WEBVTT - Binyamin Appelbaum Discusses Monetary Policy 0:00:02.279 --> 0:00:06.840 This is Masters in Business with Barry Ridholts on Boomberg Radio. 0:00:07.640 --> 0:00:10.680 This week on the podcast, I have an extra special guest. 0:00:10.880 --> 0:00:15.200 His name is Binya apple Bound, and he is quite 0:00:15.240 --> 0:00:19.680 the expert on central banks and their policy and the 0:00:19.880 --> 0:00:25.080 history of economists UH in America. UH. Both his book 0:00:25.160 --> 0:00:30.080 and our conversation is quite fascinating. It traces the pivot 0:00:30.440 --> 0:00:35.360 in American history from where economists are really part of 0:00:35.360 --> 0:00:38.960 a softer social science and not really thought of as 0:00:39.000 --> 0:00:41.919 a heart science and don't have a whole lot of 0:00:42.040 --> 0:00:48.640 influence at most levels of government or the monetary apparatus, 0:00:48.680 --> 0:00:52.239 to the point in let's call it the nineteen eighties 0:00:52.360 --> 0:00:56.480 where all of that changes, UM, maybe even in the 0:00:56.560 --> 0:01:00.640 nineteen seventies, where where there was some influence on presidents 0:01:00.680 --> 0:01:04.160 and some major policies, and the past fifty years can 0:01:04.200 --> 0:01:08.399 really be thought of as the economist hour. How the 0:01:08.520 --> 0:01:16.480 economic class has economist class has very much influenced public policy, politics, 0:01:17.000 --> 0:01:21.160 fiscal policy, UM. Just pretty much the entire of American 0:01:21.240 --> 0:01:24.920 society can trace a lot of what's taken place UH 0:01:25.040 --> 0:01:29.240 to the economists and their influence, which appears to be 0:01:29.800 --> 0:01:32.839 coming full circle and starting to wane. So I found 0:01:32.840 --> 0:01:36.040 this conversation to be absolutely fascinating as I did the book, 0:01:36.120 --> 0:01:39.039 and I think you will as well. So, with no 0:01:39.120 --> 0:01:46.000 further ado, my conversation with Binya Applemum, this is Masters 0:01:46.040 --> 0:01:50.360 in Business with Barry Ridholts on Bloomberg Radio. My special 0:01:50.400 --> 0:01:54.120 guest today is Binya Applebaum. He is the lead writer 0:01:54.280 --> 0:01:58.000 on business and economics for the editorial board of The 0:01:58.040 --> 0:02:01.840 New York Times, where he has worked since He is 0:02:01.880 --> 0:02:05.920 the author of a new book, The Economists, Our False Profits, 0:02:06.000 --> 0:02:11.160 Free Markets, and the Fracture of Society. Benya Applebaum, Welcome 0:02:11.200 --> 0:02:14.000 to Bloomberg. Thanks, it's great to be here. Let's start 0:02:14.080 --> 0:02:17.160 with your career. Where where did you begin as a 0:02:17.200 --> 0:02:20.440 writer out of college? My first job was at the 0:02:20.440 --> 0:02:24.280 Florida Times Union in Jacksonville, Florida. I covered the news 0:02:24.360 --> 0:02:26.919 beat in a county outside of Jacksonville. The news beat 0:02:27.000 --> 0:02:29.280 meant anything that happened was my problem ad to write 0:02:29.320 --> 0:02:33.840 about it. So that includes crimes and crime, government, forest fires, 0:02:33.919 --> 0:02:37.880 county fairs, school board meetings, you name it. It was 0:02:37.919 --> 0:02:42.160 my problem. When did you first start focusing on economics 0:02:42.200 --> 0:02:46.160 and business? After Jacksonville, I moved to the Charlotte Observer 0:02:46.919 --> 0:02:49.200 and the managing editor called me in one day and 0:02:49.240 --> 0:02:51.880 asked me if I wanted to cover banking, and I 0:02:51.960 --> 0:02:54.079 was a little skeptical, but he told me, Hey, you're 0:02:54.080 --> 0:02:56.400 the new banking reporter. So that's that's how it began. 0:02:56.680 --> 0:02:59.080 Did you have any academic background or any training in 0:02:59.080 --> 0:03:01.080 this or did they just throw you in? No? I 0:03:01.080 --> 0:03:03.000 didn't really. I got thrown in blind. I didn't know 0:03:03.080 --> 0:03:05.600 much about the subject at all. It was really one 0:03:05.600 --> 0:03:07.880 of the things I love about journalism is the opportunity 0:03:07.919 --> 0:03:09.799 to learn and to study as you work, and so 0:03:10.480 --> 0:03:12.840 it really was an immersion experience. I learned as I 0:03:13.000 --> 0:03:16.480 as I worked. So what was the process like becoming 0:03:17.480 --> 0:03:19.600 I'm looking for the right word. Maybe it's a depth 0:03:19.800 --> 0:03:22.840 at covering banks because they're kind of a squishy, yeah 0:03:23.040 --> 0:03:26.040 group to pin down. It's not the easiest topic to cover. 0:03:26.400 --> 0:03:28.640 First story ever wrote I didn't get the millions and 0:03:28.680 --> 0:03:30.840 the billions straight, so there was there was a learning curve, 0:03:30.919 --> 0:03:34.040 for sure. It was fascinating, you know, Charlotte. In those years, 0:03:34.040 --> 0:03:36.680 Bank of America and Lacovia were both there and and 0:03:36.760 --> 0:03:39.240 warring with each other, and I was sort of the 0:03:39.280 --> 0:03:42.720 center of this rapidly growing industry. And it was completely 0:03:42.720 --> 0:03:44.560 fascinating to be there and to be writing about it. 0:03:44.760 --> 0:03:48.080 And now that's become sort of the southern headquarters of 0:03:48.120 --> 0:03:50.680 the banking industry, hasn't it. Yeah, it really is. It's 0:03:50.720 --> 0:03:55.120 a remarkable story how Charlotte came to be a financial center, 0:03:55.840 --> 0:03:58.320 really interesting story. But but to be there in that 0:03:58.360 --> 0:04:00.480 financial center with all of these bankers sort of trying 0:04:00.520 --> 0:04:03.360 to figure out the path of the industry and innovating 0:04:03.360 --> 0:04:05.680 and competing, it was. It was an exciting place to be. 0:04:05.960 --> 0:04:09.400 So from covering banks in Charlotte, that's not a giant 0:04:09.480 --> 0:04:12.400 leap to covering the biggest bank of all the Federal Reserve? 0:04:12.880 --> 0:04:16.280 How did that transition happened? So it basically evolved through 0:04:16.320 --> 0:04:18.320 the financial crisis. I spent a lot of my time 0:04:18.320 --> 0:04:22.400 in Charlotte writing about mortgages and the financial crisis, went 0:04:22.440 --> 0:04:24.560 to the Boston Globe, where I continued to do that. 0:04:25.000 --> 0:04:27.960 Then came to the Washington Post the week that Fannie 0:04:28.000 --> 0:04:31.160 and Freddie were taken over by the government as the 0:04:31.160 --> 0:04:35.080 paper's national banking reporter, and I covered the financial crisis 0:04:35.160 --> 0:04:37.159 for the next eighteen months. About two months after I 0:04:37.200 --> 0:04:40.120 got to the Washington Post, the paper sent my wife 0:04:40.120 --> 0:04:42.080 a box of chocolates with a note saying, you know, 0:04:42.120 --> 0:04:45.960 we're sorry you haven't seen been your recently. Maybe again someday. 0:04:47.000 --> 0:04:49.640 So that was an intense period. Uh. And then I 0:04:49.680 --> 0:04:53.520 came to the Times in initially to cover financial regulation, 0:04:53.640 --> 0:04:56.960 but then was asked to move over to the Federal 0:04:57.000 --> 0:04:59.720 Reserve as as Dodd Frank came into law and and 0:05:00.000 --> 0:05:01.960 those issues started to settle down a little bit. So 0:05:02.320 --> 0:05:06.360 inven I basically began covering the Fed and monetary policy. 0:05:06.600 --> 0:05:09.400 And what was that like, all of a sudden, now 0:05:09.480 --> 0:05:11.880 you're the New York Times reporter for the Federal Reserve. 0:05:12.400 --> 0:05:15.600 That must have been quite heady, A ton of access 0:05:15.680 --> 0:05:20.320 I assume to seeing your FED people, governors and chairman 0:05:20.360 --> 0:05:22.960 and others. What what was that like? Yeah, you feel 0:05:23.160 --> 0:05:24.880 a real responsibility. I don't know if I felt so 0:05:24.960 --> 0:05:26.880 much heady as as sort of a little scared at first, 0:05:26.920 --> 0:05:29.240 because a lot of people are counting on you to 0:05:29.320 --> 0:05:33.240 accurately represent what the FED intends to do, what it's communicating, 0:05:33.440 --> 0:05:34.919 and you do have a lot of access that the 0:05:34.920 --> 0:05:39.520 FED takes very seriously its efforts to communicate and and 0:05:39.680 --> 0:05:42.240 to convey its messages. And one of the ways it 0:05:42.279 --> 0:05:44.080 does that. One of the primary ways it does that 0:05:44.200 --> 0:05:46.800 is through big media outlets like the Times or the 0:05:46.880 --> 0:05:51.040 Journal or Bloomberg. And it works very hard to explain 0:05:51.080 --> 0:05:53.760 itself to people like me, people in my job. And 0:05:53.800 --> 0:05:55.240 so yeah, you do get to spend a lot of 0:05:55.279 --> 0:05:57.920 time with the leading figures and monetary policy talking to them, 0:05:58.200 --> 0:06:01.240 picking their brains, trying to understand what a thinking. It's 0:06:01.240 --> 0:06:05.480 frankly fascinating. Uh And and it was really an interesting experience, particularly, 0:06:05.800 --> 0:06:07.800 you know, when the FED was in the middle of 0:06:07.800 --> 0:06:10.040 this sort of tumult and trying to figure out how 0:06:10.040 --> 0:06:12.719 to deal with a new set of economic circumstances. So 0:06:13.240 --> 0:06:16.560 this new transparency, as some have called it, is very 0:06:16.600 --> 0:06:18.640 much a sea change from what the world was like 0:06:18.720 --> 0:06:22.200 forty years ago. There were no press releases. There certainly 0:06:22.240 --> 0:06:27.800 wasn't a press conference. The fed open market activity can 0:06:27.800 --> 0:06:31.360 effectively be seen in how prices on the short end 0:06:31.400 --> 0:06:34.280 of the bond market would move. That was pretty much 0:06:34.320 --> 0:06:36.720 the only way anyone had an idea that the FED 0:06:36.880 --> 0:06:41.039 was doing anything. How different is it today then, when 0:06:41.080 --> 0:06:44.599 they seem to be cloaked in in mystery and secrecy. 0:06:44.680 --> 0:06:46.880 So I wasn't around back then, but I think that 0:06:47.000 --> 0:06:48.760 A big part of the change is how much the 0:06:48.760 --> 0:06:51.680 FED is communicating directly with the public. If you go 0:06:51.760 --> 0:06:53.720 back four years ago, the person who had my job 0:06:54.040 --> 0:06:56.960 was still spending a significant amount of time with Paul Volker, 0:06:57.080 --> 0:07:00.120 had access to him, was hearing his thoughts, uh had 0:07:00.120 --> 0:07:03.000 the opportunity to question him directly. But that wasn't happening 0:07:03.000 --> 0:07:06.160 in a televised news conference. Volker wasn't going out there 0:07:06.200 --> 0:07:08.720 and talking directly to the public on sixty minutes, or 0:07:08.720 --> 0:07:11.000 you know, holding town hall forums or you know, all 0:07:11.000 --> 0:07:13.160 of these innovations and FED policy that we've seen in 0:07:13.200 --> 0:07:15.800 recent decades. So part of what happened at the FED 0:07:15.840 --> 0:07:18.520 as that so many other institutions, is they realized, you know, 0:07:18.560 --> 0:07:20.920 they could step out from behind the curtain and control 0:07:21.000 --> 0:07:24.880 their own communications, speak directly to their audience. And obviously 0:07:24.920 --> 0:07:27.400 they're doing that much more aggressively than ever before. I 0:07:27.400 --> 0:07:30.680 don't recall Vulcan tweeting a whole lot. That wasn't He 0:07:30.720 --> 0:07:33.280 wasn't big on that. But Jay Powell doesn't tweet either, 0:07:33.320 --> 0:07:35.400 So maybe that's that the next FED chair will move 0:07:35.440 --> 0:07:37.680 on to Twitter. Maybe, But there are a bunch of 0:07:38.000 --> 0:07:42.080 Federal Reserve researchers and if you look, if you go 0:07:42.200 --> 0:07:45.640 through any of the regional FEDS or the main FED, 0:07:45.760 --> 0:07:48.360 there's a ton of stuff. It's a ton of content 0:07:48.480 --> 0:07:51.720 they generate um that works. It's well into Twitter and 0:07:51.760 --> 0:07:54.920 the blogosphere and eventually in the mainstream media. So it's 0:07:55.000 --> 0:07:58.560 not like the FED is remotely quiet. They are very 0:07:58.920 --> 0:08:01.840 active in to communicate their messages. And to be clear, 0:08:01.840 --> 0:08:04.560 there was an intellectual revolution the FED at you know, 0:08:04.640 --> 0:08:07.120 forty years ago again really believed that there was some 0:08:07.240 --> 0:08:09.680 value and mystery that you didn't want to be too clear, 0:08:09.720 --> 0:08:11.960 that you didn't want to tell the public exactly what 0:08:12.040 --> 0:08:14.640 was about to happen. And there's just been this sea change, 0:08:14.680 --> 0:08:18.320 you know. Ben Bernankie famously said that of monetary policy 0:08:18.400 --> 0:08:22.119 is communications is managing expectations. That idea that the fed's 0:08:22.160 --> 0:08:25.360 primary job is to communicate and to communicate clearly is 0:08:25.400 --> 0:08:27.600 a new thing in the world, and they're doing it 0:08:27.640 --> 0:08:29.480 in every way they can. So as you said, they're 0:08:29.480 --> 0:08:32.880 on Twitter, h FED presidents wander around giving public speeches 0:08:32.920 --> 0:08:34.720 all the time. There's a sense that some of this 0:08:34.840 --> 0:08:36.880 is a bit of a cacophony, and and sometimes the 0:08:36.920 --> 0:08:39.560 message gets lost in the noise. But they're trying that 0:08:39.720 --> 0:08:41.560 this is now clearly the goal in a way that 0:08:41.600 --> 0:08:44.439 it wasn't in an earlier era. So your colleague at 0:08:44.440 --> 0:08:49.040 the Times wrote a fascinating piece in the headline was 0:08:49.240 --> 0:08:53.160 a President at war with his FED chief, five decades 0:08:53.280 --> 0:08:57.920 before Trump. The takeaway to me was, Hey, presidents have 0:08:58.040 --> 0:09:02.200 been pressuring and arguing with FED chairs for a long time. 0:09:02.720 --> 0:09:05.920 Only they kind of did it quietly and behind closed doors. 0:09:06.280 --> 0:09:10.920 What what's your read of the battle between Trump and Powell, 0:09:11.000 --> 0:09:14.240 the President and the FED chair And how different is 0:09:14.280 --> 0:09:18.280 this than previous relationships. So that story is about President 0:09:18.360 --> 0:09:22.440 Lyndon Johnson summoning William mc chesney Martin, the chairman of 0:09:22.440 --> 0:09:25.079 the FED in the late nineteen sixties, to his Texas 0:09:25.200 --> 0:09:28.680 ranch and literally shoving him against a wall and yelling 0:09:28.720 --> 0:09:32.720 at him for daring to raise interest rates. So love, 0:09:33.320 --> 0:09:36.480 our boys are dying in Vietnam because of you. Yeah, 0:09:36.559 --> 0:09:40.000 well not really, but it certainly is. The President says 0:09:40.040 --> 0:09:42.560 that to you, it should get your attention, and it did, 0:09:42.760 --> 0:09:45.320 and it did so clearly. You know, if you go 0:09:45.360 --> 0:09:48.360 back historically, the FED was essentially an arm of the 0:09:48.360 --> 0:09:51.320 Treasury Department during World War Two, and uh, you know, 0:09:51.520 --> 0:09:53.640 presidents in that era clearly thought of the FED as 0:09:53.679 --> 0:09:55.760 taking instructions from them, and they were not afraid to 0:09:55.760 --> 0:09:59.360 issue those instructions. And through Johnson and through Nixon and 0:09:59.440 --> 0:10:02.839 even into Reagan arrow we have examples of presidents, as 0:10:02.880 --> 0:10:06.600 you say, behind the scenes, but quite explicitly, directly and confrontationally, 0:10:06.640 --> 0:10:09.360 putting pressure on the FED. I do think that there 0:10:09.400 --> 0:10:12.200 was a change beginning in the eighties, but really taking 0:10:12.200 --> 0:10:16.400 hold in the nine nineties where presidents concluded that that 0:10:16.520 --> 0:10:18.640 things worked out better if you left the FED alone. 0:10:19.120 --> 0:10:21.440 Not not that they changed their mind about wanting the 0:10:21.480 --> 0:10:23.200 FED to deliver the best outcomes, but that they were 0:10:23.240 --> 0:10:25.840 convinced that if you gave it a little bit of space, 0:10:25.960 --> 0:10:28.400 a little bit of independence, that would be better for 0:10:28.400 --> 0:10:30.360 the economy, both in the medium term and in the 0:10:30.360 --> 0:10:34.160 long term. And so there was less of that kind 0:10:34.200 --> 0:10:37.240 of communication. And I do think that we're now seeing 0:10:37.280 --> 0:10:39.640 a reversion to an earlier pattern in which the Trump 0:10:39.640 --> 0:10:44.040 administration is, you know, emulating much earlier presidential administrations in 0:10:44.040 --> 0:10:46.520 in sort of explicitly telling the FED what it wants 0:10:46.520 --> 0:10:49.160 and pressuring the FED to do it. And that's something 0:10:49.200 --> 0:10:51.319 we have not seen in a long time. So so 0:10:51.520 --> 0:10:56.800 I find this whole thing ironic for a couple of reasons. First, Um, 0:10:56.880 --> 0:11:01.120 when he was a citizen citizen, Trump was complaining that 0:11:01.240 --> 0:11:05.360 Yellen was keeping rates too low. She he I believe 0:11:05.440 --> 0:11:10.240 the interview was she should be ashamed of herself, which 0:11:10.240 --> 0:11:12.880 is kind of ironic because when her term came up 0:11:12.920 --> 0:11:18.400 for renewal, he decided not to reappoint her, probably the 0:11:18.400 --> 0:11:21.560 most devish member of all the people on the FED 0:11:21.640 --> 0:11:25.120 that he could have put as as chair and he 0:11:25.240 --> 0:11:29.840 put Um Clarida and Jerome Powell as as vice chairman 0:11:29.880 --> 0:11:34.360 and chairman. I've argued they are certainly more hawkish than Yelling. 0:11:35.920 --> 0:11:38.760 Is this now the Trump's Fed? Or is this still 0:11:38.800 --> 0:11:42.520 an independent Fed? I think it is an independent institution 0:11:42.600 --> 0:11:46.200 in part because Trump, as you say, was not hugely 0:11:46.240 --> 0:11:48.440 intelligent about who he picked to run it. If he 0:11:48.480 --> 0:11:51.679 had clear goals, if he wanted easy policy, he should 0:11:51.679 --> 0:11:55.560 have picked policymakers who agreed with him. And to be fair, 0:11:55.800 --> 0:11:59.720 To be fair, Yelling is short, and he said she 0:11:59.880 --> 0:12:02.199 was too short. People think I make that up when 0:12:02.200 --> 0:12:04.960 I say that, but he said that, and he said 0:12:05.000 --> 0:12:07.480 it wasn't even behind closed doors. He said it publicly, 0:12:07.840 --> 0:12:11.040 which is kind of kind of shocking, so he replaced 0:12:11.040 --> 0:12:14.559 a dove with People have pushed back on me calling 0:12:14.600 --> 0:12:18.520 Powell hawk. He certainly was more hawkish than Yelling. Is 0:12:18.559 --> 0:12:20.240 that a fair I think that is fair. I would 0:12:20.280 --> 0:12:21.720 not call him a hawk. I think, you know, you 0:12:21.720 --> 0:12:23.959 don't want to overstate. And and we've seen the Fed 0:12:24.040 --> 0:12:26.480 just cut rates. We've seen him, you know, talking about 0:12:26.720 --> 0:12:30.520 his commitment to drive down unemployment and to create jobs. 0:12:30.640 --> 0:12:32.800 I don't think he's anybody's idea of a hawk. But 0:12:33.160 --> 0:12:35.800 it's certainly the case that the easiest way to have 0:12:35.840 --> 0:12:39.400 continued to pursue easy policy under Trump would have been 0:12:39.440 --> 0:12:42.000 to keep Janet Yelling in place. It's not, you know, 0:12:42.080 --> 0:12:45.400 and and and in the way that Trump made his 0:12:45.400 --> 0:12:48.640 early appointments, he certainly didn't pick people who were particularly 0:12:48.679 --> 0:12:51.800 minded to cut rates. There are clearly voices on the 0:12:51.800 --> 0:12:55.400 FED who want lower rates than j Powell. And and 0:12:55.440 --> 0:12:58.640 Trump you know, has both you know, bloviated publicly about 0:12:58.640 --> 0:13:00.240 how much he wants that, but then when he's had 0:13:00.280 --> 0:13:03.240 the opportunity to do something about it, he has consistently 0:13:03.240 --> 0:13:07.040 not taken advantage of those opportunities. To be fair. You 0:13:07.080 --> 0:13:09.839 see Jerome Pale, he looks good in the suit, he's 0:13:09.840 --> 0:13:13.120 got a full head of hair. He looks very chairman like, 0:13:13.720 --> 0:13:19.079 and I suspect that those elements way heavily in a 0:13:19.200 --> 0:13:22.439 president who tends to be focused more on the optics 0:13:22.880 --> 0:13:26.040 and the television announcement moment and may not pay as 0:13:26.120 --> 0:13:30.320 much attention as you should to the specifics of the policies. Again, otherwise, 0:13:30.360 --> 0:13:34.280 he would have kept the diminutive statured yelling in place 0:13:34.320 --> 0:13:36.920 his chairperson. It is clear that the president views himself 0:13:36.920 --> 0:13:39.960 as a casting director. Yes, that's a good way to 0:13:40.000 --> 0:13:43.600 discuss it. So you mentioned the independence of the FED. 0:13:43.800 --> 0:13:48.360 Are they truly independent? Especially, say what you will about Trump, 0:13:48.520 --> 0:13:51.520 he is very effective as a communicator. He is a 0:13:51.679 --> 0:13:56.000 very strong tactician. Maybe not the world's greatest strategist, but 0:13:56.080 --> 0:13:59.440 in terms of getting what he wants now, he seems 0:13:59.480 --> 0:14:02.120 to be pretty good at that. Not to act philosophical, 0:14:02.200 --> 0:14:05.160 but nobody is truly independent, and the FED certainly is not. 0:14:05.679 --> 0:14:07.400 I think what we can say about the FED is 0:14:07.440 --> 0:14:10.560 that it has been provided with a degree of insulation 0:14:11.400 --> 0:14:15.000 to allow it to make short term decisions on the 0:14:15.040 --> 0:14:19.160 basis of technical considerations. But its goals are set by Congress, 0:14:19.560 --> 0:14:22.680 its officials are selected by the President, it is subject 0:14:22.720 --> 0:14:25.680 to political pressure in a wide variety of ways. It 0:14:25.760 --> 0:14:29.760 clearly thinks about politics as part of the considerations that 0:14:29.800 --> 0:14:32.800 inform the direction of monetary policy. It is very easy 0:14:32.840 --> 0:14:37.920 to overstate what independence means. We were discussing earlier some 0:14:38.080 --> 0:14:42.320 of the pressures on the FED UM from the President 0:14:43.080 --> 0:14:45.840 and and the impact that has our markets. Let's talk 0:14:45.880 --> 0:14:49.160 a little bit about the pressure of the markets on 0:14:49.280 --> 0:14:52.680 the FED. By all measures, the US has the highest 0:14:52.800 --> 0:14:57.520 interest rates UM as a central bank and as a 0:14:57.520 --> 0:15:01.040 bond issuer in the developed world, be in the entire 0:15:01.680 --> 0:15:06.480 UH investment grade world. How does that impact what the 0:15:06.480 --> 0:15:10.320 FED does, both both market forces and what other central 0:15:10.360 --> 0:15:13.640 banks do. I think there's two sort of dimensions to this. 0:15:13.800 --> 0:15:17.240 The first is that since the financial crisis, we've seen 0:15:17.320 --> 0:15:23.840 the FED embracing a responsibility for being the world's central bank. 0:15:23.920 --> 0:15:25.760 That was certainly true in the immediate aftermath of the 0:15:25.800 --> 0:15:28.720 financial crisis, where UH you know, a lot of the 0:15:28.720 --> 0:15:31.000 crisis era programs that the FED put in place to 0:15:31.040 --> 0:15:34.800 provide funding, we're really about funding the global financial system 0:15:34.880 --> 0:15:39.080 more than about funding American financial institutions. Meaning the concern was, 0:15:39.600 --> 0:15:42.440 all right, we're starting to thaw here, but the freeze 0:15:42.440 --> 0:15:45.360 elsewhere can certainly reach back and send this back down 0:15:45.400 --> 0:15:47.840 the rabbit hole again. Absolutely, And so you know, this 0:15:47.880 --> 0:15:50.600 idea that the FED has a responsibility for keeping money pumping, 0:15:50.840 --> 0:15:54.880 not just domestically but internationally is clearly a part of 0:15:55.040 --> 0:15:57.320 the sort of the modern era FED, and it's thinking. 0:15:57.920 --> 0:15:59.560 The other issue is that if you get too big 0:15:59.560 --> 0:16:01.600 a gap between the United States and Europe, just as 0:16:01.600 --> 0:16:03.400 you just suggested, or between the United States and the 0:16:03.400 --> 0:16:05.520 rest of the world, it starts to put pressure on 0:16:05.600 --> 0:16:07.840 both the FED and the American economy. It is difficult 0:16:08.080 --> 0:16:10.920 to be raising rates when everybody else is cutting rates 0:16:10.960 --> 0:16:14.080 and standing still and buying bonds. You just you can't 0:16:14.080 --> 0:16:16.840 pull away that much from the pack. Uh. And and 0:16:16.880 --> 0:16:19.080 we've seen that tension play out in recent years where 0:16:19.080 --> 0:16:20.960 the FED has said, basically, listen, we think the American 0:16:20.960 --> 0:16:23.640 economy is ready to you know, detach and and to 0:16:23.680 --> 0:16:26.640 start growing again. And the mere fact that the rest 0:16:26.640 --> 0:16:29.280 of the world was standing still ended up limiting the 0:16:29.280 --> 0:16:32.240 Fed's ability to move rates. So what we saw happen 0:16:32.480 --> 0:16:36.280 was all this given the yield differential between investment grade 0:16:36.800 --> 0:16:42.200 treasuries and other sovereign investment grade papers, all this capital 0:16:42.240 --> 0:16:45.120 comes flying into the United States to buy treasuries. It 0:16:45.200 --> 0:16:49.880 makes the dollar much much stronger, which hurts US exports. 0:16:49.880 --> 0:16:52.920 And and it's great if you go overseas and travel, 0:16:53.240 --> 0:16:56.280 but if you're making products and you want to export them, Um, 0:16:56.320 --> 0:17:00.640 it's an issue. Does that force the FED to say, hey, 0:17:00.680 --> 0:17:02.280 we're out of line with the rest of the world 0:17:02.360 --> 0:17:05.639 central banks. I don't think it's by itself a sufficient 0:17:06.480 --> 0:17:09.480 factor to you know, move policy, but it's it's clearly 0:17:09.480 --> 0:17:12.320 a consideration for some members of the FED more than others. 0:17:12.359 --> 0:17:15.080 There are something Governor Lele Brainerd has been particularly vocal 0:17:15.119 --> 0:17:18.720 about her you know, her interest in international factors and 0:17:18.720 --> 0:17:21.440 her belief that they should influence the course of monetary policy. 0:17:21.960 --> 0:17:24.000 It remains her of an active debate inside the FED 0:17:24.040 --> 0:17:26.400 how much attention you pay to these considerations, But there's 0:17:26.400 --> 0:17:29.359 no doubt that it matters, and that it is influencing 0:17:29.400 --> 0:17:32.520 the course of monetary policy, and that the United States 0:17:32.560 --> 0:17:35.240 is part of you know, the financial system is even 0:17:35.240 --> 0:17:38.960 more integrated than the global economy, uh and the FED 0:17:39.240 --> 0:17:42.119 operates in the financial system, and to the extent that 0:17:42.200 --> 0:17:45.440 there is a divergence as we've seen between rates domestically 0:17:45.440 --> 0:17:48.000 and rates and the rest of the world. It clearly 0:17:48.040 --> 0:17:51.359 constrains the FEDS ability to act. So so let's talk 0:17:51.359 --> 0:17:54.720 about that integration. That that's an interesting observation. The financial 0:17:54.720 --> 0:17:59.040 world much more integrated than the economy. When we look 0:17:59.040 --> 0:18:04.320 around international Japan has negative interest rates, Europe has some 0:18:04.800 --> 0:18:08.600 very major countries with with negative interest rates. I've heard 0:18:08.640 --> 0:18:12.480 some people make the argument that the US financial system 0:18:12.640 --> 0:18:16.800 is built on positive interest rates, whether it's fractional lending 0:18:16.880 --> 0:18:22.200 or mortgages or money market funds, we can't sustain negative rates. 0:18:22.720 --> 0:18:25.880 Is that a concern at the Federal Reserve? What would 0:18:25.960 --> 0:18:30.120 they do if negative rates came to America? It clearly 0:18:30.240 --> 0:18:31.879 is a concern. I think people would have said the 0:18:31.920 --> 0:18:35.159 same thing about Europe or Japan before they experienced, you know, 0:18:35.240 --> 0:18:39.359 negative rates. That our understanding of modern finances predicated on 0:18:39.400 --> 0:18:41.520 the assumption that you get a return, and the idea 0:18:41.560 --> 0:18:44.440 that those returns are negative requires a lot of adjustments 0:18:44.480 --> 0:18:46.800 in the mechanics of the system, in the way that 0:18:46.800 --> 0:18:48.840 we think about the system, in the way that it functions. 0:18:49.359 --> 0:18:51.240 I think, you know, no one knows is the answer. 0:18:51.400 --> 0:18:54.000 It's a possibility that has to be unnerving because we've 0:18:54.040 --> 0:18:57.040 never been there before, and I think we just cannot 0:18:57.080 --> 0:19:01.879 anticipate all the consequences. So so Ben Bernanke very famously 0:19:02.040 --> 0:19:06.800 apologized for some of the mistakes the FED UH made 0:19:06.920 --> 0:19:09.760 way back when I believe he was talking to Milton 0:19:09.800 --> 0:19:13.639 Friedman at the time. Is that right? Um? How often 0:19:13.760 --> 0:19:17.560 does a central bank step forward and say, hey, we 0:19:17.560 --> 0:19:19.920 were wrong about this, and here's how it's going to 0:19:20.080 --> 0:19:23.320 change us going forward. That has been happening more lately, 0:19:23.400 --> 0:19:25.840 I mean, as part of this new era of transparency 0:19:25.880 --> 0:19:29.719 and clarity and communication, we have heard central bankers, particularly 0:19:29.760 --> 0:19:33.280 here in the United States, critiquing their own performance more 0:19:33.359 --> 0:19:35.960 publicly than was true in the past. UH. And that's 0:19:35.960 --> 0:19:38.000 an interesting change and I think it's helpful. We heard 0:19:38.080 --> 0:19:41.040 j Powell last year explaining, you know, what he thought 0:19:41.040 --> 0:19:43.600 about the FEDS actions over the previous year, offering sort 0:19:43.600 --> 0:19:45.359 of in December a post mortem on the year that 0:19:45.440 --> 0:19:49.000 had been. That's something that it was unimaginable that Alan 0:19:49.000 --> 0:19:52.199 Greenspan would have delivered a performance like that. So it's 0:19:52.240 --> 0:19:54.399 a new thing to hear central banks talking this way 0:19:54.400 --> 0:19:57.119 about their own performance, and frankly, I think it's beneficial. 0:19:57.480 --> 0:20:01.560 I do recall Greenspan admitted that he discovered a flaw 0:20:02.080 --> 0:20:06.040 in his philosophy, and some of the political cartoonists sort 0:20:06.080 --> 0:20:09.000 of showed him on the steps of the roman Um 0:20:09.080 --> 0:20:15.480 Senate with everything in in um uh just rumble, destructive, 0:20:16.359 --> 0:20:22.040 crumbled pillars and it was just a mess. Um How 0:20:22.200 --> 0:20:27.520 significant was green span ad minting error? And did that 0:20:27.600 --> 0:20:30.639 have an impact on future FED chiefs? So if you 0:20:30.720 --> 0:20:33.280 sort of stepped back for a moment, the FED, uh, 0:20:33.320 --> 0:20:36.040 you know, in the nineteen sixties was still run by 0:20:36.200 --> 0:20:39.320 financial market types. The economists played a very limited role 0:20:39.359 --> 0:20:45.040 in the institution. The FED was essentially a part of 0:20:45.040 --> 0:20:47.679 of the financial system and and and there were not 0:20:47.960 --> 0:20:50.879 people like Alan Greenspan in charge. And what you get 0:20:50.920 --> 0:20:53.439 over the succeeding decades is people like Paul Volker and 0:20:53.480 --> 0:20:57.200 Alan Greenspan are elevated into positions of authority and they 0:20:57.240 --> 0:20:59.880 see the mission of the Central Bank much more narrowly 0:21:00.359 --> 0:21:03.840 that the FED was created to prevent financial crises. That's 0:21:03.880 --> 0:21:07.800 why we decided to have a central bank post nineteen 0:21:07.840 --> 0:21:10.920 o six. UM there was a big crisis, in large 0:21:10.960 --> 0:21:15.639 part caused by um capital flows from big insurers in 0:21:15.680 --> 0:21:18.120 the UK to the US and bank and we were 0:21:18.200 --> 0:21:21.400 sort of operating UM with one arm behind our back 0:21:21.480 --> 0:21:23.960 if other countries have central banks. So we know that's 0:21:23.960 --> 0:21:26.560 exactly right, and so we decided to create this system 0:21:26.760 --> 0:21:29.960 to serve as a backstop for our banks. Over time, 0:21:30.080 --> 0:21:32.560 that mission gets minimized, and so in the VOLCA and 0:21:32.640 --> 0:21:37.240 green Span eras the Fed's mission is transformed into inflation control, 0:21:37.359 --> 0:21:39.920 the one thing it has to do is just keep 0:21:39.960 --> 0:21:43.800 inflation slow and steady, and that will guarantee financial stability, 0:21:43.880 --> 0:21:46.800 It will guarantee broad prosperity. It was like a magic pill. 0:21:46.840 --> 0:21:48.919 The idea is, if you could just control inflation, and 0:21:48.960 --> 0:21:52.080 this comes from Milton Friedman, if you could just control inflation, 0:21:52.200 --> 0:21:55.840 everything else would fall into place. And so Alan Greenspan, 0:21:56.400 --> 0:21:59.880 and he's been quite open about this, basically ignored financial regulation. 0:22:00.400 --> 0:22:02.879 It wasn't that he thought markets were perfect that often 0:22:02.960 --> 0:22:05.399 that's a bit of a caricature. What he thought is 0:22:05.440 --> 0:22:09.320