Tariffs, the Future of Cancer and Alzheimer's, Global Debt Cycles | Wall Street Week

[Music] this is Wall Street week I'm David Weston bringing you stories of capitalism this week as president Trump takes drastic action to curtail federal spending Ray Dalo of Bridgewater lays out his plan for what needs to be done plus fizer CEO Albert borla announces earnings that include his huge investment in tackling cancer and we tell you the story of scientific sloths uncovering bad research setting back the Quest for an effective treatment for the millions of people affected by Alzheimer's but we start with a story about what we do for a living in a week when

monthly jobs numbers came out they raised the larger question whether president Trump's policies from stimulating parts of the economy to Contracting others will keep the American jobs engine humming something our special contributor Larry Summers of Harvard knows something about the approximate effect of course is that you protect some jobs in the industry that's tariffed but there are effects that go in the other direction when you put a tariff on steel it gets more expensive for auto producers and that makes them less competitive when you put tariffs on the dollar goes up and that makes it

more expensive for anybody who's trying to export products from the United States when people pay higher prices because of tariffs they have less money to spend on Goods other than the Tariff jobs and that hurts jobs so it's very hard to know which way the effect will go or whether there'll be any positive effect it depends in part on what the FED does but the idea that that protection is some kind of solvent that creates large numbers of jobs I don't think would be supported by most economists after all if that were right Argentina would

have had a great record through the years at having low unemployment what's the best case for Donald Trump's argument for tariffs you sometimes agreed with him sometimes actually disagreed with him but what's the best case you could make for president Trump's case on tariffs look I think the argument is that it's a negotiating tool and that there are important things that we want to achieve in negotiation whether we will achieve those things I think very much remains uh to be seen whether the aggressiveness with which we've pursued this strategy will ultimately make cooperation with other

countries more difficult that remains to be seen but I think the best argument for uh this approach is a set of considerations based on Leverage and of course there are also Arguments for specific tariffs and specific sectors uh that are directed at ensuring that our economy is adequately resilient I certainly feel much better about the situation with the tariffs suspended and negotiations underway than with uh the tariffs actually imposed and we're just going to have to watch and see how all this uh plays out I do think the United States has gained an enormous amount

from an international approach based on International rules and when we flaunt those rules R we may make it more difficult for such a system to exist and that may ultimately undermine uh what our interests are so we're going to have to watch uh very carefully Larry with respect to jobs specifically uh the job market is fairly robust it has been a fairly strong job market low unemployment uh if in fact there are other reasons for imposing tariffs as you suggest some geopolitical reasons some political reasons is this a good time actually can president Trump in

a sense afford to risk a little bit on the jobs front well it's a good time on uh jobs it's a nervous making time on uh inflation and uh we're all hoping that inflation's durably going to get back to the 2% Target but it's not quite there and that's why interest rates are being kept at a level where mortgage rates for families are very high and so I think we have to be very careful with respect to what we do that is going to influence the price level and so I think economists are going to

be watching very carefully uh what all of this means Shannon oal is an economist at the Council on Foreign Relations specializing in trade she sees a direct connection between President Trump's new trade policies and jobs and it's not necessarily good so tariffs actually could have the wrong effect on jobs we've seen strong job growth in the United States United States is really a robust booming economy one of the strongest right now in the whole world um but tariffs may take some of that away and the reason they will do that is because so much of

us production particularly in in manufacturing and factories and the like depends on selling to our neighbors to Canada to Mexico because of integrated North American Supply chains so if you put on tariffs and you break down the supply chains then you're not selling engines from New York down to Mexico to put into cars you're not selling produce or cattle or other things that go to Canada go to Mexico you break down those Supply chains and jobs get lost as of right now they've suspended the tariffs on Canada and Mexico if they went into effect as

previously announced by the president which which sectors would be hit the first so one of the sectors that would be hit the hardest is the automotive sector this we see in automotives very integrated Supply chains across North America so first you would see losses because of higher costs if it's 25% more expensive to import things from Mexico and Canada then the parts and the components that are made in the United States don't get shipped down there to be assembled into cars into Mexico or into Canada so that's one way you lose jobs the other way

you lose jobs is that those cars that are sold in the United States just cost more as president Trump goes into this negotiation with Canada and Mexico does he have by far the upper hand given the degree to which those economies depend on the United States as opposed to the United States depending on them so you look out at the many countries that Trump has threatened tariffs or in some cases is putting tariffs on and Mexico and Canada are distinctively vulnerable trade for these economies is so important overall 70% of their GDP comes from trade

and trade with the United States is Paramount it's almost 75 80% of trade for Canada for Mexico comes to the United States so they are uniquely vulnerable to these kinds of tariffs China Europe yes trade with the United States is important but it's much smaller as part of their overall economy and as part of their overall export Market we're talking right now about President Trump potentially changing the terms of trade with Canada Mexico he's also talked to obviously about China he's imposed 10% on China what about actually tightening up the existing terms of trade we

also saw the United States Postal Service saying they're going to suspend the so-called Dom Minimus rule give us a sense of what the government could do with China or with others actually tighten down on what things are going on right now so there are many tools you have to manage trade tariffs are one and that seems to be one that we're starting with in the in the Trump Administration but there are many other ways there are import controls there are licenses and there are things like the Dom Minimus rule which says that anything that's imported

that costs less than $800 you don't have to go through the paperwork you don't have to pay tariffs and the like that at least temporarily has changed for Hong Kong and China they're looking at all those packages that are coming in which are the tune of 300 million packages a year that are coming in under this Dom Minimus rule so lower than $800 some of that is you know fast fashioned it's it's companies like xien and TAMU which sell you $5 t-shirts and other Trinkets and the like so some of it is that um but

there is a worry perhaps a justifiable worry that in those packages are also coming things like fenal pills which are very small can come in a small package precursors um or things that are more expensive that are evading the tariffs because they come in a small space we're talking about a lot of hypotheticals because we're not sure what actually will happen or when but talk to us about the time between we find out what happens what about that period of uncertainty for us businesses in making decisions about employing people in investing what does that do

to the economies well the time in between and even what it will look like and how long it will last this all creates incredible uncertainties so if you're a CEO or the board of directors of a company you're trying to think about where you'll what suppliers you'll use or what your final markets will be and what the costs and the profit margins will be you really have much less visibility into that it could be 25% more expensive or you could earn 25% less if you're selling into particular markets or it could all go away so

what I think we will be seeing is freezing of much foreign direct investment freezing even of investment here in the United States and freezing of growing jobs of of growing Footprints it will be very difficult for businesses to operate coming up millions of Americans are afflicted by the dreaded disease of Alzheimer's billions of dollars are spent each year to find a cure but have we've been on the wrong track and did some scientists lead us there that's next on Wall Street week this is a story about lost opportunity the opportunity to make real progress fighting

one of the most devastating diseases we know Alzheimer's with questions now being raised about much of the work that's gone into finding a cure Alzheimer's disease affects millions and millions of Americans but not just millions and millions of individual patients but also orders of magnitude larger than that because of the effects on their families and their effects on on larger society this is a massive problem nearly 7 million Americans over 65 about one in nine suffer from Alzheimer's costs of care are soaring $360 billion in 2024 projected to hit $1 trillion by 2050 $4,000 per

person with 70% born by the family the race for a cure is on but not without its setbacks as Vanderbilt neurologist Matthew shrag explains so in recent years we've had some candidates for treatment come up even been approved by the FDA and and been sold ultimately although with some contoversy this family of drugs that we're talking about are a group of antibodies and antibodies are a molecule that your body produces naturally these ones are synthetic ones that have been engineered um and they're designed to bind up a little tiny protein called beta ameloid and we

think that it's poisonous to the brain and that's thought to be the fundamental driver of Alzheimer's disease the antibodies administered to patients bind up to that beta ameloid and help to remove it from the brain and the idea is hopefully that will interfere with the progression of Alzheimer's disease hopefully it will uh but in fact there have been some treatments that appear to make some progress on the science but don't have clinical results well so fundamentally What patients care about is not as the beta amid removed from the brain right patients are concerned about can

they think clearly can they remember things and these drugs didn't robustly show in effect you had a a reasonably good biochemical outcome but that really didn't help people the problem I think that we've seen over 30 years of study of the amade hypothesis and the development of dozens of anti- ameloid drugs and vaccines is that it hasn't panned out Charles Piller is an investigative reporter for Science magazine many many neurologists and other doctors whose patients um have asked about these drugs have the opinion that this statistical effect is not really a clinical effect in other

words the impact is so subtle as to be imperceptible to patients of their families however these drugs also come with great risks including the risk of death or brain damage associated with brain swelling or bleeding that they can cause Biogen received FDA approval for the first anti- ameloid drug in 2021 leading to hope for Alzheimer's patients this and other similar approvals pillar says ignited a market frenzy but shrag calls it a dead end a view echoed in pillar's new book doctored fraud arrogance and tragedy in the quest to cure Alzheimer's there's been a fair amount

of research work money being put into it why is it that we haven't made more progress the simplest answer is that it's a complicated disease I've become more concerned as as time has gone on that research Integrity may be part of that equation after shrag criticized the fda's approval of the Biogen drug two Physicians skeptical of another Alzheimer's treatment this one from casava hired him to do an independent investig ation kava's stock had soared 900% leading to a $5.4 billion valuation and the Physicians ended up shorting the stock and filing a whistleblower complaint with the

SEC a number of individuals were concerned that something fishy might be going on and started to examine the basic science and some of the other supporting information around this drug um and started to develop concerns and their attorney reached out to me to be part of the process to evaluate the science behind this drug sum and cassava Sciences what did you find when you started looking into it so a lot of the basic science that supported the use of this drug came from a single laboratory a laboratory run by a gentleman named Ha Yang Wong

at City University of New York and when we looked at his work we found a extended pattern of alterations in in the data coming out of this laboratory a lot of the data a lot of these sorts of experiments often the output is is an image and sometimes you can see when you look at an image things that make you think it's been altered it's in the same way you could walk through a magazine aisle and look at a photo and say maybe that's been touched up something strikes you as um something unnatural about that

image and so when we went through his work we found lots of that sort of um problems but just getting it wrong is something different that can to any scientist we all get it wrong yeah absolutely there's this is not about making mistakes we're looking at a very coherent pattern of altering data to fit certain hypotheses when you collect your data right there should be very little reason to make uh cut and paste type changes within an image you know I think there are things that um you can see that are universally inappropriate shag's findings

supported a citizen's petition urging the FDA to Halt clinical trials I was tagged on Twitter in a in a post where somebody said hey Elizabeth you need to look at this and it was a link to a citizen petition Dutch microbiologist Elizabeth Bick is a forensic image expert and Pioneer of crowd sourcing to uncover flawed studies using such platforms as Pub Pier she and other sleuths publicly share evidence of apparent data manipulation these were photos of these scientific papers that looked at Western blots which are protein blots and and it showed all kinds of problems

in these scientific papers and it looked like a lot of that body of work contained potential fraudulent results and so I completely agree that it would make sense to ask the FDA to hold the trials on humans because if the work done on animals already looks fraudulent it's very unlikely that it will work do you know what ultimately happened to cassava and its medication there been a number of Investigations um the Department of Justice appears to have pursued a case against how Yong Wang he was actually arrested for this type of data manipulation accusations of

of data manipulation and fraud um and so I know that case is proceeding the stock plummeted 85% in a matter of basically minutes when it was announced that the drug had failed and so what happened is a lot of people in the market lost money on this drug enormous amounts of money the question I have is why why the FDA which is the agency that had the power to intervene didn't do anything for literally years knowing what they knew cassava says it is cooperating with the doj and has made changes to the leadership team Wang

pleaded not guilty but what pillar and shrag had found LED them to look Beyond cassava enlisting a team of private citizens including Bick to investigate whether there might be other problems with Alzheimer's research they say they uncovered numerous instances of data manipulation going all the way back to one particularly influential paper published nearly 20 years ago we were both kind of stunned when we together discussed this experiment by Karen Ash and syvan Les that um was so instrumental to the field and yet seemed to be very suspect Ash and Les's 2006 nature publication shaped The

Field's understanding of Alzheimer's the amate hypo hesis took a bit of a stumble in the early 2000s and this group of investigators Karen Ash and syane lesny were one of those who came in and said aha we think we've identified the silver bullet and so what you had is for the first time a sensibly an experiment that showed a kind of cause and effect direct cause and effect of a substance that seemed to be causing Alzheimer's disease and lo and behold it was a an amalo beta protein and it sort of rescued the amalo hypothesis

it was cited thousands and thousands of times and variations of this theme were developed but what we found in the course of of doing this research Integrity work I bumped into a number of papers from syane lesny the first author and we found that there seemed to be artifactual uh changes in his work as well including in this famous nature paper and as we analyze that paper we found that the majority of the figures seem to have evidence of tampering in them and I understand Dr Ash actually has withdrawn the paper now she has it

was retracted in the last 6 months or so the University of Minnesota conducted an investigation and found no research misconduct but the authors with the exception of lesne agreed to retract the paper and Ash took responsibility though she said she had no knowledge of any image manipulations until it was brought to my attention she continues to back the amalo hypothesis and her conclusions Les has not commented and remains in good standing with the NIH according to Ash lesny denies fabricating the data how did NIH react what I can tell you is that we saw very

slow uh progress um in in dealing with these things we saw syane lesny continue to get funding even new funding after um these reports came out and were widely accepted that these were were serious problems initially you wonder how could that be um until you take a larger look at the field and you realize that the leadership of the NIH has not been completely immune to these types of problems the administrator overseeing Les's NIH Grant co-authored the now retracted nature paper the team also found issues with the work of the man who led the division

at the NIH National Institute on Aging a gentleman named elazer Miss Leia who was the Neuroscience director at the ni a and this was probably one of the most prolific cases of um apparently doctor data that I'd ever seen we stopped analyzing when we got to something like 130 papers and just said that's that's enough we can't we can't spend the rest of our lives looking at this but this is somebody who has been able to ascend to the very highest echelons at the NIH the day pillar's report in science was published Mia was removed

from his post so it appears that there is a broader problem than you first understood I wonder what thoughts you have about where it comes from science is a human endeavor right scientists are people the Garden of Eden happened to all of us right we are all flawed people and scientists are going to be subject to the same Temptations as everybody else and so I think part of what needs to happen as a discipline is that we need to be a little bit less naive what advice do you have for an investor given what you

said about some of the problems with science it really is quite uh unsettling if we think the science we think we know we don't know if you're going to make an investment of not only millions or tens of millions or sometimes hundreds of millions of dollars in clinical trials but also ask hundreds or thousands of patients to accept the risk of exposing themselves to experimental drugs we should start with do we think we're starting from a trustworthy Foundation that's a fair question and it should be asked consistently and I think that some sometimes it's time

to ask the field to move on right I think that even a non-scientist can listen to all Simer research over the last 30 years and say I've been hearing ameloid and ameloid and ameloid but what's not changing is what's happening for our family members right and that it's time for something else before we do this again tell me why it's going to be different this time and I think that the investors can motivate change [Music] coming up when fizer announced its earnings this week many were focused on its huge commitments to finding a cure for

another dreaded disease the disease of cancer we hear from fiser CEO Albert borla about his plans to do for cancer what fizer did for covid that's next on Wall Street week this is a story about hope hope for those who need it desperately when they learn they have that disease all of us dread the diagnosis of cancer the surgery was successful however tests after the operation found cancer had been present I know a little bit more that people who've been told they have cancer know a little bit more than other people that's staring you right

in the face and it may actually happen in 2024 the United States hit a new Milestone estimated to pass 2 million newly diagnosed cases of cancer one it is that the cancer incidence is increasing right now we have 15 million approximately in the world people that are suffering from cancer every year probably the number will go to 30 plus in 2050 and that is happening because first of all people live longer lives and that the AIDS favors unfortunately cancer but also there are risk factors and uh who have better ways of detecting now cancer so

that's one they're living longer but actually we're seeing more instance are we not in younger people which is surprising we are and this is kind of emerging right now and there are risk factors starting from environment starting from multiple alcohol smoking but uh also it is the fact that we can detect cancers way more efficiently today than we could do it years back Dr Albert borla is the chairman and CEO of fiser under his leadership the pharmaceutical company partnered with bch during the covid-19 pandemic to roll out liaving mRNA vaccines how to operate with speed

the vaccine or the the operational War speed that uh president Trum actually had initiated was an operation that remove obstacles but also within the companies was an operation that we were suiting for the impossible and uh we came with a mindset nothing is impossible we can make it possible that's a mindset that we can use again not to find the solution for Co but to find the solution for cancer or for Alzheimer cancer is Dr B's next big challenge at fiser in 2023 fizer completed its $43 billion acquisition of seen a company basing a particular

cancer treatment on monoclonal antibodies just this week fiser reported earnings that included an increase in spending on oncology to about 25% of its Revenue you have made cancer a real priority for fiser in your investments in your R&D in your development even your Acquisitions why because we think that uh we are ready to provide the solution we want to to save the world again and I think our best chance this time it is with cancer the science is there we invest uh probably double than all the profits that we made with Co to acquire a

new technology which is promising a lot the number of us cancer cases may be going up but the mortality rate is actually going down it's Fallen 34% in the last 30 years and the National Institutes of Health Project that if this trend continues the United States will have 26 million cancer survivors by 2040 a 4 4% increase over 2022 fizer hopes to keep this trend going through one particular oncology treatment turbocharged by its acquisition of Cen it's called antibody drug conjugate or ADC technology and uh this is like a missile that it is GPS guided

so doesn't go anywhere in the body is going straight to the Target which is the cancel cell and what is on on top of this missile a warhead which we call taay load a chemotherapy that is going to be targeting those cells we know that some cancer cells express some proteins then we create an antibody but it is attracted by these proteins the antibody is the GPS system then we have a payload which is the Warhead it can be chemical or nuclear or tactical depends on what you want to attack and then you need to

link the two together and that is called the conjugation that means that uh we believe that in the next 10 years most of the general chemotherapies could be replaced with targeted therapies like that that have way less side effects because the chemotherapy attacks also the healthy cells right now we can minimize the impact on the healthy cells and maximize the impact on the cancerous cells how far along are we in the process with this new technology of really having something that will start caring people I think already we start having uh dramatic results results that

for example they can triple the life expectancy of uh the current standards of care but uh I don't think it will be a miracle that will come from one day to another it will be though constant Improvement every quarter we will have not only us but others as well releases of new data of new medicines eventually some of these cancers will be cured which means that they will disappear and will not come back back again but many of them will become chronic disease you can learn to live with your cancer with medicines that are not

affecting the quality of your life fizer is not alone in looking for ways to make cancer more manageable research has a key Ally in artificial intelligence I think it allows several things first is it makes diagnosis and treatment planning more accurate you know we're moving away from one size fits all in terms of treatment of cancer or many other conditions we know that each of us has different manifestations of the way a tumor is going to grow or spread or and also how it's going to respond to treatment and we need to be able to

bring the best treatment to each patient at that particular moment in time and AI is enabling us to do that Dr Lloyd me is the dean of the Stanford University School of Medicine where he has pushed the institution to focus on Precision Health intended to tailor care to patients individual needs I think really we're we're finding things otherwise we would have not found because the human brain can only store so much information and traditional analytic methods have their limitations generative AI is bringing out relationships that we would have perhaps never been able to arner without

the Advent of foundation models and their application to the interpretation of medical data I think the deployment of generative AI the pace of that deployment and its impact is greater and faster than any the pace of any technological innovation that I've seen in my life and I think we're still at the relatively early stages deep Minds Alpha fold is proof of how much AI can do in the medical field it uses its vast computational power trained by 170,000 proteins to predict protein structures I remember when I was uh when I was starting in college I

joined this lab and we were crystallizing proteins and putting the coordinates of their atoms into a database along with many others and I remember Professor Steve Harrison uh who was the leader of our lab telling us it might take 50 years before we're able to predict how a protein Folds given its amino acid sequence Marty Chavez has been a fixture on Wall Street since 1993 when he joined Goldman Sachs but his biochemistry routs go back to his undergraduate days at Harvard University today he serves as a board member of alphabet whose subsidiary Deep Mind won

the Nobel Prize in chemistry for Alpha fold last year they gave it the 50,000 uh amino acid sequences or proteins that had been sequenced and stru and the structure was known through crystallography they they trained the neural network on that database the protein data bank and then they did something kind of amazing which is they then guessed 75,000 protein sequences for which the structure was not known so here's the amino acid sequence guess the structure they fed those guesses back into the model and then I'm over simplifying of course but but now the model seems

to predict with uncanny accuracy the shape in space of proteins that have never been crystallized it seems that the the model discovered some deep patterns in the way proteins fold in space and somehow compressed and captured that knowledge into the [Music] model we hear a lot about the generative AI there were just a Nobel Prize given out for the alpha fold technology what does that mean if anything for cancer how does those two fit together well it's I believe not only for cancer but also for cancer it's going to propel the biological research AI in

unprecedented ways we are going to sorten uh the time that we need to be able to develop molecules what's the time Horizon as far as you understand it for generative AI really making a big difference I think quick I think uh already we are deploying it so it made very big difference in the example that I gave you but as we are deploying in different aspects of the process from Discovery to development I think with the next two three years we'll have phenomenal results borla points out that fiser is investing twice what it made off

of Co treatments to address the scourge of cancer and it will need to replicate some version of that Co success in redirecting its efforts after it stock price surged from that success Shares are down nearly 50% since December 2021 leading activist investor starboard to take a$1 billion stake in fizer turning up pressure on the company to prove the value of its Cen acquisition and investment in its drug line I know that you're committed to this fight against cancer as is fiser to save lives first and foremost but it's also a business how big a business

opportunity is it potentially if you really have breakthroughs it is very big business opportunity I'll tell you something the there is a myth about the uh the pharmaceutical business model and the myth says that whatever is good for patients and whatever is good for shareholder is fundamentally at ODS in fact the reverse is true you can't make any money actually you're going to lose all your money in this business unless you are able to discover very meaningful not me to Solutions very meaningful solutions for the patients so if we discover medicines that really double and

triple the survival then it's very good business if we fail because we take a lot of risk is not good business you always have new drugs in the pipeline uh where are you on Cancer drugs in the pipeline right now advisor it is the crown zo we are having uh most of our pipeline drugs and the most important are coming from cancer of course we have vaccines we have internal medicines we have work in obesity we have work in arthritis and imuno inflammation but cancer is where we have most of them and um I would

say that uh three of the most prominent uh candidates are entering or have entered or are about to enter phase three studies for Dr borla the mission to make life more livable with cancer is worthwhile because it is a disease that affects us all no matter where we come from or who we are it is a global problem and affects all of us maybe not all of us as patients thankfully but all of us as Sons and Daughters as fathers and mothers unfortunately as friends as neighborhoods so cancer is something that is scaring people right

now and it is not only in the US or in Europe or in the most advanced economically countries coming up president Trump says he wants to get federal spending down Bridgewater founder Ray Dalo gives us his diagnosis for what could turn into a debt crisis and what the president and Congress need to do to avoid it this is a story about going broke whether you're a person a company or an entire nation it all comes down to the same thing not being able to pay your debts as they come do the US Fiscal Federal government's

fiscal path fiscal policy is on an unsustainable path the level of our debt relative to the economy is not unsustainable the path is unsustainable the United States has been running up a large tab for years now going from a debt of $5.7 trillion in 2000 to over $35 trillion in 2024 and so far it doesn't show any signs of slowing down with the Congressional budget office projecting that at the rate it's going the US will owe over50 trillion by 2035 or about 118% of its annual GDP the debt ceiling the Trump Administration comes to office

aware of the challenge posed by the federal debt and is taking steps it says will help address the problem the federal government has a significant spending problem Bridgewater founder Ray doio has written a new book available at no charge online addressing the US debt problem it's called how country Ries go broke and he starts with how much the us is going to have to borrow and who will lend it the money it needs the difference is they can print money and then that's basically it so what you have is a situation where there's a supply

and a demand for debt as we have a new Supply that will equal in the United States now by the way this is a problem elsewhere too but it's about 75% of GDP it's so the supply of debt is going to be large that's new debt if I calculate also who are the buyers of that debt and that there's not going to be enough demand for that debt doesn't look like there'll be enough demand and the way that it works so there's two things to keep in mind there's supply and demand and then what do

central banks do or what do the governments do when they don't have enough demand central banks come in and make up that demand they essentially print money and then they buy that and then that has a consequence and so just like in 2020 21 we went through they needed to give money away and the government needed to borrow and the Central Bank produced the money and bought that that the values money raises inflation and so on thus far the United States has been able to support ever growing debt and deficits because of that ability to

print money but Doo warns that throughout history countries have run up against the demand of creditors sooner or later to get paid it is when the owners of that debt we have you know over 36 trillion dollar essentially of government debt when they start to also fear that it may be monetized like the Japanese Japanese is a very good example Japanese if you have terrible investment to own bonds they didn't go down in value but you got an interest rate that was 3% below another interest rate US interest rate by example and the currency depreciated

by 32% they were losing 62% a year for many many years that's what it can be like of course there's an inflation component that enters into the depreciation one of the things I also want to emphasize is people pay too much attention to depreciation against another exchange rate normally at such times many countries have this issue and they don't want their currency to depreciate so what you see is the depreciation of all currencies in relationship to things like gold or other assets and that's where you have to pay attention to it so if there is

a debt wall out there somewhere that we will run into how close are we to it and how can we tell as with our personal finances Val says it's when we end up borrowing not to invest in our future but to pay the interest on what we've already borrowed debt isn't the problem if if the debt is used to produce an income that is large enough or larger than enough to service the debt it's like a company if you more like your finances but what happens is it accumulates tends to accumulate think of it like

a a a disease that has a progression and it goes through these various stages um and so you can kind of see where the stages are we're relatively late in the cycle because we're also having central banks lose money that's a marker when their balance sheet deteriorates when they have a negative net worth for example in the UK can the Central Bank have a negative net worth according to their laws the central government has got to recapitalize the bank that becomes a budget item so there are certain red flag um there are a bunch in

this study that I've put out so that you could see them Debt Service payments borrowing to borrow so we are in the later stages of this this is something that will be I think the most important issue that we'll be talking about we're not talking about it now but we will be talking about it over the next few months because the budget is the issue Dalo sees signs in the market that now Point toward the end of the cycle what happens is that you see interest rates rise led by the long end when there's an

easing of monetary policy and the currency depreciating well you think wait isn't the FED lowering interest rates isn't the bank of England lowering interest rates why are long-term interest rates going up okay they're not intervening what there must be something with the supply demand of those bonds cuz it's not their transactions that are driving those interest rates up and the currency is falling at the same time okay that is reflecting leaving in other words selling the bonds and leaving that instrument so when you have that Dynamic it's a red flag so we're having elements of

that Dynamic uh so not only is the supply demand operating that way but the market action is operating that way if Dalo is right if the United States is approaching the end of what he calls the long debt cycle what should it do to make sure it doesn't hit that wall there are three factors that drive the budget deficit spending cut spending it'll be reduced taxes raise taxes not tax rates but taxes sometimes you can cut tax rates and raise get that more tax revenue so I just want to say taxes tax revenue but interest

if the government was operating as a unit with the central bank and there was a coordination if there was a fiscal tightening coordinated with our monetary easing both of those things reduce the problem and so an action of getting it at 3% of GDP if I scream out a number the 3% solution I think that the policy makers have to start from the top and say 3% of GDP we can do this we will do this in one way or another they can't let their pet programs I think they don't have a that Mantra they

don't have what is the amount and then they have to agree um at least if we can't agree what do we do do it proportionately whatever you do you must you must do this because if you don't you are risking what I would call you know this this heart attack due to that constriction of Debt Service payments Andor a piece of that plaque breaking off sort of the sale of those bonds you're risking that needlessly and so many things are so beautiful you don't need to do that in the end Doo's how countries go broke

isn't simply a jeremiad it does warn of some pretty dire consequences if we don't act and don't act soon but he also sees a path forward toward what he calls a beautiful deleveraging a beautiful deleveraging one way or another is there 's ways of reducing your debt and debt burdens some of which are deflationary and some of which are inflationary and if you balance those you will reduce it in a balanced way that's what I mean by beautiful deleveraging so for example fiscal spending cuts or tightening raising taxes will reduce the debt burden but it's

a deflationary influence there's interest rates and reducing interest rates is a stimulative way because it reduces Debt Service payments directly for the government so they have a lower debt Bill and it also is stimulative to the economy at the same time which can raise tax revenues and also raise asset prices if we think beyond what our usual constraints are about dealing with the budget in other words don't just think about spending and and um taxes as vehicles but also think about interest rates and the interest rate component that could be a balance dealing with that

reduction that can accomplish the goal without being depressing and uh gets it on a better fiscal track coming up Ray Doo on what his analysis of debt in the economy means for other countries pretty much everyone agrees that the United States is facing a challenge in making sure that its increasing debt doesn't affect its economy but what about the rest of the world are other countries facing some of the same structural issues the US is facing Bridgewater founder Ray do took us around the world of debt Cycles China um is going through its debt cycle

and and they've been slow to react to it um so the but it's in the um sectors that are not the central government sector it's in the uh local government sector and and assets there are things that they need to do and it depends how quickly they do need to do them here are the things that they need to do or countries need to do when they're at this stage you need to have interest rates below the inflation rate and below the nominal economic growth rate okay um because there's so much holding of cash and

when you have deflation and you have asset prices is going down and there's it pays to hold cash particularly in an uncertain environment and so you have these large cash Holdings what you called that pushing on a string in the Great Depression you need to make it unattractive to hold that that lets the currency the currency weakens these are the things that need to be done China is has been slow to do that so that's for the economy as a whole I should say there are also Parts in the economy that are not affected by

the debt much okay some the like the AI parts of the economy and and applications and so on are not so it's a complicated situation but China risks the Japan situation if they don't deal with it in a in a in my opinion have been too slow and if they don't achieve these things the Beautiful deleveraging the negative real rates the depreciation if they don't move on that um uh I think it'll go on a while um if you're taking Surplus countries all because you're talking about Surplus countries when I look at it I look

at these same for forces how are they doing financially what's the income statement and balance sheet do they are they earning more than they're spending and do they have more assets than they have liabilities uh for a country now look at countries that are do they have internal order do they have an environment where there's working together and there's internal order to be creative with talented people being unle to do productivity number two number three are they at risk of a war an international war that will disrupt them number four is okay will they be

major imp impacted by the climate issue and so on and then number five what is this technology going to do for them so the places that you're referring to when I look through those lenses and you can see which the better places are and which they aren't and I did a um uh uh it's online um uh many different measures of the health of a country top 24 countries it's online you can say see the indicators and with those indicators you can see which are the better places we have um so are uh on the

war don't get in a war there's the winners and there's The Losers of the war and there's the neutral countries and then uh if we're looking also at um uh some of the terrific countries uh the aan countries India these are places where for various reasons um things are changing Indonesia these are places where things are changing I could just go on at length at it but I'll take up too much time technology as you say we have to talk about technology generative AI seems to be transforming much of our world over the next few

years could that change your entire debt cycle could that really change it and make sure sure we don't have a debt crisis the way we might otherwise oh um yeah it it certainly could I I think it's the greatest in all history technological change uh you know there's the printing press and then there's the Industrial Revolution and this is applies to all thought but I I take it from my perspective you know um when I started Bridgewater and uh all along the way um we put in computer code rules criteria principles I call them um

for decision making so we would do it through um expert systems code and the code and they would make decisions because they could see things more complicated we are coming to Way Beyond that so this is going to have a huge effect uh but it's going to be have an effect over the next 3 years the Miracles capability are continuing to exist but when will you make it that your decisions are made in parallel like making a computer chess game way we build systems that you make like a computer chess game and then it makes

decisions while we're making decisions so the ability to have productivity increases in so many different ways are so enormous that they could definitely change things a lot they're farther out there it to to me this year looks like a the indicators and so on look a little bit more like 98 or 99 you know that asset prices particularly of the big scalers uh the prices are getting higher there's a risk an interest rate risk that is going to be entering the market that we just talked about and and those those risks um are very important

so I think with Evolution um it can be terrific but also how you deal with it what it's going to mean for employment wealth gaps think about the differences in in the wealth gaps I mean basically about 3 million people are those who are the unicorns and that's a Wonderful World live go to the best universities come out and the invent of an entrepreneurship and so on about about 3 million people are in that world out of 333 million in the United States and as I said 60% of the population has a reading level below

sixth grade so how that's dealt with is not is going to be an issue from your study of history you talk about five forces that really Drive things first being sort of the money cycle credit F second domestic politics third sort of international talk about the international for a second and tariffs specifically okay how could that read against this are you relieved that at the moment at least looks like President Trump is not moving too fast on across theboard tariffs for example with China I'm a global macro investor right um so Global and macro um

there are five forces that everything falls under so we talked about the credit create spending creates markets drives him that's for Force number one internal conflict Left Right conflict over wealth and power and values and that becomes greater extremism and so you get greater polarity and populism of the left and the right and that and does that create order or disorder and then there's ideologies with all of that is it going to be taxes and so on so we we know that number three is the great geopolitical uh we had a world order after 1945

then that was when the world order began the United States was the dominant power and we had multilateralism and Multinational organizations like the reason United Nations is in New York or the World Bank and IMF and Washington DC and there's a World Trade Organization and all these World organizations was the idea of how do we work together in a system and so on we have shifted so multilateralism is out and we are uh openly said um an America First policy and that so there are no rules we're now in an environment that um uh Power

determines things so when we dealing with those issues so that's number three the great power conflict number three number four is um even more important than the first three is acts of nature droughts floods and pandemics have killed more people than Wars and have created uh more tbling of uh Empires and and orders and then number five is technology that does it for us here at Wall Street week I'm David Weston this is Bloomberg see you next week for more stories of capitalism [Music]