Gautam: I am Gautam:, I am talking with Robert Steven Kaplan About the debt ceiling and the already stressed U.S. economy.

The Ukrainian president is promising to liberate his country from erosion occupation.

To experts join me on how he may react.

Time is running out for President Biden to raise the debt ceiling.

Before the country defaulted on his loans, the federal government officially reached its borrowing limit back in January and the Treasury Department has been using extraordinary measures to keep paying the nation'’s bills.

Janet Yellen warns the department could run out of emergency options and start missing payments as early as June 1 which could have catastrophic consequences for the U.S. and global economies and damage the reputation of treasury bonds around the world.

Neither party wants that to happen but Republicans are insisting on a series of spending cuts in exchange for their votes on the increase.

Democrats led by President Biden want to pass the increase clean.

>> I remain optimistic.

I think there is a desire on their part and hours.

I think we can do it.

>> It seems they want to they look like they'’re in the meeting but they are not talking anything serious.

Gautam: Negotiations are set to start up again tomorrow.

Prognoses are mixed about leaders making some kind of deal.

Joining me is Robert Steven Kaplan, the president and CEO of the Federal Bank of Dallas.

He is a former chairman of the sacs group -- of the.

If the U.S. were to default, what happened?

-- what would happen?

Robert: The best way to think about this is actually we are not going to default.

Neither side wants to default and we are not going to default.

It would not surprise me if this goes down in the 11th hour where you for allowing employees and shut down some -- lay off employees and shut down some places.

My best observation would be do not pay attention as much to the tactics and debate about the 14th amendment and all of that.

Focus on the idea that have deficits approaching $2 trillion right now.

Debt to GDP is in excess of 100% and we have not gone into a downturn.

We are going to go into one.

We need more physical restraint.

-- fiscal restraint.

The tactics, the energy may be better spent on actually the idea that we do need some spending discipline in order to have a healthier economy and future.

Gautam: Let me push you on that a little bit.

I do not think we are going to default and I hope we will not default.

It is important for viewers to understand why it is so important that we do not do so?

Robert: A default is -- default literally means we do not make an interest payment on the debt.

I would guess it would be painf ul to watch.

You get until June and theoretically we do not have enough money to pay all of our bills.

The government will start to allocate to where it cuts back.

The last thing it will do is not make an interest payment.

The second to last thing it will not do is pay Social Security.

If we ever did not make an interest payment, to your point, it would undermine the finance ability of the United States and we have to understand we run a very high degree of leverage in the united states.

It is why we are able to get away with it, it is the dollar is the world'’s reserve currency.

In times of stress, people think this is the safest place to be.

Eight is vital we do not undermine that.

Gautam: The United states has a perfect credit rating.

If we default once, if we miss a payment on our credit cards, it is not just that we miss the payment, the payments we make afterwards will be vastly more expensive?

Robert: That is exactly right.

I would caution there is a reason for this standoff.

If we keep going and spending the way that we are right now, I think first of all fiscal policy is with monetary policy.

Monetary policy is trying to slow the economy and cool inflation.

Fiscal spending and stimulating inflation and increasingly, China is talking to Brazil, OPEC about the nominating payments away from the dollar -- the taking payments away from the dollar.

I am afraid over the next 10 or 15 years if we do not increase our discipline we will have a different kind of problem which we just will find just as troubling.

We start finding alternatives to the dollar.

We will not be the world reserve currency.

If there is some stress right now to avoid that later, I think that would be useful stress to go through right now.

Gautam: This feels like a game theory problem.

What is forcing them to come to agreement is the threat of what will happen if they do not.

If no one believes that the threat is real, there is not a lot of pressure for them to come to an agreement?

Robert: That is right.

The reality is what we have going for us, the thought of the , a default, it is so unthinkable to either side, I have a funny feeling that they will come to an agreement.

They need to have some type of agreement.

Yes.

This is a game of chicken.

It is not healthy.

I think it is distracting.

We have a lot of other issues in this country including a banking situation.

I think the energy should be put more into how do we build this nation?

Improve productivity, education, skills training, a whole range of other very critical priorities.

I think fiscal discipline is important.

Gautam: Just to make sure, is it that unthinkable?

We had a former president and a leading contender for the president of the united states say that they thought that we should default and encouraging the Congress to do that?

Given that his level of power and influence, I have to ask, is it really as unlikely as you have told us it is?

Robert: It is.

It is extraordinarily unlikely and I think the person you are referring to who said we should just go ahead and have a default does not want to have a default either.

I can tell you he does not want to be responsible for a default.

He may like them to go further out in laying out this game of chicken than you or I would.

If he does not want to default, if it ever got to that point I think you would feel compelled to step in and encourage them to settle this so that there is not a default.

Gautam: There is one technical fix I cannot resist, perpetual bonds?

The principal is never repaid.

Do they not count against the debt ceiling?

They are within the statutory authority of the treasury to issue.

If we were to start issuing that we would remove the debt ceiling crisis immediately but nobody is mentioning it as a possibility?

Is it a valid idea?

Should we start doing it?

Robert: I would hope that we spent very little energy on that idea.

We could still have a default even with that just by not making an interest payment.

That would create a default.

That is the more likely way for the default to occur.

It is not that we do not repay debt, we do not an interest payment.

I think the energy should be instead on actually keeping pressure on both sides to each move and make things that they prefer not to do.

My only concern about these deep debates on the 14th amendment and newfangled financial ideas as I think the energy is not well placed.

We actually do have a legitimate problem.

Inflation in this country is still around 5%.

I am very skeptical they can get much below 4% unless you have fiscal policy working along with monetary policy.

50 million families today cannot make their ends meet.

We are defaulting at the federal level but 50 million families make $50,000 a less struggling to how they are paying their bills and are making some very tough trade-offs.

We need to have a real physical discussion -- fiscal discussion and that is where the energy needs to be placed.

Gautam: We are dealing with a ruling banking crisis, do you see this continuing.

Does it point to a systemic failure in our banking system?

Robert: I think the issue is that there is a very uneven playing field between big banks and small banks.

The irony of it is we came out of the great recession saying we are not going to allow too big to fail, we will limit the size of the biggest banks and we have gone backwards on that.

If I run a company and I have $1 million or $2 million in payroll account I will have 80 J.P. Morgan rather than my local bank.

Is critical to the -- it is critical to the small and midsize banks that they are able to attract those payroll accounts.

They cannot.

Treasurers, even though they are loyal to the bank, they want to protect their money.

Gautam: We have these 4000 banks.

The state of North Dakota has more banks than the entire country of Canada.

The U.S. has more banks than any other country in the world.

Should we have so many small banks?

Robert: It is interesting.

You have to go back to Thomas Jefferson and Alexander Hamilton.

Hamilton wanted a small number of banks that were concentrated.

Severson was worried about central control and wanted more decentralization.

The country went Jefferson'’s way.

We developed a sprawling banking system.

You may remember until 20 or 30 years ago we did not even allow interstate bank mergers.

The system is a merge to have a lot of small and midsize banks to make small business loans.

Canada has 88 banks.

A lot of branches.

I think it is fair to say the culture of entrepreneurship here for a small restaurant or business to get a credit line is probably more available here than in the country.

It is part of the fabric of the united states.

You have these small banks that Taylor their own books to local businesses and economies.

You may hear about a local bank that caters to the Amish and has to give a different kind of loan because the big bank would never do it.

That is the nature of our system.

We have to accept that.

We were to destroy those banks, you have a period or it would be hard to get a loan for a small midsized business.

Gautam: Thank you for joining us today.

Next, Volodymyr Zelenskyy promises a counteroffensive is in a minute -- is eminent.

He is assuring that they will liberate areas taken by Russia.

He is going to Europe to shore up support from leaders in Italy, France, Germany, and the U.K. >> It will help us to be more strong.

Gautam: After months of heavy fighting, Ukraine'’s military has started to push troops out of the eastern city.

A setback that the Kremlin has acknowledged, the upcoming counteroffensive is expect to include the Crimean Peninsula and parts of eastern Ukraine that were under Russian control before the invasion.

Ukraine'’s president says victory is closer than ever.

To put it mildly, Russian President Vladimir Putin is not known for fighting fair, or loosing with grace.

Prompting fears of yet more human rights abuses, including the use of chemical weapons.

To discuss I am joined by retired Army Brigadier General Kevin Ryan and Carol Saivetz A senior advisor for the M.I.T.

studies program.

And the Harvard Ukrainian research Institute.

Why do you not started?

When should we expect the counteroffensive?

Carol: He said they are waiting for more arms and ammunition from the West.

He said something about the weather.

I gather it is a money in Ukraine.

It is coming but he did mention the city, they are continuing the fight to prevent Russian soldiers from redeploying to the other areas where they do intend to correct the offensive.

Gautam: What will this look like?

Kevin: There are a number of ways they could mount a counteroffensive.

They can do it in the Donetsk province of they wanted to fight back there.

There is a logic that says they will work in the South where they have -- there has been fighting continuing on now.

If they can disrupt or create a break in the land corridor along the sea which unites mainline Russia with Crimea, if they can break that with an operation in the South that will do a number of things strategically for them.

It would be a great victory for them.

A partial victory in their eyes because of total victory for them is getting rid of all Russian troops.

Gautam: If this counteroffensive , even if it succeeds, what is the Ukrainian theory of victory given the disparity of forces?

Is their expectation the Russian army will collapse?

Kevin: If you are asking me, the Ukrainian theory of victory has been repeated often by the president and the senior military leader.

I think we have to take them at their word.

Their theory of victory victory is something that is very -- in most people'’s opinion is clearly unattainable.

And complete removal of Russian troops from all of the former Ukrainian territories.

Ukraine as it was back in 2013.

In charge of Crimea and Donetsk and Luhansk so on.

This is a big theory.

Carol: and more likely scenario if at all feasible would be a push back to the 2014 lines that have been just referred to.

That is more realistic if indeed it is realistic at all.

You said something in your leading about Crimea, I see them -- lead in about Crimea, I see them trying to prevent the Russians from staging in Crimea and countering the southern offensive.

I do they can retake Crimea as much as they would like to.

Gautam: Almost every estimate from the beginning of the war underestimated the Ukrainians and overestimated the Russians.

The casualties have been astonishing if we can put up on the screen, as of March 2023, Ukraine has suffered around 124 ,000 casualties.

The number of soldiers each had Ukraine had just under 200,000 and Russia had around 900,000.

These are significant fraction of the total military establishment of the country.

It is much larger than the united states have suffered in its entire history.

What does that tell us about the ability of the two sides to keep fighting at this level of intensity for months or years going forward?

Carol: I do not think we know the answer.

As the president of Ukraine said, we are much more motivated than the Russians are to keep fighting.

They have the ability to sustain some of these casualties for longer.

The Russians are talking about a second mobilization which did not go so well.

They seem more poorly prepared to counter the suspected long-awaited Ukrainian offensive.

They have dug in lines at other have been pictures of mines in Crimea and carriages -- trenches.

Looks like World War I. Gautam: Kevin, given what we have seen so far, do you expect the Russians to have the military capacity to be able to defend against the Ukrainian thrust?

Kevin: The short answer is yes, they can defend but not successfully along all of the front lines.

You have put your finger on the major learning lesson for the united states and the rest of the world.

This is the first major power war for the 21st century.

The high intensity of this war is a lesson for all of us.

Nobody is ready for these kinds of losses.

Even the united states would not be fully prepared for this.

It will continue to have this kind of stalemate where it is in effect with a small movement on either side of the line over time.

This is the most probable or plausible situation moving forward.

Carol: I agree.

This is a war of attrition at this point.

Look at what has been happening in Bakhmut, it is cornered by corner, the Russians are holding the center of the town where the Ukrainians are making advances along the edges.

And do not see any major breakthroughs.

I do not see another Kharkiv offensive.

The Russians are better prepared to wage a defensive war and the Ukrainians are lacking in the ammunition and maybe even in the manpower as you alluded to continue.

Gautam: If the Ukrainian offensive is successful, this will lead to Western escalation -- Russian escalation even further.

There has been nuclear weapons in Russian media that is not normal.

The possibility of that has been raised of chemical weapons.

What can we do to stall it?

Carol: I do not know what we can do to stall it.

Russian nuclear doctrine says escalate to de-escalate.

When there is an existential threat, it is not clear in the document whether it is an existential threat to Putin himself or to Russia even if it is a conventional assault on Moscow.

That is why Putin has been threatening the nuclear weapons.

My hunch is that a lot of it is a bluff.

Why move nuclear weapons to Belarus that could be used in areas along the border?

Interesting side note, Lukashenko has been ill and has not been seen in over a week.

But is another factor to consider here.

I think short of using nuclear weapons as you alluded to he could use chemical or biological weapons.

That danger is that would affect the Russian troops on the ground and not just the Ukrainian forces.

I think we have to be wary of that.

I think the Biden administration has done a good job of actually not providing certain kinds of weapons to Ukrainians for fear of the next step in escalatory staircase.

Gautam: How would -- in the case of S AA use of chemical weapons by the Russians, what would an American response look like?

Kevin: Let me stay on the more -- on the track that Carol had us on which is that I think she is right.

In general, you could say that the use of a nuclear weapon or a weapon of mass destruction, I will put aside chemical weapons for the reason that Carol mentioned.

That would be much more dangerous to the Russian troops.

In nuclear weapon would be -- a nuclear weapon would be a game changer for this war.

It would be something that the Russians could control if you could control a nuclear weapon.

The problem is here, if Ukraine escalates the war and Russia, Putin wants to escalate from his side and he cannot do that conventionally he has to turn to nuclear weapons.

I think the odds of the nuclear weapon are greater today than they were when this first started.

I personally believe that the odds are greater than 50% if this Ukrainian counteroffensive has any success at all and threatens the land corridor or the Russian holdings in Donetsk.

The nuclear weapon is a major issue for us now.

What we do is we begin to prepare and operate in a world where the nuclear genie is out of the bottle.

Gautam: Do you agree with that assessment?

Carol: I am not as pessimistic about the use of nuclear weapons.

I think there would be a lot of pushback, Xi Jinping has sent to Putin do not use nuclear weapons.

I think Putin has to waive the alliance with China with his decision to use tactical nuclear weapons in the field in Ukraine.

He will pick the Chinese side and hope China continues to back him as opposed to using nuclear weapons.

Than they really become a rogue, pariah state.

Gautam: If that is his concern, is he more concerned about the consequences for regime survival of his losing the war or becoming even more of a pariah state than they already are?

Carol: that is a great question.

I think -- I do not think he cares as much about being the pariah state as he what about losing power.

Than the question we have to talk about is how dangerous it a pressure without Putin?

What happens internally within Russia?

My fear is that the next person who succeeds him, however he leaves, could be just as aggressive if not more nationalistic or chauvinistic than Putin.

He has some kind of rational balance in there.

I'’m not sure about the next guy.

Gautam: Or that as a concern, are there steps we should be taking to minimize the odds of a nuclear weapon?

Kevin: There are steps we can take.

We are telling Russians that they should not use nuclear weapons.

The Secretary Blinken and the president have made that clear.

They have told us without telling us the specifics.

They have told us they have warned Russia about that.

I think that they may not have an effect on Russia if Putin thinks his regime is in crisis or in a survival mode.

There is not much we can do at this point to prevent Russia from using a nuclear weapon.

We ought to be thinking about what do we do in the case of the day after, if you will.

Some of that thinking should be about how our relationship is going to change with Russia then.

Many of the things we are bound by now, treaties and agreements and protocols from the past will be gone.

Maybe we want to have your regime change in Russia.

Support Ukraine to the level that will allow the defeat of the Russian army.

Those are things that should be on the table for us.

Gautam: On that sobering note, thank you for joining us today.

Carol:.

Thank you.

Kevin: Thank you.

Gautam: We will be back tomorrow.

Thank you for watching and good night.

♪ ♪ ♪ ♪