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tv   Washington Journal Mark Zandi  CSPAN  April 3, 2023 11:16pm-12:00am EDT

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is it working? guest: good to be with you, i can't believe it has been three months. that went fast. nice to be with you. yeah, i think they are working. the intent here is to slow economic growth so that it quells the painfully high inflation. but i think the effort that made progress because growth is slowing, inflation is moderating. it is a long way to go, but hopefully we continue to see inflation come back in over the next few months, the next year. yeah, i think the efforts are working. i will say, there are some negative side effects to the hiring rates, and one of the most obvious is the pressure on the banking system. i do think one of the reasons why we saw this stretch of failure recently in the past few weeks is related to the interest
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rate hikes. but all in all, i'd say that the efforts are working, yes. host: when it comes to what percentage we should be using, a half-point, a quarter point, any concern about their decisions on those rate numbers? >> the operating committee of the fed, they raised rates three quarters of a point to be extraordinary in an effort to get interest rates backup mortgage system with the strength of the economy and inflation. more recently, they dial back those rate increases. it wasn't last week, it with the week before. they raise rates a quarter-point and intimated that they are getting pretty close to the end of the rate hikes.
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they dial things back. yes, for most of the year i've been right on board with them. they've been very consistent with the need for slow growth and getting inflation back in. it came right on the heels of that banking crisis and all the extraordinary efforts that they took along with the u.s. treasury and fbi see. on the one hand, they were doing all these things to help out the banking system and then they are raising interest rates which of course hurt the banking system. that isn't quite congruent to me. i would probably be focused on making sure the banking system is on sound ground and making sure that everybody believe the banking system is on very sound ground, and when that is established, turning back to inflation again as necessary. host: do you think we are done with bank failures? do you think what happened has
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shaken loose the banks that were worse-condition, or are there more to come? caller: i'd be surprised if there was another failure or two or three, but i think they will be small, i don't think they will be a big deal. given all the support that the government has been providing for the system, most significantly with the failed banks, silicon valley bank, signature bank, they stepped up and they said regardless of whether your deposit amount is below the guaranteed deposit or above, your money is good, it is going to be guaranteed by the government. once the government did that, i think we should all feel confident of the banking system is safe, that our money is safe, that we would get that out when we need it. there may be other failures, but i don't think we should be at all worried that we're not going to get our money out at this point.
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>> the banks that failed, in front page story in the washington post. silicon valley bank decisions, your postmortem here, what is the most important cousin learned from the two big banks -- lesson learned? guest: the federal reserve who was the regulator silicon valley bank is doing a postmortem detail, trying to figure at exactly what went wrong here. generally when you have things like this happen, it is not one thing you, it is a series of things. hopefully they can identify that more carefully and use that as a basis. but one thing i think seems pretty clear to me is that the regulations that were put in place after todd frank, after the financial crisis, some of those regulations were rolled
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back for banking institutions at less than $250 billion in assets. svb didn't need to do many of the things to make sure that they are safe and sound. they have to digest all the losses on the lending. liquidity, risk management. i do think it makes sense for regulators to make sure that banks of smaller sizes, $100 billion in assets do need to go through the more rigorous kind of examinations and testing and hold more capital just like the big guys. they could cause problems as well. host: questions from viewers when we have you one. let me give the numbers. (202) 748-8001 for republicans to call in. (202) 748-8000 free democrats. independents, (202) 748-8002.
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a question we always ask when you are on as well is your thoughts on a recession on the horizon? do you see that happening in 2023? guest: when i was on three months ago i probably said recession risks are very high, uncomfortably high because we are in a world of client ration and rising interest rates. but some really good policymaking by the fed and a little bit of luck, we should be able to navigate through without much economic downturn over the next 12 to 18 months. i still believe that to be the case. it makes me more uncomfortable. the risks are actually higher. otherwise, recession will occur. a soft landing, not a recession.
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a recession is a broad-based industry, persistent, more than a few months decline in economic activities. that is an economic recession. anything that is not bad, will call a soft landing. i would go as far as to say that does not really feel like an apt description of what is dead ahead. even if we don't go into a recession, it is going to be very uncomfortable. we are going to see some job loss, we are going to feel uncomfortable about it. soft landing doesn't cut it for me. i'm not sure i would use that word to describe it. one of my colleagues turned -- coined the term slowcession. not a recession, but an economy that is not going anywhere fast. host: taking your phone calls for you, independent, good morning. caller: yes, i wanted to ask --
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first i want to say thank you to c-span and i appreciate this program. one of the questions i have is related to the rule and why the fed seems to go from these really radical control approaches of having a stable interest rate staying with that. that's the question i have, thank you very much. host: could you do that? guest: i was just testifying at the house budget committee last week on the budget and the fiscal situation and a stanford professor was on the panel. he is an icon in monetary policy. and it is pretty simple. obviously very thoughtful and insightful, and the federal
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reserve when setting interest rates, that they should look at the unemployment rate as a benchmark for have the job market is going. look at inflation, because there are the mandates used to set interest rate policies. inflation is low and stable. inflation expectations, what people think the future of inflation will be. and that formula can be used to determine the appropriate interest rate or monetary policy that the fed should set. in fact, historically, most times the fed does that. it doesn't mechanically calculate using the womb, and effectively that is where they land when cutting interest rates. there are times when the actual policy, the actual interest rate diverges from what it will say,
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and that was certainly the case a year ago. you may recall back early last year, the interest rate the fed controls was at zero, and the literal interpretation of it would say the interest rates have been 2.5%. i would say the schedule is later raising interest rates and that would be one reason why inflation is so high today. one caveat and then i will stop. this is of course the pandemic. the pandemic what this massive shock to the economy that throws everything off the rails. the federal reserve, it is hard to remember that long ago, but we're still pretty nervous about the pandemic and the fallout. you may remember the omicron wave of the virus through 2022. the fed was saying look, they may be saying this, but it does not account for the pandemic.
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if you account for the pandemic, we should air on the side of being over the accom
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i thought it might have been a more contentious hearing. i did not find that. i found that everyone's was quite thoughtful or vain trying to think through the differences. just talking about the different types of policy that could be used. on the spending side to try to rein in our future buffet -- budget deficits and get a grip on long-term fiscal issues. guest: slightly younger mark sandy on the panel in 2008. it was government assistance for the automotive industry. viewers can see that. it was five hours 41 minutes according to the timer on the
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c-span website. guest: [laughter] can you imagine? think about that. host: i do three hours a day. no, i cannot imagine. rhode island, democrat. good morning. caller: thank you so much, c-span, for all you do. i have three questions. first is listening to c-span last week. somebody talked about the spread of interest that generally spread between the banks get the money for with what they basically sell it for is two points. the person who was talking, is it three points now, it should come down at some point. here we have the bank making an extra point while we are going through this economic difficulty. the second question is, why absolve banks who are making -- who have left assets? why do they get a pass on mismanagement?
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last is, i still do not understand who is paying for the bailout with these banks. it has got to come down to the consumer at some point. the banks are the worst people in the world to do business with, because they are always going to make their money. thank you again, c-span. i am waiting for your response. host: mr. zandi. guest: great question. in terms of who pays, most directly it is the banks themselves. the fdic, who is coming into resolve these failed institutions and payout depositors and other creditors, polls that money out of the deposit insurance fund, the fund that has been established where banks contribute into that for this very purpose, to pay for failed institutions. clearly, the banks will then try to pass at least some of that along to their customers. they will eat some of it in the form of less earnings, lower
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profits, probably affects the pay of their executives and other employees. ultimately, it likely also ends up in lower deposit rates for lower depositor and higher -- costs for lenders. the cost is borne broadly by customers on the banking system, which is for most of us. having said that, the calculation you have to do here is -- if the fbi did not step in and resolve these institutions and the government had provided that kind of strong backstop, what was the counterfactual? what would have happened? a couple of weeks ago, it felt uncomfortable. it felt like the banking system could come under extreme pressure, deposit runs and ultimately, the cost to all of us would be even greater because
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the government would have to step in, provide more support. there would be more failures. the cost to us would be even greater. no good choice here, i think policymakers made the least bad choice they had. ultimately, we all bear the cost of that as customers of the bank. that is to the first question. to the second observation question about, why not regulate banks -- smaller banks with less than $100 billion in assets? they are regulated, they just do not have this extra level of regulation that the banks right now under law, $250 billion or higher. the thinking is, the smallest institutions fail, no big deal. they are not so-called systemic, they are not going to take out other banks. they are not going to be a
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bigger, economic problem. it is ok. they do not operate the same kind of earnings and margins. they operate on thinner profit margins. if you put these extra cost on them, they may not be able to operate. they may not be out there doing what they do. one of the keys of our financial system that makes the u.s. financial taking system so different than other systems in the world is, we've got a lot of small institutions. we have 4700 fbi say -- fbi c insured institutions. that makes us stronger as an economy. those small banks cater to small businesses that the bigger guys would not -- i will give you one example and i will stop. when i started my company 30 years ago because i ultimately sold it to moody's, i was a start up. i started with my brother and a good friend. we got to a size where we needed a loan.
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i knocked on the door of the local regional bank. great bank. my bank today. i said, can you give me a loan? they said, we cannot. here i was, a young guy. i had no assets. the local bank, the president's daughter was -- on my daughter's soccer team. he said, i will give you a loan. all you have to do is promise to pay me back and secured by your home and i get personal guarantees. i got that loan and it worked out very well. that is where the small banks come in. they are really important to small business, which is key to innovation and productivity growth. it is important we have a lot of small banks. we do not want to overburden them if we do not need to. in this case, i do not think we need to. host: with that economy.com you were talking about? guest: that is right. i started coming back in 1990.
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it was called regional management associates. no internet, at least none that i knew about. we changed it to economy.com in 2000 in the middle of the technology boom. host: moody's analytics is where mark zandi is the chief economist. he is here for the next 20 minutes taking your phone calls as we talk about the state of the united states economy. john in louisiana, republican. good morning. caller: good morning. i was born into a family, my dad and mom got married in 1930 called the great depression my father had a rule that he lived by and i lived by. if you cannot afford it, do not buy it. i would like to have the gentleman sitting there look straight into the tv and explain how we are going to get rid of $30 trillion of something that
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we bought and cannot afford. thank you. host: mr. zandi. guest: thanks for the great question. you are right. we do have a significant fiscal problem. we have borrowed a lot of money. we are borrowing a lot of money. our debt load as a nation has risen considerably, just to put a number on it. if you look at all of the debt we have, publicly traded debt we have and look at it relative to gdp, that is the value of all the things we produced, it is all most 100%. for context, between say after world war ii up and through the financial crisis a little over a decade ago, that to gdp ratio was less than half that, closer to 45%. it has reason considerably in part because of the financial crisis, in part because of the
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pandemic, in part because of the decisions to cut taxes without paying for them and increase spending without paying for that. we have all contributed to this now very high debt load. if you look at the forecast, this is now done by the congressional budget office ceo, a nonpartisan group that does the budgeting for the nation. if we do not change something, if there is no change in law, the debt to gdp ratio 10 years from now will be almost 120%. the world does not stop in 10 years, you keep on going. you do the arithmetic, our debt load is going to be significant. it is a serious issue. fortunately, interest rates have been low enough for loewen off -- long enough that our interest rate on that debt has remained relatively low and manageable. it has not been a problem. going forward, one can imagine interest rates are going to be higher. combine that with high debt load, that is going to be a
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problem we are going to have to address. that was the purpose of the budget committee hearing, that is the purpose of a lot of conversations in washington around the debt limit and what to do about the debt limit. how are we going to address these long-term, fiscal problems we face? i say, just a couple of things and i will stop. one, i think if lawmakers come up with any other legislation that cuts taxes or increases government spending, that needs to be paid for. if i cut taxes -- if i cut spending, increase spending, i am going to have to increase taxes. it has to be paid for. that should oppose some discipline. second, we need to do more than that. to address long-term fiscal problems, we need both tax revenue. raise taxes on high income net worth household and big businesses and government spending restrained. most of the issues regarding
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government spending continue to go back to the cost of health care. because of the large medicare and medicaid programs, it is about the cost of health care and how fast it is growing over time that is the biggest contributor of our long-term government spending issues. we are going to do all of the above to get a grip on this. i hear you. i think you should spend it so much as you can afford it. host: world debt clock.com, a look at the national that. -- debt. comes out to about $95,000 per u.s. citizen. u.s. debt clock. org. out of silver spring maryland, independent. good morning. caller: good morning, c-span. you are truly an americans champion, no question about it. my comment is, because the cdc
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-- we know the epidemics can occur. when is their committee ready to go? i work in health care. i agreed that some of us did not need to those checks. we were going to keep working. certain areas of this economy, policeman, hospitals. the work was not going to stop. we would eventually get through the epidemic. i think a committee should have been set up for people in those particular industries that might be stressed at a certain level. they can go and get help. a girlfriend of mine, which surprised me -- she has a heavy load financially. she takes care of herself. she even agreed that we should not have received those checks. we should not have. host: let me stop there. on stimulus checks, mark zandi. guest: you make a good point.
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in total, you add up all the government support to households and businesses, it totaled about -- this is during the pandemic as it began with the cares act, that was the first piece of rescue legislation passed in march of 2020. it ended with the american rescue plan, the rescue package passed in march of 2021. the total amount of support was about $5 trillion, that is 25% of gdp. that goes back to the debt to gdp ratio and why it has risen so much in recent years. the pandemic contributed. at includes lots of things. stimulus checks, i think there were three rounds a total of stimulus checks. a lot of enhanced unappointed insurance. rental assistance for people losing their homes. there was food assistance, snap programs. there was the ppp program, that was a large, costly program but
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very effective in supporting small businesses who had to shut down. i can go on and on and on. there was a lot of support. i am sure -- you are right. some of that money went to folks that probably cannot -- did not need it to get through that period. you have to remember at that point in time, it was something we had not experienced. and maybe -- 100 years ago was the last time. there was complete chaos. we shut the entire economy down. people cannot go out of their homes. they cannot go to work. many people could not. the economy was evaporating right before our eyes because of all of this. a lot of scared people. we did not understand what the pandemic was about. how life-threatening is this? we did not understand any of it. in that chaos and uncertainty, lawmakers aired on the side of doing too much. i think that is appropriate.
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one of the tenets of good policymaking is, if you are unsure, if you are uncertain, if you do not know, it is better to air on the side of doing too much rather than too little. if you do too little, it is going to cost more because the economy will evaporate. it will take tax revenue with it, spending higher as a result and we will be in a much worse position. that is what lawmakers did. fortunately, things worked out reasonably well. it was not great. it was hard on many people. we got that vaccine at surprising speeds. it was rolled out very effectively. things turned around a lot faster than i think people feared. it ultimately ended up the sport we all about was probably more than we needed. you have to think back to that period of what we were going through and the need to make sure if you are going to make a mistake, air on the side of doing too much, not too little.
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host: help me understand a reuters headline that came out last week. u.s. money supply falling at the fastest rate since the 1930's. why, and what does that mean for us? guest: money supply is what we have in our deposit accounts, checking accounts, cds, money market accounts, that is basically the cash we have as households and businesses sitting in our banks and money market funds. that money supply took off during the pandemic because of the government support. people got those checks. a put it in their account, that increased money supply. businesses got that ppp loan that was cashed. they put it in their checking accounts. that increased their money supply. we were sheltering in place. we could not spend high income -- middle income household cannot spend at all. high income, middle income households saved a lot of their
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income. that went into checking accounts and deposit accounts and cds. on the flipside of that, because of high inflation, we are all using money in our deposit accounts. those deposits are being drawn down. that banking crisis caused a lot of deposit -- people pulled money out of their banks, put them into money market accounts. and other savings vehicles. that caused money supply to the client. this decline we are observing now is simply amid station of us drawing down savings and run down what we have in our deposit checking accounts. host: this is john in detroit, michigan. caller: good morning, gentlemen. i would like to ask you -- i know svb and the other banks out last, what they did is by law,
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dated treasuries, badly made products. my question is, mark, the federal reserve did the exact same thing. they are rolling out $90 billion every month. if they do a mark to market, they are losing half their value that they bought they treasury at 2%. now, they have to sell it at 4%. that is a 50% loss. are they losing $45 billion a month as they are rolling this off? another question -- host: let's go with that because we are running short on time. guest: you are right. effectively, the federal serve had -- reserve had the same issues on paper that the banks do. the banks had deposits during the pandemic. they took that money and in many
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cases, invested in treasury bonds and mortgage securities. they bought them when interest rates were very low. now, interest rates are higher. the value of those securities are lower. that is a problem for a lot of banks, they need to sell those treasury mortgage securities to generate cash to pay off depositors and meet their other funding needs. that is fundamentally the issue here in the banking system, ultimately why many reasons why svb failed and signature failed. that is one of the key reasons. that has the same balance sheet, same issue. here is the difference. they do not need to sell this treasury to securities and mortgage securities, and they will not. they are allowing securities to mature. in the case of mortgage securities, prepay. they are not selling anything. they are not taking any losses. they can hold to maturity those bonds so they do not have the same issue that traditional bank does. that is why they can step in and
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support the banking system. that is one of the big things they did three weeks ago in the middle of the crisis. they stepped up and said, hey, banks. we are going to establish this credit facility where you can are both from me, the federal reserve, using the collateral of your treasury mortgage securities to get cash so you can pay off depositors. the fed allen's sheet is similar -- balance sheet is similar, but they do not have to sell securities at a loss and therefore, they do not have the same problem as the banking system. host: can i come back to the national debt for a second? jim in california rights, does he subscribe to the idea we will never pay off or pay down the $31 trillion national debt and a day of financial ruin simply awaiting us? guest: note -- here, look. we are not going to pay back that debt. we can service the debt.
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what matters is making sure we can pay the interest and principal that comes due on the debt as it matures. we can do that if the economy continues to grow. what we really need to do is stabilize -- remember that debt to gdp ratio, that should be our goal. if we can do that, we do not need to reintroduce -- reduce the size of the debt. the debt can increase. our economy is bigger, we are generating more tax revenue. we are able to produce more. we are able to service that debt, it is not a problem. we do not need to reduce the debt or eliminate debt. what we need to do is make sure that debt continues to grow at no more than the rate of growth in our economy, the size of our economy. all of us have debt and we have mortgage loans, credit card loans, auto loans.
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if our incomes keep rising, that is gdp. if our incomes keep rising, the burn of that -- the burden of that that becomes smaller over time. we do not need to eliminate the debt. we do not need to reduce it relative to the size of the economy. we need to make sure it does not continue to grow at a pace faster than the rate of growth for the economy. host: this is karen out of long island, republican. good morning. caller: how are you today? host: doing well. what is your question? caller: my name is karen. can you hear me? host: i can. caller: i worked at new york community bank. where was hr? where was the managers? they knew this bank was going under for 15 months and nobody said anything and did anything to make another bank takeover. it does not make sense. there's auditors that check this stuff here and we need an independent john kennedy from what--illinois, where he is from
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-- he asked the question, could we have independent people come into check? there was more withdrawals come out, more wire transfers. they knew it was going under and let it happen. the american people have to pay this debt. it is over $30 trillion. two banks. it is a domino effect. they knew it was going to happen, but they let it. where was the managers? host: we will take the question. guest: wonderful observation. this goes back to the root cause analysis that we need to understand clearly, transparently, what exactly happened here. one of the factors contributing to the failure -- as i said earlier, there is probably many, is bank management. that needs to be investigated. also, supervision. the federal serve is the main regulator -- reserve is the main
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regulator of the svb. what happened there? why didn't the examiners that the caller referred to, the regulators catch this? if they didn't catch it, why were they able -- did catch it, why were they able to -- so they did not get into this mess? we need to understand all of that. i think we are going to get that root cause analysis, that study from the federal reserve. i suspect probably from the inspector general for the federal reserve, which is an independent body that looks at what the government agencies do. let's see what they say. i think it is appropriate to make a judgment whether we need further in-depth analysis on what would happen and how to address these problems going forward. host: last call from south carolina. this is maybe, democrat. good morning. caller: ok.
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i want to ask a question and i want to say something. why can't we get government out of our business and whatnot? i mean, you know. if we make a debt, we've got to pay for. the government should not be sending out free checks to pay for it. do not go to a high price college if you cannot afford it. basically, that is it -- host: let me have you focus on student loans, specifically, and the debate right now over whether the federal government should take on some amount of loans. guest: i am not a fan of the so-called debt forgiveness. the idea that the government will forgive debt. i do, very clearly, there are hard-pressed kids -- even older folks with student loans that
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have low incomes. things didn't work out, they were not able to graduate, they do not have the earnings to support the debt. i do not think debt forgiveness is the way to go. i think income repayment plans makes sense. you pay a certain percent of your income towards the student loan debt over a certain period of time. if you have not paid it off over that period of time, say a decade, it is forgiven. you are providing relief, support to folks that are stressed and need that help and not folks that do not. the student loan debt for doing the right thing, raise their educational attainment and improve their earnings. we have income repayment plans in place. i think they need to be made much more muscular and helpful. that is the way i would go. i will quickly say, the question about government in our lives. this is the age-old question that americans have been asking
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themselves since alexander, abraham, jefferson. what is the balance? that is the conversation we are having at c-span continually, why it is so important. at the end of the day, it makes us stronger because of that debate and discussion. we need to make sure the government is not -- too aggressively. we need to have government in times of crises when all of us collectively backstop. that is what the government is, providing that backstop. that is the balance we need to strike. host: mark zandi, chief economist at moody's analytics. always appreciate your time, gl >> c-span's washington journal, every day we take your calls, live on the air on the news of the day.
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and we discussed policy issues that impact you. coming up tuesday morning, yahoo! news editor in chief discusses the trump indictment and what to expect in the weeks ahead. then frontline documentary producer and director martin smith discusses his latest film, america and the taliban, which documents how america's 20 year investment in afghanistan and intel about victory. join the discussion with their phone calls, facebook comments text and tweets. >> tuesday night former president donald trump will speak at mar-a-lago, following his arraignment in new york live from palm beach florida starting at 815 p.m. eastern on c-span. we will also take your phone calls, and you can watch on our free mobile video app, c-span now or online at c-span.org.
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