Bloomberg Wall Street Week: Rubenstein, Tett, Johnson

Johnson sec Chairman J Clayton. Bloomberg Wall Street Week with David Weston from Bloomberg Radio. This week, for the first time in history, a U S president was impeached for a second time, a measure supported by ten House Republicans. Today in a five cards way, the House demonstrated that no one is above the law, not even the President of the United States. This is Bloomberg Wall Street Week.

I'm David Weston. Let me say this. It's no secret to anybody that I hope that this relationship would never become public. When I was alone with miss Lewinsky on certain occasions in early nine and once in early I engaged in conduct that was wrong. That was President Bill Clinton testifying before a grand jury about the events leading up to his impeachment back but despite the history being made back then, the SMP rose almost twelve from then

until he left office in early two thousand one. Markets similarly looked past President Trump's second impeachment this week, focusing instead on things like interest rates and proposed fiscal stimulus, things that Jillian Ted, chair of the Financial Times editor board, says investors should be considering that is the possibility of a return of inflation. It's important to realize that there is quite a big zeitgeide shift under way right now.

You can see that, perhaps most clearly, not just in terms of the behavior of bond yields nominal bond deals, but if you look at inflation linked bonds in particular, they have been performing very well because investors having buying them to hedge their portfolio. Now on the phase of it that might seem absolutely peculiar, because we've just had the consumer price in data come out this week, which shows an inflation pression in December were incredibly muted, and

there's very little wage growth. The level of economic growth is pretty weak two because of their pandemic. But there are really three key factors which are causing investors right

now to think about inflation. The first is a chance that if you do have a big fiscal stimulus package from Joe Biden's incoming administration, and if that coincides with the pandemic vaccine gradually spreading across the country and reducing the pandemic fears, you could have those two factors coming together and create quite a big up searching growth later this year, which could coincide with supply chain bottlenecks because so much paracy to be knocked out by the pandemic.

So what you could see is that prices, say to the hotels or travel or leisure, suddenly jump up in a way that will exkew the inflation data. Esther George, head of the Kansas Fed, spoke about this Justice Week. The second issue, which is equally important, is that many of the structural factors we should kept prices low in recent decades, most notably globalization and digitization, might just might be, if not reversed, but become less forceful in the decades ahead,

because say the demographics and China are changing. That's a much bigger debate, but it's very important to take note of that. The third issue, though the really important issue is a FED and inverted as. Assumptions of ultra low inflation in recent years have been partly based around this idea that the Third's two percent price target meant that it would jump in and nip inflation and precious in the bar if they start to emerge. What's changed, though,

are two things. Firstly, beneficials are saying that two percent is now an average target, not a ceiling, which means that they might be willing to let inflation rise above to perse for quite a long time. Secondly, there's an appreciation that the political economy pressures in the years ahead could make it incredibly hard for the EFFECT act preemptively.

In particular, as the depth burden explodes, it's going to be so hard for the FED to do something which is going to raise the depth service in costs in the future, so that, in plain English, means the FED may sit on its hands, which also means inflation could well be more of a risk and investors realized, and in part it could have been that the FED wants to certain ends. In this sense, inflation, as you say,

it's still is rollatory minus. At the same time, negative real yields that is to say, the difference between the inflation rate and the zero effectively zero industrates really have record negative real yield. Make that be actually a strategy to actually inflate our way in part out of that debt problem you just talked about. There's certainly a temptation um for the FED to sit on its hands in terms of running the economy hot and helping growth, Helping it should also be said, in the eyes of some

FED officials lower income communities as well. You know, the ideas that you have a large amount of growth, then that will gently trickle down to poor people for what it's worth. I personally think that's a huge mistake, because I think what the FED is doing is raising inflating the value of the assets that the rich hold and

increasing income inequality. But in terms of trying to inflict yourself way out of a debt burden, yes, absolutely, then the school of thinking in the investment community and the economics community that says that's probably the only way they're going to get out of that debt burden. If you look go back to the years after World War Two, you can see that some mild version of this was one of the reasons that the US and UK was able to exit from their massive debt burdens after World

War Two. The danger though, is that if you do have inflation starting to come back as a significant threat and a perception, but the FED is not willing to act, you may then also see overseas investors start to become more nervous about holding US treasuries. And the problem with America is that at the end of the day, it is dependent on the kindness of strangers or the willingness of foreign investors to keep funding this exploding debt burden

that the incoming administration is going to face. That was Wall Street Week contributor Jillian Tet of The Financial Times coming up the role of social media in the attack on the Capitol and what could be done about it from former head of Homeland Security j Johnson. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. The Capital may have been the target of the mob's attack last week,

but Silicon Valley suffered its own collateral damage. Attention quickly focused on the role of social media in foemening and even helping organize the insurrection, leading Facebook and Instagram to suspend President Trump's account at least until Inauguration day. YouTube suspended his channel for at least one week. But the most severe action came from President Trump's platform of choice Twitter. It permanently suspended his account, severing an instant line of

communication to his eighty nine million followers. The events raised pressure to regulate content on tech platforms and adds to the debate over shielding social media companies from liability. Senator Lindsey Graham said in a tweet, I'm more determined than ever to strip section to thirty protections from big tech Twitter that let them be immune from lawsuits. The issue of false and even incendiary social media posts poses serious

issues for our politics and for our security. According to j Johnson, He's former head of Homeland Security, I don't want to take any particular company to task UM, but social media. The ability to UM to publish, push out fake news, extremist views is frankly a large reason for why we are where we are today in our politics, in our domestic security situation. Something like se of Republicans, according to polls, believed that the election was stolen and

that there was fraud in the election. I'm waiting to see the poll that a certain percentage of Americans believe that last week's attack on the Capitol was the fault of Antifa, and there is absolutely no evidence of that. And so, you know, when you and I grew up, there were conventional news sources from which we got all the same set effects out of which we form our own opinions about the Vietnam War and the civil rights

movement and the like. Now, because of social media, because of this, this this information highway, people can go to sources of so called news that do no more than reaffirm their own paranoias, their own biases, their own prejudices, and their own suspicions. And that has been a big driver of the divisiveness and the ugliness in our politics for the last several years. At the same time, is

there a danger of overreacting? I mean, we've seen this sometimes in crises in this country, where we react to the last problem. We overreact. Let me give you a stark example. One person's extreme expression might be another person's Arab spring. I mean, social media is very important in the Arab spring. How do we protect our own homeland from the ills that could have come from social media

without shutting down an Arab spring. Excellent question, David. Very often a crisis atmosphere is a poor atmosphere in which to make policy. I have been saying now for for several years that government agencies, national security agencies, need to resist the political push show the impulse to dive into trying to regulate social media, political debate on the on

the internet. Think about what certain people in office today would do if they could deem something fake news and therefore impose government restrictions on the ability of the Internet to repeat it. And so I've got to be careful when it comes to government restrictions on political debate political speech, which is why the action on President Trump's accounts was extraordinary but probably overdue. Frankly, At the same time, I wonder if there's actually a positive good for law enforcement

national security authorities of having an open web. That is to say, if really we do drive these people off of Twitter and Facebook and maybe even parlor, they may go to the dark web and it might be harder for our national security forces to really monitor what they're up to. There is that offsetting concern. Very definitely, um the ability to monitor extremist views, communications, plotting terrorists. Plotting is a valuable, valuable law enforcement tool and and you're correct.

Very often when you prohibit something, you make it more difficult. You just drive it to another corner, and law enforcement struggles to keep up going beyond social media. We have an inauguration coming up next week. Now, how do we make sure we don't have some sort of problem the way we did last week? I mean, what went wrong and what steps should be taken to really make sure

we're secure on the capitol, David. When I was Secretary of Homeland Security, I had the responsibility for the inauguration four years ago. For the security of the inauguration four years ago. UH. In my time as secretary, I also had the responsibility for the security of three State of the Union addresses in the US capital to presidential political conventions UH, three U N General Assembly sessions, one paper visit. UH. It can be done. There is something called an n

s S E National Special security event. UH. The inauguration is an n s S. Political conventions are n s s S. And when you declare something an n s S UH, there's a certain level of security preparation that kicks in, and there's literally a checklist of things you go through to prevent any sort of penetration of the event from land, sea, air, and cyberspace. That failed to happen last week for reasons that we will learn at

some point. Uh, those responsible for the security of last week's event in the Congress did not anticipate the security challenges that they ended up facing. This could have been prohibited. We know how to protect the perimeter of the U. S. Capital. Not to be flip about this at all, Mr Secretary, but do we know how to protect the security of the country from the President of States himself? And there's a raging debate right now, as you know, in Washington

about whether this man should remain in office. How concerned are you about that possibility. I am very concerned. Our domestic security situation right now is very tense. It should be on high alert, David. The the very very sad fact is that there exists in this country a strand of racism, intolerance, bigotry, anti semitism that has for years

existed under a rock. Uh. Frankly, our our political leaders, President Trump has enabled that group, has emboldened that group by saying your special people, you're good people, uh, and basically allowed them to come out from under their rock. One of the things that I think is important now and I'm glad to have this opportunity to talk to the business community, David, is that there are others involved

in this who frankly aided and embedded this. There are people now who believe that by pandering to Trump's base, got pandering to this aspect of his base, it works to their own political benefit. And I think the rest of us in this country need to push back on that and say no, you don't, don't try that. In the business community in particular, I believe has a large voice in that. That was j Johnson of Paul Weiss coming up whether or not markets cared about the effisiment.

A lot of big corporations did, distancing themselves from the Trump brand and reigning in their political contributions as fast as they could, something David Rubinstein and the Carloge Group says, maybe here to stay. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David weston Trump Bloomberg Radio. The Trump brand was at the heart of the president's business empire, long before he turned to politics, and that brand is in crisis after the

riot at the US Capital. He is being shunned by political donors, by tech companies, banks handling his finances, and even by Shopify, the company behind his online stores. Deutsche Bank reportedly decided not to conduct more business with President Trump or his family company, and Signature Bank announced its closing two personal Trump accounts holding about five million dollars.

Even the game of Golf so dear to President Trump, has turned its back on him, with the p g A canceling plans to have its championship at his Bedminster club and two, something Mr Trump had long coveted. The follow up goes beyond President Trump and his company. Other companies like Amazon, American Express, Disney, and Walmart are withholding political contributions to lawmakers who voted last week to oppose

the electoral College results. In a recent Yale survey of forty c e ost of them said businesses should halt all political donations, and several corporations have said they'll suspend all political contributions at least for the time being. David Rubinstein has worked at the highest levels of corporate America for years now. As co founder and now co executive chairman of the Carlisle Group. He explains what motivates corporations

when it comes to politics and why things might change. Well, business leaders by and large want to run their companies. They're not looking for controversy, so they don't don't tend to be profiles and courage and I would include myself in that category. We generally are not trying to make waves when we're running companies. That's for political people to

do and not for business leaders. But I think the business community has been um scared a bit about where the country is going, and I think they're now trying to say, well, we want to be on the side of what's right of the country and we want to honor the Constitution and so forth. Whether that's going to make a big difference or not in terms of whether

the country comes together or not, I'm not sure. But there's no doubt that people are running away from President Trump, who were people who work pretty close to them up until just recently. But interesting, is it running away from President Trump the person, which of course I'm sure is going on, or might there be a fund and more fundamental reform saying we need to think closely before we

really get too close to any administration. Clearly they're running away from what President Trump UH did in the last week or two or three or so in a post election. But I do think that they're all weren't worried now that getting too close to politicians is a problem, And I think many of them are gonna re look at their political donations and they want to avoid being criticized

for things that they can't control. They can't control what politicians do, so UH people make political contributions for various reasons. I think businesses are going to be more careful about what they do in the future, and they don't really want controversy. One of the things that's striking to me, maybe not to you, is the extent to which the markets that any much attention to any of this, At least far as I can tell, I can't discern it.

We have a really history being made, first time in history of president will be impeached for the second time. What do you make of that as a practical letter? Is that right? Is that healthy? Is the way it should be? Well? Businesses like to see predictability, and markets want predictability, and I think the markets are pretty quick

to figure out what's going to happen. They know that President Trump is gonna be leaving office, uh, they know that the companies are gonna do their business, and ultimately the key thing to the economy is getting COVID under control. And I think from the Business Committee's point of view, not having too many disruptive policies from the new administration.

And I don't think they feel there's gonna be many disruptive economic policies, so the administration um it comes in is not gonna be one that's gonna be as favorable

to business as the previous one. I think the business community recognizing the markets recognized that there's not gonna be a lot of disruptive changes as we saw through COVID and as we're seeing right now, the markets operate on their own, uh kind of wavelength, and they're not They didn't weren't as affected by by the by COVID as I thought they would have been, and then not gonna be as affected by what's going on today in Washington.

I think they just shrug it off and look at what the your earnings for share is going to be. A Various companies that care about You're a veteran of Washington. You've been around Washington for quite a while, as if I, for that matter, give us your perspective overall on what you're seeing happen right now. Unimprecedented is an overused term,

certainly applies here. What do you make of it? The country's greatest stress ever was the Civil War, and I think the Great Depression was the second greatest stress we've ever had. I think we have two great stresses going on right now, not quite the Civil War, not quite the Depression. One is the COVID situation, which now seems to be getting worse rather than better, even though we

have vaccines that are available. And second, the impeachment process now going on, and that things related to January six, that's gonna scar our democracy for quite some time. The country has been through a real stress test the last few weeks, and I think we'll survive, for sure, but there's no doubt that the political repercussions are gonna be great. I think the Democrats and Republicans are to be further

divided than they've ever been. And whether President Trump is impeached or whether he's convicted, you're gonna have big divisions between Democrats Republicans for quite some time, so it's it's gonna take a while for President elect Biden to really be able to bring this both sides together in my view. That was David Rubinstein, Co executive chairman of the Carlisle Group and host of Peer to Peer on Bloomberg. Coming up, we wrap up the week with our special contributor Larry

Summers of Harvard. That's next on Wall Street Week on Bloomberg. This is Bloomberg Wall Street Week with David Weston from Bloomberg Radio. To conclude the week, as we always do, with our special contributor to Larry Summers of Harvard. So, Larry, I guess the really big issue this week for the economy was this one point nine trillion dollars students package that was announced by President Like Biden. You've been the

Secretary of Treasure. You've been there when there was a huge package that you had to get out of Capitol Hill. Let me start with the most obvious question, perhaps where's the most bang for the buck? What is really going to make the most difference in the economy. This is probably the boldest economic proposal since the Great Society, and perhaps the boldest economic proposal since UH the New Deal.

One way to look at it is UH this In two thousand and nine, the incoming Obama administration proposed a fiscal plan that represented filled perhaps of the output gap. This plan would be perhaps three times as large as the output gap, So relative to the size of the economic problem, we're talking about something more than five times as large. And that reflects a conviction that's surely right that too little was done in two thousand and eight, but two thousand nine, But five times is a lot.

It also reflects a interesting and I think important desire to combine the macro economic element with the structural fairness element, and so these would be historic reductions in child poverty if achieved through the child care credit. UM. I think that the most important pieces of this package are the reinforcements of the vaccination effort and the support for state and local governments. I think the question about this package is going to be how the macro economics add up.

And here I think it's important to understand that this was probably as much an attempt to frame a debate that's going to come as it was a proposal to be implemented to in its literal form, and so I don't think the right question is whether this package would overheat the economy. I think if it were past as written, it would overheat the economy. But will this shift the debate towards our doing more? Will this shift the debate, uh, towards doing more for those who have been left behind?

And I think they're uh. The answers yes, But we are going to have to watch this economy very carefully, and I do think the conventional wisdom is underestimating the risks of hitting capacity. And if we do anything approaching this, we are going to be managing the economy with the accelerator more on the floor than at any time in peacetime history. So where are you say it frames the debate? Do we have time for that debate? Does the economy of time for that debate? Because there's going to be

an all likely to back end forth. It doesn't look like, as you suggest, the Republicans are just gonna say yes. Some modern Democrats might, and I say yes. If this takes three months or more, could there be longer term structural damage to the the economy? Do we need some things done right now? I think the three three or four months would be a long time, But I think that's why it's so important that UH, the incoming administration worked with UH, the all the actors to get a nine

hundred billion dollar package passed just a month ago. That nine billion dollar package, in and of itself, given that it was all going to run over three to six months, is far larger than the fiscal stimulus we had in two thousand and eight, and so I think this does give us a little bit of time to work this out. The other concern I have is that I think the

Vice president was right. Vice President President elect was right in his campaign to put so much emphasis on build back better, and I'm worried that all the emphasis that's gonna flow to this is gonna take energy, both political and economic and fiscal space away from the fundamental investments in UH infrastructure, in the caring economy that we're gonna need to really produce a durable solution UH to UH

the problems. So this is a bet that people are going to roll their own stimulus over multiple years by say being a significant part of the money that are going to be given, and then being in a stronger economic position that drives demand for years to come and it may be a bet that works out, it may

be a bet that we only partially take. But I think what anyone has to recognize is the breath taking macro economic ambition UM that goes frankly beyond anything that's been contemplated since the Second World War in terms of uh degree of fiscal stimulus. Larry, you mentioned the money you're going to be given to people. Part of this package is dollars more to individuals. That takes up that two thousand dollar magic number. We have talked about that before.

You've expressed some skepticism whether it makes sense. We have various anecdotes. But some people do need that money. Some people frankly don't. They've kept their jobs, They've kept their employment. Uh. Do you believe that this may be a risk to this package, ironically, one that may be more politically palatl, including to some Republicans. Look, by my lights, dollars that would go to my children, Um is not an attractive use of public money. On the other hand, it's universality

serves to make it more attractive. And the authors of this package have put in a variety of other things that are tilted very much towards support the refundable child tax credit, for example. But I think we're saying the same thing, David, which is the risks here are on the side of we're just doing so much on such a scale to give money to people in a way that isn't completely targeted, that that may use up space that could have been used for much more fundamental and

import into investments. Larry, we'll be talking about this for some time to come, and no doubt about it. Let's move on to another subject very much in the news this week, which is social media. A lot of strutinities to social media, particularly light of that that attack, the insurrection really on Capitol Hill. What do you make of the various calls on social media to regulate itself and to exclude some of the entities that actually we're communicating

leading up to that attack. We're gonna have to work this through as a society, just as they had to work it through when the printing press was invented, just as at the eve of television there were a whole set of fairness UH, doctrines UH and the like. My sense is that the standards of what can be communicated is not a question that can be left only to corporate leaders, and that corporate leaders are going to have to implement policies, but there's gonna need to be a

much clearer framework uh provided in law. And from my perspective, the more important questions are these questions and the questions about privacy relative to the anti trust and anti monopoly questions that have gotten so much attention. And indeed, I'd worry that if you multiply the number of networks, and you multiply the number of social media outlets, it might even make it harder to interfere with the organization of insurrections.

So I think that issue is right there and focus, and it's an issue more for constitutional scholars than it is for economists, that law of unintended concise gudtions. Let's conclude this week with a quick round of Summer says three quick questions. Number one, we have an increasingly divided Republican party. Is a divided Republican party ultimately good or bad for the economy? Probably bad. I think that in general, when parties are able to cohere better, deals can be

struck better and we can address problems more effectively. We also have an impeached president now that first time in history one president has been impeached a second time. The question is what happened in the Senate. Is a conviction of Donald J. Trump in the Senate even after his left office. Is that good or bad for the economy? I think it's probably good. It's probably good for the country because it will accelerate his uh leaving our national

life as a highly visible figure. But whether it's good enough to be worth the various costs of the process is something I'll leave to politicians to judge. And finally, Bitcoin very much in the news now back up pushing against Is it a bubble or not. I'm not going to predict its uh fluctuations over the next six months, but I think some institution like it is here to stay. I don't think that the whole thing is going to

UH collapse. I think that having run up and then run way down and then moved moved back, it looks much more resilient, and therefore I think people are gonna move towards it. And as people move towards it, given the finiteness of its supply, that's going to be a factor working to raise prices. Okay, Larry, thank you so very much. That's special Wall Street Creek contributor Larry Summer's former treasure secretary, and of course of Harbor. That does

it for this episode of Wall Street Week. I'm David Weston. This is Bloomberg. See you next week.