Impeachment Proceedings Moving At A Rapid Pace In Washington; Christine Lagarde Tells Richard Quest That Impeachment Could Create Major Economic Disruption
PAULA NEWTON, CNN INTERNATIONAL HOST: Efficient little rally underway on the Dow. This is the final hour of trading on Wall Street. We'll see if we can push through to 27,000 in the next hour. As you can see there, stocks firmly in the green on this last day of the third quarter. Here is what's moving the markets. Christine Lagarde tells our Richard Quest that impeachment could create major economic disruption. I'll speak with Mohamed El-Erian to know what lies ahead. Saudi Arabia's Crown Prince warns of a global economic collapse if the world goes to war with Iran. And this just isn't going to work. WeWork has finally postponed its IPO. Live from the world's financial capital, New York City. It's Monday, September the 30th. I'm Paula Newton, in for Richard Quest and this is QUEST MEANS BUSINESS. Tonight, impeachment proceedings moving at a rapid pace in Washington. It's a city consumed by the investigation that House Democrats have opened into President Donald Trump who is now demanding to meet the whistleblower who outed his conversation with the Ukrainian President. Meantime, the outgoing head of the IMF tells CNN economic consequences could soon follow the political fireworks erupting in the U.S. Capitol.</s>CHRISTINE LAGARDE, OUTGOING MANAGING DIRECTOR OF INTERNATIONAL MONETARY FUND: It could very well create massive disruption, and I think it would undermine the U.S. leadership.</s>NEWTON: Okay, Democrats in the House can forget their congressional recess this week. The Chairman of the House Intelligence Committee says his panel is moving swiftly on hearings, and of course, those all-important subpoenas. Adam Schiff says the whistleblower will testify very soon. Lawmakers can also expect to hear from the former U.S. Special Envoy to Ukraine, Kurt Volker. That's on Thursday, and on Friday, sources say the Inspector General who handled the whistleblower's complaint, Michael Atkinson, will testify to the Intelligence Committee in private and that is key. Now in the past few moments, Donald Trump went back on the offensive from the White House claiming that he was the victim of a conspiracy.</s>DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: So Adam Schiff made up a phony call and he read it to Congress and he read it to the people of the United States. And it's a disgrace. This whole thing is a disgrace.</s>NEWTON: Now, our Senior Congressional Correspondent, Manu Raju has been following all of this from Capitol Hill. I mean, Manu, the tick tock of this is moving very quickly and we know the Democrats are being very deliberate about this. And yet all are they convinced that this is still the right thing to do, because there is of course still that corner of Democrats saying, are we sure we want to go through with this? Will this be okay for the 2020 campaign?</s>MANU RAJU, CNN SENIOR CONGRESSIONAL CORRESPONDENT: Well, there are Democrats overwhelmingly in the House who do support an Impeachment Inquiry, but when it comes to actual Articles of Impeachment, actually voting to impeach this President, making this the third President in U.S. history to get impeached, now that is a different question that has not yet united this party, but in the matter of weeks ahead that could presumably change. Now Democrats on the House Intelligence Committee do plan to move forward rapidly. We could expect subpoenas soon for Rudy Giuliani, the President's personal attorney who went to and tried to reach out to Ukraine officials and urged Ukraine officials to investigate the Biden, someone who was mentioned himself in that whistleblower complaint. Also other officials consume be hit with subpoenas. Already, the State Department -- the U.S. State Department has already been hit with the subpoena from Democrats to turn over records and also scheduled depositions for five State Department officials who were mentioned in that complaint. Now in addition to that, I just had a chance to talk to Mark Warner, the Vice Chairman of the Senate Intelligence Committee, which is also investigating this matter saying that they want to get to the bottom of this issue.</s>SEN. MARK WARNER (D-VA): There are an awful lot of questions raised by the whistleblower's complaint. It touches on a wide variety of areas and wide variety of areas that if they all prove to be true, I think, open a whole lot of legal questions. But again, let's take this step by step. Let's -- I'm not going to jump to conclusions. I want to try to treat this process with the respect and fairness that everyone deserves. I wish we'd see that same kind of respect for the process coming out of the White House.</s>RAJU: And when I asked the Senator about whether he is concerned about the whistleblower's safety he said, quote, "Any rational person would be concerned about the whistleblower's safety after the President's comments" and his committee along with the U.S. Intelligence Committee both want to talk to the whistleblower although that date has not yet been scheduled -- Paula.</s>NEWTON: It's certainly a point of concern when you start talking about all of that. It is quite serious. Another point of concern, of course, is the fact that the President is fighting back and fighting back hard. I've been interested --</s>RAJU: Paula, I lost your audio there. But I believe you're talking about what the House Democrats are planning on doing in the days ahead, but expect this investigation to move forward, to wrap up, presumably, by Thanksgiving time as the Democrats want to make a decision on whether or not to impeach this President -- Paula.</s>NEWTON: Manu Raju will continue to follow, as we say these fast moving developments for us on Capitol Hill. Appreciate it. And now the Impeachment Inquiry into Donald Trump does more than just threaten his presidency. It also raises new questions over the chance of the U.S.-China trade deal. Wall Street is busy trying to guess that the pressure on Mr. Trump to make some kind of a deal more or less likely. I don't need to remind anyone that the jury is out on that. The trade deal, the President already agreed with Mexico and Canada could be in jeopardy though. Ratifying it depends on backing from the Democratic-led House at a time when cross-party cooperation seems ever more unlikely. And major legislation could also get sidelined like the effort to reduce prescription drug prices for millions of Americans. Now with that deal in the balance and trade disputes growing ever louder. Christine Lagarde spoke to Richard Quest and had this warning.</s>LAGARDE: You know, I lived through Watergate. And I was actually working on the Hill as a little intern of a member of the House Judiciary Committee, Bill Cohen. And I could see in those days, how much energy, focus, brainpower was actually spent on the Watergate issues. If this is going to be the same again, I can only imagine how much more energy, brainpower and focus there will be on those purely political issues, which will be a complete distraction from focusing on the economy, producing values, the wellbeing of people. I respect what is going on. And I have no opinion and no view because I'm not an American. But from an economic point of view and from the global economic point of view, it could very well create a massive disruption. And I think it would undermine the U.S. leadership.</s>NEWTON: Okay, some blunt comments there. Lagarde covered a lot of ground with Richard. You can see the whole interview on Wednesday's program, same time, same place, only right here on QUEST MEANS BUSINESS. And we want to get, of course, our expert view on all of these matters. Mohamed El-Erian is Chief Economic Adviser at Allianz. Let's deal first with the impeachment. The market so calm about this, why?</s>MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: Because it has seen political news before and the right trade has been to just sidestep that. The assumption is even if the House moves forward, the Senate won't. So right now the markets --</s>NEWTON: To a real threat of impeachment as Manu was saying, we've got this inquiry, but the actual impeachment won't come to a head.</s>EL-ERIAN: Correct. And then there's a second view, and you mentioned it is that the market now believes that the likelihood of a trade deal has gone up. So put those two things together and the market is very relaxed about it.</s>NEWTON: And which would be good reasons at this point in time, except for the fact that we still don't even have a trade deal gone through on USMCA and that's already been negotiated.</s>EL-ERIAN: And except that the rest of the world is slowing very rapidly in Europe, in particular, to U.S. has to continue to be the engine of growth, and you need to put more gas in the growth, in that engine. And right now, we're looking at paralysis on Capitol Hill to really get through this. So I think in the short term, the market is right to be calm. But if you take it longer term, because there's real question marks about how we keep this rally going.</s>NEWTON: One way that some people believe to keep the rally going is of course that trade deal with China. Stephen Schwarzman says this is brand new territory for you as politics. He is the Blackstone CEO, of course, and he is known for his close ties with the Trump administration. I want you to listen to what he told, Richard.</s>STEPHEN A. SCHWARZMAN, CEO, BLACKSTONE: It's been a sort of an unprecedented level of hostility. And you know, I've been around a long time, and I've never seen a situation where there was an election and the day after, you know, there's some outcry and, you know, attempt to sort of take down, you know, the next President and so I don't know what ever stops this over a four-year period, frankly.</s>RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: That's where I was getting at -- that of course is the important bit, isn't it because it may not be a full year period. It may be an eight-year period after next year. What's gone wrong here? I mean, why has the well become so poisoned?</s>SCHWARZMAN: I have difficulty understanding it because in my life, you know, when your team loses an election, which happens with some frequency, it's a like a British system, the king is dead, long live the king, there's always a new king. In this case, it just didn't take and so we're in new territory.</s>SCHWARZMAN: At least over the last more or less 50 to 60 years since World War II, and not having a significant part of a political establishment, not getting on board with a new administration.</s>QUEST: You have been very closely involved with the administration, the President of China through your own work, of course, in China. I'm aware the last line of your chapter on this, is only time will tell.</s>SCHWARZMAN: Yes.</s>QUEST: The time honored phrase, only time will tell. Do you think the administration wants a deal?</s>SCHWARZMAN: Well, I think yes. You know, they haven't explained their position extremely well. But basically, what they're looking for is equivalency, and right now, tariffs and taxes measured between the two countries, that it's about three times as much for the U.S. to bring goods into China, as it is for China to bring goods to the United States. And I think the administration just believes that's unfair. The reason they believe that is it is unfair.</s>QUEST: But is the negotiating strategy, negotiation by tweet. Is that really working?</s>SCHWARZMAN: Well, I guess the way to think about it, is that nothing's worked for 70 years. And so with that timeframe, you know, I think it's hard to know exactly what an optimum strategy is. I think, because I talk to, you know, the Chinese and they understand that there's a need for rebalancing, I think President Xi has said that publicly. And so the question is, how do you do that? How fast does it happen? And how, how impactful is it over what time frame?</s>NEWTON: You know, Mohamed, I'm glad he used the word impactful, because some people are trying to figure out what does the deal look like. Remember, that is a man who speaks to the President, sometimes two to three times a week. What do you take from his comments, and in terms of vis-a- vis the China trade deal?</s>EL-ERIAN: So I think he's right in terms of economics. But he didn't go into the other area, which is really complicated, which is national security. So in terms of the economics, it's very clear that there are genuine grievances, that it hasn't been a level playing field. There's the sense in Washington that nothing has worked -- to quote him, nothing has worked for 70 years, so let's try something different. And if it were just about economics, I'd be quite optimistic that we can resolve this through a durable trade deal. My worry is that the longer it has taken, the more than national security aspect has played in. And there's a feeling right now that this is about much more than economics. And it's that balance between economics where you could solve it relatively easily. And national security was a lot harder. And we're going to see as the market still believes this is an economic issue.</s>NEWTON: And you can see that the Trump administration is trying to straddle that as well. I have two words, right, Howdy Modi. That was the only thing you needed to say to understand that the Trump administration is grappling with that. What about this issue, Mohamed that we've entered a different time? A lot of people are talking about the decoupling with China, do you think that's a possibility?</s>EL-ERIAN: So think of us pressing a pause button on globalization.</s>NEWTON: Okay.</s>EL-ERIAN: And it's still an open question whether we are pressing the rewind button or not. We haven't yet. We've come close. So when you heard about the possibility of restrictions on investment flows, that's another step towards deglobalization.</s>NEWTON: And that was a rumor they wanted to put out there that Peter Navarro, the trade adviser to the President quashed today. He said, fake news.</s>EL-ERIAN: I know. And I think the reason why he said fake news because the market on Friday thought, okay, so we have a trade war, then you can have an overlay of an investment war, which means a currency war is next. And that's why the market reacted so negatively. And my understanding is, that's why they came out and squashed it today. But the market is very sensitive. Once the trade were to be contained, but it doesn't want it to expand on investment war and a currency war because that would mean global recession.</s>NEWTON: And let's talk a little bit about the -- I mean, other countries like Japan are watching the currencies as well, the currency war and how Trump has reacted to a strong dollar really worries him. Let's talk a little bit about the broader market, though. We've got a tidy rally, as I said, going on today, nothing seems to be affecting these markets. And yet what worries you now, is this money on the sidelines still?</s>EL-ERIAN: So what's amazing about what's going on is that whether you invested in fixed income, the safe asset, or whether you've invested in equities, the risky asset, you've made money on both. And that tells you that this is very unusual. So today, oil is having a horrible day, at a time when equities are doing great. So all the correlations have broken down. And I think that what's priced into markets is a hand off on policy. The market believes less in monetary policy, which is what has carried us so far and more in fiscal policy, they believe that we're going to get a fiscal package out of Germany. And that is what is being priced in.</s>NEWTON: Germany might work. But on that fiscal policy, I have less than less confidence that anywhere else, including obviously, the United States, given the paralysis on Capitol Hill, that there's going to be any fiscal policy, do you need that crisis to get a fiscal policy in so many different corners? And look what's happening in Germany. They are at a crisis level, right? We're at negative rates there. And that's what's motivated them to finally look at that fiscal piece.</s>EL-ERIAN: Yes. And the economy is contracting. The problem is that the argument isn't so straightforward, because they have a trade, or we have an economy that's doing really badly, and an internal oriented economy is doing great. The unemployment rate is still very low. Capacity utilization is stretched. So it is not obvious. If you're German, that fiscal policy matters, especially because who is going to benefit is the other European countries, and you don't want once again, to be carrying the burden for -- So it is not -- I don't think the fiscal policy is going to materialize as much as markets hope right now.</s>NEWTON: And before I let you go, we never asked you open-ended questions. Is there anything that you've been looking at in the last few days or weeks that you say, this is what people are missing?</s>EL-ERIAN: So I think people are missing that we are losing confidence in Central Banks. And I think that's a big issue, because Central Banks have carried us, and remember, they're not subject to the political mess. They can move interest rates without going to parliaments. You can't do fiscal policy without going to parliaments. And there's a sense that the Central Banks have carried the burden for too long. And now there's somewhere between ineffective and counterproductive. And that's a really scary concept.</s>NEWTON: Yes, counterproductive is a catastrophe. Really.</s>EL-ERIAN: Yes. And we are seeing that when the ECB itself says we've got to look into the effects of negative interest rates, you know, that they've realized that the unintended consequences of this medicine may be greater now than the benefits of this matters.</s>NEWTON: Yes, I don't understand why they didn't get that from Japan earlier. Right? Am I right or am I wrong on that, but okay, there we are. And Christine Lagarde gets to inherit all of that. Mohamed, thank you so much. So appreciate you coming in. Now it's decided WeWork doesn't work, at least not for now. The office sharing startup pulls it's much anticipated IPO. And Saudi Arabia's Crown Prince is calling for tougher international action against Iran, saying without it, oil prices will go sky high.