Obama Nominates Yellen: Surveillance (10/09)

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Oct. 09 (Bloomberg) -- Full episode of "Bloomberg Surveillance." Guests: David Stevens, Danny Blanchflower, Jim O'Neill, and Sean Wilentz. (Source: Bloomberg)

This is "bloomberg surveillance." just brooklyn, new york.

The president nominates janet yellen to be chairman of the federal reserve system.

Joining us this morning, david blanchflower, former bank of england, alan krueger, former chair cap love the president economic advisers.

It is day nine of the shutdown.

House budget committee chairman paul ryan services.

He urges a common ground.

How are your mortgage rates affected by washington's standoff?

Good morning, everyone.

This is "bloomberg surveillance." i am tom keene, live from our world headquarters in new york.

It is wednesday, october 9. joining me as always, sara eisen, scarlet fu.

Our guest toes, david stevens, chief executive officer -- our guest host david stevens, former executive officer.

It is time for a morning brief.

It is a morning brief with a staff that was up all night.

All night, lots of news from washington, but there is other news from around the world.

Starting with u.k. investor of reduction, which fell in the month of august.

And corporate news, apple is set to debut its new ipad at an event in october.

Mark your calendar.

It is a big deal whenever apple has a product launch.

Economic event in the united states birds of a clock a.m., we will get the mortgage application numbers.

That is the weekly read.

2:00 p.m. eastern time, the federal reserve will release its notes from the last meeting.

Remember the notetaker meeting?

3:00 p.m. eastern time, president obama is set to announce the nomination of janet yellen as that chairman today.

What would be the first female said chairperson ever.

Before the bell, costco announce earnings.

Fourth-quarter profit missed "surveillance -- missed analysts' estimates.

Family dollar reports before the bell.

After the bell, we get earnings from ruby tuesday, the restaurant change.

It is still market check as well.

A look at equities, bonds, currencies, commodities.

Futures bounce up 6. 10 year yield really know in the last number of days.

Day nine of the shutdown?

Yeah.

I feel it we are almost to the weekend.

Your dollar -- euro-dollar, $1.3528. crude goes nowhere, $103.39. the vix over 20. right near its two decade average.

We have gone from her teen dollars to -- from her teen dollars -- $13 to $30. weaker yen and weaker stool or -- weaker sterling.

Yield finally started to move higher.

Selling up treasuries.

With that, you saw stronger dollar.

That is putting pressure on the japanese yen.

No question.

We are seeing the linkage here in washington news into the markets as well.

Our two big stories of the morning -- first, the president will nominate in a yellen as rent -- chairman of the federal reserve system.

Look for that at three clocked him today.

Separately, the government stalemate heats up in washington.

We have a story from numerous angles.

Economics editor michael mckee is with us.

David blanchflower, bloomberg contributor will join us from dartmouth.

In washington, julianna goldman cured she is bloomberg news white house correspondent.

Julianna, everyone is surprised by this announcement.

What encourage the white house to force this announcement?

They needed to get the clock started on this nomination.

As soon as larry summers dropped out, took his name out of contention for this in mid- september, the nomination quickly went to janet yellen.

They needed to get the vet through.

It was ready and there was no reason to keep waiting on it.

Can you give us some drama yesterday?

Jeans purling, the national economic advisor, storming into the oval office, mr.

President, we shut down, we got to make some news?

I think part of the -- one of the reasons you might not have that drama is because 80% of the white house staff is furloughed right now, so the drama might be more that gene sperling has to answer his own telephone.

But really, this is a matter of timing, white house officials are trying to down say the idea that this was timed to the shutdown, timed to the shutdown, and more the business had to go on.

They did not know when this was going to end.

Bernanke's term ends in late january and they want to have janet yellen him play thank firm by that point.

Stay with us here.

A comics editor michael mckee who knows janet yellen has watched her, she has been san francisco's but president, number two at the federal reserve, she has served as white house economist.

Is the idea here policy continuity from ben bernanke?

Policy continuity with perhaps some hope that she is going to key policy lower for longer.

She has a reputation as someone who is a softer on inflation, which is perhaps a bit unfair.

It is a little more nuance.

There has been a big debate between inflation and unemployment.

She goes on the side of may be airing a little on the unemployment side.

She is very concerned about long-term unemployment and the damage that does to the economy.

It does not mean she will be sought on inflation.

She argued in the 1990's with alan greenspan telling him he needed to raise rates.

She let to figure out when they started tapering process and when to start removing the fed from all of this.

She might be a little more on the side that would say wait, make sure before you act.

There is janet yellen again, the new fed chairman.

We need perspective.

David blanchflower is that dartmouth college, advisor to the federal reserve, and also tenure of duty at the bank of england.

No surprise here, is she the new uber dove, or can she go the other way when it is necessary to have a more restrictive policy?

I do think it is one for the doves, but obviously she will follow the data, which means if it is necessary that when inflation starts to rise you need to dampen back, she will do that.

We are a long way away from that.

I think this is a really fantastic appointment.

I wrote in a column the other day "go, janet, go." she clearly did go, and here she is.

A background in training and experience, i think is really good.

What is interesting if you look the bank of england and canada and israel and the u.s., this is the first on the insider got the job.

This is quite the change.

Critical a, i think so many of our viewers worldwide know the economics of paul krugman or maybe think they do.

How does yell and economics of paul krugman of princeton?

Well, i think one of the big difference is that janet yellen has this long visa as experience as a policy maker.

She was in government at the fed when i first met her and then she would be terribly under bill clinton -- and then she was the council of economic advisers under bill clinton.

You have to bring the committee along with you.

We will see whether janet is as greenspan was if you like the dictator.

She does not strike me as that at all.

She is very quiet.

You are going to see her on the white house lawn today.

She is not very tall.

This is actually an interesting thing.

I think the fact that she is a woman in some sense is irrelevant.

I think it is great that she -- if you look at the ecb and the bank of england now, a lot of -- not a single woman on the committee.

It is great for that.

I think she would have gotten the appointment anyway.

It is great for women, and i think it is a great appointment.

Was so great here, sara, is that she has tangible executive experience working at the san francisco fed.

For more than chairman ben nagy had -- david is not the older one putting a support -- the only one putting his support, some of the senators cannot against them, here is larry summers on the nomination.

Janet yellen is a terrific choice to lead the federal reserve.

I have admired and learn from her ever since he taught my first macroeconomics graduate class in 1976. larry summers, a little but younger than janet yellen.

Julianna, talk about the politics.

Larry summers was opposed to be president obama's guy the head of the federal reserve.

You talk to ministers and officials on what they say is all along inside the west wing and these conversation, the conversation was always positive about janet yellen.

It was leaning toward larry because he is the guy that the president knows, they were both running up the fires together at the peak of the crisis in 2009. i think that it significant that sommers did put out that statement because there had been a lot of hard feelings inside the white house from summer'ss' backers who felt that yellen's backers were launching an anti- summers campaign to get her in the door.

That statement might go to help smooth things over.

Michael mckee, you mentioned the tapering question, that is going to be one of the big challenges here for janet yellen.

What else is she going to say from a difficult post financial crisis?

To think she has a word... one is the exit, not just tapering but when you start raising interest rates and how do you do it with a $4 trillion balance sheet?

That is going to be very tiricky.

A rat run is an academic leader will lead her to view this more rigorously than an bernanke.

More willing to take chances and improvise.

The other thing shipped to do is implement dodd frank and big regulation.

People will be very interested interviews there.

She has been seen as more pro- regulation that larry summers would have and, perhaps a little tougher on the bangs going forward.

Our other big top story of the morning of the gridlock in washington.

Day nine of the government shutdown, ending the shutdown has now become entwined with raising the debt ceiling.

Listen to what president obama said yesterday.

I message to the world is -- the u.s. has always paid its bills and it will do so again.

But i think they are not just looking at what i say, they're looking at what congress does.

That ultimately is up to speaker boehner.

Julianna, what can attraction is therefore the president increasingly short-term as soon without any kind of policy conditions as has been proposed?

The basic message from the white house right now, and it is also very uncertain, but you could be seeing the condors of some sort of deal of my possible ending.

They're saying open the government for a couple of weeks, do something on the short-term, sit down and have negotiations over budgetary matters, not health care, not keystone, and in the debt ceiling -- look, tack that onto the end of this, so you can see a huge extension of the debt limit also.

But when it comes down to it, they're still saying we are not negotiating over the debt ceiling because you can set that precedent for this president, for future presidents, and the presidency in general.

All right, julianna goldman, our white house correspondent, she will be with us throughout "bloomberg surveillance," as well as economics editor michael mckee and thank you to david blanchflower.

Be sure to keep it here on bloomberg television throughout the day, at 3:00 p.m. is our special on the nomination of janet yellen to be the next chairman of the federal reserve.

Coming up here on "bloomberg surveillance," it is just what the housing market it not need -- the government shutdown.

We will ask the former head of the eight -- the fha was that is likely to meet for abetting housing recovery.

That is coming up on "bloomberg surveillance." ? this is "bloomberg surveillance," i'm scarlet fu joined as always by tom keene and sara eisen.

We have company news for you starting with steve cohen getting the ultimatum from prosecutors.

It will cost 1.8 billion dollars to settle the government insider trading investigation.

This is according to people familiar with the matter.

Cohen would be required to admit wrongdoing.

He has until early november to accept the deal.

In the news that broke a short while ago, i potential blockbuster deal in the men's apparel.

Joseph a bank taking a $2.3 trillion bid for men's wearhouse.

It works out to $40 a share for a 36% premium over yesterday's close for men's wearhouse.

No word yet from men's wearhouse on this offer.

Disney is going paperless with a stock certificate.

It plans to stop issuing the papers of get and do brochures electronically and said.

The certificates tend to be popular with collectors and websites.

They feature the founder, why does he -- walt disney, surrounded by characters.

The change takes effect on october 16 your data today's company news.

The government in its ninth day of the set up your the housing market for one is feeling be repercussions.

It has already slowed down the approval of thousands of mortgages.

David stevens was head of the housing of assertion under president obama and is the president of the mortgage bankers association.

We want to talk to you about the shutdown impact, but first with the nomination of janet yellen on fed chairman, this has an impact on your world.

The fed is right now engaged in buying mortgages.

I think for the mortgage market and for the housing market, janet is continuity.

Not only does she have experience, but she is likely to continue the pace that alias bernanke was on for the time being, making sure that markets do not stumble.

It is a confidence builder.

Right.

The fed has been trying to prop up the housing market.

Does that need to stop as they think about tapering, or would you like to see it continue?

Look, you cannot continue buying that on a continuous basis, but right now, we are seeing impacts as the result of the shutdown.

There is a slowdown that is going to have an impact here as a result of what has happened over the last eight days.

The longer he continues, the more we have to think about the pace of exiting be market.

The garments -- the comments the chairman made about slowing down the tapering, staying in the market and not tapering to sin was positive for keeping this market functioning.

Give us a big picture read of the housing market.

The transvestite they improved or worsened?

-- the trends --have they improved or worsened?

That big finance program at the mentorship of forward helped a lot of he will refinance or gadgets.

Purchases were slow.

Now we are seeing purchase activity improve.

That is about 5.5 million home sales, new and existing, increasing next year to about 5.8. that is a good sign.

The difficult sign for the industry in general is that refinancing is going to drop, it is going to create odd competitive behavior, and the dynamic is going to be very different.

The dynamics will be the keeping and the distortion in the marketplace right now.

Scarlet mentioned the mortgage rate.

Bankrate eight years ago, down we go, here in nevada, and here is the recent angst here.

Many would say, and you are one of the nation's experts on this, that fha is the next fannie mae and freddie mac.

Are these distortion so great that fha could become in trouble?

I think the story of fha is overblown in terms of the estimates of loss.

They reserve in a very different way.

They really weathered a very terrible housing crisis what they were the only ones that were out.

Everybody went to them after the market collapsed in 2007. fha got taken advantage of.

All of that is what actually impact of the funds.

You are the guy -- you are the policy guy with the experience in this.

If you had a cup of coffee this morning with janet yellen, how would you say to her she needs to act to provide stability today you and your industry off the ground?

I think the first important thing is we have got to get through something that has been driven by other technicals, which is brought on by this government shutdown.

We view that is negative to housing in the short run.

Housing is 20% of the gross domestic product, about 40 basis points of the gdp.

Anything that creates an artificial impact to stumble that slow, steady recovery we are seeing would be negative.

The market can withstand the rising in the straits -- rising interest rates.

Raising into the mid-fives, perhaps as high as six, those are near historic interest rates.

David stevens, good to have you here on "bloomberg surveillance," bruno know -- a brutal news.

He is the president of the mortgage bankers association.

Coming up, we will get the global view on janet yellen being nominated to be the next fed chair with jim o'neill, the foreman chair of goldman sachs asset management.

Our twitter question of the day, tweeted that that is today's company news.

-- our footer question of the day, @bsurveillance, what will janet yellen do to differentiate herself from bernanke?

? "bloomberg surveillance." coming up.

The red sox won last night.

Red sox fan roger altman, chairman of evercore, with some is going on in washington, its effect on wall street, "in the loop" with betty liu.

I have a feeling they will be talking about the next fed chairman, not so much the red sox if i had to guess.

A poor choice.

This is "bloomberg surveillance," i am sara eisen, here as always with tom keene and scarlet fu.

Worldwide growth and opportunity to be 2.9% this year.

That is actually down from the 3.1% that they were forecasting back in july.

The imf citing slowing growth in emerging targets of a major reason for the change.

More trouble at japan.

Fukushima nuclear plant.

Six workers were doubts with radioactive water when a hose that was mistakenly detachably water treatments to -- treatment system.

Fukushima has been hit by a series of toxic water leaks in recent months.

It was purple buddy 2011 earthquake and tsunami.

-- the plant was crippled in 2011. boston went on to win 3-1 to clinch the american league division series.

The red sox now move on to face either the oakland a's or detroit tigers.

They play a deciding game by tomorrow and oakland.

Tampa bay was great.

It was fun.

I wish i had progress in tampa.

Would you rather have the a's or the tigers?

It is a good question.

I am not smart enough to know the answer.

I think i prefer the a's. i prefer the yankees, but they had problems this year.

Morning must-read -- everyone is applauding the nomination of janet yellen at the next fed chairman, including a professor at the university of michigan.

He writes in bloomberg view -- yellen has been in charge of the fed the past two years.

Militancy were would be jobless and we will be less concerned about the danger of deflation.

Her pragmatic reading of the tea leaves has led her to avoid the errors of her the rebound colleagues.

He is one of our great micro economists, as roy put him, and it is about yellen as policy executive, that word pragmatic versus the theory-based -- exactly, and she hasn't put -- she has been proven right.

The international reaction to the new from the man who coined the term break, jim o'neill, the head of goldman sachs asset management next on "bloomberg surveillance." this is "bloomberg surveillance." i am sara eisen, here as always with tom keene and scarlet fu.

We need a data check.

An exciting day.

Night save the government shutdown, but some news on the fed.

You can call it the paul ryan data check.

He is a little more, and he shadow market.

Sterling comes in as well on difficult u.k. data.

Crude oil, $103.47. yen is the litmus paper.

I would call it the janet yellen data check.

No, paul ryan.

Let's take a look at big gainers and losers from yesterday.

Monster beverage, a big advance her up by almost 4%. analyst saying september sales rose 10%. the biggest event in a month.

Pandora was down by almost 8%, one of the big losers in yesterday's session.

Apple planning to expand its itunes radio to english-speaking countries outside the u.s. that is competition for pandora, and you can see the damage done to the stock.

That is it.

Gainers and losers.

It is still a market out there even with all that is going on.

That is our top story this morning, the president will nominate yellen to be chairman of the federal reserve system.

Look for that at 3:00 p.m. chief washington correspondent peter cook with us.

There is said, shutdown, default, too much on his plate.

Peter, let's go to janet yellen first.

Is a confirmation layout?

Layout is too strong a word, but privately i've been talking with democrats and republicans on the hill who expected this nomination.

Do not expect the problems for janet yellen barring some surprise in her background check.

Right now, nobody expects to see that.

That does not mean it will be an easy process.

She is going to get some heat from republicans.

The most obvious so far we have heard is bob corker who is a prominent member of the making committee and he noted i voted against vice chairman the elements -- yellen's nomination because of her dovish views on monetary policy.

I am not aware of anything that demonstrate her views have changed.

She one confirmation 17-6 in the banking committee.

She needs at least 60 votes on the floor of the senate to get confirmed.

Right now, everything indicates that she will get that.

A look at this -- you look at the stumble, let's move onto the shutdown today, where i think it has been extraordinary, day nine.

What is the distinction today versus day eight?

One thing is the president's comments yesterday.

Yes, he and john boehner talk past each other, but the president did open up this idea of some short-term temporary solution to let people catch their breath, have time to negotiate.

I think both democrats and republicans are going to start to seize on the idea of something short, maybe a month, maybe two month.

They're still fighting over the terms for the negotiation much less the terms of the negotiation.

It is not a done deal by any neat means.

This is a bad situation here in washington.

The president's comments yesterday at least are opening up the opportunity for a short- term deal.

I think both sides will start to seize on that.

He will keep us posted.

Our chief washington correspondent peter cook, thank you for joining us.

Assuming janet yellen does the comfort, she joins the worries of the world's most powerful central bankers, mario draghi, mark carney.

Joining us, former goldman sachs asset management chairman, bloomberg view columnist, jim o'neill from london.

Jim, great to have you on with us.

From your deep international perspective on the market than on the global economy, your reaction to janet yellen at the next chairman of the federal reserve.

Well, i think me very short- term, it is not really a surprise in view of the amount of attention that has been on it the past month or so, particularly since the larry summers news emerged who was also in favor to get it.

Listening to what your washington guy says there, it seems to me it will be a pretty smooth process.

Although with your friends in washington, perhaps a presumption about anything these days.

The on that, she represents a sort of -- the dovish wing of bernanke.

She sort of out doves bernanke.

You would imagine in normal circumstances market participants and the framework of how markets have traded in the past month, years, would probably regard this as good news.

She would want to be sure that the fed can start shifting away from what it is doing.

There is a lot of evidence that a virtuous circle with unemployment doing -- going down and staying down.

I would imagine for the rest of the world, and particularly the emerging word, it is good news your clearly the -- emerging world, it is good news.

Jobs and inflation will be her prerogative.

Does this next fed chairman need to look more international, need to look at the fed's policy, the implications they have on emerging market than on financial markets around the globe?

I see some import and merging also makers have been saying that the past 24 hours in the d.c. no, i don't think so.

I have written about and said recently, the job of the fed us to do what's right for the u.s., but all of these other countries around the world that seemed to be upset with the fed recently -- my view is get a life.

Get a life and start developing your own markets.

This episode demonstrates that the business element is known, and the way to get out of that is developing the liquidity and usage of your own currency.

They have no credible grounds for complaining about the fed.

Jim, what we have learned to the bernanke array is austerity does not work.

We learned that in spades in europe.

It has been largely discredited.

The theme is accommodation.

Can she become restricted?

Well, some people have conspiracy to abuse that another reason why the fed is already tapering is they would like to start shifting it with her at the helm so that she can prove she is not as dovish as everyone is convinced about.

I'm not really persuaded by that argument.

Of course, if and when you get the evidence that either unemployment is down at the kind of levels the fed wants to see and/or more importantly you have some evidence of a rise in underlying inflation traditions, i am sure she would.

She is a very rational person.

State with us for a moment.

I want to bring in mike mckee.

Ben bernanke is the next run on the great depression.

That helped him add to bring the u.s. out of the great recession and what is janet yellen's specialty?

Unemployment is one of the things that hasn't earned her center graduate is that yield university.

She was a student of james tobin, who worked a lot on that.

She has spent a lot of time with her husband and collaborator who won the 1981 nobel prize on market inefficiencies.

So she is well-versed in financial markets as well as the employment trade-off with inflation.

Sounds perfect for what we have to deal with in this day and age.

Jim o'neill, question to you, do you assume that the stimulus, the quantitative easing now lasts even longer, perhaps into 2014? i think at the margin, you have got to leave a bit more, or what i would add quickly is you have to be sure about the trends in unemployment because that is clearly, again, as you're probably just said, is what she is so focus on.

While ben will be disappearing, other players will be around that have the same kind of thinking.

Unless there is some surprising jump in inflation x rotations, i would think -- inflation expectations, i would think this would be regarded at the margin as more dovish news.

Although, obviously, it is not a big surprise.

We will watch the unemployment rate.

Kimono, thank you for joining us on short notice.

He is the former chairman of goldman sachs asset management, writes columns for "bloomberg view." be sure to stay with bloomberg television, 2:00 p.m. eastern time, we get the federal reserve notes from the last meeting, and 3:00 p.m. eastern time, president obama is set to nominate janet yellen.

Coming up, the bond market.

The executive vice president of the world's biggest bond fund manager, pimco's richard clarida on economics and politics behind his decision.

This is "bloomberg surveillance." i am sara eisen, here as always with tom keene and scarlet fu.

In top headlines this morning, iran is working on a proposal to stop production of a near weapons grade nuclear fuel.

That's according to the "wall street journal." and return, they asked the u.s. and european union to cut back on economic sanctions.

The programs are scheduled for next week in geneva.

The obama administration that plans to suspend a portion of military aid to egypt following the crackdown on supporters of ousted president mohamed morsi by government forces.

Delivery of tanks, helicopters, and fighter jets will be delayed according to the "new york times." the cia is calling back thousands of its preload employees.

The civilian workers are needed to carry out the agency's core mission, according to the agency's director john brennan telling employees that keeping staffing at reduced lelvels will pose a threat to "the safety of human life and the protection of property?

-- of property." mohammed el-erian, the immediacy as we going to be we can.

Interesting to see the u.s. finally making a move here.

You can see that out of bloombergtv plus out on your ipad.

An important interview with dr.

El-erian.

Is it a shutdown chart, a janet chart?

We're hearing that apple will refresh its ipad line next month.

Minus on apple's last month, the apple 5s and 5c. the decision here is the s version iphone still deliver better margins.

On average, rose margin goes up by 225 basis points in the two quarters of launching an s cycle versus the two quarters of launch in a completely redesigned whether it is the 4 or the 455. based on his assumptions, he says apple's december corporate growth margins could be 39 point six percent, approaching 40%. leave that chart up.

We forget the money payment.

They make a lot of money.

This of their money maker.

Look at the gross margin.

Unbelievable.

If apple can keep that 40% rose margin or keep it there, then the commoditization story loses some of its -- david stevens with us with the mortgage bankers association.

What is the gross margin on a mortgage?

It is nil.

Houston is then?

-- how thin is thin?

It is narrowing dramatically.

It is totally elastic, goods, supply and demand is now really affecting the market, margins collapse.

You can see margins widen and contracts overnight.

That is the distortion we talk about.

Absolutely.

Interesting.

Coming up, and david stevens come i know you will stick around with us, we are going to talk about before to the minute, making a federal case of the debt ceiling.

But he president really use the constitution to avert disaster?

We're going to speak with one of the foremost experts of constitutional history here on "bloomberg surveillance," on bloomberg television, streaming on your tablet, your phone, and bloomberg.com.

This is "bloomberg surveillance." i am scarlet fu.

We have some news from the files of "bloomberg west." some sun will start selling the first phone with a curved display.

The galaxy round will only be available at samsung's home market.

The price tag -- $1000. as we told you earlier, apple will update its lineup of ipads at an event october 22 according to a person with knowledge of the plan.

A high-definition and hd version of the ipad mini and also a new version of the original ipad will be introduced.

Apple will also show its mac operating system.

Taiwan's htc is targeting the high-end market over in china.

The company's cofounder told bloomberg that htc is excited to sell every -- one out of every five high-end smartphones in a country that your.

It would put htc head to head with apple and its iphone 5c. scarlet, as we have been discussing, day nine of the government shutdown.

Now the focus is on the debt ceiling debate.

October 17 is the date that the treasury says it will lose its borrowing 30 unless congress -- authority unless congress raises the debt ceiling.

Shawn willett is a history professor at princeton university.

He knows the resolution in the history of the 14th mms dating back to abraham lincoln.

Thank you for joining us, sean.

Is there any real legal authority for the president to step in and act unilaterally on the debt ceiling.

Good morning, sara.

It is a two-step process.

Let's start at the beginning.

The 40th mma, -- the 14th amendment makes it absolutely crystal clear that were the house representatives to in any way prevent raising the debt ceiling, they would be in violation of because edition.

-- of the constitution.

That is absolutely clear.

That argument really has not come up.

It is yet to be made.

In part because we are facing in at number rices, but we are also in a political crisis.

One has to go back really to nullification, secession, to find examples like this, the kind of crisis we are in now.

So, to answer your question, if the republicans, if the house representatives was to do that and actually violate the constitution and bring us over the fiscal cliff, if you will, then the president does not have much choice.

What happens is -- he has worn an -- he has sworn an oath of congo -- of office that he is to protect the constitution of the united states.

By his oath alone, constitutionally mandated oath alone, he has to take steps.

Repressor -- repressor shawn willis from prison university, this is a sonic constitutional law done in 1868. can we apply law from another time and place to the modern day?

People talk now about neo- confederates.

We even have republicans -- i think this is outrageous -- talking about a consumers and -- a comparison to gettysburg.

Can we take 1868 and bring it forward to 2013? well, we are america, this is the constitution of the united states.

The constitution of the u.s. goes back to 1787 originally, this is an amendment that was done then.

Of course it is relevant.

The amendment was passed with precisely this kind of situation in mind.

In 1868, they were frightened of some political faction being able to compromise, push their own altars by economizing the dead.

That is the problem.

It is not that it is irrelevant, they were pressing -- where are the houston press on this?

Nancy pelosi would like the president to carry her water and the republicans' water.

Many would say the nancy pelosi and others want the president to go outside the bounds of constitutional convention.

Where are the house democrats in this debate on the 14th amendment?

I am not sure about that.

The house democrats should be well off, actually making the argument that i made in the beginning -- making it clear this is a constitutional issue at stake, clarifying what is at stake.

That would be very useful, not only for them and for the president, but for the entire country.

Summary has to be making that argument.

-- somebody has to be making that argument.

Any suggestion that the president can unilaterally before a violation, before a default, act unilaterally, i do not think that is right.

I think that is constitutionally unsound.

So you can't do that.

If you are pressing the president to do that, you are actually making that unconstitutional.

You do not want to do that.

There is another matter and to make the point that the republicans are violating the constitution of the united states.

That should matter a great deal.

No one is saying that.

Sean, thank you so much for joining us.

Sean wilentz is a princeton university professor, and he is a scholar on the 14th amendment and the constitution.

Moving back to 1868 is the cart before the horse.

The debate of lining up the sequences of discussion here.

In fact, rate valley air -- greg just put out a note that we think the 14th mma could come into play despite what houston eyes.

-- 14th amendment could come into play despite what the house the nice.

This issue has not been litigated since 1935. the only other time it came before the supreme court.

They said it could apply more broadly.

At the time, charles evans, chief justice at the time, use it.

At this time, we do not have a legal decisions of the white house argues if they did, you would tie up the credit of the u.s. in the legal system and therefore if you try to go to auction with bonds, who would buy them because you don't know that they would be necessarily considered good at the end of the process you go -- of the process.

It is "surveillance" legal hour.

1935, the language is indicated the broader connotation.

Help me if i'm wrong, mike, they took reconstruction law and all the struggles after the wilderness, after gettysburg, after antietam, and they dragged it forward to depression america with a great up and city.

-- a great propensity.

Hughes wrote in a decision although it was aimed at confederate dead, he did not specify that, so it was construed to be something that would apply in broader cases.

What i think is interesting, what professor sean wilentz pointed out, it is not just the president's responsibility here.

Members of congress took the oath as well to protect the constitution of the united states, and this violates the 14th the minute.

David stevens, former fha head, is with us.

You did not expect the fun "bloomberg surveillance." the funny thing about the 14th mma, we have been asking everybody, they are very quiet about the subject.

That amendment was to make sure the u.s. and not evolve on the debt to the south.

The question is -- the president, whether he would say anything on the record or not on the subject prior to the negotiation, but the request and is the challenges after the fact.

What it really creates confidence in the international market?

This would ultimately be in student some legal challenges, congressional hearing, etc., not likely to be a confidence builder.

Or should he just meant a trillion dollar platinum coin?

Are you going to bring bitcoin into this?

[laughter] the 14th amendment and bitcoin with sara eisen.

I want to go to this key point, very quickly, the idea that the president cannot act on this because it may affect the markets.

Is that true?

That is their belief that the white house.

It is a logical conclusion that if you do not know with your bond is going to be any good, why would you buy it.

The alternative to that that has been proposed is you put out a bond with a very high coupon, very high interest payment, and that way you take the risk.

In our next hour, judge judy.

Yeah, really.

Illegal briefing there.

Thank you to david stevens ford owning us.

I will rounded out with a janet yellen-flavored foreign exchange.

We will see a strong dollar against a japanese yen.

Euro-dollar, we did see the dollar weaken on this is that janet yellen would be nominated.

We will see -- we will talk a lot more about that.

Richard clarida is running at the next hour come of pimco and columbia university.

Also alan krueger coming up.

She is from brooklyn, new york by way of brown, yellow, and the san francisco fed, the president will nominate janet yellen to be used chairman of the federal reserve system.

Joining us, the fair -- former chairman of president obama's council of economic advisers alan krueger.

It is day nine of the shutdown.

Paul ryan services.

He urges, ground.

Sandra bullock -- she won't join us as our -- as in it "gravity" is in the big spring.

We talked to a real astronaut.

He is not george clooney.

Good morning, everyone.

This is "bloomberg surveillance ." i am tom keene, live from our world headquarters in new york.

Joining me as always sara eisen, and sitting in for sandra bullock, scarlet fu is with us.

Our guest toes, richard -- he looks like george clooney -- clarida.

A terrific monetary policy and said experience.

The brief.

Not enough news.

Government shutdown day number nine, janet yellen to be nominated at pre-: -- at 3:00 p.m. eastern time.

Production fell in the month of august by the most since back in 2012. also, apple is set to debut its new ipad at an event on october 22. here in the u.s. in terms of economy data -- 7:00 a.m. eastern time, we get the mortgage applications weekly number.

2:00 p.m. eastern time, the minutes from the last fed meeting.

3:00 p.m. eastern time, president obama will announce his nomination of janet yellen at the next fed chairman.

Before the bell, earnings overnight, we got costco missing analysts' estimates.

Sales growth slowed for costco.

Also we got family dollar.

After the bell, one a earnings report to watch -- ruby tuesday.

Scarlett has company news.

Let's start with steve cohen, who gets an ultimatum from prosecutors.

He was told it will cost $120 billion to settle the government 's insider trading investigation.

This is according to people familiar with the matter.

Cohen would be required to admit wrongdoing.

According to the "financial times," he has until early november to accept a deal.

Disney is finally going paperless with its stock certificate.

The company plans to stop issuing the paper certificates and deliver shares electronically instead.

The certificates tend to be popular with collectors and website that introduce children to investing.

They feature the founder, walt disney, surrounded by mickey mouse and other characters.

The change takes effect october 16. in the news that broke earlier, a potential blockbuster deal in men's apparel.

Does of a bank making a $2.3 billion cash bid -- joseph a bank making a $2.3 billion cash bid for men's wearhouse.

No word yet from men's wearhouse on the offer.

That is today's company news.

Tom, i know you're dying to see the latest deal.

By one bow tie, get eight free.

It is just great.

It has your name written all over it.

The real news story of the day.

Tom stu weber change combining -- tom's two favorite chains combining into one.

We want to go straight to our white house correspondent julianna goldman joining us from washington with the very latest.

Janet yellen was the front- runner, people expected this, the timing here a bit of a surprise and notable given the government is in its ninth day of being shut down for business and heading into a very important debt ceiling that down -- debt ceiling deadline october 17. tell us more.

That is right, sara.

Janet yellen was the front runner, but after larry summers took his name out in mid- september.

What happened was immediately after larry summers was no longer a candidate for fed chairman, it was essentially janet yellen for the having.

The white house when at an accelerated her vet, and they needed to wait for that to be 100% clean.

It took a few weeks to do that.

Now that ended up colliding with a government shutdown, the fight over the debt ceiling.

Last week was too crazy, still questions whether or not the president was going to be going to asia, but they realized they could not keep us hanging out there, and now was as good a time as any.

What is the president's relationship with janet yellen?

We know he was looking for larry summers originally because he had a close relationship, he was very loyal to larry summers especially during the financial crisis.

What about janet yellen?

He does not have that relationship with janet yellen, and you can look at the records at the white house to see when janet yellen was there.

She really was not there that many times am a particularly when you compare it to the side- by-side nature, fighting in the trenches of the president larry summers had.

You talk to people about the kinds of conversations around who the pick would be, and there was ever anything negative about janet yellen.

This was always a conversation -- she is a great candidate, she is highly qualified, she would be the first woman, but it was leaning toward summers because of that relationship that he and the president had.

You wonder fed is a good thing to protect the independence of a central bank.

Some would say we have got to get back to that independent.

Julianna goldman, stay with us.

All ryan says republicans are ready to negotiate.

Let's ask a democrat if his party is, too.

Congressman david sicilian is a democrat from rhode island.

He is a former mayor of providence.

He knows bob's and jimmy's pizza is the right people in providence, as anyone would know.

It is an interesting battle in washington.

Nothing like the political battles you have experience in providence.

What is your recommendation this morning to democrats to get them to begin to discuss these issues with paul ryan?

First of october democrats have been discussing this.

We passed a budget, not a budget i like in the house, back in april.

The senate passed a budget, and we have been pressing the speaker two point budget conferees to go to the next set to work out the differences and pass a budget.

The speaker has refused to do that, continuously refused to do it.

Right now is our responsibility to fund the government, to keep it open, and be sure we meet our allegations to pay bills.

What the republicans are attending to do is to continue to either repeal, delay, or defund health care reform as the price to pay our bills or the price to reopen the government.

We have never seen that before in our history where one party who do not get their way on a policy issue threatened to close on the government or default on the full faith and credit of the u.s. what we need to do is open the government today, raise the debt ceiling for a short period of time, and they go to conference and work on a long-term budget solution, but we have been attempting to engage in this conversation for many months, and the republicans of refused -- have refused to appoint conferees.

What we need to do is it's conference in the markets so we can function as a government.

My constituents are disgusted by what they are seeing here.

They are not alone.

Across the country, congressman, the problem is there's no indication of that actually happening.

You have republicans writing an op-ed to the press today, you have president obama giving a one-hour news conference, but is anyone actually talking to each other to try to get his government opened?

Well, i think, again, everybody has been very clear -- everyone says the same thing -- we need to open government.

Let's do that and commit to a process as in regular order, point conferees so they can get the work of putting together a budget.

But let's work together and cooperate and say number one, when need to have the government open to serve the american people, and number two, the consequences of default are so catastrophic for our economy and frankly the world economy that we have to understand that we need to pay our bills.

This is about adding to the debt, paying bills.

We are not a deadbeat nation.

If we can agree on those two things, i think lots of willingness to figure out what is the process over there.

Short-term to figure out a long- term plan and pass a budget.

David, to isolate.

Former mayor of kong -- of providence, david cicilline.

With you to go back to julianna -- we need to go back to julianna goldman.

Is there any indication that the president is willing to sit down with the republicans that we might get some kind of negotiation?

Yes, but that is one of the questions that came up out of that interview that you guys just did.

One of the possible and games here is to do as the congressman said a short-term extension to reopen the government, a short- term extension of the debt ceiling, to get everyone to the table to negotiate some sort of longer-term budget deal.

Not long-term, like 10 years, but longer-term.

It is not the grand bargain we have been talking about for the past few years.

But he said they have been trying to have this conversation over a month.

We have been trying to have this conversation for years now.

The debt commission, the supercommittee, why would it be any different?

Very quickly here, joe biden in the news yesterday, political writing up that harry reid essentially one vice president out of the discussion.

What is on joe biden's to do list this morning?

That is a good question.

Between youellen and a shutdown and debt ceiling, i have not had a chance to check the vice president's casual today, tom, but you have the vice president mitch mcconnell, these were the two dealmakers before, and the white house is longing for the days of mitch mcconnell.

They say he was the person, the negotiator who would always take resets ahead, but now you have house leadership that is only thinking to get to the next caucus meeting.

Julianna goldman, our washington correspondent.

Michael mckee, our economic correspondent year he will be with us for the hour.

Bloomberg television will have complete coverage of president obama's announcement of janet yellen to be the next fed chairman here that is at 3:00 p.m. eastern time here.

Also richard clarida is with us.

We will get his thoughts on economics and politics of this decision as well.

Let's do a data check right now, equities, bonds, currencies, commodities, what a difficult two days in a row in the afternoon.

You wonder what the afternoon will be like.

Futures up six.

Euro-dollar, $1.3516. dollar ascended this morning.

Output question of the day -- what will janet yellen do to differentiate herself from bernanke?

Tweet us @bsurveillance.

? good morning, everyone.

"bloomberg surveillance." i and tom keene.

Our guest house, richard clarida . one of the nation leading academics on voluntary -- on monetary policy.

We are honored to have him here with vice chairman yellen to be nominated at 3:00 p.m. this afternoon by the president.

The key phrase in all of our discussions with the guys like you is forward guidance.

Yap.

What is forward guidance?

Commissioned by the fed in speeches or written statements which attend to guide the financial markets, but especially the bond market, about the future path of monetary policy.

The feds use it as a tool to keep interest rates down and support recovery.

It is a tool to contain the bond vigilantes, someone argue.

Skeptics would say that you are -- the chairman mentioned in a news conference, a dependent.

Why have forward job owning, which is probably more accurate, if you still have to look at the incoming data in real-time?

That is an excellent question.

That is the tension for the fed.

There are different flavors of guidance.

Two years ago, they gave calendar date guidance.

40 years ago, we looked at tobacco.

Exactly.

Now the fed has moved into something worthy guidance is based upon macro threshold for on implement and inflation.

The problem is that especially the unemployment rate is not a great indicator of the labor market now.

There is this tension about data dependency and providing guidance, and that is why the communication has been a challenge.

Ben bernanke, sprints and -- rents and calamity, yellen, -- ben bernanke, princeton and m.i.t., yellen, brown and yale.

Janet yellen was named by ben bernanke to head the group within the fed on communication.

So much of what we call the fed policy, especially on forward guidance, is really on yellen's agenda.

There is some difference, but broadly speaking, yellen and bernanke are cut from the same cloth.

Quoted by bloomberg, as is a tough day for them, reassure the hawks that yellen could be responsible.

As yellen has pointed out publicly, right now the fed is failing on both of its mandates, inflation is below tubing percent and could be lowered, unemployment is well above where the fed would like it.

Where this gets interesting in the yellen term is where potentially there is a trade-off , when unemployment is still too high and inflation is high, so she will have to as fed chair make it clear what that trade- off is.

If they're going to be a pop quiz the echo -- is there going to be a pop quiz?

Yeah.

I will probably flunk it.

There is a clinically wonderful dissensions of janet yellen.

Let's look at the shutdown in washington next on "bloomberg surveillance." good morning, everyone.

"bloomberg surveillance." coming up on bloomberg, peter orszag, former omb director, synagogue a.m. on "market makers." not only on the shutdown button no doubt orszag on the future of the yellen fed.

Look for that at 10:00 a.m.. this is "bloomberg surveillance." i am sara eisen, here as always with tom keene and scarlet fu.

Our guest host for the hour is richard clarida of pimco.

The imf cut for worldwide growth, now predicted to be 2.9% down from the 3.1% in the july forecast.

The imf cites slowing growth in emerging markets.

March over -- more trouble at the fukushima nuclear plant.

Six workers were doused with nuclear water.

The plant operators measuring the levels of radiation, fukushima has been hit by a series of toxic water leaks in recent months.

The plan was crippled by the 2011 earthquake and tsunami.

In sports, tom, the boston red sox broke a 1-1 tie with the boston race.

They went on to win a three-want to clench the american league division series.

They will either play the oakland a's or detroit hikers.

V to reno going down first base, i would say all in radio, bloomberg boston, the red sox made some choice decisions here, as did the pittsburgh pirates.

Who you bring in the middle of the season is really important.

The middle child is working this . the blood to her.

Our third question of the -- good luck to her.

Our third question of the day, what will janet yellen do to differentiate herself from bernanke?

You can tweet us @bsurveillance.

We have to take this question up with our guest host, richard clarida of pimco in columbia university.

And peter cook, our chief washington correspondent.

Peter, on the politics here, the president said to nominate janet yellen as fed chairman at 3:00 p.m., then she has to be confirmed by the senate.

Is there any indication that any of the lawmakers could pose a challenge to her becoming fed chairman?

There is no slamdunk in washington these days as we know, but there is no real threat right now is that janet yellen is going to get bottled up.

We have to go through this process.

We know she has already cleared this committee previously as vice-chairman on a 70-6 vote.

There will be provoking to stand in opposition in part because of her views on monetary policy and what she has advocated before, just as there have been criticism of ben bernanke.

At the end of the day, one of the reasons the president that janet yellen is because she is an easy nominee today confirmed right now.

One thing the president does not need at this moment is a nomination fight, and i do not think he will get it here.

Republicans are more focused on the budget battle.

This will give the president a pass, even though many of them don't necessarily support janet yellen's views on monetary policy third wife janet yellen summer number 200 fed chairman ben bernanke.

Is that a good thing that we see this polity eric -- policy continuity right now?

Very much of what we think of of the bernanke fed is the bernanke-yellen said, especially on communication good on balance, it is a good thing.

Let's bring in michael mckee, our chief economics correspondent.

Much smarter than i am on these nuances.

One of the things i would say in response to peter is there are two possible problems for her.

One is as he mentioned the monetary policy, whether she is too dovish or not.

There'll also be questions about her regulation of banks while she was at the san francisco fed because the west, particularly arizona in her district, ground zero for the whole real estate crisis, and she had said that she should have been tougher on countrywide, -- is she going to be to blame on jamie dimon?

She will probably get tough questions on that.

You can see this nomination be put on holdb by republicans if the democrats have to give up too much.

She will be confirmed, which raises the question, richard, how quickly does she moved to put her mark on the fed by establishing some new policy rather than carrying out what ben bernanke had already put in place?

That if the question because the transition we have seen historically, the fed chairman, the fed chair almost always in their first year our challenge, they are tested by the markets.

Under greenspan, of course, the first month in 1987, we had the crash of the stock market.

At a mass of that happening.

But certainly at some point, in 2014, very likely the fed will be tapering, and may have begun tapering under bernanke.

The first opportunity she has is to lay out the tapering and the reduction of the fed's qe program.

And of course communication as well.

In fact, the fed has done a pretty good job to mitigate its interest-rate policy.

Before she gets to all of that, she has to get to confirmation first.

." , over cuny she didn't you mentioned the president picked her because she will be -- peter cook, over to you in washington, you mentioned the president picked her because she will be an easy confirmation.

It is an interesting dynamic.

I was talking to some staffers the other day about this.

There are not as many people on the hill, not as many staffers to go through her finances to try and and cover some hidden problems.

That is going to slow this process up as well.

The banking committee is holding hearings, this is moving along here and one other report what to make about janet yellen if there was -- there is one easy opportunity to distinguish herself from ben bernanke.

The idea of having a new chapter every single meeting.

Chairman bernanke race that idea has last conference that they have to do something between the quarterly meetings.

She has been a communication person, the message person, and that wouldn't surprise me if that is the decision she makes.

Do you agree with that?

Yes because this has become an issue that the fed right off meetings with there is no press conference.

." , thank you some -- peter cook, thank you smudge.

Mike mckee, thank you.

As well as richard clarida.

Washington, we have a problem.

We will talk to the commander of the international space station.

"bloomberg surveillance." this is "bloomberg surveillance," i am scarlet fu as always joined by tom keene and sara eisen peer we have company news for you now.

Costco missing on its profit for the first time in eight quarters.

The warehouse club chain reported $1.40 a share in earnings, six cents shy of the consensus.

Revenue climbed at a slower than forecast.

The shares are declining in the premarket trade.

Htc is targeting the high-end market in china.

The company's cofounder told bloomberg htc is expected to sell one out of every five high- end smartphones in that country next year.

The focus will put htc head to head against apple and its iphone 5c. steve cohen getting an ultimatum from prosecutors.

The billionaire hedge fund manager was told it will cost his firm 1.8 bi

This text has been automatically generated. It may not be 100% accurate.

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