Welcome to a new episode of Opening bid. I’m Yahoo Finance executive editor Brian Sai. This is the podcast that will make you a better investor, period. Uh, there’s a lot going on in markets, the economy, to say the very least. Markets are well off their highs, going to potentially be in a better market. Tech stocks weak now a recession seems to be the base case on Wall Street.Let’s lean into that. Let’s bring in Independent Institute senior fellow and veteran economist Judy Shelton, no stranger to the opening bid podcast. Judy, good to see you as always, very important, uh, episode here, uh, for our viewers around the world. I want to start with this comment recently from, uh, Treasury Secretary, uh, Scott Besson. He’s saying, I see no reason that we have to price in a recession. Do you agree with that?
I do agree with that, and I have a lot of respect for Treasury Secretary Besson, and I think it helps give some perspective. Um, there is a possibility that markets are overreacting. That’s a normal human response. Markets are somewhat behavioral, and we won’t know if this panic is justified or not until it plays out a bit more, but I would point out that imports are 11%.of our GDP. So practically 90%.is not impacted by imports except thatImported parts are kind of integrated through other parts of the economy, but I think the fact that our foreign trade partners are having such a strong response tells you something, which is that a change in the tariff schedule is very impactful to them, and I do think it’s true they need our consumer market more than we need them. That gives us some leverage and I also believe that there were a lot of.Wrongs that need to be righted. Now tariffs, um, look at, if we live in an Adam Smith world, I, I, I like zero tariffs, but for decades, I’ve thought that the fact that we don’t have a level international monetary playing field has really been to the disadvantage of American producers, and I do think we’ve been hollowed out by countries that don’t mind debasing their currencies, primarily China.To gain a price advantage. Now, I don’t think we can correct for all the non-tariff barriers. I don’t think we can have.Equal environmental standards around the world because other countries don’t care about that as much as we do. I don’t think we can have labor standards as high as we have in the United States to treat workers as well, so you can’t correct for everything, but when you have currency shifts that give a price advantage to your trade partners against competitive products that might otherwise be produced in the United States.That is just plain unfair. It’s unfair to the workers, and I, I think we need to correct some of these things, and uh we’re certainly getting a rise, not just at home but around the world, and we have to see where, how this is going to play out.
If we’renot.If we’re not going to get a mild recession, Judy, what should consumers and households think about the economy this year? Over the next 6 months, what is likely to happen to the US economy as these tariffs start to ripple through corporate America?
Well, I, I think this the recession talk seems to be directly related to the decline in the equity markets. So you, you have to also keep in mind that that money didn’t disappear. It may have left those markets because it doesn’t like the uncertainty.But it’s some of it has gone into treasuries. We’ve seen that those yields falling. That’s quite good to have lower interest rates for the economy, but some of it is just going to be cash sitting on the sidelines. That can come back, that can come back as quickly as it left. So I don’t think we should just assume that markets are going down forever, not at all. The reason I’m not as worried about a recession.I think that the supply side approach, if we can get the tax cuts, if we can get the deregulation, we see energy prices coming down.I think inflation could be coming down, and if we see the real interest rates that affect the real economy also coming down, that is so positive for increased productivity and for the increased output of the supply of goods and services. We were already seeing in the first quarter this tremendous transformation from an increased level of government hiring.Which I don’t think does much to increase the output of goods and services, instead to increase jobs in manufacturing and new heights in industrial production. To me, that is the way you fight inflation, not by imposing restrictive rates by the Federal Reserve to curtail economic activity and and toPotentially bring about unemployment. What you want to do is give access to capital to small and medium sized businesses. They’re the ones who are willing to expand plant and equipment and hire people and increase output. It’s the increased supply relative to demand, and maybe some demand will be killed as people see 401 shrink. There is such a thing as the wealth effect. Maybe some of that will be.Reduced, and maybe we may see inflation coming down as a result, but the more solid way to to bring about a strengthened economy that has real jobs and real output and increased supply is through these other sets of policies. But
you, Judy, well you could see that at least in the near term, I I see what President Trump is trying to do, he’s trying to rebuild US.Infrastructure, rebuild US supply chains, and I get it, but at least in the near term, you could see that we could see job loss. I look at what Jaguar Land Rover is doing. They’re not shipping any more cars to the US. Uh, the US, I believe 25% of their business, you know, I, I talked to a lot of small business owners, they’re not hiring in the near term, they’re seeing their costs go up, you know, over the next few months, though, could we see a weaker labor market at least?
I think people are a little bit frozen. I think that change is hard.But I do think that that word transformation means something. I do think we want to regenerate domestic production. I think we wanna empower the private sector. And one thing we’re seeing is these great trade partners, friend and foe, how quick they are to actually threaten.To say, well, maybe, I mean Canada’s first response, the head of the province of Ontario said, uh well, maybe we’ll cut off electricity to 1.5 million American households.I mean, um,I think that our vulnerability to not being able to take care of some of our our own needs, and you can say national security, you can just say we’re not trying to be completelyAttarchic, as we would say in economics are self-sufficient.But I think that we have a vulnerability that we need to correct, and I would like to see domestic production increased, and I feel that if you give a little breathing space, that’s why it’s called protectionism. You’re protecting that seedling of American companies who might have otherwise been able to compete.If it was more of a level playing field against rivals from foreign countries.
You, you’re really, I think, well placed to comment on some of these, cause I’ve, I’ve seen a lot of commentary out there from CEOs starting to trickle in. I, I have not seen this before. I look at Bill Ackman over in Pershing Square, puts out on X, we could be headed to quote a self-induced economic nuclear winter. When you see commentary like that, what do you think?
Well, I like Bill Ackman, and I think he’s been very open minded and kind of um transferred over into the the Trump camp, so he appreciates some aspects of that.I was a little disappointed to see that comment by Bill Ackman because it’s kind of saying we cry uncle, that’s it. We had 3 really bad days in the market and this is scary.And um and I don’t, I don’t wanna.I don’t want to suggest that I would trivialize that. Uh, people feel the losses, and I would say people in their 60s who are thinking about retirement, uh, see a lot of their nest egg draining away, and they have a right to be concerned, but I don’t think that the the tariff program.Should be withdrawn, like, oh, never mind.I think that perhaps it could have been crafted more effectively because there’s too much uncertainty.I think the goals had to be clarified. Is it a money generator?Or is it a way toGive domesticPotential productive.Activity a chance. So, so maybe that maybe we’ll get some of that. Maybe it can be revamped somewhat, butII started my career analyzing the the internal financial and monetary condition of the Soviet Union. That’s going back to the mid 80s. Remember, they wanted to have perestroika, that means rebuilding. That was their transformation. Their economy was failing because there was too much government. It was based on a state managed economy, and they knew they couldn’t survive if they didn’t rebuild it.They couldn’t do it.They couldn’t do it.And to the amazement of many people in the west, and this is when I was a, a research fellow at the Hoover Institution on a postdoctoral fellowship at Stanford.This surprised people in the west that an entire country, that’s probably the 2nd most powerful country in the world, was going bankrupt, and they did go bankrupt.It can happen. So now we are tacklingThe same tendencies of too much government, not enough productive economic activity. This is a huge challenge to try to make this transition and giving domestic industry a chance to re-empower itself and solidify our economy and make it a real economy instead of this increased financialization of of arbitrage interest rates of central banks around the world and currency derivatives.I think it’s worth it to take this chance. It’s risky, but I, I think it’s justified and I even think it’s, it’s an imperative.
Stay with us, Judy, we’re gonna go off for a quick break. We’ll be right back on opening bid.All right, welcome back. Having a great chat here with, uh, Judy Shelton, Independent Institute senior fellow and longtime economist and guest of opening bid. You mentioned inflation, Judy, uh, a little earlier on, and you had Jerome Powell, of course, Fed chair, uh, come out and say tariffs could cause a temporary rise in inflation. Jamie Dimon in his annual letter saying tariffs will likely have inflationary outcomes. Where do you stand on this?
Well,IfTariffs cause imported products to be much more expensive.And consumers say, I don’t care.I don’t care. I’ll buy them anyway.And I’ll keep continuing to buy as much of everything else as I was before.My first question would be, now where are you getting the increased funds to do that?And unless there’s an increase in the money supply, courtesy of the Fed, that goes into people’s salaries that allows them to spend much more without having to make choices, and they prefer to keep buying the now much more expensive imported goods.I mean, those are all the questions. I think that that demand will be somewhat.Sensitive to price, and I think people will look for alternatives, and they may even look at at goods produced in the US, not necessarily out of a sense of patriotism, that’s all right too. But what I’m saying is there might be goods that that could be rivals to imported products.But maybe they’re 10% more expensive, even 20% more expensive. With their competitive product coming in from abroad is now 25% more expensive, then they’ve got a shot, and people could switch their brand loyalty. Meanwhile, what I’m hearing is some people even in the administration are saying, well, don’t worry, it won’t be as inflationary because the country will eat it.Um, through currency manipulation, through cutting their own costs, and only a small amount of that will be passed on.That’s probably true. I think we’re already seeing that our trade partners are ready to use loose monetary policy. Let me just point out our number one trade partner Mexico.The peso depreciated in 2024, 23% against the dollar.That gave them a 23% price advantage. If you put a 23% tariff, all you would do is even that up.So, so when our all our trade rivals are talking about looser monetary policy, while our Fed is taking a wait and see attitude, they’re not waiting.And so they’re going to use that, and to me the problem from the administration’s point of view, and now I’m talking about from the US point of view.ILet’s say they ate it all. Let’s say our rivals did eat it, and so those the the price of those products didn’t change at all. Well, great, no inflation. But then we didn’t achieve the other goal. You still get the tax, so that’s one goal cause you pick that up on the tariff, but now there’s no opening for domestic production.So we’re we’re really looking at competing goals, and I guess you could say, well, it’s a consolation prize that you collect the tariff as a tax and maybe that helps revenues, and maybe you redistribute some of that to the people who have been losers in the sense of not having the economic opportunity that we would like to provide for all Americans. But I think that the Fed can quickly make an adjustment.As they did when tariffs were an issue in 2019, that’s when we declared China officially a currency manipulator. That’s when President Trump was pretty upset with the Federal Reserve and its chairman, because the Fed was saying they were going to keep rates high while China deliberately devalued the yuan through loose monetary policy.So I think the Fed, as it did in 2019, then went on to cut interest rates another three times in late 2019, and I think the Fed might justify on the basis of uncertainty, which was its justification then, or concern about the employment picture they might cut.And from my point of view, since the way the Fed manages interest rates is by paying commercial banks interest, hefty interest.On cash balances they keep at the Fed.They’ve spent $600 billion in the last three years. The Fed has paid out in interest payments to commercial banks to keep $3.4 trillion in cash that they hold in their deposit balances at the Fed sitting there. I would like to end that practice. I would like to see that money that banks have go elsewhere into treasuries to lower those real interest rates that affect mortgages and and business borrowing.And maybe even lend it to the private sector to increase that access to capital at interest rates that small and medium sized business people can afford.
Julie, what, you know, given where markets are now and the volatility we’re seeing, do you think markets pushed the Fed to respond potentially earlier in June with a rate cut? And let’s say they do. Is, does this come back to, let’s say the great financial crisis whenThe Fed would come out, say something on rates, and the markets go down even further because it sends a negative signal. Uh, what do you see next from JPal?
Well, there is this, as I said, behavioral aspect. I mean, markets almost seemed like, like it’s a um a drama, and they say something and they think the Fed reacts or the Fed doesn’t react.I have seen the the taper tantrum, going back to the days when when Bernanke was the chair of the Fed, and Bernanke was kind of pressured at a hearing of the Joint Economic Committee to finally say when the Fed might taper its quantitative easing, and, and he, this was in May, and he indicated maybe September.The impact of that on markets went around the world like what we just saw in the last couple of days, and it hit Asia, then it hit Europe, then it came back to the United States. Shortly thereafter it kind of adjusted and and so it was sort of a big to do.Um, we may see something like that. We, we may see these devastating.Declines in the equity indices start to look maybe not as bad through the day and everyone might feel better. If they get worse, well, then at some point, we know they’ll have to be an adjustment.And it looks like it would have to be on the tariff plan. I hope the administration proceeds on the other prongs, the pillars of its supply side approach. We have to get the tax relief. We have to cut the regulatory burden. We do see energy coming down. That should help a great deal on the inflation front, and I think the fact thatInterest rates on treasury securities, which, as I say, have more of an impact on real borrowing costs for the people in the economy.Um, that starts to reduce the cost of living, on auto loans, uh, on purchasing homes, um, I think that could be very helpful because those are, these are huge components of the consumer price index and other indices. So all of these things work sometimes together and sometimes at cross purposes, but we still have to deal with that existential threat of financial unsustainability.And I think that involved making genuine change in the way our economy functions and and works for the the whole of America, and not just not just Wall Street. I love Wall Street, but when it as Secretary Besant has said, Wall Street has done pretty well. They’re hurting now, they’re hurting now.But it’s time to help Main Street, and that’s where the real productive output comes from, and I think that’s ultimately our economic salvation. Judy,
asyou know, before we let you go, we always love to get a sharp take uh from our guests, and I wanna put this to you because uh I think your economic market.Help the average human understand. There was a note floating around last week from a uh tech analyst over at Webbush, Dan Ives, noting that because of tariffs we might see $3500 iPhones. And I look at Apple, Judy, and they make all their stuff in China. Like what happens to these products that we all rely on? Uh, it’s not like, it’s not like Apple can spin up an iPhone plan overnight.
I thought I thought there Tim Cook did indicate that they would be producing more in the United States.Um, I think that we can. I, why wouldn’t we be able to be as as productive and produce as good a product? And, and where there’s demand, I mean, if you start getting out of the price market for consumers, uh, that’s not how companies operate. They, they want to have products that are going to sell and I think if, if theIf the tariffs are causing them to seek production facilities elsewhere and to have a a different supply chain for for the components that are part of their final product, I think businesses will be pretty resourceful. That’s why there’s a danger in saying, oh well, it was all a mistake and we’re gonna retract this position on on terrorists. I, I hope it’s not a permanent feature, but I think that.It’s an important step to getting other countries to recognize that what the status quo was not working for us.And if it can end up going towardZero tariffs. If you can carry out the other part of that on the level monetary playing field, when when people talk about the 1930s and Smoot-Hawley, what they leave out is that was the era in the 1930s of beggar thy neighbor, meaning countries depreciated their currencies relative to ours, relative to each other. Tariffs were the way they tried to compensate for the unfair trade advantage. So I, I think we have to keep going.I hope it won’t be more painful, but I think we are on the track that we are required to pursue.
Always great to get some time with you. Independent Institute senior fellow and economist Judy Shelton, we’ll talk to you soon. Good to see you.
Thanks, Bern.
All right, that’s it for the latest episode of opening bid from the NASDAQ in Times Square. Please continue here with all those fabulous, uh, 5 star ratings on the podcast platforms. I would love more comments from you on YouTube and on X at Briansai. I love reading this stuff. It makes me smarter, and I, of course, answer all of your questions. We’ll talk to you soon.