Okay, we are here in Washington DC in front of the White House. Having spent the afternoon with our friend David Sachs, our friend Elon Musk and others, we are here to learn about the debt, the deficit, what’s going on in DC and we have an incredible interview lined up with Scott Besant, Treasury Secretary of the United States. It was amazing. And it’s been an amazing afternoon and we’re really looking forward to it.
Well, this is the pre, the intro to the video. It will be amazing. It’s not the pre, let’s just, it’s the post. We’re going to pretend it’s the pre. It will be incredible. But how cool is the White House? And here’s a bell. I’m pretty sure the bell. I cannot even describe to you the day we had running around. It’s incredible. Running around room to room in the White House. One of the best days of my life. It was one of the best days of my life. It was incredible.
I think this bell is probably pretty important. Can you guys get a shot of this bell? I don’t know what it is, but it’s really important. Yeah. The White House, the people, 201, super kind, super open, super curious. I mean, did you, you felt it, you felt accepted. Yeah, I felt, but I got free soda. They have a soda machine where you can make any Coca-Cola flavor you want in the White House. It was pretty cool. Highlight. Some hummus. I wrapped it on a paper. It was a cool afternoon.
And this is, what is this, the east wing of the White House. And we took a walk from the west wing all the way over to the east wing. Through the portico. And then we snuck in, or we didn’t sneak in, we walked in. And then we’re walking around the east wing. We went to all of the private rooms. I got great photos. We’ll slice them into this video. And then some secret service dude comes up and he’s like, what are you doing here? This is the residence of the president. You have to get the out. He’s like, you need to go downstairs now. So we got kicked the out. But it was an incredible, incredible tour. Super great.
Yeah. Anyway, we’re excited for this interview with Scott Besson. Hope you enjoy it. All right, besties. I think that was another epic discussion. People love the interviews. I could hear him talk for hours. Absolutely. We crushed your questions in a minute. We are giving people ground truth data to underwrite your own opinion. What did you guys say? That was fun. That was great.
Well, today’s a really important day. We’re joined by the 79th Secretary of the Treasury, Scott Besson. And this is an opportunity that we wanted to take as part of a longer form way of explaining to people, not just how the economy works, but in a little bit more detail, where are we in this moment in time? Where are we with deficits, tariffs, the budget, economic, monetary, fiscal policy? How do we make sure that we all understand the plan to make America great again?
So Scott, thank you for joining us. Good. Thanks for having me. I actually want to start with, let’s go back in the way back machine. So South Carolina, your father was a real estate developer. Tell us where the passion for finance came from. Well, I don’t know where finance in particular came from. As you mentioned, my dad was a real estate developer and he was kind of boom, bust kind of guy. So I think that’s where my passion for risk management came from.
But I was very fortunate, went to Yale, wasn’t sure what I wanted to do. 1980, when I got there, probably you all can imagine this, but there used to be these things called punch cards. And we’re just gone, the Yale computer system just gone from punch cards to screens. I was going to think of being a computer science major, maybe a journalist, because people actually used to read newspapers. So punch cards and newspapers from the way back machine.
And I got an internship just for an individual. And he taught me the investment business really well. And who is that? His name is Jim Rogers. He’s famous. He was George Soros’s first partner. He had just completed an around-the-world motorcycle trip and written a book called Investment Biker. And a fascinating guy. And I did the investment business and I thought, this is really what I like, because it’s quantitative. So I had to use my quantitative skills, but you’re also constructing a narrative. And it’s also like human emotions.
And you were trading equities, bonds, everything, currencies? Well, I started out with equities and I did that for several years. And then I actually ended up at Soros Fund Management. I worked for a fellow who’s my mentor, Stan Druckenmiller, who’s incredible. I think he’s on more than 40 years now, never a down year. And when you’re sitting next to him, what am I doing all day? And notorious for going all in several times in his career.
All in. All in. Only when he’s right. Yes, well, but he is the best at changing his mind of anyone I’ve ever seen. So Druck has that famous adage, “Invest, then investigate.” Well, he has several. And I’m trying to get him to write a book because he has so many of these great things. Maybe you will press him. But invest, investigate, it takes courage to be a pig. Right. Right.
So and then I was hooked on markets because, again, it was everything is quantitative. It was qualitative and it’s real time. You get real time feedback all the time. And you’re you can have a long term view, but then you’re trying to gauge the short term against that. And I loved it. And for 35 years, I’ve gotten to I did what’s called macro investing. So eventually I was trading currencies, bonds, commodities, the equities, some credit.
And I got to travel around the world meeting leaders and trying to figure out what the next move was in policy. I think this is important because I’ve spoken with folks who trade in macro. And a big part of the role of being a macro investor, macro trader, is really knowing where central bank action is going to be, really knowing how government bonds are going to move, and spending time with economists, not just central, but around the world and learning a little bit about how capital is flowing all over the world.
Is that kind of the right way to describe that role of being a macro investor just for folks? Yeah, it’s a lot of that. There’s another great macro investor called Bruce Kovner. And he had the saying that he said, you know, I succeeded because I could imagine a different future and believe it could happen. So the key is to believe it could happen and then manage the risks.
So, you know, could you imagine what would happen if the Iron Curtain came down? What would happen? I mean, you all do as venture capitalists, but like, you know, how could the world live in a different state? Okay, well, let’s hold that idea and double click for us to 92. It’s probably one of the most famous moments where the broader world at large met macro trading. And this is really where you and Druck and Soros basically broke the back of the Bank of England.
And it’s really an interesting window into assessing all of these things. So can you give us the conditions on the ground at that moment and what new reality you saw for England? And then it would be great from there, we’ll contrast and compare it to America today. Good. So it’s a great historical example. And it also kind of brings in three dimensions. So I was the analyst, Stan was the portfolio manager, and then in a way, George was the risk manager.
Okay. So I was running the UK office, I was on the ground in the UK. And I had this light bulb go off. And, you know, I thought kind of the fulcrum thought, or like my differentiated view was that the UK had just had a big housing boom. And UK mortgages at that time, they didn’t have long term mortgages, they were all floating rates. So if the Bank of England raised rates on a Wednesday, the UK, your mortgage went up on a Friday, the UK had hooked into something called the exchange rate mechanism, they had to balance versus the Deutschmark, they had to stay within a band.
I noticed that if they raised, or I thought if they raised rates to try to stay in the band and protect the currency, it would be unsustainable, it would be unsustainable because British homeowners would get bankrupted. Stan’s great feat of analysis was figuring out that these bands set up this incredible asymmetric bet because I can push them up against one side of the band, and their mandate is just to push me back to the other side.
So we just lose two and a half percent. And you know, Stan tells this great story of like, telling George Soros, “Oh, well, you know, here’s what I want to do.” And he says he told him, and George says, “Well, how much do you want to do?” And he said, “Probably 100% of the fund.” And he said, Soros gave him this really sour look. And he thought that he had said something wrong. He goes, “Well, why wouldn’t you do three times that?”
So anyway, it was, we pushed them against the band. The Bank of England, the British government had to buy this unlimited amount of pounds, and they started raising interest rates. And this was September of 1992. And eventually, they just weren’t able to sustain the pressure from the high rates, and came out. And then the asymmetric risk reward was, we made about 20 something percent in a day.
And back to what was really Stan’s genius is, I don’t know if either you play backgammon. But in backgammon, there’s the move after the move. And so Stan, we’d made all that money, and we were kind of euphoric. He goes, “Okay, now what?” Because there’s going to be the trade after the trade. So we made that much in a day. But then it was actually the trade after the trade. This isn’t well publicized. I think we made another 20% during the rest of the year.
Wow. So in that moment, what you’re really observing is that the real economy is somewhat dislocated, maybe meaningfully dislocated, from the financial economy in your operating. And I think you’ve said this now many times, and you’ve basically used the terminology, the Main Street, Wall Street dichotomy. How do you observe the moment in 2025? Maybe what rhymes with the early ’90s or other periods where you’ve been trading actively?
Well, look, I think it goes back to something that’s unsustainable is unsustainable. And one of the reasons I’m sitting here now is about 18 months ago, I went to see President Trump. I’d known the Trump family for 30 years. I’d never known the president that well. But to tell him that I want to get involved in the campaign because I was so alarmed with what the Biden administration was doing with the debt and deficit. Endless stimulus. Endless spending. Endless spending. Endless spending, but endless spending when we were in solid economic territory, or not in a war, first time ever.
And I thought it was very cynical because I actually thought, well, we’re going to spend, spend, spend, and then there’ll be no choice but to raise taxes. Right. So you’d go into this equilibrium that you could just never get out of, and you become kind of a European-style social democracy, you know, the malaise. Yeah. And, you know, I also think that we’re very cynical on immigration. Right.
Because if you take kind of the stated number, 12 million, the president’s number 22 million, I don’t know what the truth is, kind of lean toward the president, but it was, oh, we’re going to let all these people cross the border. You can’t ever make them, problems too big to make them go home. But I like to stay in my finance lane. So the finance lane was, we’re going to just go to the point of no return and kind of inflict these, the progressive financial values on the country. There’ll be no way out.
You had very meaningful wage suppression in that period. And you had an equity market that was incredibly well bid just because the money supply was just always there. Well, it was always there. And you had these distributional aspects because back to your question, Wall Street versus Main Street, that it was driving me crazy when Vice President Harris said, I’m going to fight for the middle class. And she’d eviscerated the middle class.
Right. I’m going to fight for the middle class. Or these policies, inadvertent, intentional, had eviscerated the middle classes and really the bottom 50%. So we’re in this. Because purchasing power goes down, inflation went up. Well, if you didn’t have assets. Right.
So that’s really important. I think people don’t understand this, that if you had stocks, if you had assets, your assets inflated. But if you didn’t, the cost of everything inflated, but you didn’t have the ability to purchase because your wages don’t go up. Yeah. And not only did inflation go up, but if you look, Jason Trinert has this thing, I think he calls it the Everyman Index. And so CPI went up about 22 during the period.
Yeah. But the Everyman Index was up over 30, 35%. Because the bottom 25%, the bottom 50% of wage earners have a different basket than we do. And it inflated much faster. 100%. Used car prices were up. Car insurance. Car insurance, rent, rent, groceries. And not only is it unfair, but it’s just unstable. Right. And creates civil issues.
Yeah. Societal issues. And so, yeah. But sorry, as you guys got into looking at this, and I remember Stan talking about this in the summer of 23, I think it was, or 23. Yeah. And what was the point of view on what should have been done at that point in time? And then how much farther did it go? How much longer did it last?
Well, I think what happened, the Democrats will tell you that the big spending bills were needed for rescue. And I would say in March of 21, the economy didn’t need rescue, it was already in recovery. Right. So these were rescue-sized packages. And even Larry Summers, I remember there was a great debate between Larry Summers and Paul Krugman. And Summers, I think, said, “Look, this is at least 900 billion, a trillion too much.”
And the Federal Reserve was, summer of 23, 22, Federal Reserve was very slow off the mark. And we ended up, and again, imagine, top 10% has assets, stock market is flying, you’re in the bottom 50%, you have no assets, but you have debt. So credit cards are up, mortgages, impossible to buy a house, house prices had gone through the roof due to COVID. So it really did look in the American dream. And, but we’ve been suffering these distributional effects.
Scott, what is the American dream today, do you think? Look, I think the American dream is what it’s always been. But after World War II, I think 90% of American families, the children made more than the parents. Now I think it’s 50-50. But it’s to own a home. It’s financial security. It’s to some level of comfort. It’s purpose in your work. It’s to be able to support your family, to be able to have choices to not have to work two jobs.
I made a remark at the Economic Club of New York last week, two weeks ago. And Mike Pence decided he was going to troll me. And because I said the American dream is not built on cheap goods. And he said, “Well, yes, it is.” And I just say, with Vice President Pence, this let them eat flat screens economic policy that doesn’t, isn’t what people want. They don’t want the baubles from China.
It’s like the old- They want progression. People want progression. I mean, I remember reading, there’s a, I think Jonathan Haidt had some work on this a long time ago, where happiness is measured by your change in net worth or income per year. It doesn’t matter what your absolute levels are, by all these social economic kind of surveys that they do. That feeling like you’re having some progression in life is what folks are looking for.
And I wonder whether solving for that, we created a system, and I’d love to point out your read on this, that we said everyone should own a home. That’s the American dream. And in order to do that, people put most of their net worth into a home. 60%, I think, of middle-class net worth is tied up in a single asset. And then in order to get them to feel like they’re progressing, we’ve created a system of loans and a system of kind of economic and fiscal policy that ultimately drives the value of the home up every year.
Now we’re kind of in an unsustainable housing bubble. Most people can’t even afford to buy a home. What did we get wrong there, and how does that affect what the American dream should look like going forward? The American dream should look forward. Well, I think a lot of it’s scarcity. Because what you’re talking about is out in San Francisco, super tight zoning laws. So there’s scarcity for homes. If you think, like Ivy League education, all of a sudden you gave all these people access to Ivy League education. You brought in international students, but the number of degrees awarded, Harvard, Yale, Princeton, probably hasn’t changed very much since the 1950s.
So you created just this demand for scarce things, which leads to this anxiety. But you also created, I think, a sense of hopelessness. I can’t access. I will never be able to pay down my student loan. I will never be able to afford a home. I can never see my income growing to give me access there. Yeah. And…
So is that a dereg solution? Is that the intention? Well, I think the first part of it is it’s a data problem. Because in order for the government, I mean, the one thing that struck me about, I think, this Trump 2.0 administration is I think you have a better beat on the fact that this data is not as reliable as other administrations would say they were in order to do whatever it is they wanted to do anyway.
So it’s sort of like, let me just find the data that justifies what my action is. And part of why you can’t, I think, tell this story is, do you trust the GDP numbers? Do you trust nonfarm payrolls? Do you think these are reliable enough for you to act on behalf of the United States? No, look, they’re subject to big revisions over time.
And I thought one of the big mistakes the Biden administration made, and thank goodness they made it, was they refused to vote. They went with the numbers, not what the American people were feeling. They said, “No, it’s a vibe session, and you really don’t understand how good you have it. This has happened. This has happened.” When in reality, I was on Meet the Press yesterday, and there was something that said, “Well, the American people don’t believe Donald Trump’s doing enough on the economy.”
And I told the host, I said, “You know, the one thing I’m not going to answer is that they don’t know what they’re talking about. I have to have respect for how they feel, and then we need to go back and look at what is causing this anxiety.” So that’s what we’re going to do.
So let’s peel the onion back. What do you think is causing this anxiety? Where are the levers that maybe the federal government can control in releasing some of the pressure? And what are more market functions that just need to clear up some of these decisions? Well, look, I think we’re trying to do three things. And I think you may have talked about it last week before… The three legs on the stool?
The three legs on the stool. And from the outside, you intuited that very well. I would do just a little refinement on that. That’s what I was going to ask you. Yeah, just tell me where I was right and wrong. But you were adjacent to everything. So on one, we are trying to bring down this massive federal debt, cut the spending, but in a controlled way, because you can’t do it all at once.
I don’t like to repeat private conversations with the president, but I’ll repeat this one because I think it really illustrates where his head was at. The first time I went in to see him, saw him at Mar-a-Lago, and walk in the door, and he said, “Scott, how are we going to get these debt and deficits down without causing a recession?” Fantastic. The right question. That’s exactly where we are now.
How are we going to get the debt and deficits down, not cause a recession? And I said, “Sir, when you win, you didn’t get us here. We’re going to set a goal by 2028. We want to get back to the long-term average. We’re going to deflate it slowly.” Long-term average being about 3% deficit to GDP. About 3, 3.5% deficit to GDP.
And I keep saying the U.S., we don’t have a revenue problem. We have a spending problem, because we are averaging right about 18% revenue. And I’m talking about federal government, federal government only. We’re at about 18%. And Biden administration blew it out, blew the spending out to 25%. Normally, it’s about 21, 21 and a half. We have the 2% inflation, nominal GDP. Real GDP is 1.8%, so we get nominal GDP 3.8%, and it all works out.
I had one of the heads of one of the Singapore sovereign wealth funds here last week. Guess what Singapore spends in terms of spending the GDP? Deficit 3%? They have no deficit, but they spend 18%. 18%, same as that. 18%. And he said, “We have a lot in common with the Trump administration. We like small government, we don’t like illegal immigration, and we like personal safety.” Which I thought was very interesting.
Sorry, so let me just understand. So deflating government spending is key, but the big challenge has been that we have now accumulated 30-some-odd trillion dollars nearly of debt, and the interest on that debt has started to grow. We now have to pay 1.2 trillion dollars in interest payments per year. So that starts to consume more of the spending budget that we have at the federal level, which means we can spend less on the rest of the federal government’s programs.
Meaning you have to cut a lot more than you otherwise would have, which is what makes it so difficult and so painful. Is it realistic that you can get Congress to act in the way that Congress needs to act to get to the level that we need to get to, given the high interest payments and the high debt level that we have? an AI engine, you could have it auto-generate your tax return. Amazing. And there’s so many opportunities to streamline what’s going on at the IRS.
Now, stepping back, let’s talk about the approach to regulatory reform. I think deregulation is going to be key to reigniting growth and spurring innovation.
So we are re-examining all the bank regulations, and why are they there? Why do banks have to hold five or seven percent to hold treasury bills? What are the regulations? When I had a whole group of community bankers or small banks here last week, they expressed concern. Why do they have to hold the same amount of capital that JP Morgan, Wells Fargo, and Citi hold when they don’t have that complexity?
One of these small bankers said, “Well, you know, Bank of America does it this way.” Well, Bank of America has a trillion dollars in deposits while they have only 183 million dollar banks. When you look at the regulatory overhang of some of these regulations, Basel I, Basel II, you see how they end up lowering economic activity in the end.
But it’s important to also discuss the incentives of regulators. Back to the incentives, what’s a regulator’s incentive just to keep tightening the corset? They don’t care about growth; they care about turning down every risk. If you had to create a metric to measure the undoing of the financial corset, is it sort of the lending velocity by private lenders? Is that a good way to think about that?
Well, it doesn’t have to be rates, but if we de-regulate, if we have cheap energy, shed excess labor from the government, and lower government spending, then inflation and rates should come down. I think private credit is exciting. It’s dynamic; it meets the business where it is.
The strength of the U.S. financial system is its depth and breadth. However, so much lending is being pushed outside the regulated banking system, which tells you it’s over-regulated. One test will be how bank lending, especially from small regionals and community banks, comes undone.
The small banks are 70% of ag loans and 40% of small business loans. That’s one of the reasons Main Street has been stifled.
Can you discuss how you’ll work with the Fed in this change of the financial machinery? Do you also need to work with Congress to make these changes? What are your general thoughts on the Fed’s role in this process? In terms of monetary policy, I support the Fed’s autonomy entirely. I may not always agree with their decisions, but that’s how it is.
I’ve said I won’t comment on their perspective policy; I can discuss their past mistakes, which have been numerous. But systems must expand beyond the core. Some of the things they’ve done in regulation, including areas like climate and DEI, may threaten their independence.
I think they’ve been too harsh on smaller and medium banks. We have three main bank regulators: the Fed, the Office of the Comptroller of the Currency (OCC), and the FDIC. Additionally, we have FSOC, which I chair, to ensure safe, sound, and smart de-regulation.
Why are we imposing capital charges on banks for buying treasury? If we take away the supplementary leverage ratio, we might pull treasury bill yields down by 30 to 70 basis points, which could save a billion dollars a year per basis point.
Now, let’s talk about the issuance of money. One of the biggest mistakes, I believe, was that the Treasury continued to issue money at the short end of the curve. Instead of turning out rates when they were low, they pulled rates in. Part of that was to keep rates lower. They changed the issuance schedule when rates moved back up toward 5%.
We need to see results on government spending under control. The markets don’t seem to recognize that yet. There’s uncertainty with many differing opinions on how to address this situation.
Now, outside of waste, fraud, and abuse, how much does this administration need Congress to act to get to a three to three and a half percent deficit to GDP? There’s been a lot of focus on the headlines after the CR, casting Democrats as disarrayed, but I think the untold story is that Republicans have been disciplined.
For a change, President Trump has been shepherding the party. For example, there were doubts that Mike Johnson would get reconciliation instructions out of such a slim majority, yet he did it. The need for Congress to partner on the budget is crucial.
They’re very engaged in the House and Senate, recognizing that if we don’t get this done, it could be the largest tax hike in history. Regarding Doge, the cost-cutting initiative is the first time we’ve had business people analyze it seriously.
Unlike the Clinton-Gore Commission, which consisted mainly of business school professors, this cabinet is filled with experienced operators who can spot opportunities to save taxpayers money while still achieving results.
It was evident even in our recent crypto council meeting. While discussing cost savings, we noted that some organizations get 98% of their revenue from government contracts, such as Booz Allen. This indicates how entrenched they have become.
Their contracts often last for years, illustrating how they believe they’re insulated from competition. Transparency into this situation is vital for taxpayers to surface the extent of this grift and how it affects the economy.
Sometimes, if the Borg slows everything down and Congress doesn’t act, the focus will inevitably turn to entitlements. It’s vital that we have clarity about where the public sentiment lies.
Polling indicates that the majority of the American people don’t want this to stop. Despite disarray in specific regions like the Northeast Corridor, many across the country support the administration’s actions, and we’ve moved quickly to convey our commitments.
However, challenges still arise when courts intervene, as seen when some judges insist on returning workers to their previous roles. As we reveal anecdotes and messages about our progress, I feel that clarity will prevail.
For instance, there’s a large department everyone interacts with during tax season, where help desk staffing never changes, not even on the holidays. Transparency about IRS expenditures is critical in this context.
Ultimately, I’d be at a loss if I reduced spending while also cutting revenues. As we seek to enhance revenue, maintain privacy, and improve customer service, there’s a wealth of opportunities to streamline operations, even at the IRS.
Imagine leveraging technology to input the federal tax code into an AI engine, allowing for automated tax return generation. This could fundamentally change how we engage with taxpayers while improving efficiency. These AI models, what you can give to Americans is a very guaranteed, resolute ability to file taxes with the assurance that there is no waste, fraud, and abuse. And now, all of a sudden, you take this incredible weight off of people’s shoulders. Sometimes it is said that you get audited for almost political reasons, it seems like. People that— Not almost. We had a big announcement on Tuesday, and we brought in the two Hunter Biden whistleblowers, who have a lot to say about who gets audited and who doesn’t. They’re going to be sitting in this building, working on IRS matters, and understanding exactly how these audits get triggered, how these political witch hunts happen, and trying to change the ethos of the building.
And again, 99 percent of the people at the IRS are good people. It’s just like all these other agencies where there are bad folks. But to your point, this is where technology can create very reliable guardrails for the American citizen, where it’s like, “Okay, well, if this model says I owe $1,000 in tax, this is it. I’m not trying to change anything. I’ve fed all the information.” Software first. Software first, and you just know.
Let me go back to entitlement. I talked last week on our podcast about Social Security. Social Security has a $2.7 trillion balance, which is just basically a treasury bond that they can’t trade out of. Should Social Security have invested in the S&P or invested in equities, and why don’t we turn Social Security into a sovereign wealth fund and invest it for the benefit of all Americans going forward? Yeah, I think there’s the optimal, then there’s the possible. George W. Bush tried to privatize Social Security, and I saw your numbers, listened to your numbers, going way back.
- 1971, and with $15, $16 trillion that we would have. I don’t know what the numbers are since W tried it. They’d be substantial. We wouldn’t be thinking about a problem in a few years. But I think now, you’ve got to play the hand you’re dealt. I think we are dealt the Social Security hand, and I think maybe we could re-engineer it if we could create the sovereign wealth fund and have that on the other side. There are a lot of philanthropists who are looking at baby bonds. So if you can create some kind of an investment account for newborns, then that would run on a parallel track to Social Security. So that would be compounding. The other thing would be a safety net.
Yeah, but it’s still sitting in treasuries on the other side. And that’s where there’s an opportunity, not just to drive up returns, but participate in the American economy and give all Americans today the ability to know that they have some participation in the American economy rather than having their retirement funds sitting as a loan to the federal government for spending, which I think could be a big dramatic change. I don’t know if they need to be independent, but I think it’s a real opportunity for us.
Are you excited by the idea of the sovereign wealth fund? I am. I’m excited by the idea. This is President Trump. Everything he does isn’t in a straight line, but I guarantee he has a destination in mind. And the idea that he’s going to be the first president in generations who wants to create assets for the American people, not just debt. So he wants to take the debt down. And then this idea of assets, there’s a lot of talk about this economic deal we’re going to do with Ukraine. That would have gone in the sovereign wealth fund.
Right, yeah. Government has a big stake in Fannie Mae and Freddie Mac. Yeah. When it comes out of conservatorship, where does that go? Where does that go? As you mentioned, Doug Burgum did great work when he was governor of North Dakota. North Dakota has the equivalent of two state sovereign wealth funds. For seven, eight, 900,000 people. Right. I think they had $25 billion. Right. And Alaska permanent. Alaska permanent. The Alaska permanent. But all that’s from the natural resource money going in.
So to the extent we start… The other day when the sovereign wealth fund was announced, President Trump surprised me in the Oval and said, “Could you make a few remarks?” And I said, “Well, we’re going to mobilize the asset side of the balance sheet.” And all the gold books said, “He’s going to revalue the gold.” I can say today, we’re not revaluing the gold. But what we are going to do is… Doug Burgum and Interior, every other department head is looking for the assets that we can mobilize.
So if we have energy leases, federal government owned… Back to the housing shortage, federal government owns a lot of land in downtown urban areas. Can we… Or in suburban adjacent things, in Nevada and Utah, can we use that land? Yeah. Do you see a wave of privatizations as a way to sort of both pay down the deficits and debts and also just to… That’s important to me. Why put it in a sovereign wealth fund versus pay down the debt? Help kind of do the finance math for us.
Oh, because you think you get a higher return. Right. Well, it’s a simple… Anything that beats our current return, our current interest rate. Yeah. I mean, not that I watch it closely, but the 10-year treasury today is 428. 428, yeah. It’s responding well. Can we do better than 428? And I think with this group and this cabinet, and if we can put in… Right now, we’re working on the study group for the sovereign wealth fund, and we want to do best practices.
We’re talking to people around the world. We’re talking to investment people. We’re talking to a lot of the other big sovereign funds, and we’re going to do best practices. And we want this to be a legacy of that. Totally. Well, we think Dan Loeb made this comment that the Australian superannuation, they’ve got 30 managers, and they have as much on their balance sheet today in their fund than Social Security does, about $3 trillion. And they have 7% of our population.
No, it’s incredible. It’s incredible. It’s incredible. And I was with one of the Middle Eastern funds. And I said something about oil revenue. We haven’t had an injection into the fund in 20 years. Why was this such a miss for America? What happened in the United States was that we took every excess dollar we had and we invested it in the future. We built infrastructure. What happened that kept us out of this model where others were so successful and clearly have now gotten ahead of us and their people have a greater kind of safety net than we do?
Yeah, I think it was just this idea that it was supposed to be a safety net, not some kind of prosperity ramp. The old age and survivor’s disability insurance fund. That’s what it’s called, right? Under Social Security, it was like… You’ve mentioned cheap energy as a critical part of this holistic program, I think three times now. Where do we make mistakes in that path where energy gets out of control? What do we need to do to make sure that energy actually, the incremental cost of the electron basically goes to zero?
Well, I think the biggest challenge we’re having right now is trying to get the private sector to lock in for some things that might not have a payoff for five, ten years, and how do we avoid student body left, student body right with administrations coming and going? So we’re trying, we’re working on that. Well, this is an incredibly nuanced and I think an important point because we have this very vibrant, as you know, tax equity and transferability market that allows a lot of these organizations to make these five- and ten-year investment cases.
And for all the issues with the IRA, of which there are many, I think the one narrow aspect that it did was it calmed the markets about the future of those specific ITC credits and transferability. And it’s a critical thing because there was a report, you probably saw it, but you know, FERC said 90-plus percent of our incremental electrons as of December were from sources that were leveraging these ITC credits and that transferability. So to your point, we have this very delicate balancing act of making sure we… there’s the tax side, but then the regulatory side with fossil, it’s tougher because it crosses a lot of state lines.
There’s a lot more permitting and a lot less permitting for solar farms, for wind, for geothermal. Yeah, yeah. And nuclear? Nuclear is going to be a big part of it, but it’s not going to happen tomorrow. We got to fix the supply chain and the regulatory. Well, we got to fix the supply chain. We got to fix the regulatory. We’ve got to decide which model we are going to go with. And I’m told that you two probably know more about nuclear than I do, but it’s…
He loves it. I hate it. Okay. Well, no, I don’t hate it. I mean, I like nuclear. I just think it’s 10 years away. He’s a loser. Don’t listen to him. Yeah, he doesn’t really talk about it. It’s just not an investable thing for the next decade. But other than that, it’s great. But it’s important because the question is when it becomes one, that’s when we know we’ve fixed the problem. But to the point that it’s not investable, that’s where the government needs to step in.
Sure. Absolutely. I 100% agree with you. Like, that’s where we have to bridge to the technology. We have to do the time arbitrage. 100%. And also, I’m told, especially with the smaller… SMRs. Yeah. …that you need to cluster them. Yeah. And you’ve got to find somebody who wants to cluster them and all that.
And let me ask you one more question as we kind of get to the end. But what’s been the most surprising thing for you in this role since you’ve been in office? The national security aspect. That I would say 40, 50% of my day, Treasury does a lot of national security work. Whether it’s CFIUS in terms of foreigners who want to buy U.S. assets, whether it’s sanctions, whether it’s OFAC, anti-money laundering. We’ve just designated the Mexican cartels as foreign terrorist organizations.
We, President Trump, over the weekend, launched a very aggressive missile strike on the Houthi assets. Well, underneath that, we’d already been working for several weeks on their bank accounts. President Trump. I see. So, or anyone who’s adjacent to them. The Iranians supply the Houthis with… their ecosystem, previous to my getting here, Treasury had disrupted the ecosystem so much that the Iranians used to hand them cash. Now they’re just handing them… here, take this oil tanker and try to sell it. So, there is the ability to break that down.
So, when you go home and you’re talking to your kids, you’re talking to your husband, and you’re like, “This was so cool.” There must be these moments where you’re like, “This was so cool.” So, do you have any anecdotes that you’re comfortable sharing where you’re just like, “I can’t believe I’m doing this job?” Well, there have been several, but a good example, my family was actually there. Because after the inauguration, I asked President Trump, “May I bring my family in, say hello, get a photo?”
And we’re sitting in the Oval. So, it’s myself, my 11-year-old daughter, my spouse, 15-year-old son, and President Trump’s having a great conversation with them. And then he said, “Oh, Scott, while you’re here, let me call in these other two people, and we need to discuss this.” So, they actually got to see government being done live. So, there’s that. I have to say, I think the moment with President Trump, Vice President Vance, and President Zelensky was kind of a once-in-a-lifetime thing in the Oval Office.
I hope it’s once-in-a-lifetime. But I was sitting there, kind of in the front row of history, Vice President, Secretary Rubio, myself on the sofa, and watching President Zelensky do what I thought was the biggest diplomatic own goal in history. Yeah. I think you said it very well on TV afterwards. It really, really was based on… And you said, because you were there, you tried to negotiate with him in Kyiv. It was a very escalated, I think you used the word escalated, or high-decibel conversation.
High-decibel, yes. Yeah. But my job for 35 years was to be outside the room, try to put my ear to the door, maybe lift myself over the transom, figure out what the leaders needed to do, were going to do, and then how it would affect the markets. And now it’s fantastic and amazing and stimulating and a little scary being the person in the room who has to… What should we do? What can we do? How’s it going to affect the markets? How’s it going to affect the real economy? What’s it going to do to working people in America?
So how do we fix affordability? We’re just going to have to go through, and where’s the problem? What’s the solution? In terms of like, are the insurance markets broken? Right. What can we do? There’s been no… I’ve been involved in the house building business. There’s been no technological change in house building in 50 years, maybe 60. Some of the building codes go all the way back to the Chicago Fire.
So what can we do that the way we categorize housing, it’s stick-built or modular. Is there something in the middle, prefab? Because the more that comes out of a factory, the more that it’s standardized, the neighborhoods from DC to Bethesda to Potomac to… You could be in contiguous neighborhoods, and if they’re different municipalities, they’d all have different building codes. Not zoning, building. And why is that? They’re adjacent. Why do the houses have to be… So is there some kind of window guidance that the federal government can give in terms of the more that comes out of the factory, the cheaper it will be, the faster we can make it, things like that?
Yeah. Is there pressure that you could apply or influence you can apply? One of the things you mentioned earlier was just, you know, take San Francisco. There’s an artificial constraint that’s created by the zoning paradigm, and it’s not clear how you unlock that. You know, maybe is it up to private citizens to sort of have regime change at the local level. But how do we sort of unclog that part of it to marry up with this kind of stuff? Because it would be great if you could just build up in many places.
Yeah. Well, I think there are a lot of things where you can look around and find what’s interesting that something that’s being done somewhere. So I lived in Greenwich, Connecticut for a while, maybe the richest suburb in America. There’s a ton of multifamily there. Very expensive, very nice multifamily. There’s some affordable housing. But Greenwich is not all 10 acres and a horse farm. The state of Connecticut has put in a, I guess it’s a law, that every municipality has to allocate 10% of vacant land to multifamily.
And if the zoning board won’t give you a hearing, you as a developer, you as a nonprofit for housing can go over the top and go to Hartford. And then Hartford will give you the authority. Well, no, no town wants the state doing on their behalf. So now the towns negotiate. Yeah. So I think that there are a lot of things that can be done. Again, on insurance, is there something that I’ve been thinking about? Is there something the federal government could do for California?
Yeah. Where we come in, everyone’s paying homeowners insurance, then there’s reinsurance on top of that. Then I think the California reinsurance companies called FAIR on top of that. Yeah. Well, it’s a separate plan, but yeah. Yeah. But it’s, you’re stacking it. Yeah. So is there something we could do where you put another layer of private money in there and then the federal government is the fifth risk tranche? Right.
But if the federal government comes in, can we mandate down here proper hygiene? Changes in the building code. Well, changes in the building code, changes in brush cutting. Right. Material choices. Yeah, exactly. Right, right. Yeah, makes sense. Right. So I think there’s a lot. And obviously energy, I mean, just getting back to affordability, right? Energy costs come down. You took the words out of my mouth. Sorry.
No, no, no. But I mean, energy costs are energy costs, but then there’s also that for food, the transportation cost of getting it to the grocery store, everything that’s made out of petroleum products. So I think we can do that. And I think there’s a lot to do. Yeah. And it shouldn’t be too hard. So we’re actually, we should probably be announcing in about 10 days, we’re going to have an affordability czar, but it’s going to be someone with a lot of experience in supply chains, figuring out what are a lot of the quick fixes we can do.
Because back to the question, what really has people anxious? Inflation for now is actually pretty close in. But the affordability has gotten so away from everyone that how can we bring that down? Yeah. Yeah. Yeah. Good. For all our friends at home who talk a lot about the conversation about climate change and carbon free, I think one of the things that I always point out to people is the cheapest way of driving energy production in this country is that there’s a low carbon or carbon free alternative that’s out there that’s actually cheaper than standing up new plants.
And there’s an acceleration. I don’t know how much this administration thinks about that relationship, but it seems to me like if we can unlock energy production, costs come down and this economy transitions. Well, it transitions. And I think it’s also not being dogmatic. I saw what the Biden administration did with EVs. I have an EV. I can’t wait for it to come off lease. But I also have a hybrid. And I think I fill it up maybe three times a year.
Yeah. Totally. But this administration had a jihad on hybrids because they didn’t pass the purity test. Yeah. They were picking winners and losers in a way that a lot of us were left scratching our heads. Yeah. Yeah. And I think cheap energy solves a lot of problems. Right. I think it’ll. And cheap energy is energy security too. A hundred percent. Because that’s why Europe’s kind of over a barrel, literally. And it’s why the Russian war machine hasn’t, again, literally run out of gas.
Yes. And to the extent that we believe we’re in an existential arms race for technical supremacy, it’s really on one dimension, which is AI. And that is so needy of energy. So if we don’t pull all of these issues together and realize that we need to basically take the incremental cost to zero, whatever we do, we need to create the incentives and package it all together. I mean, we can’t compete manufacturing without energy, without abundant energy.
But we certainly can’t compete with that energy. Yep. Yeah. I mean, we’re not going to crush labor like China and some other countries have done. So we got to crush the energy price. Totally. Exactly right. And when you’re in the oval, what are the truths and misconceptions of the president, meaning the outside and what people know or don’t know?
Well, how about this? We had a lot of foreign leaders come in, and I knew someone in one of their entourages. I won’t tell you which one, but afterward he comes up to me and he goes, “Holy crap,” because he’s really smart. President Trump has perfect recollection because he was talking about something that had happened in that country 30 years ago. And he said, and he really… So, the President Trump listens. He is judicious.
He is just taking it all in. He likes to see how people react. It’s just incredible executive skills. Yeah. And the other thing too, that he’s tough, but I went in and I showed him what we were talking about something the other day. And I said, “Well, you know, this is going to cause some layoffs.” And he goes, “Well, let’s try to fix it.” Yeah. Yeah. Let’s try to fix it. So, I always say he really regards himself as the mayor of America.
Right. Yeah. 330 million people. He wants to be personable to everyone. And he cares deeply about all of them. And he doesn’t care whether you’re Elon Musk or the guy cutting the rose garden, but you’re his constituent. Great. Well, Scott, thank you so much for taking the time. This has been a wonderful pleasure, and we really appreciate the insight. We wish you the best.
Yeah. Yeah. And thanks for the service. And thanks for doing the role. Good. Thanks. Thanks. Thanks, Scott.
Okay, we are here in Washington, D.C., in front of the White House. After spending the afternoon with our friends David Sachs, Elon Musk, and others, we are eager to learn about the debt, the deficit, and what’s going on in D.C. We have an incredible interview lined up with Scott Besant, the Treasury Secretary of the United States. It has been an amazing afternoon, and we’re really looking forward to it.
This is actually the intro to the video. Before we dive in, let’s just pretend it’s the pre-intro. This will be incredible! How cool is the White House? And look at this bell! I can’t even begin to describe how surreal today has been, running around in the White House. Truly, it was one of the best days of my life.
I think this bell must be significant. Can you grab a shot of it? I have no idea what it signifies, but it definitely seems important. The staff here at the White House has been incredibly kind and open. Did you notice that? It really felt like we were welcomed. And I have to say, I got free soda! They have a soda machine where you can customize any Coca-Cola flavor you want. That was pretty awesome. I also had some hummus wrapped in paper—just an all-around cool afternoon.
Now, we’re standing in the East Wing of the White House. We walked all the way from the West Wing to the East Wing through the portico. We casually walked in and explored the East Wing and all the private rooms. I got some amazing photos which we’ll include in this video. Then a Secret Service agent approached us and said, “What are you doing here? This is the President’s residence. You need to leave.” So, we were kindly escorted out! It was still an incredible tour.
Anyway, we’re really excited for this interview with Scott Besson. I hope you enjoy it. All right, besties! That was another epic discussion. People really love these interviews, and I could listen to him talk for hours. Absolutely! We tackled all your questions in no time, giving people the real data to form their own opinions. What did you think? It was fantastic!
Today is a significant day. We’re joined by the 79th Secretary of the Treasury, Scott Besson. This is a great opportunity to delve deeper into not just how the economy works, but where we currently stand regarding deficits, tariffs, the budget, and both economic and fiscal policy. We’re here to understand the plan to make America great again.
Scott, thank you for joining us.
Scott: Thanks for having me! I want to take us back in time for a moment. You grew up in South Carolina, and your father was a real estate developer. Where do you think your passion for finance originated?
Scott: I’m not too sure about the origins of my passion for finance specifically, but my dad was quite the real estate developer, experiencing both big successes and failures. I think that’s where my interest in risk management began.
I was fortunate to go to Yale, although I wasn’t entirely sure about my career path at first. When I arrived in 1980, you can imagine it was the transition from punch cards to computer screens. I considered being a computer science major or perhaps a journalist—back when newspapers were widely read.
I landed an internship with someone who taught me the investment business very well.
Interviewer: Who was that?
Scott: His name is Jim Rogers. He’s quite well-known; he was George Soros’s first partner. He had just returned from a motorcycle trip around the world and wrote a book called Investment Biker. He’s a fascinating person. Through him, I fell in love with the investment business because it combined quantitative analysis with storytelling and the psychological elements of human emotions.
Interviewer: Did you start with equities, bonds, or currencies?
Scott: I began with equities and continued in that area for several years. Eventually, I made my way to Soros Fund Management, where I worked under my mentor, Stan Druckenmiller. He’s remarkable—more than 40 years in the business and never had a down year.
Interviewer: That’s impressive! What was it like to work with him?
Scott: It was incredible, but I always wondered, “What do I do next?” He’s known for going all-in with his investments but only when he’s confident.
Interviewer: That’s the key, right?
Scott: Yes, he’s an expert at changing his mind. He often says, “Invest, then investigate.” I’m trying to convince him to compile his wisdom into a book, as he has so many memorable adages.
I was captivated by the markets because of the blend of quantitative, qualitative, and real-time feedback. For 35 years, I’ve engaged in macro investing, which involves trading currencies, bonds, commodities, and equities while traveling worldwide to understand how policies will shape future moves.
Can you elaborate on the role of being a macro investor? It seems crucial to understand where central bank actions are headed and how government bonds will behave.
Scott: Exactly. It’s about knowing that, and there’s a famous macro investor named Bruce Kovner who said he succeeded because he could envision a different future and believe in its possibility. The key is having that belief and managing risks accordingly.
Interviewer: Can you illustrate that with a historical context, perhaps with the famous moment in 1992 when you and Stan, along with Soros, shook the Bank of England?
Scott: Certainly, it serves as a great historical example involving three dimensions: I was the analyst, Stan was the portfolio manager, and in a way, George was the risk manager.
I was in the UK and had a breakthrough thought. The UK was just coming off a significant housing boom. Their mortgages were mainly floating rates; if the Bank of England raised rates on a Wednesday, mortgage rates would increase by Friday. Then they had to maintain a fixed exchange rate against the German Deutschmark, which created pressure.
I realized that if they raised interest rates to defend the currency, it would be unsustainable—British homeowners would be pushed into bankruptcy. Stan deduced that those exchange rate bands set up an asymmetric bet; we could force their hand, and they had to react.
He relayed this idea to George, initially suggesting he’d like to commit 100% of the fund. But then George urged him to go for three times that amount!
So, we pressed against the band. The British government was forced to buy up unlimited pounds, and they started raising interest rates in September 1992. Ultimately, they couldn’t sustain that kind of pressure, and we made substantial gains that day.
In fact, Stan had the foresight to recognize that what comes after a big trade is also essential. We made significant profits initially, but the real opportunity came later in the year when we racked up another 20% return.
Interviewer: That’s incredible! In that moment, you observed a disconnect between the real economy and the financial world, which you’ve often referred to as the Main Street versus Wall Street dichotomy.
Scott: Correct. It underscores the point that what is unsustainable will eventually collapse. About 18 months ago, I approached President Trump because I grew increasingly alarmed by the Biden administration’s approach to the debt and deficit—endless stimulus and spending without any real economic justification.
In my views, it was a cynical move, preparing the groundwork for a future that would require tax increases, trapping us in a European-style social democracy. Additionally, I think we have a cynical view on immigration issues.
You can take popular estimates of 12 to 22 million immigrants, and one could argue that we will never be able to send them all back. But I prefer to stay focused on financial matters, which indicate we’re approaching a point of no return regarding our financial values.
In recent years, wage suppression has been widespread, while the equity market remains buoyed by consistent monetary supply. The situation is frustrating, especially when I hear politicians like Vice President Harris claim they’re fighting for the middle class, while their policies have eviscerated it.
You see, purchasing power declines as inflation rises primarily impacts those without assets.
Interviewer: Exactly! People often overlook this connection.
Scott: Yes, those who own stocks and assets see their wealth inflate, while those without assets face rising costs, critically limiting their purchasing abilities.
Jason Trinert has referenced something he calls the “Everyman Index,” which tracks costs for basic necessities. While CPI rose about 2% during this period, the Everyman Index was up over 30 or 35%. This stark contrast shows how the bottom half of wage earners experience inflation at a much higher rate due to their essential basket of goods.
Interviewer: Not only is this situation unfair, but it also breeds instability and societal issues.
Scott: Absolutely! And sorry, when you all were analyzing this a year earlier, what were your thoughts on what should have happened? How much farther did it go?
Scott: The Democrats often argue that significant spending bills were necessary for economic recovery. However, by March 2021, I believed the economy required no “rescue,” as it was already recovering. Yet these were rescue-sized packages.
Even Larry Summers debated this, stating the spending was at least $900 billion to a trillion too much.
The Federal Reserve was slow to respond, leading to a disparity where the top 10% thrived from rising stock prices while those in the bottom 50% remained asset-less but burdened with debt, making home purchases increasingly impossible.
Interviewer: Scott, what does the American dream look like today?
Scott: I think the American dream remains what it’s always been: to own a home, have financial security, find purpose in work, and provide for your family. It feels like only 50% of American families now see their children out-earn them, down from 90% after World War II.
Recently, I made a remark at the Economic Club of New York, arguing that the American dream isn’t based on cheap goods. Vice President Pence countered, suggesting it is. But I believe people want progress rather than mere affordability.
Interviewer: People seek upward mobility.
Scott: Exactly. Studies show happiness is often linked to changes in net worth or income. People want to feel a sense of progress in life.
We’ve built a system that insists everyone should own a home, leading many to pour their net worth into a single asset. Around 60% of middle-class wealth is tied up in property, driving home values higher every year. Now we find ourselves in an unsustainable housing bubble where many can’t even afford to buy homes.
What went wrong in this scenario, and how should the American dream evolve moving forward?
Scott: Much of this revolves around scarcity. Take San Francisco, for example, with its strict zoning laws creating a home scarcity. Likewise, even though we’ve expanded access to Ivy League education, the number of degrees awarded hasn’t changed significantly since the 1950s.
This creates both demand for limited resources and a sense of hopelessness, leading many to believe they’ll never afford a home or pay off student loans, making them feel stuck.
Interviewer: Is deregulation a potential solution to this?
Scott: Well, it starts with data problems. My perspective on the Trump 2.0 administration is that there’s a better understanding of the reliability of data, which can inform government actions more effectively.
Scott: It’s a bit like trying to find the data that supports your actions. One of the challenges is whether you trust GDP numbers and non-farm payrolls. Do you believe they’re reliable enough to make decisions for the United States? The reality is, these figures are subject to significant revisions over time.
I think one of the major mistakes the Biden administration made—thank goodness they did—was refusing to acknowledge public sentiment. They leaned on the numbers instead of what Americans were actually experiencing. They said, “No, it’s a vibe session, and you really don’t understand how well you have it. This has happened, and that has happened.” But I was on Meet the Press yesterday, and I heard them say, “The American people don’t think Donald Trump is doing enough for the economy.”
So when the host asked me about that, I responded, “You know, I’m not going to dismiss what they’re feeling. Their concerns matter, and it’s essential to explore what is driving this anxiety.” That’s the path we need to take.
Interviewer: So, what do you think is behind this anxiety? Where can the federal government adjust to alleviate some pressure, and what market functions need to resolve these issues?
Scott: Well, we’re aiming to address three main areas. You might have mentioned them last week: the three legs on the stool?
Interviewer: Yes, that’s right. Could you clarify where I might have been right or wrong?
Scott: You were pretty close, but let me refine that a bit. Firstly, we are working to reduce this massive federal debt and cut spending, but we have to do it in a controlled manner—not all at once. I don’t want to repeat private conversations with the president too often, but there’s one I think illustrates his mindset well. When I first met him at Mar-a-Lago, he asked me, “Scott, how are we going to reduce these debts and deficits without causing a recession?” That’s an excellent question, and it’s precisely where we need to focus.
How can we lower our debt and deficits while preventing a recession? I suggested that we aim for a goal by 2028—to get back to our long-term average, targeting a deficit of about 3% of GDP. Right now, we don’t have a revenue problem in the U.S.; we have a spending one. Federal revenue averages around 18%, but the Biden administration overshot this to 25%. Usually, it hovers around 21-21.5%.
Currently, we face 2% inflation and nominal GDP growth of about 3.8%. Just last week, I spoke with a leader of one of Singapore’s sovereign wealth funds. He mentioned Singapore’s deficit is at 3%, yet their spending is also at 18%.
Interviewer: So, it sounds like deflating government spending is crucial. But the considerable challenge is the monumental debt we’ve accumulated—over $30 trillion. The interest on that debt is rising, reaching 1.2 trillion dollars annually, thus consuming more of our federal budget.
Scott: Exactly. That means we have to make deeper cuts than we would otherwise need to, which complicates things significantly. Do you think it’s realistic to get Congress to agree on what needs to be done, particularly with such high interest payments and debt levels?
Interviewer: It seems like we could streamline processes at the IRS significantly.
Scott: Yes, definitely! Now, regarding regulatory reform—deregulation will be key in reigniting growth and fostering innovation. We are currently re-evaluating all banking regulations. For instance, why should banks hold 5% to 7% in treasury bills? Last week, I met with a group of community bankers who raised concerns about why they must adhere to the same capital requirements as larger institutions like JP Morgan and Wells Fargo when they lack that same level of complexity.
One small banker remarked, “Well, Bank of America does it this way.” But Bank of America has a trillion dollars in deposits, while they handle just $183 million.
Interviewer: You’re highlighting how these regulatory burdens can stifle economic activity.
Scott: Precisely. We also need to discuss the incentives of regulators. What drives a regulator to continuously tighten the reins? Their focus is on minimizing risk, rather than encouraging growth.
If we were to establish a metric for assessing the loosening of these financial regulations, would it be based on private lending velocity? Would that be an effective frame?
Interviewer: It doesn’t necessarily have to focus solely on rates, but if we pursue deregulation, secure affordable energy, reduce excess government labor, and lower spending, we should see a decrease in both inflation and interest rates.
Scott: Exactly! Private credit is dynamic and adapts to the needs of businesses. The depth and breadth of the U.S. financial system are strengths; however, much lending has moved outside of regulated banks, a clear sign of overregulation.
One telling sign will be how bank lending, particularly from small regional and community banks, unfolds. These banks provide 70% of agricultural loans and 40% of small business loans, which contributes to the challenges faced on Main Street.
Interviewer: How will you collaborate with the Fed during this transformation of the financial system? Do you also need Congress’s support for these changes?
Scott: I absolutely support the Fed’s autonomy. While I may not always align with their decisions, it’s essential for their independence. I prefer to discuss past mistakes they’ve made rather than their current policy decisions, which have often been numerous.
Some regulatory actions, especially related to climate and DEI, risk undermining their independence. I feel they have been far too stringent on smaller and medium-sized banks. There are three primary bank regulators: the Fed, the Office of the Comptroller of the Currency (OCC), and the FDIC. Additionally, I chair FSOC to ensure safe, sound, and intelligent deregulation.
Why are banks facing capital charges for purchasing treasury? If we could eliminate the supplementary leverage ratio, we might reduce treasury bill yields by 30 to 70 basis points, which could save billions annually.
Let’s also address the issuance of money: issuing at the short end of the curve was one of the most significant errors. They should have extended rates while they were low, but they instead drew them in to keep rates down. They adjusted the schedule when rates rose towards 5%.
We need to see actual results from efforts to control government spending. The markets aren’t recognizing this yet, leading to uncertainty with conflicting opinions on the best way forward.
Outside of waste and fraud, how much does this administration depend on Congress to achieve a 3-3.5% deficit to GDP?
Interviewer: Headlines have focused on the Democrats struggling with their strategy, but it seems there’s also an untold story about Republicans showing discipline.
Scott: Absolutely. For once, President Trump has been guiding the party effectively. There were doubts about whether Mike Johnson would manage to get reconciliation instructions passed given the narrow majority, yet he did. It’s critical for Congress to engage with us on the budget.
Both the House and Senate are recognizing that without progress, we could face the largest tax hike in history. Regarding the cost-cutting initiative, it’s the first occasion where we have business professionals seriously assessing it.
Unlike the Clinton-Gore Commission—comprised mostly of business school professors—this cabinet is full of experienced operators adept at identifying ways to save taxpayers money while achieving results.
Even during our recent crypto council meeting, we discovered that several organizations derive 98% of their revenue from government contracts, like Booz Allen. This highlights how entrenched they have become in the system.
Their agreements can extend for years, creating a perception of insulation from competition. Transparency is essential to uncover how this situation impacts taxpayers and the economy as a whole.
If the bureaucracy slows everything down and Congress fails to act, the focus will inevitably shift to entitlements.
Interviewer: Public sentiment is key here.
Scott: Exactly! Polling shows that most Americans want our efforts to continue. While there are challenges in regions like the Northeast Corridor, many across the country back the administration’s actions. We’ve moved swiftly to articulate our commitments.
However, obstacles remain when judicial interventions occur, as illustrated by some judges insisting on reinstating workers. As we present anecdotes and messages about our progress, I believe transparency will ultimately win out.
For instance, there’s a major department everyone interacts with during tax season that never changes its staffing levels, not even during holidays. Being transparent about IRS expenditures is crucial.
Overall, if I were to cut spending without reducing revenues, I would be at a loss. As we work on increasing revenue while maintaining taxpayer privacy and enhancing customer service, there exist numerous opportunities to optimize IRS operations.
Imagine if we could harness technology to input the federal tax code into an AI engine, allowing for automatic tax return filings. This could revolutionize taxpayer interactions and boost efficiency.
These AI models could provide Americans with a reliable, streamlined method to file taxes, minimizing waste, fraud, and abuse. Suddenly, we alleviate a tremendous burden off people’s shoulders.
It’s often said that audits happen for almost political reasons.
Interviewer: You mean not just almost?
Scott: Right. We made a significant announcement last Tuesday. We brought in two whistleblowers regarding Hunter Biden, who have quite a bit to share about how audits are initiated and the political climate surrounding them. They’re now working on IRS matters to better understand how these audits get triggered and how political motivations influence these processes, all while aiming to change the ethos within the agency.
Let me be clear—99% of IRS employees are good people. This is similar to other agencies where there may be a few bad actors. But like you mentioned, technology can create reliable safeguards for American citizens.
If this model indicates someone owes $1,000 in taxes, it ensures that’s the amount owed. There’s no room for manipulation; all the necessary information has been inputted accurately.
Scott: Software first! It’s all about using technology to ensure this certainty. Scott: Let me go back to entitlement. I discussed Social Security on our podcast last week. Social Security has a $2.7 trillion balance, essentially a treasury bond that can’t be traded. Should Social Security have invested in the S&P or equities? Why not turn Social Security into a sovereign wealth fund to benefit all Americans going forward? There’s the optimal approach, and then there’s what’s possible. George W. Bush tried to privatize Social Security, and I’ve seen the numbers dating all the way back to 1971.
Interviewer: Right, 1971. And with $15 to $16 trillion that we could have today.
Scott: Exactly. I don’t know the figures since President Bush’s attempt, but they would likely be substantial. We wouldn’t be facing imminent problems today. We have to play the hand we’re dealt, and we could potentially re-engineer it by establishing a sovereign wealth fund. Many philanthropists are also exploring the concept of baby bonds, creating investment accounts for newborns that would run parallel to Social Security. This could lead to effective compounding while also serving as a safety net.
Interviewer: It sounds like there’s potential here, but the current funds are still sitting in treasuries.
Scott: Yes, that’s the opportunity! We not only need to enhance returns but also allow all Americans to participate in the economy rather than just having their retirement funds serve as loans to the federal government. This could represent a significant change.
Interviewer: Are you excited by the idea of the sovereign wealth fund?
Scott: I am! This aligns with President Trump’s vision. He sees the need to create assets for the American people, not just accumulate debt. He wants to reduce the debt while focusing on asset creation. A recent discussion regarding an economic deal with Ukraine could serve as an example—it would be funneled into the sovereign wealth fund.
Interviewer: Right. And the government has a significant stake in Fannie Mae and Freddie Mac. When they come out of conservatorship, what happens there?
Scott: Exactly! Doug Burgum did excellent work as governor of North Dakota, where they have essentially two state sovereign wealth funds for a population of around 900,000 and well over $25 billion in funds. And then there’s Alaska’s Permanent Fund. Most of this wealth comes from natural resource revenues.
Interviewer: So as we begin… when the sovereign wealth fund was announced, President Trump caught me off guard in the Oval Office by asking me to make a few remarks. I mentioned we needed to mobilize the asset side of the balance sheet.
Scott: Indeed, and there were some rumors about revaluing gold, which I can clarify today—we are not revaluing gold. But what we are doing is actively seeking assets we can mobilize across all departments, including Interior.
Interviewer: Are we looking toward privatization as a means to reduce deficits and debts?
Scott: Absolutely! The aim is to achieve higher returns. Can we do better than the current 10-year treasury rate of 4.28%?
Interviewer: Agreed.
Scott: With the current cabinet, we are focusing on creating a study group for the sovereign wealth fund. We want to adopt best practices by collaborating with international sovereign wealth funds and investment professionals.
Interviewer: Dan Loeb mentioned that Australia’s superannuation fund is impressive, managing $3 trillion with a population of only 7% of the U.S. size.
Scott: It’s remarkable, especially when I was with one of the Middle Eastern funds and noted that they hadn’t contributed to the fund in 20 years. America missed an opportunity to invest excess funds into the future, prioritizing infrastructure instead.
Interviewer: That’s right, but many still perceive Social Security as a safety net rather than a source of prosperity.
Scott: Correct; it was designed as safety for old age and survivor’s disability insurance. You’ve talked about the necessity of accessible energy multiple times. What do you see as the pitfalls in that sector preventing energy costs from being controlled?
Interviewer: We really need the private sector to invest up front in projects that may not yield returns for five to ten years.
Scott: Absolutely, that’s a critical issue. The current environment demands we find a balance between tax incentives and regulatory scrutiny, especially for fossil fuels as regulations differ significantly from solar or wind energy.
Interviewer: Precisely.
Scott: We need to tackle the supply chain and regulatory frameworks around energy production.
Interviewer: Yes, and while nuclear energy has potential, it won’t be a quick fix.
Scott: Agreed. The government must take the initiative to bridge the gap to new technologies, step in for timing purposes, and cluster smaller nuclear plants appropriately.
Interviewer: Speaking of your role, what has surprised you the most since taking office?
Scott: The national security aspect has been eye-opening. A good portion of my work involves national security issues spanning various areas, including sanctions and anti-money laundering efforts.
Interviewer: I see.
Scott: For example, we recently designated Mexican cartels as foreign terrorist organizations, and President Trump executed an aggressive military response against Houthi assets. Prior to my arrival, the Treasury had already disrupted funding to the Houthi by cutting off cash supplies from Iran.
Interviewer: That’s fascinating!
Scott: Well, when discussing my job, there have been moments that were incredibly cool. After the inauguration, I asked President Trump if my family could come into the Oval Office for a photo, and it became a live demonstration of government in action.
Interviewer: Nice!
Scott: Another highlight was witnessing the meeting with President Zelensky and observing the high-stakes diplomacy firsthand. I found it thrilling to sit there, observing the dynamics and thinking about the implications for markets and the economy.
Interviewer: How do we address affordability?
Scott: We need to pinpoint the issues, focusing on broken insurance markets, and recognize that there hasn’t been meaningful technological innovation in home building for decades. If we categorize housing more efficiently—like prefab models—we could standardize and expedite construction, offering significant cost savings.
Interviewer: Also, could applying pressure to local zoning laws help?
Scott: Absolutely! Some regions have instituted laws requiring municipalities to allocate a percentage of vacant land for multifamily housing, which can drive negotiations at the local level.
Interviewer: What about insurance in California?
Scott: That’s a complex topic. There may be ways to bring in private investments to cushion reinsurance costs while ensuring the government helps implement essential structural adjustments, like building code changes.
Interviewer: Right.
Scott: Lowering energy costs will also play a transformative role in affordability, influencing various sectors, from food to housing.
Interviewer: Yes, energy efficiency can help significantly.
Scott: We’re set to announce the appointment of an affordability czar in about ten days, someone adept in supply chain logistics to identify quick fixes.
Interviewer: That sounds promising!
Scott: Currently, inflation appears stable, but the overarching issue relating to affordability is increasingly concerning for everyone.
Interviewer: Yes, indeed.
Scott: One misconception about climate change is that the most cost-effective means of energy production often gets overlooked due to a focus on investment in new infrastructure rather than optimizing existing resources.
Interviewer: Unleashing energy production could lead to economic transitions.
Scott: Right, and there’s a need for pragmatism in our approach. For instance, the current administration’s rigid focus on electric vehicles may overlook hybrids, which are effective and practical for many people.
Interviewer: Yes, and energy security hinges on cheap energy.
Scott: Absolutely! Acknowledging this complexity in energy strategies strengthens national security, especially in the context of geopolitical tensions.
Interviewer: And how do we ensure that we stay competitive on an international level?
Scott: We must work diligently to reduce energy costs, as competing with labor rates isn’t feasible in a global context. The energy prices must come down for us to flourish.
Interviewer: Lastly, what insights do you have regarding the president that people might not recognize?
Scott: Foreign leaders have been impressed by President Trump’s remarkable memory and attention to detail when discussing historical facts. His ability to absorb information and customize discussions in real-time showcases incredible executive skills.
Interviewer: Interesting!
Scott: He genuinely cares for everyone across the U.S., from business leaders to the general public. His dedication emphasizes the personal touch in governance while aiming to create positive impacts for all citizens.
Interviewer: Great conversation, Scott! Thank you for sharing your insights today. Interviewer: Yeah. Yeah. And thanks for your service. I appreciate you taking on this role.
Scott: Good. Thanks. Thanks. Thanks!