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We have Treasure Secretary Stephen Mnushan with us here. Thank you so much for joining.
Thank you, it's great to be here with you.
You have a unique insight into this administration because you served all four years during the first term for President Trump. I wonder what you make of a difference that we're seeing with Trump this time around. He is a little less concerned about day to day market swings. We've seen big tarff talk two hundred percent tariffs, twenty five percent tariffs, ten percent across the board, and the S and P five hundred has wiped out five trillion dollars in part
because of this. What do you make in the shift in Trump's thinking about markets.
I think the execution is slightly different, but I think the fundamental economic policies are actually the same. And this goes back to what the President campaigned on in twenty sixteen. Tax cuts, regulatory relief, and trade, and those are the same things you're hearing about today.
I would say it's critically.
Important that the tax cuts are extended, and I know President Trump wants to add additional tax cuts. He's always been very focused on trade. I think that you're seeing a more aggressive trade policy in this administration. And I think one of the questions is does the president want to use this to negotiate or does he want to use this to raise tariff revenue, which he's talked about significantly.
Which if he's going to do that and use that to create tax cuts or pay down debt, is an interesting strategy for effectively creating a consumption tax on foreign goods.
Do you think that some of the tariff threats pulling things back bringing them back up, do you think that's a good policy.
Well, I think the market is adjusting to his negotiating, which I think in the beginning the market thought that he wasn't serious about tariffs, despite the fact that I think and I've been saying, he's very serious about tariffs. So I've suggested that if he wants to raise revenue, a ten percent tariff across the board on everything would
be very effective. They could score that as part of reconciliation, probably raise about two and a half trillion dollars, and that would be very effective in terms of creating tax cuts and paying down debt.
It's been a lot though for investors and business leaders and CEOs to absorb. What's your What would your advice be to some of this constituency as they try to deal with and they get worried about all the stock market gyrations from these taror threats.
Well, my first advice would be, don't overreact. I know there's some talk about are we going to go into a recession. I don't see us at all going into a recession. I think we could have a little bit of a slowdown in the economy as we pull back on government spending, but I don't think investors should be
concerned about a recession. The second thing I would say is we came in with the market being fully priced, so I think a five to ten percent correction on the S and P or the NASTAC actually makes sense. The market's been really fueled by massive amounts of tech spending, particularly around AI, So some of this is a natural correction in the market, and some of this is the market worrying about tariffs and the impact on tariffs.
We're talking a lot about tariffs. You mentioned taxes as well. What do you make of Trump's strategy to do tariffs before tax cuts this year.
Well, I think it's just a timing issue.
I think they're actually moving on what seems like an incredibly fast agenda, which is encouraging that Speaker Johnson says he's going to get a bill to the floor before Easter, which, if that's the case, that includes both tax cuts and
border that's a very impressive timing. I mean, my concern about this one big, beautiful bill was it was going to take too long and that the President could get a quick, easy win on the border and the tax issues, as you know, Selea, are quite complicated, so these things have to be thought through carefully and balanced.
You, as treasure Secretary in twenty seventeen, were the face of the administration's efforts to get that tax bill through Congress. Knowing based on that experience and what you know and see now of Washington, what do you think the chances are that there will be a successful extension of the tax cuts that Trump seeks.
Oh, I definitely think there'll be a successful extension. I think it just depends what it includes. And look, we're very proud of the work we did in the first administration, and obviously the tax cuts and job TEC was sweeping reform. I mean, it took all year because it impacted almost every single part of the economy. It dealt with domestic taxes at lowered corporate taxes, at lowered individual taxes, It had business tax credits. Right now they're dealing with a
much smaller segment. The most important priority is, in my mind, extending the tax cuts, which from an operational standpoint is actually quite easy to do, and then they have to consider some of these other ideas that the President has thrown out and figure out how they could pay for them as well.
Do you think that the salt cap is something that needs.
To be part of the bill, Well, it only needs to be part of the bill if that's what you need to do to get Republican votes to get the bill over the finish line. So there's no question that, you know, removing the putting a cap on salt was a fundamental issue that we thought of fairness treating all
the states similarly. Having said that, you know, I recognize there's a small majority in the House and this clearly impacts places like New York disproportionately, and I understand why the New York members want to see that raised.
So far, it seems like that might be one of the sticking points. Are there any other sticking points that you see bubbling up as this tax bill comes together.
I think the bigger issue is the pay force. So you have some people who say this should be scored against current policy and it doesn't cost anything. The traditional way of scoring this is against what's the current law after with with the reduction of the tax cuts, and that would be over four trillion dollars. So obviously if you score it that way, the pay fors are very significant. I am concerned, and you know you've heard Treasury Secretary
Vesant and others talk about the deficit. I think the deficit is our number one problem today. So I think that whatever tax cuts are passed, at least some of them have to be paid for.
That's one of the larger differences between twenty seventeen when you worked on this and now that the deficit is just so big. How much harder does that make dessence job?
I think it's quite significant.
And you know, if you put this in context, when we did this, the entire tax bill cost a trillion and a half dollars, there was about five hundred billion that we thought that was the difference between dynamic in scoring and there was another five hundred billion of things that were extenders. So I thought the true cost was closer to five hundred billion and that we could easily grow the economy to pay for that. You're now talking about an economy that's much bigger.
The numbers are much bigger.
So the personal side alone is over four trillion dollars, so the payfars are much more significant. We also have a much bigger budget deficit. We had much more fiscal room in twenty seventeen, and we had lower interest rates, so the interest on the debt wasn't.
As big of a problem.
So you add all those things up, and yes, it's more difficult today, but it's also simpler, and that the tax cuts themselves are much simpler.
You know this so well. In twenty seventeen, you were a key negotiator. You were the face of the administration's efforts. Like I said, how important do you think it is for the Treasury Secretary to lead the charge on tax bill creation and negotiation.
I think it's very important because it's the president's signature achievement and extending it is critically important for the administration.
We got to know each other during those four years when you were in office. But one area that we never talked about that was never a big deal when you were there was the payments system. With your four years of experience, you know how sensitive and significant the work at the Bureau of Fiscal Service is. Are you concerned at all about doge's access to the payment system.
Well, let's step back and just talk about the payment system, and you're right, we didn't.
Talk about it much.
Treasury is a gigantic payment processor for the federal government. So this is an important part of Treasury. But Treasury's role, as you can think of as the bank. So what Treasury does is it takes in files from other parts of the government. The other departments certify those files, Treasury make sure that it's in the proper form that it can execute them, and it executes them. So it's not Treasury's job to determine whether those payments are good payments
or bad payments. You know, I'm very comfortable with what I understand Treasury Secretary has said in regards to the controls over the payment system. That's the most important tissue. I think some of the things that Dealon has said make a lot of sense. I mean, does it make sense that you put a category payment around the payment. Of course, now those are things that should be easily added,
you know. I will say what we did work on was the transparency issues associated with this that you know, we put up on the internet a system where you could see most of the government payments. So, you know, I think a lot of this topic today makes a lot of sense. But I'm comfortable today the system appears to be very safe.
Do you think that investors should be worried about the US's ability to fulfill its debt obligations considering how much activity there is around the payment system right now with.
Doge in there a I know there were some concerns about dose in the beginning. That seems to be taken care of and not an issue.
Obviously. The bigger problem.
With the payments is going to be the government debt and the debt ceiling.
One thing I've noticed that Secretary Beston is doing that's a little bit different than years past, is putting a focus on lowering long term bond yields instead of looking to the Federal Reserve to lower interest rates. I'm curious what you make of the strategy.
Well, I think he's right in the sense of a large part of the economy is tied to longer term rates, So whether it's mortgages or other things, and whether it's the five year or the ten year, there's a large part of the economy. For a long time we had a very flat yield curve. Ultimately, what the Fed does
will have an impact on long term rates. I think if you actually look at the market today and you look at the dot plot, the is telling you basically their expectation is that they will lower rates down to three and a half percent.
It's just a question of when they get there.
Right now, that's projected next year, and I think the ten year treasury already has that priced in, so I think it's it's built into the market today.
In the last couple of weeks we have seen yields drop due to recession fears. Do you think that Bessett might be getting what he wanted but for the wrong reasons.
Well, I think he wants long term treasuries to come down, and I think part of that is around creating as there's less government spending, there's no question, and they can they can convince the market that they're going to cut the data set that will help long term rates. But you know, i'd say, look that the ten year has been bouncing around in a twenty basis point range, which I consider to be a market range.
One of my favorite things to ask current and former Treasure secretaries is about currency policy, something that we've spoken about as well. We're expecting, at least in the next couple of weeks, the first foreign exchange policy report coming out of the Treasure Department when you were in office, you labeled China a currency manipulator. I wonder if you think that that is an effective tag to apply.
I think it's one of the effective tags to apply. It's not the only effective tag, but I think it
was one of the tools in the toolbox. And now it's more fun talking about currencies because I think, as you know, kind of like Treasury Secretary one oh one, as everybody's supposed to just say, oh, strong dollar, strong dollar is you remember when I was at Davos, I made for the first time a comment more on a stable dollar and the benefits of a strong dollar and the problems with a strong dollar in the market reacted accordingly. But I really do think the policy should be a
stable dollar policy. That's what's good for the US, that's what's good for the world. I think the dollar will be the reserve currency before the foreseeable future. But you don't want a dollar that's too strong, that that hurts us from an economic standpoint.
Well, you can speak much more freely about currency policy now. Thank you so much for joining