Understanding Inflation, Debt, and the Real Economy with Paula Campbell Roberts

In Episode 36 of the Tao of Chao Podcast, Philip Chao sits down with Paula Campbell Roberts of KKR to unpack the economic realities shaping American households.

With a data-driven and human-centered perspective, the conversation dives into:
• The uneven impact of inflation and why asset holders fared differently
• What rising credit card and auto delinquencies signal about consumer stress
• How wage growth, labor participation, and job switching have evolved
• Shifts in household savings post-COVID
• Why behavioral insights matter as much as economic indicators

Tune in for a grounded look at how consumers are navigating today’s economy—and what the data is really telling us.

👓 Learn more about our HOST

Philip Chao
Website: https://philipchao.us
Follow Philip on LinkedIn

DISCLOSURE: Views expressed in the Tao of Chao podcasts are individual opinions and they do not represent the employers of each guest or the firm with which each guest is associated. Our podcasts are for educational and informational purposes only and should not be deemed or viewed as investment advice or recommendations. Please consult your personal financial advisor, investment expert, or investment fiduciary before taking any actions about your plan and investments.

Transcript

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There is much more of a focus on national interest, the U.S. is now taking on this America's first policy. Deficits are still high and they are growing. And so where does this end up? I do think we're in the middle of a check. The high level answer is that it's become a very, very complex world. Welcome to the Tao of Chao podcast, where we will try to find balance and provide a clearer path forward in this uncertain world. Paula Campbell Roberts joined KKR in 2017 and is the chief investment strategist for the firm's global wealth business and a managing director on KKR's global, macro, and asset allocation team. Building on nearly a decade of experience working in partnership with KKR investment teams to identify investment themes, perform due diligence and conduct deal underwriting from a macro perspective, as well as a decade as an economist. Ms. Roberts now advises global wealth management partners on macroeconomic and asset allocation, with a focus on the role that private assets, including private equity, real estate, infrastructure and credit can play in individual investor portfolios. In conjunction with the team, Mr. Roberts continues to perform macroeconomic thematic investing and asset allocation research. She's a member of the global Macro Asset Allocation Senior Leadership Team. Ms. Roberts also chairs KKR is a global wealth investment council comprised of CIOs from leading wealth management firms around the world. She is one of 15 members of the Federal Reserve Bank of New York's Economic Advisory Panel, and a member of the Economics Club of New York. Ms. Roberts earned her MBA from Harvard Business School and a B.A. from Yale University. Ms. Roberts is currently a Lincoln Central Leadership Fellow, and she also serves on the boards of the New York City Ballet, prep for prep, and the American Friends of Jamaica. And here is Paula. Well. Hello, Paula. And thank you for joining me. I know we have spoken once before, and so this is truly a pleasure. I know we're going to learn a whole bunch, from you. And it's a big topic. Well, talking about the U.S. led liberal world order all within 45 minutes, with all the details of all the possibilities. Yeah, we'll solve it all. We'll solve it all in 45 minutes. So, Paula, thank you. Thank you for being here. And is a big topic in so many ways. And, it impacts all of us because it's a shift. I think that the term that, we, we kind of use as tectonic shift, I think that's the, that's the term that you mentioned, the that's indeed the term you use. It's really a change. It's business. Not as usual. Things are not the same. But life, is uncertain, right? And it's okay. But it's more. Okay. If we can at least have some way of explaining what is happening and what could be happening in the future without any guaranteed promises or anything else. So to how we project forward based on the information we have so far. Now I sound almost like Chair Powell because it's data dependent. You know. That's right. I can tell you about tomorrow, but I can tell you if I get the data, I can tell you that possibly where we're going. So I think that's the way that it's the only logical way and a rational way, a prudent way to think about the future. But I would also say that because of the vast experience that you personally have, as well as the institution that you represents, KKR, that maybe and also the talents. So the collective wisdom, the collective experience of consultants and employees that gives you the sort of richness to that fabric, that we would love to, beg to borrow some from you today, so to speak. U.S. have been very strong since, the end of Second World War till now and was strong not only militarily, but many, many countries have relied on us. The Marshall Plan has relied on us in rebuilding countries, which is amazing how United States, after winning, come out and help those who we were fighting against. That was truly, truly, astonishingly, wonderful. Which set us apart, from all the prior, prior, prior winners, so to speak. But more importantly, I think we also us, became a hegemony from the US dollar financial sense, which plays such an important role, which I like to examine with you as we go forward, in this conversation. So let me stop for a moment, because what we have done as part of the, global world order is building institutions, WTO, United Nations and so on and so forth, where we were aiming for peacefulness and openness, globally to, to, to to minimize the possibility of another world war. Let me stop there now, because a lot of that is being questioned today. And so going forward, we have all these trade issues, which we have not faced before, since the 30s, I think, or the 20s when we have this level of trade deficit. We have, see a waning strength of U.S. dollar, but maybe this is cyclical rather than structural. We see a tremendous amount of gold being purchased by Reserve Banks. Maybe that's cyclical rather than structural. And we are looking at forcing other countries to begin to defend themselves more than under our protection. And that may be cyclical, not structural, I don't know. So how do you think about the world? I know I've given a lot. I keep saying I, I keep saying I will stop, but I'm like thinking all these things. So let me really stop and please, give us an opportunity to, to to hear you out. Firstly, thank you for having me. Philip, it's, you know, an honor to engage in this conversation. And as you walk through everything you just described, I think the The high level answer is that it's become a very, very complex world. Right. And as I'll share my point of view and Kicker's point of view, but I think that is a conclusion we all must reach as we go through this conversation. And, you know, I don't want to be a prognosticator, but I'll share how we frame what's going on. And therefore, from an investing perspective, how we think, how we position ourselves from a balance sheet perspective and how we are advising many of our partners, to do the same. Many of the trends that you just walked through actually started to materialize long before that. Right. When we're talking about moving from a unipolar to a multipolar world or regionalization or globalization, all of these terms are pointing at the same thing. Trump's ascendancy into the U.S. presidency for the second time wasn't the catalyst, right? Some may argue it was Russia's invasion of Ukraine and the threat to national borders that that represented, and the fact that that war continues on with great disagreement. Still. Right. One could argue that, you know, Covid in and of itself and how countries responded to Covid, was another catalyst or post GFC and how countries decided to resolve their, you know, sort of financial imbalances. All that to say is this is probably been going on for a decade. And the U.S. role in this change is probably what's new, but the trend itself is not new. I'd also assert that, you know, you you, described what has, you know, the remarkable position that the US took from a marshall plan or post-World War Two perspective. And I think that's right. Right. The US was a great partner to many, of our allies, but it was a strategic decision. Right. In, in this sort of fight for power between the USSR and the US. It was deemed, you know, and post-World War Two that being entangled with our allies and in many, areas around the world was a good thing, right? So it was a purely, you know, philanthropic, that the US, increased its defense spending so much and became, you know, essentially an extended army for many of our Western allies. That wasn't just because, you know, we want it to be nice, right? In doing so, it extended our reach, expand, extended both our, you know, traditional power as well as soft power, which in the past 50 years has become much more important. So before the past five years, maybe, physical wars have declined, but there have been many more soft conflicts with the US often being in the Victor circle because we had the right alliances, and such. The US's role has been evolving from one where we decided one, because many of the countries in the West were recovering right. And also, we understood strategically that it would benefit us to be entangled, especially because we had this view of shared value systems shared ways of life. And so to operate as if we almost had a singular income statement and balance sheet made sense to us. And one of the descriptions I often make when I'm talking to some of our partners is you could have imagined, you know, when Bretton Woods, everyone learned about Bretton Woods and school, that all the countries, especially of the West, sat around a table and said, okay, what are you able to you what do what are you able to do? What do I have? And, you know, and it's sort of a traditional trade sense where everyone focused on their core and what they could do best, but united together for a common good. That's what Bretton Woods was about, right? We're no longer firmly in that positioning. Today, There is much more of a focus on national interest, national economic interests and national security interests. That means that many of these multilateral, organizations don't have the same power that they do, right? We clearly still operate, you know, in Alliance, but, it's as you termed America First. And who do we need to, partner with to achieve that goal? And the country on the other side is undertaking the same sort of calculus. So that is what is fundamentally different, where especially the U.S. is now taking it taken on taking on this America's first policy. And the way that has played out. In the dollar we'll talk about has been, you know, certainly a depreciation of the dollar. So the dollar I still believe, you know, the dollar as a reserve currency remains. But the position the dollar had is likely not, going to, to, to be sustained or to it's no longer there any way. But but what resumed that position either. And a lot of that has to do with trade policy being the expression. But in taking on this position post-World War Two as defender of the Western ideal and the, you know, the this, this experiment that was the United States, we began then to consume a lot, much more than we produce. And when we consume so much and, and, and produce less, we needed to finance that imbalance. We finance that imbalance by borrowing from other countries around the world, our allies who finance us by buying Treasury bonds and bills and other securities. So much so that they, you know, Western countries now own 33% of our debt, that where we, you know, the trade imbalance was then, contributing to the high levels of national debt. I think it's like 130% at this point, on an annual basis, had been creating an unsustainable paradigm. And I'd argue that as much as a lot of what, you know, Trump has put forth vis-a-vis trade policy and more importantly, the way in which he's put it forth, I think at the heart of it was actually a problem that needed to be solved, right? I agree, I don't it's not sustainable. But, it is never, seldom not, never seldom we disagree with the overarching objective. It's really what's the methodology by which it can be accomplished? And the duration by which it will take to accomplish it? I think that's where policies come in and they are different. And who says one is better than the other? The proof is in the pudding. We'll see. But but I do think, there is some contradictory, desires. So you can, you can say, well, we want, we want. I'll give you a couple. We want U.S. dollar to remain the reserve currency. And, we want it to continue to be the hegemonic force globally from a financial standpoint. But we can't wait to devalue. So why don't you take our money? We'll keep devaluing it. Well, I don't think that works. That that's one. And another, another, one is that. Look, I want you to, invest in this country. That's fair, but I only want a certain type of people working here. That's not going to work either, because it just doesn't work. Because we we do not have because of years of d manufacturing d d whatever in, in this country, we just don't have the skill set. And we do need a period of time of transferring technology and transferring skill sets. It was a soft skills coming here before we can build up our own labor force to be equal or even better, If you look at the numbers today, I mean, we just saw the quarterly, number from New York Fed, which, which you, you know very well. And they talk about the, the debt, where the debts, you know, the credit card debt, the, the, the home equity, and all that. And you can, you can clearly see, where, where the, the, the upper 20, 25% or 30%, a far, far way beyond the rest in terms of spending and in terms of the ability to afford to continue without borrowing. I mean, you look at what has transpired since Covid, inflation has really helped the rich. I don't want to say rich, but the asset manager, asset owners. So is that I would say thank you for everything. Who said he got rich? What does that mean? And I'm not trying to pinpoint which side one should have more distaste for. That's not what this is about. Or that there are even sides. Right. Move away from that. Yeah. Right. So I think what happens is that if you are asset owners, then inflation helps you. Real estate helps you. Any hard asset helped you. Whereas the people who couldn't afford to buy the home, for further behind, and then you have higher and higher interest and so on and so forth. So you're seeing some of that. And if you look at how people are buying automobiles, and the cost of automobiles quite high, those so auto loans, I mean, and student loans and all those things. I mean, what's the I am very spoiled that my parents were able to pay for all my all my education without any borrowing from me. And I looked at people are still paying their student loans in their 50s and 60s. Which is shocking when I saw it. It's a rude awakening. Not not shocking so much as like, wow, I thought people would be done by then. Absolutely not. So that all of these things are happening. And I think with with the slightly higher inflation today, and as we are marching towards retirement, especially the baby boomers, that group of people are really going to feel it. Because now they're not only not able to handle inflation, but on a fixed income, that they can't move too much. So there are all kinds of ramifications that, that divide is, it looks like even greater in terms of the wealth and income divide. It's not collapsing but widening potential, at least holding the difference for much longer. You're absolutely right, Philip. I think for anyone in the US who is solely reliant upon labor income, you are positioned at a disadvantage. And unfortunately, I don't see that getting a lot better. I mean, productivity enhancements will support real wage growth. So that's good given all that we've seen from companies investing in AI. But fundamentally, given that we believe that in in inflation and inflation, volatility is going to stay above average and therefore interest rates are going to stay above average. Having access to assets is the way that you stay above water and even thrive and succeed. And what's hard to your point, you know, given the recent New York Fed, consumer data, is that many people in the country don't own any asset at all. But today, and not to you know, not to get to the solution sooner than you want to, but figuring out how you can be an asset owner if you're, you know, affording a home today is much more difficult to put that deposit together, especially given the home price appreciation we've seen through this period. So figuring out other ways to own real estate, to own financial assets that have, you know, a smaller entry point or a lower entry point, I think is critical because that divide that you talked about isn't going anywhere. Right? And you want to have an asset that's going to appreciate faster than, or at least alongside inflation. And the way we think about that on our balance sheet is having more exposure to asset classes like real estate or infrastructure or even some of the asset backed parts of credit. And so even for your your individual household in the US, I think that's important to not just think about, you know, certainly being employed and getting a good livable wage, but figuring out how you can own assets so that you're not left behind in what we're both describing as a pretty much a new world order. So let's let's just go down there because that's ultimately where I want to go. Really thinking about, okay, we're told you all these issues and what do I do about it. Looks like that's not very helpful. So I this is not a advice show. This is not a show that, you know, a video that we talk about what one should do, but there are certain trends that seems, at least at the moment, seems reasonable from a diversification standpoint. So we have for our firm, we have looked at much more in a non-U.S. dollar denominated assets. It just turned out not because we are genius. It turned out that that's the direction, that has has given very positive, very much positive returns. One is helped by the weakening US dollar, and the other is that, we talked about multipolar world and the rerouting of trades and asking, you know, our allies, to spend more money investing in their own infrastructure, investing in their own military, or that, is actually, in a way, we're pushing other countries to compete with us more within the next 5 to 10 years, because if you remember, I'm sure you do is Mario Draghi was asked to do a report about why EU is not as competitive. And there were two things, at least two things that was glaring. One is too much regulation. It's at the moment just famous for Europe. And the second one because it is so, you know, because of the, the regulation, it is stymie, entrepreneurial ism and stymie the creativity. And I, you know, all the things that us has took it for granted almost, you know, you know, that's the way we are. We are allowed to fail. We are allowed to, to to keep trying and so on. All our rules and regulations support, being innovative. So the lack of innovation and the high amount of regulation, they go hand in hand. Right? It did not help. But if we push them to say you need to spend 5%, of your, of your GDP, on, on military. Well, you don't build military out of the thin air. You need to have a whole infrastructure which is really industrial complex. So they start being more portable. First of all, they're investing more in their own economies, and creating, more, in theory, more innovation because so, you know, even, you know, internet came from our military. That's how we first started the internet. So who knows? All these things, may be happening that make other countries to become at least have an opportunity to, to compete with us in the next five years, plus as they develop their own technology, develop their own domestic industry, said they were not they were not in a place to do because they didn't need to. So many, many other reasons that I think that perhaps, we should look at, not just U.S centric, even though we all have home, home, home country bias in our investments. What's your thought? I know you guys. KKR is global. What you're thinking about, where we our conversation so far. And do you subscribe to that thought that let's give some thought to I know you invest in Asia. That's always been a big place for you all and of certainly Europe, maybe Australia and Canada and everywhere else. Can you talk a little bit about that without giving advice? Absolutely no advice here. But but I, I largely agree with you again, given the conversations we've had so far with the depreciation of the dollar, the more countries leaning in to support not only their own defense, but their own, infrastructure, for example, which we're seeing all around the world, creates more opportunity in the rest of the world while the US is experiencing a bit of a slowdown. And so what what we argue for is geographical diversification because we don't think the U.S is going anywhere. Right? Productivity growth in the US is still exceptional versus what you see in the rest of the world. But while the US is experiencing fiscal restraint, other countries are stimulating their economies. So you're seeing almost a, you know, a balancing of the two in terms of the US and rest of the world. And from a portfolio perspective, that that without a doubt means seek more diversification. Our portfolios, by definition, have been diverse. So to your point, in addition to having a strong position in the US, most of our portfolios lean into you know, Japan, for example, lean into, you know, specific areas. And, and China, Europe, you know, is a core area of ours, India. So these are places that for years, not just for the past three years, but for, you know, decades or more that we've been leaning into and where we have high conviction. I would add to that is that this plays into what you mentioned at the outset is what I've termed tectonic forces. So I'd say the global story has been there forever. However, you could have just invested in the U.S and done quite well because the U.S exceptionalism story was so strong in the past few years. That has started to shift. And, and some of that, those shifts I describe in what I call tectonic forces. And so I'll just describe them to you, to conclude, pretty much at the same in terms of, having a higher premium on diversification versus five years ago, on a number of dimensions. So geographic, as well as out there. But one, I would say what we've been talking about is this shift from what General Petraeus on our team staff from calls from benign globalization, so that Bretton Woods scenario I was talking about to great power competition, where, you know, you we we thought about the race between China and the US, but it's actually occurring between multiple nations, including partners. And that's leading to supply chain redundancy and increased focus on securitization. You also, as a result of that, see more countries leaning into or investing and and and fiscally. So you know, Germany is clearly the most recent and largest example of that, where it has departed from fiscal conservatism and is now, you know, investing significantly in infrastructure and defense. That's just one example. And we're seeing that all over Europe. So that's one. The other is the, sort of demographics. And that includes the aging of the population, which I've been writing about for some time, but also the shifts in immigration that you mentioned fill up that's also creating, and, an undersupply of labor. That's a real issue when you're thinking about investing. And being clear on where that company or industry is going to find its labor, because it's definitely going to be in short supply going forward. Then you have, the energy transition and the need to power, be it data centers or any number of things. And that is leading to the fight or, or over critical minerals like lithium and, nickel, for example. That's another factor. And then I close on, even I where, it seems like every other word these days is a high, and in the long term, it's supposed to be almost panacea. It should solve everything. It should solve the inflation issue. It should solve, the labor issue. But the reality is, in the short term, it's going to require a lot of energy to scale. Moving the U.S from a flat, power consumption over the past decade to growing 2% a year. So that's massive. When you think about a country of 340 million people, labor, semiconductors, data centers, all of that is driving a tremendous amount of investment. And so when you see these shifts happening in the world, you can't, one especially the geopolitical point, you can't just bet on one country any longer. But secondly, what I'm describing is one that is leading to a lot of price instability and price volatility. And you have to think of that when it comes to investing, because that requires a different playbook from what you may have had ten years ago. Wow. Where do I go with that? I know I give it a lot. So yeah, I think, absolutely true. That the, the whole, whole, whole cost of getting AI to even have the ability to realize, whatever the promise of future is, it would take a lot to get there. And the true impact on, on on humankind's, is yet to really be experienced. Now, there is some I think is during, the latest, POW press conference, he, I think he mentioned or if not the latest one is one of the most recent one, that there may be some little bit of evidence that some of the, entry positions, jobs may have been impacted a little bit by I, I don't call me exactly, but there seems to be a little bit of that noise. Still noise. There's not enough light definitively. A plus B equals C or what have you. So, for the longest time, I thought about this aging of society, where we have, there's a book written by what, the name of 8 billion. I, I had the good fortune of interviewing the author, last year. And when that book came out, really talking about. That's really where the top, at least at this cycle, the world is not going to go beyond, and, and this whole aging of people have, The other thing is, really thinking about, you know, us exceptionalism, and that, in many ways, we are still exceptional. But exceptional. The word itself is a relative word. It's not an absolute word. So our exceptional is because others are less exceptional, because, you know, the word is a relative to somebody else. Do you see that exceptionalism being challenged for the following reason? One one issue that we didn't spend much time on yet, is about our national debt. We are already at 100%. We are growing at the rate of six, 7%. We are already spending more on interest payments than the US. Defense. Currently, if we continue at this rate, and the of interest rate don't come down, well, they are kind of joined at the hip. So the more the more supply, less demand. Believe the interest rate, you know, it will cost more. That is a real challenge because we are not able to finance ourselves through debt when we may need to, to either manufacture our way out or grow our way out or produce our way out, whatever it is. What's your thought on on that? I know again, has to do with interest rate, has to do with the amount of debt we are issuing. By by not issuing, not having the capacity to issue either go up in more taxes, which, as you know, politically difficult to raise taxes, or or, inflate our way out of it by lowering our dollars, to pay that, that. But on the other hand, if we do that, inflation will be higher. That will give much more discomfort between the k-shaped economy that we have. The this side is going to hurt even more, because we are doing that. So all of these scenarios that can go through is none of that is helping us to minimize the gap. None of that is helping us to be stronger. To me, with this debt overhang, what's your thought on that? For sure. We started talking about it a little bit as we talked about the trade imbalance, but I'll I'll come back to it and spend a little bit more time there. Let me just answer your first question about demographic shifts, and whether the conclusion drawn might be premature. I think it's important when you think about demographics as well as I, to think in terms of time horizon. Yes. And in the short term, what if you you know, I, you mentioned you listened to Chair Powell recently. When you think about what is driving the slowdown in the US economy, a key driver has been both labor supply and labor demand on the labor supply. And it's immigration. When you, as an economist, have compared historically the potential growth in the U.S. versus many Western countries, the reason the US stood out and part of the exceptionalism story was because of immigration. So growth is slowing more in the U.S, and I'd argue it's because of labor and tied to trade and tariff uncertainty. And so over the long term, I think you're right that I and robots could be a solve for that. But we're nowhere near that today. And you still have to deal with the what happens to these workers. Former workers. Right. That won't create a societal upheaval. Those are still big questions because are we are we ready for guaranteed universal wage? Are we ready for that? As a country? I'm not sure. Right. And so there's a history for who's paying for it. You know our our mindset isn't there yet. So there are a lot of questions to resolve, which for me make it something you actually have to figure out today before, we, we arrive at the answer. So for that reason, I don't I think you have to consider both, though long term. I agree that I, I should hopefully deliver on its massive promises. Now to your your question about, US exceptionalism and whether that's threatened by, our national debt. You're right. You know, we have heard and when I was in, Asia there a lot of concern about the path of the ten year or the US ten year given bond vigilantes pressuring the U.S, for higher yields right on the back of a ballooning deficit, without the fundamentals to support. Right. And then alongside inflation growth. Right. So all of this was, was, were being questioned. I still think, while it is the case that on the margin other countries have become more competitive, the US less competitive. What I said before, I still think hold productivity growth in the US remains to be exceptional. So from a growth perspective, I still think potential growth, going forward is still very strong versus what we see, in the rest of the world. But you're but on the, on the, rate and I think that, that will drive yields to be a little bit higher on the margin, given some of the weakening fundamentals, the inflation. And to your point, the demand for investors to be compensated for all that. So higher Treasury yields as a result. But we really don't believe that, Treasury yields expand too much from here. Instead, what we've seen historically is when investors have been concerned about the dynamic. We've just all described it that it gets expressed in the currency markets, which is exactly what we're seeing. Right. So the US dollar depreciation is reflecting that. And you're seeing you think about central bank reserves and the and the central bank deposits that are held around the world. It's more often the case today than five years ago for those deposits to be held outside of US dollars. Right. And so that again, pressures the dollar. I expect more of that than for yields to become unhinged. So, depending on how the well, I'm not going to spend any time on the fed independence because we can go down a very dark hole. Okay, if you don't mind, I but I had to mention it because, powers term is over spring 2026, I believe. And, we don't have to be even a guessing person. I mean, the chances are that a more dovish he's already considered dovish, but really dovish, person will be nominated, and will chair you if if the white House position remains that, we want lower rates for longer. And as low as possible, whatever that means. So if that's the case, I think the long end of the yield curve, which is, you know, 20, 30 year, not ten, but ten is adjacent to it, that, that, it's really a proxy for inflation. And so, you if, if the economy's doing okay or even somewhat positive expansionary, and we cut rates a little too fast, we will fuel more, more potential inflation into the system, which means that the, the, the yield curve is going to be even more positive. And, and when they're more positive, it's not like tenure at zero and 30 at eight, it's, it has a curvature to it. So although it may not be at the pivot point of ten year or seven year, but I think seven year and ten year will be dragged up because we are talking about term premium here. And how long do you want to hold on to that money and seeing inflation potentially higher. So I think it's not doing us ourselves any favors by but by cutting rates too early. So I don't think it's a good idea to cut rates too early. And not to say we shouldn't cut rates. That's not where I'm going, is because we need to be very cautious. And that has something to do with how the rest of the world look at our rates and what they expect from us. And ultimately, is this, anchor currency, trade, currency, reserve currency, you know, all that will play, play a small part. As we are looking to satiate the short term by letting go of the long term. Let me just stop there and see if you are at all agree with any of the things I, I share. Even with the even the administration, who is looking for rates to be a lot lower, that that should be hopefully, alleviate some of the pressure. I believe in an independent fed for sure. And I think if the if the administration oversteps and one can argue that maybe they already have, but that, threatens to really disrupt financial markets and to your point about, the long end of the curve be really threatening in the bond market. And the reason I don't know if I take comfort, but I, I would hope that the administration wouldn't do that, i.e. force the fed to cut much more faster than what is already telegraphed. And, you know, accepted by the market is you remember post Liberation Day when there was a fear about, you know, that was expressed in the bond market. It seemed at that point that that is when President Trump sort of backed off. Right? Right, right. So we believe that that same behavior would prevail then that would that would prevent him then from putting pressure and threatening the independence of the fed, because you could have a same sort of, negative reaction in the bond market. So I'm in the camp of I hope we don't get to that best case scenario, right, of the administration putting so much pressure on the fed rates go so low. You then have an overheated economy. To your point, the long end of the curve then just reflects inflation and there's no real growth and rate and yields go up very high. Like that's not that that sort of environment. It's not a great one and certainly doesn't position us. Well I, I, I'm, I'm on the same page as you in terms of hope. Okay. I have no reason to not hope that way because it's the right thing for, you know, we're all Americans. I want to see the best that we can. In the long run. I'm not looking for anything that can be disastrous, but sometimes, when we push on that branch further and further, we can no longer come back because the branch will break. So testing that strength of that branch on a tree, as potentially we get fatter and heavier and standing on this branch and moving forward, not every time we can save ourselves by walking back on that branch. It's a I agree there is a point of no return with some decisions, right? You know, I, I participated in, and, central bank conversation with a bunch of, countries. And what I learned was that, you know, there's no country around the world Canada, UK, etc., that believes that at any point they would not, engage in trade or engage in bilateral agreements and or have the US as sort of a central key partner. But what they all said at the same time is they would never go back to solely relying on the US. So that's an example. And, and, you know, from an implication perspective, that is why from an investment perspective, having portfolios that reflect that reality made a ton of sense, because we're not going back to that world. Yes. I think that, when we abuse our power without even realizing it, when we take our power for granted without realizing it, and we can get away with it one time, we can get away with two times. So we cannot get away with forever. And so is that lack of understanding of how far we can go without breaking the trust. It's really a a confidence and trust building that we can trust you. You know, when Paula, you say, yes, I have to trust you to say yes. I can't say you say yes tomorrow. You say no. And they after you say maybe. I mean, how do we have a relationship that I will build on this trust? And I think there is a deterioration of trust and reliance. Thus the reliance. The reliance is built on trust. And on top of that, I think us because of our power, we have sometimes used our financial hegemony. And military people want more than what people expect. And so people get scared. So hold on for a second. If you can do that to Paula, you can do that to Philip, you can do to Philip, you can do this to, you know, whomever else. And so well, maybe we should diversify what that word diversify is. You know, they used to call it decoupling and then they will call, you know, whatever. But basically stepping back from which is your point of, of your, of your discussion with other central bankers, they say, not that we want to leave you, but we have to hedge our bets because we can't afford to put all our eggs in that basket. And I do think it took us 80 years to get to where we were. Trust is one of those things. It takes one time to break it, but it takes you a long time to build it. And I think that's a moment that we are recognizing. And that's one of the tectonic shifts. I mean, I, I'm seeing tectonic shift, I think is is causing the shift is that we are examining what was the past to be what should be the future. So let me end my questions. I know I can go on, but I really enjoy, you know, hearing your thoughts. And it's really important. It's very well thought out and very educated in your way of thinking through. What is your thought about, commodities at this time as an asset class? Right. Where are we at? You talked about strategic minerals. You talk about oil for for different reasons. You talk about that. You talk about energy. Sufficiency, you know, small scale nuclear and infrastructure type thing. Where do you stand, in terms of commodities? In today's environment, I think commodities are have risen in importance. What's been interesting to me is, as we've talked a lot in this conversation about the depreciation of the dollar you've actually seeing, the appreciation, of many commodities. One, you know, energy as an example, when we think about the world, we are headed towards the world that is developing the demand for energy. If you think about Silicon Valley and what their needs are to create the AI driven productivity that is going to under bed, all the growth that we want, it's an energy story. Right? So, and most people maybe ten years ago or five years ago, the thought was it was all going to be about renewables world. Well, if you do any studying of energy, you realize that renewables can't solve everything, right? Yeah. Renewables are weather dependent, right? The sun has to shine, the wind has to blow. And, that is insufficient for a stable grid. So you do need a combination of renewables and fossil fuels. And so the key question is really about are two questions. The integration of the grid, and storage of power. Right. So I think if you can invest behind those concepts from, you know, energy commodity perspective, I think that's important. The other is when you think about, I mentioned this earlier, central bank, foreign exchange reserves, they are moving away from the dollar. But guess what they're moving towards, certainly to a certain extent, maybe the renminbi, but more, then, more often than not, it's gold. Yes. Right. Yeah. And gold, given all the shifts we just talked about, is rising in value and even, you know, you say, can I enter here not giving it any, any advice, but it's on it's on pace to continue to, appreciate from here. So I think larger point commodity is hugely important now, especially to whether some of the shifts that we're talking about and in particular energy and gold and you what do you make of so infrastructure should be a big, big thing because it's all related. And so, so it's all right. Energy. Energy. Right. So that's why small scale nuclear is, is something that I'm actually quite positive about, even though it takes a while to, to to get there from a comfort level and safety and regulation all the other thing. But I think that that's where I think China is building a ton of those stuff. For sure. Let's scale nuclear. Yeah. And infrastructure. We need so much of it, right? Governments around the world are wrestling with the demand for infrastructure for all the reasons we've just described, but they don't have capacity to fund it. Yeah. And so that's where private industry will play a role. So there's huge opportunity there. Infrastructure is a natural place to invest to get exposure to all the themes we, we described. So ultimately the scarcity is the amount of dollars that we have the ability to borrow. Right? So so I think that, U.S is not unique in, in breaching the 100% GDP value. There are other countries. Where does this end in your mind if it ends? I mean, does it just keep going bust like everybody's borrowing is all worthless. It's all a lie. And we just keep borrowing more because we need to. Well, you know what is a stroke of genius about about tariffs? It's a tax. Well, you know what the average people don't think of as a tax. It's just had to pay more. Well, where do you think you're paying? More is much easier to do use tariff than to say your taxes went up. It's a consumption tax. It's a tax based on consumption. So there are only so many levers. So where do we end with this? I mean, are we all going to all of a sudden behave and say, no, no problem. I'm going to give up more on taxes so we can help on next generation. I have never seen that happen. So do we all collectively default? I mean, where do we go with this? I think we default, I think importantly, one thing to say is, with all of the stimulus, or shifts that the administration has planned, that we don't foresee a material expansion of deficits. That's it said Deficits are still high and they are growing. And so where does this end up? I do think we're in the middle of a check. right. because if things we're just going to continue as they would have, we wouldn't have had 2025. But the fact that it's going to be continue to be more expensive to buy a home right? You're talking about 6%, 7%, mortgage rates versus 2% a few years ago, right? that's already a massive shift. The cost of goods is much more expensive So people will own left, right. And, and and jobs in the short term will be disrupted. So that is going to be a transformation of the country as we know it. We're already in the middle of it. Does that doesn't mean, you know, I think what what shields people from this is if you're upper income, you know, like to your point, you're shielded from a lot of the inflation because you own assets so they're appreciating alongside inflation. You're already a homeowner. You know it's not impacting you as much. But I can tell you if you talk to a middle and lower income household today, things have already changed. Right. I. I appreciate your time. I appreciate, everything you have shared. And I don't I haven't found anything that I would disagree with you, unfortunately. I mean, fortunately, but unfortunately, I wish that we. I said no, no, no, no, Paul, it I don't I don't agree with that. I haven't found anything that would disagree. Which means that something we are thinking is missing. That's how that's how I think about it. If everybody agree, then something is not. Well, I wouldn't say that. Everyone agrees to my point earlier. These conversations aren't happening and not, at, you know, all levels of the country. You and I may share, similar views that we we bear a lot. I'm sure if we dug into it where we would disagree. And we disagreed a few times on this call, but the conversation is not happening widely and broadly enough. So that you, you know, you could bring people along because most people, have actually quite divergent views about what's going on today. So I'm going to say this because you have been on this podcast, a lot more people are going to hear our view. So hopefully more people will listen to this. I agree or disagree, but start thinking about some of the topics that we talked about. Even though it's still much on the surface level, we really haven't gone all the way through. We would need episode two, three and eight or something like that to go through all, But it's been an immense pleasure. I really enjoy it. I don't have this kind of opportunity or the privilege of speaking with someone like you in representing a, a phenomenal organization like KKR, who is tap, tap into all kinds of, intellectual capital. So I thank you, for, for, for sharing your thoughts and, to spending the time with me today. It's been a pleasure and an honor. Really enjoyed the conversation. So thank you for having me. Thank you. You can always find more episodes by visiting Philipchao.us/podcast. Or find us on your favorite podcast app. You can always leave us feedback, ask, questions, or request a topic for us to discuss by sending an email to p c at Philip chao.us. 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