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QUEST MEANS BUSINESS

A New CNN Poll has Biden Expanding Lead in Democratic Presidential Field; Italian Prime Minister Conte Resigns; European Stocks Close Lower Amid Italian Crisis. Aired 3-4p ET

Aired August 20, 2019 - 15:00   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.


DONALD TRUMP (R), PRESIDENT OF THE UNITED STATES: The -- certain people -- I'm going to be kind. Certain people in the media are trying to build up

because they'd love to see a recession. We're very far from recession.

In fact, if the Fed would do its job, I think it would have a tremendous spurt of growth. A tremendous spurt. The Fed is psychologically very

important. Less so, actually, but very psychologically important.

And if the Fed would do its job, which it's really done very poorly over the last year and a half, you would see a burst of growth like you've never

seen before. And that would be lowering interest rates and maybe putting some -- if you look at what China is doing, if you look at what Germany is

doing, if you look at what so many countries are doing -- putting some money in, because we want to compete with these other countries. So I

think that we actually are set for a tremendous surge of growth, if the Fed would do its job. That's a big "if," frankly.

But they should -- the Fed should -- the Fed should be cutting. And I would say they should say, at a minimum, 100 basis points over a period of

time, not at one time. But over a period of time.

QUESTION: Mr. President, can the country afford tax cuts when we're already running trillion-dollar deficits?

TRUMP: Well, I'm not talking about -- I'm not talking about doing anything at this moment. But indexing is something that a lot of people have liked

for a long time. And it's something that would be very easy to do, and a lot of people have been talking about indexing for many years, and it's

something that I am certainly thinking about.

I can say that a majority of the people in the White House, at the level that does this kind of thing, they like indexing. So it is something I'm

thinking about.

Payroll taxes -- I've been thinking about payroll taxes for a long time. Whether or not we do it now or not is -- it's not being done because of

recession, because we are -- legitimately, if we had a cut in interest rates by the Fed -- if they would do their job properly, and if they would

do a meaningful cut, because they raise too fast, you would see growth like you've not seen ever in this country.

Now, if you go from the election -- that great November 8th day -- if you go from November 9th to present, you're talking about almost a 60 percent

increase in the stock market. You're talking about unemployment numbers that are the lowest in history, in many categories, and, overall, almost

the lowest ever, in the history of our country. I think it was 1969. And we are set to surpass that number. I mean, our country is doing very well.

When I spoke to the President, we were just walking in and he said, "Congratulations on the great success of your economy and your country."

And I appreciated that. But our country is doing very well.

QUESTION: Mr. President, would you agree strengthening American military forces in Romania?

TRUMP: Well, it's one of the things we'll be talking about today, I assume. You might be bringing that up. But it's something we'll talk

about.

QUESTION: Mr. President, next year, you host the G7. Would you like to have Vladimir Putin back in the G7 and make it the G8 again?

TRUMP: So it was the G8 for a long time, and now it's the G7. And a lot of the time, we talk about -- we talk about Russia. We're talking about

Russia because I've gone to numerous G7 meetings. And I guess President Obama, because Putin outsmarted him -- President Obama thought it wasn't a

good thing to have Russia in, so he wanted Russia out.

But I think it's much more appropriate to have Russia in. It should be the G8, because a lot of the things we talk about have to do with Russia. So I

could certainly see it being the G8 again. And if somebody would make that motion, I would certainly be disposed to think about it very favorably.

But, as you know, for most of the time, it was the G8. It included Russia. And President Obama didn't want Russia in because he got outsmarted. Well,

that's not the way it really should work.

QUESTION: Mr. President, two years ago, you said that including Romania in the Visa Waiver Program is a subject that should be discussed.

TRUMP: Yes.

QUESTION: In this meeting, will you discuss this issue?

TRUMP: We've spent a lot of time on it. We've spent a lot of time discussing it already. Our countries have been discussing it, and we're

going to -- we're taking it up today in a very important meeting right after this one.

Do you like the idea? It sounds like you like the idea, right? The waiver -- do you like the idea? Okay. No, it's something we're thinking about.

QUESTION: Mr. President, on Venezuela, is the White House in contact with the Maduro regime --

TRUMP: Yes.

QUESTION: With his number two, Cabello?

TRUMP: Well, we're -- we are in touch. We're talking to various representatives of Venezuela. We're helping Venezuela as much as we can.

We're staying out of it, but we are helping it, and it needs a lot of help.

It's an incredible tribute to something bad happening, and the something bad is socialism. And it's amazing because, 15 years ago, it was one of

the wealthiest countries. Now it's one of the poorest countries. It has oil reserves.

[15:05:10] TRUMP: It has a lot of things going, but it's a very sad thing what's happened. They don't have water. They don't have food. And we are

helping a lot. We are talking to the representatives at different levels of Venezuela. Yes.

QUESTION: To Cabello?

TRUMP: I don't want to say who, but we are talking at a very high level.

QUESTION: What's the status of the trade deal that you want to seal with Boris Johnson at the G7?

TRUMP: So, I spoke with Boris Johnson. I think he's going to be a great Prime Minister. I think he's going to do a fantastic job. I've known him.

A lot of people know that we have a very good relationship. I think he'll be far superior. I think he'll do something that will be a very -- I think

he's going to be very important for the U.K. I think he's going to be very important.

Dealing with the European Union -- I hate to say this to you, but dealing with the European Union is very difficult. They drive a hard bargain.

They're represented by Jean-Claude, who is a friend of mine, but he is a tough man. He's a very, very tough man, and he's a great negotiator. And

we have all the cards in this country because all we'd have to do is tax their cars and they would give us anything they wanted because they send

millions of Mercedes over. They send millions of BMWs over.

But we're talking to the European Union and we're going to see if we can work something out. But I will say this: Dealing with the U.K., they have

not treated the U.K. very well. That's a very tough bargain they're driving, the European Union. That's a very tough bargain. And I think

that U.K. has the right man in charge right now -- the right person in charge, in the form of Boris.

QUESTION: And if I can turn to Afghanistan: What is your current thinking on pulling out the United States troops?

TRUMP: Well, we're talking to the government of Afghanistan, we're talking to the Taliban, and we're talking to others. And we're looking at

different things.

We've been there for 18 years. It's ridiculous. We have taken it down a notch. We're at about 13,000 people right now -- 13,000 Americans. NATO

has some troops there too, by the way. And we're having good discussions. We'll see what happens. We'll see what happens.

Look, it's 18 years. We're like -- we're not really fighting; we're almost more of a police force over there. It's been so many years. But we're

like a police force. And we're not supposed to be a police force.

And as I've said, and I'll say it any number of times -- and this is not using nuclear -- we could win that war in a week if we wanted to fight it.

But I'm not looking to kill 10 million people. I'm not looking to kill 10 million Afghans, because that's what would have to happen, and I'm not

looking to do that.

But it's a war that has been going on for almost 19 years now, and, frankly, it's ridiculous. But, with that being said, it's a dangerous

place, and we have to always keep an eye on it.

QUESTION: It sounds like you'd like to pull completely out, if you could.

TRUMP: I'd like to look at various alternatives. One of the alternatives is going on right now. We're talking about a plan -- I don't know whether

or not the plan is going to be acceptable to me. And maybe it's not going to be acceptable to them. But we are talking. We have good talks going,

and we'll see what happens. This is more than other Presidents have done.

But we have brought it down. We are bringing some of our troops back. But we have to have a presence. Yes.

QUESTION: Mr. President, could you clarify your position on enhanced background checks? After El Paso and Dayton, you seemed to be fully in

support ...

TRUMP: Right.

QUESTION: ... of enhanced measures. When you were leaving Bedminster, you seemed to suggest that we already do have strong background laws, which

a lot of people read as you dialing back on you admit so?

TRUMP: Well, we do have. I mean, I'm not doing that to be cute. We have very, very strong background checks right now. But we have, sort of,

missing areas and areas that don't complete the whole circle. And we're looking at different things.

And I have to tell you that it is a mental problem. And I've said it a hundred times: It's not the gun that pulls the trigger; it's the person

that pulls the trigger. These are sick people, and it is also that kind of a problem.

And we're looking at mental institutions, which we used to have. Like, as an example, where I come from in New York, they closed up almost all of

their mental institutions -- or many of them -- and those people just went onto the streets. And they did it for budgetary reasons. Well, New York

is not unique; they've done that in many places.

QUESTION: Would you support either of the House bills that were passed earlier this year?

TRUMP: Well, I'm not going to get into that. But we are in very meaningful discussions with the Democrats. And I think the Republicans are

very unified. We are very strong on our Second Amendment. The Democrats are not strong at all on the Second Amendment. I would say they're weak on

the Second Amendment, and we have to be careful of that.

The Democrats would, I believe -- I think they'd give up the Second Amendment. And the people that -- a lot of the people that put me where I

am are strong believers in the Second Amendment -- and I am, also. And we have to be very careful about that. You know, they call it the "slippery

slope," and all of the sudden, everything gets taken away. We're not going to let that happen.

QUESTION: President Iohannis --

TRUMP: Yes, go ahead, please.

QUESTION: For Mr. President Iohannis, will you discuss the issue of the fight against corruption in Romania with President Trump? Will you discuss

this issue?

TRUMP: Please, go ahead.

KLAUS IOHANNIS, PRESIDENT OF ROMANIA: Well, I hope so, because we have good results. And I want to share those with President Trump.

TRUMP: And what is your question?

QUESTION: I was asking about the fight against corruption in Romania.

TRUMP: It is so nice to have a question about Romania.

QUESTION: So I ask -- I ask you, will you discuss this issue, the fight against corruption, with your Romanian counterpart?

TRUMP: Sure, I will. Sure.

QUESTION: Last time you praised President --

TRUMP: Sure, I will. Of course, I will.

QUESTION: Last time you praised --

TRUMP: But I think that this is a man that can solve the corruption problem in Romania. And he's made big strides, from what I hear. I

haven't been there recently. But he's made very big strides. And I think he's the man that can solve the corruption problem.

There are a number of really terrific countries like Romania, but they have a tremendous corruption problem. And I've heard you've made tremendous

progress.

IOHANNIS: We did, sir.

QUESTION: Mr. President, what's the status of your foreign aid cut package? Do you still support cutting foreign (INAUDIBLE)?

TRUMP: Well, we're looking at it. And we're looking at it in different ways. And we're talking to Republicans and Democrats about it. And

certain things we can save and certain things -- it probably could be, you know, a pennywise. Maybe it's a pennywise. We'll see. But we are looking

at it.

And we have some things that are on the table very much. And we'll let you know over the next, probably, sooner than a week.

QUESTION: Mr. President, your administration has been taking steps to make it easier to discriminate against LGBT people in the workforce. Are you

okay with those actions?

TRUMP: Well, you know, I just got an award and an endorsement yesterday from a -- the exact group, a group. They gave -- you saw that. They gave

me the endorsement yesterday. And I was very honored to -- is it Log Cabin? The Log Cabin group. And I was very honored to receive it.

No, I've done very well with that community. Some of my biggest supporters are of that community. And I think they and I talk to them a lot about it.

I think I've done really very well with that community.

As you know, Peter Thiel and so many others there, they're with me all the way. And they like the job I'm doing. And I just got a big endorsement

from the Log Cabin group. Yes.

QUESTION: Mr. President, you keep insisting that your trade war with China -- the trade war with China is not affecting the U.S. economy. But a lot

of economists disagree with that. And they worry that if China goes into a recession, they'll pull us down with it.

TRUMP: Well --well, okay. Let me -- let me tell you something. Number one, we're doing very well as an economy. But somebody had to take China

on. You know, I read and I see so much and I read so much, and I'll see these economists saying, "Oh, give up. Give up on China. Give up."

China has been ripping this country off for 25 years -- for longer than that. And it's about time, whether it's good for our country or bad for

our country short term. Long term, it's imperative that somebody does this because our country cannot continue to pay China $500 billion a year

because stupid people are running it.

So I don't mind this question. Whether it's good or bad, short term, is irrelevant. We have to solve the problem with China because they're taking

out $500 billion a year-plus. And that doesn't include intellectual property theft and other things. And also, national security.

So, I am doing this whether it's good or bad for your -- your statement about, "Oh, will we fall into a recession for two months?" Okay? The fact

is, somebody had to take China on. My life would be a lot easier if I didn't take China on. But I like doing it because I have to do it. And

we're getting great results.

China has had the worst year they've had in 27 years. And a lot of people are saying the worst year they've had in 54 years. Okay? And frankly, I

don't want that to happen, but it does put us in a good negotiating position, doesn't it? And China wants to make a deal, and that's good.

But they have to make a deal that's fair to us. It can't be a deal that's not fair to us.

And you should be happy that I'm fighting this and I'm fighting this battle, because somebody had to do it. We couldn't let this go and I don't

even think it's sustainable to let go on what was happening. They were stealing all of our intellectual property ideas. The theft was incredible.

They call it "intellectual property theft." And they value it at $300 billion a year. Who knows how they value it? I know how to value dollars;

I don't know how to value intellectual property theft. But they have experts that say it's at least $300 billion a year, where they steal it.

Somebody had to do something with China. Obama should have done it. Bush should have done it. Clinton should have done it. They all should have

done it. Nobody did it; I'm doing it.

[15:15:08] TRUMP: So what do you say? "Oh, my trade deals are causing them." My trade deals aren't causing a problem. This is something that

had to be done. The only difference is I'm doing it. I could be sitting here right now with a stock market that would be up 10,000 points higher if

I didn't want to do it. But I think we have no choice but to do it.

And a lot of people that really know, people that love our country, they're saying, "Thank you very much for taking it on." And we're winning because

they're having the worst year they've had in decades. And it's only going to get worse.

China has lost two million jobs in the last month and a half because they're moving -- the people, the companies are moving to non-tariffed

countries. They've lost over two million jobs in a very short period of time. They're going to lose a lot more jobs. And if I didn't help certain

companies -- there are American companies like Apple -- for a very short period of time, I may help them, only until they do what they have to do,

which is probably move from China. Because this would be a very short term. If I didn't help them, they would -- I mean, they would be -- they

would have a big problem.

Here's the thing: Somebody had to take on what China was doing to the United States economically. We're winning big. I took it on. And it

should have been done by previous Presidents, but I took it on. And I'm happy to do it because it had to be done. And the smart people say, "Thank

you very much." And the dumb people have no idea. And then you have the political people, and they go with the wind.

But they all know -- even Senator Schumer said, "Wow, Trump is doing a great job with China." I couldn't believe that. But Schumer thinks I'm

doing the right thing. And he's doing the right thing by saying it because he knows that China was a big economic threat. And they were taking all of

that money that they were making from us, and they were building planes and ships and lots of other things. And we can't let that happen.

QUESTION: Mr. President, on China, there is a new study out of Australia that suggests with the current Chinese military posture in the South China

Sea, Indo-Pacific region, it could wipe out most U.S. bases within a number of hours.

RICHARD QUEST, CNN INTERNATIONAL HOST, QUEST MEANS BUSINESS: So there you have the President of the United States, Donald Trump, sitting with the

Romanian Prime Minister, who I think we saw for all of 25 seconds. But the President has been talking for a good 20 odd minutes on questions of the

economy.

With me to discuss and to try and make understanding and make sense of what he said, Art Hogan, Chief Market Strategist at National Holdings

Corporation, and Mohamed El-Erian, Chief Economic Adviser at Allianz.

On the economic agenda that he talked about, we will talk about taxes and China in a moment, the Fed cuts, he says, Mohamed, there needs to be a

substantial cut. He would like a hundred basis points, one percentage point, which is basically all of them. And he says it needs to happen now,

does it?

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: So for purely economic reasons, the answer is no, it doesn't need to happen now. The economy is

doing well, and it's not clear that an interest rate cut would boost the economy.

But the market have priced in 50 to 75 basis points. So the Fed is in a really tough position. If they don't cut, they may disrupt markets, and if

the market gets disrupted that may spill back on the economy. So no, we don't need it for traditional reason. But the markets have put the Fed in

the corner.

QUEST: If the markets have priced it in, the tail is wagging the dog.

ART HOGAN, CHIEF MARKET STRATEGIST, NATIONAL HOLDINGS CORPORATION: It is, and that's been the case for most of this cycle, and certainly at the

current leadership of this Fed has let the market dictate some of their moves.

But I will say this, I think that the Fed has done a nice job transitioning from where they were on autopilot last year to being patient for the first

half of this year to actually being data dependent. They thought that they raised rates one time too many last year, they've taken that back. And I

think they are at the place we want to be.

The problem with the Fed right now, I think, Mohamed can speak this better than I can is, they're not sure what neutral is -- what the neutral rate is

because they don't know what the natural rate of unemployment is and what the national rate of inflation is in the current environment that where we

are with technology.

QUEST: They tried and they thought neutral, it was after the December hike, a quarter to a half. So they thought that was neutral. Do you think

that was neutral?

EL-ERIAN: No, I think Art is absolutely right. I think everybody acknowledges now that that fourth rate hike last year was a mistake as was

repeating the mantra of automatic pilot. I think they are trying to walk it back.

The problem for the Fed is as Art says as they've transitioned and given the market what the markets want and given President Trump what they want,

both wants more. So every time the Fed moves, the other two say, "Give me more. Give me more."

QUEST: But there's no -- let's be clear, because you know, well first of all you say there's going to be -- you see a potential of up to 70 percent

of recession.

[15:20:10] EL-ERIAN: No, I didn't say that. I say 70 percent in Europe.

QUEST: In Europe, I beg your pardon.

EL-ERIAN: In Europe, in fact, I am really worried about Europe.

QUEST: Right. We will come to Europe in a moment on that. What about in the United States?

EL-ERIAN: I think it's low, unless you get a policy mistake or a market accident, but on its own, the economy doesn't point to recession.

HOGAN: The policy mistake is going to be in trade. It's not going to be monetary. I think trade policy escalation into -- we've already seen the

market reaction. The key point is slow down the global economy, it circles back to trade policy and the uncertainty around trade policy.

If we escalate to the entire, the whole Magilla of all of the Chinese exports and go 25 basis points, and there's retaliation, that's what brings

the recession on.

QUEST: But the President just said somebody had to take on China. The smart people are thanking him; the dumb people asking him to stop.

HOGAN: Right. I think the dumb people would rather have gone about this as a group, like the Trans-Pacific Partnership, and perhaps partnering with

other countries and coming in as a group and saying, everybody you do business with would like you to change the way you do that business and be

able to put more pressure on instead of just using economic policy that's proven in the past to be faulty.

EL-ERIAN: Yes, I think Art is absolutely right.

QUEST: But you -- what are you seeing that the administration doesn't see? I mean, I know there's a political element in all of this, but one assumes,

I mean, Larry Kudlow the other day talks about, there's no recession and the economy is going gangbusters.

Peter Navarro says there's no inversion of the yield curve. It's merely a flattening, but all you of lot are writing in your blogs and advice that

things are looking rather precarious.

EL-ERIAN: So there's two issues. One, I think the U.S. on a standalone basis is fine. And I think actually, the administration has gotten it

right. I think the inversion of the curve last week was an exaggeration and it reflects not what's going on in the U.S., but what's happening in

Europe.

Two things in particular, the ECB has negative interest rates. They're going to take them even more negative, and they're going to start buying

bonds again. If you're in Europe, and you're looking at minus 20 basis points for 30 years on German bonds, you're going to come to the U.S. What

does that do? It brings our interest rates down. So I think what's happening here is a function of what's happening in Europe.

QUEST: We're going to talk -- yes, go ahead, Art.

HOGAN: The other thing I would add to that, is it -- and I agree the United States is doing fine, but it's doing fine largely driven by the

consumer. I think businesses have uncertainty that it is keeping CapEx down. It's been down for the last eight months. So we're not seeing

people making business decisions because of uncertainty around trade.

QUEST: Right. But if you look at the globe, well, and we'll talk to you in a little while about Europe, as you look at the world as a market

strategist here in the United States, where are you most concerned at the moment?

HOGAN: I am most concerned in the United States if in fact, we get escalation that that's -- we do wreck what is already a deteriorating

manufacturing sector. So there's a lot of things that I'm concerned about around that part of the economy.

QUEST: Isn't that that's exactly the problem? In an eye -- in an all things being equal world, everything is okay. The situation is not that

bad. The problem here is, it's a deteriorating situation, which the President and his policies have chosen to exacerbate. He is accelerating a

downward spiral.

HOGAN: Absolutely. That is the reason in my mind that he is asking for so much more monetary policy stimulus at this time, because I think his

economic advisers see this and say, the longer we fight this battle, the more stimulus we're going to need for monetary policy. Right or wrong,

monetary policy is rescuing bad trade policy right now.

EL-ERIAN: And how you reconcile all of this?

QUEST: Yes.

EL-ERIAN: Is that trade policy these days is being driven by national security. It's no longer about economics, Richard. It's about national

security. It's about containing China, and it's about making sure China doesn't continue to advance on technological issues.

QUEST: It is a losing battle.

EL-ERIAN: The U.S. can certainly press a pause button on China's impressive development. And if, as Art mentioned, if Europe gets on the

U.S. side and said, "You know what, we also don't like intellectual property theft. We also don't like forced transfers of technology." They

can actually derail China's development process.

QUEST: Last question to you for this part, you're staying with me for a bit more on Europe. But last question, because what everybody really wants

to know. Do you see -- and I won't hold it against you -- do you see a market meltdown?

HOGAN: No, I don't see a market meltdown. I think that what I do see, what I'm concerned about is the little blip that we saw last week, and then

the yields coming down, I think that's going to continue. So I think we have to look at a yield that's lower than it is today.

QUEST: Which is another 1.5?

HOGAN: Yes, I think it's going to break things. I think it's going to take that low and I think it's driven by what Mohammed is talking about.

You know, if you look at Germany, who is 50 basis points for 10 years, you're coming to the United States and the more global cash --

[15:25:07] QUEST: And if other rates, if commercial rates follow, which they invariably do. This is a brilliant time for anybody refinancing debt

corporations, governments refinancing for infrastructure investment over the next 50 years would you think?

HOGAN: A 50-year bond. They can put it to work on the infrastructure work and stimulate a lot of jobs. Great to see you.

QUEST: Great to see you, sir. You're saying to do a bit more hard work for us. We're talking about no market meltdown, but U.S. markets lower in

the final trade. The Dow is that its sessions -- it's off its session's low. It is off more than a hundred points.

Home Depot is up four percent. Better than expected earnings. We'll discuss that a little later. Bank stocks are lower. The Treasury yield

continues to retreat. JPMorgan and Goldman down one percent. Every sector except ones in the red.

When we come back, we will turn our attention to Europe and the deteriorating situation.

(COMMERCIAL BREAK)

QUEST: Hello, I'm Richard Quest, there's a lot more QUEST MEANS BUSINESS tonight. This is CNN and here, the facts always come first.

The U.S. Secretary of State acknowledges that ISIS is regaining strength in some areas. Mike Pompeo says there are some places where ISIS is more

powerful today than it was three or four years ago. His remarks come as a recent Pentagon report is warning terrorist group is resurging in Iraq and

Syria.

Police shot and killed a hijacker who took 37 bus passengers hostage on a bridge in Rio de Janeiro. Official say that hijacker was armed and

threatening to set the bus on fire and a police sniper killed him. The police say all of the hostages have been released unharmed.

A new CNN poll shows the former U.S. Vice President Joe Biden re- establishing himself as the clear front runner among Democrats running for President. Biden now as a double digit lead of his nearest competitors,

Bernie Sanders and Elizabeth Warren.

[15:30:10]

QUEST: Running for president, Biden now has a double-digit lead over his nearest competitors Bernie Sanders and Elizabeth Warren.

And we've learned of the name of the 2015 specter(ph) of the James Bond movie. Daniel Craig is to return in the title role in the film called "No

Time to Die". Now, it's reportedly his last outing as Bond. The next 007 film will be theatres in April of next year.

Breaking news tonight as Europe enters a new phase of political and economic instability. One of its biggest economies is sliding into crisis,

and a crisis that's too familiar. Italy, moments ago, the Italian Prime Minister Giuseppe Conte officially resigned to the president after his

coalition government collapsed.

Mr. Conte was forced out by the man sitting next to him during his resignation speech in the Senate. His own Interior Minister, and coalition

partner, the far-right party leader Matteo Salvini who withdrew his support from the coalition. The Prime Minister warned this could have grave

consequences.

(BEGIN VIDEO CLIP)

GIUSEPPE CONTE, PRIME MINISTER, ITALY (through translator): The decision to postpone the communication of a decision evidently taken some time ago,

and I regret to say it with such clarity is a gesture of grave institutional and disrespectful imprudence towards the parliament and in

any case is liable to tip the country into a spiral of political uncertainty and financial instability.

(END VIDEO CLIP)

QUEST: Barbie Nadeau is for us in Rome tonight. OK, earlier on "EXPRESS", you were sort of saying that it have been -- that this was a crisis. How

deep a crisis tonight?

BARBIE NADEAU, CNN CONTRIBUTOR: Well, I think it's a deep crisis, and I think you see that reflected just in some of the commentary I'm watching on

the Italian press tonight. You know, it is what are we going to do now? Matteo Salvini wants to be Prime Minister, Sergio Mattarella; the president

who has just accepted the resignation of Giuseppe Conte has to decide if he's going to pave the way for that to happen or if he's going to try to

put all those puzzle pieces together from the election just a year ago -- a year and a half ago and try to form a new government.

That's going to be a very daunting task. He had a very hard time doing it the first time around, which is why we ended up with this sort of odd

government between Matteo Salvini and the five-star anti-establishment party. So he could -- that was the best he could come up with a year ago.

And so it's going to be difficult for him to come up with --

QUEST: Right --

NADEAU: Anything better now, and even more difficult potentially to pave the way for these elections, Richard.

QUEST: It's August in Italy, and traditionally, of course, the country comes pretty much to a stopover at least in the later part of the month.

People will be coming back to work first week of September, realizing that there isn't a functioning government or at best, there'll be a caretaker

government. So, how likely are new fresh elections?

NADEAU: Well, I think, you know, it's very hard to say right now. Tomorrow, Mattarella has got to carry out some consultations to try and

determine if he could first form a government if that's not going to work. Then it is very likely there will be elections. There's an interesting

note.

The last time Italy voted in the Autumn was in 1919, 100 years ago and that paved the way to the rise of Benito Mussolini, and a lot of Italians are

talking about that, saying we don't vote in the Autumn.

QUEST: Wow --

NADEAU: We vote in the Spring, but the way the constitution is, it's stipulated they have to vote -- if they call election, it has to be within

70-75 days. And that -- you know, that's one of the big concerns that Italians have is, we don't vote in the Fall, how could we possibly do it?

Will Mattarella try to buy some time? You know, there's really a lot up in the air, all while Italy has to pass a budget, all while Brexit is taking

place. There's so much more than Italy at stake here, Richard.

QUEST: You are right, indeed, Barbie, thank you, because there's so much more at stake while Italy's political crisis is one of the economic

problems that Europe is facing. Let me show exactly the sort of thing that fortuitously, Barbie, led us into. Now, the Italian economy -- that's not

where Italian -- well, we know, that the Italian economy is pretty much flat, bordering on stagnant since the beginning of the year.

And with today's worsening political situation and a banking crisis that has not fully been resolved, far from it. Most people you speak to, who

talk to you privately, will say that the Italian banking system is a basket case. No wonder, Conte, the outgoing Prime Minister says it could all

spiral further.

And then you've got the confrontation over the backstop, setting the stage for Prime Minister Boris Johnson's meetings with Germany and Macron. And

you've got the whole question of the U.K. and Brexit.

[15:35:00] Now, the -- there is no doubt that Britain is now moving inexorably towards a no-deal Brexit. Why do I say that? Because Johnson

writes a four-page letter describing the Northern Ireland backstop as being undemocratic.

Donald Tusk replies in a tweet basically saying, no, you live with the backstop or nothing. He has made it absolutely clear, if the backstop

doesn't go, he is going to force Britain out without a deal. It is very difficult to see a way out of that Brexit.

Now, if all that was bad enough, now, let's just throw into this miserable maelstrom the Bundesbank warning of a recession. A perfect storm of

factors, entirely German-related. They are including trade wars, declining auto sales, a politically weak government. Angela Merkel is far from

strong as she heads out of office in just a couple of years time.

France and Spain are facing problems too -- well, now, El-Erian is here to think -- what was your number that you said for Europe that you said for

recession?

MOHAMED EL-ERIAN, CHIEF ECONOMIC ADVISER, ALLIANZ: Seventy percent.

QUEST: Seventy percent?

EL-ERIAN: Yes --

QUEST: You baked the cake.

EL-ERIAN: I have. Look, a year ago, people were saying 2 percent growth for this year. Now, we're going sub-one. At sub one, you risk stall

speed, you simply not going fast enough. You just named the five largest economies in Europe, they're all having problems. Who's going to

compensate for that? And then look at Germany, they're predictable, they're stable economy.

They have had to revise a growth projection from 1.4 to recession. These are massive moves and they just tell you the momentum is disappearing.

QUEST: Right, so is it possible that the German Finance Minister who yesterday you would have seen talked about stimulus worthy of the last

recession, that could pull Germany around?

EL-ERIAN: So, should they do it? Absolutely. They have the need, they have the wallet, and interest rates are negative. Not doing it is

irresponsible. But doing it requires political agreement, and the political situation in Germany does not easily allow for that. So, I think

we get something that will be rather small and it certainly won't move the needle for the Eurozone as a whole.

QUEST: Right, well, as we continue, you can join in this discussion and have your view. Which of the most is a serious economic crisis? Is it

Brexit, is it Italy or is it Germany and recession? Vote accordingly at cnn.com-slash-join and we'll leave the screen -- we'll leave this up as we

continue our discussion. With this though, with Brexit, if the U.K. leaves on October 31st, without a deal, how damaging and devastating do you see it

as big?

EL-ERIAN: So, I think in the short-term there will be a cost to take, and I think a lot will depend on whether you get a transition agreement,

something that says, OK, you're leaving, that's the destination we agreed on, but we're going to give you a bit of a journey to get there. And I

think you and I think that when push comes to shove and last minute discussions, you're going to get that.

I think the worst outcome, Richard, for Britain and for the EU, if it begins another three years of nothing, that is -- that is the worst thing.

QUEST: But all of this is bad enough with the five largest economies in trouble. But we're also getting a new commission and a new president of

the council. So Juncker and Tusk are yesterday's men and that commission and council -- it's as -- it feels like this European crisis dead man

walking, it's going to happen. It seems almost inexorable.

EL-ERIAN: So, you're also getting a new president of the ECB, the European Central Bank. You're also getting a new governor of the Bank of England.

You're also getting a new managing director at the IMF, there are many changes. I think that --

QUEST: We don't know who the IMF person is.

EL-ERIAN: We do, well, we do. We have a European candidate --

QUEST: Right --

EL-ERIAN: And it will go -- it will go to Europe. I do think -- look at - - if you're going to get a crisis, it will start in Italy. And I'm glad you used the word spiral. Economists have a rather vulgar term, they call

it the "death spiral". Why? People worry, borrowing costs go up, the debt gets worse, people worry more about the banks, what does that do?

Make people worry even more and you get into the spiral. But today, the markets did better in Italy with respect -- tightened, why? Because they

believe the ECB will once again come to the rescue.

QUEST: But this takes us back to the bad old days of 2008, '09, '10, where central bankers were left to do all the hard work, and we were told by

people like you that, that couldn't continue.

[15:40:00] EL-ERIAN: And look at us today, we have 16 trillion of bonds at negative yield. People are willing to lend government and pay for the

privilege. That bakes things -- it doesn't bake things immediately, but over time, it breaks the system.

QUEST: So, should --

EL-ERIAN: So, we get into the limits of how much central banks can and should do.

QUEST: I realized that you're not a market strategist in the sort of the dollars of the -- the Dow is down. But those people who believe that after

the next strong rally, that it's basically apparat(ph) rally and that really, there is something very nasty awaiting us in a couple of years

time. Do you subscribe to that at all?

EL-ERIAN: Yes, I mean, I tell people, take advantage of what the markets have given you and what the central banks have given you, put it in the

bank, don't overextend yourself. It's much better to miss the next leg of the rally because ultimately, it's unsustainable. Asset prices are up

here, fundamentals are down here, the difference has been central banks.

If fundamentals go this way, the central banks are not going to be able to keep asset prices up here. So, there's a limit to how much we can decouple

finance from the economy. We did it once in 2006, 2007 and it didn't end well. So, I tell people, be careful at this stage.

QUEST: Good to see you, sir, thank you, good to chat, have a nice longer chat about these things, thank you. And with that in mind, European stocks

closed lower across the board, thanks to political unrest. In Italy, stocks were on track for a third day of gains, they fell as the Prime

Minister offered to resign. You can see the numbers there, in Milan was the worst performer. The announcement sent the Italian FTSE to a session

low of 1 percent.

As we continue, President Trump's trade war is giving American retailers sleepless nights, Home Depot says it may have a bit of a tariff problem.

We'll talk after the break.

(COMMERCIAL BREAK)

QUEST: And certainly earnings front in a mixed bag for Home Depot. Betwixt and between Q2 exceeded expectations, and that gave the shares a

push up by 4.5 percent which is interesting when you think that the company lowered its sales outlook for the year overall.

The Home Depot top boss Craig Menear said "today, we are updating ourselves guidance to account primarily for continued lumber price deflation", you

know, price of woods going down.

[15:45:00] But this is the potential impacts to the U.S. consumer rising from recently-announced tariffs. Clare is with me to talk about it. What

does it mean?

CLARE SEBASTIAN, CNN BUSINESS REPORTER: So, well, it's interesting because he says potential impact, so he doesn't say realized impact yet. So far,

the actual direct cost of the tariffs for these companies is relatively minimal. In Home Depot's case, we're talking about 2 billion so far, which

is really about 2 percent, the equivalent of 2 percent of their sales.

But what they're looking at going forward is how this is going to affect the broader macro climate, what it's going to mean for consumer sentiment,

and what it's going to mean if broader prices start to go up on consumer goods as you know, with the list for tariffs that just came in. And he's

starting to factor that into his guidance and other companies are doing the same.

QUEST: Right, but Kohl's, another --

SEBASTIAN: Right --

QUEST: Retailer that went the exact similar sort of warning --

SEBASTIAN: Right --

QUEST: But --

SEBASTIAN: Right --

QUEST: Their share price fell.

SEBASTIAN: I mean, they're an entirely different kettle of fish calls because they are in the kind of department store category, they are the

ones that is struggling with the competition from the likes of Amazon and Wal-Mart. They're in a situation where they're having to invest heavily in

digital world.

At the same time, trying to drive traffic to their stores, and I think it's interesting to look, Richard, at one of the potential impacts beyond price

rises, beyond uncertainty of this trade war in recent -- and in particular, I think the bigger the better in this case, the bigger they are, the more

able they are to diversify their supply chains.

And I think we're going to see the big getting bigger and Kohl's and others who have been struggling, they're going to struggle even more perhaps with

that kind of competition.

QUEST: So, on this question of tariffs, the president, you may have been listening to him -- the president basically said it was imperative to take

this trade action.

SEBASTIAN: Right --

QUEST: He went back, Obama didn't do it, Bush didn't do it, Clinton didn't do it, though plenty of them who should have taken on China. And he almost

seemed to be suggesting to the U.S. consumers, this is something you need to just bear with, take it and lump it.

SEBASTIAN: Yes, it's interesting because I think among businesses, certainly, I've been speaking to a lot of smaller businesses over the past

few months, you do get a sense that people agree with him that they do see China, you know, violating global trade rules, they do worry about

intellectual property, they do worry about not having a level-playing field in that market.

I think a lot of people agree with him that something should be done and that perhaps in the strong economy, that is a good time to do it. I think

what people don't agree with is unilateral tariffs because they do boomerang back on the U.S. economy.

QUEST: Nothing else work.

SEBASTIAN: It's true --

QUEST: I mean, you know, that's what the president would say --

SEBASTIAN: Right --

QUEST: But back to these companies who are managing to trade in these circumstances, they have no choice.

SEBASTIAN: But to --

QUEST: To handle this --

SEBASTIAN: They have to, yes --

QUEST: Worsening situation.

SEBASTIAN: They have to handle it, and I think the question for the retailers is what do they do about pricing going forward? And most of them

are saying, look, we probably are going to have to raise prices when the list for tariffs come in. Kohl's says we're going to make a very sound and

surgical decisions.

Macy's have said, you know, we know from the earlier chunks of tariffs that today's customer doesn't have much of an appetite for price increases. So,

they're clearly worried and one of the reasons why Wall Street gets a bit jittery on these retailers is discounting, they worry that they might over

discount.

QUEST: If their tariffs come in, isn't Amazon susceptible to them as these others? The only difference been they don't have the bricks and mortar.

SEBASTIAN: They don't have the bricks and mortar, plus, their retail isn't the most profitable bit around its business, they're insulated by AWS. So,

yes, they have to worry about it, but I don't think they're going to be as worried as the others.

QUEST: Clare, good to see you, thank you. After the break, celebrities fly to the defense of the British royals, Meghan and Harry; the Sussexes,

they're accused of hypocrisy over their green credentials.

[15:50:00] (COMMERCIAL BREAK)

QUEST: Celebrities have rushed to the defense of the Duke and Duchess of Sussex, Harry and Meghan after the tabloid media slammed the couple for

spate of trips on private jets. They ridicule the hypocrisy, why? Because they regularly campaign to protect the environment. Sir Elton John says he

provided one of the jets in question.

He says the flight was carbon-neutral because they made the relevant offset contributions. The singer Pink then tweeted the couple a message of

support as well as did the TV host Ellen DeGeneres. She said imagine being attacked for literally everything you do when all you're trying to do is

make the world a better place. So, what's all the fuss about?

Well, it's about two journeys. The tabloid media identified four flights in 11 days on private jets. They said Harry and Meghan clocked up a return

vacation trip from Farnborough in the U.K. to Ibiza going out on August the 6th, returning August the 12th. They then traveled to see Sir Elton on

August the 14th in the south of France, again on a private jet paid for by Sir Elton and returned on the 17th.

The sun claimed the trip exceeded three and a half thousand miles at a hefty carbon footprint. All of this would be reasonably grim except for

the fact for the recent report into the royal account which showed 98 percent rise in carbon emissions by the U.K. royal family year-on-year,

blaming increase on larger fixed-wing aircraft, more foreign visits.

Those flights were carbon neutral, what's the problem? Paul Simpson is CEO of the carbon disclosure project, a not-for-profit charity that runs a

global disclosure system for companies and cities. So, what is the problem? If they were offset in a recognized offset scheme, do you have a

problem with those flights?

PAUL SIMPSON, CHIEF EXECUTIVE OFFICER, CARBON DISCLOSURE PROJECT: Hi, Richard, I don't think it's right time to have a problem with any

individual taking a flight anywhere. What the climate emergency said to us is that every individual, every company, every city, every national

government needs to be aware of their carbon footprint and to take action to reduce it.

And that's why at CDP, we ask all the world's companies and cities to do just that, to disclose their carbon emissions, to set a target in line with

the science and to take those actions. So, no individual should be charged on any one action. Any individual calling for action on climate change in

the environmental crisis should be applauded, not everybody is doing so, and then we need to see the actions that are congruent --

QUEST: All right --

SIMPSON: With that need for change.

QUEST: I can see sort of -- I can see where you're going with this, but to question, you know, do you spot a whiff of hypocrisy from a couple claiming

that they're going to even limit the number of babies they have to protect the environment and to protect the world. But then happily, taking what

you will agree is the most carbon -- most carbon expensive way, a private jet.

SIMPSON: Well, you know, again, as individuals, we've all got to reduce our emissions. They're the royal family, they have certain needs, I'm not

really qualified to comment exactly on their security needs and things like that. They would have been better about one tenth of the emissions to

taking the train, but this must be looked at holistically.

There are -- aviation is about 2 percent of the world emissions and growing rapidly is a very big way of --

QUEST: Right --

SIMPSON: Individuals creating emissions. But you have to look at what is the --

QUEST: OK --

SIMPSON: Electricity uses, are they committed to renewable energy and the whole portfolio of actions that an individual company takes to reduce

emissions.

[15:55:00] I think it's very easy for some of the media to focus on the royal family and a couple of flights. That's not really the point here.

QUEST: OK, let's talk about aviation more generally, something perhaps I know a little bit more about than the royal family's flying habits. Two

percent you say and rising, but it's rising because the number of flights is increasing, bearing in mind the industry itself is actually taking quite

dramatic steps to reduce the carbon footprint through all the various measures of which you'll be familiar. Do you think aviation gets an unfair

rap?

SIMPSON: I think it's a bit of a lightning rod for the issue that only the wealthy and the middle class can fly. You know, it's a quick way to have

emissions, but yes, I think there's more focus on aviation than you know, perhaps some of the other ways -- producing electricity is about 40 percent

of world's emissions, deforestation particularly driven by what we eat, you know, reducing eating meat, reduced deforestation is about 15 percent of

the world's emissions.

So, we have to look at the need to reduce emissions as a whole society as individuals, as companies and governments. We have to cut emissions in

half in the next decade and to net zero by 2050. So that means --

QUEST: Right --

SIMPSON: We are going to have to see new innovations in aviation as you're talking about.

QUEST: Good to see you, sir, thank you, thank you for coming here tonight. A very quick look at the markets in the last minutes of trade on Wall

Street where things are down, the stocks are at session lows -- we've turned turtle rather fast just over here and the red is moving across the

screen with only Home Depot just continuing to pop its head above the parapet.

Looks like it's going to be a bit of an ugly close on Wall Street. We'll have our profitable moment in just a moment.

(COMMERCIAL BREAK)

QUEST: One quick profitable moment. When royals, presidents and Prime Ministers fly commercially, it is a pain in the backside for everybody

else. It takes ages to get them on the aircraft, it takes ages to get them off again, everybody else has to wait, I promise you this, if you're going

on your holiday flight to Malaga or to Italy or wherever it is, the last thing you want are the royals sitting up the front.

It will be more trouble than it's worth. So whether you like them on a private jet or not, it's best to keep them as far away as possible from the

rest of us struggling through security and buying a drink on board. And that's QUEST MEANS BUSINESS for tonight, I am Richard Quest in New York.

Whatever you're up to in the hours ahead, well, it's not profitable, the day's turned turtle, it looks absolutely dreadful on the Dow, but the day

is done.

(BELL RINGING)

END

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