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Joining us for conversation live on Bloomberg TV. The seventeen ninth Secretary of the Treasury, Scott Besson, Secretary Best and it's good to see you, sir, Jonath's good to see a warm congratulations from all of us to you. Quite an arrival from what was it, Little River, South Carolina.
Yes, it's an American success story, orly in America.
To the office of Alexander Hamilinson with some unique experience. How is that going to help you, sir, approach some of the challenges in this economy.
Well, Jonathan, the way I look at it, for my career, for thirty five years, I've been sitting outside the room with my ear up against the door or trying to look over the transum, trying to figure out what policy makers should do or going to do, and how that
would affect the markets. Now I'm inside the room trying to figure out what everybody outside the room expects us to do, how the market's going to react, and what the economic and market implications are or short term, but more importantly medium term, and how that's going to affect the underlying economy.
We've got a lot to discuss. So let's start with the debt market. What people expected you to do, maybe was changed some of the issuance for treasury. Something that you'd said back last summer about then Secretary Yellen was that Yellin had taken control of monetary policy through treasury issuance. Then you're basically maintaining her plans. Can you help explain that, help us understand where you're coming from.
Sure, So the previous administration shortened some of the duration, and we haven't shortened it further. We've just kept the policy in place. And I believe over the medium term it's going to play out as it becomes clear that everything that President Trump's administration is doing will be disinflationary.
We're going to bring down energy costs, we're going to bring down regulation, what DOSEE is doing in terms of cost cutting, and I think once the tax cuts and job aacks is made permanent, then you know we can have a revenue increase cost decrease. And as you said, is the nation's top bond salesman, I got a pretty good story.
So what's the medium term? Help me understand that. What is the medium term? And then once you see all those things. Let's say those ambitions become reality, then do you start to think about term again the debt.
Sure, but that's a long way off, and we're going to see what the market wants. As Lisa noted this morning that and it's fun to see someone who believes that Fed minutes are exciting that the Fed said that they may stop their balance sheet runoff. So you know, easier for me to extend duration when I'm not competing with another big seller.
So when do you think that time would be end of the year or further down into the administration's term.
It's going to be. It's going to be path dependent. We're still seeing sort of the residual Biden inflation that's still coming through. Uh And I think as a the market starts to realize what we're doing and inflation starts to drop, then we will we will see. So it's going to be path dependent. That's the eventual goal. But you know, I'm not going to signal it now.
When you mentioned the Fed minutes, participants indicated yesterday that one of the problems they had was they were waiting for Trump policies to come into place.
Do you think that those policies.
When you think of tariffs, potentially deportations, immigration, this can be inflationary. Is it going to hold back the FED from cutting rates?
Well, to the extent the team transitory at the FED is still they has any credibility. I would say that tariffs, if they have any price adjustments, are the most transitory thing there are, So I don't think that should hold them back very long. And I would point out that, depending on what number you want to use, ten twenty million people who came across the border, we had the worst inflation of forty years when we added ten or
twenty million people. So I'm not sure why people are saying that it's inflationary to tell them to go home.
So when you look at team transitory, do you think the next move for them would be a cut emory?
I have said publicly that I will talk about what the FED has done. When I was a market commentator and investor, I would talk about what they should do. Now I will leave it to them, and sure Powell and I have a weekly breakfast. We saw each other yesterday and I will convey my thoughts there.
Well, let's talk about what they have done. We can comment on that you said you're willing to They cut rights one hundred basis points going into the end of last year, and I don't think happened yield to the long end rows.
They didn't decline.
Do you think Feller reserve easing contributed to high long end yields?
Well, Jonathan, I would just say the point of cutting rates is to cut rates. So if they cut rates and rates went up, then there probably was something there. I thought that the rate cut in September, I said it maybe even on your show here, that it was oversized. The market responded, But now we're seeing term premium come back down, so we'll see what happens from here.
Do you think the current rate right now is enough to bring down ten year yields over time just by virtue of being restrictive?
Again, I'm not going to comment on current policies.
I am curious you talk about how you do look at the ten year yield every single day.
I love that.
I love that you're the top bond salesman in the United States, and I'm wondering, are you expecting it or hoping it to go down from here? Is that necessary to reach to achieve your three percent growth target?
Well, what's necessary are they underlying conditions? So the underlying conditions that we need for yous to come down for growth to go back up. We've got this affordability crisis in housing, We've got an affordability crisis in the auto payments. So one thing that would be very stimuative. And as Jonathan mentioned earlier, the tenures come down. Our rates have
come down every week since Donald Trump's been president. So if we can continue that for fifty two weeks, that'd be great, and it'd be very it would be a win for the American people, which at the end of
the day, that is our goal. So if we do what we say we're going to do, if we can rein in the budget deficit, if we have non inflationary growth, if we bring down energy prices, and I think now that I have the numbers on the inside, there was a big contributor to this massive inflation was a regulation. I think you said earlier this morning that the what
if these things cause inflation? You know some aszam Marie just said, some of the policies, Well, what really happened under the previous administration was you created a demand shock with government spending, but it was met by supply constraints as there was more regulation and Trump one point zero we created demand shock with tax cuts and it was
met by a supply side response of less regulation. So you know, the Biden administration created this inflation that a demand shock and constraining supply is the ultimate recipe for inflation.
So and now you want to count spending the DOGE program, let's talk about it. You've called it one of the most important audits to government ever. You remember the Clinton tried something similar, the National Partnership for Reinventing Government. How different will this be and what kind of cost savings are even the team thinking about?
Yeah, and John, I can go all the way back the given my tenure in the business, and go all the way back to the eighties to the Grace Commission, and they had some great the ideas, most of them not implemented. I think that the Clinton Gore initiative, I think a lot of that was academics. So this is people on the ground all areas of government, and it's moving quickly. And I really do think it's unfortunate that it's been lampooned and they attack the way it has.
But when it's being attacked like this. It tells me that there are a lot of entrenched interest in terms. When you're moving people's cheese, they don't like it, and it's not their cheese, it's the American people's cheese.
Well, how about putting some of that cheese back into American people's pockets. How inflationary would those five thousand dollars potential DOGE checks be that the President spoke about yesterday.
Well, I think again that if we are bringing down energy prices, if we are cutting the regulation and so I think that it's a to quote the Vice President during the campaign, I think it's holistic, and I think that it's all kind of one mosaic. If you were to inject a lot of money into the economy, because Emery, think about this, that we are at this massive deficit to GDP six point seven almost seven percent, So what will be happening on one side, You'll be bringing down
that spending in the economy. So very easy mental model is every three hundred billion is about one percent of GDP. So every three hundred billion that DOGE is able to save, could you put that back in the economy into people's pockets.
One thing potentially that could happen, and people are questioning it is maybe remarking gold. Elon Musk, who's leading DOGE, was talking about maybe going to Fort Knox make sure those gold reserves are there. That comes under your purview. Do you have any plans to visit Kentucky?
I don't have any plans. I can tell you that we do an audit every year. I can tell the American people on camera right now that there was a report September thirtieth, twenty twenty four. All the gold is there. Any US senator who wants to come and visit it can arrange a visit through our office.
Gold was your biggest holding when you were a hedge fund manager before you divested to become the Treasury secretary. So you know the value of where gold is right now versus where it's marked on its balance sheet just north of forty dollars an ounce it's close to three thousand. Is it under consideration for this administration to revalue gold?
I think that somehow when we were telling about the Sovereign Wealth Fund and I said monetize the balance sheet, I can promise you that's not what I had in mind.
So it's not under consideration, not on the table.
That's not what I had of mine.
When you look at the DOGE savings that you have so far, how much is that going to go to offset some of the tax extensions that we see. What other savings are you looking at that potentially are crucial?
Well, again, they're just getting started. And one of the shocking things to me has been when we talk about waste, fraud and abuse, we all think of what comes out of d C. We think of some waste and fraud and friction costs. Because one way to think about this is twenty five percent of the US economy flows through Washington d C. So if we can cut the friction on that, that's a lot of savings. What we are discovering now in waste fraud and abuse, there may be
much more fraud going on than we thought. And I think you're going to be hearing about that over the coming week.
Can we hear about it now?
I think you're gonna hear about it on the coming weeks.
What kind of fraud are you thinking about? What kind of fraud have you identified?
Again, i'd refer you to so now out of you, I'd refer you to some of the statements by Lee Zelden at the EPA.
Okay, well, we can build on that in the weeks to come. I can refer to you some comments from the Washington Post on defense cuts.
They're reporting that Pt.
Hexseth, the Defense Secretary or the senior leaders of the Pentagon and throughout the US military to develop plans for cutting eight percent from the defense budget in each of the next five years.
You're aware of that plan.
I'm in contact with Secretary Hegesits, and we're working very closely. And again, I'm not going to jump the gun here on TV, but I think everything's on the table and can things work more efficiently.
When it comes to the defense budget.
We've spent more last year on our interest payments than defense. So are you hoping for twenty twenty five to spend more on defense than the interest payments?
Well, it would depend how we got there too. That does defense spending go down, does the interest go down? We'll see what that calculus is.
I've got to focus on tariffs too. Revenue raising is part of that story. Reciprocity, national security. You want fair trade, but that we all want fair trade. The President has discussed reciprocal tariffs. He's mentioned the Europeans also offered to drop auto tariffs. Could we start there. Have the Europeans actually made that offer? Can you confirm that.
I haven't seen that, but possible. I think that good thing about President Trump's negotiating style is people put things that were not on the table before on the table very quickly.
So that would be reciprocity and maybe negotiating. But to offset the tax cuts, where's the revenue raising.
So there could be Not everyone is going to give on every point, right, So the Europeans seemingly put forward very quickly auto terrorists, but not every country is going to do that. My view, as I've said before, China is the most imbalanced, unbalanced economy in the history of the world, and they are trying to export their way out of what is a very serious recession, and the rest of the world can't do that. They can't dump Chinese goods. They're going to have to rebalance their economy.
So tariffs on Chinese goods went up ten percent, and a lot of that again Mexico, Canada, China. That was in response to the fentanyl crisis.
China is the only one though that those terriffs have actually stayed in place.
Is that the opening salvo?
How high do you think Trump wants to go when it comes to Chinese terraffs Well, I'm.
Not going to give away as negotiating hand on TV. I do have my first call with my Chinese counterpart tomorrow morning, so I look forward to a very productive discussion.
What's the first point you want to bring up?
That we want to work together? And as we said, a lot of the precursor ingredients from finanol originate in China, so we really want to put a stop to that very quickly.
Historically, there's been some currency concerns with regards to China as well. In the conversations we had you before taking up this post with you, you mentioned that some countries, some currencies are undervalued.
Is China one of them? Is that something you'd like to remedy?
Yeah, well, Jonathan, what I've said is, make no mistake, the US still has a strong dollar policy, but that does not mean that bilaterally other countries can weaken their currencies versus the dollar or manipulate their currencies. But specifically on China, China is a very difficult currency to value because I really think that when we think about the value of the R and B, it's in three different equilibrium. On any academic model, say purchasing power parity, it's cheap.
On the other side, you have one point four billion people who are subject to capital can controls and they want to get some of their money out of the country. And then you have what I would call the X factor. If you put money into China today, what's your belief that you will get it out in two, three, four years. So it's very difficult to come up with a point value of the currency.
You've talked about the desire to have a strong dollar policy for the United States, But is a strong dollar at odds with the idea of bringing industrial production back to the United States and sort of speaks to some of the concerns about other countries trying to devalue their currencies.
Well, I think that we will necessarily have a strong dollar if we run good policies, and I think we're going to run good policies if we if we cut the trade deficits. When you think about the trade deficit is a combination of terms of trade value, the dollar,
and our own budget deficits. So if we bring down the budget deficit, then I think everyone if we are deregulating, if we make the tax cuts permanent, if we make the US more bent business friendly, then everyone, all the reserve managers in the world, all the private investors are going to want a piece of that, and the dollar will be strong. But we will be able to push back on that through good policies, through productivity, the US productivity.
I think that I've been meeting with a lot of the tech leaders lately, and I think we are very close to the cusp of this AI finally coming into the productivity numbers. Do you think that a.
Strong dollar is necessary in order to offset some of the costs that could be otherwise associated with the tariffs.
Traditional economic theory would tell you that the dollar strengthens on the tariffs. Who knows what we've already seen since the dollar appreciation since November. Fit markets live in the future, so have we already priced in some of that? And on the other side, what we are trying to do
is to get other economies to successfully rebalance. My conversation tomorrow with my and this is really just an introductory conversation, but as we go down the road, the Chinese need to rebalance their economy in favor of consumption, that they are suppressing the consumer in favor of the business community. So as that happens, then they will increase their demand.
Same thing in Europe, you know Mario Drogy For any of your viewers who didn't see it, Mario Drogy had a fantastic editorial this weekend in the Financial Times where he said, look, we have put the equivalent of more terrorists on ourselves or terraces on ourselves then the US could ever contemplate. So could you get a very strong euro Somehow they had an immaculate deregulation just quickly.
You're having this call with your Chinese counterpart. Will you see him next week at the G twenty Finance Minister's meeting.
I'm not going to Cape Town due to some domestic considerations. I actually think that he's not attending either.
So is that what he's told you?
This is the readout that we've gotten.
Okay?
So and again I also believe several of my other counterparts won't be there. I have been speaking in contact with them regularly, and then I will be seeing them at the spring IMF World Bank meetings in DC.
I wanted to talk to you about national security as well, and the dollar has certainly got a role to plan on that. From the sanctions policy of the United States as we look back, do you think that's been misused?
Excellent question, Jonathan that when I came into Treasury, if you think about sort of treasury is five pieces. There's irs on one side, the men on the other. But the main focus of in the building at Treasury is domestic finance, international finance. That's what I've been doing for my career for thirty five years. I was able to hit the ground running on that. The what we call TFI terrorism finance is where my biggest learning curve is. So I'm spending a lot of time on that, and
I'm reviewing the sanctions policies. Why do we do what we do? Have they been effective? Are we running a twenty first century program as opposed to some outdated modalities?
Well, the current sanctions are in place, and places like Russia to try to get Puttin to negotiating table. You are intricately involved in these in this deal. You were just in Kiev. You met with President Zelenski. Trump yesterday called zelen Is he a dictator without these elections and said that he better move fast or he's not going to have a country left. Does this language make it harder for you to get that minerals deal over the finish line?
Well, look, I think President Vilensky unfortunately escalated and has put some daylight between the escalating that a lot of his remarks in Munich I thought were inappropriate. President Zelenski, when I met with him, assured me that he'd be the signing the minerals deal in Munich. He has not. And look, the real purpose here, and I think it's turned into this media circus that President Trump had a very elegant plan, and it was bring the Ukrainians closer
to the US. Let's do this economic deal. And the even Carl Rove in the Wall Street Journal this morning approves of it that the US US with greater economic
interest in Ukraine, provides a security shield. So the sequencing of what was going to happen was bring the Ukrainians closer to the US through economic ties, convince the American people and the American public, get them onside, and then tell the Russians go to the negotiating table with a very fulsome message that if we need to, we will take sanctions up.
Well, what about tapping the Russian frozen assets and three hundred billion dollars? Would you force your European counterparts to not just have them frozen, but actually tap them. Trump talks about repaying the American taxpayer. Shouldn't Russia be a part of that.
Well, what's happening now is they are being tapped. So the returns from interest, the returns from the freezed asset pile, is going to pay the Europeans. You know, what's very important to understand here is everything the US has done to date that the American people, the American taxpayer is grant the Europeans. Roughly half of what they've done are loans, and the runoff from the frozen assets is being used to repay European loans.
Have you communicated that to the Europeans? The europe sent with them?
What's that?
Have you communicated the Europeans the europe sent with them?
I think vice president of Vans that are a pretty good job in Unich.
Do you think they understand that the United States is running a deficit of north of six percent, close to seven percent, and that the budget for defense is north of eight hundred billion dollars do they think Do you think they understand the gravity at the moment in the United States the US perspective.
Look, I think that they understand that President Trump during his first term this term, Vice President Vance and the entire security apparatus had told them that many of the countries are deficient in their NATO spending and they need to come up. When I went to Ukraine, you're fly into Poland. Poland is spending almost five percent of GDP on defense. And look at Poland sitting next to Ukraine. Poland is one of the great economics success stories in
the past thirty years after China. They've had the fastest growth. So why couldn't Ukraine, with some US capital ingenuity know how and root out some of the corruption do as well as their neighbors done.
If Europe spends more, will it allow Americans to come back on defense spending?
Is that the automate goal?
The ultimate goal is for the Europeans to come up to where they've said that they are going to and to provide their share of the NATO spending.
You mentioned sanctions, So do you have both on the table ready to go? A sanctions ramp up or wind down on Russia, depending how these talks go.
I think that'd be a very good characterization.
When it comes to the talks, Trump still thinks he's going to meet with Putin. He said probably by the end of the month. The end of the month is next week. Are you preparing for that.
I'm not going to give away the timetable, but the president is committed to ending this conflict very quickly. And I will tell you you're in Kiev, I went to a children's hospital that had been bombed. And this was not a children's hospital where you take your child if he or she scrapes her like this.
So you can imagine I did that trip that you're talking about just a few months ago. You can imagine why they haven't had elections in right. They're living in this martial.
Law they are, and it's probably a necessary, probably necessary to move forward with the democratic process.
We've covered a lot of topics. One name that has not come up up very much is Elon Musk. Let's finish there. You've had some tremendous colleagues in your experience over your career, including the great investor Stanley Drunken, Miller. You've worked alongside Donald Trump through the campaign. Can you just describe what it's like to work with someone like Elon Musk, someone as successful an American business Just what's that like day to day?
Yeah? Look, Elon Musk, like stand Druck and Miller, like I always compare the great business people to great athletes. They keep their eye on the prize, whether that whether he's the Messy or Michael the Messy or Michael Jordan. He is focused and his energy levels unbelievable, and he's gotten to where he has because everything's on the table. There's always this examination of why are we doing it
this way? Why are we doing what we're doing? And most of all, if something's not working, let's fix it.
You know, Sam Altman was on Bloomberg TV just two weeks ago and called Elon Muss insecure.
Do you view him as much?
I'm not going to get into the tech magnet the kind of slap best.
Secondly best, and I would say that's wise.
He is drawing criticism, though, when you and the administration come out and pick out the various things where money is being wasted on, I think we can all agree that that's a waste of money.
Well, there might be some concern.
Is the way that some people are being laid off in Washington that lacks some dignity?
Could you comment on that today.
Look, I think that there are many fine public servants, but I think that I've been in Washington's three or four weeks now, and there's a real bias towards the status quo. And if you don't move quickly, then then the lobbyists get involved, the entrenched interest, and it's impossible to get anything. So, you know, any anyone who has experienced uh in financial hardship, the any kind of the mental duress, uh, you know, I'm sorry for them, But
that's also what the average American experiences every day. Most of us. You know, you all come to work, you want good ratings, the you know you uh you get a performance readout, you really push forward. And I can tell you that in Treasury, I have been so impressed with the quality of the permanent staff and I want to get everybody back to the office and a lot a lot of people are on board with that.
When it comes to your prior life, you didn't have a boss. You said it would be like atrophy if you weren't trading financial markets every single day. What is it like now to be in this position where you make decisions that people can trade against what you're doing, and you also have a boss that's pretty close to you in terms of the Treasury Department in the West Wing.
Well, look, I only had my own firm for eight years, so I worked with mister So with Stan Druckenmuller, and it's a great feedback mechanism. And I think I had the best position in DC. I'm on the White House camp campus. We have a great staff in Treasury. I can be in the Oval in four minutes and so there's proximity. And again, not like Elon Musk, President Trump is committed to shaking up the status quo. He came in with a mandate and he's moving on it very quickly.
You're a total gentleman, and you've been very gracious with your time. Thanks for being a good friend to this program over the last year. Secretary best in there at the Treasury secretly best and thank you, sir,