The host of Wall Street Week David Westin joining us as he does every day
around this time. And David, there's supposed to be a big
meeting today down in Washington, the second meeting between the president of
the United States and the speaker of the House, hopefully trying to resolve their
differences over the debt ceiling. But based on some of the political
rhetoric I've heard, it doesn't seem like they're any closer.
Exactly. I think it comes up in like 10 minutes.
Opposers of the White House and hope is the right word is hope rather than
really expectations. But because, as you know, Kevin McCarthy
through the House is going in this actually, if anything, hardening his
position, saying we need those work requirements, is that the person buying,
say, off the table so that really it's really good to come to a head here
pretty soon as prison mind getting on a plane to go over to Japan.
Well, then that raises a question as to sort of what options the White House and
more importantly, the Treasury would have should we actually do end up at
that fiscal cliff? Yeah, and that's exactly why we talked
to Bob Hormats about, you know, Bob. He was the former undersecretary of
state. He also was former vice chairman of
Goldman Sachs. We asked him actually how big a problem
this is and what are the options open in Washington right now?
Ultimately, there has to be some sort of compromise between Republicans and
Democrats and within the Republican Party and within the Democratic Party,
that makes it even more complicated because the parties are divided
internally. But the second is that people have to
begin to take this much more seriously. There's a lot of complacency there, even
some people who draw pleasure out of the fact that they're using the debt default
threat as leverage.
The fact, however, is if you look at American history,
every administration has understood that you have to make big compromises if
you're going to solve the problem. And we're not at that point yet.
President Biden has said he will not really tie the debt ceiling issue to
cuts in spending. They have to be separately dealt with.
Does he have a way not to compromise, you say, as a Covid?
Does he have a way? Some people are talking about
extraordinary things like the 14th Amendment.
Well, the amendments are interesting, but they're actually two amendments in
the Constitution are two parts of the Constitution.
One is article six of the original constitution, which says that the new
government under the Constitution would pay the debts of the old government
under the continental Congress. That was a big issue.
The other thing is that the government would pay the state debts of the
Revolutionary War. Then you get to Article 14.
And again, it makes the point that the government is responsible for all the
debts incurred in the war. I understand what you're saying about
the Constitution and the circumstances gave rise back when there were countries
originally written and then after the Civil War, the 14th Amendment at the
same time. How do the markets react to all of this?
I mean, we talk about some extraordinary action that's untested in the courts
with the markets stand still for that. They need some certainty and not sure
you get certainty if they invoke the 14th Amendment.
Well, they during the civil war, after the civil war, there was a feeling that
the 14th Amendment would provide that certainty.
I totally agree now that it would be contested in the courts and it might not
hold up. So I think to rely on that
in this environment really in a ways skirts a broader issue.
And that is at some point a fundamental bipartisan compromise that
on one hand ensures that the United States will pay its debts.
On the other hand, ensures that the United States will stop accumulating
more and more debt at the rate it's been doing.
But fundamentally, you can't circumvent the political process.
Bob, you spent your career as a diplomat as well as on Wall Street.
You really ride both horses, as it were. Have we done real damage already to the
credibility United States, even if we come up with a compromise?
Yes, we have the fact that that the the notion of repaying our debt, honoring
our debt is even in doubt and is a hot potato political issue.
And we don't have bipartisan agreement on it leads people to doubt the
credibility of the United States. I'm actually surprised the markets are
not more upset because they they're thinking, well, ultimately, we solve
these problems in the past, will solve them this time around as well.
But this time around is different because I think you have huge divisions
within the political parties. And you also in the past have everyone
have had everyone more west saying you gotta resolve this issue.
Now, they're actually people who don't seem particularly preoccupied with or
committed to resolve the issue. Bob, if the Unites States would do the
unthinkable and not pay the debts that it's incurred, obviously would do damage
at home as well as abroad. But let me take the other side of it.
And particular what the republics are pressing for is there's some damage
being done. The United States, by running up all the
debts and deficits that we are running out, because our strength abroad, as I
understand it, really depends on our strength at home.
Absolutely. And I.
And that's why I really put the two together.
I think it's important that we repay our debts.
But I think it's also important that we get off this track that we have been on
for the last decade or so of accumulating more and more debt.
We're used to accumulating debt during wars.
And then when the war is over, we pay it back.
Or then you have something like the pandemic where you need money for a
period of time and then the country pulls together and figures out ways of
paying it back and servicing it. That's that's now gone.
There is a notion that parties can compromise on one thing in Washington
that is on how to spend more money. So there needs to be some discipline.
It may look easy to this generation, but won't look easy to our children or
grandchildren. They're the ones who will inherit the
burden unless. This generation is much more responsible
on fiscal policy.