Joe Matthew (2:30)

To Trump, is he also the path of least resistance to lower interest rates? Is it as simple as that?

Nancy Cook (2:35)

I think that's part of it as well. You know, another name that we've kept hearing about is Kevin Wash.

Joe Matthew (2:40)

Yes.

Nancy Cook (2:40)

Who was a Fed governor before, who Trump considered to be the Fed chair last time during his first term. You know, but I think that there is some, you know, he doesn't benefit from proximity. And I think that among the MAGA world, he is viewed as more, quote, unquote, Wall street than Hassett and potentially more unpredictable. Whereas I feel like the Trump camp thinks Hassett will follow the Trump agenda.

Joe Matthew (3:05)

Hard to underscore the daily audition to your point, with the interviews on cable news, on Sunday morning talk shows. That's got to play a big role in the president's decision because he's frequently defending Donald Trump's economic policies.

Jeannie Shanzano (3:16)

Yeah.

Nancy Cook (3:17)

And he's been, you know, he was on CNN on Sunday morning. He did that, the D.C. economic Club. He is appearing at a Wall Street Journal CEO summit in early December. You know, he is really making the rounds and not just doing sort of quick TV hits, but also doing more extended interviews where he's giving his thoughts on a range of, you know, inflation, the Fed, you know, all the things that tariffs, all the things that are a key part of Trump's economic agenda.

Joe Matthew (3:44)

He has said frequently, President Trump has said frequently in speeches and in public events recently that Scott Bessant was actually his preferred candidate. He's even pointed him out saying, scott, I wanted you, but Bessant likes the idea, likes the job of being treasury secretary. Is any of that true or is he just playing with people?

Nancy Cook (4:02)

No, I mean, what he is telling people privately, according to my sources, is that, you know, he wouldn't mind Bessant doing both jobs, jobs, Treasury Secretary and Fed chair. And I don't think that he's totally dropped that idea. That's not something that Besson wants. And Besson has told Trump that, you know, several times. And so one thing that I'm looking for is, you know, is there an 11th hour plot twist where Trump just gives Besson both jobs or does he go with asset?

Joe Matthew (4:27)

Well, so what do we need to, to get through next? There are a few remaining hurdles as you've been reporting. It's time for the finalist interviews next.

Jeannie Shanzano (4:35)

Yeah.

Nancy Cook (4:36)

So he, so Scott Besson has finished his interviews and what happens next is that the chief of staff, Susie Wiles and Vice President J.D. vance are going to do some of the interviews and, or, you know, to the people that progress and then those. And then people will meet with Trump. Scott Besson is not going to recommend someone, you know, Secretary Mnuchin did that during the first term. He recommended Powell and I think definitely came to regret it. And that is one of Trump's big regrets from the first term. Scott Besson has learned from that and he's not going to do that. But so the next steps are, you know, some interviews with some top aides, the vice President and then Trump.

Joe Matthew (5:12)

Jay Powell all the while is hanging out watching the news as a resignation letter handy does. What next?

Nancy Cook (5:19)

Jay Powell is hanging in at the Fed and I think just trying to keep his head down and do the job, but also try to preserve the independence of the Fed.

Joe Matthew (5:26)

There'll be a final interview then with President Trump. Does he put all three or however many in front of him like the Apprentice? They all get a one on one. How is that going to work that he could sell tickets to this?

Nancy Cook (5:36)

He could. I mean, so we know how he did it the first term. And so the first term he met with people individually. And so I assume that that's going to be the case here, you know, where he'll meet with people, you know, and he does know these people or he knows some of them. He knows Kevin Warsh because he interviewed him the first time. Kevin Warsh also was down in Palm beach during the transition. He talked to him also for the Treasury Secretary job. He knows Kevin Hassett and then some of the other people, like Fed Governor Chris Waller, you know, he would need to meet with him and see what he thinks. Are some other people in the mix really interesting.

Joe Matthew (6:10)

We've got a three handle on the 10 year. I know you're not a market analyst, Nancy, but you kind of move the market with this report today. That would, that would suggest that if it's Kevin Hassett or maybe anyone else on the short list, you're going to have lower interest rates.

Nancy Cook (6:26)

I think that people think that if Kevin Hassett is there, he will push for the rate cuts that Trump wants. He is very much in line with the Trump agenda.

Joe Matthew (6:34)

And following that are the Rick readers and all the others from outside the admin still on the list or are we whittling?

Nancy Cook (6:40)

I think that Hassett is really the front runner.

Joe Matthew (6:42)

Got it. Great reporting today, Nancy. Thank you as always.

Nancy Cook (6:45)

Thanks so much.

Joe Matthew (6:45)

The great Nancy Cook with us here in studio. Everybody's picking up this story and you'll know that it did come from Nancy's reporting here on Bloomberg. You can find much more on the terminal and online with the headline, as we mentioned, Hassett emerges as frontrunner in Trump Fed Chair audition. This could come in the next couple of weeks. As we've been hearing creeping up around the Christmas holiday with some of these interviews finally coming to a close. This is not the story we thought we were going to be talking about today. It's em as our top story. And it's even a market mover on top of the other market mover that we started our day with. And that's the Google story, the sleeping giant as I read on the terminal, now fully awake. We like the drama, you know, when it comes to AI. And on a story like this, having released the new AI software, it's got the new chat bot out that got everybody, including Marc Benioff worked up yesterday. Now it's this deal with Meta and TPU's. I'm guessing, I'm guessing a lot of people are hearing about TPU's for the first time today. Not to be confused with GPUs made by Nvidia. These are the Broadcom chips, these specially designed chips that might make an interesting path forward here. But as I mentioned, we seek context on stories like these because there seems to be a different one every day. We can hardly count the trillions of dollars any longer. And I'm really excited to say that we're going to spend some time with Dan Ball who essentially wrote the book for Donald Trump. He'll be mod and tell you many others were involved, but he helped to write the AI action plan. And I'll bring you back to July when President Trump rolled this out. Here he is. Whether we like it or not, we're suddenly engaged in a fast paced competition to build and define this groundbreaking technology that will determine so much about the future of civilization itself. Because of the genius and creativity of Silicon Valley. And it is incredible, incredible genius. Without question the most brilliant place anywhere on earth. America is the country that started the AI race. And as President of the United States, I'm here today to declare that America is going to win it. We're going to work hard, we're going to win it. And it has been quite a ride since then here for this administration, for the industry. When you look at the charts on Wall street, maybe save the last week or so for some of them, you know what I'm talking about. But the leadership role appears to be evolving here. It's not just about Nvidia and certainly the stock is showing that as Metta enters discussions to use Google chips in its data centers that could help to establish TPU's as an alternative to in videos, GPUs. Those TPU's are designed with the help of Broadcom, which has been enjoying a nice run up recently as well when it comes to that AI action plan. It was written, as I mentioned in part by Dean Ball. When President Trump sits back, closes his eyes and thinks about what to do with AI, he thinks of this man, Senior Fellow at the foundation for American Innovation. He was Senior Policy Advisor for AI and Emerging Technology at the White House Office of Science and Technology Policy recently among the rest of us in the civilian world. Dean, it's great to see you. Welcome back to Bloomberg. I'm sure I overdid your intro and you can tell me about that later, but I'm just curious, does a Dean Ball wake up and see headlines like this with everyone pulling their hair out? We're putting in buy and sell orders based on this story and roll your eyes. Do you have a much longer view than this particular news flow that might be missing the point?

Dean Ball (10:20)

No, I think it's a pretty substantial story actually. So Google's TPUs tensor processing units as opposed to GPUs, graphics processing units have been around for about 10 years. Google started creating them in 2015 for its own internal purposes. Right. Google was running lots and lots of AI and machine learning applications, so they sort of needed this for themselves. But they're very, very, very effective chips. And it's sort of no surprise to me that a company like Google would start to see there being value in selling those chips to other people. Particularly because any well functioning capitalist system, if there's a company making 80, 90% profit margins as Nvidia does, you should expect there to be competition to start to lower those margins. And that is what appears to be happening here. We'll see if it works. Nvidia is a fiercely competitive company, but that's what's happening.

Joe Matthew (11:15)

So cheaper doesn't run as hot, is more productive. Therefore, a lot of folks have been asking whether there will be a real competitor to Nvidia. Did we finally find one?

Dean Ball (11:27)

Well, I think it could be. I think there's a lot of, there's a lot of obstacles that Google faces. The most important one by far is not actually just performance of the chip, it's the software ecosystem. So in a way that's a little bit similar to how the iPhone. You know, Apple's iOS has this huge developer ecosystem and all these developers, when they make mobile apps, they usually target the iPhone first because it's kind of the premier smartphone market and you know, Android being a close second there. There's something similar that happens with Nvidia chips where all the developers of machine learning models kind of use Nvidia's software ecosystem, which is called Cuda. And that's a huge moat that Nvidia has, possibly more significant even than just their hardware performance. So the question will be, can Google develop a similar type of ecosystem? And it's a big challenge when you consider that Google has been used to using these chips, these TPUs, almost entirely for internal applications and some things that were offered to developers, but this is mostly for them.

Joe Matthew (12:35)

So we're leasing them or renting them at some point for.

Dean Ball (12:38)

Yeah, they do. They rent them on their Google cloud product. But the idea of selling them to other.

Joe Matthew (12:43)

That's all new.

Dean Ball (12:44)

That's new.

Joe Matthew (12:44)

So if you're Broadcom, did you just find your new reason to live? I mean, this is. We've seen a huge run up based on a story like this in just over the past couple of days. Nvidia is one of the only stocks in the tech sector that's lower today. Is this all adding up in your.

Dean Ball (13:00)

Head to a certain extent? You know, I mean the market might be overreacting to this particular piece of news. We'll see. Right. I think the idea meta is going to be using Nvidia chips for a long time to come. And by the way, Google uses Nvidia chips.

Joe Matthew (13:13)

Going to say Google is a client.

Dean Ball (13:14)

Google is, I'm sure they're one of Nvidia's largest customers.

Joe Matthew (13:17)

And then I'm supposed to ask you again about circular investing. Which do you see as misguided in this case?

Jeannie Shanzano (13:23)

Not.

Dean Ball (13:24)

Not really in this case? No. I mean, look again, are there some transactions that happen in this that seem sort of a little fishy? Yeah, maybe. You know, I'm not expert in such things.

Joe Matthew (13:35)

Sure.

Dean Ball (13:35)

I'm more of a policy.

Joe Matthew (13:36)

You're not an accountant.

Dean Ball (13:37)

Yeah, I'm not an accountant. I do have opinions about depreciation schedules, but I'm not an accountant.

Joe Matthew (13:41)

Well, those depreciation schedules are a big deal for the investment community right now. And when you look at all these data centers popping up that are going to, you know, pay a lot of money for cooling, they're going to try to harness enormous amounts of energy. Does a TPU or the next generation make all of this unnecessary? Are we going to have data centers on mothballs when the technology catches up?

Dean Ball (14:02)

I don't think so. I think that there's just an enormous amount of underlying demand for AI services. And so, you know, I think the companies that are building these data centers are building them primarily because they have trouble meeting Demand right now. OpenAI Anthropic these companies are always talking about how limited they are on compute and how they could serve more models, better models, different kinds of products to customers. But they can't because they're compute constrained. So I think they're making a logical calculation. At the end of the day, when it comes to these sort of frontier data centers, you do need to maximize basically computations per square foot. So that, that becomes very important. But at the same time, Google on their, on their most recent earnings call, Google talked about how they had very high utilization rates of the Nvidia V100V as in Victor from from 7, 8 years ago at this point. So that chip is still being used for different kinds of developer purposes. So it might not be that you use the frontier chip for everything. There's a lot of other use cases. And so I think that the sexiest use cases of AI will probably always be on these, the big training and stuff like that. They'll be on the latest models, but I think there'll be uses. I mean, we'll see if that changes. But I tend to think that the depreciation schedules that we see right now are actually reasonable.

Joe Matthew (15:27)

Fascinating. And good for us to hit that. Before you go, we've got about a minute left. Do TPU's accelerate the end game here where you and I both have a digital twin?

Dean Ball (15:37)

I mean, at the end of the day competition is inherently accelerationist. Right. So competition is great in that regard. I hope it makes both Nvidia and Google better.

Joe Matthew (15:46)

Can you sell them to China, the TPUs?

Dean Ball (15:49)

I don't think Google currently does.

Joe Matthew (15:51)

I think this could be the next big argument for export controls. Huh.

Dean Ball (15:54)

There could be some chips. We'll see if Google wants to. Right, but it's very possible, you know, there, there could be some chips that fall into the sort of export control regulations.

Joe Matthew (16:03)

Well, there needs to be a new action plan. Do you go back and rewrite that thing at some point?

Dean Ball (16:07)

I don't know about me, but, but I think that something like that, you know, a plan like that is worth updating every once in a while.

Joe Matthew (16:15)

Fascinating.

Dean Ball (16:15)

Yeah.

Joe Matthew (16:16)

Dean, thank you. It's great to see you back. Dean Ball, Senior Fellow, foundation for American Innovation with us live on Bloomberg TV and radio. And it's just the voice that we wanted today as we watch shares of react to the news at hand. It's been a good one today for shares of Google and they're still hanging in, up about 1% or $4 in video, down 4% or $6 a share. We'll assemble our panel next on the fastest show in Politics. This is Bloomberg.

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Joe Matthew (17:42)

You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android.

Jeannie Shanzano (17:50)

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Joe Matthew (17:53)

On demand wherever you get your podcasts or watch us live on YouTube.

Joe Matthew (17:58)

Thank you for joining us here on the Fastest show in Politics with our panel on Deck. We keep our eyes on the White House today. The turkeys have been pardoned. The health care plan has not yet emerged and that has been a big point of conversation this week with early reporting late weekend and yesterday that the White House was about to put forth a health care proposal. And when I say that, I mean one that would answer Democrats on Capitol Hill following the government shutdown by extending Obamacare subsidies reportedly by a couple of years and putting limits on eligibility at 700% of the federal poverty level. This is not going to be coming forth this week for any number of reasons and the press secretary, Caroline Levitt, was asked about it yesterday. Here's what she said.

Joe Matthew (18:47)

Health care is a topic of discussion that's happening very frequently and robustly inside.

Kelly Grieco (18:52)

The West Wing right now.

Joe Matthew (18:53)

The president's very much in involved in these talks and he's very focused on unveiling a health care proposal that will fix the system and will bring down costs for consumers. As for the details of those discussions, I'll let the president speak for himself.

Joe Matthew (19:08)

Well, the president is not speaking for himself on this front. It was the treasury secretary, Scott Besant, who had said the proposal could be out this week. So at some point that likely was the plan. Republican lawmakers were said to be blindsided by this. And there was no love on Capitol Hill from the Republican leadership. So this is going to have to wait a minute. The proposal expected again to include extended subsidies for those purchasing health insurance through the aca. But then of course, the president will tell you that he wants to send money directly to people so they can buy their own insurance. We play it to the panel for their thoughts on this. And God knows we've talked about it before. Democratic analyst and Bloomberg Politics contributor Jeannie Shanzano is here. Democracy visiting fellow at Harvard Kennedy School's Ash Center. Ashley Davis, our Republican strategist partner at S3 Group, is with us as well. Jeannie, we were making comparisons to infrastructure week yesterday. The fact of the matter is John Thune promised to vote on the Senate floor, I believe by the 10th of December. So the white House will need something will have to say something about this unless Democrats on Capitol Hill are going to write their own legislation. And I don't believe that's how it works. When will Donald Trump have to put something on the table?

Jeannie Shanzano (20:21)

Yeah, I mean, it is really perplexing that anybody in the White House thought the Monday of the short Thanksgiving week hoist on the Republicans in Congress a plan to reform or at least address health care costs without discussing it with them apparently first. It makes no sense. And it was never going to be an easy task. And we know that because for decades Republicans have had trouble addressing health care. This goes back so long. And you know, the president's instincts on this are not wrong politically. He's right. They have to address this. The subsidies are going to expire at the end of next, next month. There's not a lot of time to deal with it. This is hurting Republicans in the polls as they head into the midterm. But he's facing Republicans who have years voted against Obamacare. And now apparently the White House wants them to turn on a dime and vote to extend these subsidies. That's going to take an effort by not just the White House, but the president going to Capitol Hill, talking to them, addressing their concerns. And that hasn't happened. So politically, this really was not done well. And I'm surprised anybody thought you could just hoist this on them at the last minute Senate, and it was going to pass given the history of this issue with Republicans on the Hill.

Joe Matthew (21:46)

Ashley, you've got great contacts in the Senate. What does John Thune think about this moment? Is he hoping that the president will take a leadership role here, or does he need to figure this out on his own with Democrats?

Joe Matthew (21:59)

Well, listen, Republicans have known for, you know, a year that this period of time of these subsidies were going to expire. Remember, the the crux of this issue is because they were expanded at a higher level during COVID And the Republicans are saying it's time to go back. We're not in Covid anymore. That's a very difficult thing to do because a lot of families in our country have depended on it. So it's even though intellectually you can understand the point about overspending, the human side is really impacting these members of Congress because a lot of their constituents do rely on it. I'm going to stick up for the administration here. There's plenty of people on the Hill that knew what was going on with the administration and what they were proposing. What was proposed has been talked about for months and months and months. You just can't negotiate with 535 members of Congress. I mean, it's impossible. So you have to have a smaller working group. That being said, I don't think that the administration appreciated how many Democrat votes they will need for some sort of plan with this, with any proposal, because many of the Republicans, especially on the extreme right, have no desire to spend money. The fiscally conservatives have no desire to spend money. So we are going to have to have a bipartisan package. And also just finally, the Democrats in the Senate and the House have been asking for the president to engage in this process. So if you looked at even what Senator Shaheen said and several others, they were like, listen, this isn't going to be the final package, but at least we're starting to get engagement. And it looked like a serious what leaked looked like a serious enough package. So the other thing that's always going to be an issue is the Hyde Amendment, which you know is about spending federal money on abortions. And that was there was not there was some language in this proposal that focused on some of the other social issues that are controversial for Republicans. But the Hyde Amendment was silent. So we'll see how that play it. That always plays out in health care legislation. So, you know, the drama will continue.

Joe Matthew (24:17)

Jeannie, it sounds to me like Democrats might regret and I know a lot of them didn't like it when it happened, but might regret this agreement with John thune for a December 10th vote. This is why so many said there needed to be a deal, not just the promise of a vote. Right. What if it doesn't happen happen by the 10th?

Jeannie Shanzano (24:36)

Yeah. I mean, it is horrendous for the American public if they can't strike a deal. And you know, we get back from break in Monday and we are in December already. You have a few days before that vote and then a few weeks before the end of the year when these subsidies expire. So this is disastrous. I mean, forget about either of the parties for the American public, particularly people who depend on these costs. And you know, the reality is, is that we've had, what, 13 members of the GOP come out publicly and say they support extending the subsidies. All of them are in vulnerable districts. And so that's why the approach here by the White House makes no sense. You were going to have to deal first with the gop, then reach across the aisle. This was going to take time and concerted effort. And they did know, to Ashley's point, long time, which makes this more perplexing. But I think it underscores what the Democrats have been saying is that the president has not been focused like a laser beam on affordability and now it is coming to hit the administration and unfortunately the American public. And so I'm not sure that they can get a deal. But I don't think it's just a problem for Democrats. It's a problem for Republicans and members of the White House and all of the American public, most importantly.

Joe Matthew (26:00)

Oh my God. So what's the answer then? What's the short term answer, Ashley? Do you have to have a short term extension of subsidies, kind of like a CR so we can buy more time to figure this out?

Joe Matthew (26:10)

That's what I keep thinking. And there is some money available that like December 31st, people's benefits aren't going to go away. I mean, there you can do something through the first quarter. So, you know, just to make sure that people aren't totally scared that are listening to us, depend on that. There is some flexibility there. But yes, yes, I think that this is a political, a caring issue enough, number one, I hope, for all members of Congress, but also a political issue for both sides that something needs to be done. I do believe John Thune will give the Democrats their vote on December 10th as he promised. But going back to your, I don't know, December 10th, maybe that week, at some point Whether it's legislation that can actually pass or not is the question. And that I agree with you, Joe. I think it was when you asked Jeanne like, like should they have gotten a deal that said we have to have legislation in place, but that would have been impossible during the shutdown, I think.

Joe Matthew (27:04)

Well, if this doesn't get done, Ashley, do we shut down at the end of January? This is the question I keep asking.

Joe Matthew (27:10)

Well, I, you know, I always feel like shutting down was people calling bluff, especially for as long as we just did. No, I think that we'll get, I think we will get something done and I think it will go through September 30, but, or it may actually it's going to have to go through September 30th just because it's a fiscal bill. But so that means we're in, we're in September 30th dealing with a shutdown again right before the election, right before people are supposed to go home and start campaigning. So that's going to be a disaster too.

Joe Matthew (27:42)

That's why there was a two year extension on this thing that leaked. Jeannie, you know, you'd get it past the midterm terms. Donald Trump seemed to think that was a good idea. And you know, to Ashley's point, there were a lot of details on this. It looked like it was a plan that was being prepared for release. Jeannie, what would Democrats do with the plan that we described yesterday, including the limitations on eligibility? Would they have to vote for it?

Jeannie Shanzano (28:07)

I think they would want to talk about it. I think they would want to negotiate it. I think, I think it was a step in the right direction. You know, I am not a fan of these sunsetting attempts and I bemoaned it when the Democrats did it in 21. I bemoan it now. If you believe that health care is a right for Americans, you should fund it. And so I think you may find people who feel that way. But of course you need to compromise when you're in the minority or even in the majority. So, you know, but again, the President's instincts are right here. But the President has changed this party. He is now worried about a base who are being hurt by the if these extensions expire. But you've got traditional Republicans who feel very differently, even members of the Tea Party, more concerned about the fiscal cost. And that's where the rub is for Republicans. This is a issue that divides Republicans and that's why the president's going to have to go in and make some deals with the majority in Congress to push this through.

Joe Matthew (29:11)

Well, it's going to have to happen pretty quickly and I thank you both for your insights on this. Jeannie, Shan Zaino and Ashley Davis, a great panel. Thank you both. And can I say, Ashley, if I don't see you, Happy Thanksgiving. I think we might have one more show left. Jeannie. I'm Joe Matthew in Washington. Thank you for joining us here on Balance of Power with a headline that just crossed the terminal, Bolsonaro ordered by court to start serving his sentence in jail. Indeed, the former Brazilian president having told a judge on Sunday he violated his ankle monitoring the day before at his house because he had a nervous breakdown and was suffering hallucinations caused by a change in his medication after tampering with the ankle bracelet. He has now been ordered by the court to start serving his sentence in jail. We'll turn back to potential peace in Ukraine next.

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Joe Matthew (30:58)

You're listening to the Bloomberg Balance of Power podcast. Catch us live weekdays at noon and 5pm Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa play Bloomberg 11:30.

Joe Matthew (31:17)

I'm Joe Matthew in Washington with her eyes on Abu Dhabi today. First it was Geneva over the weekend and now peace negotiations surrounding Russia's war in Ukraine have settled in the uae and an important task at hand for the Secretary of the Army Dan Driscoll, who is across the table from Russian counterparts in trying to negotiate a peace breakthrough. The delegations are at it right now. The secretary finding himself in a room with Russian officials that he may never have imagined when he took this role as the civilian leader of the United States Army, Ukraine's military intelligence chief. Also in Abu Dhabi for meetings. President Trump citing progress on the peace proposal that has gone from 28 points, we understand, to 19. That peace proposal with elements initially rejected by Ukraine starting to shrink in scope. And we understand, according to reports, that President Zelensky is standing by to visit Washington if and when there is the opportunity for a breakthrough. This idea of peace in Ukraine was discussed yesterday at the White House with Press Secretary Caroline Levitt when she took questions from reporters. Here she is.

Joe Matthew (32:35)

The idea that the United States of America is not engaging with both sides equally in this war to bring it to an end is a complete and total fallacy that could not be further from the truth. I have watched as the president and his team have worked around the clock overnight with both sides on endless phone calls, endless meetings to try to bring this war to a close, remembering it.

Joe Matthew (32:57)

Was just a couple of weeks ago that Zelensky was back in the White House and the president was on the phone with Vladimir Putin and turned away from this idea of providing Tomahawk missiles to Ukraine to try to hasten the end of the war. This multi point plan has since taken over the narrative and may well provide the breakthrough that the president is hoping for. It's where we start our conversation with Kelly Grieco, senior fellow with the reimagining U.S. grand Strategy Program at the Stimson Center. Kelly, it's great to see you. Welcome back to Bloomberg TV and Radio. All the while, we should remind our listeners and viewers that Russia continues to bombard Ukraine. Ukraine and continues to kill civilians by targeting residential areas. Kelly, before we ask you about negotiations, what is the status of this war on the ground that we had been describing for months and months as a war of attrition? What is Ukraine's posture right now?

Kelly Grieco (33:54)

Yes, so you know, it is a war of attrition, but it's not static. What we're seeing is that Russia is making slow, costly gains, particularly in the Donetsk region. And it looks like the town of Prokru Karovsk is likely to fall in the coming days or weeks, which is an important logistics hub for Ukraine. It's, I think the important thing really is to emphasize that this is costly, but there is some movement on the battlefield and the question becomes whether the Russians are really willing to pay those costs to try to take all the land by force and if they do that, it would probably be until about 2027 before they could take the rest of Donetsk.

Joe Matthew (34:33)

Wow. All the while, Ukraine is attacking Russia not by going after civilian neighborhoods, but energy infrastructure, particularly on the Black Sea. To what extent can Ukraine inflict damage without receiving more long range missiles? When it comes to energy infrastructure specifically, yes.

Kelly Grieco (34:50)

So it's clear that the Ukrainian strikes on energy infrastructure have had some impact, but not probably enough to really impair Russia's ability to conduct its war, to finance its war. It certainly has made it more painful and it's forcing some more acute choices on the Russians ultimately about how they're going to finance their war. The defense budget for this coming year is actually a bit smaller than it was the previous year. It's still enormously large and you know, well above large in terms of post Soviet Russian defense budget. But you can see that there are some real choices that Russia would have to make if it's going to continue to fight this war for a few more years, including raising taxes. And of course that becomes domestically much harder for Putin.

Joe Matthew (35:34)

Well, so let's start looking inside this peace proposal, at least to the extent that we understand it. And Kelly, we should be honest, this is a fluid document, as the Secretary of State has made clear. But we're talking about a potential security guarantee by the US and some of our European allies, and it would come at the expense, at least, least in terms of the early drafts of a good chunk of Ukraine's standing army. It may not be able to defend itself without the security guarantee. So what does that need to look like for Volodymyr Zelensky for it to be acceptable?

Kelly Grieco (36:09)

Well, I would just step back for a moment and say that I think the notion that Ukraine cannot defend itself without a security guarantee, or at least if we're talking like a NATO style security guarantee, is clearly not true given what they've been able to accomplish on the battlefield so far. I think what we're seeing in the negotiations is, it seems like an increasing recognition, which is clearly painful for Ukraine, but that the best security guarantee is going to have to be a robust self defense and trying to extract things from Europe and the United States to support that. The language in the initial proposal talked about some kind of response. It was very vague by the transatlantic community if Russia were to attack again. But it really doesn't commit United States or Europe to anything specific. And it's clear that, you know, there, there's opposition to NATO membership for Ukraine, that that's not going to happen politically. And that really Ukraine needs to move towards figuring out how we can get the kind of support it needs, more indirect form of support to make its own robust defense to prevent another war.

Joe Matthew (37:11)

Well, so it sounds like we need to see many more revisions. Maybe they're taking place right now. But selling this was already a lift for Russia, for the army secretary trying to sell this to Russia. If you start making some of the changes that you're suggesting, this could be dead on arrival then, right?

Kelly Grieco (37:32)

Yes. I mean, I think this is what's really interesting about this negotiation is that the administration is walking a fine line here and that the more it compromises with Ukraine about some of the these specifics and of course, it's hard to know because we haven't heard a lot about what the 19 points the new version says. And the language really matters here a lot. You know, are these very substantive changes or are these changes more to the language? So it's a bit more domestically palpable to Ukraine. But if it's going to be really substantive changes and particularly around the Naito issue, then it's going to be a non starter for Russia. That's very clear. This is a red line for that them.

Joe Matthew (38:11)

Well, you're sounding a lot like Ivo Daalder, who we spoke with on the late edition of Balance of Power Yesterday, the former U.S. ambassador to Naito also hosing down this idea that we could see a breakthrough between now and the holidays. Some thought Zelensky could show up even this Thanksgiving week either here in Washington or at Mar a Lago. Here's what the ambassador said. There's not going to be a deal that the Ukrainians are signed off on, let alone a deal that the Ukrainians and the Russians are going to be signing off on by Thursday or by Christmas. This conflict has been going on for over 11 years. The idea that it's going to be settled because a bunch of guys come up with 28 points is just not how it happens. But Secretary Rubio did finally sit down, have a serious negotiation. This takes time. It takes effort. This takes understanding. That would imply, Kelly Grieco, that this war is going to carry into winter. Victor, and that brings a whole new strategy for both sides. What does Ukraine need to do to prepare?

Jeannie Shanzano (39:12)

Yes.

Kelly Grieco (39:13)

You know, obviously trying to get this done by Thursday is overly ambitious and even Christmas is overly ambitious. Just given the realities, I would just say that the winter is grim for Ukraine. On the battlefield itself, the winter and the weather very much favors Russia because they're using these infiltration tactics very Very small numbers of forces, two to three at a time, that essentially slip through what's a porous Ukrainian line. So the COVID of the fall of winter sky and rain and snow makes it harder for Ukrainian drones to detect those movements. So Ukraine is in a difficult position in terms of, for this winter in terms of preventing these kinds of infiltrations. And I think we'll have to make some challenging choices about how long to defend some key locations, including places like Crock Cross, Kosk, versus deciding that it's not worth losing more manpower and that they're better off moving back to a more secure defensive line. That's, unfortunately, the kinds of hard choices Ukraine will be facing.

Joe Matthew (40:12)

If you're Russia right now, is it men or material that you're more worried about lasting through winter?

Jeannie Shanzano (40:19)

Hmm.

Kelly Grieco (40:19)

I don't. It's certainly not manpower. They have sufficient manpower, I would say, for about the next nine months. I don't even think it's material if you're rushing Russia in terms of. You said Russia, correct?

Joe Matthew (40:31)

Yes.

Kelly Grieco (40:32)

In terms of, you know, the, the winter, if anything, I think their thinking is a little bit more long term in terms of what they're going to do a year or two years from now. If they have to ultimately take this by force and they're not able to do it a negotiating table in about nine months. Putin, for example, would be facing a mobilization question. Again, right now they're paying high salaries to encourage people, you know, from parts of Russia to come and join the military for these high, high salaries. But that's only can get you so far. And they would ultimately face a choice about whether they're going to mobilize more broadly to get the kind of manpower they need. And so I think they're thinking in a different timeline about a year from now, whereas Ukraine is really thinking about even how it gets through the next couple months.

Joe Matthew (41:16)

Kelly, I mentioned Tomahawk cruise missiles, which apparently are not going to be arriving anytime time soon in Ukraine. That was something that Zelensky had been asking for. He said it would turn the tide in the war by essentially putting fear into the hearts of Russians. They would know what it's like to be bombed the way Ukraine has been bombed for the better part of three years from a distance. But we saw initial reactions like this to any number of weapons systems that Ukraine requested, the M1 Abrams tank, the F16 included, going back to ATACMS missiles. I'm just curious to what extent all of these nos that turned to maybes that became yeses were actually good ideas in the end?

Kelly Grieco (42:01)

Well, I think, you know, if we've learned anything from this war, I hope it's that people realize that the idea of wonder weapons doesn't really exist. A single weapon system cannot decisively change the course of the battlefield. These things have mattered, you know, for a period, often a period of time, a window when they've gotten a new system, a period of maybe four to six weeks when they have an advantage because the Russians are figuring out how to adapt. But after that, it returns to this sort of static, this attrition, a level of attrition because both sides are clearly learning militaries and that's what we would see with Tomahawks. And I'll just add that I think the Tomahawks are even less significant, providing even a force six week window because one, the Russians have, the Ukrainians have their own long range strike capabilities, long range drones at this point that are doing some of this and then the numbers that we would be talking about are so small that it really would not have a large impact.

Joe Matthew (42:57)

Are they using the F sixteens effectively that they got their hands on? Remember that was going to turn the tide of the war at one point?

Kelly Grieco (43:04)

Yes. What I would say is what we see is that to the extent they're using them effectively, it's sort of the way I predicted on this show in that we wouldn't be seeing them using over the battlefield to try to support forces and counteroffensives. They're using them much more in a defensive role, in an interception role of shooting down incoming missiles and drones to try to keep the airspace contested, to try to protect their cities. So it's a far more limited role, which is not surprising given the reality of what Russian air defenses look like.

Joe Matthew (43:39)

She has a way of predicting things on this very program. Kelly, great to see you. Kelly Grieco, Have a great Thanksgiving and thanks for the insights today. Senior Fellow with the reimagining U.S. grand Strategy Program at the Stimson center with us live here on Bloomberg. Thanks for listening to the Balance of Power podcast. Make sure to subscribe if you haven't already, at Apple, Spotify or wherever you get. And you can find us live every weekday from Washington, D.C. at Noontime Eastern@Bloomberg.com.

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