1 00:00:05,080 --> 00:00:08,440 Speaker 1: This is the Bloomberg Surveillance Podcast. I'm Tom Keane, along 2 00:00:08,480 --> 00:00:12,240 Speaker 1: with Jonathan Faroe and Lisa Abramowitz. Join us each day 3 00:00:12,320 --> 00:00:16,800 Speaker 1: for insight from the best and economics, geopolitics, finance and investment. 4 00:00:17,239 --> 00:00:22,000 Speaker 1: Subscribe to Bloomberg Surveillance on demand on Apple, Spotify and 5 00:00:22,239 --> 00:00:26,560 Speaker 1: anywhere you get your podcasts, and always on Bloomberg dot Com, 6 00:00:26,600 --> 00:00:30,560 Speaker 1: the Bloomberg Terminal, and the Bloomberg Business App. To save 7 00:00:30,680 --> 00:00:32,840 Speaker 1: every second year, in every minute. Right now at these 8 00:00:32,880 --> 00:00:35,959 Speaker 1: meetings of the World Bank and International Monetary Fund, an 9 00:00:36,040 --> 00:00:41,080 Speaker 1: annual visit with David malpass outgoing President of the World Bank, 10 00:00:41,240 --> 00:00:45,160 Speaker 1: and instead of talking World Bank affairs, aid to the world, 11 00:00:45,240 --> 00:00:48,360 Speaker 1: and the struggles of the war in Ukraine, we will 12 00:00:48,440 --> 00:00:51,600 Speaker 1: hearken back to mister melpass this moment of seven and 13 00:00:51,760 --> 00:00:54,320 Speaker 1: O eight. More than anyone in this building and set 14 00:00:54,320 --> 00:00:58,080 Speaker 1: of buildings, he lived front and center at bear Stearns 15 00:00:58,080 --> 00:01:02,600 Speaker 1: previous financial collapse. David, thank you so much for being 16 00:01:02,640 --> 00:01:04,160 Speaker 1: with us. I'm not going to ask you an easy 17 00:01:04,240 --> 00:01:06,920 Speaker 1: question like does it allude back to O eight right now? 18 00:01:07,319 --> 00:01:11,280 Speaker 1: But the stresses that you see right now in American banking, 19 00:01:11,959 --> 00:01:15,640 Speaker 1: in the huge tensions between China and the United States. 20 00:01:16,080 --> 00:01:20,080 Speaker 1: Does it lead to that word suddenly where suddenly things 21 00:01:20,120 --> 00:01:23,240 Speaker 1: can change as they did in O eight Hi Tom 22 00:01:23,400 --> 00:01:28,360 Speaker 1: Hi everyone. So there were big there was a maturity 23 00:01:28,400 --> 00:01:31,640 Speaker 1: mismatch going on then too, and it maybe from the 24 00:01:31,720 --> 00:01:36,200 Speaker 1: same causes. Remember in the two thousands, interest rates were 25 00:01:36,240 --> 00:01:39,560 Speaker 1: being raised very slowly, and so that built up a 26 00:01:39,640 --> 00:01:45,640 Speaker 1: giant maturity mismatch, which some companies were funding with repose 27 00:01:45,760 --> 00:01:49,640 Speaker 1: funding treasuries, so in the treasury bonds, and so in 28 00:01:49,720 --> 00:01:53,800 Speaker 1: that way it hearkens to now we have in the 29 00:01:53,880 --> 00:01:59,480 Speaker 1: US banking system some banks are funding treasury bonds with 30 00:01:59,640 --> 00:02:04,040 Speaker 1: the posts. But a big difference now is the biggest 31 00:02:04,120 --> 00:02:07,560 Speaker 1: duration mismatch is the Federal Reserve itself. It funds with 32 00:02:08,040 --> 00:02:12,440 Speaker 1: users overnight borrowing to fund a giant bond portfolio some 33 00:02:12,639 --> 00:02:16,480 Speaker 1: nine trillion dollars, the European Central Bank eight trillion dollars. 34 00:02:16,639 --> 00:02:20,120 Speaker 1: And I think the dominant feature now is the asset 35 00:02:20,160 --> 00:02:23,280 Speaker 1: allocation that came out of that. If you have giant 36 00:02:23,360 --> 00:02:28,440 Speaker 1: buyers of long maturity of duration, in effect, the central 37 00:02:28,440 --> 00:02:32,239 Speaker 1: banks were buying giant duration. And so what that meant 38 00:02:32,360 --> 00:02:34,920 Speaker 1: is it distorted all world markets. And we're now in 39 00:02:34,960 --> 00:02:38,160 Speaker 1: the workout phase there'll have to be a normalization of 40 00:02:38,320 --> 00:02:41,960 Speaker 1: interest rates. It means pressure on asset prices for a 41 00:02:42,040 --> 00:02:44,720 Speaker 1: long period of time. That's what's showing up in the 42 00:02:44,800 --> 00:02:48,880 Speaker 1: meetings here. The expectation that they'll be weak growth for 43 00:02:48,919 --> 00:02:53,480 Speaker 1: a while put pressure on people in developing countries throughout 44 00:02:53,560 --> 00:02:57,080 Speaker 1: the world, and that pressure is getting intense. Frame the 45 00:02:57,200 --> 00:03:01,280 Speaker 1: distinction between the World Bank weak growth call and that 46 00:03:01,440 --> 00:03:05,280 Speaker 1: of your colleagues at the International Monetary Fund. Both of you, 47 00:03:05,400 --> 00:03:09,480 Speaker 1: to editorialize, have been grim. What's the mail passion level 48 00:03:09,520 --> 00:03:14,280 Speaker 1: of grim in your forecast? Ours are a little weaker 49 00:03:14,400 --> 00:03:18,280 Speaker 1: than the IMFs, but remember they often do one in 50 00:03:18,360 --> 00:03:21,080 Speaker 1: purchasing power parodies, so if you adjust for that, there's 51 00:03:21,120 --> 00:03:24,800 Speaker 1: not that much difference. We use market based exchange rates, 52 00:03:24,840 --> 00:03:27,680 Speaker 1: and so ours is two and there's I think would 53 00:03:27,680 --> 00:03:30,399 Speaker 1: work out to two point four. So they're both week 54 00:03:30,600 --> 00:03:35,880 Speaker 1: week forecast for twenty twenty three, and that's showing up. 55 00:03:35,880 --> 00:03:38,520 Speaker 1: In the US. You saw the Federal Reserves saying maybe 56 00:03:38,520 --> 00:03:41,280 Speaker 1: in the US recession mild recession in the second right. 57 00:03:41,480 --> 00:03:44,360 Speaker 1: What's great about this is mail pass uses a slide 58 00:03:44,440 --> 00:03:48,560 Speaker 1: rule from Colorado College, very killed. So this is growth. 59 00:03:48,640 --> 00:03:50,880 Speaker 1: Let's talk about debt. If we can. This is something 60 00:03:50,880 --> 00:03:53,960 Speaker 1: you've been really outspoken about, David, over the last few years. 61 00:03:54,080 --> 00:03:57,320 Speaker 1: China the world's biggest creditor to paw nations. I understand 62 00:03:57,320 --> 00:04:00,720 Speaker 1: there's been some conversations this week. What's that now, if 63 00:04:00,720 --> 00:04:02,440 Speaker 1: we could start that, and then if you could tell 64 00:04:02,480 --> 00:04:06,280 Speaker 1: me whether you're satisfied with it. The debt has grown 65 00:04:06,360 --> 00:04:10,800 Speaker 1: up over the years. The composition of the debt is 66 00:04:10,880 --> 00:04:14,040 Speaker 1: different from in the old days. That used to be 67 00:04:14,280 --> 00:04:17,200 Speaker 1: US banks that were lending to foreign countries. Now we 68 00:04:17,279 --> 00:04:23,000 Speaker 1: have China and the euro bond market lending to developing 69 00:04:23,080 --> 00:04:26,560 Speaker 1: countries sovereign debt. So there was extensive talk yesterday. I 70 00:04:26,640 --> 00:04:30,760 Speaker 1: co chaired with Crystallina the debt roundtable. China came at 71 00:04:30,800 --> 00:04:34,320 Speaker 1: the level of the PBOC governor and also the Ministry 72 00:04:34,320 --> 00:04:37,640 Speaker 1: of Finance of China and so they participate in the 73 00:04:37,720 --> 00:04:41,600 Speaker 1: discussion and there was there were some agreements. There was 74 00:04:41,839 --> 00:04:45,320 Speaker 1: agreements that there needed to be more timeliness of the 75 00:04:45,440 --> 00:04:48,840 Speaker 1: launching into a restructuring process, that there needed to be 76 00:04:49,240 --> 00:04:52,000 Speaker 1: data sharing. China's asked from the beginning, can't we get 77 00:04:52,040 --> 00:04:55,400 Speaker 1: the data earlier? That hasn't been the tradition, but that's 78 00:04:55,440 --> 00:04:58,080 Speaker 1: going to be and there's a there's a paper to 79 00:04:58,120 --> 00:05:01,200 Speaker 1: do that. Also a working group which is important on 80 00:05:01,240 --> 00:05:06,200 Speaker 1: the technicalities of burden sharing. How do you have equal 81 00:05:06,200 --> 00:05:10,360 Speaker 1: burden sharing among creditors so that they all participate in 82 00:05:10,440 --> 00:05:14,200 Speaker 1: the restructuring process of the debt. This is really important 83 00:05:14,200 --> 00:05:18,240 Speaker 1: to the people in developing countries because their governments are 84 00:05:18,279 --> 00:05:22,600 Speaker 1: paying these large, high not low interest rate kind of 85 00:05:23,080 --> 00:05:26,800 Speaker 1: market rate or above market rate debt and it means 86 00:05:26,839 --> 00:05:29,720 Speaker 1: it's draining the countries of what they need for nutrition, 87 00:05:29,880 --> 00:05:34,560 Speaker 1: for health, for education, for climate adaptation. Are you satisfied 88 00:05:34,560 --> 00:05:36,080 Speaker 1: with what China is committed? So would you need to 89 00:05:36,120 --> 00:05:38,800 Speaker 1: see more? We need to see this week and it 90 00:05:38,880 --> 00:05:42,039 Speaker 1: was mentioned last night. Yesterday there were big meetings, so 91 00:05:42,360 --> 00:05:46,560 Speaker 1: we had the G twenty meeting, the G seven meeting 92 00:05:46,600 --> 00:05:50,159 Speaker 1: of finance ministers, the Development Committee, the governors of the 93 00:05:50,240 --> 00:05:54,000 Speaker 1: World Bank met and expressed strong support for the World 94 00:05:54,040 --> 00:05:58,680 Speaker 1: Bank leadership. There were and there was discussion at the 95 00:05:58,960 --> 00:06:03,160 Speaker 1: G twenty even late last night of the specific countries 96 00:06:03,520 --> 00:06:07,320 Speaker 1: that needed to get action on debt relief. Zambia was here. 97 00:06:07,360 --> 00:06:09,800 Speaker 1: I had a panel earlier this week with the Zambian 98 00:06:09,920 --> 00:06:14,080 Speaker 1: finance Minister, the Ethiopian finance minister, they're burdened by high 99 00:06:14,120 --> 00:06:17,160 Speaker 1: levels of debt. So the proof is in the pudding. 100 00:06:17,200 --> 00:06:22,240 Speaker 1: The details of is Zambia going to get an mu 101 00:06:22,480 --> 00:06:25,400 Speaker 1: we'd like to see one this week. China needs to 102 00:06:25,640 --> 00:06:30,440 Speaker 1: be willing to sign off on the structure of the restructuring. 103 00:06:30,760 --> 00:06:33,560 Speaker 1: One big question has been transparency and a lack of it, 104 00:06:33,680 --> 00:06:35,640 Speaker 1: and a lack of understanding of just how much debt 105 00:06:36,000 --> 00:06:39,480 Speaker 1: China has extended to in a lot of developing nations. 106 00:06:39,800 --> 00:06:42,039 Speaker 1: Do you walk away from the meetings yesterday with a 107 00:06:42,080 --> 00:06:46,080 Speaker 1: greater sense of how much debt they currently have tied 108 00:06:46,120 --> 00:06:50,000 Speaker 1: to the developing world. We know quite a bit about it, 109 00:06:50,080 --> 00:06:54,480 Speaker 1: but not the full extent. And there were calls yesterday 110 00:06:54,480 --> 00:06:58,039 Speaker 1: and there's specific discussion of this that some people say 111 00:06:58,120 --> 00:07:01,360 Speaker 1: swap lines by China into banks should be left out 112 00:07:01,400 --> 00:07:04,720 Speaker 1: of the restructuring. Some say it should be included in 113 00:07:04,760 --> 00:07:10,640 Speaker 1: the restructuring. There was talk about what to do with arrear. 114 00:07:10,840 --> 00:07:16,160 Speaker 1: So as these restructurings drag on, the interest on the 115 00:07:16,240 --> 00:07:19,680 Speaker 1: interest goes up and up, So can you agree in 116 00:07:19,720 --> 00:07:23,040 Speaker 1: advance on how to handle that? And so it gets 117 00:07:23,080 --> 00:07:26,640 Speaker 1: straight into the details. There was a there was a 118 00:07:26,680 --> 00:07:31,720 Speaker 1: proposal made that it well the proposals across the board 119 00:07:32,000 --> 00:07:34,040 Speaker 1: on how to handle this. So I think there's lots 120 00:07:34,040 --> 00:07:36,280 Speaker 1: more work to be done, but at least there's a 121 00:07:36,280 --> 00:07:39,160 Speaker 1: technical or a workshop that's going to be set up 122 00:07:39,400 --> 00:07:43,520 Speaker 1: to bring people up to speed on how you calculate 123 00:07:43,680 --> 00:07:47,400 Speaker 1: net present value reduction within a debt restructuring. Would you 124 00:07:47,440 --> 00:07:50,480 Speaker 1: identify this and everything we've just discussed over the last 125 00:07:50,520 --> 00:07:53,080 Speaker 1: few minutes as these number one issue that you'll hunt 126 00:07:53,120 --> 00:07:56,040 Speaker 1: it obit to your successor at the World Bank? Well, 127 00:07:56,080 --> 00:08:00,600 Speaker 1: certainly debt transparency is a giant issue. There was there 128 00:08:00,680 --> 00:08:03,800 Speaker 1: was a call yesterday for the debt or countries to 129 00:08:04,000 --> 00:08:08,720 Speaker 1: release the contracts that have non disclosure clauses. So that's 130 00:08:08,760 --> 00:08:12,920 Speaker 1: a specific thing that will be that will outlast me 131 00:08:13,640 --> 00:08:15,760 Speaker 1: and it's not going to get resolved this week, but 132 00:08:15,840 --> 00:08:19,280 Speaker 1: I hope it does. You know, the the China is 133 00:08:19,320 --> 00:08:24,440 Speaker 1: written into the contracts non disclosure clauses. That was specifically discussed. 134 00:08:24,720 --> 00:08:27,040 Speaker 1: So as we look toward the future, I think what 135 00:08:27,160 --> 00:08:29,560 Speaker 1: I'm handing over to my successor is a World Bank 136 00:08:29,640 --> 00:08:32,680 Speaker 1: that's in really good shape. That was that was a 137 00:08:32,800 --> 00:08:37,520 Speaker 1: main theme from yet from yesterday's meetings, but also in 138 00:08:37,760 --> 00:08:42,000 Speaker 1: a developing world that's under this giant pressure from too 139 00:08:42,120 --> 00:08:45,520 Speaker 1: much debt but also not enough growth coming out of 140 00:08:45,520 --> 00:08:47,959 Speaker 1: the advanced economies. Well, this won't be the end of 141 00:08:48,000 --> 00:08:50,000 Speaker 1: our conversations. You know that. It's great to catch up, 142 00:08:50,040 --> 00:08:52,720 Speaker 1: divid ass always diapid malpass. Next to see the president 143 00:08:52,800 --> 00:08:59,000 Speaker 1: some of the world banks right now, an annual visit 144 00:08:59,080 --> 00:09:02,120 Speaker 1: as we do with these meetings with Gida Gopinath's first 145 00:09:02,120 --> 00:09:06,040 Speaker 1: deputy Managing Director at the International Monetary Fund, and once 146 00:09:06,080 --> 00:09:08,319 Speaker 1: you she has done critically in the last ninety days 147 00:09:08,960 --> 00:09:13,240 Speaker 1: is drive forward the discussion of crisis and monetary policy 148 00:09:13,679 --> 00:09:16,920 Speaker 1: and how we're going to extract ourselves from this math. 149 00:09:17,000 --> 00:09:20,280 Speaker 1: Doctor Gopenath, thank you so much for joining this morning. 150 00:09:20,679 --> 00:09:25,120 Speaker 1: You mentioned buried in your wonderful essay this scary idea 151 00:09:25,200 --> 00:09:31,760 Speaker 1: that inflation becomes unanchored. Is inflation unanchored at this point? No, 152 00:09:31,960 --> 00:09:33,880 Speaker 1: not at this point. I think if you look at 153 00:09:33,920 --> 00:09:37,680 Speaker 1: the data, it's queerly anchored, and the US and Europe 154 00:09:37,679 --> 00:09:42,320 Speaker 1: and several other countries. That is not a consent right now. 155 00:09:42,600 --> 00:09:45,000 Speaker 1: The concern right now off of the five year forecast. 156 00:09:45,080 --> 00:09:47,840 Speaker 1: It's your fault. We all know that. But the IMF 157 00:09:47,840 --> 00:09:50,680 Speaker 1: five year forecast that we have three percent or even lower. 158 00:09:50,720 --> 00:09:54,920 Speaker 1: The World Bank even set a little bit lower means 159 00:09:54,960 --> 00:09:58,360 Speaker 1: a disinflation, it means a lower rate regime. If we 160 00:09:58,440 --> 00:10:02,800 Speaker 1: haven't an unanchored or an anchor disinflation, does that lead 161 00:10:02,840 --> 00:10:08,680 Speaker 1: to financial stability within your forecast? If inflation expectations the anchor, 162 00:10:08,679 --> 00:10:12,600 Speaker 1: there are multiple problems associated with that. Firstly, interest rates 163 00:10:12,600 --> 00:10:16,960 Speaker 1: go up. Policy rates have to rise much faster to 164 00:10:16,960 --> 00:10:21,440 Speaker 1: bring inflation down, and that can generate much greater financial 165 00:10:21,480 --> 00:10:25,280 Speaker 1: stress than we have seen with consequences not just for 166 00:10:25,320 --> 00:10:27,400 Speaker 1: the country where the tightening is happening, but if you're 167 00:10:27,400 --> 00:10:30,280 Speaker 1: a large economy with spillover to the rest of the world. 168 00:10:30,600 --> 00:10:33,720 Speaker 1: So that could be very consequential. And it's one of 169 00:10:33,760 --> 00:10:37,600 Speaker 1: the downside scenarios we have in our world economic outlook, 170 00:10:37,640 --> 00:10:39,959 Speaker 1: which is if interest rates have to go up much 171 00:10:40,000 --> 00:10:42,240 Speaker 1: faster and you have much more tightening, you could end 172 00:10:42,320 --> 00:10:45,480 Speaker 1: up with global growth going as low as say one percent, 173 00:10:45,559 --> 00:10:48,400 Speaker 1: which is would be very bad. So what is the 174 00:10:48,520 --> 00:10:53,600 Speaker 1: nominal GDP separation of the IMF five year forecast? Is 175 00:10:53,640 --> 00:10:57,640 Speaker 1: it for a dropping disinflation or lower inflation and with 176 00:10:57,800 --> 00:11:01,360 Speaker 1: it lower real GDP bringing us down to a truly 177 00:11:01,440 --> 00:11:06,120 Speaker 1: subdued nominal GDP now we have. Our expectation is that 178 00:11:06,920 --> 00:11:11,360 Speaker 1: inflation will be conquered in over time. It's not going 179 00:11:11,400 --> 00:11:14,520 Speaker 1: to happen immediately, but if you go into twenty twenty four, 180 00:11:14,840 --> 00:11:17,040 Speaker 1: you're going to see inflation around the world getting much 181 00:11:17,120 --> 00:11:21,640 Speaker 1: closer to central bank targets. Real growth is going to 182 00:11:21,720 --> 00:11:25,920 Speaker 1: slow also because we don't have any China's anymore that 183 00:11:25,960 --> 00:11:27,880 Speaker 1: are growing at very high rate. So for the global 184 00:11:27,960 --> 00:11:31,319 Speaker 1: economy as a whole, we don't have very large engines 185 00:11:31,360 --> 00:11:35,040 Speaker 1: of growth, so that's generating the weakness and real growth. 186 00:11:35,120 --> 00:11:38,480 Speaker 1: Also because we have aging demographics, so unless we can 187 00:11:38,520 --> 00:11:42,040 Speaker 1: find a way to raise productivity, you know, we are 188 00:11:42,040 --> 00:11:45,000 Speaker 1: going to struggle with low growth. How controversial has your 189 00:11:45,040 --> 00:11:47,520 Speaker 1: call been that inflation is going to get back down 190 00:11:47,800 --> 00:11:50,679 Speaker 1: to where it was close to pre pandemic even by 191 00:11:50,679 --> 00:11:54,120 Speaker 1: twenty twenty four. You know, if you look at focus 192 00:11:54,120 --> 00:11:56,480 Speaker 1: and if you look at market expectations in the US, 193 00:11:57,440 --> 00:12:01,960 Speaker 1: you see an even more rapid fall in inflation that's expected. 194 00:12:02,000 --> 00:12:03,640 Speaker 1: So we are actually on the side of being a 195 00:12:03,679 --> 00:12:06,280 Speaker 1: little more cautious about how long it's going to take 196 00:12:06,320 --> 00:12:09,959 Speaker 1: to bring inflation down, but we think the policies will work. 197 00:12:10,000 --> 00:12:13,200 Speaker 1: There's been some very substantial increase in interest rates we 198 00:12:13,280 --> 00:12:15,920 Speaker 1: are seeing now that show up in terms of high 199 00:12:15,920 --> 00:12:19,480 Speaker 1: frequency data, this slowing of the economy, and we think 200 00:12:19,520 --> 00:12:21,640 Speaker 1: that will bring down inflation, but it will take time. 201 00:12:21,840 --> 00:12:24,080 Speaker 1: Do you think that the balance of risks has shifted 202 00:12:24,160 --> 00:12:26,600 Speaker 1: since what we saw with silicon valid banking, with some 203 00:12:26,679 --> 00:12:29,360 Speaker 1: of the other banking institutions, and the huge dropoff in 204 00:12:29,440 --> 00:12:32,120 Speaker 1: lending that we've seen periphery in initial data, that the 205 00:12:32,160 --> 00:12:37,079 Speaker 1: balance of risks has shifted to perhaps have monetary officials 206 00:12:37,240 --> 00:12:39,840 Speaker 1: be a little less aggressive when it comes to great 207 00:12:39,880 --> 00:12:42,680 Speaker 1: hikes and to err on the side of pausing or 208 00:12:42,720 --> 00:12:46,640 Speaker 1: even cutting. As always, central banks need to take into 209 00:12:46,640 --> 00:12:51,200 Speaker 1: account how economic conditions look, and with the financial stress, 210 00:12:51,240 --> 00:12:55,480 Speaker 1: you've had a tightening in financial conditions, bank lending standards 211 00:12:55,480 --> 00:13:01,040 Speaker 1: have tightened, smaller banks, credit has weakened and will slow 212 00:13:01,080 --> 00:13:04,280 Speaker 1: the economy down to some extent, which is why central 213 00:13:04,320 --> 00:13:06,520 Speaker 1: marks may have to do less. But again, I think 214 00:13:06,559 --> 00:13:08,640 Speaker 1: we're still waiting for more data to show up to 215 00:13:08,679 --> 00:13:11,440 Speaker 1: know exactly how much of an effect that's Hey Agata, 216 00:13:11,480 --> 00:13:13,440 Speaker 1: there's a bit of tension between what the IMF has 217 00:13:13,480 --> 00:13:16,880 Speaker 1: communicated this week and what politicians have responded with Chancellor 218 00:13:16,920 --> 00:13:20,280 Speaker 1: Hunt told us yesterday that he disagrees with your forecast. 219 00:13:20,320 --> 00:13:22,880 Speaker 1: He's entitled to disagree with it. I spoke and we 220 00:13:22,880 --> 00:13:25,800 Speaker 1: spoke to to be a Sadrian literally in the last hour, 221 00:13:25,960 --> 00:13:29,320 Speaker 1: and he said he sees evidence of lending bank lending 222 00:13:29,600 --> 00:13:33,000 Speaker 1: contracting in America. Secretary Yellen says she didn't see evidence 223 00:13:33,000 --> 00:13:36,480 Speaker 1: of that. How'd you explain the daylight between what your 224 00:13:36,520 --> 00:13:41,600 Speaker 1: institution is saying and what politicians are saying back? So, firstly, 225 00:13:41,640 --> 00:13:43,640 Speaker 1: I think if you look at the numbers, we're not 226 00:13:44,080 --> 00:13:46,400 Speaker 1: that far apart. Right. So, for instance, in the case 227 00:13:46,440 --> 00:13:51,440 Speaker 1: of the UK, I think what Jeremy Hunt would recognize 228 00:13:51,480 --> 00:13:54,400 Speaker 1: is that we've actually had a substantial upgrade for UK 229 00:13:54,559 --> 00:13:57,800 Speaker 1: for this year. It's just that we haven't gone as 230 00:13:57,880 --> 00:14:00,640 Speaker 1: high as maybe some of the other focus. We've actually 231 00:14:00,640 --> 00:14:03,800 Speaker 1: seen things turn out better than expected in the UK. 232 00:14:04,240 --> 00:14:06,880 Speaker 1: In the case of credit conditions, again, I think the 233 00:14:06,920 --> 00:14:11,480 Speaker 1: difference is that Tobias was pointing to all of credit supply, 234 00:14:11,640 --> 00:14:14,080 Speaker 1: not just from the large banks, and so you see 235 00:14:14,080 --> 00:14:17,360 Speaker 1: that in the smaller banks, you see certainly credit supply slowing, 236 00:14:17,640 --> 00:14:19,880 Speaker 1: but if you look at the large banks, indeed credit 237 00:14:20,000 --> 00:14:22,320 Speaker 1: is holding up. See don't believe the Treasury sectary is 238 00:14:22,360 --> 00:14:25,040 Speaker 1: misleading us when she says things like she doesn't see 239 00:14:25,080 --> 00:14:30,400 Speaker 1: evidence of bank lending contracting. I think that's the description that, 240 00:14:30,520 --> 00:14:33,480 Speaker 1: especially if you look at large banks, you're seeing credit 241 00:14:33,520 --> 00:14:37,680 Speaker 1: holding up. Is an accurate representation again of the data. 242 00:14:37,720 --> 00:14:41,480 Speaker 1: At this point, I look at where we are and 243 00:14:41,520 --> 00:14:44,360 Speaker 1: I wonder of the textbooks and the theory that's out there. 244 00:14:44,440 --> 00:14:49,480 Speaker 1: It seems like everybody's post pandemic supply driven dynamics making 245 00:14:49,480 --> 00:14:51,800 Speaker 1: it up as they go, and the day to day 246 00:14:51,880 --> 00:14:55,240 Speaker 1: Gopeneth grind is putting together the Blue Bug the world 247 00:14:55,280 --> 00:14:59,040 Speaker 1: economic outlook. How much are you relying on a traditional 248 00:14:59,120 --> 00:15:04,720 Speaker 1: economics versus going it's a whole new world after all? Well, 249 00:15:04,760 --> 00:15:07,720 Speaker 1: I think there are pots that are new, and then 250 00:15:07,720 --> 00:15:09,760 Speaker 1: there are parts that are old and stay the same. 251 00:15:09,800 --> 00:15:14,080 Speaker 1: So we're using a combination of models, but also going 252 00:15:14,160 --> 00:15:16,720 Speaker 1: beyond is our start and valid model? Right now? You 253 00:15:16,760 --> 00:15:19,000 Speaker 1: and I are going to be with Olivia Blanchard tomorrow. 254 00:15:19,040 --> 00:15:22,600 Speaker 1: He's trumpeting the dynamics of our start. Is it useful? 255 00:15:22,680 --> 00:15:27,160 Speaker 1: Is there an efficacy traditional to traditional John Williams economics start? 256 00:15:27,360 --> 00:15:29,560 Speaker 1: I think it's a very useful input in thinking about 257 00:15:29,640 --> 00:15:33,640 Speaker 1: how to fashion monetary policy. And also fiscal policy. I 258 00:15:33,640 --> 00:15:36,840 Speaker 1: think again, it's an input you cannot be that cannot 259 00:15:36,840 --> 00:15:38,720 Speaker 1: be the only thing one is focused on. I think 260 00:15:38,720 --> 00:15:40,600 Speaker 1: that's what the pandemic in the war is not. A 261 00:15:40,680 --> 00:15:43,960 Speaker 1: lot of people say that this group of meetings is 262 00:15:43,960 --> 00:15:47,400 Speaker 1: somewhat different in nature than previous ones, just because we 263 00:15:47,440 --> 00:15:49,480 Speaker 1: feel like we're on the precipice of some sort of 264 00:15:49,480 --> 00:15:51,960 Speaker 1: turning point, either back to what we came from or 265 00:15:52,000 --> 00:15:54,760 Speaker 1: something new. How would you characterize it in terms of 266 00:15:54,800 --> 00:15:58,560 Speaker 1: how these meetings are different? I think this meeting is 267 00:15:59,560 --> 00:16:02,040 Speaker 1: different to the extent that I think we are in 268 00:16:02,080 --> 00:16:05,520 Speaker 1: this period where after all the marshal policy tightening that's happened, 269 00:16:05,880 --> 00:16:08,600 Speaker 1: we are seeing the effect of it. Because we know 270 00:16:09,160 --> 00:16:11,480 Speaker 1: all this tighting works with a lag, So I think 271 00:16:11,520 --> 00:16:13,600 Speaker 1: this is the lag and we're seeing it play out now. 272 00:16:14,240 --> 00:16:17,560 Speaker 1: There are concerns about how this could play out. You know, 273 00:16:17,600 --> 00:16:21,280 Speaker 1: as of now, financial policy tools have worked well in 274 00:16:21,360 --> 00:16:23,800 Speaker 1: being able to calm markets, but there are risks that 275 00:16:23,840 --> 00:16:27,000 Speaker 1: are out there. The second aspect is we are looking 276 00:16:27,040 --> 00:16:29,680 Speaker 1: at a period where growth in the world is not 277 00:16:29,760 --> 00:16:31,520 Speaker 1: going to go back to the three point eight percent 278 00:16:31,560 --> 00:16:35,080 Speaker 1: it used to be, but more three percent. And lastly, 279 00:16:35,120 --> 00:16:38,160 Speaker 1: we have many vulnerable economies around the world with very 280 00:16:38,200 --> 00:16:41,120 Speaker 1: high levels of debt and could be in debt to stress. 281 00:16:41,200 --> 00:16:43,880 Speaker 1: So you know, I think we have to all, first 282 00:16:43,920 --> 00:16:47,200 Speaker 1: of all, recognize that the world economy did better than 283 00:16:47,240 --> 00:16:51,040 Speaker 1: expected last year. It showed much strong resilience. We still 284 00:16:51,080 --> 00:16:54,480 Speaker 1: have tight labor markets, consumption spending is still holding up. 285 00:16:54,680 --> 00:16:57,800 Speaker 1: But that said, the balance of risks are squarely to 286 00:16:57,840 --> 00:17:00,280 Speaker 1: the downside. That last point so important. Up in a 287 00:17:00,280 --> 00:17:02,440 Speaker 1: half of the MFA to thank you. As always, it's 288 00:17:02,440 --> 00:17:14,160 Speaker 1: going to catch up and going to see it. Parlor 289 00:17:14,240 --> 00:17:16,800 Speaker 1: Gentle Learney joint us. Now that E Commissioner for Economy 290 00:17:16,840 --> 00:17:19,760 Speaker 1: and Financial's Commissioner, good morning, good morning. We won't to 291 00:17:19,760 --> 00:17:21,760 Speaker 1: talk about you. They don't worry about it. I want 292 00:17:21,760 --> 00:17:24,240 Speaker 1: to talk about something much more difficult. Let's start with 293 00:17:24,280 --> 00:17:28,520 Speaker 1: this question. Does Europe have a coherent approach to China? 294 00:17:28,920 --> 00:17:32,400 Speaker 1: And if you do, what is it? Well? I think 295 00:17:32,440 --> 00:17:37,119 Speaker 1: we do have. This is the obvious answer. It is 296 00:17:37,800 --> 00:17:46,560 Speaker 1: evolved this attitude since three four years Our attitude until 297 00:17:46,680 --> 00:17:50,760 Speaker 1: three four years ago was the attitude of well, we 298 00:17:50,920 --> 00:17:58,359 Speaker 1: have important trade relations and whatever they are, we will 299 00:17:59,000 --> 00:18:04,440 Speaker 1: strengthen this relations. Now I think we are very clearly 300 00:18:06,720 --> 00:18:12,920 Speaker 1: on the perspective to rebalance these trade relations. Who also 301 00:18:15,040 --> 00:18:20,200 Speaker 1: leave behind a certain ingenuity that we had in hoping 302 00:18:20,280 --> 00:18:27,480 Speaker 1: that this trade relations in themselves would be in an 303 00:18:27,560 --> 00:18:30,920 Speaker 1: equal treatment in a level playing field, which was not 304 00:18:31,200 --> 00:18:36,760 Speaker 1: completely the case. So we are still cooperating economically, but 305 00:18:36,880 --> 00:18:43,280 Speaker 1: we have also a geopolitical perspective which is of course 306 00:18:44,600 --> 00:18:50,399 Speaker 1: quite different from China, and it is the perspective of 307 00:18:50,400 --> 00:18:55,040 Speaker 1: our partners and US and the Western I wonder, how liar, 308 00:18:55,160 --> 00:18:56,879 Speaker 1: if your view commission is different to the view of 309 00:18:56,920 --> 00:18:59,080 Speaker 1: the French President. I'll share some of his language with 310 00:18:59,119 --> 00:19:01,880 Speaker 1: political the weekend. He said, the great risk that you're 311 00:19:01,920 --> 00:19:04,960 Speaker 1: a faces is that it gets caught up in crises 312 00:19:05,000 --> 00:19:08,280 Speaker 1: that are not ours. He's talking about China and Taiwan 313 00:19:08,320 --> 00:19:10,720 Speaker 1: and potentially just following whatever the United States does. Do 314 00:19:10,760 --> 00:19:13,280 Speaker 1: you agree with that sentiment. No, I agree on the 315 00:19:13,320 --> 00:19:16,520 Speaker 1: fact that we should avoid this kind of crisis. But 316 00:19:16,800 --> 00:19:20,160 Speaker 1: of course if this crisis occur, we know which side 317 00:19:20,240 --> 00:19:26,119 Speaker 1: we are in. I look at Italy and I have 318 00:19:26,200 --> 00:19:28,560 Speaker 1: to bring this up. In an American football this would 319 00:19:28,560 --> 00:19:31,000 Speaker 1: be called an audible. I'm going to change gears here 320 00:19:31,400 --> 00:19:35,280 Speaker 1: on what's unspoken. The stunning statistics and you as former 321 00:19:35,320 --> 00:19:37,840 Speaker 1: Prime Minister of Italy can speak to this of a 322 00:19:37,960 --> 00:19:41,720 Speaker 1: birth rate in Italy post pandemic. It takes you back 323 00:19:41,760 --> 00:19:47,800 Speaker 1: to eighteen sixty one. The demographic driving forces that we 324 00:19:47,960 --> 00:19:52,199 Speaker 1: face at these meetings are enormous. Are we depeopling the 325 00:19:52,240 --> 00:19:58,680 Speaker 1: Western world? I think we run a risk. I think 326 00:19:58,720 --> 00:20:06,000 Speaker 1: this risk particularly clear in Europe, especially in Eastern Europe, 327 00:20:06,960 --> 00:20:12,640 Speaker 1: but indeed also in my country and other European countries. 328 00:20:13,880 --> 00:20:20,439 Speaker 1: How do we face this challenge? Well, I think we 329 00:20:20,480 --> 00:20:29,080 Speaker 1: should continuously look to our perspective in a not only 330 00:20:29,119 --> 00:20:33,760 Speaker 1: in a horizontal way. I mean Europe and its big 331 00:20:34,119 --> 00:20:40,560 Speaker 1: eastern neighbor Europe and Russia. Right, we need vertical way. 332 00:20:40,960 --> 00:20:49,359 Speaker 1: Knowing that Europe, the Mediterranean, the Arab world, Africa, this 333 00:20:49,520 --> 00:20:54,600 Speaker 1: clock will have in twenty fifty two point five billion 334 00:20:55,160 --> 00:21:03,440 Speaker 1: people and we need cooperation legal mygration. This is of 335 00:21:03,480 --> 00:21:09,679 Speaker 1: course joined with internal policies that are increasing geography. This 336 00:21:09,880 --> 00:21:15,960 Speaker 1: is the solution. Well, the European experiment forward has to 337 00:21:16,000 --> 00:21:19,200 Speaker 1: be and I'm percolating out there is an optimism about 338 00:21:19,200 --> 00:21:23,920 Speaker 1: a better nominal GDP for Europe. Do we still have 339 00:21:24,080 --> 00:21:29,040 Speaker 1: eurosclerosis or should I say the risks of eurosclerosis or 340 00:21:29,119 --> 00:21:32,240 Speaker 1: view broken free of that, as Joan mentions with a 341 00:21:32,280 --> 00:21:37,960 Speaker 1: new relationship with China among others. Well, I think, well, 342 00:21:37,720 --> 00:21:45,600 Speaker 1: we love living in Europe. I think it's we are 343 00:21:45,680 --> 00:21:50,760 Speaker 1: proud of our values, our culture, but we should not 344 00:21:52,240 --> 00:21:58,199 Speaker 1: think ourselves and if possible, the world to Europe as well. 345 00:21:58,320 --> 00:22:04,160 Speaker 1: What a beautiful place with such a good values, wonderful culture, etc. 346 00:22:04,600 --> 00:22:10,520 Speaker 1: Because Europe is also the place where innovation happens. Are 347 00:22:10,560 --> 00:22:13,399 Speaker 1: you using a new nominal GDP in Europe? Have you 348 00:22:13,560 --> 00:22:18,680 Speaker 1: broken free from the euros courosis theme of decades? I 349 00:22:18,720 --> 00:22:21,640 Speaker 1: think there is a chance to do so. Why there 350 00:22:21,760 --> 00:22:27,040 Speaker 1: is this chance because I think, for the first time, 351 00:22:29,760 --> 00:22:33,439 Speaker 1: the europe I mean, in this case, the European Union 352 00:22:34,280 --> 00:22:42,920 Speaker 1: is thinking itself as an actor on the global race 353 00:22:43,640 --> 00:22:49,560 Speaker 1: to innovation, to clean technology. What in our brass language 354 00:22:49,640 --> 00:22:57,600 Speaker 1: we call strategic autonomy is something completely new for Europe. 355 00:22:58,320 --> 00:23:03,560 Speaker 1: Our idea of the European economy was until three four 356 00:23:03,640 --> 00:23:09,399 Speaker 1: years ago, the idea of a economic single market based 357 00:23:09,440 --> 00:23:16,679 Speaker 1: on competition and open trade full stone. Now the European Union, 358 00:23:17,200 --> 00:23:23,960 Speaker 1: with plans of strategic autonomy is a European Union fighting 359 00:23:23,960 --> 00:23:27,320 Speaker 1: for innovation. Just quickly here, how much is that new 360 00:23:27,440 --> 00:23:30,040 Speaker 1: vision at odds with a vision that the United States 361 00:23:30,080 --> 00:23:34,560 Speaker 1: has in terms of a cohesive trade relationship with China 362 00:23:34,640 --> 00:23:39,520 Speaker 1: and a cohesive trade relationship across the Atlantic. Well, I 363 00:23:39,600 --> 00:23:44,840 Speaker 1: think we should be recognizing the fact that we will 364 00:23:44,880 --> 00:23:49,080 Speaker 1: have in the coming years a sort of race to 365 00:23:49,760 --> 00:23:53,960 Speaker 1: clean technology in the world, a race with the US, 366 00:23:54,440 --> 00:23:59,240 Speaker 1: a race among the economic global player, a rice for subsidies. 367 00:23:59,400 --> 00:24:03,160 Speaker 1: The problem is to avoid that this become a race 368 00:24:03,560 --> 00:24:09,080 Speaker 1: for subsidies. And the risk is this to avoid is 369 00:24:09,200 --> 00:24:15,760 Speaker 1: that this undermine the relation with our partners. I'm very 370 00:24:15,800 --> 00:24:20,840 Speaker 1: optimistic from this point of view because with the Americans, 371 00:24:21,080 --> 00:24:27,560 Speaker 1: with Canada, with other countries, with Japan, we cooperate very well. 372 00:24:27,880 --> 00:24:34,199 Speaker 1: Everyone recognize that Europe has the right and the duty 373 00:24:34,680 --> 00:24:38,359 Speaker 1: to provide security to its own supply chains of the future. 374 00:24:39,119 --> 00:24:41,760 Speaker 1: I think that this is clear for all our partners. 375 00:24:42,400 --> 00:24:46,639 Speaker 1: So the problem is how we participate to this phrase 376 00:24:46,720 --> 00:24:51,920 Speaker 1: for clean technology without transforming it in a subsidies war 377 00:24:52,440 --> 00:24:57,760 Speaker 1: and in a tension among partners, and without transforming this 378 00:24:58,160 --> 00:25:03,240 Speaker 1: in a reduction of global trade. Difficult balance to find. 379 00:25:03,960 --> 00:25:07,280 Speaker 1: But if we don't find this balance, if we don't 380 00:25:07,280 --> 00:25:10,960 Speaker 1: have global trade for an economic block that like the 381 00:25:11,040 --> 00:25:14,520 Speaker 1: European Union. Yeah, it's a big problem. Commissioner, thank you, 382 00:25:14,680 --> 00:25:16,520 Speaker 1: Thank you very much. Politant to learning that. The Area 383 00:25:16,520 --> 00:25:24,880 Speaker 1: Commissioner for Economic and Financially Fast Tobias Adrian is Director 384 00:25:24,880 --> 00:25:27,960 Speaker 1: of Monetarian Capital Markets at the IMF. What that means 385 00:25:28,320 --> 00:25:30,879 Speaker 1: he's in charge of the green book and all around 386 00:25:30,960 --> 00:25:36,000 Speaker 1: financial stability here. He has enjoyed a recent American banking crisis. 387 00:25:36,320 --> 00:25:41,040 Speaker 1: You people put out PhD fancy spider charts which show 388 00:25:41,119 --> 00:25:45,639 Speaker 1: the different factors that are of challenge right now, Which 389 00:25:45,680 --> 00:25:51,240 Speaker 1: spider chart in Which factor in that chart matters right now? Yeah? 390 00:25:51,320 --> 00:25:54,000 Speaker 1: So I think what we have seen in recent months 391 00:25:54,480 --> 00:25:58,920 Speaker 1: is that banking stocks have sold off quite a bit, 392 00:25:59,200 --> 00:26:02,280 Speaker 1: in particular in US and Europe, but the market more 393 00:26:02,280 --> 00:26:07,480 Speaker 1: broadly has been fairly stable. So financial conditions have tightened 394 00:26:07,520 --> 00:26:09,840 Speaker 1: to some extent, but it's really in the banking sector 395 00:26:09,920 --> 00:26:13,000 Speaker 1: that we have seen most of the tightening, and that 396 00:26:13,160 --> 00:26:16,880 Speaker 1: could have consequences down the line. For microactivity. I want 397 00:26:16,880 --> 00:26:18,840 Speaker 1: to go to your work at m I two with 398 00:26:18,920 --> 00:26:21,919 Speaker 1: Olivia Blanchard. He's all the rage. He's my book of 399 00:26:21,960 --> 00:26:27,440 Speaker 1: the summer with wonderful difference equations on our starred folding. 400 00:26:27,520 --> 00:26:33,399 Speaker 1: The theory right now to the hardcore pragmatic realities of macroeconomics. 401 00:26:33,640 --> 00:26:37,840 Speaker 1: Does theory matter right now? Does our start matter? Absolutely. 402 00:26:37,960 --> 00:26:42,480 Speaker 1: We published a chapter just earlier this week that is 403 00:26:42,600 --> 00:26:45,760 Speaker 1: looking at our star and in our assessment, and that 404 00:26:45,880 --> 00:26:48,560 Speaker 1: is very much aligned with what the market pricing is 405 00:26:48,600 --> 00:26:51,440 Speaker 1: telling us as well, is that interest rates are going 406 00:26:51,480 --> 00:26:54,240 Speaker 1: to come down in the medium term. Of course, at 407 00:26:54,240 --> 00:26:57,520 Speaker 1: the moment they elevated, center banks have to fight inflation 408 00:26:57,600 --> 00:27:00,520 Speaker 1: and then have to keep monetary policy tight. But over 409 00:27:00,600 --> 00:27:03,840 Speaker 1: time we do expect interest rates to come back down 410 00:27:03,880 --> 00:27:06,840 Speaker 1: to our star, which we estimate to be similar to 411 00:27:06,960 --> 00:27:09,439 Speaker 1: pre COVID. Do you think we've seen evidence that this 412 00:27:09,560 --> 00:27:12,080 Speaker 1: banking system can't handle interest right to close to five 413 00:27:12,119 --> 00:27:16,359 Speaker 1: percent of the Federal Reserve. There's certainly stress in the 414 00:27:16,400 --> 00:27:18,919 Speaker 1: banks and in the non banking system. Right We have 415 00:27:19,000 --> 00:27:22,800 Speaker 1: seen turbulens in both banks and non bank financial institutions. 416 00:27:23,320 --> 00:27:27,960 Speaker 1: And there's always a distribution of how much exposure there 417 00:27:28,080 --> 00:27:31,520 Speaker 1: is to interest rate risks, to duration risk, and some 418 00:27:31,600 --> 00:27:35,320 Speaker 1: of the weaker players have been under tremendous stress, and 419 00:27:35,480 --> 00:27:40,040 Speaker 1: there's certainly possibilities that further stress could be triggered at 420 00:27:40,040 --> 00:27:42,520 Speaker 1: some point. Clearly, there were some badly managed institutions, and 421 00:27:42,560 --> 00:27:44,959 Speaker 1: we won't talk about them individually, but one FED officials 422 00:27:45,000 --> 00:27:47,240 Speaker 1: said earlier this week that he does not think that 423 00:27:47,320 --> 00:27:49,280 Speaker 1: it was because the Federal Reserve went from zero to 424 00:27:49,400 --> 00:27:52,840 Speaker 1: five in twelve months. Is that an assessment that you share? 425 00:27:53,720 --> 00:27:57,600 Speaker 1: So I don't think it's the speed per see that 426 00:27:57,800 --> 00:28:00,280 Speaker 1: is at play here, But I do think that the 427 00:28:00,520 --> 00:28:04,400 Speaker 1: rise in interest rates has been putting pressure on institutions. 428 00:28:04,640 --> 00:28:07,720 Speaker 1: That these unrealized losses, which are in the public domain 429 00:28:08,080 --> 00:28:11,720 Speaker 1: and which have made headlines around the events over the 430 00:28:11,760 --> 00:28:13,879 Speaker 1: past month, Well, do you think, just to sort of 431 00:28:14,080 --> 00:28:16,359 Speaker 1: put a bow on this, do you think that the 432 00:28:16,440 --> 00:28:19,359 Speaker 1: stress shows that it is not worth it to necessarily 433 00:28:19,440 --> 00:28:22,720 Speaker 1: raise rates further from here and cause that sort of 434 00:28:22,880 --> 00:28:26,400 Speaker 1: more systemic stress in order to more rapidly get inflation 435 00:28:26,480 --> 00:28:28,840 Speaker 1: back down to where it was pre pandemic. So the 436 00:28:28,920 --> 00:28:31,840 Speaker 1: first order goal for center banks at the moment is 437 00:28:31,880 --> 00:28:34,480 Speaker 1: to bring inflation back to target. I think there's no 438 00:28:34,560 --> 00:28:38,560 Speaker 1: question about that, and both the US policymakers and the 439 00:28:38,560 --> 00:28:42,320 Speaker 1: Swiss policymakers have been very successful in deploying other tools 440 00:28:42,360 --> 00:28:46,920 Speaker 1: to ensure financial stability. There were aggressive actions in terms 441 00:28:46,960 --> 00:28:51,800 Speaker 1: of lending and deposit insurance to contain any fallout, and 442 00:28:51,960 --> 00:28:56,000 Speaker 1: that allows monetary policy to continue to tighten to fight inflation. 443 00:28:56,320 --> 00:28:58,880 Speaker 1: Inflation is a big problem and inflation has to come 444 00:28:58,880 --> 00:29:01,120 Speaker 1: back to target. We've talked a lot about trying to 445 00:29:01,160 --> 00:29:07,200 Speaker 1: separate two things, financial stability from a monetary policy fighting inflation. 446 00:29:08,120 --> 00:29:10,520 Speaker 1: They're getting a little fuzzier, especially from the minutes where 447 00:29:10,520 --> 00:29:13,080 Speaker 1: clearly you have FED officials pulling back from some of 448 00:29:13,120 --> 00:29:16,360 Speaker 1: the rate hikes. Do you think that a credit crunch 449 00:29:16,880 --> 00:29:22,240 Speaker 1: is disinflationary? They're certainly going to be an impact from 450 00:29:22,280 --> 00:29:25,920 Speaker 1: the higher cost of capital of banks on their bank 451 00:29:26,000 --> 00:29:30,280 Speaker 1: lending behavior. We have numbers in the GFSR. We estimate 452 00:29:30,360 --> 00:29:34,000 Speaker 1: that to be about zero point four five percent in 453 00:29:34,040 --> 00:29:38,080 Speaker 1: the US and the similar magnitude in Europe. So there 454 00:29:38,200 --> 00:29:40,960 Speaker 1: is going to be an impact in our assessment from 455 00:29:41,000 --> 00:29:44,720 Speaker 1: bank lending on real output, and that of course is 456 00:29:44,760 --> 00:29:48,800 Speaker 1: going to feed back into monitor policy decisions. Absolutely. Okay, 457 00:29:48,960 --> 00:29:51,360 Speaker 1: So basically, do you think that right now developed markets 458 00:29:51,400 --> 00:29:53,920 Speaker 1: should not raise rates further and that they should just 459 00:29:54,160 --> 00:29:58,280 Speaker 1: tolerate inflation being higher perhaps a bit longer, with faith 460 00:29:58,680 --> 00:30:00,520 Speaker 1: that it will get back in the eye rest view 461 00:30:00,680 --> 00:30:04,160 Speaker 1: to where it was pretty pandemic. So We don't have 462 00:30:04,280 --> 00:30:09,520 Speaker 1: the definite answer yet. It depends on releases around inflation. 463 00:30:10,000 --> 00:30:14,040 Speaker 1: There could be upside surprises to inflation that may need 464 00:30:14,320 --> 00:30:18,440 Speaker 1: further tightening of monetary policy. So you know, policy going 465 00:30:18,520 --> 00:30:22,600 Speaker 1: forward is very much dependent on data, in particular on 466 00:30:22,760 --> 00:30:25,520 Speaker 1: how core inflation evolves. Let's talk about the data that 467 00:30:25,640 --> 00:30:29,040 Speaker 1: might influence how core inflation evolves. Have you seen evidence 468 00:30:29,080 --> 00:30:33,480 Speaker 1: that credit is contracting the bank lending is contracting in America? Oh? Absolutely. 469 00:30:33,560 --> 00:30:36,320 Speaker 1: We have seen a couple of data releases that have 470 00:30:36,560 --> 00:30:41,760 Speaker 1: shown a certain amount of tightening in credit underwriting standards 471 00:30:42,080 --> 00:30:45,479 Speaker 1: as well as in the overall level of credit. Can 472 00:30:45,520 --> 00:30:47,360 Speaker 1: I be blunted? Then? What on earth was State Treasury 473 00:30:47,400 --> 00:30:52,320 Speaker 1: secretary talking about earlier this week? So I would distinguish 474 00:30:52,560 --> 00:30:56,080 Speaker 1: a baseline and an address scenario, and I think the 475 00:30:56,160 --> 00:30:58,960 Speaker 1: Treasure Secretary was talking about the baseline. When you look 476 00:30:59,000 --> 00:31:02,040 Speaker 1: at markets, you know, the market implied inflation is coming 477 00:31:02,160 --> 00:31:04,840 Speaker 1: back to show it fairly quickly. You're being kind because 478 00:31:04,840 --> 00:31:08,040 Speaker 1: I think she said she saw no evidence of lending contracting, 479 00:31:08,240 --> 00:31:12,280 Speaker 1: and you've said, we do. Yeah. Absolutely, there's certainly evidence 480 00:31:12,320 --> 00:31:15,120 Speaker 1: in the data of some contraction and lending and some 481 00:31:15,360 --> 00:31:18,320 Speaker 1: tightening of lending. Standards at least, So what a situation 482 00:31:18,440 --> 00:31:21,200 Speaker 1: some real daylight again between the IMF and we're all 483 00:31:21,240 --> 00:31:23,840 Speaker 1: looking at the same data, and the politicians and the 484 00:31:23,920 --> 00:31:27,320 Speaker 1: Treasury Secretary and the IMF is one example. Chancellor Hunt 485 00:31:27,800 --> 00:31:29,760 Speaker 1: is another example of the same thing. Although that's a 486 00:31:29,800 --> 00:31:32,960 Speaker 1: bad projection and not realized information. But still we dismissed 487 00:31:32,960 --> 00:31:36,520 Speaker 1: that as politics. But I would love you your answer 488 00:31:36,560 --> 00:31:39,760 Speaker 1: without to bus what the policy implications are of the 489 00:31:39,880 --> 00:31:43,600 Speaker 1: politics of not reflecting the pain that is likely to 490 00:31:44,480 --> 00:31:47,280 Speaker 1: occur when you get the policy prescription that you think 491 00:31:47,360 --> 00:31:50,640 Speaker 1: is necessary to bring down inflation. So absolutely, I think 492 00:31:50,960 --> 00:31:55,120 Speaker 1: monetary policy is being tightened, and that is partially transmitted 493 00:31:55,280 --> 00:31:58,680 Speaker 1: through bank lending. That's the classic bank lending channer. And 494 00:31:59,520 --> 00:32:03,320 Speaker 1: you know, to get information down, of course, economic activity 495 00:32:03,440 --> 00:32:06,080 Speaker 1: has to come down to some degree. We're out of time. 496 00:32:06,200 --> 00:32:08,200 Speaker 1: But I've got one real important question. I'm going to 497 00:32:08,240 --> 00:32:11,360 Speaker 1: bounce off Robin Wigglesworth's wonderful tour to force on debt 498 00:32:11,480 --> 00:32:15,000 Speaker 1: in China and restructuring today and the ft. Just simply, 499 00:32:15,120 --> 00:32:19,520 Speaker 1: if China is reticent to join the West in restructuring debt, 500 00:32:19,880 --> 00:32:25,920 Speaker 1: does that change your financial stability? So many countries are 501 00:32:26,480 --> 00:32:31,080 Speaker 1: in debt restructuring negotiations, and there are many players that 502 00:32:31,160 --> 00:32:34,920 Speaker 1: are important. You're mentioning one of them, and for those 503 00:32:35,040 --> 00:32:38,160 Speaker 1: countries it is extremely first order to get the debt 504 00:32:38,520 --> 00:32:43,280 Speaker 1: restructured for the moment. The countries dat are impacted are 505 00:32:43,360 --> 00:32:47,440 Speaker 1: smaller countries, so relative to global capital markets, I think 506 00:32:48,280 --> 00:32:52,360 Speaker 1: that will not lead to broader contagion. The basis is wonderful. 507 00:32:52,920 --> 00:33:06,320 Speaker 1: Thanks for waking up early, miss. Right now, this is 508 00:33:06,360 --> 00:33:08,320 Speaker 1: a joy. As you well know, there were one hundred 509 00:33:08,320 --> 00:33:11,160 Speaker 1: and forty two books written on the crisis of seven 510 00:33:11,280 --> 00:33:15,520 Speaker 1: o eight oh nine, and singularly definitive was fault Lines 511 00:33:15,600 --> 00:33:18,400 Speaker 1: as we face new fault lines now. The author was 512 00:33:18,560 --> 00:33:21,120 Speaker 1: Rag and Roger of the University of Chicago Boost School, 513 00:33:21,520 --> 00:33:24,320 Speaker 1: and is follow on book. The third pillar was my 514 00:33:24,440 --> 00:33:27,640 Speaker 1: book of the summer ages ago. The former head of 515 00:33:27,720 --> 00:33:30,720 Speaker 1: the Indian Central Bank joins us this morning, and we 516 00:33:30,800 --> 00:33:32,760 Speaker 1: could go for two hours rago, and we don't have 517 00:33:32,880 --> 00:33:34,760 Speaker 1: it because I know, I think you're heading for the airport, 518 00:33:34,960 --> 00:33:38,160 Speaker 1: so let's get right to it right now. Olivier Blanchard 519 00:33:38,320 --> 00:33:42,520 Speaker 1: is looking at dynamics of our starting growth. The developed 520 00:33:42,560 --> 00:33:45,360 Speaker 1: worlds looking at this the emerging market world and their 521 00:33:45,400 --> 00:33:49,080 Speaker 1: fragilities are looking at it right now. How close are 522 00:33:49,120 --> 00:33:52,080 Speaker 1: we to an instability of where we need to be 523 00:33:52,600 --> 00:33:56,520 Speaker 1: versus the growth rate we're going to we hope to see. Well, 524 00:33:56,640 --> 00:33:59,920 Speaker 1: we have still a economy in the US which is 525 00:34:00,080 --> 00:34:03,040 Speaker 1: not landing right, it's chugging along. The first quarter looks 526 00:34:03,080 --> 00:34:06,400 Speaker 1: pretty good. The problem is more with the medium term. 527 00:34:06,560 --> 00:34:09,680 Speaker 1: What happens when all the stimulus plays through, What happens 528 00:34:09,760 --> 00:34:13,640 Speaker 1: when the stimulus from the Inflation Reduction Act plays through 529 00:34:14,120 --> 00:34:16,160 Speaker 1: to be slowed down? And what you're seeing in many 530 00:34:16,239 --> 00:34:19,640 Speaker 1: emerging markets is a lot of damage done by the pandemic, 531 00:34:20,120 --> 00:34:22,320 Speaker 1: which is also going to hold them back going forward 532 00:34:22,480 --> 00:34:25,400 Speaker 1: in terms of consumption. For example, the lower middle class 533 00:34:25,600 --> 00:34:28,960 Speaker 1: deeply hurt during the pandemic. Slowly recovering, but it's going 534 00:34:29,040 --> 00:34:31,040 Speaker 1: to take time. And of course we've got all these 535 00:34:31,239 --> 00:34:36,080 Speaker 1: overheads such as the tariffs, the deglobalization, the conflicts, the 536 00:34:36,160 --> 00:34:39,960 Speaker 1: attempt to so in terms of longer term growth, it 537 00:34:40,080 --> 00:34:43,080 Speaker 1: doesn't look good. I think the IMF exactly right. Longer 538 00:34:43,200 --> 00:34:46,960 Speaker 1: term growth looks a lot worse. Of course, where our 539 00:34:47,040 --> 00:34:50,200 Speaker 1: star settles after that, there are conflicting forces, the IMF 540 00:34:50,280 --> 00:34:53,839 Speaker 1: says low Larry Summer says Hi, My sense is low 541 00:34:54,239 --> 00:34:58,280 Speaker 1: that yes, you may get an inflation premium tacked onto 542 00:34:58,360 --> 00:35:01,920 Speaker 1: the real interest rate. There is equilibrium, but it's not 543 00:35:02,080 --> 00:35:05,120 Speaker 1: going to go back to high levels. Roger Tim from 544 00:35:05,160 --> 00:35:08,480 Speaker 1: Cupertino emails and thanks for watching this morning, Tim, and 545 00:35:08,640 --> 00:35:12,040 Speaker 1: he says, China in India, you are the number one 546 00:35:12,160 --> 00:35:15,239 Speaker 1: expert we have in the world on the dynamics of 547 00:35:15,320 --> 00:35:20,279 Speaker 1: these two great nations versus a new America. Explain to 548 00:35:20,400 --> 00:35:24,520 Speaker 1: us how you see twenty four months out Washington, Beijing 549 00:35:24,960 --> 00:35:28,840 Speaker 1: and all of India. Well, I would hope that we 550 00:35:28,960 --> 00:35:32,440 Speaker 1: don't go down the path we're on with between Washington 551 00:35:32,520 --> 00:35:35,200 Speaker 1: and Beijing. That's the key relationship in the world that 552 00:35:35,400 --> 00:35:38,800 Speaker 1: is fracturing. I hope they talk more. They're not they should. 553 00:35:39,760 --> 00:35:42,239 Speaker 1: That's important for the rest of the world because if 554 00:35:42,280 --> 00:35:45,600 Speaker 1: you have to choose sides, countries will be in a very, 555 00:35:45,719 --> 00:35:49,320 Speaker 1: very difficult position. Of course, there is hope that some 556 00:35:49,520 --> 00:35:52,560 Speaker 1: country like India will take up the growth engine from China. 557 00:35:53,000 --> 00:35:55,400 Speaker 1: That's not going to happen for a long time. India 558 00:35:55,560 --> 00:35:58,399 Speaker 1: is one fifth the size of the Chinese economy. Even 559 00:35:58,480 --> 00:36:02,960 Speaker 1: if India grows at you know, historic China like growth rates, 560 00:36:03,000 --> 00:36:05,960 Speaker 1: which is which is still ways away and it needs 561 00:36:06,000 --> 00:36:08,480 Speaker 1: to do a lot to get there. India is not 562 00:36:08,600 --> 00:36:11,280 Speaker 1: going to be a substitute for China. What is important 563 00:36:11,440 --> 00:36:14,560 Speaker 1: is India do what it does really well. India could 564 00:36:14,560 --> 00:36:17,680 Speaker 1: be a big exporter of services. You're seeing service exports 565 00:36:17,719 --> 00:36:19,879 Speaker 1: in India go through the roof. And these are things 566 00:36:19,960 --> 00:36:23,880 Speaker 1: not just it exports. These are new forms of services. 567 00:36:24,000 --> 00:36:27,920 Speaker 1: For example, consulting services being produced from India's not just 568 00:36:28,080 --> 00:36:32,400 Speaker 1: the back office of old it's new consultants actually facing clients. 569 00:36:32,920 --> 00:36:36,840 Speaker 1: It's lawyers facing clients. That's I think a mode for 570 00:36:36,880 --> 00:36:39,719 Speaker 1: the future that's going to help growth across the world. 571 00:36:40,360 --> 00:36:42,160 Speaker 1: Bring us here to the here and now. Back in 572 00:36:42,200 --> 00:36:45,520 Speaker 1: two thousand and five, you're the head of the IMF 573 00:36:45,600 --> 00:36:50,360 Speaker 1: Economics Department and you warnt about a banking crisis. Larry Summers, 574 00:36:50,520 --> 00:36:53,040 Speaker 1: at the time Treasure Secretary called you a luddyed. Do 575 00:36:53,160 --> 00:36:54,840 Speaker 1: you think that we are in the precipice of some 576 00:36:55,000 --> 00:36:59,680 Speaker 1: sort of financial crisis or significant credit crunch that is underappreciated. 577 00:37:00,200 --> 00:37:03,760 Speaker 1: I think we're not over yet. How bad it gets 578 00:37:04,040 --> 00:37:06,320 Speaker 1: we will have to see. I think this problem is 579 00:37:06,360 --> 00:37:09,280 Speaker 1: more systemic. We sort of putting it on a few banks, 580 00:37:09,400 --> 00:37:13,160 Speaker 1: right These are the guys who splurged, you know, they 581 00:37:13,239 --> 00:37:16,080 Speaker 1: didn't do the right thing. The fact is, when you 582 00:37:16,200 --> 00:37:19,800 Speaker 1: have quantitative easing of the kind we had in the pandemic, 583 00:37:20,200 --> 00:37:24,839 Speaker 1: you know, Federal Reserve expanding its bannsheet tremendously. What happens, well, 584 00:37:24,880 --> 00:37:27,880 Speaker 1: commercial banks also have to expand their bannsheet. They expand 585 00:37:27,960 --> 00:37:33,200 Speaker 1: it by issuing uninsured demand deposits. Uninsured demand deposits went 586 00:37:33,360 --> 00:37:36,960 Speaker 1: up by trillions of dollars during the pandemic and they 587 00:37:37,040 --> 00:37:42,440 Speaker 1: haven't come down. So the sources of fragility are there. Right, 588 00:37:42,560 --> 00:37:45,080 Speaker 1: you're bringing down reserves, but these guys still have a 589 00:37:45,120 --> 00:37:48,560 Speaker 1: lot of demand deposits out there now we've seen that. 590 00:37:48,840 --> 00:37:52,239 Speaker 1: Of course, where those deposits were invested also matters, if 591 00:37:52,280 --> 00:37:55,640 Speaker 1: they were invested in long term you know, securities. You're 592 00:37:55,640 --> 00:37:58,360 Speaker 1: seeing those losses per me through the banandsheets or the banks, 593 00:37:58,719 --> 00:38:02,719 Speaker 1: and there will be problems going forward. The question is, 594 00:38:03,080 --> 00:38:05,759 Speaker 1: as you pointed out earlier, how does this play out 595 00:38:05,840 --> 00:38:09,319 Speaker 1: in terms of the credit crunch which is coming. Are 596 00:38:09,400 --> 00:38:12,759 Speaker 1: their substitutes? Does private credit, for example, pick up some 597 00:38:12,880 --> 00:38:16,040 Speaker 1: of the slack from the banking system. That's a big unknown. 598 00:38:16,280 --> 00:38:20,600 Speaker 1: But accidents, I think we can't say we're overall our 599 00:38:20,640 --> 00:38:25,040 Speaker 1: credit crunch is inherently disinflationary. They are, they are. I 600 00:38:25,080 --> 00:38:30,120 Speaker 1: mean they're going to tighten. So you could argue supply side, 601 00:38:30,160 --> 00:38:32,600 Speaker 1: demand side, right, but I think the net effect is 602 00:38:32,680 --> 00:38:36,040 Speaker 1: disinflationary typically, So yes, it will do the Fed's job 603 00:38:36,080 --> 00:38:39,040 Speaker 1: a little for it, but the FED doesn't know if 604 00:38:39,080 --> 00:38:42,600 Speaker 1: it's coming. The FED doesn't know how much. And right now, 605 00:38:42,880 --> 00:38:45,360 Speaker 1: you know, while the numbers look good, you're still looking 606 00:38:45,440 --> 00:38:49,000 Speaker 1: at things like services inflation, which is still strong. So 607 00:38:49,520 --> 00:38:52,280 Speaker 1: the Fed count relax at this point on the inflationary front, 608 00:38:52,400 --> 00:38:55,680 Speaker 1: even though you know from the credit front it probably 609 00:38:55,719 --> 00:38:58,880 Speaker 1: should be a little software. You were really moved by 610 00:38:58,960 --> 00:39:04,239 Speaker 1: your interview Rug, Who's colleague Luigi Zingallis frame that with 611 00:39:04,400 --> 00:39:08,120 Speaker 1: the professor from both school group think? The fate of 612 00:39:08,160 --> 00:39:12,040 Speaker 1: the Federal Reserve on both monetary policy and on regulation. 613 00:39:12,520 --> 00:39:15,040 Speaker 1: Do you think the institutions like the one we're in 614 00:39:15,200 --> 00:39:17,879 Speaker 1: right now this morning, the Federal Reserve, which we talk 615 00:39:17,920 --> 00:39:20,840 Speaker 1: about often, still suffers from group think? And if you do, 616 00:39:20,960 --> 00:39:23,359 Speaker 1: how on earth are we going to address that? Look, 617 00:39:23,840 --> 00:39:25,520 Speaker 1: I think the one thing that seems to be off 618 00:39:25,560 --> 00:39:28,240 Speaker 1: the table and the discussions is the role monetary policy 619 00:39:28,320 --> 00:39:31,880 Speaker 1: has played in creating financial fragility, Right, we've sort of 620 00:39:31,960 --> 00:39:33,520 Speaker 1: put that off the table. We don't talk about it 621 00:39:33,560 --> 00:39:37,120 Speaker 1: at all. And you have to believe that three crises 622 00:39:37,600 --> 00:39:41,839 Speaker 1: in two decades it has to have played some role. 623 00:39:42,520 --> 00:39:44,560 Speaker 1: And to put it off the table and say, look, 624 00:39:44,640 --> 00:39:47,320 Speaker 1: it's the private sec it's the financial sector doing it's stuff. 625 00:39:47,640 --> 00:39:50,320 Speaker 1: They've got bad incentives. Well, that's part of the problem. 626 00:39:50,360 --> 00:39:52,600 Speaker 1: That's not the entire problem. Now we're saying supervisors were 627 00:39:52,600 --> 00:39:57,120 Speaker 1: also private from what about monetary policy? What about for example, quee? 628 00:39:57,719 --> 00:40:00,960 Speaker 1: Wasn't that part of what created the frigility that in 629 00:40:01,080 --> 00:40:04,759 Speaker 1: fact we're seeing now, And that's why we need organizations 630 00:40:04,800 --> 00:40:08,840 Speaker 1: like the IMAP to start talking. They're very hesitant to 631 00:40:08,880 --> 00:40:11,359 Speaker 1: complain about central banks of the industrial world because those 632 00:40:11,400 --> 00:40:14,680 Speaker 1: guys have more economists than the IMF. Sometimes I hate 633 00:40:15,200 --> 00:40:16,960 Speaker 1: Unfortunately we're out of time and I could talk about 634 00:40:17,000 --> 00:40:19,439 Speaker 1: this all day, but it's the establishment of view still 635 00:40:19,520 --> 00:40:22,800 Speaker 1: dominates the conversation, and I think that this institution that 636 00:40:22,880 --> 00:40:25,399 Speaker 1: we're lucky enough to sit in this morning is it's 637 00:40:25,440 --> 00:40:27,400 Speaker 1: part of the problem on that front. It needs to 638 00:40:27,440 --> 00:40:30,680 Speaker 1: make a bigger argument. Rock around Racha always fantastic Thank 639 00:40:30,719 --> 00:40:33,320 Speaker 1: you Rocky, Thank you Racky Racha at the University of Chicago, 640 00:40:33,640 --> 00:40:38,239 Speaker 1: but it's school. Subscribe to the Bloomberg Surveillance podcast on Apple, Spotify, 641 00:40:38,360 --> 00:40:42,720 Speaker 1: and anywhere else you get your podcasts. Listen live every weekday, 642 00:40:43,040 --> 00:40:46,520 Speaker 1: starting at seven am Eastern. I'm Bloomberg dot Com, the 643 00:40:46,640 --> 00:40:51,120 Speaker 1: iHeartRadio app tune In, and the Bloomberg Business app. You 644 00:40:51,239 --> 00:40:55,279 Speaker 1: can watch us live. I'm Bloomberg Television and always I'm 645 00:40:55,320 --> 00:40:59,239 Speaker 1: the Bloomberg Terminal. Thanks for listening. I'm Tom Keane, and 646 00:40:59,400 --> 00:41:00,880 Speaker 1: this is blumber