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Quest Means Business
Ukraine Marks Six Months Of War On Its Independence Day; At Least 15 People Killed In Strike On Ukraine Train Station; Russia's Economy Avoids Worst Outcome Of Conflict And Sanctions; Biden Announces Plan For Student Loan Forgiveness; Economist Says Recession Is Here, Despite Biden's And Fed's Claims; At Least 15 Killed In Strike On Ukrainian Train Station; Pressure On Europe Grows As Winter Nears. Aired 3-4p ET
Aired August 24, 2022 - 15:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
RICHARD QUEST, CNN INTERNATIONAL HOST: There is an hour to go on trading on Wall Street and look at the markets and you make your own judgment,
essentially, with the Dow Jones essentially flat and that is because everybody is waiting for Jerome Powell's Jackson Hole speech.
So, broader and narrower market is just treading water, which is what one might expect to see as you wait for important economic or direction news.
The main events that you and I will talk about today: The cost of war, six months after Russia invaded Ukraine, and the shape of the global economy
"New York Times," Paul Krugman is with me tonight.
The French President is warning the era of abundance is over and now is war fatigue next must be on the agenda and inflation politics, part of the
challenge of governing the United States 75 days to the midterm elections.
We are live in New York. It is Wednesday, midweek. Wednesday. It is August 24th, I'm Richard Quest, and on a Wednesday in August, I mean business.
Tonight, Ukraine marks six months of war and it does so on its own Independence Day. Since Russia's invasion, the people in Ukraine have seen
unfathomable death and destruction. The heavy shelling has reduced many towns to rubble. Look at the pictures, it makes it quite clear just the
awfulness of what these people have suffered over the last six months.
And the statistics are truly horrifying. Nearly seven million people, that's 15 percent of the population have fled to other European countries.
It was 31 years ago that Ukraine broke free from the then failing Soviet Union. Its President says the country was reborn six months ago when Russia
President Zelenskyy urge Ukrainians to keep fighting until they achieved victory.
(BEGIN VIDEO CLIP)
VOLODYMYR ZELENSKYY, UKRAINIAN PRESIDENT (through translator): We're holding on much for six months. It's difficult for us, but we clench fists
fighting for our fate.
Every new day is a new reason not to give up because having gone through so much, we have no right not to reach the end.
(END VIDEO CLIP)
QUEST: We never count dollars or rubles or zlotys or anything. We never counted them before we count lives.
But the West's main attack back against Russia has been to supply arms to Ukraine and sanctions. The toughest sanctions ever imposed.
So, the Russian invasion has sideswiped the global economy. It has ruptured supply chains, triggered far reaching sanctions and sparked an energy
crisis in Europe before the winter has even begun.
Again, natural gas prices hit a record high on Monday, they may be off the top of this, so exceptionally elevated. Inflation is driven to levels the
US and Europe haven't seen in decades and Central Banks are raising rates and say they will continue to raise rates further and faster.
Clare Sebastian joins us. We would have been in a very difficult situation economically as monetary stimulus was withdrawn from QE post COVID, but how
much more difficult did the invasion make things?
CLARE SEBASTIAN, CNN CORRESPONDENT: Well, Richard, I think you only have to look at the surge in those gas prices that you saw in the resulting
surge in inflation that we've seen particularly in Europe. In the US, it was already pretty elevated at the start of the war.
But in particular in Europe, it has really surged over the past six months and look at the news today, for example, which is the UK has just announced
that it's stopped by as of June all fuel imports from Russia. That's coal, oil, gas -- everything.
Now, this was not as heavy lift as it will be and would be for Europe. The UK was much less reliant, but still a heavily symbolic moment. On the
continent in Germany, we have the Cabinet approving energy saving measures keeping the temperatures down in public buildings things like that,
prioritizing energy cargoes in the country's rail networks.
SEBASTIAN: It's changing the way we live. But as you pointed out, Richard, the real crux of this in terms of how it is affecting everyday people's
lives, is inflation. Take a look.
ANDREW BAILEY, GOVERNOR, BANK OF ENGLAND: The Russian shock is now the largest contributor to UK inflation by some way.
CHRISTINE LAGARDE, PRESIDENT, EUROPEAN CENTRAL BANK: Russia's unjustified aggression towards Ukraine is an ongoing drug on growth.
JOE BIDEN, PRESIDENT OF THE UNITED STATES: We've never seen anything like Putin's tax on both food and gas.
SEBASTIAN (voice over): As the first Russian bombs fell in the early hours of February 24th, the economic front in this war was also emerging.
NED PRICE, US STATE DEPARTMENT SPOKESPERSON: We are disconnecting key Russian banks from SWIFT.
SEBASTIAN (voice over): As sanctions onslaught aimed at severing Russia's links with global finance.
URSULA VON DER LEYEN, PRESIDENT, EUROPEAN COMMISSION: We decided then to have a ban now on de facto 90 percent of Russian oil.
SEBASTIAN (voice over): And eventually, at hampering its ability to sell its fossil fuel, by far its biggest source of revenue. Six months in,
Russia has fought back, cutting off the gas to parts of Europe, causing it to ration energy to avoid winter shortages, and bringing soaring inflation
that threatens the post COVID recovery.
SEBASTIAN (on camera): It's not like Russia invaded Ukraine at a time of global economic stability. Inflation had already started rising sharply in
the developed world as COVID-19 abated and demand outpaced supply in many areas.
A year ago, as you can see, the US was already seeing inflation way above its two percent target. By February, the month the war started, the UK in
the euro area we're also seeing that, and now we're seeing multi-decade highs across the board, already double digits here in the UK.
SEBASTIAN (voice over): Central Banks blindsided by the surge have raised interest rates aggressively.
BAILEY: If we don't bring inflation back to targets, it is going to get worse and it will get worse precisely, I'm afraid, for those who are least
well off in society.
SEBASTIAN (voice over): And that's amid sign some economies are already slowing.
US and UK GDP fell in the second quarter, German growth flatlined.
RICARDO REIS, PROFESSOR, LONDON SCHOOL OF ECONOMICS: The challenge, I don't think, is to bring down inflation. The challenge is to bring down
inflation without blinking too much when the economy goes into an unavoidable recession in response to not a monetary, but a real shock.
SEBASTIAN (on camera): So, get used to the idea that you're going to have to continue to raise rates through a recession.
SEBASTIAN (voice over): A more dangerous consequence for the world's most vulnerable has been the disruption to the food supply chain.
Russia and Ukraine play a critical role in supplying wheat, sunflower oil, and fertilizer to global markets.
Before the war many countries including some of the poorest countries in Africa and the Middle East, completely reliant on their exports.
ANTONIO GUTERRES, UNITED NATIONS SECRETARY-GENERAL: More than 650,000 metric tons of grain and other food that are already on their way to
markets around the world.
SEBASTIAN (voice over): After a five-month blockade of Ukraine's seaports, a UN brokered grain deal providing some hope.
Longer term, experts say this war may bring a shift in the economic order, where supply chains are built not just to minimize cost, but also political
QUEST: Clare Sebastian reporting there.
Now, well, we want to take you to The Pentagon, where the Undersecretary of Defense Colin Kahl is speaking and he is talking about the new aid package.
COLIN KAHL, UNDERSECRETARY OF DEFENSE: The USAI package will begin in the next several months and continue over the coming years. While many of these
capabilities are not intended, to directly contribute to today's fight, they will form the backbone of a robust future Ukrainian force capable of
defending Ukraine for years to come.
Stepping back for a moment, the United States has now committed more than $13.5 billion in security assistance to Ukraine since the beginning of the
Biden administration, including $12.9 billion in the last six months.
This level of US security assistance is historically unprecedented, and demonstrates our unwavering support for a free and a democratic Ukraine on
its Independence Day.
This may be our largest security assistance package to date, but let me be clear, it will not be our last. We will continue to closely consult with
Ukraine on its near, mid, and long-term capability needs.
We are far from alone in this effort.
As, I noted in my last briefing earlier this month, at least 50 countries have now provided billions of dollars' worth of additional security
assistance to Ukraine since Russia invaded and participated -- invaded in in February, and these allies and partners have participated in the monthly
Ukraine Defense Contact Group meetings that have been hosted by Secretary Austin.
Our continued unified efforts will help Ukraine continue to be successful today and build enduring strength to ensure the Ukrainian people are able
to commemorate many more Independence Days for years to come, and with that, I think we're going to take the first question from the AP.
UNIDENTIFIED MALE: Thank you sir.
QUESTION: Thank you. So, one sort of specific question and then a broader question.
The VAMPIREs, can you give us a sense of how far down the road that is? What -- kind of what -- a little more detail what they are? And how far
down the road it is, because I think it's a fairly new system.
And then more broadly, can you tell us how much of the package would fund training? And is the US going to expand training? Give us a picture of us
training for Ukraine down the road into the future?
KAHL: Yes, so the VAMPIRE system itself is a counter UAS system. It is kinetic system. It uses small missiles, essentially, to shoot UAVs out of
the sky, and we're happy to provide you more technical details from the right experts at the right time.
As it relates to training, you know, we continue to train Ukrainian forces on all the systems that we are providing and that our allies and partners
are providing that they haven't already been trained on.
So, as they made kind of a transition from a mini case of Soviet legacy equipment, NATO standard equipment that's required more training, and this
has been happening on a rolling basis.
Now, as it relates to systems in this package, since, really, we're talking about systems that will take months to get on contract and you know, one,
two, three years, in some instances to arrive in Ukraine, we think we are confident we have the time to train the Ukrainians on whatever systems, you
know, they're not already familiar with.
QUEST: So, there we have the press conference, more aid to Ukraine on the six months since the war began.
Paul Krugman is with me. The Nobel Prize winning economist and a columnist for "The New York Times."
Paul, it is good to have you, and particularly good to have you today, where we see you, as you just heard The Pentagon announcing more military
support, $13.5 billion has been spent so far by the US or committed by the US, at a time of economic difficulty in Western and developed economies,
and a war that just promises the prospect of making things worse. How worried should we be?
PAUL KRUGMAN, ECONOMIST AND COLUMNIST, "THE NEW YORK TIMES": Oh, in terms of the money, you know, you do need to always bear in mind just how huge
Western economies are. The United States is a $25 trillion a year economy.
This is almost nothing, and in terms of the fiscal impact, in terms of the inflation impact, it is just nothing. And it is telling -- it actually is a
reminder of how third rate and economic power Russia is that sums of money that are basically pocket change for the West are enough to be really
decisive in stopping this Russian invasion.
So no, I don't think you want to worry about that. The fact that the war goes on is certainly creating a lot of economic problems, but not because
of the money we're spending there.
QUEST: Right. Right. But on those economic problems, I mean, if Russia, we've already got Nord Stream 1 running at 20 percent, and there is going
to be a maintenance shutdown. The UK said today for the first time in decades, it hasn't imported Russian oil during the last month.
How concerned are you at President Putin's ability to basically strangle Europe on the back of energy?
KRUGMAN: Well, I mean, it's -- let me talk about first what hasn't happened. It is actually kind of surprising.
Oil prices have largely retraced their rise. Global food prices have come way down, and the latest numbers from the Food and Agriculture Organization
really show a plunge in July. So, this is really all about natural gas.
And Russia, I mean, it is not if -- what happens if Russia tries to strangle Europe, it is doing it. Deliveries of natural gas to Europe are
way down. There is not much more to cut. And yes, natural gas -- supply of natural gas to Europe is the focal point here and it's going to be very
QUEST: On the economic front, on the US economic front. I took the time to read the variety of articles that you've written on inflation, from both
the original transitory through to the mea culpa through to today's piece again, about you asked the question, "Must we suffer to bring inflation
down?" And your answer is yes.
KRUGMAN: Yes. I mean, a limited amount of suffering, I see no indication that we need to go through a Paul Volcker style period of years and years
of high unemployment to ring inflation at expectations of the system because inflationary expectations have been remarkably stable. They've been
remarkably anchored. There is really no sign of that.
KRUGMAN: But the US economy by most indications is running too hot and it needs to cool down and that means that there are going to be -- and it's
going to be unpleasant. People have had the luxury of an extremely favorable jobs market and it's -- unfortunately, that does not seem to be
QUEST: And on that line, I mean, do you think the Fed is now so keen to restore its credibility when it comes to inflation. The one real risk is
erring on the side of extreme rate rises or higher rate rises to prove they can do it and get it?
KRUGMAN: Well, there is certainly always a risk of that. I mean, this is not an exact science. Nobody knows really how overheated the economy is.
Nobody knows really what the multiplier on interest rate hikes is.
So, the chance of the Fed missing and causing a deeper recession than we need or a recession, when we don't really need a recession was always
there. And of course, the Fed is concerned about credibility, more inclined to err on the side of doing too much than too little.
I still -- I can't buy the extreme pessimism here. We just don't -- you know, the Fed is -- they have this concern about credibility. They
certainly had some egg on their face, as did many of us over the surge in inflation, but they are aware and they do know that they are -- they are
aware of that risk.
So, there is nothing in here that really looks like a catastrophic slump, but something that will be called a recession, and that will make people
unhappy has got to be at least a 50/50 chance.
QUEST: Paul Krugman, I'm grateful for your time tonight. Sir, thank you.
KRUGMAN: Thank you.
QUEST: As we continue on QUEST MEANS BUSINESS, breaking news in Ukraine. We're getting details of an attack on a train station in central parts of
the country. In a moment.
UNIDENTIFIED MALE: Well, it's another amazing day here in downtown Dubai.
SEBASTIAN (voice over): Anas Bhurtun and Danosch Zahedi, frequently talk about DAOs, Decentralized Autonomous Organizations on their crypto podcast
UNIDENTIFIED MALE: So tell us a little bit about the DAO.
SEBASTIAN (voice over): DAOs can be described as a group of people who come together usually online with a common goal and no centralized leader.
ANAS BHURTON, CO-FOUNDER, ARTS DAO: You know, traditional companies have shareholders management and then employees. The idea behind a DAO is
instead to empower all members of that organization to have a say.
SEBASTIAN (voice over): DAOs differ from traditional companies because everything operates on the blockchain, a digital ledger that keeps track of
every company decision and transaction. It is because of this the two believe DAOs have the potential to revolutionize the business landscape.
QUEST: Breaking News: At least 15 people have been killed in a strike on a train station in Ukraine's eastern part of the country. President Zelenskyy
said least 50 people have been injured.
He told the UN Security Council; he expects that number will arise.
David McKenzie is with me now from Kyiv.
I suppose, you know the anticipation in a sense will be the retaliation or revenge such as it is for not only the murder of Putin's friend's daughter,
but also just on this Independence Day and six months of the war.
DAVID MCKENZIE, CNN INTERNATIONAL CORRESPONDENT: Well, Richard, certainly that is the fear, this heightened sense of alert and the information we're
getting at this point is scant, but it is disturbing.
At least 15 people killed on what appears to be a strike or a series of strikes on a train in Eastern Ukraine, according to the President. At least
50 people injured and that he said is expected to rise.
Now, we don't know if this is specifically linked to those Intelligence threat of extended strikes, missile strikes and other strikes that were all
warned about in the last few days here because of this anniversary.
But it does show again, the brutal nature of this war and what appears to be at least in the early stages of information, possibly civilian
infrastructure again struck and people killed -- Richard.
QUEST: David, remind me -- so forgive me if it sounds sort of a naive point, but remind me now what the consensus view is on what Putin's game
is. Clearly taking over the whole country, including Kyiv where you are, is not part of the goal. But what do most people think he wants to do, the
MCKENZIE: Well, Richard, I don't think it's a naive question at all, because that's what a lot of people are still asking six months into this
conflict because the stated aims was this terminology of this special military project, special military way of getting into the country to be
honest, I can't remember the exact phrase they have used because it is a euphemistic phrase.
But basically, what the feeling was initially was to take over the Donbas in the east, but the fighting came very close here to Kyiv in those first
few weeks and months, and it has been six months of a very brutal conflict.
MCKENZIE (voice over): Ukrainian President Volodymyr Zelenskyy vowing Ukraine will prevail against Russia.
ZELENSKYY (through translator): Every new day is a new reason not to give up, because having gone through so much, we have no right not to reach the
What is the end of the war for us? We used to say "peace," now, we say "victory."
MCKENZIE: Zelenskyy's continued resolve comes as the country's Defense Intelligence says there are threats of Russian missile strikes coinciding
with Ukraine's Independence Day.
This come as a country marks six months since the Russian invasion began when bombs were first heard in the Ukrainian capital in the middle of the
MATTHEW CHANCE, CNN SENIOR INTERNATIONAL CORRESPONDENT: There are big explosions taking place in Kyiv right now.
MCKENZIE (voice over): The following day, Russian soldiers were seen near the city firing.
Ukrainians vowed to fight and defend their ground.
On Snake Island, Ukrainian troops response to incoming Russian soldiers was seen as a patriotic moment for the country and has become a symbol of hope
for Ukrainian forces.
(UNIDENTIFIED MALE speaking in foreign language.)
TRANSLATION: I am Russian Military Ship. Propose to put down arms or you will be hit.
(UNIDENTIFIED MALE speaking in foreign language.)
TRANSLATION: [Bleep] it as well.
(UNIDENTIFIED FEMALE speaking in foreign language.)
TRANSLATION: Just in case.
(UNIDENTIFIED MALE speaking in foreign language.)
TRANSLATION: Russian warship, go [bleep] yourself.
MCKENZIE (voice over): In the early weeks of the war, Russian troops were concentrated on taking Kyiv, occupying and bombing neighboring communities
to get close to the capital.
Millions of Ukrainians were forced to flee, walking through rubble and fallen bridges to safety.
The carnage left behind has been devastating.
In Irpin, northwest of Kyiv, bodies filled the streets. Homes and buildings left in rubble.
And in Bucha, evidence of war crimes quickly emerged as mass graves were dug to bury the dead.
Russian soldiers retreated from Kyiv in defeat, and refocused their efforts in the south and east.
Russian forces were determined to occupy major seaports, putting towns such as Mariupol in the crosshairs. This maternity hospital in Mariupol was
bombed in March. Women were evacuated on stretchers to safety.
This woman, a day before going into labor walked down flights of stairs in the destroyed hospital to get to safety.
And this theater serving as a shelter for children was bombed, despite a warning seen from above, in large Russian letters that children were in the
The fighting in Mariupol would continue for months, coming to a head at the Azovstal Steel Plant where soldiers and the remaining civilians were
seeking shelter. The situation was dire.
UNIDENTIFIED MALE (through translator): It's a very difficult situation. We have very little water, very little food left.
The situation is critical. It's beyond a humanitarian catastrophe.
MCKENZIE: In May, civilians were finally evacuated from the plant, but many Ukrainian troops fighting to protect the plant were taken prisoner.
In recent months, fighting has been concentrated in the eastern region of the country, the site of an eight-year battle between Ukraine and Russian
CNN visited the region and met many suffering through the shelling, including 86-year-old Lydia (ph), who was stranded and unable to evacuate.
CLARISSA WARD, CNN CHIEF INTERNATIONAL CORRESPONDENT (voice over): She tells us, she recites prayers to get through the night.
(LYDIA speaking in foreign language.)
WARD (voice over): "I never imagined that my end would be like this."
MCKENZIE (voice over): And now, the most pressing situation lies at the nuclear plant in Zaporizhzhia, where renewed shelling has occurred in
The largest nuclear plant in Europe has posed a threat of nuclear calamity for months. Russia took control of the plant in March. A new video shows
they are using the plant to store Russian military vehicles.
As Ukraine passes this grim milestone, the concern is with winter approaching, where the international community's support for Ukraine will
be tested with rising food prices and rising energy costs to heat homes.
SAM KILEY, CNN SENIOR INTERNATIONAL CORRESPONDENT: Are you not afraid that the international community, your partners may begin to tire of this war?
OLEKSIY REZNIKOV, UKRAINIAN DEFENSE MINISTER: I call it fatigue syndrome. And for me, it's one of the main threats and we need to work on with this
threat. Because we need to speak like with you, to communicate, to ask people, don't be on this fatigue because this is very, very dangerous for
MCKENZIE (on camera): And if you look at the images of this latest strike in Eastern Ukraine on this mangled train, at least 15 people killed. Many,
many injured, Richard, You get the sense that this war will drag on and the consequences will be even more dire -- Richard.
QUEST: David McKenzie in Kyiv for us tonight. Thank you, sir.
As you and I continue, grain shipments from Ukraine are starting to reach distant ports again. Now, the issue of course is it might not be enough to
bring relief to countries in Africa and Latin America. It's a good start, but not enough.
We'll be in Bogota in just a moment.
QUEST: Hello, I am Richard Quest. We will tell you about soaring food prices and the war on Ukraine and the developing world and how it has been
affected. We'll look at the impact in South America.
President Biden has offered billions of dollars of student loan relief. (INAUDIBLE). We will get to all of that after we have updated you with the
news headlines because this is CNN.
Voters are casting their ballots in Angola for a new president in parliament. The country's news could be the deciding factor, as the strong
position is taking on a ruling party which has held power for decades. Angela is Africa's second largest oil producer. But even employment is
high and more than half the population is in poverty.
Japan's prime minister says that the country will restart more idle nuclear power plants and consider developing new reactors. It signals a major
policy shift for the government, which had cut back on nuclear energy since the Fukushima meltdown in 2011. It's part of the plan to revamp the economy
and was prompted in part by the global rise in energy prices.
Monsoon rains and flooding in Pakistan have left more than 900 people dead, including hundreds of children. Officials say thousands of people are
without shelter or food. They are appealing for aid from overseas to help deal with the worsening humanitarian crisis.
QUEST: Russia's economy is doing better than expected in the face of serious, severe Western sanctions. The IMF predicts GDP in Russia will
shrink 6 percent this year. Russia's central bank's says inflation could hit 12 percent this year. The U.K. could hit 18 percent.
And the ruble is now back at more than 40 percent on the dollar since the conflict began. Fred Pleitgen is in Moscow.
So I guess there is really -- it's an interesting one. Paul Krugman, writing in "The New York Times," talks about the trade surplus is actually
bad news, because it does come from the fact of lower imports because people can't buy things. But then you look at the numbers, it's not as bad
as the West had hoped at this point.
FREDERIK PLEITGEN, CNN SENIOR INTERNATIONAL CORRESPONDENT: No, definitely not. One of the things that we have to keep in mind is that, before all of
this started, one of the things that President Biden kept saying to Vladimir Putin and kept saying to the Russians, that if Russia invades
Ukraine, then there would be crippling sanctions that would be very detrimental and destructive to the Russian economy.
Certainly, that has not happened so far. One of the key moments that we have had over the past few months, since we have been reporting from Russia
on the conflict and the way that they have been doing it, is Vladimir Putin, at the recent economic forum, Putin says what he calls the economic
blitzkrieg by the West had not worked.
The Russian economy is certainly a lot more resilient than many people thought. In large, part also because of the central bank loss was very good
at shoring up the economy beforehand, getting the foreign currency reserves to be extremely high, which allows Russia to bankroll a lot of its
And of course, we have to talk about the fact that international gas prices and generally commodity prices are very high. That also helped the
But Richard, I think this is something that's very important, it is starting to take a more difficult turn. There are a lot of things that are
not available and a lot of those things are things that Russia requires to keep its industrial machine going.
QUEST: Now that's an interesting point, that's crucial. People like President Biden and others have always said, sanctions is not a bullet that
will kill overnight. It will take time for them to work. The history of their total success is somewhat spotty. But I guess Russia's going to
discover itself during the war during the winter.
PLEITGEN: I think that the Russian economy is going to have a lot of trouble going forward and especially in the industrial sector in Russia.
For a lot of the oil and gas facilities that the Russians have running, they obviously have foreign firms that were doing a lot of the
infrastructure for them, that were very active here in Russia.
If you look at the gas sector alone, so getting spare parts, keeping things running, you do expect, quite frankly, that the Russians might be learning
from the Iranians. But if you look, for instance, also at the Russian automotive industries, one of the ones that we look at quite frequently,
you have automakers like Lada, who could not produce anything for a very long time.
We're talking about producing cars without airbags or other, more sophisticated opponents. That goes through large parts of Russia's
industry. That's certainly something they could be very difficult.
What you notice this year on the ground, there are certain products that are not available anymore. By and large, as consumers here in Russia, you
can still get by. However, I was very interested to see that graphic that you had at the beginning, of the 12 percent inflation.
It does feel very high here in Russia right now and it is hurting a lot of people and very badly, especially those with lower incomes.
QUEST: Finally, as we quantify, if you will, the economic effect, how important has relief from China been?
Either in doing business, in buying discounted oil. India, we know, has been a big beneficiary from this. But if China is the Sino-Russia
relationship, that really is the cornerstone, perhaps.
PLEITGEN: It's the cornerstone and there is one thing I would also throw in. Of course the economic relations are important. It's important for
Vladimir Putin that he has those relations with China.
I think it's also a big psychological factor for the Russian economy as well, to know that they are not going to be completely ringfenced with
sanctions, that they have China as a partner for Vladimir Putin, to keep raw commodities and exports going.
But in general to have an economic lifeline. In the future, where are cars going to come from in Russia? Where are appliances going to coming from?
A lot of people believe that China might be a way out for them. So that psychological factor is important. As far as trade is concerned, I believe
trade is actually somewhat decreased between China and Russia, because, of course, you have the financial implications. Some Chinese companies are
having difficulty selling products here.
In the long term, Russia's going to build that up. They're building a pipeline right now to China so it seems they are re-orienting their economy
toward the east, toward the Chinese.
That's certainly something that, in the long term, will be, especially for commodities exports, especially for gas, something the Russians are looking
to, it isn't there yet. It is still very difficult for the Russians to export a lot of gas and reroute the amounts that they've exported to
Europe, reroute that to China quickly. They're not there yet.
QUEST: Fred, thank you, sir, I appreciate it. Thank you.
QUEST MEANS BUSINESS. Student loan relief in the U.S., millions of borrowers will benefit. But critics say that it could be more expensive
over time. A former White House of economics is with me after the break.
QUEST: President Biden has announced new student debt relief, it's living up to the key campaign promise. The president is scheduled to cancel
between $10,000 and $20,000 in loans for people that are making less than $125,000 a year.
There will be a freeze on payments, extended through to the end of the year. Critics say that could worsen inflation and counteract the recent
Inflation Reduction Act. Kevin Hassett led the Council of Economic Advisers under president Donald Trump. He is with me now.
It's a lot of money to forgive but it's going to be done over a period of time. So I'm guessing that the inflationary aspect of this has to be
KEVIN HASSETT, FORMER PRESIDENTIAL ECONOMIC ADVISER: Yes, it is a lot of money and I think that, I don't know, negligible; inflation is pretty high
right now. But I think the big economic impact of this is going to be on the long-run dynamics that's going to affect markets.
So the fact is, if everybody expects that their debt is going to be forgiven again in the future, that they're going to load up on debt like
crazy. And that's going to make it so that the CDO, when they score the student debt programs, it's going to have to account for the fact that this
forgiveness is very similar to like a default in terms of government scoring.
So I think in the end, it's going to really throw a monkey wrench into the student loan market going forward because people are going to have to
figure out what to expect. But I think that's a bigger economic impact than the inflation impact, given the scale --
QUEST: Let's get to the meat and veg, as they say. The -- look, Paul Krugman has a different slant on political view than yourself. Krugman on
this program earlier tonight, basically says, as you saw in his article, that the Fed has no choice.
It has to continue rising rates and the pain needs will be there. But he hopes not as bad as it could've been. Your writing basically says the
There is no need for the very high interest rates that we're likely to get. You say that the depression risks are higher than they have been in a
lifetime. Which is it?
HASSETT: I think the Fed does need to continue to lift interest rates. So I'd had to see what it is that you are quoting. I've been very much in
favor of lifting interest rates quite a bit, because inflation is so high.
But the fact is we are in a stacked inflationary recession. We've had two negative quarters, the third quarter this year looks like it's going to be
close to negative as well. So the Fed has a very difficult job.
I myself am going out to Jackson Hole for this conference, where we're all going to be talking about this. But the economics of the current situation
is profoundly complex. But inflation has got to get under control and I'm sure that the Fed is going to have to lift interest rates for the rest of
the year, about at the pace that they've been doing.
When I look back at history, generally speaking, what happens is that inflation stays where it is, until the interest rate gets higher than the
interest rate. Now with the declining demand that we are seeing in the economic data, it could be inflation has peaked and it's heading down.
But I still think that the Fed is going to have to get interest rates above the expected inflation rate over the next couple years to get inflation
under control. That's quite a few points from here.
QUEST: Maybe it is the social media generation or those who are sort of used to it all being over by teatime.
We're talking months here, aren't we?
We are talking a serious length of time of higher interest rates, with a recession, possibly 8-10 months down the road, following on.
HASSETT: I think that, in the end, they'll say were in a recession now because we'll continue to have negative quarters. The fact is that Alan
Greenspan, I used to work with him at the Fed when I was much younger. He used to say that it was like steering the Queen Mary in monetary policy.
And I think that's right. Things move very slowly.
HASSETT: But you can see already, if you look at U.S. housing market data, the Federal Reserve actions have driven margin rates up and have really
walloped housing markets in the U.S.
That's one of the first monetary transition in some avenues and we're seeing it in the data. So monetary policy is starting to work the way that
it always has. But as you say, it's going to take quite a long time.
My expectation is that inflation is going to be 2 percent until probably after the next presidential election.
QUEST: If it ever gets there. My prediction is it doesn't. My prediction is it never get back to 2 percent, it ends up somewhere around 3. That is a
subject for another time, good to have you, sir, thank you.
HASSETT: Thank you, Richard, great to be back.
QUEST: The French president says freedom has a cost, as he's warning of the tough months ahead. On the energy shortage that is going to test
Western support, now if prices go up as predicted, well, fatigue, war fatigue.
QUEST: I must update you with the breaking news from Ukraine.
President Zelenskyy says at least 15 people have been killed in a Russian strike on a train station. A local official is saying that an 11-year old
is among the dead, at least 25, possibly 50, maybe more are injured.
These photos have been posted on Twitter by the foreign minister. At CNN, we have not been able to independently verify them. The rescue is ongoing.
As I say, the number of people who are severely injured is likely to rise.
Ukraine marking Independence Day and six months of war with Russia. David McKenzie is with me now.
In a catalog of atrocities, this is up there.
DAVID MCKENZIE, CNN CORRESPONDENT: Well, it is certainly up there. And certainly looks extremely serious, this particular incident in the eastern
part of the country at a train station, according to Ukrainian officials, the latest coming from a parliamentary speaker that an 11-year old was
killed in what appears to be a rocket attack.
We cannot independently verify that. But it was brought up, this attack, by President Zelenskyy at the U.N. Security Council. That's how serious
Ukrainians are taking it, in a litany of ongoing strikes, both on military and civilian targets during this Russian invasion.
MCKENZIE: At least 50 people injured. You see those images, we can't 100 percent verify. But it appears that those carriages are completely
obliterated by these rockets in this eastern part of Ukraine, which is near an area which has seen relentless shelling and rocket attacks in recent
days and weeks, Richard.
But it speaks to the ongoing alleged atrocities by Russian forces in this fight, that have been striking at often civilian buildings, residential
areas and, in this case, what appears to be a train station and train carriages. Many innocent people, it seems, have been killed and/or injured.
QUEST: David McKenzie, in Kyiv, thank you, sir.
French president Emmanuel Macron is warning that the end of abundance is near. He says France is at a tipping point in its energy crisis. The
president highlighted the pressures that climate change and the war in Ukraine are putting on European supplies and the sacrifices the French
citizens will make.
He says he has a duty to speak frankly about what is coming.
(BEGIN VIDEO CLIP)
EMMANUEL MACRON, PRESIDENT OF FRANCE (through translator): It may be that some see our destiny as having to perpetually manage crises or emergencies.
I believe that what we are experiencing is rather a great upheaval or a great shift.
(END VIDEO CLIP)
QUEST: Sir Peter Westmacott with me, former British ambassador to the U.S., Turkiye and France, he is with me from Turkiye.
Peter, good to have you. Macron warning about this, at the same time as economic woe hitting the U.K. with terrible, terrible inflation and the
U.S. slowdown. You and I spoke six months ago and you said, one of the big issues is going to be war fatigue by the time we get to winter.
Do you still hold that view?
SIR PETER WESTMACOTT, FORMER BRITISH AMBASSADOR TO THE U.S., TURKIYE AND FRANCE: Hello, Richard, I don't quite remember those words but thank you
Of course, right now we have had a hot summer, which has meant a lot of energy consumption on air conditioning. But it is nothing compared to what
we will need if the winter is as cold as many predict.
I think at the moment, where we are is that public opinion in most European countries and America, as far as I can tell, remain of the view that, to
misquote President Macron, this is the price of liberty.
I think if we are going to stand up for the Ukrainian people against the illegal, appalling invasion by Putin's Russia, then there will be a price
to play. I think at the moment public opinion is going on with that.
President Macron actually has toughened up toward Russia lately. The Germans are doing the same, although it is a little bit more about weapons
tomorrow rather than now.
In Britain, people are a little bit in limbo because they're trying to choose a new prime minister -- or the Conservative Party is.
And I would say that public opinion is more angry with the government for mismanaging, as they see it, inflation, sewage being dumped on beaches,
that sort of thing rather than the cost of supporting the good guys in Ukraine against Russia.
QUEST: Paul Krugman makes the point earlier in our program that the amount of money that we have all spent so far is really change down the bottom of
the sofa. For the rich countries of the world, it is not economically significant.
But Peter, if, as on Friday, when the U.K. announces the cap on gas prices and prices go up again to the horrific levels that people are forecasting,
can it be long before people say, oh, for goodness sake, let's get the gas moving, whatever that takes?
WESTMACOTT: You are quite right. The expectation is, on Friday, the price cap will go up again, and then by April (ph) it will be 400 percent more
than it was 18 months ago in the U.K.
Now this is an enormous cost to households in Britain. At the same time, the U.K. has now stopped buying any oil or gas from Russia. So people will
be scratching their heads a bit and saying, hang on, why are we still having to pay the highest prices almost in the world?
Part of it is that the U.K., over the last few years, decided not to have any strategic reserves of gas, unlike the French or the Germans, who have
big reserves, big storage of gas, to try to provide some buffer when prices go haywire, as they have done recently.
I think people will be saying to the government, hang on, what have you done here?
They will also be saying, why are you not applying real cap like Macron is on our prices?
I don't think at the moment they will be saying, let's forget about the poor Ukrainians and do a deal with the Russians.
QUEST: Final question, U.K. domestic politics, Peter, you have studied and watched from afar. The view in Britain is there is no government, nobody is
leading, nobody is doing anything.
Is that inevitable bearing in mind the leadership challenge?
QUEST: Can you feel that from foreigners saying to you, what is happening in Britain?
WESTMACOTT: People have been asking me those questions, what is going on in the U.K.?
I think they're also a bit surprised that the prime minister disappeared for a couple of holidays. And the one thing he's visibly done since saying
he would resign, is go off to see his friend Zelenskyy in Ukraine today, which is all very well and it goes down with public opinion because it is
one of the few areas of policy where public opinion is firmly behind Boris Johnson.
But there has been some surprise. It will be absolutely no governance on any of these other really difficult issues, particularly around cost of
living, so, yes. People are at home are puzzled.
And I find people abroad are saying to me, what is going on in the U.K.?
And they're hoping that, once there is a new prime minister, the U.K. will be back in play.
QUEST: Whether it is distrust or (INAUDIBLE) -- I was going to say we'll leave it to the voters but we won't. We will leave it to the Conservative
Party. Thank you very much, sir.
WESTMACOTT: Thank you, Richard, good to see you.
QUEST: We will take a "Profitable Moment, a busy day, after the break.
QUEST: Tonight's "Profitable Moment," please don't take what I am about to say as I told you so. There is no smugness, there's no I'm glad I was right
about what I'm going to say now.
Six months of war and right at the beginning, I said, it's war. This idea of don't do sanctions on, this and that, leave this out, let this athlete
flay and do this, it's war. And in war, nasty things happen. And hard decisions have to be made and everyone ends up suffering.
Now it's taken six months and winter is around the corner. But that's exactly where we are. Listen to what Boris Johnson has said. Listen to what
the governor of the Bank of England has said. Jay Powell, listen to Biden in what has been a little more Pollyanna about things. But listen to what
Emmanuel Macron has told the French people and indeed Olaf Scholz. No, it's going to get very difficult over the winter. You've heard it tonight on
this program, from numerous top economists.
And so I come back to the refrain that I said six months ago: this is war. And whether or not Putin calls it so, the resulting of course, and you've
heard tonight the devastation, the horror, the inhumanity that has taken place. And it's only just beginning because, in this winter, the economic
impact is going to hit us all in some shape or form.
And the best thing that we can do is just be ready.
And that is QUEST MEANS BUSINESS for tonight, I'm Richard Quest in New York. Whatever you are up to in the hours ahead, I hope you are safe.