Art Laffer On Bond Market MELTDOWN: How Bad Could It Get?

Arthur Laffer (0:00)

We are in a very, very strong economy here in the US., but the US is not damaged by oil prices being higher, the US economy. If the truckers really want that diesel more, pay more for it. That's what markets are all about. And obviously the truckers don't feel that diesel is all that important, because they're not willing to pay more for it, because it's being exported to people at higher prices. The sell-off in bonds, I do not think reflects higher inflation.

I think it reflects higher real returns on capital, and which is a very good thing to have happen.

David Lin (0:33)

On Wednesday, September 23rd, the US 10-year Treasury yield jumped to 5.09%, the highest since 2007 What is it about the 5% level that is worrying the US. Treasury enough that they have to intervene to bring the long end of the yield curve down? We're doing an examination on why there's a global sell-off happening right now in the bond market. And what will happen to the economy if interest rates continue to stay high? And with oil still near $100 a barrel, how much economic pain is ahead for regular consumers in the everyday person? And can we really get a deal with Iran right after the midterm elections as President Donald Trump is promising us? Well, I'm pleased to welcome back to the show Arthur Laffer, founder and chairman of Laffer Associates, to answer all of this and much more.

Dr. Laffer was a member of President Ronald Reagan's Economic Policy Advisory Board from 1981 to 89, serving during both presidential terms. He's a leading supply-side economist, best known for the Laffer curve, which illustrates the relationship between tax rates and government revenues. For his contributions to economics, Dr. Laffer was awarded the Presidential Medal of Freedom in 2019

It's good to have you back, Dr. Laffer. An honor to host you as always.

Arthur Laffer (1:49)

Thank you very much, David. I love being on your show. It's such a fun show. Thank you.

David Lin (1:54)

Well, thank you. It's a great compliment from you. We love having you on.

I want to start by talking about the Iran War. I think a lot of people, if not everybody, is wondering to themselves, when is this dreaded war finally going to end? President Trump made a speech at the UN General Assembly earlier this week. I just want to play one minute of this clip, Dr. Laffer, and we'll listen to what Donald Trump has to say and what the president has in mind. Take a listen where we respond together.

Donald Trump (2:20)

Now we must be equally united in maintaining pressure. The United States Navy has recently escorted more than 1 billion barrels of oil out of the Strait of Hormuz, and more oil is flowing than at any point since the start of the war. We're taking 22, 25, 30, 32, and 37 ships out, respectively, every single day, every single night.

But I have a big decision to make.

Will a deal be made with Iran that lets them rebuild and create a far greater country than it ever was before? Maybe one of the greatest in the Middle East or even the world? Or do I annihilate the Islamic Republic and do it quickly, never giving them a chance to kill and destroy people and countries again? Do I drive them into hell with no chance of survival and no hope of future greatness or generations? But I believe we'll make a deal right after the election because it doesn't make sense for them not to. They're waiting to see how I do in the midterm election. What they don't realize is that I'm not running. I did that already and won in a landslide.

David Lin (3:45)

Okay, he wants to make a deal in after the midterm election. That's what he said. Now, my first question is, some people have been asking me why wait till the midterm election to make a deal.

But generally, what do you make of what you just heard?

Arthur Laffer (3:59)

Well, I don't even see why he couldn't make it. He's the guy who makes deals and I don't know the negotiating styles or when it should be done or when not. I would just love to see a deal done from the standpoint of economics and from the standpoint of global safety.

Iran is a serious problem and Iran with nuclear weapons in large quantities available and easily delivered is not something that makes me happy.

SPEAKER_4 (4:23)

You're out of my turf.

David Lin (4:25)

Yeah, but we've talked about how sanctions don't work or have not worked on Iran. What should work then?