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cover of episode Jim Millstein on the Massive Risks of Any 'Mar-a-Lago Accord'

Jim Millstein on the Massive Risks of Any 'Mar-a-Lago Accord'

2025/3/24
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Odd Lots

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J
Jim Millstein
J
Joe Weisenthal
通过播客和新闻工作,提供深入的经济分析和市场趋势解读。
T
Tracy Alloway
知名金融播客主播和分析师,专注于市场趋势和经济分析。
Topics
Joe Weisenthal: 我认为任何关于联邦支出的讨论都是关于资源分配的竞争。我们知道,持续赤字的主要原因是社会保障体系,如社会保障、医疗保险和医疗补助等。当我们抽象地谈论债务或赤字时,实际上是在谈论释放某些领域的资源,释放某些领域的消费,并在经济中的其他领域创造消费和资源的可用性。 Tracy Alloway: 也许他们并没有这么说。我的意思是,是的,我认为我会这么说。在我看来,人们渴望偿还债务,但不一定做其他事情。 例如,斯科特·贝森部长在最近的一些采访中谈到,我们希望重新利用私营部门。因此,我们希望降低利率。因此,这使得对公司的投资更有吸引力,等等。因此,这样做的想法是,好吧,我们将减少来自经济各个被认为没有生产力的部门的需求和消费。 Jim Millstein: 我认为很明显,总统的动机是加征关税。在他周围,通过贝森特和莫兰,存在一些理论架构表明,这只是达到目的的一种策略,而最终目的是将制造业带回美国。显然,在这个全球化的时期,我们一直面临着巨大的贸易逆差,尤其是在制造业方面,我们在进口许多对我们的国防工业和制造业都至关重要的系统。 我们曾经主导半导体贸易。我们实际上是在20世纪60年代通过一系列政府政策、对IBM和AT&T的研发拨款创造了半导体技术,然后是NASA和国防部的系列采购政策,以使该产业商业化。最终,我们创造了计算器产业、计算机产业、电视产业等等。但这都是一系列协调的联邦政策的副产品。快进40年、50年后,半导体制造业,尤其是在高端领域,主要是在台湾进行,这是一个战略上脆弱的国家,横跨中国海峡。这在国防机构中已经造成了10年的担忧,不仅仅是在半导体领域,而是在许多先进产业中,我们作为一个国家真正依赖于关键技术的进口和关键中间投入的进口。如果你把贝森特说过的一些话和莫兰说过的一些话放在一起,关税策略的目标,这实际上只是一种策略,是将制造业带回美国,以填补或建设那些在2000年代初中国加入世贸组织后发生的全球化浪潮中被掏空的社区。他们试图影响的关键要素或传播机制之一是美元的汇率。美元走强意味着我们的出口更贵,我们的进口更便宜。因此,我们一直受益于强势美元带来的廉价进口,从而抑制了国内制造业可能造成的通货膨胀。但话虽如此,我们已经失去了制造业。40年前,我们占全球制造业的25%。现在我们只占全球制造业的15%。中国当时还无足轻重。现在他们占全球制造业的35%。马拉-拉戈协议的目标是真正削弱美元,同时又不扰乱为我们的债务融资的资金流。至关重要的是,制造业的建设应该由私人资本完成,正如乔之前所说的那样。这不是,你知道的,拜登政府已经努力通过《芯片法案》来推动这些产业。但在特朗普领导下,重点是,我们希望创造机会,创造一个有利的市场环境,以便私人资本能够进入。是的。显然,传统上共和党偏向于私人资本,并减少使用公共投资来促进产业发展。但是,提高关税壁垒,一个高关税壁垒,是一个赌注,即私人资本将投资于此。拜登政府启动了一些我在70年代作为研究生时研究过的东西,叫做产业政策。那就是不仅使用关税壁垒,还使用投资政策、税收政策、采购政策和研发政策来促进国内产业。因此,特朗普继承了《芯片法案》,并且正在取得进展。它刺激了——他说这很糟糕。是的,我知道他说这很糟糕,但现实情况是,现在在《芯片法案》补贴和《通货膨胀削减法案》下,都出现了各种活动,这是拜登政府促进对美国投资的另一项政策。现实情况是,这些投资已经完成,并且正在继续在50个州进行,尤其是在红色州。因此,特朗普政府将面临来自政治方面的阻力,要求在未来将这些投资归零。但是,如果我们真的想……恢复美国制造业的主导地位,尤其是在对我们的国防机构至关重要的关键产业中,我们将不得不使用多种方法,不仅是高关税壁垒,还有研发补贴、投资补贴,以及使用采购作为一种方式来创造对这些新产业的需求拉动。 如果马拉-拉戈协议的目标是削弱美元以提高美国国内制造业的竞争力,那么还有另一种方法。你从特朗普政府那里也听说过这种传闻,那就是创建一个主权财富基金,将美国政府目前拥有的资产投入一个由财政部管理的中央基金,并允许财政部直接干预外汇市场,以试图压低美元。我认为这很有趣,因为历史上,资源丰富的国家的国家主权财富基金通常是为了保持货币强势,尤其是在反周期因素方面。因此,我们将其用于干预外汇的想法是一个有趣的转变。 你提到过重组,你说在典型的重组中存在胡萝卜加大棒。想象一下,大棒是,听着,如果你不想参与这个重组计划,那么你最终将获得破产公司中的某种资产,这对你的影响将会非常糟糕,你将获得更少的钱,而且这将需要很长时间。所以,来吧,接受这个协议。在我看来,胡萝卜加大棒方法的一个概念性问题是,你不能真正发出威胁,对吧?如果你是美国政府,除非你自我毁灭。我的意思是,你真的想看到利率飙升,让联邦政府威胁不偿还债务。这将是一个金融市场可能无法复苏的事件。 胡萝卜在这里也站得住脚吗?因为胡萝卜应该是,好吧,也许你不会受到关税的影响,也许你会得到美国的保护,但这可能非常重要,因为到目前为止,我们只看到了两个月,但我们已经看到特朗普反复无常。我认为很多信任都丧失了。是的。好吧,如果你要使用特朗普的关税或关税的威胁以及安全保护伞的丧失作为交换的诱因。他已经领先于自己了,对吧?我的意思是,他对关税的态度反复无常。因此,威胁并非迫在眉睫,而是已经存在。正如你所说,他可能在交换完成后的第二天改变主意,这是真实存在的。同样,关于北约,如果我是北约国家,我不确定我是否还能依赖美国。你看到了德国发生的事情。他们已经取消了债务上限,现在将大幅增加国防开支,以便能够在没有美国安全保护伞的情况下自卫。波兰已经这么做了。他们增加了国防开支。基本上,与俄罗斯接壤的国家,波罗的海国家、波兰,都增加了国防开支,因为他们意识到他们可能再也无法依赖我们了。所以,正如你所说,特蕾西,他可能已经领先于此,以至于这实际上不能作为短期债务换成长期债务的诱因。乔,你知道我在想什么吗?多说一些。如果中国将其票据和国债换成百年期债券以换取北约的保护,那会怎么样?首先……你知道的,显然存在这样的历史,即在某个时间点,中国认为其主要对手是苏联,并且确实试图获得美国的保护。因此,这并非没有历史依据。也许稍微现实一点的版本是,交换你的债务,我们将让你建设比亚迪工厂。然后你获得技术转让,你基本上做的是经典的事情,即高科技国家引进他们的制造业,并教你如何建设超级工厂之类的东西。我会喜欢这个。吉姆,多说一些,关于一个市场可能永远无法复苏的事件。这不是你听到的一个词。他们总是会恢复。但是,你知道的,当你进入关于美国债务的安全性和无风险性的存在性问题时,我们应该谈论什么?是的,我的意思是……一旦我们脱离金本位制,一旦我们的货币和债务不能兑换成黄金,一种硬商品,美国政府债务的可靠性实际上是对美国政府经济的押注,即经济将如此强劲,并且能够产生税收来支持债务的偿还。因此,这两件事现在,这是一个信心游戏,它们是紧密相连的。美国经济的活力最终是支持债务信用度的因素。但是,正如你的债务,这就是达里奥所说的,随着你的债务水平上升到足以质疑你的偿债能力或你的偿债能力挤压政府在支撑、巩固经济活力中所扮演的角色的程度,你就会到达一个投资者开始担心债务的持久性、政府按时偿还债务的能力的点。因此,债务负担本身就成为经济增长的阻碍因素。因此,如果经济的活力是支撑人们对我们按时偿还债务能力的信心的基础,那么我们正处于困境之中。我去听了贝森·凯夫在纽约经济俱乐部的演讲,他谈了很多关于释放私营部门、减少监管、让银行再次向私营部门贷款以及撤回拜登竞选活动的内容。刺激各种补贴和采购政策,这是他试图恢复生产的尝试,以撤回政府对经济、私营部门的过度干预。这很好,但现实情况是,政府在促进其国内经济增长方面发挥着重要作用。从通过道路、机场和铁路连接人和市场这样简单的事情,到确保为私营雇主提供健康的受过教育的劳动力。这些都是政府真正必不可少的职能,尤其是在包括在内,在私营部门不会投资的新技术的研究和开发方面的投资,因为它们商业上的潜力并不明显,对吧?因此,我们通过美国国立卫生研究院和国家科学院进行的基础研究。我们已经就此做过一期节目。是的。这是一个非常重要的职能。所以,存在平衡,对吧?我的意思是,美国的成功证明了私人投资和公共投资之间的平衡。我们现在面临的风险是,鉴于我们积累的大量债务,更重要的是,持续依赖赤字,依赖债务来资助我们的支出,这使我们处于一个真正需要财政整顿计划的地方。我们必须平衡收入和支出。它不必是一对一的。但是赤字不能增长得比经济快。否则,我们只是在积累越来越难以维持的债务。 我想回到主权财富基金的想法,因为当我听到这个想法时,它听起来就像基本上是从美国发行无担保国债转向有担保债务。当我听到这个时,我想起了我报道欧洲担保债券时经常遇到的一个词,即“抵押”。是的。就像你可以用来作为债券抵押的抵押品数量有限,在某个时候你开始用完了。多少抵押品?我明白美国是世界上最大的经济体,如果有人要为他们的债务提供抵押品,那可能是美国。但他们究竟会用什么来担保这些东西呢?好吧。所以,有贷款价值比,然后有现金流覆盖率,对吧?对。因此,美国的资产负债表拥有一系列未计入市值的隐藏资产。你最近听到很多关于我们的黄金储备的讨论,对吧,我认为是每盎司42美元,而黄金价格超过3000美元。如果你将肯尼迪堡的数吨黄金重新计入市场,那么它可能价值8000亿到9000亿美元。这与36万亿美元的债务余额相比,只是九牛一毛。但它并非微不足道。它并非微不足道。我们拥有密西西比河以西大约三分之一的土地。你知道的,西部各州一直都在抱怨这个问题,即联邦政府和土地管理局是一个缺席的房东。国家公园支持的债券?这就是我们要走的路吗?是的,上帝保佑西奥多·罗斯福的遗产,伟大的遗产,不会以某种方式被取消。但是,先把国家公园放在一边……是犹他州和内华达州的全部。是的,我的意思是,犹他州、内华达州、怀俄明州,对吧?然后还有广阔的阿拉斯加,其中大部分都是联邦政府拥有的。所以有这些类型的资源。现在,它们今天没有现金流,但是这些土地上有矿产权利,这可能就像,你知道的,世界上许多其他国家都对他们的矿产权利所做的那样,他们允许私人开发商拥有开采的权利,并且他们为政府创造现金流,这些土地是他们进行开采的土地。我们拥有各种各样的企业,商业企业,我们拥有它们的股权或完全拥有它们。田纳西河谷管理局是阿巴拉契亚地区一个巨大的电力生产和分配系统。房利美和房地美在……金融危机期间接管,政府拥有,尽管比尔·阿克曼断言,政府基本上拥有,你知道的,90%到95%的股权价值。你知道的,政府可以尝试货币化和资本化主权财富基金的这类事情。现在,假设有……2万亿美元的土地价值、矿产权利、商业企业的股权可以用来为一个主权财富基金提供资金。其中一些东西有现金流,或者你可以设计它们产生现金流,这样主权财富基金实际上就会有收入。其中一些资产实际上可以货币化,例如房利美和房地美以及田纳西河谷管理局的股权。你可以实际上……将它们私有化,将它们出售给公开市场,并在主权财富基金中创造实际现金,而不是仅仅是资产价值。所以你将拥有,你知道的,一个2万亿美元的基金,可以干预外汇市场,试图故意削弱美元。 无需进行这种交换要约,无需延长我们的债务期限,无需试图用安全保护伞和关税壁垒来恐吓外国国家来帮助我们实现这一目标。但这仍然是对经济增长的巨大押注,对吧?因为美国必须有足够的增长来偿还它所欠的债务。如果它没有,那么在某个时候你必须归还抵押品。我认为人们会感到悲伤/恼火,如果他们要交出所有的黄金或国家公园,可能不是国家公园,而是土地和类似的东西。是的,不。首先,我们永远不会偿还债务。我们只是超越它。这就是关键。债务存量只是不断地再融资和展期。有一天偿还债务会很棒,但我们实际上不必这样做。我们只需要超越它。各国已经通过几种不同的方式做到了这一点,其中一些比其他方式更危险。你可以通过通货膨胀来摆脱债务。你只是随着时间的推移贬值你的货币。随着时间的推移,债务存量相对于你目前生产性企业的价值而缩小,因为你已经贬值了你的货币。因此,债务存量,其数量是固定的,相对于现在以更弱的货币计价的经济规模而缩小。你可以尝试这种马拉-拉戈式的交换要约。当然,最糟糕的结果是彻底违约,你重组债务。在我看来,我在一开始就说过,我从资源分配和谁得到什么的角度来理解这些事情。在我看来,是的,你可以重新评估肯尼迪堡的黄金,可能人们坐在那里想,如果你有3000美元,而我们有40美元或其他什么,你为什么不这样做呢?当然,毫无疑问。就这么做。但这不会产生更多的医生。这不会为医院提供更多的床位。这不会为老年人提供更多的食物。你知道的,当我们谈论这些资源限制时,这就是我理解的方式,这是一种会计手段,对吧?因为它最终不会,它不会创造任何新的工厂。它不会做任何这些事情。无论如何。 让我们再谈谈。你对房利美和房地美有很多了解,你已经提到了比尔·阿克曼。我正在尝试的事情是,显然,这些政府拥有的企业正在创造巨大的利润,私人投资者希望获得这些利润,这样它们就不会仅仅流向财政部。但对我来说,问题是,你是否可以通过某种方式做到这一点,以避免出现问题,即投资者获得这些现金流或这些利润的渠道,而无需政府的隐含担保?因为显然,你希望两者兼得,对吧?你希望将利润私有化,并保留该后盾。有没有可能将它们私有化,而不再有该后盾?我认为人们的预期是他们会隐含地保留后盾。这就是投资者想要的。这公平吗?我不知道。 好吧,这引出了一个问题,为什么还要这样做呢,对吧?有没有一种方法可以做到这一点,而不仅仅是赠送?是的,有。好吧。所以这里有很多历史。是的。在金融危机之前……这些政府赞助的、政府特许的实体拥有一个特殊特许状,使它们能够向财政部借款。这就是它们被视为最终由财政部支持的原因。 通过财政部,即使他们从财政部获得的只是其资产负债表规模的一小部分。但他们拥有这种权利这一事实使投资者相信,在紧急情况下,政府会介入并接管它们。我们在2008年遇到了紧急情况,政府确实介入并将其置于监管之下。监管的结构是为了使这种隐含的支持明确化。财政部与每个处于监管之下的实体签订了优先股购买协议,根据该协议,政府实际上购买了这两个实体的1920亿美元优先股。 也获得了股权,对吧?他们获得了优先股,对吧?高级优先股。该高级优先股带有固定股息,该固定股息在2012年转换为可变股息。对。为了防止他们不得不借入更多优先股来支付股息。因此,他们只有在从净利润中获利时才需要支付股息。他们获利了吗?他们现在已经向财政部偿还了……3020亿美元,这被描述为对这1920亿美元票面投资的股息。是的,他们不仅盈利,而且据我了解,他们还重组了业务并增加了资本。基本上,就像在创造利润的同时为出售做好了准备,这非常令人印象深刻。是的,所以……支付给财政部的股息流,产生了3020亿美元,在2018年被关闭,以允许他们在特朗普政府预期他们将被私有化的预期下积累资本。因此,他们允许他们积累资本。因此,财政部自2018年以来,也就是7年前,就没有收到任何股息。在这7年期间,房利美和房地美总共积累了近2000亿美元的资本。哇。这仍然少于为他们在监管期间创建的资本规则,资本监管。但他们非常接近,可能距离达到其最低资本,即所谓的CET1资本水平还有两年时间。 你知道的,我们许多人认为,为他们创建的资本规则严重地解决了他们应该持有多少资本的问题。金融危机之后,每个人都很紧张。完全正确。因此,与大型银行,即所谓的系统重要性金融机构一样,房利美和房地美一直受到所谓的压力测试。看看他们在严重不利的情况下会如何表现,在这种情况下,金融市场下降20%,利率上升10%,失业率飙升。房价暴跌,等等。在过去几年中,他们一直受到压力测试。这些压力测试表明,他们的损失基本上不到100亿美元。因此,让房利美持有1560亿美元的资本,而房地美持有1200亿美元的资本,这似乎是对这些资本的一种浪费,只是严重地解决了这个问题。但我不会再谈这个了。让他们保持这些资本水平,房利美为1560亿美元,房地美为1200亿美元,分别。他们还需要四年的留存收益才能达到这个水平。因此,如果你不准备让他们脱离监管,直到他们完全资本化,你将等待四年。然后他们将根据该规则完全资本化。然后问题就变成了后盾。为什么将它们私有化,它们是否可以在没有明确的政府担保的情况下私有化?好吧,在法律或事实方面,没有任何理由禁止他们将优先股购买协议,即股权后盾,从监管中带出来。并且让财政部支持这2700亿美元的资本,承诺在需要时购买2500亿美元的资本。因此,在我看来,房利美持有1600亿美元,而房地美持有1200亿美元,这已经资本过剩了,好吧,我们将通过财政部后盾将其增加近一倍。财政部应该为支持他们的特权获得报酬,即承诺费。并且收益将支持承诺费。但这将使市场放心,因为有足够的资本支持他们,以确保及时支付他们担保的未偿还抵押贷款的本金和利息。政府这样做的益处,而不是让它们永久处于监管之下,是政府拥有90%以上的股权。他们拥有高级优先股,他们有权以一分钱的价格购买80%的股票。你进行一次经典的资本重组,将优先股转换为普通股,稀释现有的普通股和财政部的认股权证。财政部最终将拥有干净资本化公司的全部普通股的90%到94%。这值多少钱?美国国会预算办公室最近进行了一项分析,并表示……这是美国国会预算办公室最近进行的一项分析,它充满了许多假设,你可以对其中的一些假设提出异议。但这是一个股息贴现模型,这在金融机构的估值中并不罕见。他们认为,股权,我认为政府最终至少拥有90%的股权。当你对它们进行资本重组时。总股权在3000亿到5000亿美元之间。这是一个不错的数字。这是一个不错的数字,可以放入你的主权财富基金中,或者用来偿还部分赤字。 我有一个问题,好吧,如果政府支持企业私有化,政府将获得未知金额的支出,但正如我们所说,它可能相当可观。一旦它们私有化,房利美和房地美实际上会开始做一些不同的事情吗?所以他们获得了私人资本的涌入。他们会用它做什么?好吧。所以这是一个关键问题,即他们是否会被允许回到金融危机之前让他们陷入困境的那种疯狂的事情。金融危机后,除了多德-弗兰克法案之外,一个伟大的创新是一个新的法规,管理联邦住房贷款银行、房利美和房地美。这是2008年《住房和经济复苏法案》,该法案创建了一个新的、更强大的监管机构,称为联邦住房金融局。这就是比尔·普尔特刚刚被任命为主任的机构。但是该机构……拥有重要的监督和监管权力,以限制房利美和房地美可以追求的商业模式。所以,我的意思是,只是为了做更多一点历史,如果你回顾2003年到2008年,你知道的,真正让房利美和房地美陷入困境的是,他们正在经营对冲基金。他们是一个政府支持的对冲基金,超出了证券化所谓的合格抵押贷款的基本业务,80%贷款价值比或更低,安全的抵押贷款,除了打包和证券化它们以及担保这些抵押贷款支持证券的本金和利息的支付之外,现在有7.5万亿美元的未偿还债务。因此,它们是传统抵押贷款市场情况中的重要因素。 在危机来临之前,他们还扩大了资产负债表。他们以接近政府的利率借款,提高杠杆率,并购买全天候次级抵押贷款、无文件私人标签证券,以提高他们的收益。他们是以高度杠杆的方式进行的。 在监管期间发生的一项重大改革是,这些投资组合已被完全清算。因此,今天,他们拥有的唯一资产负债表是为了促进他们所从事的证券化业务。因此,他们购买了其他人发起的抵押贷款。他们将它们汇集在一起。然后他们将它们证券化。随着证券化的收益,他们偿还了他们为购买抵押贷款而产生的债务。同样,当抵押贷款支持证券和证券化中的抵押贷款出现问题时,为了履行他们对这些证券的本金和利息及时支付的担保,他们从资金池中买出抵押贷款,并对它们进行重组和修改。这就是为什么机构抵押贷款支持证券被视为银行资本用途的非常安全和流动的资产。完全正确,因为房利美和房地美在那里担保本金和利息的及时支付。现在如果我们回到私有化过程,对吧?什么将支持该担保是直接在其资产负债表上的2800亿美元资本,以及2500亿美元未用容量的优先股购买协议。因此,在该担保背后将有超过5000亿美元的资本。因此,当我与反对私有化的人就私有化是否会在抵押贷款支持证券市场造成不稳定进行辩论时,因为他们是否会遭受评级下降,因此会吸引任何拥有它们的人的更高资本,因此会提高抵押贷款支持证券的利率,这会转化为抵押贷款本身的更高利率,这是一个大问题。5000亿美元的资本支持担保是否足以保持抵押贷款支持证券的信用评级稳定?我认为是的。但最终,将与穆迪、标普和惠誉进行对话。他们将不得不决定他们是否仍然接近主权信用。哦,信用评级机构有点滑稽……它仍然在控制之中。是的,完全正确。好吧,我们已经谈了很多关于美国政府筹集资金和偿还债务的创造性方法。我们还没有谈到一种方法。那就是我最喜欢的金融话题之一。哦,不。那就是美国拥有的其他国家发行的债券,非常古老的债券。哦。就像中国的帝国债券。或者你知道英国因为二战贷款而欠美国很多钱吗?哦,仍然。我不知道。我不知道,不。作为一个智力上的好奇心……我认为如果特朗普决定追讨这些债务作为筹集资金的一种方式,将会发生什么,这非常有趣。这实际上在特朗普第一届政府中就出现了。财政部正在寻找方法来获得中国债券的收益。有趣的是,它这样做的时候,美国证券交易委员会也在起诉某人向投资者出售这些债券并承诺支付收益。这很有趣。这可能很有趣。所以这些是,我对这些一无所知。这些是由中国前任政府发行的债券。是的。你知道的,有一些历史,我知道一些沙皇俄国的债券。是的,那些是著名的债券。是的,它们存在。在苏联解体后不久,法国政府和英国政府代表法国和英国债券持有人,让俄罗斯联邦承认这些债券并对其进行支付,因为俄罗斯联邦渴望获得欧洲资本市场的准入。而交换条件是偿还沙皇俄国的债务。对。好吧,我们正处于未知领域。我们当然是的。因此,即使是谈话结束时的这个小小的智力练习,有一天也可能不仅仅是一个智力上的好奇心。吉姆·米尔斯泰因,很高兴再次见到你。谢谢你们。我们可以和你聊上几个小时。非常感谢,是的。但这是一次精彩而彻底的谈话。感谢你再次来到奥特兰。很享受,谢谢。太棒了。♪♪♪ 特蕾西,我喜欢和吉姆聊天。他太棒了。他很棒。而且他把一切都解释得非常清楚,这在我们讨论这样一个假设时非常有用。我认为在这场讨论中有很多事情很有趣或具有讽刺意味。但我认为其中一个最大的讽刺是,美国国债是美国最大的出口产品之一。而特朗普痴迷于出口,但他不想出口这些特定产品,即使你可以争辩说,正如吉姆所讨论的那样,债务有助于发展私营经济。 这很有趣。我的意思是,听着,我想我们最好出口能够雇佣人们的真实的东西。他可以赢得胜利,对吧?赢得胜利。是的,我们是这些纸张的大型出口国,甚至不再是纸张了。不,我认为那是一次很棒的谈话。听着,在我看来……其中一些事情可能是玩火。就像,我们真的不知道这些目标中的一些——就像,我们将——德国本身正在重新武装,几十年几十年几十年,这种——整个西方地缘政治的前提是阻止德国重新武装,这本身就是一种……这就像世界历史上的一次巨大转变,对我来说感觉就像,谁知道几十年后,我们可能不知道……地缘政治格局如何被这一决定所重塑的后果,好吧,这就是规范点,对吧?是的,就像规范,事实证明,实际上非常重要。然后你就会遇到一些超越规范问题的事情。就像一旦你开始谈论,再说一次,我不知道有多认真,但就像重组债务等等,你就像超越规范,你实际上就像你可以引发问题。引发正式的事情,不,那仍然是一种规范,我想不,我的意思是,历史上它没有违约,不,但就像有纸张中的东西,对吧,当你没有……当你试图改变时,有一些法律问题,是的,但坦率地说,法律现在被视为规范,对吧?我想是的,我想是的,我们应该就此结束吧。 我们应该就此结束。这是另一期《奇葩交易》播客。我是特蕾西·阿洛威。你可以在特蕾西·阿洛威上关注我。我是乔·维森索尔。你可以在The Stalwart上关注我。关注我们的制作人,卡门·罗德里格斯在卡门·阿曼,达希尔·贝内特在Dashbot,以及凯尔·布鲁克斯在凯尔·布鲁克斯。有关更多奇葩交易内容,请访问Bloomberg.com/Odd Lots。我们在每日简报中提供所有剧集。你可以在我们的Discord中与其他听众全天候讨论所有这些事情。在discord.gg/oddlots。如果你喜欢奇葩交易,如果你喜欢我们谈论美国债务重组,潜在的美国债务重组,那么请在我们最喜欢的播客平台上给我们留下积极评价。请记住,如果你是一位彭博社订阅者,你可以完全无广告地收听我们所有的剧集。你只需要在Apple Podcasts上找到彭博社频道,并按照那里的说明操作即可。感谢收听。♪♪

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Hello and welcome to another episode of the Odd Lots podcast. I'm Joe Weisenthal. And I'm Tracy Alloway. So Tracy, you know, there's obviously a lot of anxiety these days, really for a while, but going into the election post about the size of the U.S. debt, the size of the U.S. deficit, etc. And the way I like to think of these things is that...

Any discussion of federal spending is about a competition for resource allocation, right? So we know that a huge component of what drives persistent deficits is the social safety nets, Social Security, Medicare, Medicaid, et cetera. And when we talk about the debt or the deficit in the abstract, and when people talk about tackling the debt or the deficit, what they're really talking about is freeing up resources somewhere.

freeing up consumption somewhere and creating availability for consumption and resources elsewhere in the economy. Are they? Well, maybe they're not saying it. I mean, yeah, I think I would say so. It seems to me there's a desire to like pay down the debt and then not necessarily do anything else.

Like what's the else here? Well, so for example, Secretary Scott Besson in some of his recent interviews talked about, you know, we want to re-leverage the private sector. And so we want to get rates down. And therefore, that makes investing more appealing for companies, et cetera. And so the idea of like, OK, we're going to like reduce demand, reduce consumption from various sectors of the economy that are perceived to be unproductive.

Okay, maybe. Sure. Yeah.

Think about the big picture in bonds. And I always say bonds are built on norms, right? Yeah. Government spending is built on norms. So you lend money to me and I pay you back. It's basically a promise, which means it's a human construct. Yes. And there are all these values and norms and narratives that are embedded in those constructs, in those promises. Yes.

And that's what I find really fascinating, especially when those values start to change. And I think that's what's happening now. Yeah. Well, you know, absolutely. And obviously, you know, we did that conversation with Jim Bianco about, you know, either a literal or a metanomic Mar-a-Lago accord. And then we talked to Ray Dalio and he slipped it in there. And I thought it was like kind of he's like, well, maybe.

they'll restructure the debt in some way or return it out. And to me, that screams default. You know, I mean, that's just a, you know, it's a polite way of saying default. But one man's default is another man's restructuring job. That's right. But I think if I were a treasury holder, I would be very upset if the thing that I consider to be the most liquid, safe,

The entire world that the entire finance system runs on, the one thing that's perceived to be genuinely risk-free from a credit standpoint suddenly gets like, oh, this is a five-year bond and a seven-year bond. And you're going to get the same money in the end. I think that would be very disruptive in a way that is not disruptive, say, like when a hospital chain has to restructure its debt.

It is definitely the risk-free rate upon which all the other markets are basically built on. Should I do a reminder of what the Mar-a-Lago Accord maybe says about this point? So the way I think about it, it's an attempt to resolve some of the tensions embedded in the Trump administration's economic agenda. We spoke about it with Jim Bianco. And those tensions are primarily the desire to reshore manufacturing and shrink the deficit.

Excellent summary.

This isn't a hardcore plan. This is based on a paper that Stephen Miran put out last year that people started getting very interested in and talking about. And that's why we're talking about it. Well, I want to get to our guests in a second, but there is something very funny because there's all these academic papers that are going out and it's like, oh, there's this

big plan. And, you know, the exorbitant privilege of the dollar makes it so that, you know, it's hard to reshore manufacturing in the U.S. We need to weaken the dollar and decentralize its role. And it's like they sort of like intellectualizing 5D chess. Meanwhile, Trump is like, no, I just want more money from tariffs. Like, I don't know. He like there is this intellectual infrastructure around it. I'm not sure that Trump himself

Anyway, we really do have the perfect guest because we're going to be speaking to someone who knows about the intersection of finance and politics, someone who knows about debt and debt restructuring, someone who actually matters. We've had him on the show last year. Someone who actually matters. Sorry. I hope my wife doesn't. Someone whose opinion actually matters. All of our guests matter.

All of our guest's opinion matters. We're going to be speaking with Jim Milstein, co-chair of Guggenheim Securities. Jim, thank you so much for coming back on Odd Lots. My pleasure. We talked about your background when we had you on the show last year. What do you know about debt restructuring? Just a little. What have you learned?

What have you done in that role? You've dabbled a bit. Yeah, I dabble. Yeah, it's my métier. So I had this awful job and a great title called Chief Restructuring Officer of the United States Department of the Treasury during the financial crisis. There you go. That is quite a title. It is quite a title.

It sounds like they might have been hiring me to restructure the federal government, but in fact, I was there to help restructure the TARP investments we made during the financial crisis in AIG and Ally Financial and Citi and B of A and the rest of that crowd.

But before that, you know, I worked on the restructuring of Argentina. The Republic of Argentina is one of their many restructurings. In 2005, we did a big exchange offer for their international bond indebtedness. I worked on Puerto Rico's debt default and restructuring back in the aughts.

Wait, were you on the hedge fund side of Argentina or the country? I was on the Republic side. Oh, okay. Yeah. And then when I was a lawyer back in the 80s, my firm, Cleary Gottlieb, worked on all of the Brady Bond restructurings across Latin America. So, you know, I've done a bunch of sovereign restructurings. Okay, so you're the perfect guest. Yeah. Okay, shall I just jump into it and ask the obvious question or one of the obvious questions, but

Where is this suggestion coming from? A debt restructuring as part of a potential Mar-a-Lago accord? And what is the problem we're trying to solve? So I think there's a clear, I mean, I don't want to engage in sane washing, which, you know, there's clearly an impetus by the president to impose tariffs. He's tariff man. And around him through Besant and Moran, there is some

intellectual architecture that suggests that's just a tactic towards an end and the end is to bring manufacturing back to the United States. Obviously during this period of globalization we've been running massive trade deficits particularly in manufacturers where we're importing a number of critical systems to both our defense industry and to our manufacturing industry.

You know, we once dominated the semiconductor trade. We actually created that industry in the 1960s through a series of government policies, research and development grants to IBM and AT&T that created the semiconductor technology, then a series of procurement policies at NASA and the Defense Department to commercialize that industry. And eventually we created, you know, the calculator industry and the computer industry and the TV industry and all of that.

But that was all a byproduct of a coordinated set of federal policies. Fast forward 40 years, 50 years later, and semiconductor manufacturing is mostly being done, particularly at the high end, in a strategically vulnerable country across the Straits of China from China in Taiwan. And that has created a sense, now going back in the 10 years in the defense establishment, that we have a problem.

and not just in semiconductors, but in a number of advanced industries where we're really reliant as a country on the importation of critical technologies and critical intermediate inputs. Again, if you piece together some of the things that Besant has said and some of the things that Moran has said, the goal of the tariff play, which is really just a tactic

is to bring manufacturing back to the United States to hollow in or build out the communities that were hollowed out by the wave of globalization that occurred after China's admission to the WTO in the early 2000s. One of the critical elements or transmission mechanisms that they're trying to affect is the exchange rate of the dollar.

A high dollar means that our exports are more expensive and our imports are less expensive. So we have been the beneficiary with a strong dollar of very cheap imports, moderating the inflation that might otherwise occur from domestic manufacturing.

But that said, we've lost manufacturing. 40 years ago, we represented 25% of the manufacturing industry. Now we're a mere 15% of global manufacturing. China was nowhere to be seen. Now they're 35% of global manufacturing. The goal of this Mar-a-Lago Accord is to really weaken the dollar

without upsetting the financial flows that finance our debt. And crucially, the manufacturing build-out is supposed to be done by private capital, to Joe's point earlier. It's not, you know, we've had efforts from the Biden administration, the CHIPS Act, to try to boost some of those industries. But the emphasis under Trump is really we want to create opportunities

a beneficial market environment so that private capital moves in. Yes. There's obviously a kind of traditionally Republican bias in favor of private capital and scaling back the use of public investment to promote industrial development. But raising a tariff wall, a high tariff wall, is a bet that private capital will invest behind it.

Biden administration started something that I actually worked on as a graduate student back in the 70s called industrial policy. That is to use not only tariff barriers, but investment policy, tax policy, procurement policy, and R&D policy to promote domestic industry. So

Trump has inherited the CHIPS Act and it is making progress. It has spurred- He says it's terrible. Yeah, I know he said it's terrible, but the reality is that there's all sorts of activity now, both under the CHIPS Act subsidies and through the Inflation Reduction Act, which was another one of the Biden administration's policies to promote investment in the United States. The reality is that

Those investments have been made and are continuing to be made around the 50 states, most particularly in the red states. And so there will be political pushback on the Trump administration to just zero those out going forward. So going back, though, if we really want to...

restore American manufacturing dominance, particularly in critical industries, critical to our defense establishment. We're going to have to use a mix not only of high tariff barriers, but of R&D subsidies, of investment subsidies, and use procurement as a way to create demand pull for these new industries.

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You use the word "sane washing," which is a good word because there are, there's this sort of intellectual, as you said, architecture around Trump. It's not clear that Trump himself sees it this way.

that this works, that you can sort of like reaccelerate U.S. manufacturing simply via some sort of weakening of the dollar in a coordinated way or tariffs? What is the gap between what you see is actually going on and the sort of like the white papers that people put out on this? Okay, so, and this is all coming out of Moran's paper, as Tracy indicated at the beginning. I mean, he's put together the most kind of comprehensive analysis

strategy. And he acknowledges that there's a very narrow corridor within which this might work. And in some sense, the president has already gotten out ahead with his tariff tactics and also his threatening to withdraw the security umbrella from NATO. Because those are the two critical sticks that Moran advocated we use to induce

foreign central banks and foreign investors to continue to buy treasuries at favorable rates so as to continue to finance what is really a growing and potential, as Dalio said in your podcast, debt crisis. And just let me say maybe to frame that problem, today, federal debt to GDP is one-to-one. Federal debt is equal to GDP. Right?

We're running deficits at 7% of GDP, and the economy is kind of growing at one, two, little north of 2%. So the debt is growing faster as a result of the imbalance in the federal budget

where deficits are growing at the rate of 7% of GDP, which means the debt's growing at the rate of 7% of GDP, where our debt is growing now faster than GDP and is becoming an increasing overhang to the extent that when you look at the federal budget,

Interest expense has become the second largest category of federal spending. Issuing bonds to pay off bonds. That's right. So we're now issuing bonds to pay the interest on our bonds. This is a classic recipe for disaster. We're not even treading water. We're now slowly sinking behind a huge, under a huge pile of debt. So we have to get that fiscal imbalance corrected.

And as you were saying at the beginning of the podcast, Joe, now some very tough allocation decisions need to be made with regard to federal spending.

Because someone joked that when you look at the federal government, it's really a retirement program attached to an army. I mean, the largest kind of- I've heard it called an insurance program, but it's the same thing. Yeah, exactly. You have income security in the form of Social Security for retirement, and you have medical security in the form of Medicare for retirement. Right.

But when you add it all up, the parts of the budget that Elon Musk and his merry band of pranksters are off trying to slash is a relatively small part of federal spending. But it is the stuff that actually supports education.

transportation, housing, infrastructure, right? - The wider economy, some people would argue. - Yeah, that sort of stuff that is building human capital, building physical public capital, building housing structure, that part of the budget is a mere $700 billion out of a total spending of $6.75 trillion. The rest of it is interest on the debt, retirement security,

defense, and healthcare support. And so we're really in a pickle. We're going to see in the fall or maybe sooner when the reconciliation bills finally make their way to a vote on the floor of the House and the Senate, we're going to see whether or not this Congress really has the courage to

to deal with the allocation issues that you mentioned. Because in the framework for the House Reconciliation Bill, they call for $880 billion. That's over 10 years. So it's really not a lot. It's really like about $100 billion of spending cuts annually in Medicaid, transportation, housing, and education. Out of that, Medicaid is about $600 billion a year.

and the housing, transportation, education, that part of the budget is about $700 billion. So there's a

They're calling for a reduction of $100 billion a year against that $1.3 billion of Medicaid and the other social spending. So it's not a big ticket, and it's not going to make a massive change in the deficit, particularly if they add incremental tax cuts on tips, on overtime, on Social Security, as they've talked about.

You know, they're not really attacking the deficit. So we're going to continue to need to sell a lot of debt. So you've laid out the pickle problem very well, perfectly. Laid out the pickle problem perfectly. Say that. That's a good one.

The idea here embedded in the Mar-a-Lago Accord is that the U.S. could bring down its debt costs by getting foreign investors to swap some of their current treasuries into century bonds that would be less expensive for the U.S. to actually pay back. That's right. And so how do we induce them to engage in that exchange? So the two primary tactics...

that Moran lays out in his paper are sort of, you know, the way you do exchange offers in the private markets that I traffic in, the way you do an exchange offer is with carrots and sticks. You offer a sweetener and you threaten, you know, doom and gloom.

So the two primary tactics here are that you foreign country are going to face on the one hand a high tariff wall unless you play ball and on the other hand the withdrawal of our security umbrella. So if you want the protection of the largest and most powerful military in the world to protect your borders against a Russian invasion,

you're going to have to swap your debt that you currently hold, which is generally short-term bills, into what they're calling century bonds, a hundred-year bond at a low interest rate, which takes the refinancing risk of an indebted country away from it because we don't have to touch that debt for a hundred years. Terming out duration. Terming out duration. Right.

on the one hand, and reducing the interest burden of servicing that debt over time. So there are a couple of problems with this. One problem is that when you look at who holds U.S. government debt,

not more than 15% of it today is held offshore. - Yeah, it's come down a lot. - Yeah, it's come down a lot and much of that 15% is not in the hands of government instrumentalities but rather in foreign private investors.

So inducing that crowd to come in to this exchange offer, even if you could succeed, you're touching a very small part of the debt. So where's the rest of it? Where's the other 85% of our $36 trillion of outstanding debt? It's basically owned by us. Some of it's owned in government accounts and the Social Security and Medicare trust funds. But some of it is owned by banks and insurance companies. Some of it's owned by endowments companies.

and wealthy individuals. Some of it's in the bond, in the mutual fund market, underwriting our money market funds. So the reality is to get this done, we're really doing it with ourselves. But what we really need to do is term out our debt. And the problem we're facing right now is that

The cost of debt, the interest cost of our debt is relatively high. The 10-year is at 4.3, the 30-year, put aside what you'd pay for a century bond, 30-year is even higher. And the current average interest rate on our outstanding $36 trillion of debt is 3.3%.

So to term it out in this market would take that $1.1 trillion of annual interest expense up. If we had to term it out at 4.3 or 4.6,

We'd be talking about increasing the interest expense we're facing. So this intellectual architecture around the so-called Mar-a-Lago Accord has many flaws, not least among which is we're targeting foreign holders of our debt. We're targeting a relatively small part of it.

If the game plan here of that Mar-a-Lago Accord is to weaken the dollar so as to improve the competitiveness of U.S. domestic manufacturing, there is another approach. And that you've also heard a rumor of from the Trump administration, and that is the creation of a sovereign wealth fund to take assets that the U.S. government currently owns, dump them in a central fund managed by the Treasury Department,

And allowing the Treasury Department then to intervene directly into the foreign exchange markets to try and push the dollar down. I see. It's interesting because historically, sovereign wealth funds in resource-rich countries are often about keeping the currency strong, etc., especially for counter-cyclical elements. And so the idea that we would use it to intervene in foreign exchange is an interesting twist.

You know, you said something about restructuring and you said there's carrots and sticks in a typical restructuring. And imagine the sticks are, look, if you don't want to go along with this restructuring plan, then you're going to end up with like some sort of asset in a bankrupt company and it's going to be pretty bad for you and you're going to get less money and it's going to take a long time. And so, come on, go with the deal. It seems to me part of the problem, like just conceptually with the carrot and sticks approach is like you can't really threaten a stick, right?

if you're the US government without immolating yourself. Yeah. I mean, you really want to see rates blow out, have the federal government threaten to not pay its debts. That would be an event from which the financial markets might not recover.

Does the carrot hold any water here either? Because the carrot's supposed to be like, okay, maybe you don't get tariffs, maybe you get U.S. security, but that maybe is really important because what we've seen so far, it's only been two months, but we've seen Trump go back and forth, back and forth, back and forth. I think a lot of trust has been lost. Yeah. Well, and if you were going to use Trump

tariffs or the threat of tariffs and the threat of the loss of the security umbrella as the inducement to the exchange. He's already gotten out ahead of himself, right? I mean, he's on again, off again with the tariffs.

So the threat isn't imminent, it's extant. And as you say, the trust that he might change his mind the day after the exchange is consummated is real. And similarly, with regard to NATO, it's not obvious if I were a NATO country that I can rely on the United States any longer. You saw what happened in Germany. They've

gotten rid of their debt limit and are now going to massively increase defense spending in order to potentially defend themselves without the benefit of the United States security umbrella.

Poland's already done this. They increased their defense spending. Basically, the countries on the border of Russia, the Baltics, Poland, have all increased their defense spending, recognizing that they may not be able to rely on us any longer. So,

As you say, Tracy, he may have gotten out ahead of this to the point where this really can't be used as an inducement for an exchange of short-term to long-term debt. Joe, you know what I was just thinking? Say more. What if China exchanged its bills and treasuries for century bonds in exchange for NATO protection? First of all...

You know, there's obviously that history of the fact that at one point in time, China perceived its main adversary as the Soviet Union and did, you know, try to have that protection with the United States. So there is not zero history for that. Maybe a slightly realistic version of that is swap out your debt and we'll let you build BYD plants. Then you get that technology transfer and you sort of do the whole classic thing where the high tech country brings in their manufacturing and teaches you how to build giga plants and stuff.

I would be into that. Jim, say more, though, about an event from which the markets may never recover. That's not a term you hear. They always recover. But, you know, like when you get into existential questions about the sort of safety and risk freeness of U.S. debt, what do we talk about here? Yeah, I mean, the...

Once we went off the gold standard, once our currency and our debt was not convertible into gold, into a hard commodity, the reliability of the U.S. government debt is really a bet on the U.S. government economy, that the economy is going to be so strong that

and generate the capacity to pay taxes to support the repayment of the debt. And so these two things now, it's a confidence game and they're intricately linked. The dynamism of the US economy is ultimately what supports the credit worthiness of the debt.

But as your debt, and this is what Dalia was talking about, as your debt levels increase to the point where your ability to service the debt is called into question or your ability to service the debt is squeezing out the role that the government plays in buttressing, undergirding the dynamism of the economy,

you get to a point where investors start to worry about the durability of the debt, the ability of the government to pay the debt. And so the debt overhang itself becomes a retardant to economic growth. So if the dynamism of the economy is what undergirds people's confidence in

in our ability to repay our debts when due, we're in a world of hurt. I mean, I went to the speech of Besson Cave at the Economic Club of New York, and he talked a lot about, you know, unleashing the private sector, reducing regulation, freeing the banks to once again lend to the private sector, and withdrawing the Biden campaign.

stimulus to the various subsidies and procurement policies that were his attempt at reshoring, to withdraw the heavy hand of government from overriding the economy, the private sector. That's all fine and well, but the reality is that governments play an important part

in promoting the growth of their domestic economies. From as simple as connecting people and markets through roads and airports and railroads to ensuring that there is a healthy and educated workforce for private employers to be able to hire. These are really essential functions of government

Not least in and including the development, the investment in research and development and novel technologies that the private sector won't invest in because the commercial potential of them isn't obvious, right? So the basic research that we do through NIH and the National Academy of Sciences. We've done an episode on this. Yeah. This is a really essential function. So

there's a balance, right? I mean, and the success of the United States is a demonstration of the balance between private and public investment. The risk that we are in now, given the

A massive amount of debt we've accumulated and more importantly, the continuous reliance on deficits, on debt to fund our spending is putting us in a place where we really do need a fiscal consolidation plan. We have to balance revenues and spending. It doesn't have to be one-to-one.

But the deficit can't be growing faster than the economy. Or we're just, you know, piling up debt that will become increasingly more difficult to sustain.

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I want to go back to the sovereign wealth fund idea because when I hear that, it sounds like basically a shift from the U.S. issuing unsecured treasuries to secure debt. And when I hear that, I think back to a term that I used to encounter a lot when I was covering European covered bonds, encumbrance. Yeah.

Like there's a limited amount of collateral that you can put up into a bond and at some point you start to run out of it. How much collateral? I get that the U.S. is the biggest economy in the world and probably if anyone's going to collateralize their debt, maybe it's the U.S. But what exactly would they use to secure these things? Okay. So, you know, there's loan to value and then there's cash flow coverage, right? Right.

So, the balance sheet of the United States has a variety of hidden assets that are not really marked to market. You've heard a lot of talk recently about our gold stocks, right, that are, I think, at $42 an ounce when the price of gold is north of $3,000. If you remarked the tons of gold at Fort Knox and

that we own to market, it's probably $800, $900 billion. That's against a $36 trillion debt balance. That's a drop in the bucket. But then nothing. But it's not nothing. It's not nothing. We own probably a third of the land

west of the Mississippi. You know, the western states complain about this all the time, that the federal government and the Bureau of Land Management is an absent landlord. National park-backed bonds? Is that where we're heading? Yeah, God forbid that Teddy Roosevelt's legacy, great legacy, would be somehow undone. But put aside the national parks... It's all of Utah and Nevada. Yeah, I mean, Utah, Nevada, Wyoming, right? And then there's the vast expanse of Alaska, most of which is owned by the federal government.

So there are those kinds of resources. Now, they don't cash flow today, but there are mineral rights on these lands that could be like, you know, the many other countries in the world do with their mineral rights that they, you know, give private developers the right to extract and they create cash flows for the government on whose lands they're doing the extraction.

We have a variety of enterprises, commercial enterprises that we own equity in or own outright. The Tennessee Valley Authority is a huge electrical generation and distribution system in Appalachia. Fannie and Freddie taking over during...

the financial crisis where the government owns, notwithstanding what Bill Ackman is asserting, where the government fundamentally owns, you know, 90 to 95% of the equity value in them. You know, there are those sorts of things that the government could try to monetize and capitalize a sovereign wealth fund with. Now, having done that, let's say there's a

$2 trillion of land values, mineral rights, ownership in commercial enterprises that could capitalize a sovereign wealth fund. And some of those things cash flow, or you could design them to cash flow so the sovereign wealth fund would actually have income. And some of those assets could actually be monetized, like the equity in Fannie and Freddie and the equity in the TVA. You could actually...

privatize them, sell them into the public markets and create actual cash in the sovereign wealth fund as opposed to just asset value. So there you would have, you know, $2 trillion fund that could intervene in the foreign exchange markets to try to intentionally weaken the dollar.

Without having to engage in this exchange offer and term out our debt and try to, you know, browbeat with security umbrellas and tariff walls foreign countries to help us in that endeavor. It's still a big bet on economic growth though, right? Because the U.S. has to grow enough to pay off what it owes.

And if it doesn't, then at some point you have to hand back the collateral. And I think people would be sad slash annoyed if they were handing over all the gold or national parks, probably not national parks, but land and things like that. Yeah, no. First of all, we never pay off the debt.

We just outgrow it. That's the key here. The stock of debt is just refinanced and rolled over continuously. It'd be great to pay it down one day, but we actually don't have to do it. We just have to outgrow it. And there are a couple of different ways that countries have done this, some of which are more dangerous than others. You can inflate your way out of the debt. You just devalue your currency over time.

And the debt stock shrinks relative to the then current value of your productive enterprises because you've devalued your currency. And so the debt stock, which is fixed in amount, shrinks as relative to the size of the economy now denominated in much weaker currencies.

You can try this kind of Mar-a-Lago, you know, exchange offer. And then, of course, the worst of all outcomes is an outright default where you restructure the debt. You know, it seems to me, and I said in the beginning, I sort of conceptualize these things in terms of resource allocation and who gets what. And it seems to me, you know, yeah, you could revalue the gold in Fort Knox and probably people are sitting here thinking like, why wouldn't you do that if it's, you know, it's $3,000 and we have it at 40 or whatever? Of course, no doubt.

Just do it. But that doesn't produce more doctors. It doesn't produce more beds for hospitals. It doesn't produce more food for senior citizens. You know, like when we're talking about these resource constraints, which is how I sort of think about it, it's an accounting trick, right? Because it doesn't ultimately, it doesn't create any new factories. It does not do any of that. Anyway.

Let's talk a little bit more. You know a lot about Fannie and Freddie, and you've made a reference there to Bill Ackman. And the thing that I'm trying, you know, there's obviously big profits being generated by these government-owned enterprises, and private investors would like access to those profits so that they don't just get to the treasury. But then to me, there's the question of like, can you do that in a way to avoid the problem, which is that investors get access to those cash flows or access to those

profits without the implicit guarantee of the government? Because obviously, you'd love to keep both, right? You'd love to privatize the profits and keep that backstop. Is there any conceivable way to privatize them and actually not have that backstop in place anymore? I think the expectation is they would implicitly keep the backstop. That's what investors want. How is that fair? I don't know.

Well, this begs the question, why bother doing it at all, right? Is there a way to do it that's not just a giveaway? Yes, there is. Okay. So there's a lot of history here. Yeah. So before the financial crisis...

These government-sponsored, government-chartered entities had a special charter that enabled them to borrow from the Treasury Department. And that was the source of their being viewed as ultimately backed government.

by the Treasury Department, even though what they could get from the Treasury Department was a mere fraction of their balance sheet size. But the fact that they had that entitlement gave investors the confidence that in a pinch, the government would step in and take them over. And we had a pinch in 2008, and the government did, in fact, step in and put them into a conservatorship. The conservatorship was structured

to make that implicit backstop explicit. And the Treasury Department entered into a preferred stock purchase agreement with each of the entities under conservatorship, pursuant to which the government actually purchased $192 billion of preferred stock in the two entities.

infusing $192 billion worth of cash of Treasury Department cash authorized by Congress under the Housing and Economic Recovery Act of 2008 into the enterprises. In exchange for equity as well, right? They got preferred stock back, right? A senior preferred stock. That senior preferred stock carried a fixed dividend, which was converted into a variable dividend in 2012. Right.

in order to keep them from having just to borrow more preferred to pay off the dividend. And so they were only then required to pay a dividend to the extent that they were profitable out of their net profits. And were they profitable? They have paid the Treasury Department back now

$302 billion on that, characterized as dividends on that $192 billion par investment. Yeah, not only are they profitable, they've also, as I understand it, kind of restructured their business and increased their capital. Basically, like gotten ready for a sale while generating a profit, which is pretty impressive. Yeah, so that...

The dividend stream to Treasury, which generated $302 billion, was turned off.

in 2018 to allow them to build capital in anticipation in Trump administration one that they would be privatized. And so they allowed them to build capital. And so the treasury department hasn't received any dividends since 2018, so seven years ago. And during that seven year period, Fannie and Freddie have built between the two of them almost $200 billion of capital. Wow.

That's still short of the capital rule, the capital regulation that was created for them during the conservatorship. But they're pretty damn close, probably two years away from meeting their minimum capital, their so-called CET1 capital levels.

You know, there are many of us who think that the capital rule that was created for them grossly over-solved for how much capital they should carry. Right after the financial crisis, everyone's nervous. Exactly. And so, you know, as with the big banks, the so-called SIFIs, Fannie and Freddie have been subject to so-called stress tests.

to see how they would fare in a severely adverse scenario where the financial markets decline by 20%, interest rates go up by 10%, unemployment skyrocks.

housing prices collapse, blah, blah, blah. They've been subjected to stress tests over the last couple of years. And those stress tests show that basically their losses would be less than like $10 billion. And so to have them carrying around, in Fannie's case, $156 billion of capital, and in Freddie's case, $120 billion of capital against

What the stress tests show would be negligible losses seems like a waste of that capital, just grossly over-solving them. But I'll get off my horse on that. Leave them with those capital levels, $156 billion and $120 billion, respectively. They would need another four years of retained earnings to reach that. So if you weren't prepared to let them out of conservatorship,

until they were fully capitalized, you'd wait four years. And then they'd be fully capitalized under that rule. And then the question goes to the backstop. Why privatize them and can they be privatized without an explicit government guarantee? Well, there's no reason in law or fact that would prohibit them from carrying that preferred stock purchase agreement, that equity backstop out of conservatorship

And having the Treasury stand behind this $270 billion worth of capital with a commitment to buy $250 billion of capital should the need arise. So if in my view, Fannie carrying $160 billion and Freddie carrying $120 billion is already overcapitalized, well, we're going to almost double that with the Treasury backstop.

And Treasury should be paid for the privilege of standing behind them, a commitment fee. And could the earnings would support a commitment fee. But that would give comfort to the markets that there's enough capital behind them to ensure the prompt payment of principal and interest on the underlying mortgages that they guarantee. The benefit to the government of doing this, instead of leaving them in conservatorship,

in perpetuity is that the government owns 90 odd percent of the equity. They own the senior preferred stock, they have a warrant to purchase 80 percent of the stock for a penny.

You do a classic recapitalization, turn the preferred stock into common, diluting the existing common and the Treasury Department's warrant. And the Treasury Department will end up owning 90% to 94% of the total common stock of cleanly capitalized companies. What's that worth? The CBO did a recent analysis and said, well-

This is the Congressional Budget Office did a recent analysis, and it's filled with lots of assumptions, and you could quibble with some of them. But it's a dividend discount model, which isn't unheard of in the valuation of financial institutions. And they suggested the equity, the total equity, of which I think the government ends up with at least 90%.

when you recapitalize them. The total equities were somewhere between $300 and $500 billion. That's a decent number. That's a decent number to put in your sovereign wealth fund or to pay down some of the deficit.

The one question I have is, okay, if the GSEs are privatized, the government gets a payout of an unknown amount, but it could be pretty decent, as we said. Is there anything that Fannie and Freddie actually start doing differently once they're privatized? So they get an influx of private capital. What do they do with it? Okay.

So this is a critical question of whether they're going to be allowed to go back and do the kinds of crazy things they did prior to the financial crisis that got them into hot water. One of the great innovations, along with Dodd-Frank, coming out of the financial crisis was a new statute governing both the federal home loan banks, Fannie and Freddie.

It's this Housing and Economic Recovery Act of 2008, which created a new, stronger regulator called the Federal Housing Finance Agency. This is the agency to which Bill Pulte has just been confirmed as the director. But that agency has...

significant supervisory and regulatory powers to constrain the business model that Fannie and Freddie can pursue. So, I mean, just to do just a touch little more history, if you look back to 2003 through to 2008, you know, what really got Fannie and Freddie into trouble is they were running hedge funds. They were a government-sponsored hedge fund beyond the basic business of securitizing

so-called conforming mortgages, 80 LTV or less, safe mortgages, besides packaging them and securitizing them and guaranteeing the payment of principal and interest on those mortgage-backed securities, of which there are now $7.5 trillion outstanding. So they are the big factor in that conventional mortgage market situation.

In the run-up to the crisis, they also expanded their balance sheets. They borrowed money at near government rates, levered themselves up and bought all day subprime, no-doc private label securities in order to goose their earnings. And they did it on a highly levered basis.

One of the great reforms that has occurred during the conservatorships is those portfolios have been completely wound down. And so today, the only balance sheet that they have is to facilitate a securitization business they're in. So they buy mortgages that have been originated by someone else. They pool them.

And then they securitize them. And with the proceeds of the securitization, they repay the debt that they incurred to buy the mortgages in the first place. And similarly, when mortgages go bad in the MBS and the securitizations, in order to fulfill their guarantee of prompt payment of principal and interest on those securities, they buy the mortgages out of the pools and

restructure them and modify them. Which is why agency MBS is treated as a very safe and liquid asset for bank capital purposes. Exactly, because Fannie and Freddie are there to guarantee the prompt payment of principal and interest. And now if we go back to the privatization process,

right? What will back that guarantee is both the $280 billion of capital directly on their balance sheets, as well as the preferred stock purchase agreement with $250 billion of unused capacity. So behind that guarantee will stand more than half a trillion dollars of capital. And so that this is, you know, when I get into debates with people about

people who were opposed to the privatizations, about whether or not the privatization would create instability in the MBS market because would they suffer a ratings decline and therefore attract higher capital for anyone who owned them and therefore higher rates on the mortgage-backed securities, which translate into higher rates on the mortgages themselves,

That is the big question. Is half a trillion dollars of capital standing behind the guarantees enough to keep the credit ratings on the MBS stable and in place? I think it is. But at the end of the day, there'll be a conversation with Moody's and S&P and Fitch.

And they'll have to decide whether they remain near sovereign credit. Oh, it's kind of funny that the credit rating agencies are like... It's still in control. Yeah, exactly. Okay, so we've talked a lot about creative ways for the U.S. government to raise money and pay off its debt. There's one we haven't talked about yet.

which is one of my favorite financial topics of all time. Oh, no. And that is the bonds owned by the U.S. issued by other countries, really old ones. Oh. Like Chinese imperial debt. Or did you know the U.K. owes the U.S. a lot of money from like World War II loans? Oh, still. I didn't know that. I didn't know that, no. And as an intellectual curiosity...

I find it really interesting to think about the question of what would happen if Trump decided to go after those as a way of raising money. And this actually came up in the first Trump administration. The Treasury was looking at ways to get a payout on the Chinese bonds. And funnily enough, it was doing that at the same time that the SEC was prosecuting someone for selling those bonds to investors and promising a payout.

That's fun. That could be fun. So these are, I don't know anything about this. These are bonds issued by predecessor governments in China. Yeah. You know, there is some history of, I'm aware of some Tsarist Russia bonds. Yeah, those are the famous ones. Yeah, that are out there. Shortly after the collapse of the Soviet Union,

The French government and the British government, representing French and British bondholders, got the Russian Federation to acknowledge those bonds and make a payout on them because the Russian Federation was desirous of having access to the capital markets in Europe. And the quid pro quo was to pay off the debts of czarist Russia. Right.

Well, we're in uncharted territory. We surely are. So even this little intellectual exercise at the end of the conversation may one day not just be an intellectual curiosity. Jim Milstein, so great to have you back. Thanks, guys. We could just talk to you for hours and hours. Thank you so much, yeah. But that was a fantastic, thorough conversation. We appreciate you coming back on Outland. Enjoyed it, though. Thanks. Great. ♪♪♪

Tracy, I love talking to Jim. He's so good. He's great. And he lays everything out so clearly, which is very useful when we're talking about a hypothetical like this. The one thing, well, there are a lot of things that I think are funny or ironic in some of this discussion. But one of the big ironies I think about is

Treasuries are kind of the US's biggest export. And Trump is obsessed with exports, but he doesn't want to export those particular things, even though you could make an argument that debt helps to grow the private economy, as Jim was discussing.

It is funny. I mean, look, I guess I'd rather us export real things that employ people. He could just take the win, right? Take the win. Yeah, we're a big exporter of these pieces of paper, not even pieces of paper anymore. No, I thought that was like a great conversation. And look, the way I see it is...

Some of this stuff could be playing with fire. Like, we really don't know how some of these goals – it's like, we're going to like – the fact that Germany itself is rearming and that for decades and decades and decades, this sort of –

entire premise of sort of western geopolitics was preventing germany from rearming that was in itself this sort of it's sort of like this like massive pivot in world history feels like for me and you know who knows decades from now you know we don't we might not know how uh the consequences of the ways that geopolitics have been reshaped by that decision well this is the norms point right yes like

Norms, it turns out, are actually pretty important. And there's a risk of what happens once they're gone or they start to change. Yeah, I would say two points. I mean, one is, yes, norms themselves, I think, are pretty important. And then you get into things that are sort of beyond norms questions. Like once you bring in the conversation about and again, I don't know how serious it but like restructuring debt or et cetera, you're like go beyond norms and you actually like you could trigger problems.

trigger formal things no that's still a norm though i guess no i mean it's like historically has not defaulted on its debt no but it's like there are things in pieces of paper right that like when you don't when you like try to change there are legalities yeah but frankly legalities are being treated as norms now right i suppose so yes i suppose so shall we leave it there

Let's leave it there. This has been another episode of the Odd Lots podcast. I'm Traci Alloway. You can follow me at Traci Alloway. And I'm Joe Wiesenthal. You can follow me at The Stalwart. Follow our producers, Carmen Rodriguez at Carmen Arman, Dashiell Bennett at Dashbot, and Cale Brooks at Cale Brooks. For more Odd Lots content, go to Bloomberg.com slash Odd Lots. We have all of our episodes in a daily newsletter. And you can chat about all of these things 24-7 in our Discord with fellow listeners.

at discord.gg slash oddlots. And if you enjoy Oddlots, if you like it when we talk about U.S. debt restructuring, potential U.S. debt restructuring, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening. ♪

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