ready to analyze that and of course, we'd follow the house rules, but we will do, you know, we will do much of more of this dynamic analysis as there's, you know, legislative proposals to, you know, regarding the 2017 act. >> and 20% of the tax cuts came back-- that's right, i'll repeat the question. what he said was our analysis showed that about 20% of the cost of the tax cut was offset by the stronger revenue generated at the time. that's right. >> and making assessment to what the effect on the economy was overall with respect to the tax cuts. >> that was based on our projection at the time of the tax cuts. you know, we haven't gone back and-- we've done that and again, the

intervening event would make it just really challenging to distinguish the tax act from the trade barriers, the pandemic, and then the high inflation and that's the challenge. >> thanks so much, phil. thanks, alan, for coming today and we'll take a 10 minute break and then resume at 10:00. i just want to thank you. [applause] the moderator of the session. thank you so much for doing that. >> thank you so much for having me. welcome everyone. we desert all the result we should be worried about the deficit, climb above two and a 50% and how basically a massive problem. talk to a lot of people should come speaking with steve eisen his famous from "the big short" last week and is said the deficit is been a concern for 30 years, it is never matter. if you want to bet you will be wrong. here's the market perspective

why it matters and why people care. i love the panel, i love these guests, torsten, you do put our charts and want to start with you mapping out from the market view why the deficit matters in terms of dollars and sense that had to be paid out in the near term. >> i think as we just talk about and as we shall come when something continues to grow than we do probably need to pay attention to it at some point when the debt could become an issue. i think there are three double ways of tackling this on market perspective that we should really get what's going on with treasury auctions. what's going on with how much of that is maturing which is what this chart is showing, specifically if you can see in the chart, i i know three lin, topline is market interest-bearing public maturing and when your list. let scale about 9 trillion, that rolling over. if you add to that the deficit

which is a bit more than 1 trillion, then you 10 trillion, and other line shows that share of gdp. you can quickly figure out that it has grown quite a bit including more recently. so the first point is who's going to buy the comment that? i know this sounds like a typical question but treasure auctions becomes important to look at what is a ratio, how much, it was for participation in a lunch of and statistics come out. first, reason why it's very important reason of these markers reflected spin, this is yes then maybe this is not good be a problem and it will most likely be a problem in the near term but nevertheless, we do need to do our homework all of us. i think about what are the did the matter that come in the pipeline? another way of looking at is look at auction sizes. across the you curve have also been going up and again have the chart in mind phil swagel was

showing, risk approaches tend to go up. is your new colleagues on right about almost every week there's a lot of questions okay, it auctions isaac of what does that mean particularly as chair gdp? another way showing that treasury issuing, visit from treasury advisory committee across the u-curve orange bar shows you what is total sizf issuance or five your notes in 2024, 20 tranthree. you can see this year auction sites will be on average, 41% bigger than what they were in 2023. 2023. again this may a minute matter. things should be fine if the son of commence demand thea problem. bio i only to sleep at another dimension, one very important issue is also have biggish of this is t-bills. as you've seen this chart t-bills as then as a share of -- also been rising. more and more of this is short.

bottom line is to say yes, we do all worry about the debt levels rising in the shared gdp but one very important way of looking at this look at what's going on in the structure of debt coming to the market and most important how auctions absorbing this. in other words, what are the metrics come out of the auctions suggesting whether there's any more strengthened by debt or whether there's any weakness and by that. >> this something could be scary and it fits in with the thing. yet a lot of money that is been raised by the company has gone directly to the physical transfer to the private sector. it's helped bolster the exceptionalism we've been talking about. michael from your vantage point how much is this an negative and how much is what this money is going to actually been a positive for the u.s. economy? [inaudible] it definitely i think helps come helps economy. it's what the fed is been trying to accomplish.

that may be, world treasury and why has the economy been resilient -- [inaudible] i think it's hard -- i don't think you can avoid the fact -- [inaudible] that helped offset some of this. i i mean good if it is working r -- if you waiting for balance growth -- [inaudible] >> great if you're reading for the s&p to keep rising which is essential a lot of people. michelle, you really get incredible research in the run up to the financial crisis with mortgage rates and mortgage debt. there was this belief crises happen in private sector debt not public-sector debt of developed market countries. do you think this time to be different was is basically a great fiscal transit that is allowed consumers to retain the resiliency and every credit card data point should be coming out? >> yes so there's a few things that unpack. the first one this idea of

private sector in balance versus public sector. there is a distinct difference. with the financial crisis the housing bubble that led to the gfp, it was a severe. once you have this brief setting of collateral of crisis it was clear crisis. that's not the same story certainly in the u.s. when it comes to sovereign debt when you think about the collateral. when you think about the u.s. and the dollar being the reserve currency. it's more thinking about how this high-level debt and high level of interest rate they go with it feeds into the economy and shifts what we may be seeing in terms of economic growth. so far i think were still in an environment as michael sat around this physical transfer. the economy has seen a good amount of support coming out of the covid period from the time this one-two punch of fiscal stimulus, with monetary

stimulus. monetary side pulled back but the economy has been able to withstand high-level interest rates remarkably well. you could argue part of that might've been probably was because you had a lot of fiscal support. you have those tax transfers right to consumers. you had chips act, a greening of infrastructure. when will look at some of our hyper local, we see the areas in the u.s. where the chips act has been filled in creating significant things are manufactured economy and job creation and consumer spending. it's not just the immediate transfer payments. has been some transmission to the economy that has potentially could have more meaning longer-lasting effects? we have to see demand store but you'll could also make the case had a think about the supply side and become as result the physical support. >> michael, how would you respond to get in a sense some of it is good debt being used to

transform the economy in new ways to address new economy? >> look, i do want to say the support for -- in 2020 was, that the entity. almost fatal and agrees that was necessary. chips, and ira depends on your politics but some would serve the see that as an investment. i think you could take this out and still be looking pretty large number on the debt. >> which raises this question, at what point does he economy become unsustainable? document id of 250 of our race questions if you could probably be to the moon if you start to special get a downturn which you want to explore in the second. there's a question of if there a benchmark light in the sand where it becomes overly punio the government? is a something you've studied, talked and? >> the challenge is which is of no way that is so started my career at the imf down the road and the person you've learned is

higher debt levels in particular when you reached exploited by debt levels will eventually begin to cause some problems. it may be a financial crisis but certainly all kinds of other things. maybe spend more money on interest payments and it may also ultimately of the countries mean something for exchange rate. a lot of different dimensions were higher debt levels could have an impact. the most critical thing for the u.s. at the moment is think about also so we don't know when that time is, well then we should probably you watch has a go along whether we're going to the point are not. one has been very, very pronounced in the less several of these the last decade is we've seen a shift in the buyer face biggest it was foreign officials buying, china and others find you his treasures. they were buying treasuries that's how much because of the yields but because it were to keep their exports competitive. in other words, they wanted to keep making sure my shirt was cheap and if that was the case well then they could do what they could to make sure they

limit how much the r&d was appreciated and at first it would make sure the exchange rate didn't go too much, , they did that by buying dollars and filling their own eccentric. they are no longer doing that because they have a list of other problems. we no longer have the yield and we seen a shift in the data that the buyer and a less obvious when interest rates have gone up happen household, insurance and all been buying because of interest rates going up. the risk is if this is shifting from -- to yield sensitive bar, then they over the next decade or two again open at this risk that we no longer have this simple buyer that was buying no matter what because finance has no number, not the same number of dollars to recycle but now relying on households, pension funds, insurance company better by because they like the yield. what happens when the fed cut rates is they are less inclined to buy. that's an important dynamic also

in the last five, ten years that his change in transit who is it actually bind u.s. treasury. >> one of the reasons why people watching the auction data every week. people say those people worry warts but this question of okay, who's coming into by and is this a line in the sand what people are going to buy because of the deficit? michelle, at what point does it become punitive for consumers? right now we're seeing incredible resilience. how much of it is a timing issue, a lot of money and have locked in debt obligations versus something they really this could be the new normal and that's fine? >> i think there's a few dynamics that are in play when you think about what's happening. first, yes, as the fed is g interest-rate meaningfully that if you look at the debt service ratio for aggregate for household, it hasn't increase that much. that's just above or more prior to the printed despite interest rates being higher. part of that is because this unique nature of the mortgage

market with 30 fixed-rate mortgages. that's the measure. her households if you just purchased a car, just purchase a home or you have been in that you are feeling that debt service increased. as a result shifting in terms of prioritization of purchasing power. the bigger story for the consumer has been the strength of the labor market. that is been the number one factor that is leaving to this exceptionalism in the u.s. economy. the labor market continues to show, seeing improvement in labor force. not only is a demand, also more supply for labor and that's keeping wages increasing. for the consumer figure to think about their debt dynamic. they have to be careful about that, but a lot of consumers still love a good amount of purchasing power to go out and engage in the economy. that is very much still in play and we see that very clearly when we look at the consumer spending ten. >> michael, five years ago people are complaining if rates

of the rose companies would be blown up because at these little interest costs. debt structures, to michels point, we haven't seen it, they're expanding. is this something that sustainable? if we stay around 4.5, 6% on a ten year yield that's fine. if we are 5% fed rate that's fine, they can survive. >> yes. a lot of companies refinanced in 2020, 241. last spring we may have begun to see -- something breaking with the regional banking crisis. that was short-circuited by the fed and the treasury come supposedly getting uninsured deposits and short-circuiting that. i would say many of us are still a little puzzled by the fact. maybe that wasn't the only break we would see in the cycle but the longer reduced to hear the more firms will have to -- we

talk about on the show the time the refinance, it is little but it keeps getting pushed out a little bit by -- you to come right now it's hard to see that. [inaudible] >> another with asking this question is how much have higher rates slowed economic growth? >> this is getting back to the same question we started with. >> i'm going to ask it five giveaways i think there's a couple things. growth is doing well and rates are high. it's kind of like almost rephrasing the question. >> go on. >> that doesn't tell you anything about the economy. one of the things the fact that strong immigration is temporarily boosting the essential gdp growth and will you think of as strong, when we

had strong gdp growth unemployment rate has risen half a a percentage but which may tell you it may be a little softer. that has to one part of the story. the fiscal has to do one part of the strike. just generally the post-pandemic tailwinds had longer likes them without a lot of the things are going to be 30 interesting. over the past year where you seem really outsized employment growth in the second half lecture was government, primary date and healthcare. those are probably the two least interest in subsection i can think of. some of it is retiring a getting back up after very sharp reduction from the pandemic. that normalization probably stretched on longer. >> one way of rephrasing, i say the question is also, i think

why rates have not worked the way we thought it would according to whatever model you think is a fatal one. i think it has been impacting those that are weak. in other words, and so was that have a lot of debt have been impacted. for example, firms look at it, look at venture capital, and by soffer, tech and growth, areas where a lot of debt and very little cash flow, very little earnings, very lower revenue. if you have the revenues come interest rates going up a going to virtue a lot more. think of this confirms that are triple c in some cases be having much harder impact because higher debt levels. likewise for households come households that have a lot of debt and don't own s&p 500 committed other home, they have also been experiencing more distressed in that sense it is the most highly double that of

impacted by because everyone above that locked in a interest-rate in mortgages, locked in an credit rate which is investment route of credit markets. that means broadly speaking racing -- except for those households and corporate entities that have the most highest levels of leverage. >> michelle? >> this goes to the rally that this is not a uniform story for an economy. and i think that's been the case throughout the cycle. the pandemic impacted parts of the county very regularly. think about the early phase of the pandemic with the experience travel economy, leisure was in a very deep recession of the last for a while while the goods economy burst into expansion and then that reversed. the same story now really holds. that could be contributed widest been disconnect between what service might suggest an sentiment versus overall spending trends is theirs of the aggregate which is to very much

showing continued expansion versus where you are seeing some of these pockets of stress and challenges and interest rates cerniglia portents for the reason why this become increasingly political and a question of what happens if you hold cohort tickets left behind and drop off further added come when the respite economy is expanding. michael i would ask you this raises this question of fed independence and is certainly not necessary from politics but at what point will the fed be called into kind of monetize this debt in a way to keep rates lower to kind of cater to -- seems like there's been a bit of a shifting line in the sand in terms of what's the more important kind of mandate,, whether it's inflation, whether it's a growth, how patient the will be with inflation coming down. isn't that something that you see in the card? >> no. i mean i think, the short answer is undercurrent construct i

think the fed can retain independence and not be pushed into some done what to do. we've seen news reports about that may be -- [inaudible] if we get to that i will have to revisit my answer but right now my answer is i think this fed, the personnel in place, can afford to be solely focused on the inflation and an opponent. >> which again goes back to this issue of if that's the case and there is a real evidence that he had you can really .2 of the sort of uniform downshifting in growth. at what point do they need to and at what point is a debt overhang pewter to do growth? torsten i would ask you this. typically history whether it was japan or other economies there was a feeling more debt ledges slower growth. lisa and develop markets. disinflation and was part of the reason we had a low rates.

why is this a different this time? >> well, think the interest rates is just -- i think two things. partly because consumers are 95% in 30 affix mortgages so it means a lease on a mortgage side makes up about 35% of the debt is therefore less sensitive. what encourage during the pandemic to lock in the debt levels at much lower levels and what they did before and so, therefore, investment-grade credit in particular, everything fixed rate also has still fairly long duration my comes to interest rates really not mattering at least to the nation. depending on where you live but broadly speaking the next year or two. interest rates since that has gone down. at the same time we have is a significant tailwinds on the chipset, a flesh reduction, and for such think more recently without a significant easing of financial conditions.

start talk about rate cuts and still type of rate cuts, that has significant rally the s&p is up since november 1. remember consumption lusher lasher was about 19 truly. we have been given a windfall of roughly 50% in a very short time. that is not surprise on retail sales including on wednesday could be quite strong because the consumer is still powering ahead that only because of the fiscal but because of easing financial conditions. i would say those two things, less interest-rate sensitivity and significant tailwinds coming from both fiscal and easing financial conditions are the reason why the economy is in there. >> is part of the reason why it seems like all systems are go into that thing so it will not be a sharp drop-off. albert r bock headed as this when you start type of what happens when there's a downturn. how much fiscal room the u.s. government have to respond to it and how much does that create a

new paradigm for the debt trajectory? what your cisco i was so with you, michael in the sense of how much more severe of a downturn be going forward if there isn't the fiscal impulse? if there is, what does that mean for kind of the haven bid of treasures come this question do people go there if the government will be raising by raising debt? >> i i would just say in regardo your question building of some of the charts torsten has shown is that while we have increased nominal that issuance dramatically, intermediation fast act increased? in terms of zero balance sheets. this is looking back ten, 15 years. there's also a concern here not just that the treasury would have to issue more in a recession but that isn't the infrastructure that is intermediate, that he should get way that would guarantee that we

would all have some problems perhaps that echo what happened two years ago. for many years ago. and look, i think that just means if we have fiscal shock, might have shock observe in a market. another concern to build on. >> searches to sit on that for a second because i've been made fun of forcing you could face the are you saying we could face that and you? >> for different reasons. >> please. >> it would be for different reasons. we don't have the same community here but i think the idea that you have what would otherwise be a negative announcement not catastrophic defeat on self to set the market can sufficiently digest that in a weight may have 15 jacob. >> because of volatility is

intermediary acting as a buffer to kind of pushing some of the volatility in the pricing. mr. shulkin what is your view? >> all off another perspective around the question or if there's a recession weakening or downturn, what is the policy response? when you look back to this question pre-covid, it was very much the case that the fed's hands are somewhat tied. the burden is going to be sold on the fiscal side. i think we can reverse that now. the federal reserve has read a lot more policy space. interest rates are high. if mr. easing and the cycle what did you think about which may be a debate as you point out that it do think they will. they will likely go slowly, be careful and be, anticipation, can't go back to his overcoat to the extent to where you have another recession or crisis they should be more space for the federal reserve to cut interest rates and support they come very, very quickly which could

provide perhaps a little bit less of the burden on the fiscal side. there is a difference relative to what work prior to this to the covid shock. >> torsten do you agree it could offset some of what the fiscal going for? >> a lot of debate about this issue that if rates are high, about who owns fixed income is getting a castle and could be reflected some just don't do well. the response of course have policymakers react, let's agree if you have a rising debt level and you have a pretty significant deficit, then your full ability in case a of shos just higher than normal. what the response they can't would be whether the fed ultimate would be, we hear various stories come with you to begin, different points of what will fiscal response because the nature of the shock is depends by still think we can quickly agree if you have a rising debt level the way phil swagel was pointed to and at saint unhip

deficits even in a good economy at 6% of gdp, that's just just making you more vulnerable to different types of shocks that would begin to have more significant implications for how would you respond, the idea of infrastructure is in place to handle an expansion of the debt load, expansion just treasury debt market? frankly, where the buyers i come from itself from the same kinds of buyers in the same way. is that a real concern that will lead to some measurement. >> is one way to address a look at this chart which is again, , so-called neutral issues in every this is their forecast of what to think a neutral issue scenario would be issuance across the yield curve? the treasury seemingly thanks the only jabbar should be higher in a front of u-curve. so look at third a year government bonds alter the way to the right. as you can see the prediction is issuance will be around

300 million. why doesn't treasury to say what's issue a trillion? because obama is the pension funds, they would say really get $100 in every month, so if you come with $200 in supply, we can't in supply, we can't buy all that supply. that's why the goal of the purpose is to sit down around the table and say maybe we will not be able to fish is much, much more than 300, therefore that a limit to how much there is. for example, from the pension to mary so that's why another way of answering your question is try to set a think about okay, so if there is some limits on demands demand for duration, well maybe that's the reason why the orange bar is also high. of course the more high the bar is an affront the more your enter this risk the markets spent so much time thinking about how much is coupons, how much is it t-bills? t-bills has been going up and the more your t-bills still ball

grows in front, the bigger and bigger gets which is what the green line initially, the more is the risk of your citizens what the fed is did because t-bills are short confed raises interest come lower interest rate, it becomes important. the most extreme case when a joint did i miss in the 1990s and we just have crisis in thailand, the average maturity weight of the debt at the time was two weeks. them into don't want a government debt that is a very, very short duration. in this case five, six years and uk is more like 20 years but the more that starts to shrink they can raise all kinds of questions the market. the short answer is it all depends on where on the curve with the buyers be willing to buy and well that then become something that could interfere with fed policy if it's too much of the fronted? still everything is good and everything sent and we will probably be for quite a significant amount of time but if you want to do your homework in this area this is a place to

look for who are the buyers across the different segments of the yield curve. >> at a time when janet jim has been doing a good job at managing. maybe pushing to the fronted and not necessarily cause sort of undue increase in yield and the long end. michelle from your vantage point, if yields stay with it are here on the long end, let's just say, what does it do to the housing market going forward given the fact so may people been waiting to move or not quite a because they have a mortgage might be about 3%. >> the mortgage market and mortgage rates are much more closely tied to the longer end of the curve. tenure when you think about the duration of household and homes. but look, i think it's been interesting even with interest rate remaining high we start to see some pickup and home sales already. yes, there's mortgage lock-in where if you're sitting at 2.5%

rate, really hard story to say i'm going to give that up. but time passes and new homeowners come in. there's a segment of churning happening and is already underway if you look at the leading -- latest housing sale numbers. part of that is in part because of the lack of inventory that's out there as well. much of the increase in home sales this come from new building, as homebuilders are seeing opportunity to add inventory with his demand and people need those homes and had to take higher interest do that. look, just higher level of interest rate is going to create some challenges for the housing market inevitably i don't think it prevents for the growth and expansion i don't think the lock-in is across the board. i think it's a natural move in housing market which is already underway. if you look at the housing cycle, i think it's been fasting

to see this play out because you have three strong growth in home sales when we are very low levels of interest come out of the pandemic when the fed is hiking home sales fell, housing construction though, residential investment was attracted gdp growth throughout the second half of 21, 2022 but by the end of last year the housing circle, housing cycle or turn positive. even for the fed serta cutting interest rates. last quarter residential investment was a big contributor, last two quarters. so yes lower interest rates would help but no, if we stay at this level at all the meets the is permanently broken. >> as a footnote, remember up more than 7% year-over-year so of home price go up against a fortune that's a good leading indicator of -- inflation data. giving housing has a weight of 35, 40%, if home prices going up and in a worst-case if only i

and other indicators start to flatten out, starts to her, and the fed has the fundamental question can whistle inflation after 2% without a slowdown in the housing market. >> was the increase in prices is fascinating for a variety of reasons nothing from market policy book of i can say the attorney housing market, current homeowner have a lot of positive equity now. people are downsizing, even expecting an increase in interesting because of that. the same time for new folks entering housing market using the combination of both high interest rates and high hee price of the debate on how you participate in housing your very different perception of the assessment of housing market. >> what a mystery is crisis. not hearing that the government debt burden is some outgoing to act as huge wet blanket and growth that has been what sumter puts it is exceptional albeit slowly. michael from your vantage point, going to cut ask is questionable

more time because it's the ultimate question that's underpinning when do we start caring about this? nudges from a political sphere because people say the reason why we don't have crisis because there are enough people who worry about it. from your vantage point is there a lot of, yields or in terms of volatility in the treasure market where it becomes an un-ignorable track on growth spurt yes. i mean we heard the first panel. they accurately summarize there's no clear threshold which we are silent in danger. >> i guess what i would say over the past two years,. [inaudible] real, not inflation. boot up about 200, 225 basis points 25 basis points. now, this could be our stop at a think again if you look at

professional forecasters, long-term growth expectations have been unchanged at the same low level they were at the end of the last cycle. so if there's some sort of, it's hard to say that is being driven by some newfound euphoria of long-run growth prospects. at least in theory. it could be perhaps where only saying embedded in real interest rates the crowding out effect with which would push rates are but that shouldn't come that is linear. i think you get to a crisis again we can talk about perhaps some the excel events. again that might be, bobby if you want to catch it up maybe it would be some -- [inaudible] some fiscal policy and not coupled again. >> let's go there to the election later this year, which is part of -- some kind of

fiscal announcement. we heard of the weekend from donald trump that the upper class will get a tax cut in the middle class would get a tax cut, the lower class would get a tax cut to the full overcome everybody gets a tax cut. how does this factor in? are tax cuts good debt? is something that the deficit in a way that is positive? go ahead. >> well, first of all, i mean does not just, i think both parties will probably want to expand most of the expiring provisions, particularly as the relate to personal debt crisis. if phil swagel were still he would probably tell you a lot of the dynamic effects that he mentions in terms of how it boosted growth came from investment tax incentives.

that is intelligence, smaller part of the overall tcja but the children you get the experts. i get at least in the model. i don't know, i mean i'm not enough, i'm not political savvy enough to know the processor i guess that's not just the physical kind of thrust here. it's also, i would go to you, it's also the idea of records of who stays in power comes to power, two incumbents essentially, the probably be more tariffs. we'll probably get an announcement tomorrow it would probably be more social policy bring it back, trading inefficiency inherent in some of the supply chains for national security purposes. how much does it increase in inflation outlook that adds to this potentially star with a premium for the accident that the u.s. has? >> with inflation already the last seven months beginning to

show signs of moving higher, and adding at top of that of course maybe not in the near term but down the road will of course raise all discussions about maybe the level of inflation is higher because -- defense spending are other arguments that could save these are the reasons why we should expect maybe firmly higher. that's why the fed review its upcoming if you want to raise inflation target which is a question we all debate all the time. it does become really, really important because it's the framework that has to do the right one for dressing a lot of these moving parts we're talking about. >> i know we're getting to the point where people can ask questions but michelle, final word. >> well, i think you both mentioned are star rising because of long-term growth prospects who could be because of higher inflation but butk it comes to the same point which is where probably in an

apartment where interest rates are likely to be higher for longer. potentially in part because some of the good reasons, the structural changes that the economy underwent in the last two years and it also made it very, very clear that the u.s. consumer at a lot of the corporate on i could have been able to withstand higher interest rates very well which also supports this idea potentially higher for longer. so the point out and made in the panel before, this concept we had participant in the of secular stagnation very low levels of interest rates, permanently, that i think has been really, really challenge and we are all i think an agreement around that. >> questions? [inaudible question]

i didn't hear much talk about wages but if you're talking about the interest rate it seems like the probably be all the higher wages now under policies, minimum wage. people thought more spending when, not necessarily getting their excess spending taxed out yet. seems like that would be a factor bidenomics, higher interest rates than that's new income maximizes that they start spending it. that's what might get into trouble. >> does anyone want to take that. >> i'm happy to talk you about what's happening around the weight of from it. it's been stronger if you look at today at what measure look at but wage proxy running 5% year over year basis. which has been fairly rod based. that's in the point is really important when you think about the resilience of this economy and high interest rates.

wage growth at 5% is running about underlying cpi. there's positive real wage growth which is empowering and supporting the consume and i think a big factor for why there's been some ability to absorb higher levels of interest rates. to me, to the second part of the question, paying attention to the markets is critical and the ability of the come to continue to handle the debt level here to others want to weigh in? >> for torsten slok, thank you for coming. first, as you know and october interest rates on the tenure with up to 5%, and i wonder if you would agree that the loss of the duration buyer is in itself shot across the bow in terms of a bloating confidence in the u.s.?

i'm looking out obvious he not in the short term but in the intermediate term over years as you've suggested. there is certainly one of you on the street that the way this is going to unravel, as it did, with the problem with the auctions, fed has to monetize, coupled with financial repression, higher inflation and great spirit would you agree with it. >> was you, so very important discussion is exactly as you are saying that if it would come to a point where rates which it up, not necessarily like in some emerging markets, south africa when your crisis but to score higher and higher and so much, with the fed begin for financial stability recent or other reasons to intervene to try to limit how much interest rates are going up? i agree with what mike was saying at the current construct out of think that would be the response from their side. but odyssey if they do have an economy that will begin to fall apart, and this may be a result

of whatever reasons rates are going up that i do think they would like to do and europe, they didn't say for financial stability reasons to save the economy we will now be stepping it in providing more. i do think this definitely don't like that to get to the point just require a fairly sharp duration and come meet the unemployment rate going up quite substantially cheerily justified that type of response. so i don't think they will do that unless they're absolutely forced to do it. >> all right, thank you. question on, there's more talk i think about perhaps a very concentrated increase in the tax rate on the ultra wealthy. i don't know if that would be be .1% aware but for small publishers wanting, with a be primarily symbolic and sort of political gesture or could actually have an impact on the debt trajectory and how to

economy looks going forward. >> was michael, want to take it? >> i'm sorry, i'm -- [inaudible] >> i have seen that either. >> -- haven't seen that either. >> thank you. this has been a great discussion. it has been mainly just focus that. i want to bring the rest of the world in it. one is, what's happening with the aggregate supplier city and that in the rest of the world and house at affecting the u.s. wax and second, we talked about, or you talked about how like how far can we go, what's the d star type of issue? collation is other incident of the country could happen in other countries, war in the middle east, oil prices, something like that they could materialize, materially affect

how far we could go with our debt? >> at least i mean with my funny european accent, i still think europe, you've seen private for buying has been quite strong because european investments are looking at their own backyard and saint wow, it is rates here and growth prospects are not that great for me i should take some of them in and invest in u.s. treasuries. call it the decoupling of u.s. and european business cycle, it's almost a new source of buying for u.s. treasuries. on the other side jeff of course china slowing down. that has meant almost the opposite the china's fewer dollars to recycle into treasuries. important and global firebase, broadly speaking away from china and more towards european private buyers. but from a global savings perspective, the u.s. still is exceptional and all the other things that of course going to this discussion and for that

reason if there's high growth in u.s., if we have higher interest rates, that probably means capital will continue to come to the u.s. the question is just whether that's exceptionally smooth continue and what would be the reasons why this could be undermined. which is a very important part also this debate, namely to what degree of foreigners are prospective in treasury auctions. that's why as an important part of, look at what is for participation in treasure auctions which comes out literally with every single treasure auctions of what is advertising for foreigners for buying u.s. government bond? >> michael you want to weigh in? [inaudible] >> the current account deficit can be thought of as how much global forces -- domestic interest rates. the use current context, not as large as was prior to the event in it still pretty large.

pushing u.s. interest rates down. so under r-star would be even higher. >> one more. you had your hand up. >> thank you. >> keep talking. >> thank you guy really appreciate the look into the treasury data. i monitored the pretty close to suffer question torsten and also from michael. thinking about, well, at what, i mean we also want to know sort of at what point should we start being worried, the data, the ratios are still strong even though auction sizes are very large and continue to be large -- [inaudible] >> so what are to also ask, you talked about the foreign buyers at auction. also over the last ten, 15 years we seen a large investment funds

buying a lot more at auction. wondering if you have any kind of thoughts about that? i would appreciate hearing. the second question also to michael about the intermediatio intermediation. that's really something else a look at and just wondering kind of what, not necessarily at this point saying a lot, a lot of trouble with that. but with the fact that dealer balance sheets have change for many years. such is wondering what you are saying and also considering the fed's toolbox if there's any other sort of opportunities? >> just on the first part, when interest rates went up there were really three new buyers that emerge because they like high interest rate for . number one was households. households have been significant bias the treasury. also significant buyers of credit because they have for years in some cases decades been waiting for high level of yields. so that's the board, household demand in the particular long

durations but the curve is in much stronger since march 2020. you also see pension funds have also from long, long time been waiting for high-level center street. what pension fund are doing at the moment is they are finally fully funded because all the equities are no bring up to 100 in terms of funding. that means they are now saying the way things have recently kodak basically laid off a whole page in a forested we can our assets and liabilities and no longer worry about corporate pensions, the rates were not fully funded and, therefore, pension funds have also become significant buyers when interest rates went up and finally the insurance companies, life insurance comes also been significant buyers because anyone selling annuities at the moment will expend a lot of sales because a lot of retirees like higher cash flow and when interest rates went up that meant cash flows into insurance company with higher. they have also been significant

buyers of treasuries and a fixed income. that brings you back to the point, mainly that okay but all these people suddenly appeared out of the woodwork and said now would like to buy love treasuries because a yield level so high. what if the fed begins to a medically if interest rates? will this buyers sell? was a move around? will become to equities are cash? a lot of things that makes this discussion much more worrying because you have certainly a whole new set of buyers compared which had before. these buyers only came in because the level of yields without went up so much. >> michael, quickly. >> i would say, i disagree all is well. we have had the past decade a few events. on days like today when we don't see any issues, is because the hsg survived a lot of liquid and the return off is an event. i wouldn't say everything is fine but . i guess with the fed could