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Speaker 1: Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene

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Speaker 1: Jay Lee. We bring you insight from the best in economics, finance, investment,

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Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,

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Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Should

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Speaker 1: we bring it Katherine Matt we should pre sure. I

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Speaker 1: mean we can start strong with Catherine, City's global chief

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Speaker 1: Economists formally heading up the O E c D for

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Speaker 1: the Economy Division. Great to have Katherine with us on

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Speaker 1: the program. Catherine, just looking ahead to the FETE decision later,

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Speaker 1: Let's jump straight to the Q and A and the

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Speaker 1: summary of economic projections. What if you got your RYE

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Speaker 1: on this morning? Well, I think the real question is

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Speaker 1: whether or not there's going to be more dispersion in

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Speaker 1: the summary of economic projections because we're already hearing talk

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Speaker 1: what we have for some time now, especially since the

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Speaker 1: last meeting. UM more more vocalization by some of the

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Speaker 1: federalis or of bank presidents, um that, Uh, this march

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Speaker 1: towards seventy or a hundred basis point cuts, which is

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Speaker 1: what the market is, this marches is really not a

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Speaker 1: done deal. And uh you know, they've been saying that,

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Speaker 1: I think because of their concerns about the consequences for

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Speaker 1: leverage and for spreads UM, and and they're not they're

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Speaker 1: not in the majority for sure, but they can voice

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Speaker 1: their concerns about the strategy UH through the SMP, and

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Speaker 1: that UM will generate greater dispersion in the U SMP.

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Speaker 1: How difficult does it make the job of Chairman Pound

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Speaker 1: to communicate how much of that is compromised by this

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Speaker 1: dispersion in the summary of economic projections that you forecast

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Speaker 1: and the descents that we've seen over the last few months. Well,

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Speaker 1: I think that that he he could UM use this

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Speaker 1: greater dispersion and the descents as evidence of the complexity

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Speaker 1: of the situation that the fedoraries are faces in making

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Speaker 1: its decisions UM. Because the fact of the matter is,

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Speaker 1: if it this was obvious as to what to do,

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Speaker 1: there would not be dissents, there would not be dispersion,

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Speaker 1: and there wouldn't be vocalization by other bank presidents about

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Speaker 1: the range of concerns UH that and data that they

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Speaker 1: are looking at. So you can turn this towards a

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Speaker 1: the complexity the challenges here is what we're thinking about

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Speaker 1: here is what we are weighing. Different of our bank

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Speaker 1: presidents weigh it differently because that's exactly what they're supposed

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Speaker 1: to do. They're supposed to be representing their district. UM.

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Speaker 1: So you can turn this away from the uh single

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Speaker 1: voice of the FED too. Why there is this dispersion,

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Speaker 1: doctor Man? Is this a meeting? And as I said, folks,

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Speaker 1: this will be an historic meeting given all the economics

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Speaker 1: that Katherin Man follows every day, along with the finance

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Speaker 1: and banking of the repo debate. Is this a meeting

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Speaker 1: where this FED will be more focused on the clear

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Speaker 1: and present danger than trying to game out the future. Well,

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Speaker 1: the clear and present danger UM affects your trajectory in

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Speaker 1: the longer term, so you can't really separate the two

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Speaker 1: of them. UM. And so they have to be both

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Speaker 1: responsive to the current environment. UM. Particularly, they have to

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Speaker 1: recognize that if they don't do what the market expects

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Speaker 1: them to do, there will be financial turbulence consequences, and

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Speaker 1: that that that financial turbulence does feed through to the

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Speaker 1: real economy. And the question is how much does it

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Speaker 1: feed through? And I think the different ones of the

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Speaker 1: bank presidents think differently about how much passed through of

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Speaker 1: turbulence to the real economy that we need to worry

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Speaker 1: about it, that they need to worry about um. And

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Speaker 1: that's why you're ending up with these different views of

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Speaker 1: of the situation and also the extent to which financial

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Speaker 1: turbulent is a necessary part of the adjustment towards a

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Speaker 1: more normal rate in for the policy rate. I'm gonna

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Speaker 1: put out a chart on Twitter. This is one of

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Speaker 1: the repot charts we look at with the yield up

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Speaker 1: at three. We don't I know the charts work on

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Speaker 1: Radio Beautiful. You'll see him first on Twitter. I'm Bloomberg

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Speaker 1: Radio John. To be clear, we don't have a quote

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Speaker 1: yet for this morning up or down from the three

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Speaker 1: point nine three statistic of yesterday. We'll get that a

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Speaker 1: little bit later this morning. A little bit later this afternoon,

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Speaker 1: there will be a news conference and a smart journalist

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Speaker 1: perhaps his name will be Michael McKee, will put his

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Speaker 1: hand up and he will ask the chairman a question

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Speaker 1: about what has been happening with overnight rates. And Catherine,

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Speaker 1: I just wonder how the chairman puts this in plain English,

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Speaker 1: and how he puts the response to the Federal Reserve

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Speaker 1: in plain English as well. Well. Again, I think he

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Speaker 1: has to go back to the to the word complexity. Um.

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Speaker 1: It's a very complex system. Um. And the market can

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Speaker 1: be very reactive, and the Federal Reserve responded um. And

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Speaker 1: so you know, it's a it's a situation that that

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Speaker 1: he's not going to be able to put it into

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Speaker 1: plain English. I mean, I think he may use the

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Speaker 1: plumbing word because it is kind of a matter of plumbing.

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Speaker 1: Plumbing sometimes gets stopped up. And when when that happens, uh,

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Speaker 1: you know, the water comes out in places that you

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Speaker 1: didn't expect. And I think that's what we're seeing here,

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Speaker 1: and the plumbers came in and fixed it. Okay, Catherine Man,

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Speaker 1: thank you so much, greatly appreciate you stopping by through

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Speaker 1: this important FED day. Doctor Man, head of economics at

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Speaker 1: City Group. As well, we have the right guest, John Farrell,

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Speaker 1: long ago and far away. Um. He would throw pieces

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Speaker 1: of chalk at students that didn't get at Boston University

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Speaker 1: as professor of finance for the as you that don't know,

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Speaker 1: Bu's finance program is truly world class, sounds people, So

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Speaker 1: he will it is gruesome and he will now explain

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Speaker 1: the repot market Why did you begin, John with the

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Speaker 1: grilling of Jack Ablin. You know, I love about this

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Speaker 1: program sometimes when Tom tells me what to lead with

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Speaker 1: and then allows me it's this is about as far

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Speaker 1: as you go when you just you know, it's on

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Speaker 1: a shortly ship. Want to black Hawks hockey, but we're

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Speaker 1: not going to do that. Why don't you Jack Camplin,

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Speaker 1: Let's introduce the guest properly, Jack Camplin, Crescent Wealth Advises,

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Speaker 1: founding partner and see Io. Good morning to Jack, Good morning.

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Speaker 1: Let's begin with this issue. Just walk us through it.

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Speaker 1: What is happening? Well, I mean it's a simple matter

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Speaker 1: of shortage of overnight cash. The question is there is

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Speaker 1: no single source that that we can look at to

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Speaker 1: say where did this cash go? Um. Some of it

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Speaker 1: perhaps related to the fact that the world expected the

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Speaker 1: Federal Reserve to lower interest rates this afternoon, so they

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Speaker 1: possibly put rates they put their cash out longer dated.

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Speaker 1: Some of it may relate to the corporate tax payments

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Speaker 1: that are due UM. But the fact is that there

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Speaker 1: was a shortage of overnight cash and as a result,

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Speaker 1: I think we saw the overnight rate spiked to nearly

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Speaker 1: seven percent yesterday. UM FED has come back and injected

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Speaker 1: cash into the system. UM. And for right now, I'm

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Speaker 1: not really putting anything more into it. I think it's

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Speaker 1: just a supplied demand issue. If it were to persist,

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Speaker 1: then perhaps there's a trust issue that we have to concern.

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Speaker 1: A lot of fact is going into this company is

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Speaker 1: pulling cash from money market funds to pay tax one

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Speaker 1: of them, the government selling treasuries at Gloody treasuries, a

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Speaker 1: scarcity at dollars, all of that stuff coming together. Some

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Speaker 1: people are looking at bank cash reserves declining and ultimately

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Speaker 1: contributing structurally to what has been happening not once, but

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Speaker 1: three times over the last wealth months. Jack, just wocus

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Speaker 1: through that. Why it's so significant? Yeah, I think that um,

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Speaker 1: you know, having the cash reserves available UM is part

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Speaker 1: and parcel of the bankings, you know, keeping the banking

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Speaker 1: system operating. UM. And I think having clients that are

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Speaker 1: you know, drawing on that cash, um, you know, is

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Speaker 1: is putting us strand on the system. I know it's

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Speaker 1: not Boston University, but we gotta assume it. Come Loudy

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Speaker 1: Holding Court here from Villanova and Finance Angela Mantalotis, who wrote,

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Speaker 1: with our jury is the brilliant explainer on all this,

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Speaker 1: and the single sentence from mantalotis is the idea that

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Speaker 1: the repo market is twenty three percent the size of

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Speaker 1: the treasury market, and in the last crisis they were

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Speaker 1: the same size. We have regulated ourselves to a smaller

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Speaker 1: plumbing liquidity market, haven't we. Jamie Diamond says, we're constraint.

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Speaker 1: We we are. Although I think the FED has expanded

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Speaker 1: the number of dealers which then that can borrow directly

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Speaker 1: from the FED. So I think what they've done is

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Speaker 1: while the size of the market has diminished, the number

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Speaker 1: of players that can go directly to the FED has

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Speaker 1: We're going to see more of these interventions by the FED,

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Speaker 1: like yesterday and presume today as well. Yeah, so I

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Speaker 1: think that there there are some offsets, But you're right.

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Speaker 1: I think the market has has shrunk, and I think

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Speaker 1: it you know, too many investors. This hearkens back to

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Speaker 1: the find you know, the beginnings of the financial crisis,

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Speaker 1: when we were having liquidity upsets, um the auction rate

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Speaker 1: securities and all that that we're part of, you know,

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Speaker 1: the funding crisis. Uh, this isn't a trust issue. I

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Speaker 1: don't think it's a trust issue. I think I think

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Speaker 1: it's right now, it's a supply demanding equity issue. Pretty

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Speaker 1: much everyone says this isn't a trust issue. Yeah, I

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Speaker 1: don't think it is. I think, you know, like I said,

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Speaker 1: I think we'll let it play out and if if,

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Speaker 1: if we see that, uh, the overnight rate is in

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Speaker 1: the threes a week from now, then you know, we'll

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Speaker 1: re reassess. What are the chances that the FED needs

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Speaker 1: to stop building up the bounty sheet again. Well you

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Speaker 1: know that's you know, that's a slippery slope. But it

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Speaker 1: looks like they may have to do that. Um. I

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Speaker 1: I suspect, you know, and I've been saying that they've

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Speaker 1: created this nanny state for corporate America, UM with the

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Speaker 1: low rates and low overnight rates and low you know,

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Speaker 1: tenure rate. UM. You know, nearly ten percent of US

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Speaker 1: companies listed our zombie companies right now. And the question

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Speaker 1: is which way does the FED want to go continue

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Speaker 1: to ease and just pander to this issue, or get

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Speaker 1: tough and try to reconcile Jack. Nobody cares the Cubs

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Speaker 1: lost to the Reds last night for two What is

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Speaker 1: this about? The Cubs have to be in the playoffs,

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Speaker 1: the Cubs are holding on by their fingernails. Um, I'm

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Speaker 1: hopeful they'll be in a wild card game against the

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Speaker 1: Nationals and perhaps they can the Fed can use Wrigley

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Speaker 1: Field as a collateral. John, That's what we'll do, Jack Evelyn,

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Speaker 1: great to see you. Advisors love it. It'd be very cool.

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Speaker 1: I love it. I could see him there. I love

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Speaker 1: American football. That's a joke. So it's so easy to

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Speaker 1: get you guys. So what is a mid cycle adjustment?

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Speaker 1: Stephen King joining us now HSBC Senior Economic Advisor. Stephen,

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Speaker 1: just help us answer that. What is a mid cycle adjustment?

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Speaker 1: And is that what you expect? Well, we had them

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Speaker 1: in the past. We had one in the mid nineties,

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Speaker 1: one that came after the Asian crisis as well, which

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Speaker 1: is sort of time. It's whether they're kind of a

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Speaker 1: poolse to refresh as more reduction interest rates that doesn't

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Speaker 1: lead very far, keeps the economy going. You have a

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Speaker 1: kind of soft landing, and then everything sort of motors

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Speaker 1: back up to too normally if you like. The The

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Speaker 1: evidence though, is that most times when the said tries

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Speaker 1: to achieve one of these mid cycle adjustments, it discovers

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Speaker 1: that actually it's got a a late cycle problem because

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Speaker 1: it ends up cutting interest rates much more than it

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Speaker 1: had originally expected. And that's partly because you end up

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Speaker 1: with a significantly weaker economy than they had originally anticipated.

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Speaker 1: Is that what you expect to happen here, Steve, is

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Speaker 1: that your base case on how this plays out? Well?

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Speaker 1: I think at the moment it's difficult to look too

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Speaker 1: far into the future of HSBC had a couple of

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Speaker 1: rate cuts coming through today and then in October. There's

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Speaker 1: a possibility of stuff happening next year that we're not

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Speaker 1: forecasting it currently. But I think one of the big

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Speaker 1: debates about the U S economy is is how late

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Speaker 1: cycle is it. And there are a couple of things

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Speaker 1: that I think the said would be worried about. One

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Speaker 1: of course, slope of the yield curve and inverted yield

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Speaker 1: curve or flattening yield curve is often in would signal

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Speaker 1: of a downswing to come UM. And the other thing

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Speaker 1: they might worry about is the fact that the unemployment

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Speaker 1: rate is so incredibly low UM. And when you've had

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Speaker 1: a low unemployment rate, it sounds like great news, but

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Speaker 1: often it can be a sign of wage pressures beginning

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Speaker 1: to build. Maybe a squeeze in margins may have an

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Speaker 1: impact on capital spending, and all those things might be

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Speaker 1: issues to the final issue, of course, is the fair

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Speaker 1: worrying about the sort of geopetical situation, and in particular

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Speaker 1: that the trade war between the U S and China.

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Speaker 1: To your book of eight years ago, is it a

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Speaker 1: grave new world? I mean, shouldn't we be optimistic about

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Speaker 1: stunning unemployment rate resilient US economy relative to everything else?

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Speaker 1: Are we going into this press conference? Is a grave

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Speaker 1: new world? Well, the good news is that the US

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Speaker 1: has done better than other countries on unemployment UM and

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Speaker 1: so on and so forth. That they're not such good

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Speaker 1: news as the US has a problem which has been

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Speaker 1: shared in other countries too, which is a productivity growth

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Speaker 1: has been incredibly low UM, and that's given you a

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Speaker 1: kind of a situation where unemployment is low but wage

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Speaker 1: growth is very, very weak in general, and people have

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Speaker 1: felt that they've been left behind. That's particularly true of

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Speaker 1: the number of different American regions. So although you have

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Speaker 1: on the surface evidence of an economy that's doing better

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Speaker 1: than others, there are a lot of I think weak

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Speaker 1: links within that economy is one reason why I think

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Speaker 1: the US has become more protectionists, trying to explain why

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Speaker 1: it has these weak links. And of course one narrative

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Speaker 1: of SUMILARI is to blame somebody else, whether it be China,

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Speaker 1: Mexico or elsewhere. Stephen King, I just put out a

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Speaker 1: charter on Twitter Radio you'll see it first, Bloomberg Radio worldwide.

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Speaker 1: You see it first, charts on radio. Well, there's a

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Speaker 1: lot going earlier, and Stephen King, it's something I've never seen.

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Speaker 1: This is a custom chart from our Ira Jersey of

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Speaker 1: the repo market is the size of the treasury market,

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Speaker 1: and as you well know, Dr King, basically we fell

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Speaker 1: off a cliff in two thousand nine where we said

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Speaker 1: we're never going to repeat two thousand and seven again,

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Speaker 1: and the size of that repot market is back to

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Speaker 1: eighteen eighty one nine eight zero. Have we gotten ourselves

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Speaker 1: into trouble because we have shrunken our markets hoping never

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Speaker 1: to never to repeat two thousand seven two. I think

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Speaker 1: there are some difficulties out there. The repose situation currently

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Speaker 1: I'm not so sure about. But I think that one

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Speaker 1: thing that has happened is that the combination of zero

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Speaker 1: rates q E and so and so forth has definitely

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Speaker 1: lifted financial asset prices a long long way, even though

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Speaker 1: underlying excellent performance has actually not been that great. That

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Speaker 1: a little gap has opened up between financial hope and

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Speaker 1: economic reality. And that gap, I think is something which yeah,

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Speaker 1: it's sort of it's created an obvious problem for central bankers.

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Speaker 1: You think, well, have we just created another bubble in

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Speaker 1: the attempt to dig ourselves out of the hole that

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Speaker 1: was created by the global financial crisis. When we get QT,

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Speaker 1: where does the financial hope go? Um? Well, QT doing

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Speaker 1: because you're trying to sort of unwind the addiction that

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Speaker 1: has been created on on the continuous easy money. But

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Speaker 1: as we've seen from the fair, it's proved to be

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Speaker 1: perhaps her a more tortuous process than they themselves had

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Speaker 1: originally expected. And they think one lesson, it's like a

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Speaker 1: Japanese lesson in one sense from the experience of the

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Speaker 1: last two or three years, is that even when central banks,

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Speaker 1: including the fad of trying to return to some kind

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Speaker 1: of monetary normality, they've really struggled to do it because

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Speaker 1: each time they've done it, they've had to reverse much

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Speaker 1: more quickly than people had originally expected. You go back

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Speaker 1: a year or two, everyone was saying this is going

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Speaker 1: to carry on raising rates for a long period of time.

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Speaker 1: Suddenly with a handful of months, they're going into the

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Speaker 1: can tire. You the reverse direction and the one sense

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Speaker 1: they're being dragged down by events elsewhere in the world, where,

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Speaker 1: of course interest rates Europe, Japan and some that's still

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Speaker 1: absolutely at rock bottom. Stephen, I want to pick up

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Speaker 1: on the issue with Europe right now. There is a

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Speaker 1: big focus on monetary policy impotence. So many people come

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Speaker 1: on this program and say this is what I think

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Speaker 1: the central Bank will do. Now, let me tell you

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Speaker 1: why it won't work. Olivia blind Shut of the Pitterson

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Speaker 1: Institute for me of the I m F. I'm sure

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Speaker 1: you know him. While Stephen was out on Twitter over

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Speaker 1: the weekend and he had a really nice little sweet

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Speaker 1: storm and I just want to bring you one line

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Speaker 1: from it. I suspect we may be close to the

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Speaker 1: reversal rate, Stephen. How important is that concept right now

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Speaker 1: and how close are we to it in some big

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Speaker 1: economic blocks. So in Europe this is a particularly important issue.

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Speaker 1: So it really works on the basis that the more

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Speaker 1: negative interest rates go, these official interest rates go, the

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Speaker 1: more difficult it becomes for banks to be significantly profitable.

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Speaker 1: And one reason for that is that banks, for all

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Speaker 1: sorts of social reasons more thing any house, finding very

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Speaker 1: difficult to offer their customers negative nominal interest rates um,

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Speaker 1: and so the consequences that they end up paying too

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Speaker 1: much to fund their own institutions, and their profit margins

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Speaker 1: are in never to be squeezed. As a consequence of that,

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Speaker 1: I know that squeeze comes through. It means that effectively

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Speaker 1: the kind of the monthly plumbing doesn't work quite so

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Speaker 1: well because in the old sort of textbook, ex a

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Speaker 1: palls near the central bank cuts interest rates a bit

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Speaker 1: um and one being cut, you know, you end up

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Speaker 1: with the stimulus coming through in terms of bank lending,

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Speaker 1: but the banks aren't making your money out of it.

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Speaker 1: And actually the bank lending doesn't pick up in the

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Speaker 1: way that perhaps the center bank would normally expect. So

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Speaker 1: it's a kind of peculiarity associated with the fact that

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Speaker 1: cash ultimately offers you a zero interest rate in nominal terms.

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Speaker 1: So the more negative you go, the more attractive cash

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Speaker 1: becomes um. And you can quickly move in certain circumstances

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Speaker 1: to a sort of weird economy where cash dominates. If

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Speaker 1: we reached the constraint of the limit, I should say,

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Speaker 1: rather on a calculus basis, if we reach the limit

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Speaker 1: of what global q E can do, I think we're

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Speaker 1: certainly in a situation of diminishing marginal returns. Okay, But

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Speaker 1: if we reach the limit, I mean, is that what

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Speaker 1: we've learned at the last fourty eight hours Now, I

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Speaker 1: think you can do more QUI if you wanted to.

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Speaker 1: There's no sort of specific limits on it. The issue,

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Speaker 1: I think is the effectiveness of it UM and your

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Speaker 1: montar part. He works a lot on people's expectations. If

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Speaker 1: they sort of believe it's going to have an impact,

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Speaker 1: then it become more confident, Asset prices rise, all the

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Speaker 1: sorts of usual things kick in. But if it turns

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Speaker 1: out that people are no longer convinced that KIE works,

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Speaker 1: it may be that you do quite a lot of it,

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Speaker 1: but not really much really happens. I course, that was

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Speaker 1: exactly the Japanese experience over the course of the last

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Speaker 1: ten and fifteen years, that KWIE did not deliver the

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Speaker 1: economic outcomes that some people have predicted. This has been wonderful.

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Speaker 1: Stephen King, thank you so much with h just extraordinary

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Speaker 1: time today and it's too very third. Thanks Step as well.

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Speaker 1: It is always a joy to speak to Austin Gulsby,

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Speaker 1: but it's a particularly joy after Professor Gulsby turns at

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Speaker 1: the Booth School to his analytic finance stem eligible brethren,

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Speaker 1: including John Cochrane, Douglas Diamond, Luigi's Dallas, Eric Swick, Robin Roging.

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Speaker 1: I mean, all these guys at Chicago are completely analytical,

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Speaker 1: and you know that's where googles be turns when he's

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Speaker 1: got to explain the repo market. Professor Goolsby joins us

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Speaker 1: this morning, Austin, we're all brushing up on one in

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Speaker 1: two day paper. What do macro economists how do they

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Speaker 1: adapt and adjust to that short term paper market? That

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Speaker 1: analytical finance at Booth schools legendary on Well, uh, thanks

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Speaker 1: for having me back on first of all, um, and

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Speaker 1: I think everybody first we were all starting to have

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Speaker 1: flashbacks and nightmares. Oh god, is this how it begins?

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Speaker 1: But I think most people that I have been talking

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Speaker 1: to their view is in a crisis. Every correlation goes

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Speaker 1: to one, as they say, and the fact that this

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Speaker 1: is just one little market and it's not spreading thus

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Speaker 1: far to others. Um, that means that that it maybe

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Speaker 1: hopefully doesn't have a grander meaning. You have been wonderful

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Speaker 1: about linking academic theory into the application this afternoon at

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Speaker 1: this press conference. How much is the chairman and the

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Speaker 1: proxy of Vice Chairman Clara and the others. How much

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Speaker 1: are they making it up as they go versus foundational

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Speaker 1: economic theory. That's the uh, that's always the magic balance

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Speaker 1: that the that the FED here has to strike. I

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Speaker 1: kind of think moments like this are always the danger

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Speaker 1: for any policy maker, and you could call it on

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Speaker 1: monetary policy, or if you were thinking about fiscal policy

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Speaker 1: the same thing, that something strange happens, and you could

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Speaker 1: incidentally destroy your credibility going forward if you say something

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Speaker 1: in passing like, oh, we think there's no problem. This

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Speaker 1: is a minor matter. You know circa Ben Burnankee when

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Speaker 1: they asked him about sub prime housing and he says not, Now,

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Speaker 1: this is a very limited thing and it's not going

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Speaker 1: to spread. If the facts end up proving them wrong. Um,

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Speaker 1: then people are going to conclude either the chair and

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Speaker 1: the system they didn't understand the theory, They didn't know

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Speaker 1: what was going on. If facts prove them right and

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Speaker 1: they get up and say this is just a technical matter,

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Speaker 1: it's just in one market, don't everybody, you know, pay

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Speaker 1: no attention, keep walking. If they say that that proves right,

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Speaker 1: then essentially nobody will remember it. So I kind of

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Speaker 1: think days like today are a no wins scenario for

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Speaker 1: the for the FED. So, Professor, you know, as we

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Speaker 1: await the FED decision this afternoon, Now, there's a school

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Speaker 1: of thought out there that says, as we get to

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Speaker 1: the grinding ever lower rates, that incremental rate cuts by

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Speaker 1: the FED just are losing their effectiveness um to really

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Speaker 1: impact economic Outlook, what is your thoughts? Yeah, look, I

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Speaker 1: agree with that. I wrote a little piece summarizing that,

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Speaker 1: uh point of view, and I think it's quite accurate

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Speaker 1: in the following sense. In normal times, forget about the

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Speaker 1: runway length issue. That in a normal recession, as you

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Speaker 1: face the recession, the FED would cut rates four hundred,

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Speaker 1: five hundred basis points. That's the normal recession fighting move,

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Speaker 1: not all at once. But you know, over a relatively

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Speaker 1: short period, there's not four or five basis points to cut, Okay,

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Speaker 1: so that's short. One runway problem is one thing but

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Speaker 1: the second is even the same size cut. Normally, some

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Speaker 1: of the bang for the buck of say the investment

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Speaker 1: impact or the mortgage refinance impact, is that there's some

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Speaker 1: pent up demand for investment that people are saying, well,

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Speaker 1: I would go build a factory, I would go buy

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Speaker 1: a car, I would go refinance my mortgage. But I

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Speaker 1: want the rates to come down a little bit. And

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Speaker 1: so when they cut basis points, you get the normal

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Speaker 1: impact plus the pent up demand. But there is no

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Speaker 1: pent up demand because rates have been low for so

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Speaker 1: long that there's nobody who's like, oh, well, if the

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Speaker 1: rates would go down basis points, I'll refinance because they

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Speaker 1: would have already refinanced. So I think people are putting

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Speaker 1: too much weight that the FED can save us. Either.

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Speaker 1: The FED should do what they're doing, but they're you know,

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Speaker 1: they're not. If we start going into recession, um, if

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Speaker 1: we start escalating the trade ward and driving both those

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Speaker 1: economies down, the FED cutting rates by fifty basis points

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Speaker 1: is not to alter that. Austin Michael Spence, you may

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Speaker 1: know him. He's not even passing knowledge at Stanford, one

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Speaker 1: of our great educators and a Nobel laureate. Now it's

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Speaker 1: a school in New York, Austin called New York University.

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Speaker 1: Professor Spence wrote a jewel in about two thousand and ten.

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Speaker 1: It was my essay of the year. And when we regulate,

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Speaker 1: there are things that are obvious. Let's call them a

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Speaker 1: type one construct, and there's a type two construct, which

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Speaker 1: is a little more sophisticated. It means you gotta be

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Speaker 1: careful what you wish for. Did that happen in the

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Speaker 1: repo market, that we have overregulated ourselves into inelasticity and

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Speaker 1: into a limited choice set for banks under shock? Did

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Speaker 1: we overregulate and we got a nudget back a little bit?

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Speaker 1: I don't know. I I take the point, and it's

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Speaker 1: an important point about regulation in general, that the false

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Speaker 1: positives versus the false negatives um viewpoint. I don't know

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Speaker 1: if that's what the story is here. I think it

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Speaker 1: would have to be spread You would have to see

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Speaker 1: this spread out of just the one narrow market for

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Speaker 1: exactly think that it was caused by some regulatory things.

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Speaker 1: That's so important. You've heard that twice on Professor gouls

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Speaker 1: Be here in this conversation. The idea of it's discreet

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Speaker 1: to the repo market and again to be clear, folks,

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Speaker 1: we have an improved market. Uh. This morning we thank

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Speaker 1: Austin Gules We, of course, a former chairman of the

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Speaker 1: President's Council of Economic Advisors for President Obama. A Shingle

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Speaker 1: out at the Boost School at the Chicago Thanks for

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Speaker 1: listening to the Bloomberg Surveillance podcast. Subscribe and listen to

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Speaker 1: interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer.

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Speaker 1: I'm on Twitter at Tom Keane before the podcast. You

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Speaker 1: can always catch us worldwide. I'm Bloomberg Radio.