WEBVTT - Surveillance: Russia's Off-Ramp with CSIS's Jones 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferroll and Lisa Brownwitz. Daily we bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.840 --> 0:00:23.560 To find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot 0:00:23.560 --> 0:00:30.360 Com and of course on the Bloomberg terminal right now. 0:00:30.680 --> 0:00:33.919 And we have really tried to be careful with authorities 0:00:34.040 --> 0:00:38.239 and experience on this horrific war or invasion, or as 0:00:38.360 --> 0:00:41.560 Mr Putin calls it, operation. We've been honored with a 0:00:41.640 --> 0:00:45.640 guest we've had, starting with Angela Stent, General Hodges, General Kimmitt, 0:00:45.840 --> 0:00:49.520 and now Seth Jones. He's with a Center for Strategic 0:00:49.880 --> 0:00:53.800 and International Studies and in America. He is our definitive 0:00:53.840 --> 0:00:57.120 expert on guerrilla warfare. Seth, thank you so much for 0:00:57.200 --> 0:01:01.320 joining us. General Kimmitt was chilling as an infantry officer 0:01:01.840 --> 0:01:06.640 describing the guerrilla war to come in urban Ukraine. Describe 0:01:06.680 --> 0:01:10.360 what we will see well, I think what we're likely 0:01:10.400 --> 0:01:14.720 to see is Russian forces continuing to push into urban 0:01:14.840 --> 0:01:18.399 terrain in Ukraine, into cities like Kiev in particular. It's 0:01:18.400 --> 0:01:23.600 the capital and the Russians to be met with fire 0:01:23.800 --> 0:01:28.280 from the top buildings, snipers fire from inside building, fire 0:01:28.319 --> 0:01:34.240 from around buildings, as the entire Ukrainian population rises up 0:01:34.280 --> 0:01:38.720 to attempt to pick apart Russian forces in city. So 0:01:39.000 --> 0:01:44.840 it's those kinds of campaigns destroy cities, So we're bound 0:01:44.840 --> 0:01:49.040 to see sad destruction in Ukrainian cities. Does Russia have 0:01:49.120 --> 0:01:52.600 the material or critically, do they have the will to 0:01:52.760 --> 0:01:58.080 make Kiev look like Aleppo? The Russians do have the 0:01:58.120 --> 0:02:03.040 ability to use our tillery, to use aircraft and to 0:02:03.120 --> 0:02:06.840 drop both dumb and smart bombs in Kiev and to 0:02:06.920 --> 0:02:11.200 turn it into Aleppo. What they don't have is, uh 0:02:11.280 --> 0:02:15.720 the ability to to to hold the territory. The Russians 0:02:15.720 --> 0:02:18.040 didn't have to do it in Aleppo. They had the Syrians, 0:02:18.120 --> 0:02:21.440 they have Lebanese has Blah hold the territory. The Russian 0:02:21.520 --> 0:02:24.120 forces will have to do it, and I don't know 0:02:24.200 --> 0:02:26.919 that they will they'll be able to stomach the bloodshed 0:02:27.040 --> 0:02:30.320 that has I mean, they've already lost more soldiers in 0:02:30.480 --> 0:02:33.359 two weeks in Ukraine than the US lost in twenty 0:02:33.480 --> 0:02:36.239 years in Afghanistan. And so that we have from the 0:02:36.360 --> 0:02:39.640 U S authorities the threat of possibly biological or chemical 0:02:39.680 --> 0:02:43.360 weapons being used on Ukraine by Russia. This according to 0:02:43.400 --> 0:02:46.280 statements over the weekend from this administration. What would the 0:02:46.360 --> 0:02:52.400 US response be to something like that, Well, I'll tell 0:02:52.400 --> 0:02:54.840 you what it should be. I mean the I don't 0:02:54.880 --> 0:02:59.040 know why the US is now holding back on providing aircraft, 0:02:59.240 --> 0:03:02.800 including ME, to the Ukrainians. The Russians are willing to 0:03:02.880 --> 0:03:06.000 ramp up this war right now, and if they use 0:03:06.120 --> 0:03:09.760 chemical weapons, I mean this, We're we're in a very 0:03:09.840 --> 0:03:13.400 different ball game. I mean this, These are war crimes. 0:03:13.440 --> 0:03:16.720 So the president of Russia should be treated as such 0:03:16.840 --> 0:03:20.160 if that's what he uses. So you said, if that's 0:03:20.200 --> 0:03:22.600 what this is. And I do wonder because right now 0:03:22.600 --> 0:03:26.720 we're hearing so many talks about talks, possible negotiations, some 0:03:26.840 --> 0:03:30.560 possible optimism. Do you hear any optimism from the developments 0:03:30.600 --> 0:03:32.560 on the ground and from the intel that you're getting 0:03:32.720 --> 0:03:34.880 that there could be an off ramp to this conflict. 0:03:36.080 --> 0:03:39.240 I think it's always important to talk about off ramps 0:03:39.280 --> 0:03:41.560 and to look for them. I do not see the 0:03:41.640 --> 0:03:44.440 Russians at this point looking for an off ramp that 0:03:44.560 --> 0:03:48.520 is acceptable to the Ukrainian population or NATO right now. 0:03:48.600 --> 0:03:51.280 That is my worry is that we can talk about 0:03:51.280 --> 0:03:53.920 off ramps, but an acceptable one. We'll have to see, 0:03:54.360 --> 0:03:57.320 Seth Jones. Over the weekend there were just terrific articles, 0:03:57.360 --> 0:04:01.760 thoughtful articles by experts. I'll lining the failure of the 0:04:01.840 --> 0:04:06.120 political and military leadership in Russia to put together the 0:04:06.200 --> 0:04:09.640 kind of legitimate force that you served under, an advised 0:04:09.640 --> 0:04:12.800 to How weak is Russia? Do we are? Do we 0:04:12.840 --> 0:04:17.120 deceive ourselves? Well? I think what we've seen with the 0:04:17.200 --> 0:04:21.479 Russians right now is they have been entirely incapable of 0:04:22.080 --> 0:04:26.360 putting together an effective ground invasion in Ukraine. They haven't 0:04:26.400 --> 0:04:29.320 done much of that in the past. They've also entirely 0:04:29.520 --> 0:04:31.440 misread and this is part of it, is partly an 0:04:31.480 --> 0:04:34.960 intelligence problem. Entirely misread both how the West was going 0:04:35.000 --> 0:04:38.640 to respond as well as the Ukrainian population. So these 0:04:38.680 --> 0:04:43.400 are huge strategic miscalculations by senior Russian government officials, and 0:04:43.440 --> 0:04:45.920 I haven't seen them improve that much over the last 0:04:46.000 --> 0:04:50.520 three weeks. How far away is a sniper? This is 0:04:50.560 --> 0:04:53.680 the core of your work, and this is really difficult work, folks, 0:04:53.680 --> 0:04:57.360 said Mr Jones. Does Dr Jones excuse me? Seth Jones? 0:04:57.640 --> 0:05:00.320 How far away is a sniper? When a snipe? Very 0:05:00.400 --> 0:05:05.680 sniping well, you can be at very close range. Uh, 0:05:05.800 --> 0:05:08.520 you know, you can be a hundred feet, you can 0:05:08.600 --> 0:05:11.720 be uh much further than a football field, much further 0:05:11.720 --> 0:05:14.160 than a hundred yards. You could be over a thousand 0:05:14.920 --> 0:05:17.400 depends on the type of weapon that you have, the 0:05:17.440 --> 0:05:20.960 type of sniper rifle, as well as how how accurate 0:05:21.040 --> 0:05:23.480 and good you are. So you've got options, which is 0:05:23.800 --> 0:05:27.960 the point. That's the urban warfare seth. I'm looking at 0:05:28.000 --> 0:05:31.720 the situation shifting further west over the weekend, as you saw, 0:05:31.800 --> 0:05:33.760 and I'm sure you're more on top of than us. 0:05:34.120 --> 0:05:36.360 We saw a strike on a military base and you 0:05:36.480 --> 0:05:38.800 crained fifteen kilometers away from Poland. And we saw a 0:05:38.880 --> 0:05:41.679 language change from the Russians as well, when they declared 0:05:41.720 --> 0:05:44.640 the convoys of military surprise from NATO to Ukraine were 0:05:44.640 --> 0:05:48.159 now seen as quote legitimate targets. So can we just 0:05:48.200 --> 0:05:51.000 start with how you reacted, how you're thinking about that 0:05:51.080 --> 0:05:55.160 quote legitimate targets on the backs now of military supplies 0:05:55.200 --> 0:05:59.400 from NATO to Ukraine. Well, I'm not surprised at all 0:05:59.400 --> 0:06:02.279 that that the Russians are starting to conduct these kinds 0:06:02.320 --> 0:06:05.120 of attacks. I mean, the reason is very straightforward. Is 0:06:05.560 --> 0:06:08.160 the Russian ground force are getting hammered right now with 0:06:08.600 --> 0:06:12.360 javelins and stingers, so both good the ground and air elements. 0:06:12.680 --> 0:06:16.960 So this is an attempt because the supply is coming 0:06:17.000 --> 0:06:21.200 into Ukraine have been so successful at hitting Russian forces, 0:06:21.320 --> 0:06:24.200 they're now trying to interdict and destroy. So I'm not 0:06:24.279 --> 0:06:27.159 surprised at all. The concern is how close they're getting 0:06:27.720 --> 0:06:31.279 to the Polish border. And one stray missile that goes 0:06:31.480 --> 0:06:35.680 into Poland and hits eighty second airborne forces puts this 0:06:35.760 --> 0:06:38.360 ward a very different direction. Well, says, can you talk 0:06:38.400 --> 0:06:40.640 to me about that, because for myself, certainly not an 0:06:40.640 --> 0:06:43.120 expert from the outside, looking again, just how far is 0:06:43.160 --> 0:06:47.480 fifteen kilometers in your world? It's not very far at all. 0:06:47.520 --> 0:06:50.600 I mean literally, one cruise missile or even a ballistic 0:06:50.680 --> 0:06:56.640 missile that's uh guidance package is off kilter, doesn't amount functions, 0:06:57.080 --> 0:06:59.880 and that's that's not a very long distance for that 0:07:00.080 --> 0:07:03.240 stray missile to go in a different direction. It's happened 0:07:03.240 --> 0:07:08.360 with US cruise, ballistic and mortar shells. So again, hit 0:07:08.520 --> 0:07:13.400 hitting eighty second airborne soldiers near the border would would 0:07:13.400 --> 0:07:16.280 would kill the US and suddenly we'd be in a 0:07:16.320 --> 0:07:18.280 different world. Well, and That's where I wanted to go. 0:07:18.800 --> 0:07:22.240 How high is the threshold for US military for frankly 0:07:22.280 --> 0:07:25.960 European troops to fight directly with the Russians. Are we 0:07:26.000 --> 0:07:29.640 getting closer and closer to it? Well? I do think 0:07:29.640 --> 0:07:32.440 we are getting closer, and uh, you know, the the 0:07:32.520 --> 0:07:35.680 US has to has to now begin to think about 0:07:35.760 --> 0:07:38.800 what war would look like if that's the direction the 0:07:38.840 --> 0:07:42.040 Russians take this. I think the US at this point 0:07:42.120 --> 0:07:44.440 does not want to get directly involved in the war. 0:07:45.000 --> 0:07:49.440 But if US soldiers are killed by Russian missiles, um, 0:07:49.480 --> 0:07:55.080 coming off of aircraft or maritime vessels in the Black Sea, um, 0:07:55.360 --> 0:07:57.680 you know, that's gonna that's gonna be a very difficult 0:07:57.720 --> 0:08:00.840 decision for the US. I mean, the population is going 0:08:00.880 --> 0:08:03.320 to want a response. Yeah, and that's actually what you said. 0:08:03.400 --> 0:08:06.240 Also with a strong response to war crimes as you 0:08:06.320 --> 0:08:09.400 called them, with a chemical attack or a biological attack. 0:08:09.800 --> 0:08:12.920 What would that look like if there were direct combat 0:08:13.000 --> 0:08:19.240 between US and Russian troops? Well, uh, the question is 0:08:19.240 --> 0:08:23.640 is whether if Russian and US or other NATO troops 0:08:23.680 --> 0:08:27.160 were engaged in direct combat, could you sort of contain it. 0:08:27.640 --> 0:08:30.640 I think the issue is, uh, you know, it might start, 0:08:30.680 --> 0:08:35.600 for example, with aircraft striking various targets. Uh. You know, 0:08:35.760 --> 0:08:40.240 large numbers of of US forces crossing the border would 0:08:40.240 --> 0:08:43.080 probably be not the first option. It would probably be 0:08:43.600 --> 0:08:46.800 air air assets being used and the possibility of having 0:08:46.880 --> 0:08:50.080 US aircraft taken down. But I think that's sort of 0:08:50.160 --> 0:08:54.360 inching towards you know, broader ground engagements. Ground engagements would 0:08:54.360 --> 0:08:58.040 be a very serious concern. Seth a clinic as always 0:08:58.120 --> 0:08:59.840 and we're lucky to catch up with you, you know that, 0:09:00.000 --> 0:09:07.920 Seth Jones there of C S I S. This is 0:09:07.920 --> 0:09:10.200 a great joy in studio where this is someone with 0:09:10.280 --> 0:09:12.920 a rarity of rains within England, which is what I 0:09:12.960 --> 0:09:16.240 call the triangle degree from Cambridge Oxford in the London 0:09:16.320 --> 0:09:20.280 School of Economics. Also Lignozed with their service to Europe 0:09:20.280 --> 0:09:22.840 and her Britain, a global head of Foreign exchange strategy 0:09:23.120 --> 0:09:26.040 at RBC. Thrilled to have you in studio today. Euro 0:09:26.120 --> 0:09:29.920 came at one sixteen gyrations down to eighty five gyrations 0:09:30.000 --> 0:09:32.600 up that Germany didn't like as well. Where is fair 0:09:32.720 --> 0:09:37.200 value on euro war or no war? It's a great 0:09:37.280 --> 0:09:40.600 question because actually when we updated our forecasts following the 0:09:40.600 --> 0:09:44.480 invasion of Ukraine, we didn't really change them. We kind 0:09:44.520 --> 0:09:47.599 of nudged the short term marked market, but left the 0:09:47.679 --> 0:09:49.760 year and forecasts and change because a lot of what 0:09:49.920 --> 0:09:51.880 I thought was going to drive euro dollar this year 0:09:52.320 --> 0:09:55.120 is actually playing out what John just mentioned around you know, 0:09:55.200 --> 0:09:58.880 resetting terminal value for the FED. It's that difference in 0:09:58.960 --> 0:10:02.040 policy does in folks. We're talking to someone here with 0:10:02.080 --> 0:10:04.520 physics and economics, so we're gonna go all x X 0:10:04.679 --> 0:10:07.400 sign even though we usually don't do that on Monday. 0:10:07.440 --> 0:10:10.000 The terminal value is not only about the magnitude of 0:10:10.000 --> 0:10:12.800 the value, it's about the win of it out the 0:10:13.000 --> 0:10:16.800 X axis. Do we extend our view in lar or 0:10:16.840 --> 0:10:19.800 do we come in closer? A great question, and not 0:10:19.840 --> 0:10:22.080 one I think which anybody can answer at the moment, 0:10:22.440 --> 0:10:24.760 not least of which policymakers. You know. I think we've 0:10:24.760 --> 0:10:27.040 seen it both with the ECB last week and with 0:10:27.160 --> 0:10:30.400 Chairman Pale in his testimony. They're trying to maximize their 0:10:30.400 --> 0:10:33.360 optionality for that precise reason. So we know that finance 0:10:33.400 --> 0:10:35.880 ministers are meeting in the euro region in order to 0:10:35.920 --> 0:10:38.800 determine what the fiscal spending plan will be going forward, 0:10:39.080 --> 0:10:42.880 how to support the region, what's currently baked into the euro, 0:10:43.000 --> 0:10:46.199 how much fiscal support, there's a little bit in there. 0:10:46.200 --> 0:10:48.520 But traditionally people have been a little bit skeptical that 0:10:48.600 --> 0:10:51.800 the Europeans will really deliver because of the opposition from 0:10:52.080 --> 0:10:54.920 the core, from Germany, the Netherlands, you know, the more hawkish, 0:10:54.920 --> 0:10:58.400 fiscally hawkish countries. And yet in this crisis we've seen 0:10:58.400 --> 0:11:02.880 previously unthinkable things have So I wouldn't rule anything out, certainly, 0:11:02.920 --> 0:11:05.880 not when you have the escalating situation between Russian and Ukraine. 0:11:05.920 --> 0:11:07.280 All right, but if we do get some sort of 0:11:07.280 --> 0:11:10.160 fiscal response, do you expect some upside surprise to the 0:11:10.160 --> 0:11:12.000 euro And I asked this because there seems to be 0:11:12.080 --> 0:11:14.679 a lot of bad news baked in and this divergence 0:11:14.720 --> 0:11:17.000 between the US and the euroregion, and some people say 0:11:17.200 --> 0:11:20.520 it has a lot further to go to punish euro However, 0:11:20.800 --> 0:11:22.559 if we do get this fiscal support, that could be 0:11:22.600 --> 0:11:25.400 a game changer. Do you agree. Look, I think it's 0:11:25.400 --> 0:11:27.560 definitely a game changer in the yields space. From the 0:11:27.600 --> 0:11:29.880 currency point of view, this is not going to be 0:11:29.880 --> 0:11:32.600 an easy economic environment for Europe, and the kind of 0:11:32.640 --> 0:11:35.560 conditions under which we would get that big fiscal support 0:11:35.600 --> 0:11:37.840 would be the more extreme crisis conditions. You have to 0:11:37.840 --> 0:11:40.439 balance one against the other. So, you know, don't get 0:11:40.440 --> 0:11:43.880 me wrong, We've definitely found opportunities to be tactically long euro. 0:11:43.960 --> 0:11:45.920 We were longer a spelling last week. It worked out 0:11:46.000 --> 0:11:48.800 very well, But as a core position, I'm not looking 0:11:48.800 --> 0:11:50.600 to get long euro, you know, targeting the kind of 0:11:50.600 --> 0:11:52.720 one sixteens, one eighteens that a lot of people had 0:11:52.760 --> 0:11:54.440 at the start of the year. Is this a Euro 0:11:54.520 --> 0:11:56.920 story or is this a dollar story? And I asked 0:11:56.920 --> 0:11:59.640 this because the dollar has been behaving and continues to 0:11:59.679 --> 0:12:02.880 be amid this turmoil. Is that really what we're seeing 0:12:03.080 --> 0:12:05.640 and we'll continue to see going forward. We have seen 0:12:05.679 --> 0:12:08.360 a lot of independent euro weakness, and last week was 0:12:08.400 --> 0:12:11.360 really a story of independent euro strength and more just 0:12:11.440 --> 0:12:15.320 short covering rather than some fundamental shift and outlook. You know. So, yes, 0:12:15.360 --> 0:12:17.560 the dollar has been acting as a haven, but there's 0:12:17.600 --> 0:12:19.640 been a lot of very specific euro weakness. Look at 0:12:19.640 --> 0:12:22.000 your card, your asy, you're a quwie. It's not just 0:12:22.080 --> 0:12:25.360 been about the dollar. Tell me about the Pacific rim 0:12:25.559 --> 0:12:29.000 in turmoil today, COVID, the war obviously Russia, China, and 0:12:29.280 --> 0:12:31.240 just as a general measure, when you wake up in 0:12:31.280 --> 0:12:34.280 the morning and look at you three bloombergs, how do 0:12:34.320 --> 0:12:37.640 you measure stress on a Pacific rim in the old 0:12:37.720 --> 0:12:39.960 days dollar? Again, it was a simple answer. I don't 0:12:39.960 --> 0:12:43.400 buy that anymore. What's the measurement we should use? Yeah, 0:12:43.440 --> 0:12:46.200 Dollargan is going through an interesting transition moment um. I 0:12:46.240 --> 0:12:48.360 think the Australian dollar for a lot of people is 0:12:48.360 --> 0:12:51.000 still that proxy your Chinese growth, and you can look 0:12:51.000 --> 0:12:52.719 at it against the U. S Dollar, you can look 0:12:52.720 --> 0:12:55.440 at against the euro. It depends what you're trying to measure. 0:12:55.480 --> 0:12:57.000 You know, are you trying to measure kind of Russia 0:12:57.040 --> 0:12:59.360 Ukraine risks against what's going on in the Pacific rim? 0:12:59.440 --> 0:13:04.320 Euros is a good way, you know. Okay, this is fascinating. 0:13:04.720 --> 0:13:08.440 Ossie ran Minby, is it? Is it worth looking at 0:13:09.000 --> 0:13:11.800 for listeners and viewers again trying to get a Pacific 0:13:11.880 --> 0:13:15.120 riom gauge. So the remember is a tricky one only 0:13:15.160 --> 0:13:20.280 because it's manipulated. It's not kind of clean mond So 0:13:20.679 --> 0:13:22.439 you know, when when you look at sing dollar, another 0:13:22.440 --> 0:13:24.840 one which is which is managed. But the end I 0:13:24.880 --> 0:13:27.760 think is actually more interesting than we give it credit 0:13:27.800 --> 0:13:29.920 for at the moment, because it comes back to something 0:13:29.920 --> 0:13:32.400 you guys were talking about earlier around regime change. And 0:13:32.440 --> 0:13:34.760 the fact is that depending on what happens to bonds 0:13:34.760 --> 0:13:36.760 and equities, the combination of the two, we could see 0:13:36.760 --> 0:13:38.520 dollar yan higher or we could see it quite a 0:13:38.600 --> 0:13:41.200 lot lower. And I don't think market should be certain 0:13:41.280 --> 0:13:43.280 yet that dollar yan is just what is your call 0:13:43.320 --> 0:13:44.880 on you in here? I mean it's stunny. I was 0:13:44.920 --> 0:13:47.200 I mentioned David mal past years ago with bear Stearns 0:13:47.240 --> 0:13:49.600 now at the World Bank looking at one twenty or 0:13:49.640 --> 0:13:52.280 even one thirty week week week end, but that was 0:13:52.320 --> 0:13:55.040 a long time ago. What is the RBC call on yen? 0:13:55.320 --> 0:13:57.200 I mean, we do have a call for dollagan trading 0:13:57.280 --> 0:13:59.920 higher into the end of the year, towards one twenty. 0:14:00.720 --> 0:14:02.400 The fact is, though there are a lot of dunsaid 0:14:02.520 --> 0:14:05.000 risks that that make it very difficult to put on 0:14:05.080 --> 0:14:07.880 long term positions in the end. Clearly, if equities roll 0:14:07.920 --> 0:14:10.800 out of bed, you'll get yea and going up against 0:14:10.800 --> 0:14:14.080 everything bother us. I like that, John, instead of saying plunge, 0:14:14.280 --> 0:14:16.160 we can say roll out of bed. I mean, it's 0:14:16.200 --> 0:14:19.000 it's the same thing till it's same think I said 0:14:19.040 --> 0:14:21.520 in US thank you the global ahead of ex strategy 0:14:21.800 --> 0:14:23.760 at our VC looking at some of the dynamics in 0:14:23.800 --> 0:14:30.560 this f X market this morning. This is a joy. 0:14:30.960 --> 0:14:34.680 Megan Green has put together a Princeton, Oxford Academics of 0:14:34.840 --> 0:14:40.840 exceptionally thoughtful and transatlantic essays on economies. She now has 0:14:40.920 --> 0:14:44.320 to confront war. She is global chief Economist to Krall, 0:14:44.680 --> 0:14:46.880 but far more at the chad a mouse and truly 0:14:47.240 --> 0:14:52.240 are transatlantic source Megan Green, I want to discuss today Germany. 0:14:52.760 --> 0:14:55.320 And at the bottom you go all Patrick O'Brien, I 0:14:55.400 --> 0:14:58.800 mean Napoleonic wars, and you say time is of the essence. 0:14:59.600 --> 0:15:02.520 What is the time is of the essence for the 0:15:02.640 --> 0:15:07.040 new German government? Well, I think for the new German 0:15:07.120 --> 0:15:09.560 government time is of the essence mostly applies to the 0:15:09.640 --> 0:15:12.760 policy mix that they're going to be applying to what's 0:15:12.800 --> 0:15:15.360 going on um and with respect to the economy and 0:15:15.440 --> 0:15:19.200 also the conflict between Russia and Ukraine. And and by 0:15:19.240 --> 0:15:21.560 that I refer to the policy mix between fiscal and 0:15:21.640 --> 0:15:24.360 monetary policy. The e c V came out last week 0:15:24.760 --> 0:15:29.160 pretty hawkish, accelerating their tapering process so that they can 0:15:29.200 --> 0:15:32.480 start hiking rates um if they actually stopped buying bonds, 0:15:32.560 --> 0:15:36.200 though the ECB won't be able to reduce yields from 0:15:36.240 --> 0:15:39.680 creeping up, particularly in peripheral countries. At the same time, 0:15:39.720 --> 0:15:41.960 the EU is recognizing it needs to become a big 0:15:42.040 --> 0:15:45.680 spender on things like defense, subsidies for energy, the Green 0:15:45.760 --> 0:15:48.360 Transition UH, and so the EU is trying to come 0:15:48.400 --> 0:15:51.080 together and figure out some way to raise money for 0:15:51.280 --> 0:15:53.960 that um. The time is really crucial, though, because the 0:15:54.000 --> 0:15:56.080 E s P will stop its asset purchases in the 0:15:56.200 --> 0:15:58.720 third quarter of this year. It could take that long 0:15:58.880 --> 0:16:01.080 for EU leaders to act really put together some kind 0:16:01.120 --> 0:16:04.440 of package so that the reduced its its energy depends 0:16:04.480 --> 0:16:07.680 on Russia and other things. The nightmare scenario is that 0:16:07.800 --> 0:16:10.680 both sides fail, so the ECB stops buying bonds and 0:16:10.760 --> 0:16:13.360 the EU doesn't pull it together, and then Europe's really 0:16:13.400 --> 0:16:16.440 in a vine. Are you optimistic they can go all 0:16:16.560 --> 0:16:18.880 Conrad out an hour. At the beginning of the German 0:16:18.960 --> 0:16:21.960 post World War two experiment, they didn't have a choice. 0:16:22.080 --> 0:16:25.320 They had to rebuild. Is that enthusiasm out there, Is 0:16:25.400 --> 0:16:29.080 there a Conrad at an hour out there? Well, there 0:16:29.160 --> 0:16:31.880 is enthusiasm for that, surely. But we just of course 0:16:31.920 --> 0:16:34.400 had the pandemic and the EU came together and issued 0:16:34.480 --> 0:16:38.000 debt jointly to fund or response to the pandemic. I'd 0:16:38.000 --> 0:16:40.920 say that crisis was probably a bit more acute than 0:16:41.000 --> 0:16:43.400 this one, and so there is a question about whether 0:16:43.440 --> 0:16:45.880 they can do it this time. The new German government's 0:16:45.920 --> 0:16:49.680 coalition agreement for bids any more recovery funds. The German 0:16:49.760 --> 0:16:52.400 Finance minister is pretty set against it. There are other 0:16:52.520 --> 0:16:56.000 frugal countries in northern Europe that are also aren't interested. So, 0:16:56.960 --> 0:16:59.600 as always is the case with the EU, time will tell, 0:17:00.000 --> 0:17:03.000 and they'll probably do something at the very last minute. 0:17:03.360 --> 0:17:05.560 But in the past the ECB has always had to 0:17:05.600 --> 0:17:07.720 be the one to step in uh and and be 0:17:07.800 --> 0:17:09.640 the only game in town, and so that may well 0:17:09.720 --> 0:17:12.080 happen this time as well. Of course, they don't have 0:17:12.240 --> 0:17:14.800 that much ammunition megan, So I do wonder whether a 0:17:14.880 --> 0:17:18.760 recessionary environment in Europe is not a given, but seems 0:17:18.880 --> 0:17:22.240 much more of a certainty to you. I think stactulation 0:17:22.359 --> 0:17:24.640 is very likely in Europe. I'm not sure that they'll 0:17:24.640 --> 0:17:27.439 go into recession, but certainly a scenario where you've got 0:17:27.560 --> 0:17:31.560 virtually no growth across Europe and really high inflation. That's 0:17:31.600 --> 0:17:33.560 my base case scenario at this point, and and that 0:17:33.720 --> 0:17:36.520 of course is the ECB is absolute worst nightmare. So 0:17:37.119 --> 0:17:39.879 in my view, you know, the FED is taporing first 0:17:39.960 --> 0:17:42.560 and then we'll hike rates. The ECB has been intent 0:17:42.720 --> 0:17:45.240 on taking the same path. I think actually the ECB 0:17:45.359 --> 0:17:47.080 is making a big mistake and should have done it 0:17:47.119 --> 0:17:50.200 the other way around, played with rates while continuing to 0:17:50.280 --> 0:17:52.600 buy assets, because that's going to keep borrowing costs low 0:17:53.040 --> 0:17:55.320 so that European governments can borrow and spend in the 0:17:55.400 --> 0:17:58.000 very short term. In the US, given the fact that 0:17:58.080 --> 0:18:00.440 there does seem to be a similar reliance the FED 0:18:00.800 --> 0:18:04.200 to try to equalize some of the inflation, how realistic 0:18:04.400 --> 0:18:06.680 is that? I mean, if the US doesn't see stag inflation, 0:18:06.960 --> 0:18:10.680 how concerned are you about other economic ramifications, particularly when 0:18:10.720 --> 0:18:14.480 it comes to inequality. Well, so, you know, I think 0:18:14.560 --> 0:18:17.840 that the US is further away from stagflation than Europe is. 0:18:17.880 --> 0:18:21.080 Our recovery is much further ahead. Um. But you know, 0:18:21.160 --> 0:18:23.760 the FED absolutely has to start hiking, if not for 0:18:23.920 --> 0:18:26.919 any other reason that it needs to maintain some credibility, 0:18:27.080 --> 0:18:31.920 keep inflation expectations grounded in terms of inequality. Actually, you know, 0:18:32.000 --> 0:18:33.760 I think the FED gets a worse rap than it 0:18:33.880 --> 0:18:37.560 probably should. The FEDS winding down its bond buying purchase 0:18:37.840 --> 0:18:41.840 purchases program, So it's finishing tapering, but uh, you know, 0:18:41.880 --> 0:18:44.280 and that has really boosted asset prices. But we don't 0:18:44.320 --> 0:18:46.639 know the alternative that if the FED hadn't stepped in 0:18:46.720 --> 0:18:50.200 to make markets in March, unemployment would be a whole 0:18:50.240 --> 0:18:53.160 lot higher, and that would have implications for inequality as well. 0:18:53.359 --> 0:18:55.600 So I think the role of central banks in in 0:18:55.760 --> 0:19:00.360 driving inequality higher is more ambiguous than most economists really jest. 0:19:00.480 --> 0:19:02.800 I think, you know, we don't know what the alternative 0:19:02.840 --> 0:19:05.720 scenario might have been, but it would have been lower growth, 0:19:05.840 --> 0:19:08.680 and that might have been worse for low income families. Megan, 0:19:08.720 --> 0:19:15.840 you mentioned earlier Europeans frugal countries. Is America a frugal country? 0:19:17.480 --> 0:19:20.000 That's a great question. Um, you know, our debt burden 0:19:20.040 --> 0:19:23.440 would suggest not really. Uh, we did spend really big 0:19:23.600 --> 0:19:27.000 in the pandemic. That's partly why we've seen broader based inflation, 0:19:27.640 --> 0:19:31.080 uh in the aftermath, and say Europe for example. Um. 0:19:31.200 --> 0:19:34.160 That being said, it's it's become really difficult for Congress 0:19:34.200 --> 0:19:37.879 to pass any kind of fiscal spending package, and so 0:19:38.000 --> 0:19:40.960 the US is getting more frugal than it was, certainly, 0:19:41.080 --> 0:19:43.359 But you know, I think I view it as us 0:19:43.440 --> 0:19:46.440 taking our foot off the accelerator a little bit rather 0:19:46.520 --> 0:19:49.200 than slamming on the brakes. In terms of fiscal stimulus, 0:19:49.400 --> 0:19:51.680 I think we could still get more pieces of the 0:19:51.720 --> 0:19:55.560 build back better. Legislation passed through Congress is kind of 0:19:55.640 --> 0:19:57.879 one off pieces of legislation, So there might be a 0:19:57.960 --> 0:20:00.480 bit more spending ahead, but it will be you know, 0:20:00.600 --> 0:20:03.880 over ten years and largely backloaded. Um So, I think 0:20:03.960 --> 0:20:07.440 the brunt of the fiscal stimulus of the US has 0:20:07.520 --> 0:20:10.359 to provide us probably behind us. What might come up 0:20:10.480 --> 0:20:15.520 now is support for Americans who are paying really high 0:20:15.600 --> 0:20:17.760 prices at the pump, and so we might get some 0:20:17.880 --> 0:20:20.879 sort of alleviation given the spike and energy prices that 0:20:20.960 --> 0:20:23.000 we have seen and are bound to see going forward. 0:20:23.200 --> 0:20:25.719 Looking for something similar out of Europe too, Megan. Wonderful 0:20:25.760 --> 0:20:27.560 to catch up with you, especially on Europe and the 0:20:27.600 --> 0:20:35.520 Anatist states. Macan Green that of the Crawl Institute, all 0:20:35.560 --> 0:20:37.159 spani in time, Kene, Let's get right to it with 0:20:37.240 --> 0:20:40.600 Sea Bree's done in Florida. Doug cast joins us this morning. Doug, 0:20:40.680 --> 0:20:44.359 you and I remember when Bolivia, in a bunch of 0:20:44.760 --> 0:20:48.240 banana republics, said we're gonna lose our shirt and tin, 0:20:48.960 --> 0:20:52.919 and they forced Lamy to shut down the tin market 0:20:53.080 --> 0:20:56.800 so the tin cartel could be restructured and saved. We've 0:20:56.840 --> 0:21:00.680 got this. I had Chrysler debt, you know, with Rattner 0:21:00.720 --> 0:21:04.920 two thousand nine. Same idea, where a market maker takes 0:21:05.040 --> 0:21:07.840 over and says you can't make money going the other way. 0:21:08.160 --> 0:21:11.199 That happened the other day in Nickel in London. Did 0:21:11.280 --> 0:21:13.160 they do the right thing to shut down the London 0:21:13.200 --> 0:21:16.320 Meadow Exchange or should they have left the lungs prosper. 0:21:18.680 --> 0:21:21.080 That's not my area of expertise, to be quite, but 0:21:21.119 --> 0:21:22.840 you've come on, but you've been doing this for years. 0:21:22.840 --> 0:21:27.080 Believe I believe that they should have kept the market open, 0:21:27.720 --> 0:21:30.440 and uh, I believe more of the lazy fair attitude 0:21:30.440 --> 0:21:33.320 towards these exchanges. I think it's more dangerous when you 0:21:33.440 --> 0:21:37.840 close markets. I agree. And now we've got a well, 0:21:37.880 --> 0:21:40.400 we got a close Russian market right now. What does 0:21:40.440 --> 0:21:43.800 that signal to do? When they yeah? You know, I 0:21:43.880 --> 0:21:47.000 think it was Benjamin Disraeli, who was England's Exchequer, once 0:21:47.040 --> 0:21:50.000 famously said, what we've learned from history is that we 0:21:50.080 --> 0:21:54.119 haven't learned from history. All these things rhyme um, and 0:21:54.440 --> 0:21:59.840 we lived in this flat, interconnected world um, and contain 0:22:00.280 --> 0:22:05.840 contagion is is omnipresent um. To me, what it's what 0:22:05.960 --> 0:22:09.479 you're saying is that we should have a sense of history, 0:22:10.520 --> 0:22:13.280