is a quote unquote opportunity in yield. Yeah, it's it's it's a tough question at the moment. You know, we we have still liked investment grades, but of course we have been reducing some of our allocations. They've given then you're not getting too much. We actually like professed securities. You get a bit of a pickup um. It's still relatively safe area. So so there are some opportunities there,

and of course we've been high yield. You have to be in the better part of that spectrum because you know, the economic recovery, it's slow, it's protracted, there are a lot of potholes ahead, and it's going to be those riskier companies that are going to see that playing out in So of course you have to be careful when we look at equity, as the story really has been do you buy into the rotation trade, the cyclical story rather than just big tech? Where do you stand on that?

So we have maintained a pretty significant positioning to big tech through all of this. We still really like that sector. There's, you know, so much to be said that as long as you've got the ongoing pandemic, there's continued concentration of working from home and reliance on technology. It still plays

out even the macro environment. You know, if you've got economic bank drop, which is a little bit risky as today is right now, then companies investors just needs companies with strong balances balance, it's positive cash flow, you're getting that from Big tex and of course with a low bond yield environment where we know that central banks are not moving any time soon. Um, I think everything plays out well now. Having said that, there are um, there

are hurdles ahead. We have to think about regulations, we have to think about even the fact that they have to meet really really higher EARNIS expectations. Now, through all of that, I don't want to say we haven't got any exposure to cyclicals, because I think this is the time to start thinking about adding a bit more exposure, because if we're looking at a continued recovery, then cyclicals

should do better next year. Seemen a recovery where as soon as you look at things right now momentum in the United States, Tom and I were just talking about that, a really good recovery. It looks like emerging in China and just nothing of the sort in Europe. Where do you want that cyclical exposure, so a little bit in the US. I mean you look at I agree that you know. Europe's just it's a perennial disappointment. Every time we think it can come through, something else comes along.

And I'm sending right now, it's not an error which is looking particularly attractive. UM you said it emerging Asia. Anything which has got any kind of close relationship with China, UM and even the new sectors of technology there really should do well. So that's where I think that's cyclically exposure can come from, and of course from from a

kind of a large cap. I think there is an opportunity here to raise your exposure to small up smash of principal club investor Simoth, thank you great to catch help me this morning. I've got a big wall. Your focus was forty seven TV networks on it. I got TV Mound in Paris, not that I understand a word of it, but I've got medals on Fox. I got Radcliffe of Intelligence with Marie over on Fox Biz. And I guess that's the kind to it for the administration.

John where Senator McConnell, you see out of doing any of these interviews, Lada McConnell was talking about a package of skinny deal of something in the region of five six hundred billion dollars. I imagine he'll listen. I think he said that over the weekend. If they come to a bipartisan deal, he'll take a look at it. But it's not up to him, isn't it. Lady McConnell has got to get it through the Senate, and there's been no evidence the last several months that he has the

votes in his core constituencies in that Senate. Right now, Tom to pass a bill of two trillion. We focus on the stimulus with Jonathan Lieber. He is with your Asia group and thrilled that he could join us this morning. Jonathan Lieber, you've written tersely on stimulus as well. Meadows Is is pounding the drum. What's the chance anybody's gonna listen to the drum and join the band. I think it's a little late in the game to get this

done right now. You had some support for a really fairly large stimulus deal earlier in the summer, but with Trump's re elections campaign prospects cratering, he just doesn't have the stroke he had in July to push something through the Senate Republican Conference, so they are a much smaller number than he is. I think it's gonna be a really heavy lift to get anything close to the kind of deal Nuchan is talking about through the Senate right now.

Are Kevin Surli sees the benefit to the president, he sees the benefit to moderate Democrats. Does the stimulus benefit Vice President Biden? No? I don't think so. I mean, I think that Biden gets it done one way or the other, so it's basically neutral for him. But it's a risk that this is some kind of bipartisan deal President Trump strikes a couple of weeks before the election and that helps him. So if you're Biden or your Pelosi, do you really want to take that risk? I mean,

can you imagine being Nancy Pelosi. You cut a deal with the president through two weeks before the election, and then he wins, You're gonna be the greatest goat in democratic political history. So I just don't think that this is something Pelosi really wants to do. I think it's a real risk for Biden if it happens. I'm sud naive, John. I thought that policy was about out pink the country, not about just winning the election, dice to go, fifteen days to go, John, and last time around, those polls

narrowed aggressively in the President's favor. In the final two weeks, there's doubling down on the existing strategy, get it done. You know, there's a lot of differences between now and the biggest one being just the size and consistency of Biden's national lead. This guy's been between seven and nine points since he clinched the nomination. There were times in sixteen where Trump was within two of Hillary Clinton, and

that's not even come close to happening now. What's unique about predicting this election is that the swing states are all closer than the national polls tell you. But this has not really been There's not been much variance in this election, so it would be really surprising to see it tightened suddenly without a major game change in the narrative, like a big screw up at the debates or something like that for Joe Biden. John. Let's say you're right.

Let's say markets are right that president that President Trump loses the election, that former Vice President Biden wins, that we get some sort of blue wave. Our markets adequately pricing in the potential change to taxes and other fiscal approaches of a Democratic a majority Senate right now, given where people are positioning, are they are they really gaming

this out correctly? Well? I think that the variable here is that most of our clients we talked to are expecting there to be a really large stimulus in Q one of next year. And that happens, then sure, that's positive for the economy. That's a big fiscal stimulus. That's probably good for earnings. But once you start looking through that, you look out six to twelve eighteen months, that's when you start seeing the tax increases and the new levels

of regulations starting to bite. And I would expect markets maybe a little slow to catch up to that, given that there's going to be this flood of cash in the first half half of next year. So you're uniquely positioned to talk about this because you help you helped craft tax policy under former President Barack Obama's regime, which sectors which types of companies could get hit hardest by a new attacks regime such as the like that Joe

Biden is proposing. Well, the biggest threats that Biden's making are to US multinational companies so you're talking about raising the corporate tax rate blow where it was during the Obama administration, but higher than it is today. But I think in some ways more importantly, you're talking about changing the way that they tax overseas earnings in the US, and that's gonna make US business is less competitive, make

it harder for them compete in foreign markets. And I think that you know, in a year or two from now, once we're under this regime, we're gonna be back to the battle days of talking about inversions and losing companies to foreign UH jurisdictions. There's gonna be rules in place to stop that from happening. But I do think that that's a bad look for the multinationals in the US. I'm gonna ask this question, Jonathan, very quickly here and

very important on the first Wednesday of November. Whatever the results are, everybody's gonna dash to two thousand twenty two. What is that gonna look like? Well, I think the Democrats, I mean, you know, the Demo Guts are fairly well positioned if you look at the Senate. They also have the opportunity to redistrict coming out of the census, in which should help them in the House. But you know, the historical pattern here is that presidents lose seats in

their first midterm elections because of the backlash. So a lot of that question comes on how much overreach you see from the first two years of a Biden administration and what's so important here, John As I know you tried to redistrict me out of Bloomberg surveillance three or four years ago. I mean, you know he's talking to John Farrell LL. He's absolutely talking to making redistricting down White John, I'm working on it. Jerryman, get that one

day Salem mass Science. You're not directly on the pandemic from the JOHNS. Hompkins University. Johnshrew Sharpstein, Well, the first of all, I point out that there really, at least states aren't lockdowns at the moment. People are not recommending knockdowns, They're recommending reasonable steps in vigilance, and you know, not

pretending that the virus isn't here. And I remind them that two fifteen thousand people have already died in the United States and it is not hard at all to imagine another two d fifteen thousand, and then another two fifteen thousand dying if we decide that we're just gonna let everybody get the virus um, which seems to be some people's strategy, but really is the strategy of giving up what we know about the Visor vaccine. It seems that they actually would be ready to, you know, start

for an application in November. November is a couple of weeks, you know, a way are the first ones to get it right, But we have no idea because they haven't reported the studies yet. I think what they're saying is that they will have the first read of the studies UM with including data on safety, sometime in November, and I certainly hope that it's positive, that it looks good, and that the FDA will look at it carefully, convene an advisory committee, and then we'll all be able to

look at the data. And if that happens, I think we'll at least have a one vaccine, which is great, and then there will be other UM studies that will read out and we'll have a chance to get more. How do you you know, convince citizens that we're not doing this too fast, that it's you know, the track

record of safety that will dictate the timeline. Well, I think the stout and Drug Administration has a very important role to play, as do all political leaders in saying, well, the study is done, let's take it one step at a time, and you know, in short order, convene independent experts, release upunto the data, allow people to look at it and give you a little bit of room for people to really take a look and say, wow, this really

works and it has a very strong safety record. And if people do that, I think the medical professional feel confident, Many people will feel confident, and it will be the science driving the discussion rather than people hopping up and down, you know, and just pointing and saying, you know, just take the vaccine. That's what we don't want. Why we in so many new cases in the US and Europe? Is it a second wave or is it seasonal? Or is it because some of the restrictions were relaxed too

soon or by too much? Is there an all of the above option? I mean, I think all of those things are contributing. Um, you know, clearly there's pandemic fatigue. Clearly there were restrictions that were some restrictions were relaxed quickly, and I just think in general, the weather is probably not helping because describing people indoors and that's why we're going to get a wave that that is exactly what's

happening now. And the question is how big a wave are we going to get and can we get control of it um And that is really going to depend on leadership, and it's going to depend on people's ability to really, you know, go back to the basics of what kept this under control. Joshua Sure stud the Johns Hopkins University on a Monday on a Monday, really changeable for the pandemic as well. 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.