Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz. Daily we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot Com,
Speaker 1: and of course on the Bloomberg terminal. This is a
Speaker 1: joy after I'm teen years at the Bank of America
Speaker 1: and really truly someone really glowed perfectly to the American
Speaker 1: housing market. Michelle Meyer has changed the shingle to MasterCard Economics.
Speaker 1: She is the US chief Economists at MasterCard Economics, and
Speaker 1: she is brave this morning to come on Surveillance. Michelle, boy,
Speaker 1: it's your language changed. You're moving from the big bank
Speaker 1: out the MasterCard. You are all wallet share and wallet shift.
Speaker 1: How much is my wallet shift after this weekend? Well, Tom,
Speaker 1: it's wonderful to be back on with you, and thank
Speaker 1: you team for for having me back and being able
Speaker 1: to now honor to be able to not represent and
Speaker 1: that's to part Economics Institute. As you noted, Tom, it's
Speaker 1: really is about the consumer. The consumer is the pulse
Speaker 1: on the economy and what we're paying really really careful
Speaker 1: attention to is whether or not you are seeing those
Speaker 1: wallet chair ships. Right, we're able to, you know, really
Speaker 1: get an understanding of of of the trends in consumer
Speaker 1: spending on a granular level, you know, in terms of
Speaker 1: the different categories. Spending on experience is spending on goods
Speaker 1: and clearly spending on you know, necessities. I mean, I
Speaker 1: think that's one of the key stories right now is
Speaker 1: with the inflation shock of really concentrate and necessities food, gasoline.
Speaker 1: You know, that's been a big, big, big increase in
Speaker 1: the parents out there. Tuition and summer break is under experiences.
Speaker 1: Just in case you didn't know that. What do you
Speaker 1: learn from charge cards? I mean, your granularity in the
Speaker 1: housing market was legendary. When you look at what we
Speaker 1: actually do with our various sundry charge cards, what does
Speaker 1: you tell you about our share and shift? Well, look,
Speaker 1: I mean clearly, the the data is robust and and
Speaker 1: uh you know, I mean the main data who we're
Speaker 1: looking at the master card spending pull Stata, which is
Speaker 1: going to be able to capture all types of emails
Speaker 1: to some extent um. So it's a really holistic view
Speaker 1: of the consumer um and right now, you are seeing
Speaker 1: the consumer generally still bugging along, spending very strongly. Out
Speaker 1: of course, we are looking at nominal spending trends, and
Speaker 1: part of that increase is reflecting what you all were
Speaker 1: just talking about with this this incredible inflation environment. UM.
Speaker 1: So once you adjust for that, real spending is you know,
Speaker 1: clearly more more modest given out price pressure. UM. But
Speaker 1: the consumer is still out spending on a variety of items,
Speaker 1: whether it is those necessities or still even durable goods.
Speaker 1: You know, we're looking at things like furniture spending, which
Speaker 1: is still looking very strong. Tom, you mentioned my love
Speaker 1: for the housing market which still exists, and we're looking
Speaker 1: at you know, really um detailed spend on housing related items,
Speaker 1: which at the moment are still looking quite strong. And
Speaker 1: Tom was talking earlier Michelle about Kent tiles of of income.
Speaker 1: How much is what you're capturing really the upper echelons
Speaker 1: of earners and not necessarily a holistic picture of the
Speaker 1: entire consumer market. Well, I think whenever you're looking at
Speaker 1: some you know, high frequency data that's not the official
Speaker 1: stats coming out the government, you have to consider what
Speaker 1: your panel looks like and what you're capturing. For the
Speaker 1: for the broad economy. I mean, my senses is that
Speaker 1: it is a really good representation. Um, you know, I
Speaker 1: think the general risk is that the very tears are
Speaker 1: probably a little bit underrepresented. In the middle of the population.
Speaker 1: Is really what we're grasping there, um, you know, for
Speaker 1: for the really low low income folks that aren't using
Speaker 1: other types of payments, that are mostly using cash, that's
Speaker 1: gonna be a really hard thing to capture in any
Speaker 1: of these types of high frequency data points. Um. But
Speaker 1: to be able to get that pulse of that you know,
Speaker 1: middle income consumer, I think it's really the key. The
Speaker 1: reason why I asked Michelle is because for a long time,
Speaker 1: people didn't even have to dig into their savings. They
Speaker 1: had so much cash they could just keep deploying it.
Speaker 1: I want to get a sense of whether the ongoing
Speaker 1: spending momentum that we're seeing is really coming from people
Speaker 1: continuing to dig into their savings, or whether they're starting
Speaker 1: to borrow more, whether they're starting to leverage up, and
Speaker 1: whether that could actually get crimped by higher yields. Yeah. So,
Speaker 1: I mean, if you look at the past year, it
Speaker 1: was extraordinary and that we had very, very low debt
Speaker 1: right the debt debt service ratio, the financial applications ratio
Speaker 1: hit wreckor lows across a variety of income cohorts. And meanwhile,
Speaker 1: we had extraordinary amount of savings given the environment we
Speaker 1: were in, which was this you know, spectacular physical stimulus
Speaker 1: and montary stimulus. That's reversing right, the fatas hiking interest
Speaker 1: rates not saying the same degree in fiscal stimulus. So
Speaker 1: naturally we're gonna say reversal there. We're saving starts to
Speaker 1: come down, um, and leverage starts to come up. That's
Speaker 1: where we are in the cycle. UM. So it's quite reasonable.
Speaker 1: And I think that the silver lining is that at
Speaker 1: least we have those buffers UM. And that's really important
Speaker 1: to keep in mind when we're thinking about these headwinds
Speaker 1: that are hitting the economy is what's the starting point?
Speaker 1: And the starting point for the consumer is a more
Speaker 1: solid one than we've seen during prior cycles. Brian emails
Speaker 1: in from over by Hill's Kitchen, and Brian Michelle is
Speaker 1: asking you what the when you look at all the
Speaker 1: charge card data and that what does it change to
Speaker 1: the duration the X axis of your inflation? Guests, Brian
Speaker 1: wants to know that before eight thirty this morning. Help sure. So, look,
Speaker 1: I mean the inflation story I think is very very clear,
Speaker 1: which is that we are an environment where inflation has
Speaker 1: risen meaningfula particularly well, come on, come on to the chase.
Speaker 1: I'm not talking to Alexander. I'm talking to Michelle Myer Willing.
Speaker 1: Inflation sustained or do you buy the story inflation is
Speaker 1: going to ease up? Brian hold on, Brian, he's on
Speaker 1: the phone here, Brian hold On, Okay, go told Brian,
Speaker 1: doesn't give you one minute. Um, Look, I think inflation
Speaker 1: is going to come off these extraordinary highs, but not
Speaker 1: to play, not quickly. Um, there's a running of price pressure.
Speaker 1: Inflation expectations have increased, and companies have pricing power, and
Speaker 1: consumers have the ability to spend more as well, given
Speaker 1: that they're also seeing wage increases. So you have both
Speaker 1: a wage push and a cost push, and that is meaningful.
Speaker 1: So it's gonna take a while for that to come
Speaker 1: off entirely. That a clear answer. That was great, That
Speaker 1: was classic. That was like, it feels like this v
Speaker 1: body course would be Bran report. Accompliments to Michelle. Thank you.
Speaker 1: It's gonna catch up. It's always right to see a
Speaker 1: master Card. You know that Michell of master Card, Dan Skelly,
Speaker 1: they head of market research and strategy of Mark and
Speaker 1: Standing Weft Management. And then let's stop there. You've been
Speaker 1: right this defensive shift. The question I think for a
Speaker 1: lot of people and equities at the moment is whether
Speaker 1: there is a tanctical opportunity to lean the other way?
Speaker 1: What would you say to those people? Not yet? Jonathan
Speaker 1: and so in good morning, Jonathan and Tom and Lisa.
Speaker 1: So look we're not there yet. UM. The bond market,
Speaker 1: the interest rate expectations have come a long way, as
Speaker 1: we all know from last fall, UM. And so look
Speaker 1: the markets are now called it nine ten percent off
Speaker 1: their January all time highs UM. But we don't think
Speaker 1: there's two things that are priced in at these levels, right.
Speaker 1: So if we're expecting these rate heights and the markets
Speaker 1: digested that with just a ten percent move, what can
Speaker 1: we expect for QT and for balance sheet reduction? And
Speaker 1: we can talk more about that, but also what can
Speaker 1: we think about in terms of the hits of the
Speaker 1: consumer and owns that our economists, as you know, recently
Speaker 1: marked down her GDP forecast for this year by about
Speaker 1: a percentage point due to higher oil and gas prices.
Speaker 1: So we're not there quite yet, Jonathan. We're also, we
Speaker 1: would add, we're entering a seasonal weak period. We're gonna
Speaker 1: have some tax bills come do. Maybe Tom just finished
Speaker 1: his as you as you noted, but the summer months
Speaker 1: are seasonally weak for the markets. Dan. When you take
Speaker 1: a look at tenure yield it's almost at three percent.
Speaker 1: At what level do they start to matter? I mean,
Speaker 1: we talked about this and I go back to something
Speaker 1: we talked about two years ago, and it's become almost
Speaker 1: obsolete at a time when yields have gone far faster
Speaker 1: and far higher than a lot of people could thought.
Speaker 1: What are you looking for here? So at least it's
Speaker 1: your point. You gotta consider two factors. One is the
Speaker 1: level and the speed and the pace of the increases.
Speaker 1: And look, I think to date we've seen equity markets
Speaker 1: discount incredibly fast paced. Right, so we've seen that last
Speaker 1: call it three or four months. We're just talking about
Speaker 1: how fast the pendulum swung in terms of great expectations
Speaker 1: um and so look, I think you've seen most of
Speaker 1: that discount in the equity market. On the other note,
Speaker 1: when you think about level. Look, we've been arguing Mike
Speaker 1: Wilson via his valuation math, has been arguing that higher
Speaker 1: rates ultimately get translated into lower multiples. Okay, and we've
Speaker 1: seen multiples come down quite a bit for the index,
Speaker 1: but we think there could be further d rating to go.
Speaker 1: And so you know when you talk about like um
Speaker 1: an absolute level that really matters. If you get that
Speaker 1: much above three percent, call it three and a quarter, now,
Speaker 1: that's going to take another couple of multipoints, multiple points
Speaker 1: out of the event. Then I look at the index
Speaker 1: now and I look at sectors, and I just simply
Speaker 1: put do I want to be passive or do I
Speaker 1: want to be active? Here? Definitely a time to be active,
Speaker 1: tom And truly an excellent question question. So the last
Speaker 1: several years really going into COVID and coming out of
Speaker 1: COVID was marked by a really tremendous wave for passive.
Speaker 1: Right you could be in the index and do incredibly well,
Speaker 1: a period of high returns at absolute low volatility, and
Speaker 1: and frankly that repeated the previous cycle that was the
Speaker 1: case from O eight oh nine until UH and things
Speaker 1: have really changed. We've seen a true regime shift tom
Speaker 1: at all levels of the economy in the market, and
Speaker 1: we're seeing volatility obviously increased. We've had tremendous volatility this
Speaker 1: year given the Fed interest rate cycle, but also geopolitics
Speaker 1: obviously everything going on tragically in Ukraine as well. Uh
Speaker 1: And so given higher volatility, given a late a cycle
Speaker 1: that's a pre approaching late innings, we're seeing the greater
Speaker 1: dispersion between stocks and sectors. And to the point earlier,
Speaker 1: you want to be very cognizant of which sectors you overweight,
Speaker 1: and so the defensive sectors have started to emerge as
Speaker 1: a leadership group. They don't happen to be uh tremendously overweighted,
Speaker 1: and some of the market cap weighted index, as you know,
Speaker 1: just to round things out, we can squeeze this in.
Speaker 1: I think, is it strange to see this with it's
Speaker 1: up fifty visis points of the last couple of weeks
Speaker 1: on a tenure, to see the defensives do so well,
Speaker 1: the utilities erupt, they outperform, healthcare up, the likes of
Speaker 1: the banks down and down hard. What does that speak
Speaker 1: to you? What does it tell you about where beyond
Speaker 1: the cycle? Yeah, it's an excellent point, John, So you're
Speaker 1: seeing mixed messages from the bond market and stock market,
Speaker 1: and typically what we've observed over time, and Mike's written
Speaker 1: about this, is that when you see that divergence in
Speaker 1: message from fixed income, from the bond market and from
Speaker 1: the stock market, typically stocks are telling you very interesting signals.
Speaker 1: And so to your point, that defensive leadership is telling
Speaker 1: you definitely that stocks are more worried about growth, right,
Speaker 1: and so that's the tricky tradeoff that the bet is
Speaker 1: certainly going to consider them the next several months. They've
Speaker 1: talked very aggressively about doing everything it takes to tame
Speaker 1: the inflation tiger and put it back in its cage,
Speaker 1: but we don't know if that's possible. Dan Scalia, Morchus Stanley,
Speaker 1: Thank you, sir. This is the must read of the morning,
Speaker 1: because not only does Bill Dudley's an academic, but also
Speaker 1: as someone stealed and market economics as he was for
Speaker 1: years at Goldman, Sachs really gets out the timeline and
Speaker 1: says when and what is so important here in speaking
Speaker 1: to the former president of the New York Fed is
Speaker 1: he addresses with courage, not the easy guests of the seventies,
Speaker 1: but things to learn from the nineteen sixties. William Dudley
Speaker 1: senior advisor to Bloomberg Economics and writes uh for US
Speaker 1: at Bloomberg Opinion. Bill Dudley, Robert J. Samuelson of The
Speaker 1: Washington Post and his magisterial The Great Inflation and It's Aftermath.
Speaker 1: Why is now like Walter Heller and Vietnam. Well, one,
Speaker 1: we have lots of fiscal stimulus like we did then,
Speaker 1: and then we had the Great Society Programs in Vietnam
Speaker 1: war spending. And the second thing is the labor market
Speaker 1: is extraordinarily tight. You know, everyone's focused on what's having
Speaker 1: a headline inflation and has it peaked? And I think
Speaker 1: they're missing the force from the tree is here, because
Speaker 1: what's really going on is the layer market has not
Speaker 1: been this type in many, many, many days. And that's
Speaker 1: the problem because if the layer market is too tight,
Speaker 1: wages are going to continue to strengthen. And if wages
Speaker 1: continue to strengthen, we're not going to go back to
Speaker 1: two percent inflation. Bill Dudley, that intern at Goldman Sexyn
Speaker 1: Hats said that on the show here a couple of
Speaker 1: days ago that the labor market is shockingly tight. Does
Speaker 1: that lead to the wage spiral? Michaelle Meyer just spoke
Speaker 1: about it, and frankly, that is the collective memory of
Speaker 1: the sixties, isn't it. Well. I'm not sure how fast
Speaker 1: what inflation will go up because we have a lot
Speaker 1: of other factors pushing inflation down. But I think the
Speaker 1: key thing to focus on is if the labor markets
Speaker 1: this type, what's going to happen to wage inflation? Wage
Speaker 1: inflation currently running around five and a half percent, depending
Speaker 1: on which measure you you use, five alcent wage inflation
Speaker 1: is not consistent with the sense to percent inflation objective.
Speaker 1: So how do you get inflation down? You need to
Speaker 1: push the unemployer rate up, and that's the problem. Every
Speaker 1: time the federies are added type Terrey policy enough to
Speaker 1: push the unemployment rate up, they've ended up in a
Speaker 1: full scale recession. The key question just when is this
Speaker 1: gonna occur? And it's not gonna occur in the near
Speaker 1: term because the Fed hasn't yet made Terrey policy type
Speaker 1: might not even happen in twenty three because we don't
Speaker 1: really know how aggressive the fenter reserve is going to
Speaker 1: be in terms of tightening Terrey policy but if the
Speaker 1: FED delays, all that means is inflation will get more entrenched,
Speaker 1: and then they'll have to do more later. So a
Speaker 1: hard winning is inevitable. Whether it happens in twenty three
Speaker 1: or twenty four, that depends on the Fed. Do you
Speaker 1: anticipate they will delight by somewhat you've heard Bill? How
Speaker 1: do you think they will respond to a mechanical peak
Speaker 1: in inflation this year? Well, I think they're gonna take
Speaker 1: some signal from the fact that inflation is coming down
Speaker 1: because it's going to support their story about the transitory
Speaker 1: factors being a primary driver of y. Inflation moved up.
Speaker 1: But you know, if inflation is eight percent for a
Speaker 1: year and then two percent for a year because all
Speaker 1: the transitory factors are washing out, the average is still five.
Speaker 1: And you know, if the labor market continues to tighten,
Speaker 1: which I think is likely. You know, the automployer rate
Speaker 1: is already it's a three points expercent. It couldn't fall
Speaker 1: even further. Uh, it doesn't really matter what happens the
Speaker 1: transitory inflation what It doesn't really matter what happens in
Speaker 1: the headline inflation. You have to look beneath the service.
Speaker 1: What's actually going on in terms of the tightness of
Speaker 1: the liver market and its consequences for wage inflation. Bill,
Speaker 1: what you're saying is pretty radical. You're suggesting that perhaps
Speaker 1: the FED should cause the hard landing sooner and closer
Speaker 1: to now than wait, because the consequences will be that
Speaker 1: much worse. Is that accurate? Well, I don't know that
Speaker 1: they should cause try to cause the recession. I mean,
Speaker 1: I think they should always go for the soft landing.
Speaker 1: But what they need to do it they need to
Speaker 1: make Monterrey policy tighter sooner. And I think the big
Speaker 1: discussion here about what what whether the fifth one a
Speaker 1: good job or a bad job? Is the timing. We're
Speaker 1: still at a quarter to a half percent federal funds
Speaker 1: rate at the time that the unemployer rates three point
Speaker 1: and you're over your CPI inflation is eight and a percent.
Speaker 1: It's remarkable the Fed's late. They know they're late. That's
Speaker 1: why we're talking about fifty basis point right high. Each
Speaker 1: of the next couple of meetings. The FED wants to
Speaker 1: get to neutral very quickly, if they haven't really signaled
Speaker 1: much appetite for going very far beyond that. If you
Speaker 1: look at the last summary of economic projections. The Madre
Speaker 1: policy setting anticipated in at the end of twenty three
Speaker 1: was just a very tight, very very very modestly tight
Speaker 1: Monterrey policy setting. Well, but right now I'm looking at
Speaker 1: work that page that forecasts where interest rates will be,
Speaker 1: and in February three it's currently above two point three percent.
Speaker 1: When we talk to strategists, they say this is priced in.
Speaker 1: What should people be pricing in if your world were
Speaker 1: the one in which the FED moved at an appropriate rate? Well,
Speaker 1: I think, I mean, I think the Fed needs to
Speaker 1: make Montreal policy tight, and I think that I've been
Speaker 1: saying this for quite some time that that requires short
Speaker 1: term rates and at least three or four percent. Obviously,
Speaker 1: it depends on where inflation ends up. The inflation is
Speaker 1: running three percent, then neutrals, not two and a half.
Speaker 1: Of inflation is running three percent, then neutral is more
Speaker 1: like three and a half to four. So it really
Speaker 1: depends on where inflations. I mean. But when people talk
Speaker 1: about the neutral federal fundrate, they act as if that
Speaker 1: neutral federal fundrate doesn't matter on what underlying inflation is
Speaker 1: higher their line inflation higher neutral feedle fundrate more for
Speaker 1: the federal reserved to do in terms of tightening moder policy,
Speaker 1: but just to clean that up just quickly, just on
Speaker 1: the timeline, do you anticipate the longer they wait, the
Speaker 1: higher the peak and the Fed funds right will have
Speaker 1: to be yes, yes, Because the longer we sit with
Speaker 1: a very very tight labor market, the more upward pressure
Speaker 1: they'll be on wages. The more that upward pressure on
Speaker 1: wages will feed into prices, and so the underlying inflation
Speaker 1: rate will accept tend to drift higher. That that's really
Speaker 1: the lesson of the nineteen sixties and the early nineteen seventies.
Speaker 1: Each cycle inflation radgeted higher because the Federal Reserve did
Speaker 1: not address that the issue forceful fully soon enough. So
Speaker 1: if they delay, they'll have to ultimately do more. But
Speaker 1: a fascinating raiding. We appreciate your time this morning, as always,
Speaker 1: fantastic build down ply. The Blimberg opinion columnists and former
Speaker 1: New York Fed President and Provocative rights to a conclusion
Speaker 1: that reads as follows. The FEDS choice is clear. If
Speaker 1: it acts sooner with inflation expectations still well anchored, the
Speaker 1: cost in terms of folk on output and higher unemployment
Speaker 1: should be relatively modest the final line of the whole
Speaker 1: pace tom. If it waits and allows inflation expectations to
Speaker 1: get out of hand, the bill will be much high.
Speaker 1: Elena Poula Covid joins US now the Center for European
Speaker 1: Policy Analysis. Elena's is the last time we have seen you.
Speaker 1: Things have changed. A flagship of the Russian navy has sunk.
Speaker 1: How does that change Mr Putin's body language? Well, the
Speaker 1: sinking of the Muskvab that's the name of the ship,
Speaker 1: was definitely a big hit to Russia. We even saw
Speaker 1: Putin supporters, the talking heads in the Russian state control
Speaker 1: media being really critical of the sinking of this flagship
Speaker 1: vessel of the Russian fleet. It's not just the flagship
Speaker 1: vessel of Russia. This was the largest ship operating in
Speaker 1: the Black Seat. And what we've seen since then is
Speaker 1: Russia and Mr Putin doubled down on their tax on Ukraine.
Speaker 1: Just today we saw Russia hit with missile the western
Speaker 1: city of viev Does Ukraine double down with this success?
Speaker 1: And where the material they're getting from the west? Is
Speaker 1: Ukraine more able to maybe not the drama of sinking
Speaker 1: a ship, but do you perceive that they are engaged
Speaker 1: and ready on this Monday. They've certainly been getting ready.
Speaker 1: In your president Zelanski has been making his rounds with
Speaker 1: all the western capitals and beyond that, fleeting from more weapons.
Speaker 1: I think the situation we're seeing now is that the
Speaker 1: window is really narrowing. Russia is starting to target those
Speaker 1: supply lines. Now. We can't take it for granted that
Speaker 1: we've been able to meet in the United States and
Speaker 1: allies have been able to get those weapons into Ukraine.
Speaker 1: Not Russia is targeting those UH military routes. So it's
Speaker 1: going to become increasingly difficult. The Ukrainians are certainly tired.
Speaker 1: They understand what's coming, a huge new offensive. Um. I
Speaker 1: do think they gave themselves ready, but um there's still outnumbered.
Speaker 1: Are now gone by the Russian side. Elena can give
Speaker 1: the sense of what happens when or if Mariupa falls.
Speaker 1: We understand that it is surrounded and it is an
Speaker 1: a crucial piece of land for Russia because it provides
Speaker 1: a land bridge to Crimea and connects to the don
Speaker 1: Bass region of eastern Ukraine. How much will that be
Speaker 1: a game changer when that occurs? So the Manupa, you know,
Speaker 1: it's a it's a town that not many people have
Speaker 1: ever heard of. Even a lot of Ukrainians hadn't hadn't
Speaker 1: heard of it until it became this big strategic battle
Speaker 1: uh for for the war. And even back in ten
Speaker 1: we saw Russia try to surround Marupa and they failed,
Speaker 1: and now they're you know, wrapping up the unfinished business.
Speaker 1: In some ways, it will be a game changer from
Speaker 1: a military perspective. The main reason for that because right now,
Speaker 1: the only thing that stands between Russia's Eastern front and
Speaker 1: sort of southern front where they have access from the
Speaker 1: sea from Crimea where they can do an amphibious attack
Speaker 1: and landing, for example, the only thing that's standing and
Speaker 1: then being able to combine and join their forces Marupa
Speaker 1: as soon as that happens, and unfortunately it is looking
Speaker 1: like it's just a matter of days until Marupa falls.
Speaker 1: Russia will be able to then put you know, let's
Speaker 1: say marines in navy in from Crimea, take them to
Speaker 1: the east. They'll be able to combine basically the southern
Speaker 1: and the Eastern front and cut off any Ukrainian troops
Speaker 1: they are it will have been able to get in
Speaker 1: so far, But you know, what does this mean in
Speaker 1: terms of the longer term? Also, because we've heard from
Speaker 1: Vladimir Zelenski that this is game over for peace talks,
Speaker 1: it seems like that's likely anyway, given some of the
Speaker 1: images and and the and the rhetoric coming out from
Speaker 1: both sides, given the fact that frankly, the humanitarian crimes
Speaker 1: that the West is looking at to achieve this have
Speaker 1: been stark. How does this move the conflict forward in
Speaker 1: terms of the length and in terms of NATO's involvement. Well,
Speaker 1: it certainly is giving Russia and would give Russia a
Speaker 1: big upper hand, would give a much broader control of
Speaker 1: Ukrainian territory, opportunities to launch much more offensive attacks. I
Speaker 1: think it also makes the options for negotiations far far
Speaker 1: more limited. They already were very very limited to begin with.
Speaker 1: But clearly, you know, what we're uncovering in areas where
Speaker 1: the Russian troops did leave around the capital Kiv is
Speaker 1: a cruesome. It's atrocious, and that's likely, uh, not even
Speaker 1: the tip of the iceberg as to what's been happening
Speaker 1: in places like elsewhere. So I think it's going to
Speaker 1: be a prolonged conflict. You know General Milly said this
Speaker 1: a couple of weeks ago congressional testimony. We're not looking
Speaker 1: at weeks or months or looking at years, and I
Speaker 1: think that's really what we need to be thinking about,
Speaker 1: is the alliance real? Trygedy, Elena, Thank you, Elena. Probably
Speaker 1: a coverdet the Center for European Policy Analysis. Some guests
Speaker 1: have to wait in the class act. John Lipsky has
Speaker 1: of course waited for us for this morning with JOHNS.
Speaker 1: Hopkins School of Advanced International Studies in his public service
Speaker 1: to Christina or he gave his institution. Dr Livsky, thank
Speaker 1: you so much for joining this morning. John. We are
Speaker 1: drowning in once in a lifetime events, and you're right
Speaker 1: is only you can do with your years of Salomon
Speaker 1: Brothers and such of the new bread basket threat, frame
Speaker 1: the bread basket threat for all of us well, very
Speaker 1: very simply the UH. The war in Ukraine is looking
Speaker 1: like it's going to make a very serious and potentially
Speaker 1: long lasting disruption and world grain markets. Russia and Ukraine
Speaker 1: are major sources of grain exports. Already we can see
Speaker 1: the effect in UH food and importing, especially low income countries.
Speaker 1: This is a potentially a serious threat, not in just
Speaker 1: in the short term, but longer term as well. But
Speaker 1: right now we've got to deal with the disruptions and
Speaker 1: food markets, the rise in food prices that are really
Speaker 1: put strains on many low income importing countries. You gave
Speaker 1: it a historic speech in Vietnam ages ago which basically
Speaker 1: reframe the relationship of communism with the Western world. I
Speaker 1: want you to give that same speech this morning about
Speaker 1: what our new fractured globalism looks like. John, what's it
Speaker 1: looked like? Well, that's an open question and one that
Speaker 1: was put pretty starkly by a secretary Treasury Secretary Yelling
Speaker 1: in the speech last week, in which basically said it's
Speaker 1: time for countries to line up in terms of their values,
Speaker 1: especially in the context of the current war, and talked
Speaker 1: about reframing the world trade system on what she referred
Speaker 1: to a plural lateral in the words, not necessarily global
Speaker 1: friends shoring basis, namely, like minded countries politically get together.
Speaker 1: And that's a very much a new message from the
Speaker 1: expansion of the World Trade Organization to a virtually global
Speaker 1: organization in the past few decades. So this is really
Speaker 1: an unknown we'll look at a test this week. Tom
Speaker 1: the G twenty MINS finance ministers and central bankers are
Speaker 1: set to meet on Wednesday and Thursday, and then the
Speaker 1: International Monitoring Financial Committee IMFC of the IMF meets on Thursday.
Speaker 1: We saw Mr by President Biden saying earlier that Russia
Speaker 1: should be thrown out of the G twenty. Let's see
Speaker 1: how these key meetings this week go in these terms, John,
Speaker 1: what's the calculus right now for I m F officials
Speaker 1: in terms of how to arrange who to keep in
Speaker 1: their club as they do shift toward perhaps a pluralistic
Speaker 1: not globalistic world. Well, Interestingly, organizations like the i m F,
Speaker 1: the World Bank, and the United Nations are treaty based.
Speaker 1: In other words, countries that belong. It's not just voluntary.
Speaker 1: They've signed a treaty, they have lead obligations. The decisions
Speaker 1: of these institutions have the force of international law. So
Speaker 1: for sure, the in the short run, the Russian authorities
Speaker 1: and others are going to be participating in the meetings
Speaker 1: this week. How that goes will be very interesting, perhaps
Speaker 1: more questionable. The G twenty is simply a voluntary group.
Speaker 1: It's really nineteen countries plus the European Union. Uh, there's
Speaker 1: no treaty. Underneath that there's no formal obligation. Let's see
Speaker 1: if there's a willingness to keep this this institution that
Speaker 1: was the principal creation institutional result of the global financial crisis.
Speaker 1: Let's see if there's a willingness to keep it going. John,
Speaker 1: what are you looking for in terms of how the
Speaker 1: i m F directs is funding, especially in light of
Speaker 1: what we started talking about, the bread basket issue, the
Speaker 1: potential food shortages. What's the most effective use of I
Speaker 1: m F funds to combat hunger and some of the
Speaker 1: inflation that we're seeing in certain nations well, all in
Speaker 1: the In the response to the COVID to the pandemic,
Speaker 1: the fund developed some some short term lending facilities, additional ones,
Speaker 1: especially oriented towards those low income countries most affected by
Speaker 1: by the strains of the of the pandemic before the
Speaker 1: fund right now looking towards the longer term strains, the
Speaker 1: i m F has now created a new Resilience and
Speaker 1: Sustainability Trust, which is a facility aimed at providing longer
Speaker 1: term support for UH for low income countries, for the
Speaker 1: lowest income countries. This is going to be funded by
Speaker 1: donations of special drawing rights the i MS so called
Speaker 1: paper gold that was there was a new distribution last
Speaker 1: year of six and fifty billion. Much of it went
Speaker 1: to the wealthier countries because it's distributed by quota. They're
Speaker 1: being asked to donate to this new I m F facility,
Speaker 1: the r s T as it's called for short, that
Speaker 1: will provide new funding for low income countries. Let's see
Speaker 1: what happens. To qualify, however, for this funding, countries have
Speaker 1: to have a traditional fund stabilization program. So it's not
Speaker 1: just a handout, it's you've got to put policies in
Speaker 1: place that will help, that will be sustainable. And John,
Speaker 1: I want to go back to the American economy long
Speaker 1: You're going far Away. In a book that's sold twelve copies,
Speaker 1: you and Jim Glassman a road about and absolutely nailed
Speaker 1: the labor transformation that was to come from technology. We
Speaker 1: are now at a point where it is just stunning
Speaker 1: the need for technology and the technology has and the
Speaker 1: technology have not. What's the next ten years looked like
Speaker 1: in labor and technology? Oh boy, great question, of course,
Speaker 1: Uh not, there's no obvious right answer. Let me say
Speaker 1: just one thing in response to the short term situation
Speaker 1: in the US with wages, the labor sector, wages and inflation.
Speaker 1: And just a few minutes ago you talked to my
Speaker 1: friend and colleague, Bill Dudley about what's happening in the
Speaker 1: prospects for the US So far. What you've seen is
Speaker 1: wage gains lag behind UH inflation. And I think one
Speaker 1: of the important reasons is because so far people still
Speaker 1: expect inflation is going to come back down to previous
Speaker 1: to something close to previous rates. If that, if inflation
Speaker 1: expectations in the general public start to deteriorate, then they're
Speaker 1: going to have a different view about wages and we're
Speaker 1: gonna have a different view about inflation in the near term.
Speaker 1: Immediate what everybody can see in front of us is
Speaker 1: the need for for climate for energy shifting energy sources
Speaker 1: is going to require massive investments in infrastructure and other
Speaker 1: forms of h of UH capital equipment. Where the funding
Speaker 1: is going to come from is an open question. It's
Speaker 1: not going to be coming primarily from governments. There's going
Speaker 1: to have to be a major restructuring of capital sources
Speaker 1: globally from the private from private sectors basically, and this
Speaker 1: is going to be a discussion of great importance, not
Speaker 1: just this week in Washington, but on ongoing how to
Speaker 1: make sure capital markets direct, to direct the investments to
Speaker 1: their most effective long term use. Deeply, deeply thoughtful stuff. John,
Speaker 1: As always say thank you John Lipsk, the former I'm
Speaker 1: f first Deputy Managing direct. This is the Bloomberg Surveillance Podcast.
Speaker 1: Thanks for listening. Join us live weekdays from seven to
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Speaker 1: Keene and this is Bloomberg