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Join Eric Chemi and Diane Swonk, Chief Economist at KPMG, as they dissect the complexities of the 2023 economy as we get ready to head into 2024 Gain valuable insights into market trends, investment strategies, and forecasts that could shape your financial future going into the new year.

Check out Diane’s full outlook here:


Diane Swonk 0:00
The pandemic didn’t create the world we’re in. But it certainly accelerated and amplified many of the trends that we’re seeing today, right up to, you know, global fragmentation, which ironically, doesn’t mean no global trade, it means trading within blocks, and amongst your friends, which is less efficient trade, more trade, more costly supply chains than we had in the past.

Eric Chemi 0:33
Welcome to Wealthion. Eric Chemi. Today, we are focused all about 2024. What is the outlook, there’s a lot of uncertainty going on. And there was a lot of uncertainty a year ago about what 2023 was going to be. And so many people got it wrong. So we’re going to figure out why they got it wrong. And what we’re going to try to do about getting it right, coming up here in 2024, my guest today, Diane Swonk, She’s the Chief Economist at KPMG. Diane, thanks so much for joining me here on the show.

Diane Swonk 1:00
It’s great to be here, Eric,

Eric Chemi 1:02
Right into it. Why did economists get the last 12 months so wrong? Everybody thought there was going to be a recession. Everybody was looking at cuts, what happened here?

Diane Swonk 1:11
Well, I think a lot of it was the Fed got it wrong, the Fed said we’re gonna create a recession. And they didn’t. And the economy has proven remarkably resilient, I think of the US consumer has been Atlas holding up the rest of the world. And what happened was inflation cooled faster than wages. And with that, that restored some spending power, although not as much confidence as we’d like it to have restored. And at the end of the day, consumers also, you know, took advantage of the fact that they could lock into low rates, pay down their debts, and we’re really much more resilient and resistant to rate hikes. And they were in the past, the same thing was true in the corporate sector, we’ve got corporate interest expenses down near record low right now. Now, of course, we have a lot of debt that’s going to reset in the corporate sector in the next couple of years. And it will reset at much higher rates than it was originally booked at. But for the moment, we have been able to weather the storm and sort of been able to take everything the felt Fed has dealt us and then some and still stay standing. I think it’s also important to think about the employment situation, what was supposed to be the Feds hardest mile and I’m a marathon runner. So I know, you know, when you get to that point where your mind and body wants to stop, instead of us getting there. And it becoming a place where everyone drops out of the race, we saw it become a relay race it more from a marathon into a relay relays. And what happened was that we saw sectors that had lagged earlier on in the recovery, all of a sudden pick up the baton from the sectors who drove economic gains for much of the recovery, the professional business services sector, which I happen to be in over 40% of all employment gains above and beyond February 2020 levels were driven by that sector, but since about May, it’s been moving sideways. What we’ve seen over the summer, and what we’ve seen this year more broadly, is that employment gains have gotten much more concentrated in less interest rate sensitive sectors. Three sectors, in particular are sort of dominating employment gains now, and that is healthcare, leisure and hospitality and government, largely Public Schools finally hiring up all those acute shortages, that they’ve had positions open since the beginning of the reopening. So the good news is that we’ve seen it turned into a relay race, the sort of worrisome news is that as we’ve seen employment become more concentrated. It also makes us more subject to external shocks, which October was a case in point we had both the UAW strike and the actors strike going on. And that’s when all of a sudden unemployment popped up to 3.9%. We actually saw the composition of unemployment deteriorate, more people that had affected by work stoppages due to strikes, they’re not counted as if you just are on strike are not counted as the unemployed, but also more unemployed people. Then we get around to November, the strikes are resolved. And all those people came back and the unemployment rate came down. So the good news is, it all came back and it came down again. The bad news is, you know, when you’re relying on only a few sectors driving employment gains, you do get it’s there’s a fragility in the economy when you do have an external shock.

Eric Chemi 4:33
I liked what you said, the Fed got it wrong, right that they were going to create a recession, but it didn’t happen.

Diane Swonk 4:39
And we believe don’t

Eric Chemi 4:42
don’t fight the Fed. In this case. You could have fought the Fed and won. Yes.

Diane Swonk 4:46
And those of my colleagues that did that are good friends of mine. They were right. And you know what? I was in that room when Jay Powell It was August 2022. And he gave an eight minute 30 fours second speech, that was like a bucket of ice, you know, we are going to cool inflation. This is when inflation was scorchingly. Hot. We had hit 9% inflation year over year, in June of 2022. And the Fed was, you know, all in on, we’re going to do whatever it takes. And if it means pain, which is fed speak for if it means an increase in unemployment, and even a recession, we’ll do it, we’ll do whatever it takes get rid of inflation. The surprising news was that, in fact, the Fed wasn’t all that wrong. When it said things were transitory a lot of the inflation we saw was due to supply shocks. And what’s hard about the world that we face going forward is that we’re in a world that’s more fragmented, we’re in a world where supply shocks are going to be much more frequent. And I think that’s really important to understand, because we’re not going to go back to where we were. We’re in a new world, it’s, I often say, we’ve gone through the proverbial looking glass like Alice did, and Lewis Carroll’s classic, you know, the sequel to Alice in Wonderland was through the looking glass, she went through the looking glass into a world that was a mirror image of the world in which she left. And in doing that, you know, she had to run in place to run to stay in place to stay in one place. It was a reverse image of the world renew, which in many ways, the pandemic pushed us through that lookingglass. Although this isn’t a fairy tale, and unlike Alice, we don’t get to wake up. And our uncle is steady with our kittens sort of asleep in our laps.

Eric Chemi 6:34
We don’t get to do that, for sure. If you were Jay Powell, right. If you were in charge of the federal these past, let’s say, one year, two years, would you be doing something different? Would you have done something different?

Diane Swonk 6:45
No, I don’t think I would have I mean, you know, I was more worried about inflation not being transitory, and that we’re gonna get some stickiness and inflation and inflation was going to become more of a persistent problem a little prior to the Fed. But you know, when we do these counterfactuals, and I was saying, hey, there’s inflation out there, especially in shelter costs, and I’m really worried about it, you know, during the counterfactual on it, if the Fed had moved, when I found it was more obvious than they did that it was less transitory at the time. What they have gotten that much further along on fighting inflation. No, I mean, maybe they would have gotten three quarters a percent of rate hikes in before we got to March of 2022, when the Fed actually started raising rates. But I think people don’t really think through those counterfactuals very well. And, you know, the reality is, I’m glad that I didn’t have to have that job, it’s a lot easier being an armchair Federal Reserve participant at a meeting than it is actually making those decisions, amidst the uncertainty that we face and how rapidly the economy can change in what seems like a minutes notice. I mean, you know, remember, you know, not long after the Fed started, right before the Fed started its fight aggressively against inflation, we also had Russia invade Ukraine, and we had oil prices spike, who would have thought after that, that not only would oil prices have come back down so rapidly, which they have, but also that even though Europe is either flirting with recession, and some countries have gone into recession, that they would have weathered the storm as well as they did, and still seen a cooling of inflation. Now, they didn’t weather it as well as we did. But I think, you know, that’s really the testimony to how strong and how resilient the global economy has been, as well as been a surprise.

Eric Chemi 8:41
One of the things in your armchair that you’ve done a great job with your payrolls forecasts have been so spot on from talking to people in the industry, what what do you do with what’s in your model that’s allowing you to be so precise and beating the rest of the industry?

Diane Swonk 8:54
It’s, you know, I say it’s part luck. I mean, I actually spent a lot of time looking each month that the seasonal factors and what’s going on and paying attention, just adding up the numbers and part of adding into numbers. And it was interesting, because this month, in the month of November, for the month of November, payrolls, we saw the comeback from the UAW strike, and I almost marked down my unemployment rate, and I didn’t, and I regret that I didn’t, because I thought, you know, we’re gonna probably get a big improvement in in unemployment, as well as the striking workers comeback because we’ve had both an actor’s strike and the UAW strike, and they didn’t fully end it was cold starts, not all of the industry was ramped up. And so that’s why I was a little hesitant, but it’s really about paying attention to the details and also looking at something that’s very difficult. We knew that retailers were saying, you know, what is the seasonal adjustment each month? Well, in the month of November is a month that historically we’ve hired up a lot of people to work in retail I looked at that, and I saw a lot of announcements that said, retailers were not hiring as much as usual. Well, that tells me we’re going to have a decline in retail employment, not seasonally adjusted, retail employment actually increased, it just didn’t increase as much as it usually does in the month of November. And so knowing those kinds of things, and actually just paying attention to the devil in the details, really helps now doesn’t always get me right. No, it doesn’t. And there’s things I regret that, you know, I had an instinct to wanna reduce the unemployment rate for the month, and I didn’t, because I was worried that, you know, participation wouldn’t come back. Well, sure enough, it did. And so we had, you know, an improvement in the unemployment rate in the month of November for all the right reasons, more people threw their hat marine looking for a job. And the ranks of the unemployed fell, because people got called back after work stoppages. And so that was all good news. And I didn’t put that part of it in, even though that’s something I was thinking about a lot. But it’s not that, you know, I wish there was a magic way to get these numbers every year, every month, there isn’t, I mean, you’re guessing a survey. It’s a net of a net number. It is, you know, the net number of new jobs, and new people on payrolls that recreate every month. To me, the more interesting stuff is when the data actually comes out, is looking at what has changed. What’s really interesting to me is multiple jobholders, you sort of like a lot of people instinctively think, well, when you have a lot of multiple jobholders. That’s a bad thing, because it means people can’t make ends meet. And I understand that I really get it. What’s interesting is in the 2000s, not in the 1990s. But in the 2000s, we saw multiple jobholders would pick up as an expansion got longer, and as the unemployment rate fell. And so it was actually procyclical, when we saw multiple job holders go back to the levels that we had February 2020, because it means that employers were were more willing to give people who had multiple jobs, some flexibility in their schedules to actually be able to have more than one job. That said, you know, it is really interesting is before the 2000s. Before we saw a pretty big stagnation in wages, and before workers were considered replaceable, not essential, as we saw during the pandemic, multiple jobholders did not pick up as the expansion went on in the 1990s, boom. In fact, by the time we were at the end of the 1990s, boom, in the early 2000s, before we had our first, you know, tech bubble burst in the 2000s recession, we actually saw multiple jobholders were falling. And that was a better period. And it’s also not, it’s, you know, not no coincidence that that is an era also, when consumer attitudes about the economy hit a record high, which is not where they’re at. Right now.

Eric Chemi 13:03
How much does the multiple jobholders think they got? So that’s just like a couple percent of the population, right? Is that a very small group? Or is it is it like the canary in the coal mine, because they give you early signals?

Diane Swonk 13:13
Well, it’s a small group, it’s, you know, enough, that little under 2 million. So you know, it’s not completely insignificant. It’s actual numbers. But it’s enough that it tells us that the expansions, you know that unemployment is low enough now, that employers are willing to work with workers to have those multiple jobs, and they’re willing to work with the schedules. And that is something that tells me that the labor market is still in pretty good place. Now, in the 90s, it would have told me, that’s very good, because in the 90s, as the expansion went on, people didn’t need more than one job. But now it’s changed. And I think that’s also there’s information in how the world has changed from what we knew it in different decades in different errors. And that’s something that people often forget is the nuance, I think, that really gets to something very important. The fact that, you know, whatever your feelings about unions are, whatever your feelings about the strikes were. The bottom line is today, UAW workers by the end of this contract that they just signed, and negotiated and ratified with the Detroit big three, which is no longer dominant, even in production in the United States. By the end of that contract period, their wages will be the same as they were in 2007. Before the global financial crisis, when we had the bailouts of the vehicle industry, and they had to take a lot of cuts in their wages. That’s before adjusting for inflation. So you know, people wonder why unions are striking and it is it because, you know, unions have so much power actually during the hiring frenzy that we saw in wages surge in 2021. And then 2022. During that period, union contracts did not keep up with inflation. And they actually fell short of other private sector wages. And so that’s why you’re seeing, then you would layer on top of it, some of the things that happened in the two decades that preceded it. And wages were really a pretty stagnant thing in the 2000s. And so this is kind of new that consumers have that workers have some leverage in the workforce. But also, the striking behavior itself is not just because labor markets are tight. It’s because unions in particular didn’t see their wages keep up with the

Eric Chemi 15:45
cost of living, which will say that again, so the end of this contract, they’re going to be back to where they were in 2007. That’s, that’s,

Diane Swonk 15:55
or domino number numbers are still behind April 2028. That’s when this contract ends, they will be back to the levels they were in 2007. And that’s from some work that the Chicago Fed has done, which the auto industry is a pretty big sector in the Chicago fed district. They’ve done a lot of work on that. And that’s what their analysis suggests is that we’ll be back for those workers to 2007 wages, which really tells you what a hard decade you know, people think of 2010s as the norm that was in the wake of a global financial crisis, and a lot was lost. And even preceding that. We lost a lot of ground wages stagnated. You know, we took workers. And I really think it’s important when we think about consumer sentiment, and the fact that it peaked in January 2000. I mean, think about that January 2000, is the last time that consumer sentiment by the University of Michigan survey peaked. Now, that was a period one for a moment in time wage inequalities were narrowing. We had just gotten past something called y2k, which, you know, some of your viewers might have to actually look it up, that it was a computer glitch that actually my father wrote back in the day, and he undid it before he left his career. In terms of it was going to, we could have had all the lights go out in the world all at once on January 1 2000. That’s what a computer glitch might have done, because the way that the computer programs were written when hit 1999 and went to 2000. On December 1, that midnight switch in the date took it back to 1900 instead of 2000. And they had to fix that one glitch in the code that they had written back in the early 60s, which my father had written in early in his career. I think you know, what’s really interesting is, you know, that was a hot, there was wage inequalities falling, we were at the end of the tech bubble, we still were feeling the heat of the tech bubble, it had not burst yet. And then you fast forward a little over two decades to where we are today. And, you know, we had, what were frontline workers considered replaceable, become essential, their wages leveled up in the middle of a pandemic. And for a moment in time, they got to move from the shadows of the economy into the sun, only to be burned by inflation. Millennials who graduated into the global financial crisis, and reset back on their lifetime earnings, as a result of that finally got a chance to do what many people said they never wanted to do. And that was buy a home as interest rates plummeted. In the wake of the COVID recession and the stimulus we did. And then they found, housing affordability is now at what mid 1985 levels. Because housing prices have gone up so high along with the fact that mortgage rates are higher. And yet again, they’re being closed out of a part of the economy and what epitomizes the American Dream Homeownership, those who are buying homes, the number one reason they’re able to buy it is because their parents, who are baby boomers have helped them with their downpayment, to make it more affordable for them. The second reason is they’ve saved but the number one reason is they’re getting help from their parents. That is, you know, really an understandable reason why people may not be as happy about the economy today, in addition to the fact that we had a period of inflation, where we’ve only had what, five or seven of the last five out of the last seven months or so we’re inflation was outpacing wages. And we were trying to restore what we lost to inflation but the level of prices is still high. So you throw it all together and you have an understanding of it’s also on IQ test, I mean, you look around the world today versus 2000. And we’ve got hot wars that we’re dealing with as a country. We’ve got, you know, an invasion on, you know, in the backyard of of Europe. It really is a world that it’s almost an IQ test, is it better than it was in 2000? Before 911 ever happened? No, it’s harder. And so you understand why people are not as satisfied with the economy today, even though it is truly stunning, and good news that the Fed has gotten as far as they’ve gotten without unemployment going up.

Eric Chemi 20:39
But does it now unwind itself here in 20 2014, your your outlook, the first thing you say is a rocky road, it doesn’t sound

Diane Swonk 20:48
all that promising? Well, you know, soft landings are not known landings. And I think that’s one of the things that people forget is, you know, what we’re looking at is for the economy to slow the load the economy’s potential to grow with the, which is a fancy way of saying that employment rates going to creep higher, not enough to call it a full blown recession. But you’re talking about a period in time where interest rates are going to come down, but not as rapidly as they went up. And we’re not going back to the free money we had of the past. And in that transition, although we’ve got this relay race going, and, you know, there’s a there’s a probability that we actually get there faster and without a landing at all. But when you land, you know, there’s turbulence, and that’s, you know, what we’re going through, we’re expecting to go through in 2024, that’s still a great outcome compared to a recession. But it’s not easy. And we’ve already seen that it’s not without pain, we’ve got the most interest rate sensitive sectors, the parts of the economy that were just booming, even down to trucking and warehousing, at the onset of reopening, that are now being set back. And I think that’s important to remember is that, you know, even though the economy on net, adds up, the aggregates look good, the devil is in the details. And the details are that it’s more concentrated, the gains we’re seeing are more concentrated, which make it more fragile to external shocks. And we’re in a world where external shocks seem to be the norm rather than, you know, the anomaly. The pandemic didn’t create the world we’re in, but it certainly accelerated and amplified many of the trends that we’re seeing today, right up to, you know, global fragmentation, which ironically, doesn’t mean no global trade, it means trading within blocks, and amongst your friends, which is less efficient trade, more trade, more costly supply chains than we had in the past. Because no longer are people arbitraging just the cheapest producer, they’re also looking at everything from are we going to be able to always get from that producer, is there a political risk? Is there a geopolitical risk, all of those factors, and then layer in climate change, and the number of extreme weather events, the Panama Canal, with no water in it, and slowing down ships going through that it’s part of the reason why, you know, we don’t have as many Christmas decorations before Christmas as we would have had. That is because shipping get slowed down. So all of those things are part of the world now as we know it. And I think those are important things to remember, because that can be a weight on the economy next year, it doesn’t mean we crumble under the way, you know, I did a piece on talking about the US consumer as an atlas. Well, the story of Atlas is not one of strike. It’s one of endurance. They’re similar, but they’re not the same. Endurance means overcoming hurdles, and enduring and making it through keeping your eye on the horizon one foot in front of the other, rather than just taking sort of assessment of how far you’ve come.

Eric Chemi 24:18
You put it that way. Endurance is different from strength and how far can we go in your Outlook, you talk about? You know what he says, right, rocky says is that how hard you can hit it’s how hard you can take a hit and keep getting back up. And this economy keeps taking hits. It’s surviving so far, but I think you’re right that a soft landing is still a landing, right a soft landing is not no landing. So we keep hearing about soft landing or hard landing but I don’t think a lot of people believe there’s going to be no landing right? So

Diane Swonk 24:47
we can all help we’re wrong. And we can help that there’s no landing but I think we’ve already seen some landing because the most interest rate sensitive sectors you think is a deal Market m&a Market. We have already seen in major cooling. And so clearly, some of the most sensitive sectors, the housing market has been hit as well, we’ve seen pain. So it’s not that a soft landing is no landing. And you know, remember, and you know, I’m going to date myself here, I know the rocky franchises like the back of my hand, the first Rocky movie, he didn’t win. But he did win. Personally, his only goal was to go the distance. And going the distance meant doing something no one had ever done against his opponent, Apollo Creed, at the time, and that was to be remain standing. At the end of the fight, the judges actually ruled against him, he didn’t win the fight. But he won for himself. And that’s what endurance is about. And in the last fight, that was an official Rocky movie, not the spin offs from the Rocky franchise, he didn’t win that fight, either. But he was still standing at the end. And that’s the goal, the Federal Reserve is going to go the distance, they’re going to make sure inflation is absolutely off the table, and we get back to price stability, that’s going to take a while. They’re willing to cut before we get to that place in time, because there’s legs in interest rates. And we still have a lot of the headwinds associated with earlier rate hikes ahead of us. But the goal is to have as many people standing at the end of the fight. So it’s a victory, rather than necessarily declaring a victory and knocking out the opponent. And they also they want to knock on inflation, then I want to knock all of us out. So I think that’s kind of a good analogy, at least in my mind, my perverse mind of metaphors. And

Eric Chemi 26:55
the, the one issue that keeps coming up, you read the newspapers, these treasury bond auctions, right, the idea that, are they going to be able to raise enough money to keep this $20 trillion in spending going and, and the numbers are starting to be so much more massive than where we were looking at it? Oh, seven and Oh, eight, right. 15 years ago, 60 years ago? Do you see troubles with the Treasury market? I mean, I know in your in your Outlook, you say most forget that the largest driver of federal spending is the ageing of the population and the boost to spending on Social Security and Medicare, not defense, not for the not the poor don’t chill. It’s basically just elderly people.

Diane Swonk 27:30
That’s exactly right. And, you know, gets gets lost in translation is the third rail of American politics. And I’ve been I’ve been a deficit hawk my whole career. So it’s not been very popular to be a deficit hawk. You know, I’ve been I was worked on the I met Jay Powell, when he was at the Bipartisan Policy Council with the 2010 bipartisan reduce the deficit effort. And what’s important is that we’re now in a period where not only do we have large deficits, but it’s compounding more rapidly. What I think the biggest change in the good news is we’re still reserve currency. Let’s keep that on the table. Yes, China has made some pretty good inroads in having build trade and renew MB and, and actually have their currency used as part of trade. They are not a reserve currency of the world, whenever something crazy happens, we will still run to the safety of the US Treasury bond market, and the safety of the US dollar. So all else equal, even at higher rates of debt, we’re going to have lower rates of interest and a lot of our competitors in the world. That’s the good news. The bad news is who’s holding our debt. And I think that’s been a really big fundamental shift. But first of all, we’ve got Federal Reserve doing quantitative tightening, that means they’re reducing their holdings, and allowing their treasury bonds to roll off their balance sheet. Rather than being a buyers of our treasury bonds to stimulate the economy. They don’t want to do that anymore. So that’s, you know, so a buyer that’s no longer there. We also used to have China and Japan be the largest single buyers, their central banks have our bonds. Now, when central banks buy our treasury bonds or buying them to hold to maturity, or to hold for a really long time or hold as a cushion for an exchange rate move or something like that, but they’re not as skittish as individual investors. They’re not as scheduled as skittish as hedge funds or institutional investors. Well, now we have it’s not a complete Return of the bond vigilante that, you know, we once talked about many decades ago of bond buyers who, you know, we’re going to discipline Washington, they’re still not really disciplining Washington, but they are individual investors that are much more skittish. They, you see it in the volatility in the bond market, they’re much more willing to move out of their positions in the bond market more rapidly and is Is it any surprise that they might expect, unlike what we’ve had for a long period, when central banks were largely the largest buyers of our debt, that they would expect little more compensation for actually lending money to us for a period of time a term premia on our bonds. And that seems reasonable and all else equal, even though we’re the reserve currency, and we get more of a free ride by running large deficits and others, it does seem also reasonable, that we’re going to have a little more skittish demand for Treasury bonds. And that, you know, some of the ugly politics that we see dividing us will play a larger role in the bond market, particularly given how much debt we have to issue and how much debt we have to sustain. And then more of our revenues or tax revenues are going to just servicing the debt, rather than even the expenditures, we really had almost a decade of, frankly, the rest of the world paying us to borrow, that I don’t think is going to be the case going forward. And given that you also have higher rates compounding faster on a larger amount of debt, and the debt service burden out there. That’s just a more tenuous situation. Is it something that all of a sudden, we can’t sustain our debt? Not likely, unless we do something really stupid, like defaulting on our debt on purpose. But the bottom line is, we’re going into a world that looks like it’s going to be more punctuated by these kinds of shocks, and all else equal, we’re leaving the era of free money. That was because we had destroyed so much and had to heal from it. In part, it’s because we’re a healthier economy. But it’s also because we we’ve the 2010s, we’re not the norm, we’re going more towards a norm in terms of people expecting some compensation, if they’re gonna lend us money.

Eric Chemi 32:05
Do you do feel like you’ve lost the cause being a deficit hawk, right, that they just don’t care, bipartisan agreement that we’re just going to keep spending and spending and spending. And the idea that we’d be at $20 trillion right now is, is unfathomable, not that long ago, and it’s never going to come back down? And you just wonder, when you think about kids and grandkids? Like how big could it get? 200 trillion, right? Like, where

Diane Swonk 32:30
it’s really hard. You know, I mean, I understood why, after the global financial crisis, you know, we really did have a situation that was, you could actually spend money, we were being paid to spend money. And in that period, even though I still was worried about the debt and deficits, I understood the need, that we didn’t fully commit to, to fill the hole that was left in the economy after the 2008 2009 financial crisis. And it was unfortunate, we we didn’t do that, because it caused a lot of people a lot of pain. And I think added to a lot of the divisions that we’re seeing today in our politics, because of how many people felt like they lost ground during that period of time. That said, Do I have a lot of hope about, you know, the ability to get in a room and how people talk to each other from two different sides of a party? No, unfortunately, I don’t, in fact, I’ve been in those rooms. And I’ve been in recently. And every year, there’s, you know, things like the Center for Responsible Budget has a get together, and it’s bipartisan, and they bring all the people at a VIP dinner, you know, they got to reinstate them this year. And you know, they have this big celebration to try to talk about the importance of thinking about fiscal sustainability in the United States. And they try to bring as many people as they can from across the aisle to talk with each other. And I think this year was probably the smallest VIP dinner I’ve ever been to,

Eric Chemi 34:00
because people don’t want to come because people have just given up that there’s going to be progress.

Diane Swonk 34:04
Exactly. And there’s so few people. I mean, the people that show up from Congress are people from extremes on in their parties, one will say, I’m a progressive Democrat. And I believe, and I’m willing to work across the aisle with my friend over there, who stands up and says, I’m a conservative Republican, and I want to work with my friend over there. But we’re going to talk to each other, the number of people are willing to be in a room with each other, let alone do that, at all, has gone down quite dramatically. And it really is something it’s a sad commentary on where we’re at.

Eric Chemi 34:47
But these have real world implications, right? Because all of a sudden, they can’t figure this out. They are not going to be able to keep auctioning these treasury bonds forever and ever. They’re not going to be able to have this a reserve currency status to the novelize that status of the world? Like, do you have real concerns over the next decades to come?

Diane Swonk 35:05
decades to come? Gosh, I don’t know if I’ll be here when we have to actually pay the price on this.

Eric Chemi 35:10
That’s what they’re all thinking to. Right. That’s what all these Wow,

Unknown Speaker 35:13

Diane Swonk 35:14
the average age, that might be. You know, I think there is something very important about, we are still the reserve currency in, in part because there is an alternative. And that does give us privilege, what we do have to worry about, what were the kind of scenarios that would erode that reserve currency Stratus status of ours. And, you know, we started to do some of them. And there’s chinks in our armor, but the armor still hold. So that’s what I’m hopeful about, as the armor still hold. What I worry about is that we’re not willing to make the tough decisions and have the conversations that we need to have about what do we really agree on? You know, I actually find that people, you know, they get stuck in their ideologies. And you don’t want to talk about politics and Thanksgiving or Christmas, or Hanukkah, or whatever holiday you celebrate. You don’t want to have those political discussions, because someone’s always going to get heated, and there’s going to be, you know, hard to be. But I had to admit, you know, this holiday season, I found one thing that was really unique was that sitting around the Thanksgiving table with people that I knew how differently a lot of people’s politics were around the table. It was amazing how many people agreed on one thing, they were frustrated with how little the two sides were talking to each other, how divisive everything had become, and how much they wanted to see some bridges built. And you can see it even in the polling, that Democrats and Republicans, people who identify like that there’s a lot of people who don’t, that they’re now angry, at the same level and dissatisfied at Congress at the same level as as each other. And it’s not great. But I find hope, and that there’s some agreement that this isn’t working. Right. Right.

Eric Chemi 37:14
I don’t agree with your side, but you need to at least try to do something or at least try to fix it. And

Diane Swonk 37:21
you know, and even in the conversations that we pledged not to have any politics at Thanksgiving and the holidays, I’m sitting around that table. I was amazed at how much people found each other, who I knew didn’t agree on a lot of things, agreed on a lot of the things that they saw solutions, or they saw in their own communities. And I mean, we’re talking it spanned a whole spectrum of problems. And I’m listening to this. And I thought, just watching and absorbing and thinking, you know, this is somewhat hopeful, because I remember times when these people couldn’t all sit at a table together, let along loan talk about things they agreed upon. And they had such different political beliefs. Yet there was a lot of agreement on things that they thought were the right priorities for the country. And so I decided to take that as a moment of hope.

Eric Chemi 38:21
Do you think though, despite despite that, because like you said, it’s a third rail, right, there’s not going to be cuts to Social Security, and Medicare, there’s too much voting power in that demographic, that we’re just going to increasingly see deficits and debts, and there’s no way around it, even if we want to talk about it. You

Diane Swonk 38:39
know, I think the reality is, yeah, the short answer is yes. You’ve already noticed that I don’t have a lot of short answers. But, you know, the reality is that we’re both overspent and under text. And the political parties want to take one of one side or the other on that. And that’s not how it’s got to come from both sides. We’ve got to raise revenues. And we’ve got to slow down our spending. And that makes me make means making some tough decisions. You know, the fact that in the 2010, reduce the deficit act, where I was working on that, that 28 year olds with a 40 year lead time, there was pushback from retirees, that they those 28 year olds in 40 years would have to work until 68 instead of 65 to get Social Security. When those 28 year olds didn’t think they’re ever gonna get Social Security anyways. That’s kind of crazy. And, you know, the fact that we’re now people can have some bit of a conversation, but it does require understanding, you know, we’ve made a commitment to whole generation of people that are retiring now. And we want to withhold those commitments to the extent We can, but at the same time to do that, we either have to raise revenues, or means test some of what we give people who receive those benefits. And those are no easy thing to do. But, you know, if you hit it from both sides, it’s not that long ago, we actually did have a surplus for a period of time. It can be done. Briefly, well, you know, the minute we got it, there was it oh, boy can spend money. So forget. It’s the it’s the, you know, the reality of politics, and, but at the end of the day, you know, that we spend $6, on every person that’s aging in this country versus $1, at the federal level on children. That’s not betting on our future. And it’s not that we should take away from people or aging, per se, but we need to think about what our priorities are, as a country and what we want to have as sustainability. And, frankly, you know, there’s some people that don’t need as much of those promises as others. And I think we could have a pretty productive conversation, if we really talk about the facts, you know, the fact that the average 65 year old who retires today pulls out more in social security than they ever put in. That is something that’s not discussed. And it’s a wonderful thing that we live as long as we do, that is different than when they first designed this, you know, social security system.

Eric Chemi 41:36
System, you work till 65, and you live till 70, just a couple of years,

Diane Swonk 41:41
it was it was less than that. It was like 95% of all people over 65 were dead. And, you know, I mean, we installed in stated this in the Great Depression, I mean, you know that, and it was meant so that people that were aging did not eat in poverty. I mean, it was really meant, as you know, a safety net for not everyone. And it was not meant as a retirement plan, really

Eric Chemi 42:06
low safety net, really down at the bottom at the very base.

Diane Swonk 42:09
And, you know, that’s the, it’s not that anymore. And, you know, my, my grandmother lived until she was 99. I mean, you know, she took out more than she ever could have paid energy worked all her life. And I don’t begrudge her that. But you know, at the end of the day, the system, what we have to acknowledge is this system was not set up for that. And that means we need to have some honest conversations about what really, people don’t understand that you know, what they pay in, they actually take out more out of it. People don’t understand that people don’t understand that the people who are paying in today are paying for those who are on social security today. It’s not what you paid in, and that it somehow collected interest somewhere. It is your thoughts are working today are paying for it today. And that’s, you know, we call it a dependency burden. And, you know, again, you know, look at millennials who are among the most dissatisfied with the economy. Well, they’re looking at that too, and saying, Yeah, we’re not too happy about this. So

Eric Chemi 43:18
despite all that your your outlook is for 2024. That if we if we if we narrow it back down, you see if I just say you see a recession happening, yes or no? How would you answer that?

Unknown Speaker 43:28
So no,

Diane Swonk 43:30
I don’t have that as my baseline, I have a soft landing, which means the economy slows below potential. And the unemployment rate goes up a little bit, but not enough of those two quarters of negative contraction and a contraction and employment to throw us into recession.

Eric Chemi 43:43
Growth, just small growth,

Diane Swonk 43:45
slow growth and

Speaker 2 43:48
low growth. Typical growth. Yeah,

Diane Swonk 43:51
when it’s below potential, unemployment goes up. And you know, that is painful. That means some sectors are having to give up more. We’re talking about growth around 1.3%, fourth quarter, fourth quarter after over two and a half percent. That’s a big change, to begin momentum from 2023 to 2024. And, you know, stalling out, remember, you know, people want to keep moving forward. And this is the part where I go back to where I started in the, you know, analogy to Rocky, it’s not hard, you can hit in life. It’s so hard to hard, you can get hit and keep moving forward. That’s part of what 2024 is going to feel like. Now the good news is, I think we’re going to still be standing at the end of this fight. And we’ve been able to take everything the Fed has dealt us pretty well. That does not mean it will be easy because then we’re going to need to heal.

Eric Chemi 44:53
Okay, I like to take the hits. Get back up, keep taking more hits, get back up again. There there will be Some sort of external shock, I’m sure in 2024, right, we didn’t see, and we didn’t even

Diane Swonk 45:04
anticipate. I mean,

Eric Chemi 45:08
we all know what the shocks have been over the last four years. We don’t have to repeat them, but there’ll be something this year, and that will be another hit that we take. And then as far as the entitlement spending over the next, let’s call it 25 years, that’ll be a whole other conversation. We’ll have you back next year. We’ll, we’ll we’ll dig deep on that one. Because there’s

Diane Swonk 45:26
now that’s a really big one. And you know, we, if we really try, do I think we can fix it? Yeah. But I do think we need to, we have to fix a lot of things. We need to be able to sit across the table and have a reasonable discussion about what we agree about, not just about what we disagree about.

Eric Chemi 45:47
I like it. Dan, thank you so much for joining me here on the show today.

Diane Swonk 45:49
Thank you.

Eric Chemi 45:52
Once again, thank you to my guests, Diane Swonk from KPMG for joining me on the show today. If you liked this episode, please like it, subscribe, share it for it, let your friends know. That’s how we get more people to really enjoy this content gets out to as many people as possible. And look, if you’re thinking about your own finances, your family’s finances, everything you heard today, and you think you need to get some help you go to there’s a short form there, very short form, fill it out. We can get you in contact with investment professionals that we endorse here at Wealthion. There’s no obligation, there’s no commitment, there’s no cost. You can just have a conversation. See if there are a right fit for you and your family. It’s a public service. We do this to help as many people as possible. And as a reminder, last reminder here, check out the show with Anthony Scaramucci every Friday live at 11am. Eastern speak up with Anthony Scaramucci. That’s the name if you want to submit your questions. That’s forward slash ask Anthony. Get your questions in he’ll answer it during the live show Fridays at 11. Thanks again for watching this episode of Wealthion with Diane Swonk and me we’ll see you next time


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