WEBVTT - Bill Dudley: Why Markets Should Worry About Inflation 0:00:01.400 --> 0:00:04.120 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, along 0:00:04.120 --> 0:00:06.240 with my co host of Bonnie Quinn. Every business day 0:00:06.240 --> 0:00:10.400 we bring you interviews from CEOs, market pros, and Bloomberg experts, 0:00:10.400 --> 0:00:13.600 along with essential market moving news. Kind the Bloomberg Markets 0:00:13.600 --> 0:00:17.000 Podcast on Apple Podcasts or wherever you listen to podcasts, 0:00:17.000 --> 0:00:21.240 and on Bloomberg dot com. Good is time for Bloomberg Opinion. 0:00:21.280 --> 0:00:23.720 Today we are joined by Bill Dudley. He's a senior 0:00:23.880 --> 0:00:27.560 research scholar at Princeton University Center for Economic Policy Studies 0:00:27.800 --> 0:00:31.520 and obviously also former president of the Federal Reserve Bank 0:00:31.640 --> 0:00:34.279 of New York based in Princeton, New Jersey. Bill, thanks 0:00:34.320 --> 0:00:36.839 so much for joining us here. Love to chat with 0:00:36.920 --> 0:00:40.919 you kind of about your column about inflation. I think 0:00:40.920 --> 0:00:43.360 the Federal Reserve would like to see some inflation come 0:00:43.400 --> 0:00:46.880 back into this marketplace, but the signs really aren't there. 0:00:46.680 --> 0:00:49.479 What are your thoughts on that. Well, the first thing 0:00:49.520 --> 0:00:51.600 is that people are of the view that it's not 0:00:51.640 --> 0:00:53.040 going to come back. And so if you look at 0:00:53.040 --> 0:00:58.080 the spread between normal treasuries and inflation protected treasuries, spread 0:00:58.080 --> 0:01:01.640 it on a tenure basis is one point nine. That's 0:01:01.640 --> 0:01:05.080 on a CPI basis, So that translates to UH you know, 0:01:05.200 --> 0:01:08.880 core PC deflator of about one point six So basically, 0:01:08.959 --> 0:01:11.480 market participants are saying the Fed's not going to succeed 0:01:12.120 --> 0:01:14.760 in their goal of pushing inflation not just back to 0:01:14.800 --> 0:01:18.360 two percent, but above two. I've set the missages that 0:01:18.400 --> 0:01:21.720 we've had in recent years, so market participants are very, 0:01:21.959 --> 0:01:25.039 very confident that inflations will stay low in definitely, and 0:01:25.080 --> 0:01:29.280 I think that just a little bit too optimistic and assessment. 0:01:30.120 --> 0:01:32.880 There are some indicators though maybe I do that. What 0:01:32.920 --> 0:01:34.959 about the five year five year forward which has been 0:01:34.959 --> 0:01:37.280 creeping up and is at what two point nearly three 0:01:37.800 --> 0:01:40.360 percent at this point. Yeah, we've had some movement in 0:01:40.360 --> 0:01:42.440 the last week, so people are finally, I think, is 0:01:42.480 --> 0:01:44.520 taking this on board. But there are a number of 0:01:44.560 --> 0:01:46.640 reasons why I think inflation is a greater risk and 0:01:46.720 --> 0:01:50.040 what's pricing from markets. The first is base effects. So 0:01:50.160 --> 0:01:53.280 last April, March and April we saw a big decline 0:01:53.280 --> 0:01:56.960 in the COREPC deflator because the onset of the pandemic. 0:01:57.280 --> 0:01:59.800 When we get to May and those numbers drop out 0:01:59.840 --> 0:02:03.040 of the UH year over year statistics, all sudden inflation 0:02:03.080 --> 0:02:05.760 will look a little bit firmer. Second, I think that 0:02:06.000 --> 0:02:08.040 as we as we get an economic recovery in the 0:02:08.080 --> 0:02:10.560 second half of the year, which I fully anticipate, I 0:02:10.560 --> 0:02:12.720 think you're going to see more pricing power in those 0:02:12.720 --> 0:02:15.640 areas that were hurt most by the pandemic, things like 0:02:15.720 --> 0:02:19.360 hospitality and leisure, especially given the fact that that we 0:02:19.400 --> 0:02:21.480 probably actually are gonna have a shortage of capacity in 0:02:21.520 --> 0:02:24.800 some of those areas, given business failures that have occurred 0:02:24.880 --> 0:02:28.400 over the intermediate period. Third, you know, the other issue, 0:02:28.400 --> 0:02:30.200 of course, is we know the fens will be very patient. 0:02:30.560 --> 0:02:32.399 The fat is basically said they're not going to raise 0:02:32.600 --> 0:02:36.480 short term interest rate until they until maximum employment gets 0:02:36.639 --> 0:02:38.799 until we get the maximum employment, until we get to 0:02:38.880 --> 0:02:42.040 two percent inflation, and the fattest confident inflation is going 0:02:42.080 --> 0:02:44.640 to go above a two percent for some period of time, 0:02:44.840 --> 0:02:46.639 So the FED is gonna be slow rather than fast. 0:02:47.320 --> 0:02:49.720 And then uh, I think the final thing that makes 0:02:49.720 --> 0:02:53.480 me more more worried about inflation is fiscal policy. There's 0:02:53.480 --> 0:02:56.519 a pretty strong consensus developing that that if economies we 0:02:56.800 --> 0:02:59.520 use fiscal policy, there's not a lot of worry anymore 0:02:59.520 --> 0:03:03.280 about uh, that sustainability over the medium to longer term. 0:03:03.280 --> 0:03:05.320 So fiscal policy is a lever that can be used 0:03:05.320 --> 0:03:08.760 more aggressively than before. If you remember back during the 0:03:08.840 --> 0:03:12.519 last economic cycle, fiscal policy restraint was one reason why 0:03:12.520 --> 0:03:14.840 we had a subpar recovery in two thousand and twelve 0:03:14.919 --> 0:03:19.200 without fourtune well bill, just like on that last point, 0:03:19.240 --> 0:03:22.440 and maybe this is just political positioning, um, but we're 0:03:22.440 --> 0:03:25.760 actually starting to hear some Republicans say, whoa, whoa, whoa, 0:03:25.919 --> 0:03:28.080 let's put the brakes on some of the fiscal stimulus 0:03:28.120 --> 0:03:31.359 that we're talking about. Three trillion UH is way too 0:03:31.360 --> 0:03:33.600 big the number. We're thinking something less than a trillion 0:03:33.720 --> 0:03:36.560 for example, just on the discussion this latest fiscal stimulus, 0:03:36.720 --> 0:03:40.520 do you believe that after years of supporting higher and 0:03:40.600 --> 0:03:44.680 higher spending, that the Republicans have any stomach for kind 0:03:44.680 --> 0:03:48.680 of reining it in. Well, historically the Republicans have been 0:03:48.920 --> 0:03:52.960 uh for fiscal consolidation when Democrats are in the White 0:03:52.960 --> 0:03:56.240 House and not so much when Republicans. Certain way, I 0:03:56.240 --> 0:03:59.400 think they'll I think they'll continue that that pattern. The 0:03:59.640 --> 0:04:01.400 important thing on the fiscal size, it looks like we're 0:04:01.440 --> 0:04:03.560 going to get another round of physical stimuls. If there's 0:04:03.600 --> 0:04:07.240 nine billion dollar proposal goes forward, it seems more likely 0:04:07.280 --> 0:04:09.920 than not at this point that I think is sufficient 0:04:09.920 --> 0:04:11.920 to provide a bridge to the recovery that we're going 0:04:12.000 --> 0:04:17.120 to see late spring uh an early summer bill. So 0:04:17.400 --> 0:04:21.240 we definitely will see price increases in perhaps places like services, 0:04:21.240 --> 0:04:24.240 which make up about there all c p I and 0:04:25.320 --> 0:04:27.080 the core measures. So I could see where you would 0:04:27.120 --> 0:04:30.680 get inflation. But if we have slack in the labor force, 0:04:30.720 --> 0:04:33.160 which were likely to have for some time, won't that 0:04:33.320 --> 0:04:38.280 offset that kind of inflation at least for the federal reserve? Well, 0:04:38.320 --> 0:04:40.080 I think it. I think the question is how long 0:04:40.200 --> 0:04:43.320 is that slack in the liver market actually going to persist? 0:04:43.760 --> 0:04:45.920 And the other issue I think is, you know, people 0:04:46.000 --> 0:04:48.520 talk about the scarring of the economic caused by the pandemic, 0:04:48.920 --> 0:04:52.920 but the scarring isn't just about you know, workers being unemployed. 0:04:52.920 --> 0:04:55.719 It's also about businesses. They are just going under so 0:04:55.839 --> 0:04:59.880 capacity is also suffering. I mean, in my hometown Cranford, 0:04:59.880 --> 0:05:02.360 New Jersey, to two of the major restaurants have gone 0:05:02.360 --> 0:05:05.200 out of business. So when demand comes back, there's gonna 0:05:05.200 --> 0:05:07.159 be a lot more pricing power for those that have 0:05:07.279 --> 0:05:11.440 survived this, this this pandemic bill, how do you view 0:05:11.680 --> 0:05:13.720 the labor market here? We get you know, a week 0:05:13.760 --> 0:05:17.520 after week we get this really really sobering jobless claims, 0:05:17.520 --> 0:05:19.960 and of course we had some of the jobs data 0:05:20.000 --> 0:05:23.000 on Friday. Here, how do you view the labor market 0:05:23.040 --> 0:05:25.760 and the resiliency of the labor market as we come 0:05:25.760 --> 0:05:28.719 onto the back side of this pandemic arguably beginning maybe 0:05:28.720 --> 0:05:31.640 you know sometime next year. Well, it's not as good 0:05:31.720 --> 0:05:35.039 as the employment statistics suggests. For example, looking at the 0:05:35.080 --> 0:05:37.480 unemployer rate of six point seven percent. The our reason 0:05:37.480 --> 0:05:39.480 that as low as six point seven percent is a 0:05:39.480 --> 0:05:41.599 whole bunch of people have dropped out of the labor force. 0:05:41.920 --> 0:05:43.880 You're only counted as unemployed in the United States if 0:05:43.920 --> 0:05:47.560 you're actively looking for work. The labor force participation rates 0:05:47.600 --> 0:05:50.880 dropped by nearly two percentage points since February. So there's 0:05:51.000 --> 0:05:53.920 a lot more people unemployed than suggested by the current 0:05:53.960 --> 0:05:57.040 labor market, and that's certainly going to hold inflation back 0:05:57.080 --> 0:05:59.039 for a while. But I do think the recovery in 0:05:59.040 --> 0:06:01.800 the second half the years quite powerful. Once you get 0:06:01.839 --> 0:06:05.560 people vaccinated and the risk of pandemic goes down from 0:06:05.600 --> 0:06:08.960 a health perspective, social distancing land, you'll have an opening up. 0:06:08.960 --> 0:06:11.040 And so I think there's a lot of pen of demand. 0:06:11.080 --> 0:06:13.200 I mean, you look at the savings rate, the stavings 0:06:13.279 --> 0:06:16.720 rate right now, it's really high, even though we've gone 0:06:16.720 --> 0:06:19.479 through a very bumpy economy. So it seems to me 0:06:19.560 --> 0:06:23.359 like there are resources, especially among higher income people to 0:06:23.400 --> 0:06:26.479 go out and spend. So, Bill, if you don't mind 0:06:26.520 --> 0:06:30.120 taking us through it very slowly for some of us 0:06:30.120 --> 0:06:32.880 who may may maybe you know, less quick of thought 0:06:32.960 --> 0:06:36.040 than you. Take that restaurant example that you just gave 0:06:36.080 --> 0:06:38.760 us in your hometown to have closed. The others will 0:06:38.760 --> 0:06:41.280 have pricing power when people come back and start eating 0:06:41.279 --> 0:06:45.320 out properly. But how long will it take before those 0:06:45.400 --> 0:06:49.240 businesses or new businesses open to take that pricing power away, 0:06:49.279 --> 0:06:51.560 to employ some of the people that haven't been employed, 0:06:52.000 --> 0:06:54.640 that were in the services sector, and that then you know, 0:06:54.920 --> 0:06:58.440 contribute to the labor market becoming sort of full again 0:06:58.480 --> 0:07:01.240 full employment. Well, I wish I knew the answer to 0:07:01.240 --> 0:07:03.320 that question. I mean, we've never gone through anything quite 0:07:03.360 --> 0:07:06.440 like this before, and the burden of course has fallen, 0:07:06.600 --> 0:07:10.400 you know, disproportionately on leisure and hospitality and especially on 0:07:10.440 --> 0:07:12.800 a lot of small businesses. You know, if you look 0:07:12.840 --> 0:07:16.520 at the share of you know, demand, it's it's gone 0:07:16.680 --> 0:07:21.400 disproportionately towards the larger, large, larger stores, larger businesses. You know, 0:07:21.440 --> 0:07:25.160 Walmart's is able to stay open because they sell super 0:07:24.760 --> 0:07:30.080 sell sell groceries, or while follower smaller stores that specialize 0:07:30.080 --> 0:07:33.400 in things that Walmart sells, maybe you know, don't don't 0:07:33.520 --> 0:07:35.840 have as much much business. So I think, you know, 0:07:35.880 --> 0:07:37.760 I think you're right that you know, there will be 0:07:38.200 --> 0:07:40.480 you know, a small business creation. But then that's about 0:07:40.520 --> 0:07:43.200 you know, mobilizing capital and being credit worthy, and so 0:07:43.240 --> 0:07:46.320 I think that's going to take some time. Hey, Bill, 0:07:46.360 --> 0:07:49.720 thanks so much for joining us. We appreciate that. Bill Dudley, 0:07:50.000 --> 0:07:53.240 former year FED president and senior researcher at Prince University, 0:07:53.440 --> 0:07:55.720 and Vonnie, that's a big, big issue I think for 0:07:55.760 --> 0:07:58.800 some of these small businesses, the you know, the how 0:07:58.880 --> 0:08:01.720 quickly they can come back, or maybe a new entrepreneur 0:08:01.800 --> 0:08:04.200 comes in and starts a new restaurant in that old 0:08:04.800 --> 0:08:07.400 old space. Well that's just it. And you know, to me, 0:08:07.440 --> 0:08:10.200 in some senses, that might be the critical question how 0:08:10.200 --> 0:08:12.160 long does that take? Because that's when we're going to 0:08:12.160 --> 0:08:15.800 see those indicators move around, the inflation indicator, the employment indicator, 0:08:15.840 --> 0:08:19.480 and it's how they all sort of interact that you know, 0:08:19.720 --> 0:08:23.360 decides whether we suffer from too much inflation, or whether 0:08:23.400 --> 0:08:25.360 the FED needs to do something about the FED folds 0:08:25.400 --> 0:08:28.960 back and so on, so many questions to resolve that 0:08:29.040 --> 0:08:36.360 was built only former Fed Reserve. New York billion dollar 0:08:36.440 --> 0:08:39.440 and logistics company d h L has just released its 0:08:39.440 --> 0:08:43.160 annual Global Connectedness Index, which it does in conjunction with 0:08:43.280 --> 0:08:45.720 n y U Stern School of Business, and the report 0:08:45.760 --> 0:08:50.160 highlights key developments in international flows of capital, trade, information, 0:08:50.280 --> 0:08:53.520 and people. Joining us now with the conclusion from the 0:08:53.559 --> 0:08:56.720 report that globalization is far from dead is the CEO 0:08:56.800 --> 0:09:00.080 of the America's of dhl Express America's Mike Power and 0:09:00.160 --> 0:09:03.280 thanks for joining Mike. So my globalization may not be 0:09:03.360 --> 0:09:05.679 dead according to the report, but what are the flows 0:09:05.720 --> 0:09:08.640 showing us. Are we dealing with other countries as much 0:09:08.800 --> 0:09:13.440 as we did a peak globalization? Well, good morning, Bonnie 0:09:13.440 --> 0:09:15.559 and Paul, and thanks for having us. Yeah, I mean 0:09:15.760 --> 0:09:20.479 the report in itself, uh, there there weren't big surprises. 0:09:20.520 --> 0:09:23.920 So obviously people flows, if you've seen the report, people 0:09:23.960 --> 0:09:28.640 flows suffered an unpreceded decline in We expected that based 0:09:28.679 --> 0:09:32.640 on what was happening during the pandemic um capital flows 0:09:32.679 --> 0:09:35.560 were hit a bit harder, but they are rebounding UM. 0:09:35.600 --> 0:09:39.360 And that is positive, as you know, with governments and 0:09:39.480 --> 0:09:44.080 central banks having stabilized the markets and helping to do that. 0:09:45.200 --> 0:09:47.720 But the one that came out that we're actually excited 0:09:47.760 --> 0:09:52.680 about his international trade. It's rebounded uh strongly. And people 0:09:52.760 --> 0:09:56.280 ask us all the time, is this a U shape 0:09:56.280 --> 0:10:00.800 and L shape? Uh? It's a rather narrow V shape 0:10:00.840 --> 0:10:05.120 recovery that we have seen. UM. Our lowest point at 0:10:05.200 --> 0:10:08.520 DHL this year was in April. Uh. If you think 0:10:08.520 --> 0:10:11.920 about when we found out about the pandemic UH in 0:10:12.080 --> 0:10:16.600 Wuhan and where it started, we started flowing from the 0:10:16.720 --> 0:10:20.920 US to China ppe equipment UH. And then it turned 0:10:20.920 --> 0:10:24.200 around in March April and you started the c PP 0:10:24.480 --> 0:10:28.840 equipment that started to flow from China to the world 0:10:29.440 --> 0:10:34.240 into the United States. UH. So really what we've seen 0:10:34.440 --> 0:10:41.000 is the world remains connected. UH. International trade UH is key, 0:10:41.080 --> 0:10:46.200 and globalization has been more resilient uh than expected. So 0:10:46.880 --> 0:10:50.400 it's far away from coming to a standstill. Yeah, Mike, 0:10:50.400 --> 0:10:54.360 that's interesting to hear your perspective because folks at DHL, 0:10:54.440 --> 0:10:56.880 obviously it just has a bird's eye view of kind 0:10:56.920 --> 0:11:00.160 of global trade. Here one of the concerns that some 0:11:00.320 --> 0:11:03.480 folks have is, uh the trade war between the US 0:11:03.559 --> 0:11:08.800 and China, and not so much the tariffs and maybe 0:11:08.800 --> 0:11:11.440 the method in which the Trump administration carried out some 0:11:11.520 --> 0:11:14.280 of its trade policies with China, tariffs and so on, 0:11:14.360 --> 0:11:17.800 but just the general belief that the world needs to 0:11:17.880 --> 0:11:23.120 get tougher with China. Does that uh throw some roadblocks 0:11:23.200 --> 0:11:27.319 into the globalization story at all? I would say at 0:11:27.320 --> 0:11:30.840 the beginning, Paul, I think there was a lot of speculation, 0:11:31.880 --> 0:11:35.160 a lot of anecdotes that went out there. There is 0:11:35.280 --> 0:11:39.720 always gonna be a change in the world, especially for 0:11:39.800 --> 0:11:41.920 US when we're dealing in two d and twenty countries 0:11:41.920 --> 0:11:46.199 and territories globally. What we have seen is China continues 0:11:46.320 --> 0:11:49.480 to be one of our biggest trade lanes for US 0:11:49.520 --> 0:11:53.439 at DHL China, US and a p US. I think 0:11:53.480 --> 0:11:56.280 when you take a look at it, Uh, they're firing 0:11:56.320 --> 0:11:59.440 in all cylinders right now, China and Asia Pacific to 0:11:59.480 --> 0:12:04.320 Europe in the United States. So what I would say is, uh, 0:12:04.360 --> 0:12:06.800 you know, the things that took place this past year, 0:12:06.840 --> 0:12:09.439 whether it be the U S m c A deal 0:12:09.480 --> 0:12:12.280 and the revision of NaSTA, which by the way, was needed, 0:12:12.400 --> 0:12:15.640 some form of revision was needed, but there are biggest 0:12:15.640 --> 0:12:19.080 trading partners now as well, UH and China. There needed 0:12:19.160 --> 0:12:22.280 to be a reset from that perspective as well. But 0:12:22.320 --> 0:12:25.920 there's been no slowing down at all. Mike. What have 0:12:26.080 --> 0:12:29.840 you done in terms of changing routes, re prioritizing routes, 0:12:30.000 --> 0:12:32.400 putting stuff on certain routes and so on in order 0:12:32.400 --> 0:12:35.440 to deal with the changes the last year or two. Yeah, 0:12:35.520 --> 0:12:38.240 it's thank you for that, UM, because we've been in 0:12:38.280 --> 0:12:42.720 peak season, as I said, since early June, and as 0:12:42.720 --> 0:12:45.600 a result of that, we've been adding jobs. So we 0:12:45.679 --> 0:12:47.680 took a decision in the month of March that we 0:12:47.720 --> 0:12:51.480 would not furlough one single employee UH. And all we've 0:12:51.520 --> 0:12:54.679 been doing is adding jobs. So we're over three thousand 0:12:54.720 --> 0:12:58.160 new added jobs and growing in the United States as 0:12:58.160 --> 0:13:02.480 an example, over six thousand when you take into account Canada. UH. 0:13:02.480 --> 0:13:05.800 In Mexico, we've added additional capacity as a reduction as 0:13:05.800 --> 0:13:10.240 a result of reduction in airline capacity UH, and that 0:13:10.400 --> 0:13:12.840 is coming back slow. As you can imagine some of 0:13:12.840 --> 0:13:17.720 the recent announcement of further restriction, further lockdown. From a 0:13:17.720 --> 0:13:21.880 commercial airline perspective, we had to supplement that with additional 0:13:21.920 --> 0:13:25.640 capacity in the air. So we've added additional flights that 0:13:25.760 --> 0:13:29.240 of Asia, China into Europe and into the United States, 0:13:29.320 --> 0:13:34.600 intra United States, into Canada, into Mexico, uh, down south 0:13:34.800 --> 0:13:39.079 into Central South America. UH. And that has been ongoing 0:13:39.240 --> 0:13:43.240 for us really since the month of June. Uh And again, 0:13:43.520 --> 0:13:48.280 don't see that slowing down anytime soon. Uh. And really 0:13:48.320 --> 0:13:52.400 we've seen growth in eat commerce. UH so more and 0:13:52.440 --> 0:13:54.880 more people, maybe like yourselves. I don't know about yourself, 0:13:54.960 --> 0:13:59.440 but my wife's shops everything online, have gone to shopping online. 0:13:59.480 --> 0:14:02.600 You you all the results of Black Friday and Cyber Monday, 0:14:03.080 --> 0:14:07.160 some of the biggest ever online shopping numbers, uh in 0:14:07.200 --> 0:14:09.959 the history of the United States. We saw greater than 0:14:10.000 --> 0:14:14.360 a fift uh in a very short period of time. 0:14:14.400 --> 0:14:16.560 And I get asked. I got asked the other day, Mike, 0:14:16.679 --> 0:14:20.480 is this gonna slow down? I don't see it slowing down. 0:14:20.720 --> 0:14:25.160 And we basically saw ten years of e commerce in 0:14:25.160 --> 0:14:28.240 in a in a six month period of time. Wow. Yeah, 0:14:28.320 --> 0:14:32.080 just extraordinary how consumer behaviors change. E commerce has just 0:14:32.120 --> 0:14:35.320 been accelerated. I'm sure you see that clearer than just 0:14:35.360 --> 0:14:37.560 about anyone. Mike Parrott, Thanks so much for joining us. 0:14:37.560 --> 0:14:40.600 We really appreciated Mike Parrott, chief Executive Officer for the 0:14:40.600 --> 0:14:43.600 Americas for d h L Express America's joining us on 0:14:43.640 --> 0:14:47.440 the phone from Plantation, Florida. Just extraordinary. They're seeing the 0:14:47.520 --> 0:14:53.360 recovery uh, you know in Asia, in China more specifically, uh, 0:14:53.400 --> 0:14:56.560 and then a broad recovery in terms of traffic just 0:14:56.640 --> 0:15:01.520 across the board. Amazing. We just got word that the 0:15:01.720 --> 0:15:04.480 call between Prime Minister Boris Johnson and the US vander 0:15:04.560 --> 0:15:08.200 Lyon has finished. Desperate to know what actually happened, because 0:15:08.240 --> 0:15:10.840 this was the call during which talks could collapse or 0:15:10.880 --> 0:15:13.360 they could actually find a solution. So let's bring in 0:15:13.400 --> 0:15:16.120 to as Raphael to let us know what she knows. 0:15:16.320 --> 0:15:19.160 Torez a Booberg opinion editor and is based in London. 0:15:19.440 --> 0:15:22.400 Tores what do we know anything more about the call 0:15:22.440 --> 0:15:25.280 except that is over? Yeah, I'm sorry to say we 0:15:25.320 --> 0:15:27.960 don't know. Um, we don't have any detailed readout at 0:15:28.000 --> 0:15:30.800 that call. It was a crucial one, as you said, 0:15:30.880 --> 0:15:34.560 because uh, the talks are at an impast. This week 0:15:34.640 --> 0:15:38.000 is considered, you know, if not the last week, then 0:15:38.040 --> 0:15:42.120 pretty close to it. Given the European Council meet on Thursday. Um, 0:15:42.280 --> 0:15:45.440 and Uh, the UK is due to leave its transition 0:15:45.480 --> 0:15:47.040 period at the end of the month, and there's a 0:15:47.040 --> 0:15:49.200 lot that needs to happen before that in terms of 0:15:49.560 --> 0:15:54.360 legally scrubbing and translating and getting approval for any deal. Um. 0:15:54.400 --> 0:15:57.240 There needs to be a political solution at this point. 0:15:57.280 --> 0:15:59.200 I think that much is clear, and that's why we 0:15:59.280 --> 0:16:03.360 have Boris Johnson and Slavander Lai and the European Commission 0:16:03.400 --> 0:16:07.320 President speaking directly now whether they can unlock things, I 0:16:07.320 --> 0:16:10.800 think we're unlikely to hear um the announcement of a deal, 0:16:10.840 --> 0:16:13.320 for example, tonight. But what we I think, what what 0:16:13.480 --> 0:16:15.840 everyone is waiting to hear is whether they're going to 0:16:15.920 --> 0:16:20.320 keep talking at least another couple of days. Sores talk 0:16:20.360 --> 0:16:23.480 to us about fishing. Why is fishing such a big thing? 0:16:23.600 --> 0:16:26.520 I just don't get it when I read headlines of 0:16:26.560 --> 0:16:29.880 thousands of jobs, finance jobs leaving London, billions of dollars 0:16:29.880 --> 0:16:34.240 of capital leaving. Okay, I get that's an issue, But fishing, Yeah, 0:16:34.280 --> 0:16:38.000 it's It's actually much simpler than it sounds. Uh. The 0:16:38.040 --> 0:16:42.720 whole you know, Brexit was was thought on the one 0:16:42.960 --> 0:16:45.640 very basic central idea, and that is that Britain would 0:16:45.680 --> 0:16:49.320 take control of its borders, its laws, its money. And 0:16:49.320 --> 0:16:51.280 when you look at the map of Britain, right, it's 0:16:51.280 --> 0:16:54.080 an island and there's water and and their fish in 0:16:54.080 --> 0:16:57.360 that water. And to you know, to to to the 0:16:57.520 --> 0:17:00.400 common person's mind, well, if we control our borders, we 0:17:00.400 --> 0:17:03.000 also control our water. And why should the EU have 0:17:03.120 --> 0:17:06.720 the automatic right to fish? Uh to to claim you know, 0:17:06.840 --> 0:17:09.119 very large share of the fish in British water. So 0:17:09.160 --> 0:17:12.000 that's that's the simple assertion that the UK makes. It's 0:17:12.080 --> 0:17:16.399 not so simple in reality, because um, EU fishermen have 0:17:16.480 --> 0:17:20.000 been fishing those waters for you know, generations and more. Uh. 0:17:20.080 --> 0:17:22.320 The fish are spawned in EU water, some of them 0:17:22.400 --> 0:17:25.320 and then mature and are caught in British waters. It's 0:17:25.480 --> 0:17:29.680 very complicated. Most of what Britain catches it sells into 0:17:29.760 --> 0:17:32.760 the EU. So it's a very it's one of these 0:17:32.760 --> 0:17:35.360 small issues that has the potential to blow things up. 0:17:35.640 --> 0:17:38.320 That said that, the word out over the weekend was 0:17:38.320 --> 0:17:40.560 that they were pretty close to agreeing a deal on 0:17:40.640 --> 0:17:43.600 fish and that things were really hung up over these 0:17:43.800 --> 0:17:46.880 what are called level playing field issues, you know, UH, 0:17:46.960 --> 0:17:51.080 state aid subsidies for industry, labor, and environmental standards and 0:17:51.080 --> 0:17:53.919 that sort of things, and those are pretty um, you know, 0:17:54.080 --> 0:17:57.440 pretty important too to Boris Johnson and his party because 0:17:57.480 --> 0:18:00.600 they signify how much the UK can divert from the 0:18:00.600 --> 0:18:05.160 rest of Europe, which is again another you know, fundamental 0:18:05.240 --> 0:18:09.000 reason why they're leaving the EU. But this fisheries issue 0:18:09.080 --> 0:18:11.520 TOAs it's important on its own, but it's also sort 0:18:11.520 --> 0:18:14.879 of symbolic of the whole thing, right because it will 0:18:14.960 --> 0:18:20.040 decide what stands either parties take on things like creep 0:18:20.160 --> 0:18:23.640 mission creeping and what gets decided for the past versus 0:18:23.720 --> 0:18:25.920 what gets decided for the future in terms of what 0:18:25.960 --> 0:18:30.040 companies can do. The Europeans don't want the British to 0:18:30.040 --> 0:18:33.919 have the right to sort of change mandates over time, right, Yes, 0:18:34.000 --> 0:18:36.639 So that's that's the level playing field a side of this, 0:18:36.760 --> 0:18:40.080 and it's really stuck because the EU, from the used perspective, 0:18:40.480 --> 0:18:43.240 what they don't want is a is a you know, 0:18:43.440 --> 0:18:47.080 medium to large size economy right on their doorstep, having 0:18:47.080 --> 0:18:50.840 the ability to undercut European companies in all sorts of 0:18:50.880 --> 0:18:54.080 ways and yet having access to EU market. So they're 0:18:54.160 --> 0:18:57.800 negotiating position is quite clear. Uh, if you want access 0:18:57.840 --> 0:19:01.640 to the single markets, which is a euro terrfzuro quota deal. 0:19:01.680 --> 0:19:05.639 Then you need to agree not to undercut European UM 0:19:05.920 --> 0:19:11.919 countries with through regulations and different standards on labor markets 0:19:11.920 --> 0:19:15.000 for example, UM and the UK's position as well, we've 0:19:15.119 --> 0:19:18.200 left the single market, we've left the EU, why should 0:19:18.240 --> 0:19:21.159 we follow your rules still, UM, we've left for the 0:19:21.280 --> 0:19:24.480 very purpose of diverging. So that has created, you know, 0:19:24.520 --> 0:19:28.200 the impass And as with all of these things, there 0:19:28.320 --> 0:19:32.359 is a solution, but it would require concessions and political will, 0:19:32.400 --> 0:19:34.119 and that's what we haven't seen up to now. We 0:19:34.160 --> 0:19:37.879 haven't seen either side being willing to give enough to 0:19:37.960 --> 0:19:42.200 get to a deal. So tres It's so it's fair 0:19:42.280 --> 0:19:46.720 to assume by some that no deal will be reached 0:19:47.040 --> 0:19:49.119 if there's a kind of a no deal here at 0:19:49.119 --> 0:19:52.000 this last minute. What is crashing out of the EU 0:19:52.480 --> 0:19:56.080 at your end really mean? Well, the first thing it 0:19:56.160 --> 0:20:00.000 means is that there are a whole load of terror 0:20:00.160 --> 0:20:03.320 that come into play. So right now there's free movement 0:20:03.359 --> 0:20:06.440 of good services, capital, labor, that's what the single market means. 0:20:06.760 --> 0:20:10.520 Suddenly you have teriffs. So for example, UM, sheep meet 0:20:10.680 --> 0:20:14.320 the EU. UH that thirty percent of the UK sheep 0:20:14.320 --> 0:20:18.640 meat goes into EU markets and terrorists would um add 0:20:18.680 --> 0:20:22.639 about I think it's something like six ad belorum you know, 0:20:22.720 --> 0:20:25.080 per year on that and there's a whole host of terrorits. 0:20:25.119 --> 0:20:28.560 It would make British farming, um it would. It would 0:20:28.640 --> 0:20:31.119 price it out of the European market. It would have 0:20:31.160 --> 0:20:34.280 a huge impact on the automotive sector because of all 0:20:34.320 --> 0:20:37.879 of the input, the intermediate goods, the supply chain that 0:20:38.000 --> 0:20:41.439 involves EU part It also means a whole lot of 0:20:41.480 --> 0:20:44.480 non tariff barriers. And by the way, this happens even 0:20:44.520 --> 0:20:46.800 if there's a deal, So we we tend to think 0:20:46.840 --> 0:20:51.040 of a deal as kind of you know, releasing all 0:20:51.119 --> 0:20:53.440 of the pressure that's built up. But even with the deal, 0:20:53.560 --> 0:20:55.600 we see a lot of non tariff barriers and those 0:20:55.640 --> 0:20:59.560 are things like customs checks, rules of origin, where did 0:20:59.560 --> 0:21:02.800 this product have to originate from? How do you certify that? Uh, 0:21:02.960 --> 0:21:07.280 food safety standards and those kinds of certification. For a 0:21:07.320 --> 0:21:10.440 British citizen who wants to take their dog to provounce 0:21:10.480 --> 0:21:13.280 in the summer, you will need a special pet passport, 0:21:13.320 --> 0:21:15.960 You'll need to get a vet to certify it. All 0:21:16.000 --> 0:21:18.639 of these things become more complicated if you have a 0:21:18.640 --> 0:21:21.760 second home in the South of France or Spain. You 0:21:21.760 --> 0:21:24.080 will only be able to use it for I think 0:21:24.119 --> 0:21:27.320 it's ninety days and a eighty day period um, whereas 0:21:27.359 --> 0:21:29.480 now you can spend as much time as you want there. 0:21:29.640 --> 0:21:32.200 So this is all sorts of implications. Some of them 0:21:32.200 --> 0:21:35.879 are you know, seem quite you know, sort of small hassles, 0:21:35.880 --> 0:21:39.800 and others are quite significant. But we're talking about, you know, 0:21:39.880 --> 0:21:44.359 potentially a six percent loss of GDP compared to staying 0:21:44.400 --> 0:21:47.359 in the EU. Uh GDP growth compared to what it 0:21:47.359 --> 0:21:49.399 would be staying in the EU, according to the Office 0:21:49.440 --> 0:21:53.240 of Budget Responsibility. So it's it's it's significant whether brigons 0:21:53.240 --> 0:21:56.320 will feel it from day one, um, that remains to 0:21:56.440 --> 0:21:58.720 be seen, but I think it's it's a sea change 0:21:58.720 --> 0:22:01.159 on a lot of levels, and no deal most of 0:22:01.200 --> 0:22:05.120 all means that the relationship between Britain and it's its 0:22:05.240 --> 0:22:09.560 closest trading partner, it's geographical neighbor um are put on 0:22:09.560 --> 0:22:15.000 on very sort of um, you know, not not a 0:22:15.000 --> 0:22:20.000 good place. Yeah, terrible place, boyd dress. I remember when 0:22:20.040 --> 0:22:21.479