Gavin Baker, Bo Hines, Bill Hagerty: Trump vs Powell, Solving the Debt Crisis, The $10T AGI Prize, GENIUS Act Becomes Law

The episode opens with banter about a viral moment at a Coldplay concert in Boston the night before. The participants joke about who attended and with whom. One speaker observes that "if they had not reacted the way they did, the camera would have just panned away," and that no one would have known. They then joke about the reported involvement of a company's head of people and human resources with its CEO. Another speaker adds "Allegedly" and warns against jumping to conclusions.

After the show's intro, the host calls this one of the "slow, slow news weeks of summer" and welcomes a guest from Atreides. The guest confirms that the firm invests in both public and private companies, and the stock market has come back.

Asked how to price tariffs and where they end up, the guest calls the question open and points to sectoral tariffs as the thing to watch. In the guest's view, tariffs on semiconductors would make it hard to win in AI. For much of the guest's own investing, tariffs are not very relevant right now, though they do matter for the market and the economy. The guest suggests that policymakers may better understand what tariffs would cost when building data centers in the United States.

The host proposes that, "despite the shock and awe of the opening salvo," the tariff position now looks fairly boring and amounts to reasonable reciprocity. The response accepts this for every country except China. The speaker says some sort of deal with China has clearly been reached, "rare earths for h twenties" and AMD chips (transcribed as "m I three zero eight x's"). The finalized Vietnam deal includes a special carve-out for goods transshipped from China through Vietnam, which the speaker reads as a sign that the administration is focused on China more than almost any other country, "rightly or wrongly."

The same speaker notes that for about three months Trump said he did not care about the stock market, but he is now quoting all-time highs again. Because he is "clearly very sensitive to market feedback," the speaker expects that sensitivity to damp tariff volatility. The speaker also notes that tariffs came back right after the bill passed, and that the August outcome is still unknown. The segment closes with the view that AI is by far the most important factor in the market and "kind of overwhelms everything else."

The host recounts the week's Federal Reserve story. On Wednesday morning, Bloomberg reported that Trump was likely to fire Jerome Powell soon after talking with Republican lawmakers. The New York Times then reported that a termination letter had been drafted. The host says the market dropped 1% and bond yields rose about 10 basis points, with visible blips starting around 11:30AM when the article was published. On Polymarket, the odds of Powell leaving as Fed chair in 2025 spiked to 30% before falling back to 20%. Trump then said, "we're not planning on doing anything regarding Powell," and markets rebounded. The host notes speculation that the episode was a test of market reaction.

For context, the host says Trump nominated Powell in 2017 and has recently called him names including "stupid," "numbskull," and "low IQ." Powell's term ends in May, and White House officials have confirmed that a successor is being selected. The host reads Polymarket odds for names transcribed as Kevin Walsh (22%), Kevin Hassett (19%) and Scott Besson (15%). The host adds that a Fed chair has never been fired.

The host then turns to the Fed's dual mandate. Unemployment is low, though the host notes the panel has previously debated how reliable that data is. On inflation, the host says CPI "ticked up 10% from 2.4 to 2.7%," a 30 basis point increase over May. (A move from 2.4% to 2.7% is a relative increase of about 12.5%, so the 10% figure is as stated on the show.)

The guest advises against reading too much into the CPI uptick. The guest cites month-over-month base rate effects and smoothed measures that economists call core and super core, and judges inflation "still relatively contained." The guest acknowledges that many smart people expect tariffs to cause inflation and that there are "sound theoretical arguments" for it. Overseas exporters, however, may be absorbing more of the tariffs than expected. The guest adds that a very weak dollar combined with tariffs should, in theory, raise inflation somewhat.

Firing Powell, I worry that the market only went down 1%.

The guest's worry is that a 1% drop could be read as the full cost of firing Powell. The guest expects the market would fall considerably more if Powell were actually fired, calls firing him a mistake, and cites "very sound reasons for the Federal Reserve to be independent." The guest adds that "The world would continue spinning," but it would still be a mistake.

The host notes that expectations for rate cuts have reversed. With the stock market strong and heavy spending in the "big beautiful bill," no change is now the favored outcome for September, while a week earlier a 25 basis point cut was favored.

The next speaker argues that firing Powell would not solve the main US fiscal problem, which is rising rates on the long end of the Treasury curve. The thirty-year yield is at exactly 5%, which the speaker calls the government's highest borrowing cost since 2007.

The speaker's arithmetic on federal debt: - US debt totals $36 trillion. - The average rate across all outstanding Treasuries is 3.3%. - The 5% thirty-year yield is 1.7 percentage points above that average. - At 3.3%, the run-rate interest expense is $1.2 trillion a year. - At 5%, interest expense would approach $2 trillion a year. - Interest expense will keep growing because the government still runs a deficit and keeps borrowing.

The market does not want to loan The United States money over a thirty year period for less than 5% as of today.

The speaker explains what the Fed can and cannot do. The Fed can make overnight and short-term borrowing cheaper, which encourages activity such as construction financing or car loans that people then use to drive for Uber. The theory is that this growth would cover the payments on long-term debt. The speaker argues that this approach has a limit. Beyond a certain point, only spending, taxation and other key policies can address the fiscal situation. The speaker concludes that the market's message is less about Powell, and that removing "a prudent individual" may cause more trouble than it solves.