Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene along
Speaker 1: with Jonathan Farrell and Lisa Brown Witz Jay Ley. We
Speaker 1: bring you insight from the best and economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcast, Suncloud,
Speaker 1: Bloomberg dot Com and of course on the Bloomberg Termainment.
Speaker 1: Really timely conversation always with Ray Dalio, but with what's
Speaker 1: going on, and we'll finish strong with China here in
Speaker 1: a moment. This is really really timely for Global Wall Street.
Speaker 1: We will come all of you on Bloomberg Television and
Speaker 1: I'm Bloomberg Radio. John Farrell mentions ever Grand there is
Speaker 1: Bridgewater up to their eyeballs and ever Grand paper. No,
Speaker 1: we don't have you don't have any other I gotta
Speaker 1: make some news here, help me out. Ray Ray has
Speaker 1: the bravest bio I've ever seen. Let me go here,
Speaker 1: and I have a nodding familiarity with us. In his
Speaker 1: high school years, Daio was a media ocre student. What happened?
Speaker 1: How did you go from a mediocre student to the
Speaker 1: success you've seen over so many years? Um? Then, I
Speaker 1: like markets, I was a kid that I mean school
Speaker 1: that when they cram stuff down your throat and it
Speaker 1: just didn't interested in markets. Interested the markets interested you
Speaker 1: in the mathematics of the markets and the girls. Okay,
Speaker 1: of course we knew that, but Long Island. But the
Speaker 1: dynamics of it, the dynamics of the markets. When did
Speaker 1: that click in for you? Did it wait for when
Speaker 1: you were talking? Well, like I caddied, and this was
Speaker 1: the sixties, and it was you know, that was the
Speaker 1: hottest time in the markets. Like every time you get
Speaker 1: a haircutters shoe shot, and somebody would talk to you
Speaker 1: about the markets. So I caddied, and I took my
Speaker 1: caddying money and I put it in the markets. And um,
Speaker 1: I didn't know what I was doing. The first stock
Speaker 1: I bought was my whole criteria was it was the
Speaker 1: only company that I ever heard of that was selling
Speaker 1: for a lot less than five dollars a year, Northeast Airlines.
Speaker 1: They did well, and and and and you know, like
Speaker 1: my investment criteria was I could buy more shares, so
Speaker 1: if it went up, I'd make more money. That was
Speaker 1: my crow. Did it work out? Well? What happened is
Speaker 1: it has come to and he was about to go
Speaker 1: bankrupt and somebody acquired and it tripled, and I thought
Speaker 1: this game is easy. It was to start right, Yeah,
Speaker 1: But of course the game isn't easy. The game has
Speaker 1: not been easy for Bridgewater. Let's get this on the way.
Speaker 1: Our Catherine Burton has done wonderful reporting on the struggles
Speaker 1: of the entire industry. The difference is, you know, seven
Speaker 1: oh eight you had challenging years and you bounced back
Speaker 1: with a vengeance. Can you bounce back now? With markets
Speaker 1: at the zero bound um? Seven oh eight week was
Speaker 1: a great year because we caught the we anticipated the
Speaker 1: financial crisis and we did great, and then we had
Speaker 1: seven and so on. Recently we got we missed the
Speaker 1: COVID coming and then we got hit by the COVID
Speaker 1: coming um and so then we bounced back from from that.
Speaker 1: But I think we um we didn't take as much
Speaker 1: risk as we could because we added we added value,
Speaker 1: but not as much as we should have added. I
Speaker 1: want you to speak to Bridgewater clients now and those
Speaker 1: with billions lined up considering giving you money. What are
Speaker 1: the new procedures at Bridgewater to be more supple in
Speaker 1: the market, given where credit markets are again at the
Speaker 1: zero back Well, I don't think there's new procedures. It
Speaker 1: is the amount of risk that one wants to take
Speaker 1: at certain times. So if you take our all Weather Fund,
Speaker 1: for example, I think it's up ten plus something this year,
Speaker 1: it could have been um more aggressive. The question is
Speaker 1: in this risk environment, how much do you want to
Speaker 1: be aggressive? You know? So, um, you know, we're always
Speaker 1: looking at things that we can do better. That pandemic
Speaker 1: is something that we've examined and we learn a little
Speaker 1: bit more, but by and large it's you know, uh,
Speaker 1: it's the same, just more of it. Stephen Roacheville University
Speaker 1: had claimed at Morgan Stanley says it's the single biggest
Speaker 1: miss he's ever missed. Was how we came out of
Speaker 1: the pandemic. How do you feel the nation and our
Speaker 1: fiscal status will come out of the huge debt build
Speaker 1: up we have. How do you believe America will d debt? Well,
Speaker 1: this is all happened over and over again. Um, that's
Speaker 1: what quote my attention. When you hit a zero interest
Speaker 1: rate and you have too much debt and everybody needs money,
Speaker 1: the way it works is the government sends out the checks,
Speaker 1: but the government can't print money, so it has to
Speaker 1: borrow money. From the Federal Reserve and borrow money from others,
Speaker 1: and they don't have enough money, so that they print
Speaker 1: the money. And so the value of cash and the
Speaker 1: value of bonds as negative real returns, significantly negative real returns,
Speaker 1: and so money goes somewhere else. It goes into traditionally equities,
Speaker 1: it goes into gold, it goes into property, it goes Yeah,
Speaker 1: the house over there way just went up three thousand
Speaker 1: dollars when you sat down on the chair. Continue the
Speaker 1: But the same thing happened in um V one August
Speaker 1: nineteen seventy one. Same thing happened in March nineteen thirty three,
Speaker 1: and that was when they produced a lot more money.
Speaker 1: And that monetization which moves its way through the system mechanistically.
Speaker 1: The way it works, a bond confedera reserve comes in
Speaker 1: and buys a bond, it gives it to an investor.
Speaker 1: That investor then in turns puts it into other investments,
Speaker 1: and then it gives it to the public through the government.
Speaker 1: So this is um that's the way the mechanics. Regelio
Speaker 1: with this at the Granite Economic Forum on Bloomberg Radio
Speaker 1: and Bloomberg Television this morning. Let's go to China now,
Speaker 1: it's so much in the news. I wanted to wait,
Speaker 1: but I think we've just got to get to China
Speaker 1: right now. This is a new Beijing. Is it a
Speaker 1: return to an old Beijing that you and I knew
Speaker 1: when you were buying Northeast air or is you do
Speaker 1: you envision a Beijing that's moving to a new territory. Well,
Speaker 1: you have daughter in southern law in Shanghai, and you
Speaker 1: and and so we get to living at real time.
Speaker 1: We're living in real time. And the more you have contact,
Speaker 1: I think the more you understand it. I don't think
Speaker 1: it's well understood for a long time. The the question
Speaker 1: is how can communism and capitalism coexists? That's the riddle
Speaker 1: you have to answer. And he had to answer it
Speaker 1: a while ago. And what do these people want at
Speaker 1: the top and what they The answer to that riddle
Speaker 1: was told also by Deng shell Ping. When he was asked,
Speaker 1: he said, it's glorious to be rich. And then they
Speaker 1: asked about capitalism, and he says, it doesn't matter if
Speaker 1: it's a black cat or a white cat, just as
Speaker 1: long as it catches mice. And so the idea is
Speaker 1: producing wealth and so capitalism, capitalism, yes, but the redistribution. Okay.
Speaker 1: So we have four things that are really going on
Speaker 1: in China. If if you understand their intend um, common
Speaker 1: prosperity is the word now, okay, and there's been the
Speaker 1: objective to raise money and then to broaden the base
Speaker 1: of that. Okay, that's common prosperity. So if you look
Speaker 1: at their tax rates, they're lower than the United States.
Speaker 1: If you look at the measures of almost capitalism, they
Speaker 1: have as much capitalism or more capitalism, much more so
Speaker 1: than Europe for example. And then and now they're in
Speaker 1: a prospect to broaden that. So I think there's a
Speaker 1: tendency and an understandable tendency to think, because they are
Speaker 1: maoist and capital and communists, that they're going to go
Speaker 1: back to that kind of a thing. Then they're not.
Speaker 1: And den Cha Ping excuse me, Um, Shishi Ping. Just Um,
Speaker 1: for example, introduced the newest stock market in Beijing. He
Speaker 1: made a point of being the one who introduced the
Speaker 1: market in Beijing to the small and medium sized enterprises.
Speaker 1: They know that it catches mice. And so the issue
Speaker 1: is that the capitalist is not in control. The issue
Speaker 1: is that there's a system for the whole system. And
Speaker 1: then what they want to do is make sure that um,
Speaker 1: it's not a capitalist driven system. So and then there's
Speaker 1: data control and then and then you have to understand
Speaker 1: there's micromanagement. It's like the kids. There's a top down
Speaker 1: versus bottom up. Whether you like it or not, it's
Speaker 1: what happen our listeners and our viewers prosper from their
Speaker 1: micro management of the real estate debt collapse. We're beginning
Speaker 1: to see in China, what is the opportunity if we
Speaker 1: see their dominant investor position domestically go down in price.
Speaker 1: How do you play that? Well, the mechanics are the
Speaker 1: same as UM. The United States went through and everybody
Speaker 1: else went through, so it would be very similar to
Speaker 1: our two thousand eight mechanical. So what we do it's
Speaker 1: tappened over and over again is UM the central Bank
Speaker 1: makes a decision of moral hazard. You know, they never
Speaker 1: used to have more? Do you believe they're there right
Speaker 1: now after this week that we've seen in the market,
Speaker 1: So they knew that this was happening, and there's the
Speaker 1: preparation for this, and they know that there's more and
Speaker 1: and that's a good thing, not a bad thing. Because
Speaker 1: in the past it used to be contro that they
Speaker 1: would guarantee it the banks, five major banks would loan
Speaker 1: state owned enterprises and local governments with implied government guarantees,
Speaker 1: and it was bad. So the process is the same.
Speaker 1: Expect the exact same type of processes we would go through,
Speaker 1: which is to say that there will be more, There
Speaker 1: will be stung, investors will be stung. That's how it works,
Speaker 1: and that the system will be protected because it's denominated
Speaker 1: in their own courtcul I want to get this on
Speaker 1: the record or Redelio, because every Wall Street firm is
Speaker 1: saying this morning, this is not a Lehman moment. What
Speaker 1: we witnessed yesterday and the lesson in price. Explain why
Speaker 1: this is not a Lehman moment to Redelio, Well, because
Speaker 1: a Lehman moment produced pervasive structural damage through the system
Speaker 1: method that wasn't rectified until the Treasury came across in
Speaker 1: terms of it's borrowing, and then the bed came across
Speaker 1: with quantitative easy. But this is not that kind of
Speaker 1: a shake up type of thing. This is three billion
Speaker 1: is what they owe, and this is all manageable. The
Speaker 1: basic economics is for all countries in all time is
Speaker 1: that if you're that is in your own currency, you
Speaker 1: can deal with it. You could work you could work
Speaker 1: it out. We've seen it all happen over and over again,
Speaker 1: and it's a good thing that lenders get stung or
Speaker 1: that the borrowers get stung. That's how the system works. Okay,
Speaker 1: I want to go to my number one question to
Speaker 1: Ray Dalio. I'm fascinated by this. You and I have
Speaker 1: said at the Mbar at the Mandarin and Hong Kong
Speaker 1: and looked at that spectacular experiment. I had the honor
Speaker 1: of Lord Patton with us the day of the Hong
Speaker 1: Kong collapse, a change essentially and polity there. How should
Speaker 1: our western banks, the people you know, James Diamond Staley
Speaker 1: of Barclays, Moye Han of a reinvigorated Bank of America,
Speaker 1: how should the Western banks adapt an adjust in Hong
Speaker 1: Kong to new China realities? Well, I think very simply,
Speaker 1: you have to decide whether the rules and the place
Speaker 1: is a place that you're comfortable with. They will set
Speaker 1: the rules and you go in there and you decide
Speaker 1: if you're going to be part of that as a
Speaker 1: as a good citizen, or you're not and then but
Speaker 1: you don't jump in and out you're in. Other words,
Speaker 1: China's a strategic play. You're not going to jump in
Speaker 1: and out, so and and the amount that you're in
Speaker 1: should be that which you're comfortable with. It's the same
Speaker 1: as an investor. It's not smart to sell on the
Speaker 1: break or buy it's it's it's a strategic play. Most
Speaker 1: investors are very overweight in the United States or other places. Diversification.
Speaker 1: There's a competition, a big competition, a war of sorts
Speaker 1: going on between in technology and so on. The diversification
Speaker 1: put the amount that and the exposure that you want
Speaker 1: to have there because you have to have places on
Speaker 1: some money on two chips because they are at risks
Speaker 1: in the United States do when we look at technology
Speaker 1: and it's something you address courageously. In Principles, the book
Speaker 1: did so well. Whence the movie come out fourth of
Speaker 1: July one Hanks is playing Dalio. Okay, so Principles was
Speaker 1: a huge success. If President she said, read Principles, what
Speaker 1: would chapter would you wanted to read? What does he
Speaker 1: need to know about Dalio? Principles? Well, um, I think
Speaker 1: like everybody, Um, the key is um you know what
Speaker 1: you don't know, that what you don't know, and how
Speaker 1: to deal with what does he not know about the
Speaker 1: United States of America, the resiliency of this nation from
Speaker 1: the Pacific Rim, from Australia and MacArthur all the way
Speaker 1: up to Tokyo. Well, there's a different there's a totally
Speaker 1: different approach. It's UM, whether you like it or not. UM.
Speaker 1: We are a bottom up individualists. It's bill about individualists
Speaker 1: and build I think, and the individuals and bring immigrants
Speaker 1: to the United States, and and and that the power
Speaker 1: of the individual. In China, it is UM the top
Speaker 1: down and it is an an extended family. One of
Speaker 1: the leaders said to me, for example, it's like you know,
Speaker 1: a strict parent and that. And so when we deal
Speaker 1: with things like video games, do you want your kids
Speaker 1: to watch video games? In the United States, we would
Speaker 1: say that's a parental decision. Generally speaking, it wouldn't be
Speaker 1: the state to make that. They would say, it's terrible
Speaker 1: what's going on, and the state is going to mandate it.
Speaker 1: So that there are two those two approaches. And I
Speaker 1: would say that the understanding, the relative merits and understanding
Speaker 1: really how we can get along because there's a risk
Speaker 1: of war. You know, there's a risk of conflict here,
Speaker 1: and so understand how we can get along. I wish
Speaker 1: that yes, Chinese understood Americans better in Americans understood bring
Speaker 1: it back to not so much to Bridgewater at the
Speaker 1: alternative investment business again at the zero boundary. You've written
Speaker 1: about this, You've been very eloquent. Bridgewater Folks has a
Speaker 1: great series on YouTube with Bob Prince really walking through
Speaker 1: the realities of being at the lower bound. Is the
Speaker 1: game over? Is the volatility so taken out almost like
Speaker 1: a sum Nolan Japanese bond market, that we can't provide
Speaker 1: value anymore above long only institutional money. Yeah, the the
Speaker 1: value of interest rates um the impact of interest rates
Speaker 1: has been largely taken out in terms of the magnitudes.
Speaker 1: You're not going to have that kind of volatility, and
Speaker 1: if things go down, you're not gonna have the same
Speaker 1: kind of protections from the bonds as as you do.
Speaker 1: It's changed because then you get quantitative easing. It gets
Speaker 1: transmitted so that when you need an easy you get
Speaker 1: the printing of money and then you have the reflation
Speaker 1: type of dynamic. So that's the way, that's what the
Speaker 1: volatility is transmitted. We've had plenty of volatility in the markets,
Speaker 1: but not in the on market. Right. Look at how
Speaker 1: the markets obeyed since um in last April. They printed
Speaker 1: the money and sent out the checks. That's the way
Speaker 1: the dynamic works. Well, what will the consultancy business be?
Speaker 1: I mean, we've all been wrong that the actual assumption
Speaker 1: is single digit six or seven percent, and everybody and
Speaker 1: people that caught the right have been looking at double
Speaker 1: digit actual returns. Are you and Bridgewater stealed for a
Speaker 1: single digit future or can you be more optimistic? I
Speaker 1: think that if if I think we're going to get
Speaker 1: another round every another round of que quei huie dale
Speaker 1: you know now sorry, there's gonna be called queie dale.
Speaker 1: You're predicting another round of queueie not immediately. I think
Speaker 1: that what happens is you get a taper. I think
Speaker 1: like every tightening of interest rates has been less than
Speaker 1: the one before it, since two thousands, since at gy peak,
Speaker 1: and every trough in interest rates has been lower than
Speaker 1: the one before it. And then when we had zero,
Speaker 1: then we did quei and every que has been larger
Speaker 1: than the one before before it because we've accumulated so
Speaker 1: much that and that we're now printing. I think that
Speaker 1: you'll have probably one pull back and I'll call that
Speaker 1: a mock charge, and then you set the markets down
Speaker 1: because the duration of the bond market and the duration
Speaker 1: of assets is longer. That means interest rate sensitivity is greater.
Speaker 1: You have that particular correction, and then you'll have another
Speaker 1: round of that. And so I think it's that's the
Speaker 1: nature of the beast that we're in with the QUI understand,
Speaker 1: and that means negative real returns. The things that must
Speaker 1: happen is that cash is going to have a lower
Speaker 1: interest rates than bonds. That negative UM let me answer,
Speaker 1: Let me get my thought through, and then it'll come through. Continue.
Speaker 1: So what you'll get is um a significantly negative real
Speaker 1: cash rate, a negative and probably more significant real bond ary,
Speaker 1: and that you're going to continue to have to have
Speaker 1: interest rates significantly below nominal GDP. Growth in other words,
Speaker 1: inflation pressure real growth. The average thing is going to
Speaker 1: increase this tecnominal nominal g d P. That's production of
Speaker 1: inflation and growth. You put those two things combined, you
Speaker 1: would rather own a piece of that, which is a
Speaker 1: piece of economy, than you would want to own interest rates.
Speaker 1: That's the environment. We've got to wrap it up here
Speaker 1: in a bit um. People are listening to this worldwide.
Speaker 1: My colleague Matthew Miller is in Berlin listening, and he's
Speaker 1: in my ear with Bloomberg Technology saying can you just
Speaker 1: ask him about bitcoin? Paulson of the hedge fund game,
Speaker 1: not Henry Paulson, the other Paulson, the great benefactor of
Speaker 1: Central Park. John Paulson is saying bitcoin is a fraud.
Speaker 1: And I speak with my own words there, But what
Speaker 1: do you think about bitcoin? Is it a durable thing
Speaker 1: for banks or for institutions? UM? I always going to
Speaker 1: ask a big I'm not an expert on bitcop but
Speaker 1: I'll tell you what I think. I'll tell you what
Speaker 1: I think anyway. Anyways, take it it's not worth much,
Speaker 1: but um bitcoin um has an imputed value, not and
Speaker 1: uh not a intrinsic value. And and so it depends
Speaker 1: what it's perceived as it's a tremendous accomplishment to have
Speaker 1: done that programming, not have it hacked, and to have
Speaker 1: its advancement at the same time, and so it will
Speaker 1: have the perceived value that it is given by the marketplace. Uh. Now,
Speaker 1: at the time. Right now, if you take the value
Speaker 1: of bitcoin, you to take the price, what should the
Speaker 1: price be? And you since the quantity doesn't change, you
Speaker 1: know what, it's a function of demand. Right now, bitcoin
Speaker 1: is worth a little less than a trillion dollars. Gold
Speaker 1: or gold in existence is worth if you take central
Speaker 1: banks and jewelry out of it, about five trillion. So
Speaker 1: it's about of that market that represents, you know, the
Speaker 1: hedge market and so on. I think that there. I
Speaker 1: think if you if it's successful, really successful, um it,
Speaker 1: it's not going to be a lot more than that.
Speaker 1: And if it's um and also if it's successful, there's
Speaker 1: a risk of government will outlaw it. So that's what
Speaker 1: I think. Seconds. I believe there's a new book coming out.
Speaker 1: Give us twenty seconds on your new book coming up. Well,
Speaker 1: it's a study I did to understand what's going on now.
Speaker 1: I did the last five years to understand the rises
Speaker 1: in declines of reserve currencies and empires. And it's called
Speaker 1: the Changing World Order, and it um it describes the
Speaker 1: changing world order we're in. But putting it for an
Speaker 1: historical perspect we'll go for another hour here. I'm kidding
Speaker 1: Dalio with us, thank you so much, with Bridgewater today,
Speaker 1: the huge impact of principles a few years ago in
Speaker 1: the changing world order, look for that year, in the
Speaker 1: coming weeks, h in months. Just so much to talk
Speaker 1: about here over the next number of hours of the
Speaker 1: Greenwich World Economic Form. We start strong in the sell
Speaker 1: hear with Mr Dahlio, with us later with Noil Rebini
Speaker 1: crisis economics of eleven years ago, but far more than
Speaker 1: Nora Rebini, who got way out front of that crisis
Speaker 1: of of oh five, seeing things come along in oh seven,
Speaker 1: oh eight, oh nine. And I want to give you
Speaker 1: a little window right now before we get to the
Speaker 1: present moment of what Noil and I have lived. There
Speaker 1: was you and I in Davos at a hotel. It
Speaker 1: was a late night and we sat there and we
Speaker 1: penciled out the reversion of the mean of the housing market,
Speaker 1: and you said it's got to end. And it did
Speaker 1: a year later, maybe eighteen months later. Bring us forward,
Speaker 1: now that we are so debt encumbered, do we have
Speaker 1: the degrees of freedom that we had when you and
Speaker 1: I said at that quiet bar in Davos. Well, my
Speaker 1: concern is that compared to a decade ago, that levels,
Speaker 1: both private and public are much higher than before twenty
Speaker 1: years ago. That to GDP ratial globally was about GDP.
Speaker 1: Right now is three and sixty and rising in advanced
Speaker 1: economies is four percent of GDP and rising in Chinese
Speaker 1: tre GDP and rising. So my concern is that we
Speaker 1: are in a that trap. It's not just physical dominance,
Speaker 1: but when central bank is gonna want to essentially phase
Speaker 1: out unconventional monetary policy, given that that ratios, there is
Speaker 1: a risk of a crash in the bond market and
Speaker 1: the credit market, the stock marketing economy, and therefore they
Speaker 1: will be in that that trap and unable to normalize
Speaker 1: policy rates. That's why I see inflation. I had drubin.
Speaker 1: I am so honored that you're here. I am pleased
Speaker 1: to announce folks that Berry I Can Green's new book
Speaker 1: and Debt is my book of the year, and this
Speaker 1: is the guy that talked to about it. I can
Speaker 1: Green space and some golden feathers over this new debt crisis. Now,
Speaker 1: how do you interpret the outcome of this build up
Speaker 1: in debt, which is life at zero bound. Well, we're
Speaker 1: in a situation in which, in normal times we're not
Speaker 1: reducing debts and deficits, while whenever there is a crisis
Speaker 1: then we have to back stop the financial system. There
Speaker 1: is more built up of public debt, there is more
Speaker 1: built up of private debt because with zero policy rates
Speaker 1: or negative policy rates or quantity division and credits is cheap.
Speaker 1: So we are in that supercycle where both in good
Speaker 1: times and in bad times that racis arising, and therefore
Speaker 1: eventually central banks are in a trap. People said they're
Speaker 1: going to normalize policy rates, but with these levels of
Speaker 1: private and public that if they were trying to do that,
Speaker 1: that they market crash and economic rush, and therefore I
Speaker 1: think the path of list resistance given that that race
Speaker 1: is going to be to wipe out the real value
Speaker 1: of nominal datatics, interest rates, we've higher inflation. That's one
Speaker 1: of the reasons why I see loose monetary policy, loose
Speaker 1: fiscal policy, loose create policy, and eventually inflation being the
Speaker 1: source of the wiping up critical story. I went through
Speaker 1: the New European Paintings gallery at this weekend. Noraal speaks
Speaker 1: of the old world you symbolize. Are we going to
Speaker 1: do the same thing they did in Venice in the
Speaker 1: city state of the fifteenth century, which has inflated our
Speaker 1: way out of our present challenges. Well, we have a
Speaker 1: huge amount of debt and deficity. What are the options.
Speaker 1: Are we gonna cut government spending politically, the pressure everywhere
Speaker 1: in the world is to do more spending to essentially
Speaker 1: deal with income and wealth inequality. Are we gonna raise
Speaker 1: taxes on the wealth in the reach It's gonna be
Speaker 1: constraints on that, So they'll be constraints are going to
Speaker 1: imply the deficits remain high, and therefore the path of
Speaker 1: list resistance is going to be to monetize them and
Speaker 1: try to wipe up with higher inflation. The real value
Speaker 1: of nominal fixed interest rate that of course, over time
Speaker 1: that is going to reprice short term debt is going
Speaker 1: to be higher interest rates with high in volatile inflation,
Speaker 1: inflation ris primare gonna go higher. So that's going to
Speaker 1: be a solutional in the short term and eventually high
Speaker 1: that ratios with real rates rising over time is gonna
Speaker 1: imply that defaults because it be unsustainable that situation, both
Speaker 1: in the private sector and in the public sector in
Speaker 1: a number of countries. So I see both inflation and
Speaker 1: that crisis. I had yes John Hay could catch up
Speaker 1: with you again, but have you won with this on
Speaker 1: the show? Walk me through what that means for trained
Speaker 1: growth through the next couple of years, then through the
Speaker 1: next ten years for that matter. Even everything you've just described, Well,
Speaker 1: we have on one side that ratios that are unsustainable.
Speaker 1: And as I pointed out, the current amount stafulation where
Speaker 1: growth is lower and inflation is higher, is not just
Speaker 1: driven by short term supply bottlenecks, both in goods market
Speaker 1: the labor market. I pointed out that I see over
Speaker 1: the medium term nine negative supply shocks. They're going to
Speaker 1: reduce potential growth and increased cost of production over time.
Speaker 1: Very briefly, what's gonna happen is neglobalization and protectionism, where
Speaker 1: I have volcanization of global supply chains, aging of population
Speaker 1: in advance, colom and emerging markets, restrictions to migration from
Speaker 1: South to north, decoupling between US and China, and trade
Speaker 1: technology data information will have Global climate change is gonna
Speaker 1: increase the cost of energy and the cost of food prices,
Speaker 1: where pandemic is gonna disrupt again global supply chains. We
Speaker 1: have also cyber warfare. There's going to be a source
Speaker 1: of disruptional production. And finally, the rising income and while
Speaker 1: inequality implies that will be monitoring fiscal policy, trying to
Speaker 1: help workers labor unions, and that's gonna put upper pressure
Speaker 1: on wages. So I say, a situation which over the
Speaker 1: medium term we loose monitor and physical and credit policy
Speaker 1: and these negative supply shocks, you could end up over
Speaker 1: the medium term in a situation of stagflation like in
Speaker 1: the nineteen seventies. That's the situation I worry about. And no, really,
Speaker 1: this is far more nuanced than I think many people realize.
Speaker 1: A lot of people are making this call for higher
Speaker 1: inflation based on loose fiscal policy, monitory policy staying easy.
Speaker 1: You're focused almost overwhelmingly on these structural issues that you
Speaker 1: think you're just gonna stick beyond the fiscal the fiscal
Speaker 1: push that we've seen over the last year fading. How
Speaker 1: under appreciated is that view when you go to events
Speaker 1: like this and have that conversation on the sidelines of
Speaker 1: economic forums like the one you ran, well, I think
Speaker 1: it's unappreciated because even those who worry about the rising
Speaker 1: inflation make an argument at once the short term bottomnecks
Speaker 1: are gonna go away. The source of inflation is going
Speaker 1: to be essentially overheating of the economic coming from the
Speaker 1: fact that moneitoring, physical and credit policy still to loose.
Speaker 1: I agree on that side that aggre demand is going
Speaker 1: to be in overheating, but also worry about the medium
Speaker 1: term aggregate supply of the economy. And I see these
Speaker 1: global trends that are just the reversal of the forces
Speaker 1: that for the last thirty years kept inflation low. All
Speaker 1: of them are reversing in the direction where potential growth
Speaker 1: is going to be lower, cost of production is gonna
Speaker 1: be higher, and since monitoring physical policy and credit policy
Speaker 1: are gonna be loose, eventually we end up with inflation
Speaker 1: and slower growth. That's stagflation. Dr Rubini. In a final question,
Speaker 1: I want you to address for our audience and radio
Speaker 1: and TV the optimism you have of the American economic experiment.
Speaker 1: I have fought for a decade plus of calling you, Dr.
Speaker 1: Do I don't buy it for a minute. You've got
Speaker 1: a lot of worries out there, but state the optimism
Speaker 1: you have on the American experiment. Well. On the American experiment,
Speaker 1: I would say the most positive thing about it is
Speaker 1: that there is going to be a huge amount of
Speaker 1: technological innovation, whether it's AI, machine learning, robotic, automation, all
Speaker 1: the essentially application coming of it gonna over time increase
Speaker 1: productivity growth significantly. However, I worried that AI automation, robotic
Speaker 1: is going to also have negative spelobe. It's going to
Speaker 1: increase income and wealthy inequality is going to lead to
Speaker 1: massive technological unemployment. Central bank responsibility and the central bank
Speaker 1: is is the social guide of last resort. Do social
Speaker 1: policy within the central bank history? Well, I worried at
Speaker 1: the central banks now are on a mission creep. They
Speaker 1: started by worrying about inflation, than growth, than financial stability,
Speaker 1: than income inequality, than global climate change, and a list
Speaker 1: of other factors. And that mission creep implies that they
Speaker 1: are becoming highly unconventional and that's going to lead us
Speaker 1: to higher inflation over time. You have to limit what
Speaker 1: you have to do, and what you can do is
Speaker 1: only growth, inflation and maybe financial stability. So that initial
Speaker 1: criep is part of what's going to lead to higher
Speaker 1: inflation by unconventional mount of policy being around for much
Speaker 1: longer than otherwise. Noria, thank you, sir as always got
Speaker 1: to catch up. I thought No Real liked to two.
Speaker 1: So I know no Real likes that one's smiling. Take
Speaker 1: you got too much of respect. He has old world
Speaker 1: doctor realist. This is John John. This is really important.
Speaker 1: He represents an old world economic It's worried about the
Speaker 1: solidity of balance sheets and financial statements versus an American
Speaker 1: modern income statement dynamics. That's a difference. He's not Dr Doom,
Speaker 1: He's Dr Istanbul. He's been a good friend of this
Speaker 1: program over the yes and we appreciate it. Nown Rebani Dad,
Speaker 1: the CEO of Rabini Macro Associates and co CEO of
Speaker 1: Veeping Bust dot com right now and this is a
Speaker 1: great joy. She gave us so much perspective on Afghanistan
Speaker 1: and looking west to her around Shiny Bachelovs joins us
Speaker 1: right now from Rock Creek. She will have an important
Speaker 1: conversation to a sprightly Alan Greenspan tomorrow here at the
Speaker 1: Greenwich Economic Forum. That will be a timely conversation. Dr Beschelov,
Speaker 1: thank you so much for joining us. There's a nostalgia
Speaker 1: right now of moving from the chaos of the poll
Speaker 1: fed making it up as we go back to the
Speaker 1: cadence of the FED of Arthur Burns, of Alan Greenspan.
Speaker 1: Can we go back and if not, how do we
Speaker 1: move forward out of this crisis? I think, tom what
Speaker 1: has been really interesting is I don't think it has
Speaker 1: been so chaotic. In fact, the BED has been giving
Speaker 1: us a pretty good indication of where it has been
Speaker 1: and where it's going. Obviously, the times have been you know,
Speaker 1: the kind of the pandemic which killed more than it
Speaker 1: killed even in was something that no federal reserved with
Speaker 1: Alan Greenspan or the Burns or J. Powell could threat
Speaker 1: to very easily. But no question, I think the meeting
Speaker 1: this week today tomorrow is going to be very critical
Speaker 1: and people will be listening very quick, very very carefully,
Speaker 1: like the way they used to listen to the way
Speaker 1: Alan talk, not just what he said but loud. His
Speaker 1: voice was No, I think you're absolutely right. I want
Speaker 1: to speak to you about the fame Greenspan granularity, the
Speaker 1: way the gentleman from n YU would look at each
Speaker 1: in every rail car, each and every data that granularity
Speaker 1: works in goods producing economies. Do you have a confidence
Speaker 1: that we can shift to a service sector prosperity and
Speaker 1: do that with this technology overlay we're all talking about.
Speaker 1: So the interesting thing in talking to Alan is that
Speaker 1: he does these daily forecast Remember he was a forecaster
Speaker 1: before he was a um VET chair and he has
Speaker 1: continued doing that. Interestingly with the huge problems we have
Speaker 1: with the supply chain right now. The kind of work
Speaker 1: he was doing on railways and counting the rails, rail
Speaker 1: wasted trucks and UM and cars and UH and looking
Speaker 1: at UH, the sort of the minution on the supply
Speaker 1: side has become incredibly, incredibly valuable because the tech sector,
Speaker 1: as you said, may not get UH well measured in
Speaker 1: some of his UM some of his estimate, But supply
Speaker 1: chain problems that we're facing is very traditional economics one
Speaker 1: oh one. Obviously a lot of the supply chain issues
Speaker 1: have led to higher inflation, and we actually had the
Speaker 1: o E c D releasing its interim forecast earlier today
Speaker 1: expecting higher inflation in the US and the UK and
Speaker 1: in the deuro Zone, but also saying that supportive fiscal
Speaker 1: and monetary policy needs to stay in place. Is that
Speaker 1: going to mean inflation runs too hot for too long?
Speaker 1: I actually believe in the drug quick we are looking
Speaker 1: at inflation being more office short to medium term issue.
Speaker 1: There's no question that if you throw in so much
Speaker 1: liquidity that will not start slowly being taken out of
Speaker 1: the economy if you have the kind of disruptions we have.
Speaker 1: Even as we're speaking, there are ports uh re ports
Speaker 1: that are getting closed down because of sick people with COVID,
Speaker 1: so that while that is going on, there's no question
Speaker 1: we're going to have disruptions and that will be pushing
Speaker 1: up inflation. I think as we get to two thowy three,
Speaker 1: if the assumption is you know, COVID is endemic and
Speaker 1: it sort of stays on in a smaller way, that
Speaker 1: would be a different scenario. Obviously, if that continues, I
Speaker 1: think that's a whole other issue, bigger problems than inflation. Well,
Speaker 1: you mentioned port closures there. Obviously we had one in
Speaker 1: China for quite some time at one of the world's
Speaker 1: biggest ports. And also going on in China, you had
Speaker 1: broader restrictions due to the delta variant. You have a
Speaker 1: crackdown on steel production because of a decarbonization effort, and
Speaker 1: you have the situation with the property sector being trying
Speaker 1: trying to be rained in by every regulators. And obviously
Speaker 1: ever grant is front end center. How worried about China
Speaker 1: are you when you think about a global economy right now?
Speaker 1: So everground obviously is a big topic today, but it
Speaker 1: has been really the problems that ever ground have been
Speaker 1: known in the marketplace for some time. The bigger topic
Speaker 1: I think in China is that we're so used for
Speaker 1: growth rates in China having been that people don't like
Speaker 1: that kind of growth rate is not going to stay forever.
Speaker 1: So if you assume a more normalized growth rate in
Speaker 1: China which moves down too closer to four or five
Speaker 1: six percent regarding you know, that's a very big range
Speaker 1: I'm giving you. I think we will be in a
Speaker 1: very different situation in China. Obviously, they have major problems
Speaker 1: with an aging population, and um those are sort of
Speaker 1: the aging population and the fact that you will have
Speaker 1: a slower growth rate, I think are the bigger issues
Speaker 1: that are getting forgotten as we get concentrated on ever
Speaker 1: ground day and on ever ground d I think the
Speaker 1: government will not bail out, most likely, but they will
Speaker 1: manage it in the way and they will sort of
Speaker 1: let it go out and uh and down slowly in
Speaker 1: a managed way. Probably there's a lot of faith that'll
Speaker 1: be able to do that after Now we've gotta leave
Speaker 1: it there. It's a really important final part as well
Speaker 1: as lost there the Rock Creek CEO. It is a
Speaker 1: granwage economic forum and it is about well your image
Speaker 1: of Connecticut, of the boats that stand around me here
Speaker 1: my grand Banks fifty four over there more looks little
Speaker 1: small in Greenwich Harbor, but it is a Connecticut that
Speaker 1: mirrors this nation. The income disparities in this state are
Speaker 1: absolutely extraordinary. Ned Laban, as governor, is steering the state forward.
Speaker 1: We have a conversation now on the inequalities of the state.
Speaker 1: You are the courage as a fancy guy growing up
Speaker 1: with the Lamont family. You went down to Bridgepoort and
Speaker 1: taught what were the lessons you learned in Bridgeport away
Speaker 1: from entrepreneurship about the economic disparities of your state? Givarney
Speaker 1: tom Um, Welcome to Connecticut. I taught up at Harding
Speaker 1: High School. That was probably twenty years ago. I taught
Speaker 1: a class on entrepreneurship, how to start up a business.
Speaker 1: Here's here's what I learned. I said, find an entrepreneur
Speaker 1: and write a story about somebody you know it started
Speaker 1: up a business and they didn't know. They didn't have
Speaker 1: role models there. So I brought in entrepreneur who had
Speaker 1: created businesses, trying to inspire these kids that you can
Speaker 1: do it too. What do you need from the Biden
Speaker 1: administration taxes or front center. We'll get to the salt
Speaker 1: thing in a moment, But on a holistic basis of
Speaker 1: all the people of Connecticut, the North up towards western
Speaker 1: Massachusetts and over to the eastern Rhode Island, what do
Speaker 1: you need holistically from the Biden administration on a new
Speaker 1: text policy. I want to see this infrastructure bill pass.
Speaker 1: You know, I could take tennes all go into Metro North.
Speaker 1: A lot of Metro North helps too. I mean, we
Speaker 1: have a lot of people move in the state. Fifty
Speaker 1: thousand folks have moved in the state in the last
Speaker 1: eight months. And uh, I want to do everything I
Speaker 1: can to speed up rail service from Stamford down to
Speaker 1: a Grand Central. That infrastructure bill helps. There a lot
Speaker 1: on taxes. You gotta pay your bills, so just do
Speaker 1: it cautiously. You took the Metro North, I believe, or
Speaker 1: at least the symbolism of it down to mets Yankees.
Speaker 1: With a new governor of New York state to us,
Speaker 1: we're nationwide and we're world wide. The emotion you felt
Speaker 1: on this important rememberance at nine eleven anniversary of nine eleven.
Speaker 1: I was in the city that day, Remember like yesterday,
Speaker 1: Remember going out in the street. The cell phones weren't working.
Speaker 1: You said, man, this is something the likes of which
Speaker 1: we've never been through before. And there I was whether
Speaker 1: Eric Adams and gat the Uncle the new leaders of
Speaker 1: New or you can get it done. I was very
Speaker 1: impressed with both them. Look, Connecticut, we live and die
Speaker 1: by how successful in New York is. We've got to
Speaker 1: work very collaboratively. It doesn't work for me to um
Speaker 1: speed up metro north of the Westchester border, and then
Speaker 1: it's up to them. We got to do it together. Obviously,
Speaker 1: We've also never dealt with a situation like this when
Speaker 1: talking about the pandemic, Governor, and this is something that
Speaker 1: is front and center am in this current surgeon and
Speaker 1: as the school season is still underway, with many students
Speaker 1: not able or eligible to be vaccinated, why is it
Speaker 1: that those who are eligible don't need to be in
Speaker 1: the state of Connecticut. Why is it those who are
Speaker 1: not eligible? What I can tell you is our schools
Speaker 1: are open. Our schools are open. Last September, that made
Speaker 1: a big difference. In New York City took a little
Speaker 1: bit longer. I think a lot of families started moving
Speaker 1: to Connecticut because they wanted their kids in school, were
Speaker 1: able to do that safely. This year, our schools have
Speaker 1: been opened a very few quarantines, almost none, mainly because
Speaker 1: teachers are vaccinated and kids are wearing a mask. We're
Speaker 1: gonna do that a little bit longer so our kids
Speaker 1: can stay in school and their parents can get back
Speaker 1: to work. So that means the September mask mandate is
Speaker 1: going to be extended for how long? I think it's
Speaker 1: going to be extended a little bit longer. I gotta
Speaker 1: work with my friends in the legislature on that. I
Speaker 1: see um the virus coming up obviously less in Florida
Speaker 1: and Georgia, now more North and South Carolina, Tennessee. So
Speaker 1: is it heads up here during the flu season? I
Speaker 1: want to be careful. Is there a polarized tax out
Speaker 1: there and it's assault tax? I hear you stop conversations
Speaker 1: when you talk about this tax. It's on property and
Speaker 1: my ability to deduct my Greenwich taxes, my Connecticut state
Speaker 1: taxes over a certain level. That lament on how we
Speaker 1: affect a real estate tax deduction fairly well. Obviously, when
Speaker 1: they you know, latterly ended the salt deduction, it hit
Speaker 1: states like ours a lot. And you can argue about
Speaker 1: the intellectual merits of the salt deduction. I can just
Speaker 1: tell you that Connecticut is one of the few donor states.
Speaker 1: We send a lot more money to Washington than we
Speaker 1: get back, just critically, you send a lot more money
Speaker 1: to Mitch McConnell's Kentucky. Absolutely. Oh yeah, So I'm fighting
Speaker 1: for Connecticut. So that's why I think anything that reduces
Speaker 1: taxes for people at all income brackets here at the
Speaker 1: federal level makes sense. That includes getting back the salt deduction.
Speaker 1: Thank you so much for joining us at the Greenwich
Speaker 1: Economic Forum right now. And this is a great joy.
Speaker 1: She gave us so much perspective on Afghanistan and looking
Speaker 1: west to her around. Shanni bachelovs joins us right now
Speaker 1: from Rock Creek. She will have an important conversation to
Speaker 1: a sprightly Alan Greenspan tomorrow here at the Greenwich Economic Forum.
Speaker 1: That will be a timely conversation. Dr Bachelov, Thank you
Speaker 1: so much for joining us. There's a nostalgia right now
Speaker 1: of moving from the chaos of the Powell Fed making
Speaker 1: it up as we go back to the cadence of
Speaker 1: the FED of Arthur Burns, of Alan Greenspan. Can we
Speaker 1: go back and if not, how do we move forward
Speaker 1: out of this crisis? I think tom what has been
Speaker 1: really interesting is I don't think it has been so chaotic.
Speaker 1: In fact, the BED has been giving us a pretty
Speaker 1: good indication of where it has been and where it's going. Obviously,
Speaker 1: the times have been you know, the kind of the
Speaker 1: pandemic which killed more than it killed even was something
Speaker 1: that no FED reserved with Alan Greenspan or Arthur Burns
Speaker 1: or J. Powell could threat to very easily. But no question,
Speaker 1: I think the meeting this week, today tomorrow is going
Speaker 1: to be very critical and people will be listening very quick,
Speaker 1: very very carefully, like the way they used to listen
Speaker 1: to the way Alan taught not just what he said,
Speaker 1: but loud his voice was No, I think you're absolutely right.
Speaker 1: I want to speak to you about the famed Greenspan granularity,
Speaker 1: the way the gentleman from n YU would look at
Speaker 1: each in every rail car, each and every data that
Speaker 1: granularity works in goods producing economies. Do you have a
Speaker 1: confidence that we can shift to a service sector prosperity
Speaker 1: and do that with this technology overlay we're all talking about.
Speaker 1: So the interesting thing in talking to Alan is that
Speaker 1: he does these daily forecast Remember he was a forecaster
Speaker 1: before he was a um VET chair, and he has
Speaker 1: can genue doing that. Interestingly with the huge problems we
Speaker 1: have with the supply chain right now. The kind of
Speaker 1: work he was doing on railways and counting the rails,
Speaker 1: rail wasted trucks and UM and cars and UH and
Speaker 1: looking at UH, the sort of the minution on the
Speaker 1: supply side has become incredibly, incredibly valuable. But because the
Speaker 1: tech sector, as you said, may not get UH well
Speaker 1: measured in some of his UM some of his estimates.
Speaker 1: But supply chain problems that we're facing is very traditional
Speaker 1: economics one oh one. Obviously a lot of the supply
Speaker 1: chain issues have led to higher inflation, and we actually
Speaker 1: had the o e c D releasing its interim forecast
Speaker 1: earlier today expecting higher inflation in the US and the
Speaker 1: UK and in the deuro Zone, but also saying that
Speaker 1: supportive fiscal and monetary policy needs to stay in place.
Speaker 1: Is that going to mean inflation runs too hot for
Speaker 1: too long? I actually believe in the drug quick we
Speaker 1: are looking at inflation being more office short to medium
Speaker 1: term issue. There's no question that if you throw in
Speaker 1: so much liquidity that will not start slowly being taken
Speaker 1: out of the economy if you have the kind of
Speaker 1: disruptions we have. Even as we're speaking, there are ports
Speaker 1: uh reports that are getting closed down because of sick
Speaker 1: people with COVID, so that while that is going on,
Speaker 1: there's no question we're going to have disruptions and that
Speaker 1: will be pushing up inflation. I think as we get
Speaker 1: into two thousand three, if the assumption is you know,
Speaker 1: COVID is endemic and it sort of stays on in
Speaker 1: a smaller way, that would be a different scenario. Obviously,
Speaker 1: if that continues, I think that's a whole other issue,
Speaker 1: bigger problems than inflation. Well, you mentioned port closures there.
Speaker 1: Obviously we had one in China for quite some time
Speaker 1: at one of the world's biggest ports. And also going
Speaker 1: on in China, you had broader restrictions due to the
Speaker 1: delta variant. You have a crackdown on steel production because
Speaker 1: of a decarbonization effort, and you have the situation with
Speaker 1: the property sector being trying trying to be ranged in
Speaker 1: by every regulators, and obviously ever grant is front end center.
Speaker 1: How worried about China are you when you think about
Speaker 1: a global economy right now? So Everground obviously is a
Speaker 1: big topic today, but it has been really the problems
Speaker 1: that ever ground have been known in the marketplace for
Speaker 1: some time. The bigger topic I think in China is
Speaker 1: that we're so used for growth rates in China having
Speaker 1: been that people don't realize that kind of growth rate
Speaker 1: is not going to stay forever. So if you assume
Speaker 1: a more normalized growth rate in China, which moves down
Speaker 1: to closer to four or five six percent regards, you know,
Speaker 1: that's a very big rand I'm giving you. I think
Speaker 1: we will be in a very different situation in China.
Speaker 1: Obviously they have major problems with an aging population, and um,
Speaker 1: those are sort of the aging population and the fact
Speaker 1: that you will have a slower growth rate I think
Speaker 1: are the bigger issues that are getting forgotten as we
Speaker 1: get concentrated on ever grand Day and on ever Ground.
Speaker 1: I think, um, the government will not bail out most likely,
Speaker 1: but they will manage it in the way and they
Speaker 1: will sort of let it go out and uh and
Speaker 1: down slowly in a managed way. Probably. There's a lot
Speaker 1: of faith they'll be able to do that. After we've
Speaker 1: gotta leave it there. It's a really important final point
Speaker 1: as well as I've actually lost there the Rock Creek CEO.
Speaker 1: This is the Bloomberg Surveillance Podcast. Thanks for listening. Join
Speaker 1: us live weekdays from seven to ten am Eastern on
Speaker 1: Bloomberg Radio and on Bloomberg Television each day from six
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Speaker 1: Apple podcast, SoundCloud, Bloomberg dot com, and of course on
Speaker 1: the terminal. I'm Tom keene In. This is bloomberg S