The Exchanges

Q And, um, let me ask you one more question as we kind of Get to the end, but, uh, what's been the most surprising thing for you in this role since you've, um, since you've been in office?

A The national security aspect. That I, I would say, 40, 50% of my day, uh, Treasury does a lot of national security work. Whether it's CFIUS in terms of, uh, foreigners who want to buy U.S. assets, whether it's sanctions, whether it's OFAC, Uh, anti-money laundering. We, we've just designated the Mexican cartels as foreign terrorist organizations. Uh, we, President Trump, over the weekend, launched a very, uh, aggressive strike on, missile strike on the Houthi assets. Well, underneath that, we'd already been working for several weeks on their bank accounts. I see. So, or anyone who is adjacent to them. The Iranians supply the Houthis with the, their ecosystem Previous to my getting here, uh, treasury had disrupted the ecosystem so much that, uh, the Iranians used to hand them cash. Now they're just handing them here, take, take this oil tanker and try to sell it. Right. So there, there is the ability to, to break that down.

AI assessment note: “The national security aspect. That I, I would say, 40, 50% of my day”

Q artificial constraint that's created by the zoning paradigm, and it's not clear how you unlock that. You know, maybe is it up to private citizens to sort of, like, have regime change at the local level? Um, but how do we sort of unclog that part of it to marry up with this kind of stuff? Because it would be great if you could just build up in many places.

A Yeah, well, I, I think there are a lot of things where you can look around and find What's interesting that some, what's something that's interesting that's being done somewhere? So I lived in Greenwich, Connecticut for a while. Maybe the richest suburb in America. There's a ton of multifamily there. Very expensive, very nice multifamily. There's some affordable housing, but Greenwich is not all 10 acres and a horse farm. The state of Connecticut has put in a, I guess it's a law, that every municipality has to allocate 10% of vacant land to multifamily, and if the zoning board won't give you a hearing, you as a developer, you as a non-profit for housing, can go over the top and go to Hartford, And then Hartford will give you the authority. Well, no, no town wants the state doing on their behalf, so now the towns negotiate.

AI assessment note: “The state of Connecticut has put in a law that every municipality has to allocate 10%”

Q the economy, 18% net negative. And so this is quite paradoxical, obviously, since Trump was elected and considered historically very strong on those two specific issues. So the question to you is, are the American people wrong? Or maybe did President Trump set expectations too high during the election? Or do you just need more time to execute, and you're asking the American people, humbly, to give you more time?

A Well, I, I think it's C, because as Vice President Vance has said, we didn't get here overnight. We inherited a mess, and I think twenty-twenty-six is going to be a, a very good year for the American people, for mainstream. And what we are not going to do is, A, Which is what the Biden administration did, and it met many commentators, whether it was Greg Ipp in the Wall Street Journal, the toxic Paul Krugman, who seems to have been booted from the New York Times and is relegated to Substack, or the former vice chair of the Fed, uh, Alan Blinder, and they said, oh, no, you don't understand how good you have it, you know, eat, eat your grip, Drink your grog. Have your bread. Peasants, um, we'll give you a little more that you, it's a vibe session, and we're going to explain to you why you have it really good. We understand that the American people are hurting, and I think the way to think about it is there is a price level that things Appreciated to during the Biden administration. Then there is the inflation level. The price level has gotten very high. Uh, I think cumulative CPI during the Biden administration was 21, 22%. There's a wall street firms called strategist research. They do something called the common man index, and it is what working families need gasoline insurance. Uh, all those mostly used cars rent. Staples, and that appreciated by about 35%. So people are seeth…

AI assessment note: “Well, I, I think it's C, because as Vice President Vance has said”

Q where people are overbidding, uh, the, the, the remaining housing stock. So what can you actually promise to the American people will happen in 20, 26 on main street? We know wall street's going to be fine. And these American entrepreneurs and these companies are firing on all cylinders. Fantastic. Lots of regulations taken out of the way. But what, what can Main Street expect from the administration in 2026?

A Jason, two things is one, there's nothing I can promise because there's always a degree of uncertainty. But one of the things that we've been doing here at Treasury, when we talk about loosening the financial regulations, that the Companies that suffered the most under these regulations were the small banks. So we have seen small and community banks disappear at an alarming rate. About half of them have disappeared since the GFC. So I, what I can promise is that the regulatory regime for those banks is being loosened and is the, the saying that there's Three, eight banks in the US that are too big to fail, that the policies since the GFC were too small to succeed. And we are doing everything to unleash the lending capability of these banks. Their profit, their profitability will enable them to be part of their communities to lend more. Uh, uh, 70%, I think I do the statistics, 70% of ag lending, 30, 40% of real estate lending, 40% of small business lending are from these main street lenders. So I can tell you there's going to be a bigger availability of credit. I can tell you that we are not going to blow out the budget deficit and cause, you, you will not see an MIT study that says that the Trump two point O caused inflation through the budget deficit. And I, I can also tell you that we are working to increase Working wages. In President Trump's first term, hourly workers did …

AI assessment note: “I can tell you there's going to be a bigger availability of credit.”

Q key industries and key businesses, and also has concurrently provided either regulatory unlock or some sort of trade participation. Can you just comment on what some people are calling state capitalism? Is this, from your view, a set of strategic interests, or is this a permanent shift in how the government plays a role in the economy and And, and how does that make sense from a free market perspective?

A David, I think it goes back to the idea that free, pure unfettered free trade was not fair trade. When, when you have competitors, whether they're China, China, Vietnam, some others, uh, sometimes in, in Europe that have high subsidies, then like the, this idea that perfect Ricardian equivalents exists doesn't. And we can see by these distortions that developed these huge capital pools that have developed because of the imbalances. So that's one point, but that's trade policy. But on the other side, there's national security policy. And the only good thing I can say about COVID is it woke us up to the national security took us out of this paradigm. That elongated, free-flowing supply chains, wherever they may be, were the best. That the, um, that the most smoothly functioning was desirable. Well, it turns out that the most efficient is not always the safest, the most robust, or the soundest, and we saw that during COVID. We, we discovered that the Chinese became unreliable suppliers. India and some of the other countries, they acted, surprise, surprise, in their national interest. So, uh, what we, if you look at the industries where we are taking stakes and moving forward, we've identified five to eight strategic industries where the U S we have to have endogenous production, or at least adjacent to us in North America or this hemisphere. Um, we, and I, I think of it As it's th…

AI assessment note: “we've identified five to eight strategic industries where the U S we have to have endogenous production”

Q guess this may be a question that brings in two other issues, the fiscal issue and the economic issue. Is that a reflection of the state of the fiscal affairs of the federal government, the state of the economy both, or the state of markets selling off bonds? And doesn't the Fed have an important role to play in bringing those rates down and making rates accessible for Main Street?

A Well, I, I think what the Fed did, unfortunately, they took modern monetary theory from, you know, I say they went from MMT, modern monetary theory, to MMP, modern monetary practice. So the, the, the, the Biden administration issued all this debt, and the Fed, the Fed bought it. And there, there's a very good study from MIT that's come out that shows, you know, in a way that only PhDs at MIT can be very precise. 42% of the great inflation was caused by the budget deficit. Another 17% was caused by the increase in inflation expectations, which I think you could tie back to that. So you've got almost 60%, David, that was caused by the spending of the inflation. And I think, well, again, if I go back to my earlier point, I think what we're not getting credit for here is that if we can Stabilize the budget deficit, even bring it down, that that will contribute to disinflation. If I think about central bank credibility, in my career, probably post-World War II, no central bank had more credibility than the Bundesbank, uh, up until the advent of the Euro, but they controlled the German, they worked with the German government, and they would work with each other hand in hand, The Bundesbank would say, if you give us the fiscal control, if you give us, if you are not prolificate, if you give us the reasonable fiscal balance, we will work with you. We will foam the runway to allow you t…

AI assessment note: “We will decrease interest rates. And I, I think that's something we could be doing here.”

Q a lot of talk today about the amount of capex spending that needs to go into AI, and all of the jobs that it creates, and you, uh, posted as well, actually, a couple days ago, and you talked about that there's just been an inflection point that you've seen in capex spending, sort of as a steward of the U.S. economy. Can you tell us about what, what's happening?

A So, it's combination, and it's a barbell. So, uh, I, I've been in Pittsburgh twice in the past four weeks, Four weeks ago, I went with President Trump when he announced the U.S. Steel, Nippon Steel deal, substantial investment by Nippon Steel into an old, ah, very important industry, and then last week, on Tuesday, there, there was an AI Summit in, in Pittsburgh, all the big players, and Pittsburgh is a natural location, ah, for AI, ah, lots, lots of cheap energy, Carnegie Mellon, Pitt, uh, are there, and so it was very interesting to see the juxtaposition there, but we are seeing, uh, this incredible CapEx. The hyperscalers are, uh, obviously been in an arms race, kind of, you know, the big five, the big seven. We estimate that that is approximately one percent of GDP a year.

AI assessment note: “We estimate that that is approximately one percent of GDP a year.”

Q Scott, what, what is the American dream today, do you think?

A Uh, look, I, I think the American dream's what it, what it's always been, but after World War II, I think 90% of American families, uh, The, the children made more than the parents. Now, now I think it's fifty-fifty. But, you know, it's to, to own a home. It's financial security. It's to, uh, some, some level of comfort. It's purpose in your work. It's the, uh, to be able to support your family, uh, to be able to have choices to not have to work too Two jobs. I made a remark at the Economic Club of New York. Last week, two weeks ago, and Mike Pence decided he was going to troll me, and when, because I said the American dream is not built on cheap goods.

AI assessment note: “to own a home. It's financial security. It's to, uh, some, some level of comfort.”

Q it seems like the tariffs have had an enormously positive impact. It's given you a lot of tools in the toolbox to work with. Why do you think so many people got it wrong? A lot of people I'm sure that you've known and worked with in your prior life as a hedge fund manager. What did they get? Wrong. What did they miss that you were able to see?

A Well, I, I, a couple of things. I, I think people didn't have an open mind. They became the Trump tariffs, which immediately a large cohort of whether it was government officials, industry people, the general population, because President Trump wanted to do it, it must be bad. I, I said the other day, President Trump cured cancer. But it caused dandruff, then people would say, well, you know, President Trump has caused a dandruff epidemic. And, um, look, there's a lot of orthodoxy that hasn't worked. If we look back, Early, early 2000, letting China into the global trading system, that they would become more like us. And there was a point, and I'm somewhat sympathetic to the people who believe that, but by 2013, when Xi Jinping came in and great writers like Elizabeth economy, who had been of that view reversed and said, he's a different kind of cat. It's no longer going to be a Chinese policies. With capitalist tendencies, it's just gonna go back to, you know, hard communism, Leninism, and I, I just think that It was a failure of imagination. I, I've said several times people, and maybe we'll talk about it today. When people ask me, what are you looking for in a fed chair? I said, it's someone with an open mind. If we go back to the 19 nineties, Alan Greenspan did a magnificent job because he had an open mind that the internet office modernization boom was going to create a pr…

AI assessment note: “I think people didn't have an open mind. They became the Trump tariffs”

Q over those numbers. I think maybe you could address it, which is the BLS filled in a lot of the non-survey data sources with some zeros and potentially the criticism now or the concern On Wall Street and from analysts is that maybe this 2.7 number is over optimistic. Maybe you could address people's concerns. And can we trust you with the numbers? I think is what Wall Street's saying.

A Uh, well, you know, again, it's amazing when a good number comes out, then it switches to that, and Jason, just let me tell you, every, every Wall Street predictor on Bloomberg was wrong. So, what do you do when you're wrong? You blame the measurement, you blame the data, and there, there's always a lot of imputed data in any of these numbers. That's why we get revisions, and I, I'm looking at, I was looking at the numbers, And paradoxically, the two things that I think are coming down the fastest, which are rent, uh, also it's known as the owner, owner occupied, uh, funding or owner occupied rent, uh, that was actually up on the month. I believe it is, uh, turned negative. And then the other thing that was up was energy and gasoline, which we can, uh, Is an observable event that those prices have decreased substantially from September, October. So I actually think it was a pretty accurate number.

AI assessment note: “I actually think it was a pretty accurate number.”

Q order to do whatever it is they wanted to do anyway. So it was sort of like, let me just find the data that justifies what my action is. Um, And part of why you can't, I think, tell this story is, do you trust the GDP numbers? Do you trust nonfarm payrolls? Do you think these are reliable enough for you to act on behalf of the United States?

A No, look, they're subject to big revisions over time, and I thought one of the big mistakes the Biden administration made, and thank goodness they made it, was they refused to, they went with the numbers, not what the American people were feeling. They said, No, it's a vibe session, and you really don't understand how good you have it. You know, this has happened, this has happened, when in reality, I was on Meet the Press yesterday, and there was something that said, well, the American people don't believe Donald Trump's doing enough on the economy, and I told the host, I said, you know, the one thing I'm not going to answer is that they don't know what they're talking about. I have to have respect for how they feel, and then we need to go back and look at what is causing this anxiety. So that's what, that's what we're going to do.

AI assessment note: “No, look, they're subject to big revisions over time”

Q Can we forecast these tariffs through 28, or do you think that we have to have moments where, whether it's the Supreme Court who's opining on One body of language versus another may change your course, but do you feel confident that we can forecast these revenues now out through the balance of President Trump's term?

A Well, I, I think the, I think the revenues are, are a combination of revenues. So the, the ultimate goal of tariffs, the revenue collection, I think of, in a way is a payback for The imbalances that have gone on over the years, but over time, the real idea is to balance trade and reshore manufacturing and bring our economy into balance with our trading partners. So what should happen is over time, tariff income will come down and U.S. tax receipts will come up, whether it's from factory jobs or more manufacturing, And through higher payroll taxes. So we will, we will start off at this very high level, then we will rebalance and come up. So I, I think it's difficult to know the timing. We know the direction, we know the destination, but the, the timing's difficult on terrorists versus increased domestic tax revenues. What, what I can say is when, when I got into the investment business in the 19 eighties, There was always a focus on trade and how much were we making in the US? And again, that everything made outside of the US is a decrease in US GDP. So as we bring it back, I think we're going to start looking more at the content of trade versus domestic manufacturing as a component of GDP acceleration.

AI assessment note: “I think it's difficult to know the timing. We know the direction, we know the destination”

Q maybe, as we wrap this up. Secretary, as an economic historian, maybe just very briefly tell us the lessons of these previous economic expansions, technological booms, What we need to learn from those things, whether it was railroads, or whether it was the agrarian revolution, or the industrial revolution, so that we don't screw up the AI revolution. What are the few critical things we need to do with it?

A Well, I think the most important thing that we are doing is getting out of the way and setting the, the conditions for it, because I, I would say one of the surprises that I, I've had, and I've had a lot of them, you know, when I went from civilian To a public servant has been that in the U.S., we've made it so hard to build things. Right, right. And it, it's just very frustrating. I, I, I'm sure Doug, Doug and Chris will talk about it, but this, this idea, TSMC wants to build a gigantic fab system in Arizona, and I, I think it might be able to, Produce up to seven percent of the chips that the United States needs, and they're dealing with local building inspectors. And evidently, like, these chip design plants are moving so quickly, you know, you're constantly calling an audible, and you're saying, well, like, Three months ago it looked like this, but in 18 months we've now decided it needs to look like this, and you know, you've got someone saying, well you said the pipe was going to be there, not there, we're shutting you down. So, and they're just the level of permitting, we always talk about how, I think I may have even talked about it on your podcast, how Germany had de-industrialized.

AI assessment note: “the most important thing that we are doing is getting out of the way”

Q get rid of the QE portion of what they're doing? And how do they pick? Like, how do you pick whose corporate debt you buy? You know, are you buying Nvidia's and Uber's and Google's because those are great companies or Microsoft's? Are you buying, you know, Ford's or Struggling companies are struggling airlines. How are those decisions made and should the American people be buying those things and why?

A Yeah, so there's a lot to unpack there, ah, that absolutely, large-scale asset purchases should be part of the so-called central bank toolkit, but I, I think if we go back and look at COVID, which, which was a real test, the, the Bank of England had the best model. The markets became unhinged. They stepped in for a period, I can't remember whether it was 3060, or 90 days, They stabilize markets and they, they were the buyer of last resort, which is classic theory for what a central bank supposed to do. They're supposed to provide liquidity. They're supposed to open a window where financial institutions can pledge collateral and do it that way. Um, and you know, I'll just point out that when the bond yields were quite high, the fed did buy quite a bit. Uh, and they would actually have a large profit if they stopped during, during that period. Instead, they continued on when we were the near, near these, the zero bound. And what we've ended up with here is they push the asset price up. The interest rates were low. Many people couldn't buy a house during COVID, but now the interest rate has normalized and we're just in a much more normal period For interest rates, but we're not in a normal period for asset prices because so many people still have the three percent mortgages they have from COVID. And back, back to your question on what should the Fed buy? Traditionally that the Fed…

AI assessment note: “they were buying indices of high yield bonds, of, of corporate bonds”

Q Chris Waller, Rick Reed. How do you think each of those will try to reshape the Fed more in this constrained mode that you're advocating for?

A Well, I, I, I think many of them have already come out and said that they Uh, do want to shrink it both as the footprint of the institution in the economy, but shrink the institution itself. The, the, the Fed does not, as we talked about earlier, the, the Fed does not rely on appropriations. The Fed just prints its own money, and it has its own budget, and as I talked about it in the article, it has its own police force, it has its own, you know, we've seen the big cost overruns at the building, uh, here in D.C., If, if Treasury, we're looking at new buildings for the men of the Bureau of Engraving, if we had that kind of cost overrun, I can guarantee you that I would be up in Capitol Hill getting a, the well-deserved earful.

AI assessment note: “many of them have already come out and said that they Uh, do want to shrink it”

Q If you're now in the bond sales game, Secretary Besant, I mean, you've, you've been on the other side of the market, but now you're selling the bonds. What do you see in terms of appetite for US bonds? Has China disappeared? Are they still selling down? Are there other buyers emerging? And how does broader capital markets look to US debt in this moment?

A Well, it's, it's like the John Maynard Keynes said, a lot of, a lot of economics is a beauty pageant. You're just picking, like, who do you think is going to win? And the, the, the U.S. became the, the worldwide winner last year. We've had the best performing bond market, best performing market since 2020, and I, I think that was for a combination of reasons. One was the fiscal progress we made, and everyone went from the tick tariffs They're a doomsday machine to, hmm, maybe tariffs are taking us to the promised land in terms of fiscal pay down, and I also think inflation expectations have remained well anchored. Back to Jason's question, why two percent? We've chosen two percent, and I, I think it's very difficult to do a midair refueling or to call an audible on two when you're above two, because then it looks like when you're above a level, you will always fudge upward. So I, I think there is a very robust conversation to get back. Once we are back to two, which I think will be in sight, then we can have a discussion Is it much smarter to have a range? Like what, what drives me crazy? The economy, the markets are biology. They're not math. They're not physics. They're, they're nonlinearities. They're very complex systems. They're mutations in the system. And this idea that we can have this decimal point certainty is just absurd. So I, I believe that once we Re-anchor to the…

AI assessment note: “Back to Jason's question, why two percent? We've chosen two percent”