Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Lee.
Speaker 1: We bring you insight from the best in economics, finance,
Speaker 1: investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. I
Speaker 1: want to show a chart now which folds into equities,
Speaker 1: folds into commodities, folds into bonds as well before we
Speaker 1: bring in our test team guests. This surprised me. This
Speaker 1: is US trade weighted real broad dollar. This is the
Speaker 1: broadest measurement of the dollar with strong dollar up one
Speaker 1: standard deviation over the fifty year chart. The plaza chord
Speaker 1: way over on the left side, so it is a
Speaker 1: strong dollar to say the least, which is a good
Speaker 1: entry point on equ it Ease with Edmund shing A
Speaker 1: B and P. Perry by the global head of Equity
Speaker 1: in Derivative Strategy in Maryland. Watson joins us today a
Speaker 1: black Rack, their head of Global Fundamental Fixed Income Strategy Maryland.
Speaker 1: Currency dynamics and fixed income really affect the coupon right now.
Speaker 1: To begin with Euro in this this London hour, what
Speaker 1: do you do on currency as you try to find
Speaker 1: coupon in Europe. Yeah, that's right. So if you're a
Speaker 1: European investor, you're a DOMS hold investor, then it's really
Speaker 1: important to be aware of the hedging costs. And I
Speaker 1: think if you're looking for coupons then we do see um,
Speaker 1: you know, potential of the opportunities in euro credit. We
Speaker 1: see opportunities also elsewhere in Asia and also in dollars
Speaker 1: nominated assets as well. But it's really important to be
Speaker 1: aware of the carrier get then also the hedging cost
Speaker 1: back because it's about three percent, which is a lot.
Speaker 1: So I think it's very very important to be very
Speaker 1: aware of when you're tryd of looking at that coupon,
Speaker 1: what in investor actually gets back half the aging cost?
Speaker 1: And maybe you don't have the urging cars and equities,
Speaker 1: but you certainly have the current currency translation as well.
Speaker 1: What a strong dour due to US smart nationals or
Speaker 1: is it too small a part to play? Well, you
Speaker 1: can't say it's too small time because if you look
Speaker 1: at the SMP five index, something like forty of earnings
Speaker 1: are from overseas, so clearly has it has an impact, um,
Speaker 1: maybe not as much an impact as it as currency
Speaker 1: does in Asia or in the US, but an impact nonetheless,
Speaker 1: of course, I think the real issue for equities is
Speaker 1: not going to be just the currency by itself. It's
Speaker 1: going to be much more where the currency goes. And
Speaker 1: I think it's going to be much more about really
Speaker 1: the debt mountain that the US has to deal with
Speaker 1: in the coming years, and what does that do to
Speaker 1: the currency. I think that's more of an issue in
Speaker 1: terms of stability going forward. What does that do to
Speaker 1: the currency? Well, I think it makes the currency get down.
Speaker 1: I think Toma's pointed out the fact that the dollar
Speaker 1: is way high. Okay, fine, and everyone's been very bullish
Speaker 1: the dollar. Well we're not. We're pretty barished the because
Speaker 1: we think eventually the debt mountain comes to bear, someone's
Speaker 1: going to buy this U S debt. Remember, they running
Speaker 1: massive budget deficits. I love the way everyone complains about
Speaker 1: Italy in the Italian budget deficit. The US got a
Speaker 1: massive budget deficit. It's a only going to get worse.
Speaker 1: Trump is not doing anything to help that. And they
Speaker 1: think that everyone's going to buy their debts to be fair. Yeah,
Speaker 1: but the thing is they still need people to buy
Speaker 1: their debt. Front scene. Someone has to buy it. Yeah,
Speaker 1: the treasury of sellers. Who is the buyer? Not the Russians,
Speaker 1: not the Chinese. Oh, good luck, the domestic US investor.
Speaker 1: Let's see, let's see if they absorb all of the debt. Okay, Well,
Speaker 1: where do you see dollar going from here? You know,
Speaker 1: so the medium term, we also see the dollar depreciating
Speaker 1: from here. Um as has been very strong at the moment,
Speaker 1: we did see a bit of a pause after the
Speaker 1: FED sickly. J. Powell was suggesting that they might be
Speaker 1: on pausing for an extended periods of time. Um And
Speaker 1: I think as we go forward, you know, the US
Speaker 1: is in the late cycle of the business cycle as well.
Speaker 1: So our view is also the over the medium term
Speaker 1: at least the dollar will also to depreciate. Okay, what
Speaker 1: happens if we have a trade route? Does it? Does
Speaker 1: it mean that actually the FED is back at hiking
Speaker 1: far too early to say, I think the Fed will
Speaker 1: leave it a few months. Look, they're not doing a
Speaker 1: big rush. Core inflation is not going up that quickly
Speaker 1: despite the rise and wage inflation. And they're also, of
Speaker 1: course in the US. Don't forget helped by the the
Speaker 1: oil price. The oil price has a lagged effect to inflation.
Speaker 1: It was coming down, remember in December, quite considerably, and
Speaker 1: the feed through their foot core inflation is going to
Speaker 1: be someone negative rather than positive, at least for the
Speaker 1: next few months. So they have a little window where
Speaker 1: they can sit and do not very much. In particular Maryland,
Speaker 1: where is black rock and the concept of lower for longer?
Speaker 1: We had Gary Shilling and yesterday arguably the best two
Speaker 1: decades call on lower interest rates, etcetera. But but where
Speaker 1: is black rocks formal statement and how low and how
Speaker 1: long we stay with this great regime? Yeah? So, um,
Speaker 1: I also think that they're going to stay lower for
Speaker 1: a lot longer. And you know, our core view at
Speaker 1: the moment is we'll have a pause at least for
Speaker 1: the first half of this year. Um. As Edmund said, um,
Speaker 1: you know, I agree with this statement that the FEND
Speaker 1: is going to be very patient. They're in no rush
Speaker 1: to do anything. And then when you see the development
Speaker 1: of inflation, when you see the development of global factors,
Speaker 1: global trade, when you see the development of the U
Speaker 1: S economy and activity, then I think potentially in the
Speaker 1: second half of the year you could see a further
Speaker 1: hike or you could see a continued pause. But I
Speaker 1: certainly think in the US and if you look globally
Speaker 1: as well, if you look at the ECB, um, you
Speaker 1: know they're in nowhere to do anything either. Um. You know,
Speaker 1: the Bank of England wants to show up the economy
Speaker 1: and we think that you know, on the margin, at
Speaker 1: some point they will ride rates. But I think broadly,
Speaker 1: when you look at the global economy, when you look
Speaker 1: at development markets, we are in a completely different regime
Speaker 1: to the past, and we are going to see rates
Speaker 1: much lower for longer, and the end point is also
Speaker 1: going to be much much lower. To James Bullard and
Speaker 1: his phrase of regime change, it is a most interesting
Speaker 1: time administing on the markets. B and B very Maryland
Speaker 1: wantson and fixed income as well with black Crocket join.
Speaker 1: I guess a man whose career has taken him from
Speaker 1: the Fed to the I m F, from City Group
Speaker 1: and now with the Milken Institute the chief economist. It
Speaker 1: is Billy and he joins us from Washington. Good morning
Speaker 1: to your bill. Want to so help me out as
Speaker 1: always to draw a distinction between noise and news substance
Speaker 1: and happy talk. What do we have this morning? The
Speaker 1: most substantive thing you just mentioned is the fact that
Speaker 1: the dollar has been gaining stronger and stronger over the
Speaker 1: last week or so. And think about it. Interest rate
Speaker 1: parody told us that when the Fed talers, we're supposed
Speaker 1: to pause, the dollar is supposed to weaken. Instead, what
Speaker 1: has happened. It tells us that interest rate parody models
Speaker 1: don't work, and I think the traders around the world
Speaker 1: are learning that the hard wave. One thing do you
Speaker 1: have to keep in mind is that the US continues
Speaker 1: to be a magnificent global capital and everyone in the
Speaker 1: world wants to come here, despite the fact that we
Speaker 1: have rising deficits, rising death to GDP ratios. And as
Speaker 1: was saying to Tom earlier, one of the things that
Speaker 1: we have to be cautious about is keep things in perspective.
Speaker 1: All this worrying about the US is like talking worrying
Speaker 1: about pimples on a teenager's face when the rest of
Speaker 1: the world has cancer and and I think we have
Speaker 1: to remember it breaks it and even the problems within China,
Speaker 1: all the dead problems they're having, is demonstrating to us
Speaker 1: that the leverage is being put to use in the
Speaker 1: US much better than it is being put to use
Speaker 1: in the rest of the world. There is a belief
Speaker 1: Bill that if we get some kind of trade daila
Speaker 1: will go a long long way to curing the world's ills.
Speaker 1: It will be some kind of panacea. I take it
Speaker 1: from your Bill, and you don't share that belief. Well, actually,
Speaker 1: um strangely enough, I take that view, but on a
Speaker 1: on a much longer term basis. We've had social problems
Speaker 1: and political problems tearing apart Europe and Middle East and
Speaker 1: Asia for centuries. And I think one of the things
Speaker 1: that the milk and formula tells us is prosperity comes
Speaker 1: with the use of capital in a smart way to
Speaker 1: bolster social capital. In other words, when we get the
Speaker 1: global economy and regional economies to grow faster, a lot
Speaker 1: of the social problems start to go away at least
Speaker 1: become less important. And I think that's the formula that
Speaker 1: that is being used around the world now by by
Speaker 1: us when we have these regional conferences we're doing the
Speaker 1: Middle East right now, we're trying to get everyone to
Speaker 1: focus on strengthening social capital by using financial capital to
Speaker 1: build up the global economy and to build up growth. Increasingly,
Speaker 1: that build that's not what I say from many nations
Speaker 1: around the world. In fact, what I do see is
Speaker 1: an urge to limit the flow of capital in many ways,
Speaker 1: depending on where that capital is coming from. Is that
Speaker 1: of concern to you and you felt that into this
Speaker 1: tried discussion. That scares the hell out of me, John,
Speaker 1: because one of the things that I when I was
Speaker 1: at the i m F, it was absolutely forbidden to
Speaker 1: talk about global capital controls. Right, capital controls were an
Speaker 1: anathema because you wanted global to freely flow around the world.
Speaker 1: Now people at the i m F are getting promotions
Speaker 1: for writing papers like the Approach Big Use of Capital
Speaker 1: controls and small Open Economies when capital influence threatened to
Speaker 1: overwhelm domestic financial infrastructure. Wow, what a change of I
Speaker 1: m F philosophy in the last ten years. And I
Speaker 1: think that reflects the growing sense of of of not
Speaker 1: being able to build the appropriate infrastructure and capital markets
Speaker 1: that are resilient enough to to strong flows in and out.
Speaker 1: And I think that's the problem that that's not being
Speaker 1: faced by my profession, the economics profession, and the financial
Speaker 1: uh market participants out there. Flows into the United States,
Speaker 1: the flows from the rest of the world is is
Speaker 1: essentially safe, safe haven flows. I think one of the
Speaker 1: things that people are afraid of is the fact that
Speaker 1: take China for example, every rich person I know in
Speaker 1: China wants a backdoor out. They want to put their
Speaker 1: kids in Australia for education, they want to put their
Speaker 1: kids in the UK, in the US, And I think
Speaker 1: this need for a back door shows you that the
Speaker 1: world is really very unstable. And where are they going
Speaker 1: They come into the US, and I think the US
Speaker 1: represents a lot of social and there are a lot
Speaker 1: of problems that you just talked about with with Gideon
Speaker 1: um But but one of the things that we have
Speaker 1: to keep in mind is that we are very dynamic economy.
Speaker 1: And even even with that dynamism, the social problems become
Speaker 1: lessened when we are able to grow fast. And I
Speaker 1: think one of the things that has hurt us since
Speaker 1: two thousand and eight is this very very sluggish recovery
Speaker 1: that's been taking place. Right now, we have some possibility
Speaker 1: of having sustained growth. But as a practicing economist, I mean,
Speaker 1: I know you're doing bigger, broader things with milk and
Speaker 1: and as a practicing economist, what's your terminal run rate
Speaker 1: of of us g d P. I mean some of
Speaker 1: these shops, Bill Lee have really grim statistics. John Farrell,
Speaker 1: there's a couple under two percent, Right, it's a terminal
Speaker 1: run rate. What's Billy's terminal run rate? Well, well, I
Speaker 1: I keep my my my my union card as a
Speaker 1: PhD economist by saying, well, ye know, the natural growth
Speaker 1: is limited by population and productivity growth, and and and
Speaker 1: the where where I have a bit of more opt
Speaker 1: isum than a lot of the shops around that have
Speaker 1: the one handle on US growth is the possibility that
Speaker 1: US productivity will start to strengthen with appropriate use of
Speaker 1: capital invested in the right right uh assets. And I
Speaker 1: think the things that we have been having trouble with
Speaker 1: is that dead assets encourage entrepreneurs to stay with continuing
Speaker 1: uh existing technologies, because what does the deadholder want their
Speaker 1: money back? But equity capital represents the possibility of of
Speaker 1: of shooting for the moon and and and and swinging
Speaker 1: for those technologies that will raise productivity, raise proctivity growth.
Speaker 1: And I think as financing starts to resort more to equity,
Speaker 1: especially through private equity, Yeah, I think we're going to
Speaker 1: see more of that bill just to taste some of
Speaker 1: this out. Essentially, the equation you offered was the recipe
Speaker 1: for potential growth in America? Where do you see potential GDP?
Speaker 1: And I should add to this, I think the thing
Speaker 1: that markets and market participants worry about is just the
Speaker 1: rate of change from above potential while above potential three
Speaker 1: four percent back down to two how quickly we get
Speaker 1: that and whether we overshoot to the down side as well. Yeah,
Speaker 1: the possibility of soft landing has escaped the FED for
Speaker 1: for many decades, and I have to be guilty of
Speaker 1: that as myself. Um, but but I think one of
Speaker 1: the this is the best chance we have of getting
Speaker 1: a soft landing because we don't have any of the
Speaker 1: imbalances that normally cause the FED to to really spike
Speaker 1: interest rates because inflation is getting running out of hand. Uh.
Speaker 1: Structural um. Structural forces that are keeping disinflation in the
Speaker 1: front of every form C member is one thing that
Speaker 1: is I think keeping the FED from resorting to the
Speaker 1: kind of stop good policies that have killed every past recovery.
Speaker 1: Are those structural forces simply technology? I mean you mentioned
Speaker 1: earlier ability the effective Amazon and pricing is they know
Speaker 1: they essentially take retail to a perfectly competitive microeconomics. But
Speaker 1: the bottom line is technology is the great unmentionable here
Speaker 1: Should the I m F, should World Bank? Should the
Speaker 1: others be doing more in the study of these profound
Speaker 1: technological effects. I think the I m F and and
Speaker 1: World Bank aconomis even fed economists um should get some
Speaker 1: dosage of private sector experience. And I have to say
Speaker 1: I have been blessed by my years at the City
Speaker 1: because I have seen how the markets misappropriate capital. And
Speaker 1: I think one of the things that that that that
Speaker 1: productivity models go for is what is the long trend
Speaker 1: and how is the long trend changing? And my god,
Speaker 1: the last the next guy who used an HP filters
Speaker 1: estimate a potential GDP, I'm going to bash them in
Speaker 1: the head because that's completely ignoring how capital is being used.
Speaker 1: But I would love to say that you just bashing
Speaker 1: people in the hands. We can in the studio, and
Speaker 1: every time an economists says something he doesn't like, you
Speaker 1: could come up on the other hand him in the face. Billy,
Speaker 1: thank you so much for the Milken Institute for getting
Speaker 1: us started. We are thrilled to bringing with his kindness
Speaker 1: every new issue of foreign affairs magazine. Get the physical copy,
Speaker 1: reasonable subscription and it is just filled it Inside this
Speaker 1: month is a twisted view on the global new nationalism,
Speaker 1: but with a real American angle. Julapor leads it off
Speaker 1: with a controversial walk through our nationalist to Kischen Stacy
Speaker 1: Abrahams is in there in many other worries A well,
Speaker 1: I thought Michael mandel O Gideon on on Europe was
Speaker 1: really quite good. I mean, we talk about nationalism in Europe.
Speaker 1: It's an extraordinary original nationalism, isn't it. It is, you know,
Speaker 1: one of the greatest questions we have right now, and
Speaker 1: this goes back to what you were talking about with
Speaker 1: Billy in the last segment, is how much the social
Speaker 1: concerns are related to economic concerns, not just in question
Speaker 1: of growth, but also distribution. And so in Europe, where
Speaker 1: you've had uh not much progress in a lot of places,
Speaker 1: you see social divisions and social groups uh coming up
Speaker 1: and trying to get our own and pulling their own
Speaker 1: back from the larger community of the EU because they
Speaker 1: don't feel they've benefited from it. And that's for the
Speaker 1: question is not just growth but also the distribution of
Speaker 1: growth and getting people to feel like they profit getting
Speaker 1: all members of the community to feel like they're part
Speaker 1: of a national economy. And John max Foot, writing in
Speaker 1: the Washington Post, he's got the all in tex average
Speaker 1: take in Sweden of dollars. In the US, it's fifteen dollars.
Speaker 1: To Gideon's point, though, is this word feeling it's getting
Speaker 1: you to feel like you are participates. Well, now, I
Speaker 1: think it's important because you know, undoubtly the data tells
Speaker 1: you that over the last ten years, the world's richer,
Speaker 1: there is greater prosperity poverty has been Solo Martin is
Speaker 1: the best on that he would strongly endorse. And Gideon,
Speaker 1: we are obsessed and perhaps quite rightly, between the distribution
Speaker 1: of wealth as you put it. Can we make an
Speaker 1: effective argument that says wealth in equality is the price
Speaker 1: we pay for greater global prosperity. I think that that
Speaker 1: is the basic bargain that capitalism makes right, the equal
Speaker 1: distribution of riches rather than the equal distribution of poverty
Speaker 1: as Church will put it. But that doesn't mean that
Speaker 1: the policies that we have at the national level and
Speaker 1: other levels don't affect just how much of the share
Speaker 1: goes to the rich and what people like picketing everybody
Speaker 1: else has basically shown is that over the last couple
Speaker 1: of generations, as the global economy has done well, as
Speaker 1: poor people in the developing world have done extremely well,
Speaker 1: as rich people have done well, middle and working classes
Speaker 1: in the advanced industrial world have not. They have not
Speaker 1: tended to see many of the benefits from growth even
Speaker 1: in their countries, and so they have a legitimate right
Speaker 1: to say, wait a second, what about us? And the
Speaker 1: question has to be, how do you get the benefits
Speaker 1: that accrued to the economy as a whole to be
Speaker 1: delivered to the population as a whole. Let's talk about
Speaker 1: the risks. I remember one of the final addresses from
Speaker 1: Margaret Thatcher in Parliament, and essentially she made one of
Speaker 1: a very effective argument that there were elements of the left,
Speaker 1: the far left, that would be happier if the gap
Speaker 1: was smaller and everyone was poorer. So the gap between
Speaker 1: the rich and the pole was smaller, but ultimately if
Speaker 1: everyone was poor, there would be elements of the left
Speaker 1: that would still be happy with that outcome. How do
Speaker 1: we avoid the pendulum swinging aggressively to the left to
Speaker 1: bring the wealth in a quality gap all the way
Speaker 1: in without making a country poorer. Well, I would suggest
Speaker 1: that the easiest way to take the wind out of
Speaker 1: the sales of the socialists would be for the capitalists
Speaker 1: to pay a little bit more concerned to distributional effects
Speaker 1: and to actually have you can put it this way,
Speaker 1: social democracy is the price of avoiding socialism. In your
Speaker 1: new issue, do you address the new socialism that everyone's
Speaker 1: ranting and raving about now? We address aspects about it. So,
Speaker 1: for example, one of the main art main arguments used
Speaker 1: against greater social spending is that you can't have any
Speaker 1: increased deficit or debt. And there's an interesting piece in
Speaker 1: Summers Larry Ferman and sorry Larry Summers and Jason Furman
Speaker 1: argue sing that you know, deficits are not so huge.
Speaker 1: What really matters is are they going up even faster
Speaker 1: than you can afford to deal with them? And that
Speaker 1: you know, essentially keeping we don't need to reduce debt
Speaker 1: dramatically at this particular time. We need to keep things
Speaker 1: in control, they argue. And so it's not just a
Speaker 1: question of how do you do this? But what are
Speaker 1: the downfalls? What are the real pitfalls? Like Jonathan was
Speaker 1: talking about, what are the dangers you have to be
Speaker 1: really aware of. And yet taking too much money and
Speaker 1: spending too much and constricting the economy too much would
Speaker 1: be a problem. But if your publics reject the entire
Speaker 1: framework of less a fair capitalism on which your economy
Speaker 1: is based, the results will be I see a risk
Speaker 1: that silly leftism will take advantage of the opportunity created
Speaker 1: by silly right ism and that sensible policy. I feel
Speaker 1: myself stealing phrases as we go leftism. Capitalists can't reform themselves.
Speaker 1: Socialists will get the political power to do what they want.
Speaker 1: Do you believe that can compet in a country like America?
Speaker 1: I think you see it happening right now. When centrist
Speaker 1: policies on the economy don't get a good hearing, uh
Speaker 1: and and and other. You know, rich people's policies just
Speaker 1: get run the way people wanted. Then you end up
Speaker 1: getting popular pushback in a way that's often economically. When
Speaker 1: I say working, what I mean what's effective with the
Speaker 1: electra Because of the midterms, the Democrats didn't take this
Speaker 1: radical left wing approach to the mid terms, and their approach,
Speaker 1: the centrist approach, was quite effective in the House. You know,
Speaker 1: it's interesting to see what exactly the Democratic Party's agenda
Speaker 1: will be, how radical they actually are are We're giving
Speaker 1: a few a lot of attention. We're letting a couple
Speaker 1: of names, We're letting a couple of names completely, and
Speaker 1: their back ventures that are not you know, Nancy Pelosi
Speaker 1: and Chuck Schumer don't seem to me like they're going
Speaker 1: to be leading a bunch of guillotine uh crowds too.
Speaker 1: We just saw this on the Pelas and who's really
Speaker 1: matter in the last twenty four hours. Do you have
Speaker 1: a confidence that we all have a political process that
Speaker 1: melds to the middle as we go through the primary season,
Speaker 1: convention Hope, yes, hope, Okay, Hopeing audacity with Gideon Rose.
Speaker 1: I can't say enough about the new nationalism the new
Speaker 1: issue of Foreign Affairs magazine. A number of articles sided there.
Speaker 1: One I'd mentioned. We didn't even get to Russhire Sharma
Speaker 1: definitive on emerging markets, writing with great passion about India
Speaker 1: as well. That'll be the first article I'll read in
Speaker 1: this new issue. This is a joy for Paul Sweene.
Speaker 1: You and and I we are gourmands of a certain level,
Speaker 1: and we know that if you were the Austin Goulsby
Speaker 1: of the Boost School, of the former chairman of the
Speaker 1: President's Council of Economic Advisors, you can wander out to
Speaker 1: north of the Permian Basin, south of the panandle tow
Speaker 1: scenic Lubbock, Texas for ant Trina's lasagna, and it's a
Speaker 1: wonderful lesson on what we'll do within our trade policy
Speaker 1: of the United States of America. Austin, it's classic goalsby
Speaker 1: one oh one. You're at the Boost School. You're screaming
Speaker 1: in a bunch of over smart educators and you're saying, Hey,
Speaker 1: it's about Aunt Trina's lasagna. Discuss. Yeah, Well, my my
Speaker 1: Auntriina and my uncle Bob. They've moved to Abilene, where
Speaker 1: my parents are. But at that time my aunt Traina's
Speaker 1: lasagna or maybe it was pot roast stuffed down the
Speaker 1: sink in their kitchen clogged the drain. My uncle goes
Speaker 1: and gets a product since band called the bomb. It's
Speaker 1: a combination of plunger and firearm, and he blows the
Speaker 1: clog out of that drain. But of course they live
Speaker 1: in a converted apartment, so he blows it not to
Speaker 1: the sewer. But blows it into the neighbors during and
Speaker 1: all over the fitchen of the neighbors. And so my
Speaker 1: analogy was that that is what's wrong carriffs, because you
Speaker 1: blow it out of the steel industry, but you just
Speaker 1: blow it onto the auto industry or or something. Well,
Speaker 1: bring this over seriously, Professor Goldsby to Booth School in
Speaker 1: the University of Chicago. And when Jacob Winer, I mean,
Speaker 1: with the bomb down the drain, are we heading towards
Speaker 1: mercantilis M. Golsby style? Don't say Goolsby style, that's terrible.
Speaker 1: If we are, it certainly feels many days like that's
Speaker 1: what what the president has in mind, that that he
Speaker 1: kind of wants to go back to some mercantilist enterprise
Speaker 1: for the United States. And I wish somebody which would
Speaker 1: explain to him the way the way mercantilism went away
Speaker 1: is because merganialism doesn't work. Uh. And so I think
Speaker 1: that's one of the bigger risks that we face, is
Speaker 1: that that we could spiral into some trade war situation
Speaker 1: with China and drive both of us into recession. Um,
Speaker 1: but hopefully not Look, ah, you know, maybe they can
Speaker 1: find some way like with NAFTA, light they did with
Speaker 1: Europe that they they basically just backed away. They had
Speaker 1: a lot of bluster, we're gonna beat you up, we're
Speaker 1: gonna put it in terrorists, but at the end of
Speaker 1: the day they just kind of backed away and moved on.
Speaker 1: And so that's what I'm hoping happens. So, Professor gouldsby
Speaker 1: the U. S. Trade delegation is in China this week. Um,
Speaker 1: what do you think is a realistic negotiated agreement between
Speaker 1: the two sides at this point? It's the reason that's
Speaker 1: hard to say is I don't think that there's any
Speaker 1: substantive agreement that that is that is material to the
Speaker 1: to the economy or to our trade that that they
Speaker 1: can negotiate. So the answer to that question is whatever
Speaker 1: gets the President to stop threatening a trade war, and
Speaker 1: if that means vague commitments on the part of China
Speaker 1: that in the future they'll buy more stuff and you know,
Speaker 1: to make some announcement of things that they largely already
Speaker 1: agreed to, which is the style of the of the
Speaker 1: quote unquote new NAFTA, and was certainly the style of
Speaker 1: the quote unquote deals with Europe, where they agreed only
Speaker 1: to keep negotiating with a certain goal in mind. I
Speaker 1: think something like that would be realistic. I think any
Speaker 1: let's let's say they went there and there was a
Speaker 1: delightening struck and there was a meeting of minds and
Speaker 1: they said, ah, we've got a new comprehensive trade agreement.
Speaker 1: They would not be able to pass such an agreement
Speaker 1: through Congress in the next two years. So in a way,
Speaker 1: the the most expansive things, There's no way it's realistic. Who,
Speaker 1: in your opinion, is is which side has more incentive
Speaker 1: to get a deal done. We see, we know the
Speaker 1: political ramifications on our side, but we also know the
Speaker 1: economic issues affecting China. The growth is slowing, and one
Speaker 1: can argue that they certainly need do not need a
Speaker 1: trade war. So who was the most incentive? Well, you
Speaker 1: don't like Like I always say, every day without a
Speaker 1: trade war is a good day for America. Um, maybe
Speaker 1: there they have more incentive, but but it is the
Speaker 1: situation where we threatened to burn their house down, they
Speaker 1: threatened to burn our house down. And you say, oh,
Speaker 1: but our house is smaller than your house, So you
Speaker 1: know you you have You're in a worse position than US. Yes,
Speaker 1: maybe that's a relatively worse position, but both these houses
Speaker 1: will be burnt down. So this I just think this
Speaker 1: mercantilist mentality is the wrong approach and it doesn't take
Speaker 1: into account the way business works in America or around
Speaker 1: the world. So if you if you escalate the disputes
Speaker 1: like this with China, there's a whole bunch of American
Speaker 1: manufacturing companies that get a lot of their you know,
Speaker 1: the power supply that goes into the machine that's being
Speaker 1: made in the United States, the power supplies coming from China.
Speaker 1: So if you go to start throwing tariffs in, you
Speaker 1: will find exactly what happened with steel and aluminum, which
Speaker 1: is a whole bunch of people in the United States say, wait,
Speaker 1: you were doing this to help the US, but actually
Speaker 1: we have to shut down production and lay people off
Speaker 1: because those are our inputs. So I just people need
Speaker 1: to just take one step back and think there's nothing
Speaker 1: wrong with trying to get trying to change China's behavior.
Speaker 1: You're in some way that you want them to. The
Speaker 1: question is is getting jumping up and down, having a tantrum,
Speaker 1: screaming and trying to shove their facing It is that
Speaker 1: going to work, and I think that's that's much more
Speaker 1: likely to do the opposite of work that China agreed
Speaker 1: to publicly do some some vague promises, but then turn
Speaker 1: around and mess with the United States using the channels
Speaker 1: they have, but which might be helped North Korea, which
Speaker 1: might be investigate Apple and stop people buying iPhones. You know,
Speaker 1: there's a whole bunch of channels. But Austin on a
Speaker 1: Matthew basis, I mean all of the equations of fancy
Speaker 1: pants algebraic equations in Opsfeldt Rogoff, which I'm sure you
Speaker 1: read cover to cover, yell or m I T. I
Speaker 1: mean any graduate level textbook. There's lots of time functions
Speaker 1: within the equations. May I respectfully suggest our time functions
Speaker 1: and our presidential time function is a little bit different
Speaker 1: than the long your time functions of China. Yeah, well
Speaker 1: you look. Maybe I'm in the Great Economist. Bob Solo,
Speaker 1: my my former teacher, said that at the heart every
Speaker 1: explanation of growth goes from the equations that goes down
Speaker 1: in a blaze of amateur sociology. And I'm whatever I
Speaker 1: say about that statement of the what's the time function?
Speaker 1: What's the time horizonees versus the US is going to
Speaker 1: go down in a blaze of amateur sociology. But said
Speaker 1: I agree. In my I'm not a super expert, but
Speaker 1: I was involved in the in the S and E
Speaker 1: D meetings with China and UH in the Obama administration,
Speaker 1: we negotiated multiple things with China. They do have a
Speaker 1: long view and my my experience is public humiliation of
Speaker 1: the China needs to try to get them to late
Speaker 1: UM is really quite well defeating. We are out of time, Austin.
Speaker 1: We got to continue this conversation. This is absolutely brilliant
Speaker 1: Austin Gouldsby. Of course, of Y L M. I T.
Speaker 1: And of course it's Booth Schools Chicago right now to
Speaker 1: small school UH Paul in Chicago's absolute best economists coming
Speaker 1: out of sports teams are awesome as well. Austin Goolsby,
Speaker 1: thank you so much. He's a former chairman of the
Speaker 1: President's Council of Economic Advisers. Thanks for listening to the
Speaker 1: Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud,
Speaker 1: or whichever podcast platform you prefer. I'm on Twitter at
Speaker 1: Tom Keane. Before the podcast. You can always catch us worldwide.
Speaker 1: I'm Bloomberg Radio.