Jay Powell’s Tough Call
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Hello! Welcome to Slate Money, your guide to the business and finance news of the week. I'm Felix Salmon of Axios with Elizabeth Spires of New York Times. And I am joined here in the studio not by Emily Peck but rather by Cardiff Garcia. Hello! Cardiff, welcome back. It's been a minute. I know it has been and I can't wait to get into it.

For the four Slate Money listeners who don't remember you or haven't been keeping up with your illustrious career, where do you work and what is your podcast?

So I am the editorial director of the Economic Innovation Group. My podcast is called The New Bazaar. And as always, I have to specify that's spelled B-A-Z-A-A-R, like a marketplace. Whose idea was that, Cardiff? It's all right up here. Right up here. You're looking at him. Cardiff is, of course, one of the smartest economics podcasters on planet Earth. So it's great to have him on the show. We are going to talk about Fed independence.

monetary policy. We are going to talk about the IRS and what's going on there. I believe the word shitshow works. We are going to talk about China and with the whole relationship between the US and China. We have a Slate Plus segment on Elon Musk's babies where you get to find out

where Elizabeth Spires would set the overrun on how many babies he has. Spoiler alert, it's lower than I would. But it's all coming up on Slate Money.

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subject to credit approval. Variable APRs for Apple Card range from 18.24% to 28.49% based on credit worthiness. Rates as of January 1st, 2025. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. All right, so Cardiff, we have to start with Jay Powell, chair of the Fed,

Trump has often talked about firing him. Trump is talking about firing him again. Trump has managed to fire a bunch of people who he shouldn't really be able to fire, including a couple of commissioners of the NCUA, one of whom he appointed. So he is on something of a firing spree. Yes. And...

I really don't want to get into Humphrey's executor and the legalities of all this. The legal side of it, sure. But I do want to ask you about the general conventional wisdom in the markets that were he to fire Powell, then all hell would break loose and the markets would shit the bed. I think there's something to that.

And here's why. If Trump ends up successfully legally being able to fire Jay Powell, then anybody that he then subsequently appoints, that person's views almost stop to matter, right? Because you know that Trump can now fire you. He's done it before, which means that effectively anybody who ends up in that chair is a proxy for Trump. And what does Trump love more than anything else?

low interest rates, no matter what's going on in the economy. Okay, so the idea being that he wouldn't even really need to appoint some loyalists

He can appoint anyone. And if they don't do what he says, he can just fire them and replace them with someone else until he gets someone who does what. Yeah. Having successfully fired the first guy, right? The first guy is the important guy because after that, you're just serving at the pleasure of the president. Yeah. After that, you have no chance of essentially keeping your job if you don't do what Donald Trump wants. And so what Donald Trump wants is always going to be lower interest rates if we have, uh,

the Fed bringing down interest rates to a point at which Trump is happy, where he's never happy because he's Trump, then what happens? The economy starts running way too hard and we have runaway inflation? Yeah, I mean, the problem as of right now is that inflation is already still too high for the Fed's comfort. And on top of it, you have all these tariffs that you guys talked about so well last week that are going to add to an increase in the price level this year.

And so what you end up with is a situation where inflation isn't just a little bit above what the Fed wants. It's way above what the Fed wants at the exact same time that it looks like we might be headed into either a slowdown or maybe even a recession. The fancy economist word for that is recession.

stagflation. We haven't had a true version of that really since the 1970s. And if you have somebody who's only going to lower interest rates the way that Donald Trump wants, I think the market's going to see that. And it's going to freak out about the idea that not only is inflation going to go a lot higher than the Fed wants and then everybody likes and is comfortable with, but also it's going to exacerbate the market freak out of the last few weeks where the market has been selling

out of the U.S. dollar, out of U.S. assets generally, and not just the stock market, the treasury market and so forth. And that can lead to some big cascading effects. Do you think Trump actually understands the distinction between sovereign debt and real estate debt?

When he hammers on about 0% interest rates, he's actually talked about negative interest rates before. How much of this do we think he actually understands? I mean, I'm not sure I understand the distinction. I mean, his idea is always just like lower is better. The less interest you need to pay, whether you're a sovereign or whether you're a real estate developer, the better. And so he likes...

Lower interest rates. I think maybe he doesn't understand the concept of the yield curve, that if the Fed brings down short-term interest rates, maybe that might not bring down long-term interest rates, and it could even bring up long-term interest rates, depending on how the market reacts. But

Tell me, Elizabeth, what do you think the important distinction is here? When you're doing a real estate deal, first of all, it doesn't have the sort of collateral effects on other companies or the entire economy or the global economy. There are just considerations and variables that are so much more important than the, you know, just one-way transaction, which is what he thinks about everything. I'm still struggling a little bit here, Elizabeth. Like, I'm going to take Trump's side of this, right? Right.

which is if I could wave a magic wand...

and bring down the United States debt service costs, bring down not only short-term, but also long-term interest rates, that would be a good thing. That would bring down the borrowing costs for everyone in the economy, not just for the sovereign. And that would mean that like one of the breaks on economic activity, which is, oh my God, I need to pay back all of this money that I've borrowed has become less of a break. And so you get more growth and faster growth and like,

Like, it's all good things. So why are you saying that there's lots of, like, complexity here? Because I'm kind of not seeing the complexity. I can't imagine a scenario where a real estate deal would have the impact that...

the way the country finances debt would. Maybe I can split the difference between you two guys. I think we can say that those two things are not unrelated, right? We can clearly see that things like mortgage rates, real estate debt are tied to what's happening in treasury markets, you know? Yeah. But there are situations where, for example, the real estate industry may not be doing great even as the rest of the economy is doing okay because so many other things also feed into what happens in housing markets, you know?

Sure. I mean, you can always have sectors doing better and sectors doing worse. But let me come back to what you were saying, Cardiff, and this idea that the thing that would freak out markets is this idea that in the face of tariff-driven inflation, the last thing anyone wants would be even more inflation coming as a result of interest rate cuts. And the question I have for you is,

What is the mechanism, if we really are headed into a recession, what is the mechanism whereby interest rate cuts would cause even more inflation? I mean, the mechanism is twofold. One is the traditional mechanism of if you cut interest rates, then it's cheaper for everybody to borrow, right?

Businesses can borrow. They can use that money to invest. They use it to hire people. Consumers can borrow a little bit more cheaply. And yes, it gives a boost to real estate. That can lead to more inflation because it boosts economic growth, right? But boosting economic growth is kind of what we want, right? If we're heading into a recession. Yeah. But if you also already have too high inflation, if that growth outpaces the ability of the economy to supply the same goods to meet that demand, right? Yeah.

which is what that lower interest rate creates, right? Then you have a problem. And by the way, the ability of the economy to meet demand coming from consumers and from businesses is going to be hampered severely by the tariffs themselves, right? It's the equivalent of a kind of supply shock, right? That's one mechanism.

The second mechanism is something that Powell has spoken of himself, which is that he worries that if you have inflation expectations on the parts of businesses and consumers becoming entrenched, so if everybody expects inflation to be too high, that that can feed back into actual inflation.

The self-fulfilling prophecy kind of view. Yeah, the self-fulfilling prophecy, economists love to call it endogenous. And I want to shoot them every time they use that word, but there you go. So that's the other possible mechanism. People like to argue about the extent to which that's true. But what we do know is that as of right now, inflation expectations are through the freaking roof in response to the tariffs and all the chaos of the last couple of weeks. Now, we had a Fed governor, Waller,

come out this week and say, look, obviously the tariffs are going to make prices higher, but that's going to be like a single step change. Basically the prices will go up and then they will go up from a lower level to a higher level. And then that's it. That's not built in inflation. Like one year after they've gone up, they'll still be at the same rate and inflation will be back down at zero again. Do you buy that?

I think there's something to that. And that's what makes this all so tricky, which is there's a difference between that one time change in the price level versus something that's truly inflationary over time where inflation itself stabilizes

stays very high so that year after year, you get prices increasing at a rate that makes everybody uncomfortable and that nobody likes. And in terms of the Fed dual mandate, one of its mandates is to keep inflation low. Like, does it care about those one-off shocks or does it really just care about ongoing inflation?

You know, if you, if you look at like some monetary policy textbook or something like that, the fed is supposed to look through these kinds of shocks, you know, and, and if you look into the past at things like oil shocks, the fed usually says, listen, we are supposed to look past that and just try to see what the underlying inflation rate is. Right. And how it affects the future. What's hard about this is number one, to our point earlier,

inflation expectations themselves possibly setting in. And number two is that one time shock is going to feed into this year's inflation numbers and everybody's going to feel that, right? So the Fed itself has this very strange task where it's looking at prices going up by a lot in the near and maybe in the medium term. And by the way, the trade war could escalate again, right?

and simultaneously having to look one to two to three years into the future. There's no easy way to navigate that. And that's what makes Jerome Powell's job so hard right now. And the last thing you need when you have...

a very hard job like that is a bunch of kibitzing from the president saying like, you've got to do this, you've got to... Because in a weird way, that just makes it harder for you to cut rates. Yeah. If indeed cutting rates is what you should do. Yeah. And I would say it's even worse if you're looking at a situation where the Fed chair might end up getting fired. Because at least right now, we have a sense of what it is that the Fed tries to do, right? It has the dual mandate. They speak a lot to the public. If now...

monetary policy becomes sort of de facto whatever's in Donald Trump's brain. All that predictability, all that, you know, certainty is gone, right? Okay, so let me chart the middle course here, which is that Trump doesn't fire Powell, that either the Supreme Court upholds Humphrey as executor or else they come up with a carve out for the Fed like Sam Alito seems to want to do.

But Powell's term is up in 13 months. So Trump is the president and he gets to nominate anyone he wants to replace Powell. So let's assume that we have orthodox monetary policy for the next 13 months. What's the prognosis thereafter? Oh, then it gets confusing, right? And I'll add even one more point of confusion, which is that Scott Besson himself, right,

that he thought it would be a good idea before a Fed chair's term expires to essentially signal to everybody who the next Fed chair is going to be in advance. And so you end up with a situation where the market is being guided by expectations of what that sort of Fed chair in waiting thinks, which ends up sort of

confusing everybody about what's coming. And they've already said that they're going to start looking into it as soon as this fall, which is way in advance of Powell's term ending early next year. So it's going to be interesting to see exactly how they play out. But that is my base case scenario, which is that Powell doesn't get fired. It's my guess. And instead, the president, Scott Besson, you know, other members of the administration start to signal who else it might be a lot sooner than is customary. Do we think it might be Scott Besson?

I don't know. That's a good question. They've floated Kevin Warsh in the past. At least that's a name that's been floated. Kevin Warsh would not be the end of the world, right? I don't know. I don't think so, but I don't know. Okay, so Elizabeth, let me ask you about the sort of dynamics here. Powell's predecessors were...

Ben Bernanke and Janet Yellen, both of whom were academics, they came out of like economic departments at universities and were by their nature, extremely collegial types who really wanted to persuade the board of governors and the people who are voting on the open market committee to, to find a consensus.

Before then, we had Alan Greenspan, who was a little bit more of a kind of, you know, I am Alan Greenspan. I am the maestro. You are all going to do what I say. And everyone's like, oh, wow, you're Alan Greenspan. You are the maestro. We're all going to do what you say. But in any case, we have had this long history of Fed shares.

who have been able, one way or another, to build consensus on the FOMC, which determines the committee that determines interest rates. If Trump winds up appointing someone who's just like, we should be cutting rates, and the rest of the FOMC isn't convinced...

What do you think happens? I mean, I think the biggest consequences of that happens is that we get somebody who on Trump's range of appointees, they can either, they range from like meh to deranged.

And I am oddly optimistic that in this case, he would probably appoint someone who is closer to me than deranged. Right, because the deranged person couldn't bring the committee along with them, right? That's the idea. No, they couldn't. But I'm thinking more about the fact that, you know, a key part of the Fed's job is to really just communicate certainty. And Powell has been a great communicator.

So that's another factor is whoever comes behind him going to be able to do that. Okay, so Cardiff, let me ask you about this as a student of monetary policy. This is a modern thing. Back in the days of Alan Greenspan,

He would have pushed back greatly on this idea that his job was to communicate certainty. He once famously went in front of Congress and said, if you think you understood what I just said, you probably didn't. And I believe back in his day,

the Fed didn't even say what the interest rate was. They would say interest rates, and then you'd have to kind of guess by squinting and looking at the market. Yeah, you'd have to figure it out. Whether they had done anything at the Open Market Committee or not, and if so, what? And then slowly over time, what Elizabeth is talking about has happened, which is that the Fed has done a lot more of what the cynics call open mouth operations. And they just kind of

say a lot about what they want to do and they set a lot of expectations and they try and be as predictable as possible. Is that a good thing? And is there actually a case to be made for them? And I know that Powell is a little bit frustrated at this and he's like, look, we are in a fucking crazy world. Of course, we're not predictable because we don't know what's going to happen. Would it not actually be a good thing?

for the next Fed chair to go a little bit further in that sort of powerless direction and say, no, I'm not going to give you any predictability because I have no idea what world I'm in. Yeah, this is a great question. You know, in the olden days of the, you know, Greenspan obscurantist language where nobody could tell what was going on, the perception back then was that if the Fed gave too much guidance, too much certainty, that it would be sort of

seen as almost tinkering in the markets too much. Greenspan famously was like a hyper-Anne Randian libertarian type, you know? And over time, there came to be a little bit more of a demand, I think, from the markets themselves to say, hey, like, can you just give us some sense of what's happening? It makes it easier for us to like plan. It also gives us a little bit more

confidence that if there is a big downturn, that we know you're going to respond appropriately. And especially in the aftermath of the great financial crisis of 2008 and 2009, there was a push to provide a little bit more guidance. And now, for example, we have that 2% actual inflation target. We know what the target actually is.

Powell has said essentially that that went too far, not the inflation targeting part, but the idea that there should be some mechanical, if this in the economy, then the Fed will do that. That actually you can't hit those targets with the kind of precision that the Fed had sort of set out as its objective, that there has to be some scope for a little bit more maneuverability. And so there is still a lot more guidance than in the

past, but I think what Powell is trying to do is to make it a little more realistic. If inflation doesn't hit exactly 2%, but it's pretty close, there's some statistical errors around that number anyways. So the Fed has to give enough guidance that the market's confident it's going to do its job on inflation and unemployment, but not so much that people end up with a sort of false understanding of just how precision targeted it can really be.

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This was the week that included the fateful day of April 15th, the day that everyone has to finalize whether they owe taxes, whether they are getting a refund, all of this kind of stuff. And the day where the Trump administration was like, okay, IRS people, you've all been very busy up until April 15th, but now you've got nothing to do. So we're just going to fire you. And there's been reports of like thousands and thousands of

IRS agents taking voluntary retirement and a bunch of involuntary firings and reportedly going to cut the direct file operation, which allows people to file their taxes for free online, which seems like a good idea to me.

And of course, there is a lot of talk about how if the IRS has been gutted, then the ability of the IRS to enforce the tax laws and to make sure that if someone has underpaid their taxes, that they will, you know, be forced to pay up and pay everything they owe has been also severely weakened. So, Cardiff, what's your like big picture theory of the case here?

So it depends on which of those topics you want to start on. I think it's a real shame that direct file is under threat and it might be canceled. That seemed like a good idea to me. The idea that we're going to simplify filing taxes for people online so that they don't have to pay a lot of money to these other online services like TurboTax or H&R Block. I think that seemed good. It was just a pilot program. I think it was just starting out. I

I think it's a shame that that's been ended, right? People who used it really liked it. Yeah. And of course, Intuit, which owns TurboTax, lobbied strongly against it. And they said, well, we have a free version. The only problem is there are so many dark patterns in their free version that almost everyone winds up paying money if they try and use the free version. So yeah, there is, I think, a really big philosophical tension within the Republican Party, actually, between...

Taxes should be easy and taxes should be difficult.

There is a sort of Grover Norquist arm of the Republican Party that says that if taxes are invisible and no one really realizes that they're paying them and they just get automatically taken out of your paycheck and then, you know, your tax return is fits on the back of a postcard, which is, by the way, something that many Republicans say that they want, then the taxes will be less salient and people will be less upset about paying taxes and they will agitate less for tax cuts.

Yeah, that philosophy has, I think, something to be... I think it leaves something to be desired, namely evidence to support it. I think the reason it's a little bit problematic is just that

You know, those other companies effectively have a stronghold on this service, right? And as you said, it's not just that they end up trying to upsell you. It's that they make it really hard not to be upsold. You know, they even, I think, were reprimanded last year by the FTC. And they said, stop acting as if you're offering a free service here. You're not. You know, in terms of the IRS, there's so much activity happening there where it seems to be politicized increasingly. And on the point of people being fired...

I don't have any visibility into the extent to which the IRS could be run more efficiently, say. What I can say is that the approach taken by Doge and the administration generally towards a lot of these federal agencies has not been, how do we make it more efficient? It's how do we cut as much and as quickly as possible, including getting rid of things that might've been working quite well. And so an approach that tries to streamline or modernize, upgrade the systems, like that could be great.

But I don't think that's really what's happening here. And in fact, we know it's not because a lot of the people are taking voluntary buyouts. And that might include a lot of people who are really good at their jobs. So that is something that I worry about. And what ends up happening then is you have to worry about, are they going to be able to collect taxes from everyone in the way they should? And who's going to benefit from that? We are bad at finding government data these days. The government is releasing less data than it used to. But the Treasury still does release...

tax collections on a weekly basis. And we can see where tax collections are running compared to last year. And they are consistently running lower. So, you know, on some level, the IRS is doing a worse job of collecting taxes, which is its main job.

I think part of the strategy behind this is far simpler than the stuff we're talking about. I think Trump has always had the idea that most of America hates paying taxes as much as he does. And that really doesn't hold up in public opinion polling. There are aspects of our taxation system they don't like.

But I think it'll be interesting to see what happens with, you know, cutting 25% of the workforce when people start having their refunds delayed, or it's very difficult for them to get a hold of anybody at the IRS. I think Trump just assumes that everybody universally hates the agency.

hates taxes generally. And, you know, maybe a lot of people do, but they don't hate the services that they pay for. Another thing is that he has a habit of knee-jerk rolling back anything that Biden did that was actually popular just as a kind of

you know, rejection of any wins that Biden had. And I think that was the primary motivation behind killing IRS direct file because there's no evidence that it was creating, you know, more inefficiency. If anything, it was probably streamlining a lot of the process. The other thing, of course, that Trump has done

is tried to get and i think successfully according to reporting it's very difficult to get like solid facts on this but there is definitely reporting suggesting that he has successfully managed to get the irs to share confidential information with ice and with the immigration authorities for the purposes of deporting people who may not be in the country legally which is

Is illegal, actually, like that, that is a violation of actual law saying like, no, the IRS is not allowed to do that. That's obviously not stopping him. But again, is obviously going to act as force. You know, it's a chilling effect on people voluntarily paying taxes.

And, you know, I think the point about compelling the IRS to re-examine Harvard's tax exempt status, you're just seeing a lot of politicization of an agency that is supposed to truly be outside the political realm. This really is just supposed to be a kind of workmanlike thing that like, hey, listen, we collect your taxes. OK, we send you your tax refund on time. We're just trying to do our thing. Doesn't matter. Republican, Democrat, Republican.

We all pay taxes, okay, and we handle it for you. Politicizing it is yet another sort of instance where it looks like Trump administration is trying to use these agencies that are supposed to just do their job to serve political ends instead. And that sort of thing corrodes faith in the system itself. You know what I mean? There's actually a lot of backlash on the right to the Harvard threats because if you can remove Harvard's 501c3 status-

that would really hurt the right because you could use the same mechanism to remove 501c3 status from churches. The White House argument is that Trump has a mandate to run the government. Like when you elect the president, you're electing the head of the executive branch. And that it makes no sense for a bunch of unaccountable agencies to

to not reflect the will of the people in that way. If the people want Trump and they want Trumpism and Trumpism involves things like stripping Harvard of its charitable status or, you know, reporting people to ice or whatever it is, then, uh,

On some level, in a democracy, you have to be able to vote for that, right? Yeah, I mean, that certainly is the argument that they're making. And I'm not even, you know, this is one thing where like the system we've set up includes sort of a variety of checks and balances, right? Like we appoint Congress to do oversight of the Fed, for example, right? Not the president.

Really, even though the president can nominate people to the Fed Board of Governors and then the Senate approves them and so forth. So like there's these kind of interweaving things. So in some sense, a lot of this actually is the responsibility of Congress to figure out, to pass laws that say, hey, like this is how we're going to set up the system. We are the legislators. And then it's the role of the courts, right?

to like either, you know, to say, yeah, Congress is right. That law was not, let's say, unconstitutional. We're going to uphold it here. And then, you know, then you say to the president, sorry, you have to enforce the laws that are on the books. Right. So I, you know, the legal arguments are something that are way outside of my scope. So I don't entirely blame the executive branch for saying that, for making that argument. Right. But no, I totally agree with you. And I think it is

almost certain that if they really try and pull this stunt with Harvard, that it will get appealed to a court or series of courts and that the courts will be like, yeah, no, you know, it's going to be like birthright citizenship. Like you can try it, but good luck with that.

Yeah, that's how all this is supposed to work, by the way. You know, one of the cases in which Trump has fired or tried to fire some members of like these federal agencies, right? The argument from the president is that the laws protecting those people from being fired are themselves unconstitutional. So, you know, you take it to the courts, it goes to the Supreme Court, and then we see what happens. We're not, we're not. I'm stopping short of it.

I'm stopping short as much as I would have loved to. No, we're stopping short of that. But it is the president's right to say, hey, these laws are unconstitutional and to challenge it in the courts. And then it's up to the courts to decide. And so that is the system we've arranged. But that's separate from the question of whether or not we can criticize the executive from doing something that we see as corrosive societally, right? Politicizing the IRS. We can still say that even if the legal case is

for whether or not they have the right to do it, is still sort of outstanding and left to be decided. I think it's pretty clear that, I mean, there are incredibly strict laws about what kind of information the IRS is allowed to share, even internally. Like the director of the IRS is not allowed to see people's tax returns. And now they're sending that data, you know, Doge is exfiltrating terabytes of data and sending it to God knows where. Yeah, that does seem to be a lot of just,

not legal activity going on, which, you know, I feel like it is reasonable to worry about. That's an understatement. We have so many things to worry about. This is why I come here, okay? Because all of the topics should make us cry, but we end up laughing a little bit too. Missions to Mars, driverless cars, AI chatbots. Feels like we're already living in the future. Well, Robinhood is built for the future of trading.

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I just need to spend a minute worrying about the big thing, which is China. A billion people who collectively provide, you know, everything in Walmart. And now they can't anymore because the tariffs are making that impossible. Let me ask you about this number that Ngozi Okonjo-Wala came out with today. She is the head of the World Trade Organization.

And she was looking at the insane, I think it's an objective word, tariffs that the United States has put on Chinese exports to the United States of 145% or 154% or 8,000% or whatever they are this week. And she said, well, look, probably what that means is that trade between the US and China is going to decrease by between 80 and 90%.

Can we even operate in a world where imports from China go down by 80%? Is that even possible? What's interesting about that number is that it sounds optimistic to me, right? Like, oh, you mean 10 to 20% of trade is actually going to survive under these, this tariff arrangement? Like that's the iPhones. Yeah. Yeah. Right. You know that, well, obviously if you have exceptions to things that some of which have already been announced, like electronics, sure. You know, those things will survive. Look, the,

Tariffs as they stand right now would drive trade down to almost like minuscule amounts for the goods that are tariffed. Right. Can we operate in a world like this? Sure. Extremely expensively. Right. Right. So companies that rely on a lot of parts and machinery and things like that from China, suddenly it may not be economical for them to stay in business anymore.

A lot of companies in the U.S. make almost their entire product line in China and then import them back here to sell to consumers. They would struggle to stay in business. Consumers are going to see this like really aggressively and pretty soon. To give one simple example, you know, the vast majority of like household items that young families import to help with kids and stuff like that.

Those come from China, right? I mean, you're talking 70, 80, 90% of like toys for kids under 12 and other similar kinds of items. People are going to see this. I think roughly to a first approximation, 100% of bicycles. If you want to get a bike for your kid, that is going to be made in China. Yeah. You know, and so like you look at that and it would...

unquestionably be a big hit. We have a very large trading relationship with them. I think it's the third biggest after Canada and Mexico. We do run a very large trade deficit with China, including by the way, in a lot of things that like are really hard to source elsewhere. And, you know, one of the things that China has done as part of this trade war, for instance, is that they've suspended exports of rare earths. Now, I don't know what those are,

Right. I just know they're absolutely vital in making a lot of goods, a lot of electronics. I think also in terms of a lot of weaponry. So like Lockheed Martin and these other companies, I think would really struggle in situations to make like stuff they make. I'm a little bit of a, I'm,

You're like, that sounds okay to me. I'm pretty sanguine when it comes to rare earths. One of the things about rare earths is they're not actually very rare. They basically exist almost everywhere on the planet. They just have this name, which makes them sound like they're rare when they're not. It is true that China produces almost all of the rare earths in the world. This is not because China has some like

amazing deposit of rare earths no one else has. Like Japan famously has an island in the sea that has loads of it. The main reason is just that producing them is an incredibly filthy and dirty thing that no one wants to do. If you tried to create a rare earth mine in Texas, like everyone would be up in arms because it just destroys the environment. And right now it seems to be the case that

China is more willing to destroy the environment in service of mining these rare earths than any other country. So they end up doing it. But it is true. And again, Ngozi Okonjo-Iweala came out this week and said, this is not good. We shouldn't have someone having a monopoly on rare earths. It's just not healthy. She said, it's not good that you should have these massive

global structural imbalances in things like trade. It's not good that the United States should have this basic sort of global monopsony, this consumer of last resort that everyone in the world

has an economy that is based in one way or another on selling stuff to Americans. Like trade is meant to be a very sort of multivalent, multilateral thing rather than just the United States making this huge fucking sound saying like, we want to buy everything from everyone. And everyone's saying, that's great. Give us, you know, your debt and we'll finance it. Like it doesn't, it's not a super healthy global system. Is there a,

In that sense, you know, for all of the chaos that these terrorists will cause, is there a silver lining to this idea that these terrorists might just force the world to become a little bit more balanced and a little bit more multilateral?

The tariffs themselves, I'm very skeptical that they'll lead to that, right? If the tariffs, however, really are just the opening salvo in a negotiation that's going to be wrapped up pretty quickly, then sure, maybe. But that kind of thing requires an awful lot of multilateral coordination and it requires patience and time. And those are things that I don't really associate with the administration of Donald Trump. And

The point that you made, though, is a really good one. These global imbalances have been something that everybody's been focusing on for like decades now, right? The partial blame for the financial crisis of 2008, 2009 goes to the fact that those imbalances had gotten so big. Is this the global savings glut theory? Yeah, that's part of it. That's Ben Bernanke, famously a Brookings economics blogger, made that point, right? But rebalancing global trade

is really, really hard. There are some smart, more targeted things you can do, but those things aren't guaranteed to work and they take time, right? It includes the involvement of the multilaterals that have been degraded quite a bit. It includes sort of innovative ideas around things like currency counter manipulation, and it includes more aggressive diplomatic negotiations. And it includes like

possibly coming together with other allies if you want to go to China, which is sort of the lead offender on the imbalances point. And instead, what we've been doing is treating our allies like they're also our geopolitical rivals. Right, exactly. I mean, it was kind of hilarious to me that various people in the American government started making noises about, well, what we should do is

team up with like Japan and Korea and like create like a kind of free trade organization among all of us that excludes China. And then that way we can all like gang up against China and force these kinds of changes on China that we want. And it's just like, you just described the TPP that like the Trump famously killed. Yeah. Yeah. I would also say that, you know, in the case of some trade with China, like it's,

like it's fine, right? There are certain national security implications to some of the things that we trade with China. We're seeing that play out this week. NVIDIA has stopped exporting or was forced to stop exporting some of its more advanced semiconductor chips to China and so on. But if we get cheap toys, goods, clothing, things of that nature from China, like what exactly is the problem here? You know, so I just...

I think some of this needs to just be considered a little bit more carefully, you know, piece by piece. And that's not what's happening here. We really have taken a blunt force instrument to the, to the problem.

So, Elizabeth, I was reading a piece, a report from the New York City Comptroller, Brad Lander, basically saying these are the various outcomes that will happen to New York in the event of different scenarios. And they went from growth to recession. And what was interesting about his three different scenarios is that they all basically assumed that the Chinese tariffs would stay in place forever.

but just for differing amounts of time. In the optimistic scenario, he's like, well, we'll have these tariffs in place for a few months. In the medium scenario, he's like, they will disappear in like early 27. In the pessimistic scenario, he's like, they will disappear in like 29. Basically, the idea is that inevitably, these tariffs are going to go away. And the only question is when.

Do you buy that? I think it's optimistic to think that anything's going to stop happening or Trump won't keep using them as a tool throughout the rest of his administration. I think Lander is framing it like that just because it's...

It's a way of kind of talking about them where you can talk about the aggregate effects of whatever happens with tariffs because we can't predict what he's going to do. We know that tariffs are the only tool in his arsenal that he actually likes using. And I think the reason why Lander has to frame it that way is because I think everybody assumes that Trump will impose tariffs and then take them away and then impose them again and take them away. And we're going to just keep doing this the whole time that he's president.

And so I don't think he can get more specific than he was in that report. It's going to be a little bit chaotic. I think that's clear. What's not at all clear, by the way, is the fiscal impact. One of the reasons why Trump loves tariffs, and certainly one of the reasons why Besant loves tariffs, is because it's the only way they can raise taxes unilaterally from the executive branch. Every other kind of tax hike

number one, they don't really want any tax hikes, but number two, they need to get passed by Congress and Congress has this tiny majority and it's almost impossible to pass anything. So they're like, tariffs are a great way of raising taxes by five or $600 billion a year. But the tariff revenue so far is not that impressive. And if trade with China goes down by 80 or 90%, then no, you're not going to be getting $500 billion a year in tax revenue.

And on top of that, if the economy ends up falling into a recession, tax revenues themselves are also going to fall. So you're still going to end up not really saving all that much money because you're going to be collecting less money as well. And I think some of the estimates around how much money the tariffs will bring in also might end up proving optimistic, to be honest. Yeah, I don't think we're going to be hitting 500 billion.

I mean, like I've seen estimates of 200 billion that seem like maybe more possible, but that's not nothing. Like $200 billion a year is a real amount of money. But, you know, someone has to pay that. It's going to be U.S. importers and U.S. consumers. It's going to be a tax hike. It's us, my friend.

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subject to credit approval. Variable APRs for Apple Card range from 18.24% to 28.49% based on credit worthiness. Rates as of January 1st, 2025. Apple Card issued by Goldman Sachs Bank USA, Salt Lake City branch. Terms and more at applecard.com. We should have numbers round. Elizabeth, do you have a number? Mine is three. Okay.

And it's the number of people who tried to proselytize to me as I was walking through Soho yesterday. I remember this happening at the height of the credit crisis, too, and after the New York City blackout. And so I've decided that that's my metric for fear, uncertainty, and doubt hitting a kind of new high. Were they all Christian? Yes. Seventh-day Adventist, an evangelical person, and then I don't know what.

the other person was advocating for, except that they were trying to, you know, bring me to Jesus. Sounds like the start of a terrible, yeah, like a Seventh-day Adventist and another and another came to me and I said... They're all hanging out at the Apple store in Soho going like, trust in God and you can buy an iPad. Maybe it's just I look like the kind of person who definitely needs Jesus, but I have noticed that this really goes up in...

environments where people are freaked out. My number is 805, which is the number of points that the Dow fell on Thursday as a result of the decline in a single stock.

United Healthcare or United Health Group, I should say, came out with some sort of disappointing guidance and something, something, Medicare, something. And they have a very high priced stock, just nominal terms. So their stock fell by $131. And if you divide $131 by the Dow divisor, because the Dow is an average of share prices, it's not like a capitalization weighted thing.

What that means is that that one drop in UNH shares caused 805 points of drop in the Dow. And just to put that in perspective, when the entire world panicked in the Black Monday crash of 1987, the Dow fell.

drop 508 points. And so the question is, is that like the biggest ever, right? So it's interesting. I spent a lot of time yesterday with S&P Dow Jones indices who really didn't want to give me the answer. But yes, the answer is this is the biggest single company component decline or rise in the Dow ever.

And I think the reason they didn't particularly want to give me that information is basically just because it underscores how silly the Dow is. Yeah. But it's a fun fact. Still, it's a good fact. That's a good find. Yeah. That's a good find. A really good find. But Cardiff, what is your number? Okay. I have a really good one, but I have to admit that the number is not really...

the point here, right? Like I'm using this number because I just want to bring up this really interesting fact that also, by the way, happens to relate to the life and times of Felix Salmon. So here it is. All right. The number is 12. That is the number of technologies that make up the technologies of the future and in which America is essentially the global leader right now, according to a most unexpected source. Okay. Okay. That source is Nouriel Roubini. Okay.

Who says, who argues that not only is the market panic over tariffs overdone, but that this technological lead will more than offset all the capital flight out of the United States because all of the investment that chases these technologies in the next few years.

few years is going to actually lead to a boom in investment in the US. His quote, I believe is Mickey Mouse could be president and we're going to have 4% growth. That is it. And what's so fascinating to me is that he now is restyling himself away from Dr. Doom and now he's Dr. Boom. And I missed it. When did this happen? When did this happen? He just wrote a book like two years ago, arguing that it was the end of the world again.

And then when it comes to technology, he was always, of course, the big blockchain skeptic. He's like, all of you people saying that blockchain is going to change everything, you're all morons, it's going to change nothing. I agree with him on that. But he does seem to have become AI-pilled. I just don't know when the turn happened. And I saw it the other day just scrolling through X, and I was like, is this really Nouriel Roubini? I had to check to make sure it was actually his account and so forth. It was. He really is...

He's become a bull. Changing tack. He's very bullish these days. People should know, by the way, that Nouriel was one of your earliest colleagues in financial blogging. I think he hired you at one point. Yeah, no, that was my first professional blogging job was blogging for Rubini Global Economics in a small little suite of offices above a Manhattan mini storage in downtown New York.

And it was a lot of fun. And I created this blog called EconoMonitor. And I said something rude about Larry Summers and then I was fired. Oh, I think I may have known that. I forgot the conclusion to the story. So yeah, that's a good one. Don't say something rude about Larry when Larry sits on the board of your employer. Oh yeah, that's fair.

But he, yeah, you know, it's always good to be a contrarian right now. And right now is the bullish, the bullish stance is definitely contrarian. Absolutely. Okay. On which note, I think that's it for us this week. Cardiff Garcia, thanks so much for coming on the show. Always fun, guys. Thanks very much to Maris Jacob and Jessamyn Molly for producing. And yeah, we'll be back next week with even more Sleep Minds.