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Watch Ryan: Reasonable Chance of a Debt Crisis - Bloomberg

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00:00We have the election coming up, presidential election, other election, the entire Congress. What is the biggest economic issue at stake? What can make a difference the most in the economy? Number one would be tax policy. What's the tax code going to look like? What's tax policy looking like in the future? Number two, I'd say tariffs. So number three, I think it's reasonable to assume the next president is is quite possibly going to face a debt crisis. You don't know when that is or exactly what form that takes place. But a lot of fiscal policies, online tax policy, trade policy, debt policy, therefore interest rates. So let's take those in order. Taxes. How much of that depends on what happens in the House and the Senate in addition to what happens in president? I think it's reasonable. It's not going to have divided government. I feel so good as a Republican that we're going to take the Senate just because the map is so good for us. The House, I mean, it's basically a tied house right now. So that's kind of a coin toss with depends on who's going to win the presidency. But but my guess is it's most reasonable to see divided government. I mean, Biden or Trump won't run the table. And when the 25th, the law that I worked on quite, quite a bit, the Tax Cuts and Jobs Act, that a lot of that stuff, it expires in 2025. Not the corporate side, not the corporate rate, not the territorial system, then individual side. If Republicans are in more control, that means we extend tax cuts and jobs Act and Democrats are more control willing to do everything they can to let most of it expire. I'm the problem if Biden gets what he's saying he wants. And look, I'm not a Trump supporter, but I'm also not a Biden support. I'm one of those in-between people. He's basically saying, get rid of Section 99. That means all those small businesses, those pass through have a big tax increase. You know, I'm talking about losses in Subchapter S companies. Expensing is already gone away. That needs to be put back together. That could happen. Well, the top rates in maybe all the income tax rates could go up. At the very least, you'll probably see a fiscal cliff kind of a deal like like was done with Obama, where the top rate probably goes back up to 39.6 for 37. I could see a bargain like that between divided government, but I have a hard time believing even a Biden administration is going to let all the income tax rates go up if they get their way and if they have all of Congress, They're proposing that he's actually proposing about a 44.6% capital gains tax. You had stayed on top that you're at 50%. That's economic news. So what Biden's running on and what he could actually do in office are two different things. I hope what if he does get a suite? Then it's going to be awful. But if it's divided government like I think it's going to be probably going to be a split. The difference, maybe the top rate goes up, individual rates stay the same, hopefully get a little expensing back in place and that Section 1 to 9, which was really important for those medium and small sized businesses. Hopefully that gets extended. As you say, you worked hard on the Tax Cuts Jobs Act. Before that, you were a student of the economy and the relation to government. What is the Delta economic growth depending on whether those tax cuts get extended or not? Well, I'm not sure there's some good analysis, but I'd say here we are with your you can hear. I have a point to a point. But more importantly, it's the future is productivity. It's wage increases. When we did the Tax Cuts and Jobs Act, we had great growth in wage increases, real wage growth ahead of inflation, clearly, especially for the bottom two quintiles. So, you know, we're living on borrowed time where we're not increasing productivity. And a lot of those tax cuts are productive. Tax cuts, meaning they help productivity when investments that gives you higher living standards, that gives you faster wage growth, and you'll start draining that if you don't extend those things. So over the long term, the effects on growth are going to be much larger over the short term. But over the long term, they're going to have tremendous impact. And don't forget, we're in a global economy. If we're sending our most of our businesses a pass through, which most people don't know, they're not C corporations. And if we're going to tell these passes, you're your tax rate is going to be up around 40%. If you're competing in this global economy. That's really ugly economics, that's anti-competitive. That's what they'll do if they let Section 199 go away. So the second thing you mentioned was tariffs. Are at stake in this election. I was surprised that that because actually President Biden hasn't really dialed back, for example, very much. I don't know who's going to be the president, but Trump's promising a 10% tariff across the board, which is a giant tax increase on the American consumers. Everybody's going to fight China. A Biden presidency is going to fight China, a Trump presidency either by China. The question is, what about the other countries? The frustration for me is neither of these two presidents want to do trade agreements. We should have done TPP. In my opinion, it's a very good China policy. But neither Trump or Biden are proposing any trade agreements. Trump's proposing across the board tariffs. Biden's not proposing that, but he's not also proposing to get new agreements, to get new markets for our for our products or our goods and services. And if you're standing still on trade, you're following the. Because all the other countries are going around the world getting their own preferential multilateral bilateral trade agreements, leaving us on the outside looking in. So you can't just standstill on trade. Unfortunately, that's what we're doing and that's what, frankly, both these guys post. Third thing you mentioned was debt crisis. So debt crisis for the next president, whoever the next president is. Take us through that. We've all been talking about the debt and the deficit, how much it's growing. He says It's a problem. Nobody does anything about it. It hasn't really come home to roost yet. It doesn't seem it hasn't come home to roost. What again, I'm not a fan of neither of these guys running for president because both of them are demagoguing the issue in their primaries. Here they campaign against people solutions. They're demagoguing entitlements. They're basically saying they're not going to do anything and doing nothing. By the way, just so you know, makes Medicare go insolvent, make Social Security go insolvent. First, today's current seniors fixing this problem shores up the finances for these programs so that current seniors can get the promises that are due them and then solve it for the next generation so we don't have a debt crisis. What's the debt crisis look like on auction failure? I mean, it's not inconceivable that once the Fed's done cutting rates and people aren't buying bonds readily and you've got us and all these other industrialized countries with the same problems, aging baby boomers, entitlement programs, unfunded tapering, this, you know, floating all this paper in the world markets, you could have an oversupply of bonds. And it's not inconceivable in my mind in a handful of years X presidency, an auction or to fail. And then the Fed steps in and buys our paper and then they're really monetizing debt. It's bad for the dollar. That's bad for dollar dominance. That's an interest rate problem. We're all we're on track to spend more on interest payments than we are for national defense. And regrettably, none of these guys owes you anything about it. You are running for president. There are good people in Congress that are proposing solutions. There's bipartisan support for a fiscal commission. But you have neither Trump or Biden saying they're going to do anything about it. So I think the next president has a reasonable chance of having a debt crisis on their watch. We hear from time to time about the bond vigilantes coming back. I haven't seen them yet when you have and said, oh, but that doesn't mean they don't exist. But how much of that is because actually some of the geopolitical conflict around the world actually drives us back to the U.S. dollar. It makes us the safe haven. Yeah, like right now we're right. We're seeing some strong dollar policy because of the world. I think that's I think that's obviously the base case. But it isn't. So It isn't. And if we're pushing so much paper, we have so much bonds we have to float to finance our deficit, our interest payments, and all the other first world countries are doing the same. Therein lies the problem. If the world concludes that America is not going to get its fiscal house in order, that it going to get these entitlements under control, then they're going to conclude we're going to monetize our debt and there goes dollar dominance. That's an exorbitant privilege that benefits us greatly. We're not acting like a world reserve currency. We should. And this, to me, is the biggest fiscal challenge the next president is going to have to confront. And I wish I could say somebody has got a plan for this. Neither of them do. That's what's so frustrating. You know this terribly well. Can we get our fiscal house in order without increasing taxes? I'm not saying we shouldn't. Cuts in spending do, but can you do just one and not the other? Yes, you can for sure. I can show you how to do it. I passed four budgets in Congress that did it. What in politics is That's a political question. My guess is if you have divided government, there's going to be a mixture of both. I believe you can have a better, faster growing tax code that still gets you higher revenue lines than what we have today without doing damage to economic growth. Now, the way I would do would be a cash flow tax and tax reform, and that's not the way Joe Biden would do it. The question is, can you get more revenue for the federal government to get our debt under control coupled with entitlement reforms and do it in a way that doesn't sacrifice economic growth? I think the answer is yes to that. But nobody's talking like that these days. I guess the question is, what could you do now knowing we have debt problems in the future? I think there's a couple of things Congress could do. They're not, but maybe they'll get something done. I think Stablecoin legislation would be a good step in the right direction on that. Could be helpful. That could be done this year. But I don't see anything other than that on the horizon. Let's talk about Stablecoins, because I've heard you say that actually getting legislation on that could help Treasury auctions. And when you said it, I said, what's the connection there? Take us through take our audience through that connection. Yeah. So Stablecoins, which are digital, digital and private sector dollar backed currencies, it's not crypto because it's tethered to the U.S. dollar. They have to have our backed assets, they have to have treasuries or cash to back them. Stablecoins There's not a law that governs these right now, so there aren't really deployed. But if you actually have a law which actually we can read in in sure. What waters MAXINE Waters card, we are putting a deal together. Schumer is in talks with them. I think there's a there's a reasonable chance they could get a deal on stablecoin legislation. I mean, you have a legal framework in which you have stablecoins deployed. You go from a couple of hundred billion dollars of stablecoins to, you know, maybe trillions. Right now, Stablecoins are like the 16th largest buyer of bonds, bills and notes among all sovereigns. If you actually regulate stablecoins having deployed, that does two things. That gets the U.S. dollar more deeply ingrained in the oncoming digitization of currencies. That's a good thing. And you create new consumers demand for bonds because they have to have those to back up the stablecoin. So more demand for treasuries, more use of a digital dollar throughout the system to help better entrenched the dollar. It's a win win situation for America. I think it's a no brainer. I'm hopeful, cautiously optimistic Congress might do that this year. Still, there are good talks happening, and that's one thing you could do on the margins, try and, you know, improve demand for our bonds and improve dollar. So you said potentially trillions. Is that a jet get out of jail free card? The debt crisis that's actually that big. But but look, sovereigns are not buying our bonds like they used to. And we need more demand for our bonds so we can have very attractive interest rates. This is one thing, one off the shelf idea you could put in place to make a difference on the market. Nothing is going to change the fact that Medicare is driving us into a debt crisis. Medicaid, Social Security is going insolvent. You know the social contract that we all agree on, Republicans, Democrats agree. We like the social contract, health and retirement security, safety net for the poor. We want it. But it was written in the 20th century in a way that's proving unsustainable in the 21st century. We've learned a lot since we started these programs in the thirties, in the sixties, in the 20th century. Let's apply those lessons. These programs guarantee career benefits. Return seniors. Change them on a go forward basis so that they can cash flow and dodge a debt crisis. We can bond finance the boomers. If we know we put reforms in place to get our debt under control over the long term, I think the bond markets would reward it for doing that on an accrual basis. You put forward trillions in debt reduction. But nobody's doing this. Nobody's running for president on this. Everybody thinks the third rail politically, I don't buy that. And that, unfortunately, is the mess that's going to be on the on the plate probably of the next president. When people talk about this up on Capitol Hill, they had to say, let's talk about discretionary spending. Let's let's turn. Is there any path to fiscal house in order, your phrase, without going through entitlement reform to not do it? You cannot tax your way out of this. You cannot cut defense and especially spending on the way it's entitlements. And frankly, it's really the health care entitlements alone, the biggest drivers of our debt. We learn a lot more about how to better manage these programs. We need to apply those lessons to these reforms on a prospective basis. Dodge the debt crisis. That's the good thing about America. It's all within our control. We can solve these problems if we have serious politics. We don't have serious politics right now.

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Ryan: Reasonable Chance of a Debt Crisis

Paul Ryan, Former Speaker of the House and Teneo Vice Chairman takes us through some of the economic issues that the next president might face, including a debt crisis. He speaks to David Westin at the Milken Global Institute Conference in Beverly Hills. (Source: Bloomberg)

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