WEBVTT - Danny Blanchflower on Global Markets: A Shock Is Coming (Audio)

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<v Speaker 1>Global business news twenty four hours a day at Bloomberg

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<v Speaker 1>This is a Bloomberg Business flag from Bloomberg World Handquarters.

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<v Speaker 1>I'm Charlie Howett. Stocks are slipping from records, the DAL,

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<v Speaker 1>the SMP, NASTAC all declining this Thursday after European Central

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<v Speaker 1>Bank President Mario Draggy downplayed the need for more stimulus

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<v Speaker 1>measures to bolster growth. The SMP five hundred index down

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<v Speaker 1>six now to one seventy nine, a drop of three

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<v Speaker 1>tenths of one percent. Nastack is down six tenths of

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<v Speaker 1>one percent, down twenty nine points, fifty two fifty four

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<v Speaker 1>right now on NASDAC down industriels down sixty one points,

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<v Speaker 1>a drop there of three tenths of one percent. The

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<v Speaker 1>Tenure down twenty two thirty seconds yield one point six

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<v Speaker 1>one percent, Gold down eighty ounce the thirteen thirty seven

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<v Speaker 1>and drop also of six tenths of one percent, and

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<v Speaker 1>crude oil surging after the inventories report a four point

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<v Speaker 1>six percent. Now West Texas Intermediate rallying to a barrel

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<v Speaker 1>sixty one right now on w T I I'm Charlie Peloton.

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<v Speaker 1>That's a bloom Bird business flash. You're listening to Taking

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<v Speaker 1>Stock with Bim Box and Kathleen Hayes on Bluebird Radio.

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<v Speaker 1>As Charlie Peller just said, the European Central Bank leaving

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<v Speaker 1>all of its key interest rates unchanged, holding off on

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<v Speaker 1>shifting its main policy levers, even as inflation in the

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<v Speaker 1>nineteen country currency block remains stubbornly low. Here to tell

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<v Speaker 1>us more is Danny blanch Flower. He's professor of economics

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<v Speaker 1>at Dartmouth College and he can be followed on Twitter

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<v Speaker 1>at d underscore blanch Flower. Danny blanch Flower, thanks for

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<v Speaker 1>being with us. Sure, well, go ahead. Yeah, they didn't

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<v Speaker 1>really do anything. And the surprise is that, Um, Actually,

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<v Speaker 1>if your job is to get inflation back to target

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<v Speaker 1>and you forecast that over the time coming that you're

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<v Speaker 1>not going to be able to get it to target,

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<v Speaker 1>the obvious response ort to be that you should do something. Um.

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<v Speaker 1>So that doesn't really hang together. But I guess the

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<v Speaker 1>answer has to be later. Later more will be coming, um,

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<v Speaker 1>as they decide whether they can go more negative and

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<v Speaker 1>what else it is that they can buy, given they've

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<v Speaker 1>been buying everything that's out there. Well, I was going

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<v Speaker 1>to ask you that if you are not capable of

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<v Speaker 1>not you personally, but if you're running something and it

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<v Speaker 1>doesn't work for twenty four months, you know you have

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<v Speaker 1>an inflation forecast. Is there a possibility maybe someone else

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<v Speaker 1>with a different idea might be a good bet. Well, right,

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<v Speaker 1>I mean you know that. I mean, how can that

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<v Speaker 1>does not apply to central bankers? Well, they can only

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<v Speaker 1>do what they can do, I guess. I mean the

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<v Speaker 1>problem for central bankers is that, um, they have fiscal

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<v Speaker 1>authorities as well that should try and be and help

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<v Speaker 1>them out. But they've all been a well for a

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<v Speaker 1>really long time since they discovered Kane for nine months

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<v Speaker 1>in two than nine. Hence why you've seen authorities around

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<v Speaker 1>the world saying, um, you need to see the fiscal

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<v Speaker 1>authorities cutting taxes, putting in stimulus. Um, that's that's kind

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<v Speaker 1>of where we are. The central bank has not got

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<v Speaker 1>that much firepower sitting at the zero lower bound, and

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<v Speaker 1>obviously the worry is that you would like rates to

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<v Speaker 1>be up high so when the shock that inevitably comes

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<v Speaker 1>hits you, you can cut rates, and obviously you can

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<v Speaker 1>so I think in a way the u CB is

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<v Speaker 1>looking at what additional things can it do, particularly with

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<v Speaker 1>the Brexit shock. That's clearly we don't have bigger shock

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<v Speaker 1>it is, but it clearly represents a negative shock to

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<v Speaker 1>the euro Area and to the UK. So so essentially

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<v Speaker 1>drug has made it clear shocks are to the downs

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<v Speaker 1>that there's limited things that they can do, and what

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<v Speaker 1>do you do? Unemployments only ten per cent and inflation

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<v Speaker 1>is point two. But if that's as good as it

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<v Speaker 1>gets after eight years of recession, you're right, you maybe

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<v Speaker 1>should look at what the heck is going on? Well,

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<v Speaker 1>what would you suggest, is there anything that would be

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<v Speaker 1>an alternative to economic stimulus that comes from governments because

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<v Speaker 1>they seem to be recalcitrant and making they are recalcitrant.

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<v Speaker 1>I mean, in some sense, what we've learned is that

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<v Speaker 1>this is simply not enough. We are clearly in um

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<v Speaker 1>some some degree of a stagnation. We have not gone

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<v Speaker 1>back to pre two thousand and eight levels. But look

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<v Speaker 1>back at Japan. We worried about the Japanese lost decade.

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<v Speaker 1>Well we're eight years into that lost decade in the UK,

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<v Speaker 1>the US and Europe. But let's still be aware that

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<v Speaker 1>there are many countries in your two countries, especially in Europe,

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<v Speaker 1>with unemployment rates above Spain and Greece. And I'm just

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<v Speaker 1>looking at the graph here of inflation rates in July

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<v Speaker 1>sixteen account twelve twelve EU countries Bulgaria, Croatia, Slovenia, Spain, Netherlands,

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<v Speaker 1>Poland cycles and so it goes on. In Italy, all

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<v Speaker 1>still in deflation. So the answer is you're right, this

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<v Speaker 1>is eight years in and it's failed. Time to do

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<v Speaker 1>something different, but nothing different is really on the table.

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<v Speaker 1>So there's no obvious way out, and there's a shot coming,

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<v Speaker 1>a shock that would do what to the system. Well,

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<v Speaker 1>I mean, let's just think about I'm not saying there's

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<v Speaker 1>a shot coming tomorrow, but there is a thing called

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<v Speaker 1>the business cycle, and these the hasn't been repealed, right, No,

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<v Speaker 1>it's not been repealed. Just just checking, just checking the

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<v Speaker 1>last time I looked at having well, because I just

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<v Speaker 1>just to give you the sorry for the your side,

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<v Speaker 1>but you know THEO Dragi said today, for the time being,

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<v Speaker 1>the changes are not substantial enough to warrant a change

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<v Speaker 1>in policy. There is no question about the will to

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<v Speaker 1>act or the ability to do so. I understand that.

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<v Speaker 1>But I'm looking at point to a forecast, the point

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<v Speaker 1>inflation for sixteen one point six in seventeen, which looks unlikely,

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<v Speaker 1>and one at seven I think it is in in

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<v Speaker 1>in eighteen UM, and go back to the unemployment rate

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<v Speaker 1>of ten per cent. So this is great news, I

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<v Speaker 1>suspect not um. I mean, that's obviously a considerable worry.

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<v Speaker 1>You can go to the Euros that website and you

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<v Speaker 1>can look at these unemployment rates and we're looking at

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<v Speaker 1>you know, eleven points eleven points six in Italy, um

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<v Speaker 1>nine point nine in France, nineteen point nine in Spain,

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<v Speaker 1>twenty three point three in Greece, and then we're celebrating. Stand,

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<v Speaker 1>there's not much that we can do. Um. Not good,

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<v Speaker 1>all right, not good. Let's but let's say you get

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<v Speaker 1>the call from the Angela Merkel and she says, you know,

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<v Speaker 1>Danny Blanche Flower, You've got experience. You're on the policy

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<v Speaker 1>making committee of the Bank of England. You're also a

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<v Speaker 1>professor of economics at dartmin And you get one wish.

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<v Speaker 1>What would you wish that the European Central Bank would

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<v Speaker 1>do or that my government should do? Well? Your government

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<v Speaker 1>should start to do a very large fiscal stimulus. Go

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<v Speaker 1>and start to think about a trillion euros to start with.

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<v Speaker 1>Investing in the infrastructure and capital investment and so on

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<v Speaker 1>to help out the e c B. This is obviously

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<v Speaker 1>where we have to go. They've been reluctant to do that.

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<v Speaker 1>I mean, the worry came in a way, is that

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<v Speaker 1>if you can think back to the thirties, what caused

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<v Speaker 1>the Great Depression to go away? The answer was a

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<v Speaker 1>huge fiscal expansion in preparation or in actuality of a war.

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<v Speaker 1>That's what got the Great Depression over with a huge

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<v Speaker 1>fiscal expansion. Well, we'll have to wait and see whether

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<v Speaker 1>the Germans are willing to spend the money to help Europe.

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<v Speaker 1>Thanks very much, Danny Blancheflower, Professor Economics, Dartmouth College. This

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