WEBVTT - Surveillance: Recovery Risks With Rogoff 0:00:09.880 --> 0:00:13.800 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leye. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.440 Bloomberg dot Com, and of course, on the bloomber The 0:00:27.480 --> 0:00:30.440 emergency Purchase program is going to run at least through 0:00:30.520 --> 0:00:35.159 the end of March. The reinvest that Huey debt for 0:00:35.200 --> 0:00:38.560 an extended period of time even after the first rate hikes. 0:00:38.600 --> 0:00:41.479 So if you believe, let's just say you believe that 0:00:41.520 --> 0:00:43.920 we'll get a rate hike from the e CP at 0:00:43.960 --> 0:00:47.320 some point in this cycle, after that, the e c 0:00:47.520 --> 0:00:50.400 B will still be reinvesting the debts on its balance 0:00:50.440 --> 0:00:53.680 sheet that they've been buying over the last year. I 0:00:53.680 --> 0:00:55.920 want to bring in alberta gallo of Algebras on this 0:00:56.480 --> 0:00:58.520 albert So the CP is going to be in this 0:00:58.640 --> 0:01:02.920 market for a long long time. How does that shape 0:01:02.920 --> 0:01:07.400 your view on fixed income in Europe? Good morning. Sometimes 0:01:07.760 --> 0:01:11.240 the most interesting things that come out of central banks 0:01:11.800 --> 0:01:15.240 are the things they don't talk about. And there's two 0:01:15.280 --> 0:01:18.679 big questions here. One is how long are they going 0:01:18.720 --> 0:01:22.679 to keep going with the emergency purchase program even after 0:01:22.720 --> 0:01:25.760 the pandemic is over, and it looks like, as you said, 0:01:25.880 --> 0:01:28.280 that that's going to be with us for a long 0:01:28.319 --> 0:01:32.280 period of time, even beyond two two UM. And the 0:01:32.319 --> 0:01:37.160 second one is what happens if there's another crisis. Now, 0:01:37.920 --> 0:01:42.560 interest rates are already negative. Net supply of European government 0:01:42.560 --> 0:01:45.039 bonds is negative. This year, d c B is buying 0:01:45.080 --> 0:01:48.480 more than the governments are issuing, so you know, they've 0:01:48.480 --> 0:01:52.640 got to think about something new. And that's where you know, 0:01:52.760 --> 0:01:56.360 some warring scenarios come up for investors, a very very 0:01:57.160 --> 0:02:00.800 strong financial repression, very low yield to be inflation, even 0:02:00.800 --> 0:02:04.600 though inflation is pretty low in Europe. Bet So we've 0:02:04.600 --> 0:02:06.520 got to jump in because what you're talking about is 0:02:06.520 --> 0:02:09.440 so important. Are you saying that we might not have 0:02:09.440 --> 0:02:11.920 seen the end of this and that's something new might 0:02:12.000 --> 0:02:14.640 be coming And I'm not saying anytime soon. I just 0:02:14.639 --> 0:02:17.480 want to understand the kind of something you're thinking about. 0:02:17.760 --> 0:02:20.760 You're thinking about equities. Surely we've already done everything we 0:02:20.760 --> 0:02:24.600 can do on the fixed income side. You know, the 0:02:24.600 --> 0:02:28.120 biggest question here for investors for the next years is 0:02:28.200 --> 0:02:31.800 whether governments are going to be able to beat secular stagnation. 0:02:31.919 --> 0:02:34.880 Now it's it's a moment of celebration in the US 0:02:35.160 --> 0:02:38.600 with the new presidency and probably the Biding administration has 0:02:38.639 --> 0:02:41.440 a shot at this with a lot of fiscal stimulus 0:02:41.440 --> 0:02:43.919 and infrastructure spending. But if you look at Europe, the 0:02:43.960 --> 0:02:48.440 recovery plan is still very very small, and we've got 0:02:48.440 --> 0:02:51.760 German elections later this year. It's not exactly the year 0:02:51.800 --> 0:02:54.800 where you know, the European Union is going to splurge 0:02:54.840 --> 0:02:58.560 on on fiscal so you know, the things that doesn't 0:02:58.600 --> 0:03:00.680 talk about is how are they going to get inflation 0:03:00.760 --> 0:03:04.280 back up, how much more fiscal is needed, and also 0:03:04.360 --> 0:03:06.960 you know what's the end game for the p P 0:03:07.040 --> 0:03:10.400 P And it looks like, you know, unless you're seeing 0:03:10.400 --> 0:03:12.760 Germany spending a lot more, which is unlikely this year. 0:03:12.760 --> 0:03:15.200 It looks like the emergency purchase program is going to 0:03:15.280 --> 0:03:17.880 be with us for a much longer period of time, 0:03:18.520 --> 0:03:23.720 which means savers are getting returns well below inflation. So 0:03:23.800 --> 0:03:26.359 you know, one of the casualties of the pandemic has 0:03:26.400 --> 0:03:30.320 been the risk free rate. It's now very very deeply 0:03:30.560 --> 0:03:32.919 negative and it's going to continue to be like that, 0:03:33.480 --> 0:03:36.680 especially in Europe. It sounds like a process in search 0:03:36.720 --> 0:03:40.160 of a theory, albert Ogella, what's the underlying theory here? 0:03:40.160 --> 0:03:42.800 They literally making it up in the United States of 0:03:42.840 --> 0:03:48.840 Europe as they go. Our theory is interest rates at 0:03:48.880 --> 0:03:54.000 the extreme become counter productive. So you know, you've got 0:03:54.080 --> 0:03:58.040 Argentina with very high interest rates. In theory, they are 0:03:58.440 --> 0:04:01.600 supposed to cur be inflation, but at some point you 0:04:01.680 --> 0:04:05.560 have a compounding impact and they become inflationary. Conversely, when 0:04:05.560 --> 0:04:08.560 you have deeply negative interest rates and they are persistent, 0:04:09.320 --> 0:04:12.760 they create asset bubbles which burst and then create deflation. 0:04:12.880 --> 0:04:16.880 They keep zombie companies alive, which reduced productivity. So you 0:04:16.960 --> 0:04:20.440 really need to shake up the system, do reforms, invest 0:04:20.520 --> 0:04:25.440 in infrastructure and improve productivity, which the US has as 0:04:25.480 --> 0:04:29.800 a big shot at with this administration in Europe. In Europe, 0:04:30.200 --> 0:04:33.080 it's it's much it's a much tougher game to play 0:04:33.120 --> 0:04:37.680 this year. Meanwhile, Alberto, you have a rather difficult decision 0:04:37.839 --> 0:04:40.520 as a portfolio manager of whether to just go by 0:04:40.560 --> 0:04:43.760 the central banks and ignore risk. At a certain point, 0:04:43.839 --> 0:04:47.400 it makes no fundamental sense for Italian bond yields to 0:04:47.480 --> 0:04:51.760 be getting lower with respect to German yields as their 0:04:51.800 --> 0:04:54.680 government basically threatens to fall apart. This is because the 0:04:54.680 --> 0:04:56.599 e c B has been buying more of their debt. 0:04:57.000 --> 0:04:59.520 Do you lean into that as a portfolio manager or 0:04:59.560 --> 0:05:04.720 do you say risk matters? We say risk matters. Last 0:05:04.839 --> 0:05:08.600 year we were over half in cash in our own 0:05:08.960 --> 0:05:12.159 Globe of Credit fund before the pandemic hit, and we 0:05:12.279 --> 0:05:14.240 had a lot of protection on And you know, we're 0:05:14.240 --> 0:05:18.040 getting to a point where there is where the odds 0:05:18.040 --> 0:05:20.800 are very much skewed against the investors. So you can 0:05:20.839 --> 0:05:23.880 make two cents if you're right, but if you're wrong, 0:05:23.880 --> 0:05:27.400 you can lose five or ten. And the BTP example 0:05:27.800 --> 0:05:32.120 is spot on. So we're trying to preserve the odds 0:05:32.160 --> 0:05:35.680 to be at least equal or in favor of our investors. 0:05:35.720 --> 0:05:39.560 So we're not buying BTPs here, we're not buying long 0:05:39.680 --> 0:05:42.880 data investment grade debt. But there are some areas where 0:05:42.880 --> 0:05:45.799 they're still upside in some of the perty free countries, 0:05:45.920 --> 0:05:49.120 in convertible debt, in some of the companies which are 0:05:49.120 --> 0:05:51.480 going to be the companies of the future. So you know, 0:05:51.520 --> 0:05:54.599 we're we're pretty cautious, but we still have some upside 0:05:54.720 --> 0:05:58.080 bets on the reopening of the economy. Alberta Smart, Thank 0:05:58.080 --> 0:06:00.560 you so much. Alberta god with Algebras Spence here on 0:06:00.600 --> 0:06:09.520 an easy be looking for a solution. Speaking of hate, 0:06:09.520 --> 0:06:12.359 Mally loves to send me hate, Helen Apple. Michael Holland 0:06:12.560 --> 0:06:15.400 joins US now Holland and Company. He's paid a lot 0:06:15.480 --> 0:06:20.120 of taxes on capital gains over the year. Michael, what 0:06:20.160 --> 0:06:23.040 do you do with the stock that's a melt up 0:06:23.120 --> 0:06:26.360 and you've got a tax obligation? Do? How do you 0:06:26.440 --> 0:06:29.760 handle that? One of the things you can do is 0:06:29.920 --> 0:06:33.039 to choose your favorite university. You had the Lafayette Endowment 0:06:33.360 --> 0:06:36.400 head on a few minutes ago. Give your appreciated stock 0:06:36.440 --> 0:06:39.400 to you the university of your choice for financial aid 0:06:39.440 --> 0:06:41.000 for some of the students. How is that you get 0:06:41.040 --> 0:06:45.240 the tax right off and help education and the equalization 0:06:45.279 --> 0:06:48.240 of opportunity that Jonathan Farrell was just talking about. Well, 0:06:48.279 --> 0:06:51.359 Michael'll let you worry about how to deal with the 0:06:51.440 --> 0:06:53.400 tax bill. There is a question of how to deal 0:06:53.400 --> 0:06:55.280 with risk right now and how to even assess it. 0:06:55.320 --> 0:06:56.920 And I gotta say I was really struck by Seth 0:06:56.960 --> 0:07:00.080 Klarman this about post Group when he wrote in the 0:07:00.120 --> 0:07:02.680 Financial to note that was obtained by the financial time, 0:07:02.720 --> 0:07:04.880 so so much stimulus being deployed. Trying to figure out 0:07:04.880 --> 0:07:06.840 if the economy is in recession is like trying to 0:07:06.880 --> 0:07:09.280 assess if you had a fever after you just took 0:07:09.320 --> 0:07:12.760 a large dose of aspirin. He likened the current situation 0:07:12.880 --> 0:07:18.760 to investors being frogs boiled in water slowly becoming desensitized 0:07:18.760 --> 0:07:22.720 to risk. How do you navigate as an investor? Seth 0:07:22.800 --> 0:07:27.120 Klarman has been brilliantly investing for decades and would never 0:07:27.400 --> 0:07:30.280 ignore what he's saying. I think right now, he said, 0:07:30.560 --> 0:07:35.200 I'm mindful of where the market psyche is, and with 0:07:35.840 --> 0:07:39.960 Janet Yellen pairing up with Jerome Power right now, I 0:07:40.000 --> 0:07:44.800 think they are panacea for people concerned about an overvalued market, 0:07:44.880 --> 0:07:48.760 that the market could become even more overvalued. Uh, the 0:07:48.800 --> 0:07:51.120 trick will be a year from now when we I 0:07:51.160 --> 0:07:55.080 hope we're talking that that the the economy has fulfilled 0:07:55.120 --> 0:07:58.440 some of the heightened expectations about when the vaccine gets 0:07:58.440 --> 0:08:02.040 out there. I was interested to see a Bloomberg blurb 0:08:02.120 --> 0:08:05.960 yesterday about Amazon now moving in to help out with 0:08:06.000 --> 0:08:08.560 the distribution of the vaccine. I think we could get 0:08:08.600 --> 0:08:11.760 some positive surprises rather than negative surprise over the next 0:08:12.000 --> 0:08:14.600 couple of quarters. On the vaccine front. If that happens, 0:08:15.320 --> 0:08:19.560 I think some of the uh, the animal spirits in 0:08:19.560 --> 0:08:23.360 the economy may start to waken up if the gift 0:08:23.360 --> 0:08:26.040 me for base so cynical, Michael, But do you think 0:08:26.120 --> 0:08:29.160 that big text says the rioting on the wall? And 0:08:29.240 --> 0:08:31.240 why is Amazon wait so long to come in and 0:08:31.280 --> 0:08:33.840 talk about this what it swits? And White so long 0:08:34.240 --> 0:08:36.600 to band Donald Trump? It all seems a little bit 0:08:36.640 --> 0:08:38.720 convenient that all of this has happened basically in the 0:08:38.720 --> 0:08:43.280 month of the incoming administration is coming through. I think 0:08:43.360 --> 0:08:48.000 your cynicism, John is well placed. UH. And I think 0:08:48.000 --> 0:08:52.720 that the UH people who run these companies have seen 0:08:53.360 --> 0:08:56.920 where we're going UH. And I think there was more 0:08:56.960 --> 0:09:02.040 than just Netflix yesterday when the ox like Amazon cloud 0:09:02.080 --> 0:09:05.280 to the upside dramatically. I think there's a new sheriff, 0:09:05.320 --> 0:09:07.160 and I think it's I think it's going to be 0:09:07.280 --> 0:09:09.800 I think that the tech companies are going to have 0:09:09.880 --> 0:09:12.120 some some come up and over the next year, but 0:09:12.200 --> 0:09:15.040 I think overall things probably are gonna be okay. Meanwhile, 0:09:15.520 --> 0:09:18.800 given your role at State Street UH and at some 0:09:18.880 --> 0:09:22.240 of the biggest asset managers over the years, seeing the 0:09:22.320 --> 0:09:25.720 transformation in that industry, what are you expecting in the 0:09:25.800 --> 0:09:28.559 years ahead under the Biden administration when it comes to 0:09:28.600 --> 0:09:31.520 consolidation and asset management into the hands of just a 0:09:31.520 --> 0:09:38.480 few behemoths, I think so long as the behemous behave themselves, 0:09:38.880 --> 0:09:44.600 it's difficult to make a serious political headway um in 0:09:44.720 --> 0:09:48.600 terms of attacking them. I think the which happened Lisa 0:09:48.720 --> 0:09:52.040 over the last decade is, in particularly the last few years, 0:09:52.559 --> 0:09:59.559 UH is a dramatic favorable, dramatically favorable position for the 0:09:59.640 --> 0:10:03.199 people listening to the call here watching the call with 0:10:03.240 --> 0:10:05.640 respect to they just don't pay very much to have 0:10:06.080 --> 0:10:08.840 have their money taken care of, and so the fees 0:10:08.880 --> 0:10:12.760 continue to cascade down. It's a very favorable development. So 0:10:13.000 --> 0:10:16.040 the behemous if they if they don't manage it right. 0:10:16.160 --> 0:10:18.640 And we just had Jonathan talk about how the texts 0:10:18.640 --> 0:10:21.440 are trying to manage right in a new environment. I 0:10:21.480 --> 0:10:23.560 think that the big people like State Street and Van 0:10:23.600 --> 0:10:26.440 Garden Fidelity will continue to do the same thing. They're 0:10:26.800 --> 0:10:29.320 smart people running these places, and as long as they 0:10:29.400 --> 0:10:31.160 keep making it better for all of us is who 0:10:31.160 --> 0:10:35.719 are investors. I think they reduced the possibility of draconian 0:10:35.800 --> 0:10:40.400 things happening to them. Michael Grant's a catch up as always, 0:10:40.400 --> 0:10:43.959 a real gentleman of Wall Street. Malcol Hollands Macaoel thank you, sir, 0:10:44.320 --> 0:10:49.800 thank you very much. As I said, we've got some 0:10:50.040 --> 0:10:54.880 European yields moving as well, uh this morning, a lesser 0:10:55.240 --> 0:10:59.000 negative yield if you will, in Germany. To distill the 0:10:59.160 --> 0:11:03.040 sharp distinct, and Jane Foley joins us with Robbo Bank. Jane, 0:11:03.120 --> 0:11:04.960 I know it is about effects, and we want to 0:11:05.000 --> 0:11:09.240 get to that Paulsweenian myself. But what I would really 0:11:09.240 --> 0:11:13.360 want to focus on here is the yield differential, or 0:11:13.360 --> 0:11:17.880 the guestimate of future inflation. I went back pre financial crisis, 0:11:18.600 --> 0:11:22.040 and the five year five year forward guestimate of inflation 0:11:22.120 --> 0:11:26.360 slash interest rates has never been wider. Higher inflation in 0:11:26.400 --> 0:11:30.080 the US, a lesser inflation in Europe. What does that 0:11:30.240 --> 0:11:34.800 signal to you at Rabble Bank on foreign exchange, Well, 0:11:34.880 --> 0:11:37.200 quite simply, it means that the euro is likely to 0:11:37.200 --> 0:11:39.800 remain well supported against the US dollar. And to be 0:11:39.800 --> 0:11:41.520 honest to him, I think that this is really the 0:11:41.520 --> 0:11:44.680 crux of the story from last spring when we saw 0:11:44.720 --> 0:11:47.360 that will drop in US real interest rates and and 0:11:47.440 --> 0:11:50.200 there isn't any sign yet that that's going to really reverse. 0:11:50.240 --> 0:11:51.840 So at the start of the year we had this 0:11:51.880 --> 0:11:53.600 bit of a correction, and you're a dollar. We had 0:11:53.600 --> 0:11:56.880 a lot of new news and make adjusting their positions. 0:11:56.920 --> 0:12:01.160 But fundamentally that story in real interest, it remains unchanged, 0:12:01.200 --> 0:12:03.480 and therefore it's likely that the dollar is going to 0:12:03.559 --> 0:12:06.640 remain soft until it does change. This is such a 0:12:06.640 --> 0:12:08.840 critical question, folks. You know, if you say to me, 0:12:09.240 --> 0:12:12.360 somebody wrote a forty two page year end study and 0:12:12.400 --> 0:12:14.920 they got to redo it into two thousand twenty one, Jane, 0:12:14.960 --> 0:12:17.280 I'm going to suggest the rewrite's going to come in July, 0:12:18.160 --> 0:12:23.160 and with that is the humility of the ex exis. Okay, 0:12:23.200 --> 0:12:27.440 you can say dollars stronger, you can say rates higher 0:12:27.480 --> 0:12:31.120 in the US, but there's the when of it. How 0:12:31.160 --> 0:12:34.000 hard is it to get those two together, the movement 0:12:34.080 --> 0:12:38.920 of a given idea and also the when of it. Well, 0:12:38.960 --> 0:12:42.160 you know, I think the markets already starting to talk about, 0:12:42.200 --> 0:12:45.200 you know, changing fundamentals. But if we listen to policymakers, 0:12:45.240 --> 0:12:47.400 if we listen to power, for instance, a week or 0:12:47.440 --> 0:12:50.640 so ago, that doesn't seem to be any real chance 0:12:50.720 --> 0:12:53.000 that we're going to see fundamentals actually changed. When I 0:12:53.040 --> 0:12:55.400 talk about fundamentals. I'm talking about, you know what the 0:12:55.400 --> 0:12:57.679 state could potentially do on rates. It's going to be 0:12:57.720 --> 0:12:59.720 a long time before they do something on rates, that's 0:12:59.720 --> 0:13:02.400 the way they're telling us, and of course on inflation 0:13:02.440 --> 0:13:05.200 that perhaps this is a big market story. I think 0:13:05.240 --> 0:13:07.120 for this year. The market has already got a bit 0:13:07.160 --> 0:13:10.400 more excited on the prospect of US inflation, but inflation 0:13:10.480 --> 0:13:14.280 prospects in the Eurozone remain very soft. And again we 0:13:14.320 --> 0:13:16.560 get back to the story that we've had running for 0:13:16.559 --> 0:13:19.160 a few years, well before the pandemic story of the 0:13:19.200 --> 0:13:23.960 possibility of Japanese depignification in Europe. This this this risk 0:13:24.080 --> 0:13:27.480 that we have years of low growth and low inflation 0:13:27.520 --> 0:13:30.040 with the EU c be not necessarily having the tools 0:13:30.040 --> 0:13:33.360 to promote inflation. And if that's the case, then real 0:13:33.480 --> 0:13:37.160 interest rates in Europe may remain promoted by this sort 0:13:37.160 --> 0:13:41.319 of disinflationary or deflationary effect. So, Jane, that's kind of 0:13:41.320 --> 0:13:42.439 where I wanted to go. I mean, I was, I 0:13:42.480 --> 0:13:45.120 was listening to Christine Leaguard this morning has sounded awfully 0:13:45.640 --> 0:13:51.360 like Fed chairman Pale in terms of lower for longer here. 0:13:51.440 --> 0:13:55.240 So where are currency traders placing their bets for the 0:13:55.240 --> 0:13:58.400 next six or twelve months. Again, I still think it's 0:13:58.400 --> 0:13:59.920 going to be on the week dollar story in a 0:14:00.000 --> 0:14:03.839 Again it's it's not necessarily related to the nominal yield story. 0:14:03.880 --> 0:14:06.280 And and most of these central bankers are still saying 0:14:06.320 --> 0:14:07.880 more or less the same thing. We saw the Bank 0:14:07.920 --> 0:14:10.520 of Japan this morning again suggesting they could do more 0:14:10.559 --> 0:14:14.840 if if conditions need be lower for longer. That's the 0:14:15.000 --> 0:14:17.080 that's the story for most central banks. But if we 0:14:17.160 --> 0:14:21.400 look at inflation expectations, it appears that the US has 0:14:21.400 --> 0:14:24.200 got the head start on I'm really being able to 0:14:24.240 --> 0:14:26.680 promote that if we were to talk about, you know, 0:14:26.720 --> 0:14:31.640 the change in um, the inflation outlook from the UCB 0:14:31.800 --> 0:14:33.640 or from the Bank of Japan, and the markets going 0:14:33.680 --> 0:14:35.040 to think, well, you know what, that's a moot point. 0:14:35.040 --> 0:14:36.680 They're never going to get to two percent, at least 0:14:36.680 --> 0:14:39.040 not you know, for the foreseeable. But in the US, 0:14:39.440 --> 0:14:41.640 the market seems to believe that, and that is perhaps 0:14:41.720 --> 0:14:44.680 why we have real interest rates, you know, so low 0:14:44.760 --> 0:14:46.800 in in the U s. And that could stay the way, 0:14:47.000 --> 0:14:49.880 stay that way for quite a while. Jane, We you know, 0:14:49.920 --> 0:14:53.760 we just obviously had the inauguration yesterday at President Biden 0:14:53.920 --> 0:14:57.520 here trying to be aggressive on the fiscal stimulus side. 0:14:57.880 --> 0:15:01.600 How's the FX markets kind of pricing that in. I 0:15:01.640 --> 0:15:03.880 think they have been for a while, at least since 0:15:03.920 --> 0:15:08.320 those are Georgian runoffs on the fifth of January. And clearly, 0:15:08.400 --> 0:15:10.000 you know the market is going to be watching the 0:15:10.080 --> 0:15:12.880 Senate to see how much push back there is. Clearly 0:15:12.960 --> 0:15:16.480 that there needs to be the support of some Republicans 0:15:16.480 --> 0:15:17.960 in the other I have to make sure that you'll 0:15:18.000 --> 0:15:19.880 go through. We don't know whether or not they're going 0:15:19.880 --> 0:15:22.480 to get there for one point nine, but you know 0:15:22.800 --> 0:15:25.920 that the market is optimistic that there will be more 0:15:26.000 --> 0:15:28.720 fiscal spending. We listened to Janet Yellen earlier only the week. 0:15:28.760 --> 0:15:30.640 The market is hopeful of that, and I think a 0:15:30.680 --> 0:15:33.920 lot of that is probably now in the price. Jane 0:15:33.920 --> 0:15:35.560 Folly've got to leave it there. Thank you so much. 0:15:35.600 --> 0:15:42.560 Jane Foley with Roba think much to talk about here, 0:15:42.640 --> 0:15:44.680 and we are now thrilled to bring you on any 0:15:44.760 --> 0:15:48.800 number of topics. Kenneth Rogoff of Harvard his service to 0:15:48.880 --> 0:15:51.480 us in Davos. You know this is the Davos visit 0:15:51.560 --> 0:15:55.240 I guess this year. Ken Rogoff as well, can you 0:15:55.280 --> 0:15:59.440 have written over the years on our fiscal responsibility. How 0:15:59.520 --> 0:16:03.080 out of whack is our fiscal economics as we enter 0:16:03.400 --> 0:16:10.120 a new presidency. Well, we're in a wartime situation, and 0:16:10.200 --> 0:16:13.200 in a situation like this, you do whatever it takes 0:16:13.640 --> 0:16:16.920 and you figure out how to pay for it later. Um. 0:16:16.960 --> 0:16:19.480 I think you know the thing that's probably most out 0:16:19.480 --> 0:16:23.120 of whack is we probably need a more robust system 0:16:23.200 --> 0:16:27.240 of taxes and transfers to deal with inequality. But in 0:16:27.280 --> 0:16:31.320 the short term, there's really very little alternative to continuing 0:16:31.360 --> 0:16:35.240 these deficits as long as the markets will permit it. Well, 0:16:35.280 --> 0:16:37.240 as long as the markets will will permit it. Joe 0:16:37.240 --> 0:16:40.840 Stiglets to join us later today. I remember conversation ken 0:16:41.120 --> 0:16:44.200 with you with Professor Stiglets and Dabos, where you were 0:16:44.320 --> 0:16:48.280 in agreement on an optimism to grow our way out 0:16:48.320 --> 0:16:51.360 of our fiscal difficulties. Are we going to be able 0:16:51.360 --> 0:16:55.840 to do that with the new potential GDP of America? Now? 0:16:55.960 --> 0:16:58.840 I mean, I think that's not the point at the moment, 0:16:59.240 --> 0:17:02.760 with the pandemic is not over. This is the worst 0:17:03.120 --> 0:17:07.000 crisis I've seen in my lifetime. I think since the 0:17:07.040 --> 0:17:10.960 Great Depression. This is worse than the financial crisis. Uh, 0:17:10.960 --> 0:17:13.760 And we have to try to have a robust plan 0:17:13.920 --> 0:17:18.560 for dealing with it. And this is this is catastrophe relief, 0:17:18.720 --> 0:17:22.280 this isn't you know, stimulus. Yet I think we have 0:17:22.359 --> 0:17:25.320 to get there with infrastructure spending and such, and the 0:17:26.480 --> 0:17:29.960 President Biden has a lot of ideas about that. What 0:17:30.000 --> 0:17:33.960 it What is true is as we emerge from the 0:17:34.000 --> 0:17:38.480 wartime economy whenever that is, you can't stay permanently on 0:17:38.640 --> 0:17:44.959 wartime footing. You can't solve every social problem, the environment, 0:17:45.240 --> 0:17:50.359 everything simply by running deficits. At some point you have 0:17:50.520 --> 0:17:54.080 to make choices among policies about what you want to 0:17:54.080 --> 0:17:57.359 do and what you don't want to do. Uh. You probably, 0:17:57.520 --> 0:18:00.480 as I said, to deal with inequality, need a more 0:18:00.560 --> 0:18:06.000 robust system of taxes, transfers, providing more government services. And 0:18:06.080 --> 0:18:08.040 I think that's going to be a tough road, but 0:18:08.160 --> 0:18:12.720 that's really the direction we need to go. Do you 0:18:12.720 --> 0:18:16.760 think that Joe Biden will look at it? And you know, again, 0:18:16.800 --> 0:18:18.960 what does it mean for him being able to actually 0:18:19.040 --> 0:18:25.480 push it through? Who knows? I mean, you know, I'm 0:18:25.600 --> 0:18:30.360 just relieved that we have a president who comports himself 0:18:30.400 --> 0:18:34.960 with dignity. Yes, Trump was not wrong about everything, but 0:18:35.080 --> 0:18:38.119 I think really the real issue was the threat to 0:18:38.160 --> 0:18:44.280 the constitution, Uh, the institutions, international institutions. It's yes, it's 0:18:44.280 --> 0:18:47.600 sometimes good to have somebody who comes and breaks things 0:18:47.720 --> 0:18:50.720 up and shakes things up, but it had gone much 0:18:50.760 --> 0:18:55.359 too far. And Biden is so levelheaded. I thought it 0:18:55.400 --> 0:18:58.720 was actually a very inspirational speech that he gave yesterday, 0:18:59.160 --> 0:19:02.640 highlighting at the as issues that that's the most important 0:19:02.640 --> 0:19:06.159 thing the president can do. And I think if you 0:19:06.400 --> 0:19:11.600 don't have a good system of governance, you will not grow. 0:19:12.160 --> 0:19:15.600 You were talking about Italy earlier. I mean it Italy 0:19:15.720 --> 0:19:19.120 certainly struggled with trying to balance all these competing interests 0:19:19.119 --> 0:19:22.560 and it's one of the reasons it's growth performance hasn't 0:19:22.600 --> 0:19:28.880 been so great. Uh in certainly in recent decades. But Professor, 0:19:28.920 --> 0:19:31.600 when you look at the spending, where does that spending 0:19:31.640 --> 0:19:35.640 need to go in the US infrastructure spending is it's 0:19:35.880 --> 0:19:40.840 actually internet infrastructure spending to make sure that people have 0:19:40.960 --> 0:19:44.119 access to the worldwide but web, especially for education, Like 0:19:44.760 --> 0:19:48.720 you know, how should the US spend that money? Well, 0:19:48.880 --> 0:19:52.560 I mean again, the pandemic is the first thing. Uh. 0:19:52.840 --> 0:19:55.720 The Gates Foundation has done an estimate. It seems much 0:19:55.760 --> 0:19:59.400 too loud to me that it would cost billion dollars 0:19:59.440 --> 0:20:04.280 to do international distribution of the vaccines. Suppose it's two 0:20:04.680 --> 0:20:08.440 billion dollars that from the Europe in the United States 0:20:08.520 --> 0:20:11.000 would be money very well spent to try to tame 0:20:11.119 --> 0:20:14.400 this thing. But yes, I mean infrastructure. I think if 0:20:14.400 --> 0:20:19.840 it's genuinely productive, is spectacularly useful. And I think you're 0:20:19.920 --> 0:20:23.719 right a broader notion of education. I think the future 0:20:23.800 --> 0:20:28.240 is not just bricks and mortar education, but online education 0:20:28.280 --> 0:20:31.400 for children and adults. Can you know I said your 0:20:31.440 --> 0:20:34.080 Curse of Cash is the bravest book written on economics 0:20:34.080 --> 0:20:37.639 in a generation. Clearly Christine Lagarde has read The Curse 0:20:37.680 --> 0:20:42.360 of Cash. Do you link bitcoin holy into criminal activity? 0:20:42.760 --> 0:20:46.160 And do you consider the new price appreciation of bitcoin 0:20:46.280 --> 0:20:51.120 to be speculative? Well, I certainly think I agree that 0:20:51.160 --> 0:20:56.760 it's speculative. I've been a bitcoin skeptic, and certainly the 0:20:56.800 --> 0:20:59.840 price has gone up. But there's sort of an ultimate question, 0:21:00.160 --> 0:21:03.760 what's the use? Is it just valuable because people think 0:21:03.840 --> 0:21:07.920 it's valuable, That is a bubble that would blow up? Um, 0:21:07.960 --> 0:21:12.800 I can see bitcoin being used in failed states. It's conceivable, 0:21:13.160 --> 0:21:17.240 you know, it could have some use in a dystopian future. 0:21:17.760 --> 0:21:20.960 But I think the governments are not going to allow 0:21:21.160 --> 0:21:25.800 pseudonymous transactions on a big scale. They're just not going 0:21:25.840 --> 0:21:29.280 to allow it. Uh. The regulation will come in, the 0:21:29.359 --> 0:21:33.040 government will win, It doesn't matter what the technology is. 0:21:33.880 --> 0:21:36.040 And so I think, you know, over the long run, 0:21:36.080 --> 0:21:39.399 if there's not a use, yes, the bubble will will burst. 0:21:39.680 --> 0:21:43.199 I hope there's not such a valuable use, but I 0:21:43.240 --> 0:21:47.280 suppose it's a hedge against dystopia. Would you advise Secretary 0:21:47.359 --> 0:21:50.400 yelling at Treasury that the U s should be proactive 0:21:50.840 --> 0:21:56.080 in instituting that regulation which could collapse the price of cryptocurrency, 0:21:57.640 --> 0:22:01.199 but they are. Yeah, yes, I mean that's that's just 0:22:01.359 --> 0:22:04.399 true across the poort. It needs to be regulated. Uh, 0:22:04.680 --> 0:22:08.959 some some of the perhaps stable coins will you know, 0:22:09.240 --> 0:22:12.679 make it through this. But I think, of course that 0:22:13.119 --> 0:22:16.720 every central banks working on this. But I was, I'm 0:22:16.720 --> 0:22:20.040 in the G thirty. We did a report on this, UM, 0:22:20.080 --> 0:22:23.240 so you know, I wouldn't say it's so crudely it's 0:22:23.359 --> 0:22:26.040 just to say make the price go down. That's not 0:22:26.119 --> 0:22:30.359 the purpose. But you know, you need to have the 0:22:30.440 --> 0:22:37.920 transactions obey the same kinds of information regulations as everything else. So, Uh, 0:22:38.000 --> 0:22:41.720 I think governments are on it. Uh, it's not being 0:22:41.840 --> 0:22:46.679 used that widely, and I suspect although the bitcoin lobbyists 0:22:46.680 --> 0:22:49.199 have been successful in getting it in some places, that 0:22:49.240 --> 0:22:53.360 won't last. Can we go talk to me about how 0:22:53.359 --> 0:22:55.760 we can strengthen the financial system from now? I know 0:22:55.840 --> 0:22:57.560 the G thirty has also done quite a lot of 0:22:57.560 --> 0:23:00.720 work on you know, worrying about solving see maybe worrying 0:23:00.720 --> 0:23:04.320 about zombie companies. Are we in a better place now 0:23:04.520 --> 0:23:10.720 that we thought we would pre pandemic? Well? As this lingers, 0:23:11.720 --> 0:23:14.520 I think some of our defenses will weaken. I mean, 0:23:14.600 --> 0:23:18.880 part of what we did in Round one very effectively 0:23:19.040 --> 0:23:22.320 was the Federal Reserve basically said I'm going to guarantee 0:23:22.840 --> 0:23:26.239 junk bonds. I'm being just a little bit exaggerating, but 0:23:26.280 --> 0:23:31.200 they did virtually go to that municipals. They ended up 0:23:31.400 --> 0:23:34.600 not having to buy very much. The market responded. But 0:23:34.680 --> 0:23:37.960 I think as things go on, there will be bankruptcies, 0:23:38.040 --> 0:23:41.399 there will be things, and that the Treasury is going 0:23:41.480 --> 0:23:43.679 to step in some places. The Federal Reserve is not 0:23:43.760 --> 0:23:46.879 in a position to lose lots of money, and we 0:23:47.560 --> 0:23:50.560 could see quite a lot of financial strains as this 0:23:50.680 --> 0:23:54.160