Wall Street Week 09/06/2024
More tragedy in the Middle East, more promises from presidential candidates and more hopes for a Fed rate cut. This is Bloomberg Wall Street Week. I'm David Westin.
This week, former IBM head Sam Palmisano on what went wrong at Intel. Intel is behind in the technology. They're no longer driving the innovation cycle. Scott Rechler of RXR on the state of commercial real estate. Commercial real estate is facing sort of this new paradigm. And Darren Walker, on his tenure as head of the Ford Foundation, leading to the new field of public interest technology, that there are so many ways in which we need a more public minded technology sector.
We start with U.S. jobs numbers out on Friday and what they tell us about the state of the U.S. economy with our special contributor, Larry Summers of Harvard. Larry, thanks so much for being back with us.
Sort of a mixed bag, I would say, in the jobs numbers. What do you take away from this. I don't think it was a green light or a red light for the Fed. The numbers certainly didn't show hugely pronounced weakness. But if you were concerned by the recent trend in the statistics, they certainly didn't give you a clean bill of health for the economy.
So I think because of the weakness, it's looking like a closer call for 25 versus 50 in September than was my guess, a month or a month or two ago. I don't think it's ultimately very important. Look, one of the things that's been in the news a lot this week has been the transaction, the proposed transaction of Nippon Steel buying U.S. Steel. We have both candidates speaking out and Kamala Harris has come out very strongly this week.
And it's something you've addressed before. In the law, we talk about hard cases make you bad law. Is this hard politics potentially making bad trade policy? You know, it hard cases have to make that law easy. Cases should not make bad law and should not set a terrible precedent. This is not something that should be brought to final resolution in a heated political climate. Of course, there's going to be skirmishing between the different parties, the union potential acquirer, the incumbent company, about just what the terms of any deal are going to be.
That's what happens in these things. But there is on the basis of everything I know, no legitimate national security or reasonable economic rationale for the prevention of this deal. Indeed, I believe that this deal will strengthen our national security by generating a far larger infusion of capital into the U.S.
steel industry than would otherwise be possible. I believe that it will favor broad U.S. competitiveness by providing for lower cost steel as an input to key American industries like automobiles.
With the whole automobile industry favoring this deal. And they have a huge stake in reliable, inexpensive steel as an input, and I believe strengthening our connections with Japan and with a major Japanese company is also strengthening our broad national position and the position of American corporations in the world. But to stop this or to embrace the principle that somehow these specific steel companies need to have an American owner would be to make a grave error and throw out large amounts of U.S.
tradition. And the irony is that I, as someone who grew up in Pennsylvania, have pretty high confidence. There are no certainties, but pretty high confidence that the state of Pennsylvania will be prosperous and with more employment opportunities if that cash is infused into U.S. steel than if this deal is blocked. Larry, it wasn't just about Nippon Steel that we heard from the candidates this week. We also heard from an economic policy.
We heard more. Vice President Kamala Harris. We also had the former president, Donald Trump, come to the Economic Club in New York. And set out a lot of different ideas. Start with Donald Trump. You haven't always been supportive of his economic policies. Did you hear anything you sort of liked? Look, I think his instinct that there are places where we have excessive regulation and where we need to be able to do things faster and more vigorously.
I think that's a legitimate instinct and I think that's important. It's something that's longstanding. Bill Clinton and Al Gore used to talk about reinventing government. Do I think that having Elon Musk advise on reforming government procedures is likely to be in effect, his strategy or a strategy is free of all sorts of conflicts of interest? I think that's pretty unlikely to work out very well. And this idea that the U.S.
should set up some kind of sovereign wealth fund that will be allocated by the president, I guess I think at best you'd have to grade that one incomplete because not fully fleshed out. It's one thing if you're Norway or the Emirates that has this huge natural resource that's going to run out that you're exporting to accumulate a big wealth fund. But we've got a big trade deficit.
We've got a big budget deficit. Hard to believe that setting aside lots of funds for unspecified investments made in unspecified ways, we don't even know what it's going to be called is a particularly responsible kind of proposed kind of proposal. Hillary, go to the other side here with Vice President Kamala Harris. We heard from her particularly on things like capital gains, some small business concessions and things. One question is, do those proposals make sense? Another is, are they big enough to actually move the needle in this economy? Look, I think what the vice president has said has been far more responsible and I think her demonstrated willingness to move in the general direction that President Biden moved is is appropriate. I welcomed her shading away from some of the things that had been in the Biden budget on capital gains.
I think there's probably more adjustment that would ideally be necessary. To my mind, the idea of taxing unrealized capital gains is an academic nonstarter in the practical world, and I wish she had eased away from that as well. But I think she sent an important signal there.
I would like to see her as I would like to see President Trump, frankly, be more focused on our looming fiscal crisis. I'd like to see them be more focused on our defense industrial base and the set of issues bringing together national security and economic policy. But I want to be very clear that there's a vast difference in the quality of the policies and the economic prospects for the country as I judge them between the two candidates.
Okay, Larry, thank you so much. Always great to have you with us. That's our special contributor here on Wall Street Week. He is Larry Summers of Harvard. Coming up, Intel in the spotlight. We talk with former IBM head Sam Palmisano about what's next for the troubled chipmaker.
That's next on Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin.
The Biden administration made chip production a hallmark of its economic strategy, but one of its main beneficiaries, Intel, is struggling with its plans to move back into chip manufacturing, with reports that's weighing its options. To take us through the strategy of both Intel and the U.S. government. We welcome back now our very special friend here on Wall Street week is Mr. Sam Palmisano, former CEO of IBM.
Sam, great to see you. So give us your perspective on Intel’s strategy here. What they're trying to do, they once were really bestride the earth.
They were the leaders. Then they lost it. They're trying to get it back. Yes. Well, David, thank you for having me, as always. And again, it's interesting if you think back in time, you mentioned the point they were the leaders when they had an integrated business. I mean, design and fabrication of manufacturing, R&D, manufacturing design. They controlled their IP and that thing was called the x86 architecture, which is really the PC client server era.
And in collaboration with Microsoft, they drove the innovation cycles those guys led and drove. Well, that's no longer the case. Dell Intel is behind in the technology. They're no longer driving the innovation cycles and the bringing back the fabricators or the production side of the company is very, very capital intensive and it requires large amounts as well as patient capital, which, as you know, on Wall Street Week, most of our investors today in the public markets, aren’t really keen on the strategy of patient capital. So what are the prospects of Pat Gelsinger who came back to Intel, had a grand plan to restore, rebuild the original great Intel.
What are the prospects of really being able to do the design as well as the manufacturer? The way it once did? I mean, it's plausible. The problem associated with the industry has shifted and you have focused companies like ARM who are focused on design that were very, very advanced and do a lot of the work recoveries, as is Qualcomm and those kinds of things. And at the same time, you have massive capacity in the fabrication of the production side, the Haskell with TSMC and Samsung in the others. So if you think about it, you need basically very deep technical R&D skills in the design side.
Each you quite honestly need great skills as far as production moving down what they call the nanometer curve. Do this suffer trace subatomic at this point in time and that requires massive capital. And I want to alone is over $100 million bad smell. So you can imagine the expense associated with doing both of these at the same time.
So it's hard technically, it's also difficult operationally. And I think in many ways that the skill set that was required at one point in time to run an integrated business has now changed because people now see an opportunity as both either in design or in manufacturing or production. Now, the US government has thought it could perhaps prime the pump here a bit with the Chips and Science Act among other things, Intel stands to benefit something to the tune of $8.5 billion in various forms of financing.
As you say, that's not enough to get you there. But how much of a help is that to sort of get your head in the right direction? Well, you remember you have the U.S. and you also have the EU also giving providing funds, investment funds to Intel. So it is a large amount of money.
But to move a fab or build a fab, we're talking about somewhere between ten or $15 Billion today. So, I mean, it's good to have a partnership in the capital model, needless to say, with true, a balance sheet of any company, even one as large as Intel. But fundamentally it will add capacity.
But I don't know if it's going to have enough capacity to differentiate Intel versus the large fabricators that exists already today. So therefore, I mean, they serve, I think, a strategic purpose for the U.S. or on national security, which is supply.
I mean, securing the supply chain of these key import technologies are our chips. And today it's the graphics chips, not only the traditional chips of the past, that's very, very important. But the question is, you know, how much of that capacity can my company really provide to the US government? So Sam return, if you would, here at the end to Intel. You've run a very, very big tech company in IBM very successfully. What advice would you have for Pat Gelsinger? I mean, back when I was running something much less complex and I had a real problem, I said, Look, what do I know is working? How can I do more of that rather than trying to fix everything at once? What should Pat Gelsinger focus on at this point? Well, I think quite honestly, I really do think he needs to and I believe he's doing that is revisit the strategy that they've laid out. And then based upon that strategy, can they go it on their own? It appears? I don't have the details, David, to be fair to Pat, but it does appear that that's a significant challenge at this point in time to go on their own.
So therefore, either you change your strategy, which is go back to the industry model, which is separate design from the fabrication of production, and that will appeal to investors because it's less capital intensive and less risk or useful in partnership with companies that can help you do that. The challenge with that for a company like Intel or an IBM, having been through it when Lou Gerstner came in and I've replaced little is the culture. It's the management system. People were number one. They were the leaders. IBM was the leader of its day. Intel is this day, go back to Microsoft before they made the transitions, they were all the leaders.
So you have a management system and a culture that's very, very insular and that's what you have to break down. So it's not only just the technology and the capital structures and your balance sheet, it's also you have to deal with the culture of the management system, and that's hard. Now, Pat knows that because you grew up at Intel with Andy Grove and those guys, so he certainly understands it, but even understand it as I grew up at IBM, even understand that it is a very difficult challenge to get all those people to get to make this change and to buy into the change and help you execute and get it done successfully. Sam it's always such a treat to have you with us on Wall Street Week. That is Sam Palmisano. He is chairman of the Center for Global Enterprise.
Coming up, the outlook for commercial real estate as investors look for Fed rate cuts in September. We talked with Scott Rechler of RXR. There was this period of time where is the real estate industry where we're really being hurt by higher for longer. And I think now we've got to get used to the fact that it's going to be higher is the new normal. That's next on Wall Street Week on Bloomberg. This is Wall Street Week.
I'm David Westin. Commercial real estate has been on investors’ minds ever since the Fed started hiking rates with a particular focus on office space in a handful of big cities. For a read on where we are today, welcome back now Scott Rechler. He is chairman and CEO of RXR. So welcome back, Scott. Great to have you here. Dave, It's great to be here. Thanks.
So we all focus on offices and we'll talk about offices, but are there other parts of commercial commercial roles that we should have been paying attention to? Yeah, absolutely. First, I would say across the spectrum, like commercial real estate is is facing sort of this new paradigm as to where interest rates are. Right. And we went through this period where we lived in a world where interest rates were near zero or low for a decade plus, which was not normal. Right.
And then we went to this big spike and that, you know, really basically impacted values of every commercial real estate sector and anything that was financed when interest rates were low. And now to be refinanced when interest rates are higher is becoming a challenge. And you look at particular sectors like multifamily as an example, where there was tremendous transaction activity in 2020 and 21 when rates were low and people expected rents to continue to go higher and the inverse has happened, which is that rates went higher and rents stayed low. And so a lot of those capital structures are broken and to exacerbate the problem, there was also a record level of new development of multifamily happening in the Sunbelt regions that are all coming online.
So you have now new supply at the same time that you have these refinancing issues. So there's this immense re-equitization that needs to take place in commercial real estate and particularly on the multifamily space that have good fundamentals. But it's going to require ultimately write downs and equity injections to reset those balance sheets. And that's what I think when you think about commercial real estate today, this is much less like 2008 in the great financial crisis where we had this distress and then, you know, the Fed was able to inject capital when values came back up. And it was a relatively quick solution to this problem.
This is much more like the early nineties where there's going to be waves of loans that mature that didn't need to be recapitalized, restructured. That's going to be a multiyear process to work our way through. Some people might be surprised to hear there may be too many multifamily homes in some places because on the national levels we hear a lot about the cost of housing. We have Kamala Harris, for example, having some pretty dramatic proposals about how to really have more housing because we have enough. So. Well, how does that work out?
Do we have too much or too little? That's a great question. And that's what makes this so interesting from an investment thesis is that in the short term you have this dislocation because of you have this surge of multifamily that was developed, you know, in the last few years is coming online. But as that burns off, you're going to have a drop in supply. It's already down 70%. And as interest rates have continued to rise, that's curtailed more supply. So coming out of this cycle in 2026, you're going to have more demand.
And there is supply available. But the next two years you're going to have a situation where you can actually have entry points to buy multifamily at dislocated prices because they need to be recapitalize their broken capital structures today. Scott, you mentioned interest rates a couple of times. Everyone's anticipating some cuts coming from the Federal Reserve. What difference will that make? Or maybe more to the point, how much does the Fed need to cut before really affects your business? You know, I think I think you have to think about interest rates a little bit different, right, when you think about interest rates. There is this period of time where as the real estate industry were really being hurt by higher for longer.
And I think now we've got to get used to the fact that it's going to be higher. Is the new normal, meaning that what we lived through the last decade and a half plus of near-zero rates wasn't normal. So the Fed's going to normalize rates. Does that mean, you know, 3% to 4% is the range but not 0 to 2% that existed for a period of time? So that still is going to require us to recalibrate values, recalibrate capital structures along the way. But the more that the industry has clarity that rates are coming down, then you'll start seeing transaction activity happening, which creates price discovery and then crystallizes values, which then I think will create a, you know, increase of more transactions. We talked about people who are providing the capital.
We've heard a lot about regional banks, possible challenges for them of commercial real estate. A lot of talk about private credit. Who's providing the capital right now in the housing industry? Yeah, So I would think that the banking industry in general has really pulled back from providing capital to real estate.
They're under a lot of pressure from the regulators to reduce their commercial real estate exposure. The commercial real estate loans they have on the books of many of these regional banks have 50, 60% of their are loans are commercial real estate loans. A lot of them multifamily can't be refinanced because the plumbing is clogged. And so that's where the challenges and I think where you're seeing a step in are the non-bank lenders that are coming in and actually providing those financings. We do it ourselves a more, I would say, on the on the higher yield side of that equation. But the big private equity shops and you know, when you when you think about this cycle, just like we saw in the nineties and we saw again in ‘08, when you have these moments of turmoil, it tends that the non-bank lender in the sector becomes much more of the future infrastructure.
We had that with CMBS in the early nineties, we had it with the private equity coming out of the ‘08 or ’09, and I think there's going to be more of a permanent fixture, that banks are going to be more conduit to customers, they're going to focus on more investment grade rated type paper, but they're going to rely on non-bank lenders that have longer durated capital that matches those loans, which makes sense, right? If deposits can be pulled every day, if you have longer term capital that you can actually match to the term of the loan. That is something that is, you know, I think, more balanced and can be more resilient in challenging times. Let's talk about neighborhoods writ large. San Francisco, Chicago, New York, Which ones are starting to come back? Yeah, I mean, New York.
Is this heads and tails above San Francisco, Chicago. You know, so when you think about the US right now, there's really two global cities that have sort of come out of the pandemic. It's really New York and Miami. The other ones haven't been able to come back. And what you have is these are urban ecosystems and so people aren't back to the workplace. Winds up happening is the local shops can't survive to to be there.
Right. People don't want to live downtown. Crime starts to become an issue in those in those submarkets. So, you know, if you don't get that system starting story like we have had in New York and you know a lot of credit to the businesses that brought their employees back and and everyone New York being this magnet that it is, you know, it becomes a negative downward spiral. Scott, always so great to have you on Wall Street. We thank you for being here. That's Scott Rechler of RXR.
Coming up, Darren Walker on what he's accomplished in his 11 years at the helm of the Ford Foundation and what he has yet to do before he leaves. I feel we have to do our programing there made progress in elevating some of the challenges, but we need to do more in this country to understand the plight of people in rural communities. That's next on Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin.
Darren Walker has announced his plan to step down from the helm of the Ford Foundation at the end of next year, a tenure marked by his taking a premier US philanthropy in a different direction. We sat down with him and began with his thoughts on what he tried to accomplish. Well, I hope that we accomplished several things. First, elevating the challenge of inequality. We were among the first philanthropies to articulate inequality as a problem for our society, for our democracy.
That was very important. Secondly, to elevate the issue of technology and its potential impacts both positively and negatively, particularly on people who are poor, who are disadvantaged, who have historically been marginalized in American society. And thirdly, to introduce the idea of social justice philanthropy, which is different from normal philanthropy as we've thought of it, going back to Andrew Carnegie.
Those are three things I think we've accomplished and that I'm very proud of. You change the direction of your foundation when you came in. There was a lot of talk about a lot of coverage, specifically with respect to justice, focusing on justice as well as inequality. One cannot change without meeting resistance. Where did you meet resistance? Well, I think there are entrenched interests and the status quo in any legacy organization, whether it's a major Fortune 500 legacy company or a major foundation like the Ford Foundation.
And what you have to do is take on those entrenched interests and name the problem. Name the barrier that they have erected to progress to forward movement and really take it on head on. But importantly, you've got to have your board. Your board of trustees are in alignment.
There is nothing more important in an enterprise, whether public or private, than alignment between the chief executive and the board of directors. And I was very lucky from the very beginning to have had a board who I share values who appointed me. I think because my vision, they were inspired by and wanted to support. How do you measure your success? That's a great question for a foundation like the Ford Foundation. We're not Gates or a science based foundation, so we don't invest in disease eradication or agricultural science where you can have randomized controlled trials to indicate progress.
We invest in justice. So how does one measure justice? Because it's hard at any one time, like with a disease eradication to declare victory. How do you declare victory? We could have declared victory on the progress around reproductive health for women many years ago. But here we are again at a seminal moment of retreat on access to abortion and reproductive justice.
And so we measure impact by the strength of the institutions who we invest in and their preparedness and resilience to continue in the face of resistance. So for us, progress looks like in the area of reproductive justice are strong. Planned Parenthood and other organizations who are litigating, advocating developing policy response to ensure that ultimately we do live in a society where the idea of reproductive freedom is normalized and is the law of the land. Justice is a big idea. It's been around since ancient times. The quest for justice.
Can even the Ford Foundation, as big as it is in evolution as can it actually move the needle on justice in our society? Well, I think we in philanthropy have to approach our work with great humility. No, the answer is the Ford Foundation alone doesn't move the needle. The Ford Foundation, hopefully in collaboration and supporting and in partnership, can make some progress. But we philanthropists sometimes approach our work with a degree of self-satisfaction or a degree that we're right. And it's it's a trap. The rural villages of Africa are littered with the carcasses of development projects funded by philanthropists who didn't understand that the people closest to the problems should be in charge.
The design of strategies and approaches is not only to be left to the experts and the credential PhDs, but to people who are in these communities and in partnership with them. Developing responses to the problems that they identify as their priorities. When you talk about inequality, we've seen growing inequality, economic inequality in our society in recent years for all sorts of reasons that we know in trying to address that. One of the issues is how much money is going to capital as opposed to labor. It's really shifted over a lot more of what we generate now goes to capital people and capital versus labor. What can be done to actually even that back out to redirect some of the assets back toward labor? Well, one of the things that can be done is to demonstrate how we can address and reduce economic inequality through policy, through private sector prioritization of, for example, the idea of ownership.
My grandfather was semi-literate. He had a third grade education. He was a porter for an oil company in Texas, but he benefited from an old fashioned profit sharing program. When the oil company made money. Some of that was shared with every employee who participated in that program.
Those programs have gone away. Why can't we bring more of them back? Why can't we, as we are doing with KKR and ownership works, create programs within companies to ensure that employees are and indeed shareholders. And so I think we can move ideas like that into the mainstream and support the piloting of those ideas. We can also simply stand for the idea of fairness in our economy. I am an unapologetic capitalist. There is no better way to organize an economy.
But we have to have a capitalism that generates shared prosperity, because from shared prosperity comes a society where hope lives. And hope is the oxygen of democracy, and inequality is the enemy of democracy. Because inequality breeds cynicism, it breeds hopelessness, it breeds purposelessness, and a society without hope and purpose. A people without hope and purpose are vulnerable that society is at risk.
It's at risk or authoritarianism. It's at risk for extremism and the kind of environment that ultimately is destructive to the very idea of justice and democracy for all. You mentioned ownership works and the work of Ford Foundation with KKR.
We've talked with Pete Strauss on Wall Street Week before about that, and there are some very encouraging results he has. And some of the companies that they bought and giving ownership, but more than ownership actually really access to information and really an education, what the company’s about. How far can that go in success? How widespread could that be and what are the barriers to going further than it has already gone? Well, the barriers are in part policy. We have made choices, employee stock ownership programs, and at some point in our economic history where we're privileged, where we're given preference in terms of policies, and I don't think that is the case anymore. So it is a question for policymakers to consider how do we at scale make the idea of an ownership society a reality for the American worker? I think it's a powerful idea, and I commend KKR and Pete Stavros for what they have done and modeling for private equity, the industry of how there can be more shared prosperity with the workers.
The Ford Foundation is influential not just in what it does directly, but also in philanthropy more broadly. It stands really at the top of the pyramid in many respects in philanthropy. What effect do you think, or at least hope you've had more broadly on American philanthropy? Well, I'm not sure we stand at the top.
I am in awe of our friends at the Gates Foundation, for example, and Open Society and Rockefeller and Carnegie and Mellon and so many others who teach us every day. I think for me, we have helped contribute to the idea that philanthropy is complex. And the idea of philanthropy is complicated because in some ways, inequality makes possible the excess wealth that creates philanthropy. And then philanthropists are charged with solving inequality and the challenges.
And so Dr. King said once in 1968, that following philanthropy is commendable, but it should not allow the philanthropist to overlook the economic injustice which makes philanthropy necessary. And so what Dr. King was saying was that the role of philanthropy needs to not only be charity and generosity, but dignity and justice.
When we come back, we explore with Darren Walker the new realm of public interest technology, something he sees as the logical next step on the path begun with public interest law. That's next on Wall Street Week on Bloomberg. This is Wall Street Week. I'm David Westin. Public interest law came into being in response to the social and political upheaval of the 1960s, bringing the energy and discipline of lawyers to the social problems of the era.
Now, many of the cutting issues in society arise from technology rather than the law. And Darren Walker of the Ford Foundation thinks we need to develop a sense of directing technology to serve the public interest, the way we directed law a generation ago. On the question of technology, you have really espoused something called public interest technology, as I understand it, here at the Ford Foundation. Explain what that is.
Well, in the 1960s, the Ford Foundation helped to create the field of public interest law. You and I were both trained in law, went to law school. There were public interest law clinics.
When we went to law school and those law clinics were about providing legal services for the poor, the disadvantaged, working to protect the environment. These ideas came out of a body of work that Ford and others invested in in the 1960s because lawyers were critical to the progress of society. Well, today, technologists are critical and within the field of the industry and the Academy of Computer Science, computational math and the systems that build our AI and all of this digital world that we now are living in, there is no sector. There is no within the space of technology.
A public interest identified the public interest. It's what the private sector has told us it is. And so we need computer scientists, technologists trained who might go into private industry to say we're going to use these skills in the public interest to support issues of environmental rights, protecting the rights of of women, of people in in vulnerable circumstances.
There are so many ways in which we need a more public minded technology sector. When you look at some of those early hearings in Congress, the lack of preparation to engage on the part of our elected officials was a reflection of the lack of capacity within the offices of our congresspeople. There are very few people you can count on two hands with masters of PhDs in computer science on the Hill. If any other industry or sector financial services, health care, a group of CEOs appears before a congressional hearing, sitting behind those congresspeople are smart, credentialed experts who are their eyes and ears on the issue. We don't have that wide spread. It's just now taking off with the work of organizations like Tech Congress, and organizations working, many of whom we support to provide more technology, more technologists to work for the public interest, for public interest, technology.
How do you move the needle, as it were? I mean, looking back when we talk about clinical law both of us know about from law school. As I recall, Ford Fund actually funded the original clinical law programs in the United States. Do you do this in the universities to try to expose young computer scientists, as it were, to the ideas of public interest technology? Do you do it in private corporations? Is it in the government? Is it up on Capitol Hill? Where do you try to get into this? So it is a multi-pronged approach. One we need within the academy to impact the curriculum of what computer science students are taught needs to be broader, not just ethics, But we're going to solve these problems when we have a technologist, a political scientist, a policy researcher in the room together.
So we need to affect the curricula. We need to create pathways, ways from the university through internships. And then ultimately we need pro bono programs the same way we have in the law where you have some of the best and brightest law students who who choose initially or maybe never to go into private industry, but to say, I'm going to work for a nonprofit, I'm going to work for the government, as opposed to working in private industry or just as we have in the law. You work in private industry, but you have an allocation of hours in the year that you can devote to a public interest technology issues. This is a big idea and it's early going, I daresay. Do you think it's taken root? Will it continue and grow, do you believe? Well, recently there was a congressional hearing on technology issues and one of the organizations we support had a list of all of the staffers who were helping support the congressmen and women on that committee with research and policy and the evidence they need to be able to engage on behalf of the public.
So, yes, it is small and incremental. And I wish it moved faster. But at the end of the day, we're seeing progress and we should be very encouraged. As you look toward not at but toward the time you step down for Ford, what's the biggest thing you didn't get a chance to get to? I would say we haven't done enough for rural America. I feel we have through our programing there, made progress in elevating some of the challenges.
But we need to do more in this country to understand the plight of people in rural communities. The degree of devastation as a result of the opioid epidemic, for example, is something that we were late to the game. I, in all candor, believe we're now we're now working on these issues and rural America.
But I think our politics today and in part reflect that too many people feel left behind and left out not only in rural America and many parts of this country, but we particularly those of us who live in places like New York City, need to understand what is happening in our country and the degree to which some people, some communities feel marginalized, feel left out and left behind. Many thanks to Darren Walker, CEO of the Ford Foundation. Coming up, if you can't keep your currency under control, well, why not just create a new one? That's next on Wall Street Week on Bloomberg. Finally, One More Thought. Hemingway wrote that the first panacea for a mismanaged nation is inflation of the currency.
The world has seen a fair amount of inflation over the past few years, whether from mismanagement or otherwise. Turkey this week could brag that it had made great strides in its fight against inflation, getting the rate down to a mere 52%, which is certainly better than the 62% of the month before. Thanks to interest rates of 50% by the end of next year, expect the inflation rate to come down to around 33%. That's still higher than the central bank's forecast of 14% by the end of next year.
If the central bank is going to be sincere in achieving the 14% year end goal by the end of 2025, there needs to be a more significant deceleration of this inflation program. For years now, Japan has been struggling with the opposite problem, a yen that hasn't been inflated enough, leading to hyper low interest rates. That the central bank is just starting to raise. Throwing the markets into a different sort of turmoil. The yen has been particularly weak and inflation has actually been pretty strong in Japan itself.
So I think the new incoming prime minister, whoever he is, will actually be very, very cognizant of the fact that you can't have the yen too weak. And to actually shift might actually lead to a shift where the policy of the Japanese yen is concerned. Though Governor Awada says he'll stay the course if prices keep going up. If we are unable to confirm a rising certainty that the economy and prices will stay in line with forecasts, then there's no change to our stance and will continue to adjust the degree of easing. Great Britain has certainly put its pound sterling to the test first with Brexit hitting growth prospects and then with Liz Truss proposing a budget that sent bond markets into a tailspin.
We saw it happen in the UK when Liz Truss announced her mini budget and then people worried about sustainability. Suddenly interest rates spiked and you couldn't adjust that. But Keir Starmer's new Labor government was rewarded this week with demand for his bonds that matched the record and brought in £110 billion. And of course, in the United States we saw that spike in inflation in 2022, which led to a rapid and dramatic hike in interest rates. They have to slow the economy down. Sufficiently to generate enough slack in the labor market so wage trends come down to be consistent with 2% inflation that drove the dollar higher, though that may be turning around even as inflation comes down.
The dollar has clearly weakened in the last five weeks against the majors. One of the reasons this has happened is because the Fed has has moved in a much more dovish towards a much more dovish narrative in the last few weeks. But of all policies that have driven currencies up or down and all around, the most dramatic probably is found as before. In Argentina, President Javier Milei promised to get runaway inflation back under control.
Inflation that had peaked as high as 290% a year, cutting the value of the peso to 1400 to the dollar in his battle with ever higher prices, President Milei cut subsidies to the provinces, leading one of them, Villa Rioja, simply to run out of money. So the governor took things into his own hands. He decided to issue a new currency to replace the peso dubbed the Chacho, and began handing it out to government employees who make up about two thirds of the province's workforce. No word yet on what President Milei thinks of the Chacho, but it didn't seem like what he had in mind when he talked with our editor-in-chief, John Micklethwait, back in April.
But when you also ask around for the word that reflects the sentiment of Argentines, now you know what it is. Hope. Even though we are undertaking the largest adjustment in the history of humanity. My approval ratings are on the rise because people know that I'm telling you the truth. Let's see whether that truth includes the Chacho. That does it for this episode of Wall Street Week. I'm David Westin. This is Bloomberg. See you next week.
2024-09-09 17:19
