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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust in independent registered investment advisors to the tune

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Speaker 1: of four trillion dollars. Why learn more and find your

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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring

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Speaker 1: you insight from the best in economics, finance, investment and

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Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com,

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Speaker 1: and of course on the Bloomberg To begin our carriage,

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Speaker 1: we are honored to bring you worldwide. John Lipsky, of

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Speaker 1: course with Solomon Brothers for years. He was having a

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Speaker 1: MONDAYE day at the i m F a few years

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Speaker 1: ago and they said, would you like to lead us

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Speaker 1: in the interim and so he became the first deputy

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Speaker 1: Managing Director, but really running the whole Hope place. What

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Speaker 1: was it like that shift, that was a delicate period

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Speaker 1: for this institution. What was your message to all of

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Speaker 1: the International Monetary Fund as you took over as interim director? Well,

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Speaker 1: I was quite calm at the time. There were tremendous

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Speaker 1: challenges to the world economy disted, yes, But what what

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Speaker 1: I was confident about the fund has a fantastically talented

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Speaker 1: and dedicated staff, a membership that wanted us to succeed

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Speaker 1: and needed us to succeed, and was going to be supportive.

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Speaker 1: So I knew that we were going to be able

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Speaker 1: to meet the challenges. I look at you as almost

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Speaker 1: crafting with Steve Roach and and and others the Modern

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Speaker 1: Economic Market Report, messaging to Wall Street and Solomon clients.

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Speaker 1: This is what we believe, this is what we would suggest.

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Speaker 1: The i m F does it with the blue Book?

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Speaker 1: How did you us Olivia Blanchard and others, Simon Johnson

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Speaker 1: and others. How did you assist in having PhDs put

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Speaker 1: together the guestimates within the blue Book? Well, first of all,

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Speaker 1: can I mentioned I did spend some time at JP Morgan,

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Speaker 1: but now it's probably in the morning exactly. But also

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Speaker 1: really the i m F has the largest staff of

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Speaker 1: PhD economists in one place at one time, with fantastic

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Speaker 1: experience and dedication, and to put together those world economic

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Speaker 1: outlook forecasts in the in the entire UH country facing

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Speaker 1: staff is engaged as well as the research department. It's

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Speaker 1: a it's quite an impressive process. Johnny. We got a

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Speaker 1: number of topics this morning. Let's let's go back twenty years.

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Speaker 1: You wrote a paper at the time on what we're

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Speaker 1: all talking about now, which is a new definition of globalism.

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Speaker 1: And we know after Doha, w t O and the

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Speaker 1: other challenges of trade level and the challenges of the

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Speaker 1: rhetoric of Mrs Clinton and Mr Trump, trade is in

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Speaker 1: trouble big time. Help us with globalization this odd phrase regionalism.

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Speaker 1: In two thousand, both back in the publication referring to

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Speaker 1: a back n or wrote a piece that said, globalization

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Speaker 1: is regionalization. As they wrote back then, if you ask

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Speaker 1: the data, is the world becoming more globalized? The answer

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Speaker 1: was yes. But if you ask it is the world

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Speaker 1: becoming more regionalized? The answer was yes. And nowhere was

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Speaker 1: that more true than in Asia, where trade linkages, financial

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Speaker 1: linkages were growing rapidly, and what was lacking was some

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Speaker 1: kind of a regional institutional structure to help make that

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Speaker 1: work and would fit into the global structure. And I

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Speaker 1: would structure there today. No, I would say, they are

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Speaker 1: still in the process of formation. I want you to

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Speaker 1: sell to the good people of Ohio the ft yesterday

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Speaker 1: with a beautiful analysis of one county of Ohio. Let's

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Speaker 1: call that the battle battleground state. Everybody seems to be

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Speaker 1: against t PP, this, that and the other thing. Sell

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Speaker 1: to the people of Ohio right now why they need

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Speaker 1: international trade. You need international trade because that has been

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Speaker 1: the motive, the principal motivating force behind the sixty year

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Speaker 1: span of unprecedented economic growth in the post World War

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Speaker 1: two era that has benefited the United States as much

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Speaker 1: as anybody. The data is clear that trade is create

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Speaker 1: in the aggregate, is employment creating, is the wealth creating

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Speaker 1: what we recognize it. In a period of slower growth,

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Speaker 1: we have to worry about taking care of losers as

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Speaker 1: well as winners. But in the aggregate, the message is

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Speaker 1: absolutely crystal clear. And interference with trade flows uh. Frankly,

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Speaker 1: the last time that was tried with some vigor, the

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Speaker 1: result was the Great Depression. I mean with within the

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Speaker 1: economic growth is also political quiet. As part of trade

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Speaker 1: trade Levin's relationships. We know that from London to a

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Speaker 1: tower five hundred years ago, it smooths things out. Do

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Speaker 1: you worry about not only financial inst abilities but global

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Speaker 1: political instabilities? Of course there's an in a relationship, and

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Speaker 1: you'll find, for example, in the world economic outlook, concerned

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Speaker 1: that political factors could be in this in a process

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Speaker 1: of potentially interfering with the with the strength of the

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Speaker 1: global economy. John Lipsky where us as we begin our

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Speaker 1: coverage from the offices of the International Monetary Fund again

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Speaker 1: looking at the markets, quiet markets, a little weight to

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Speaker 1: the futures, negative four, negative five. I know sterling weaker

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Speaker 1: uh this morning trying to get to a one handle.

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Speaker 1: Help us with negative rates? Outer of City of Villain,

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Speaker 1: bouder Ken, roll Goff and others suggests they are a

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Speaker 1: constructive force. Do they ignore what negative rates do in

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Speaker 1: the short and medium term to financial institutions? Well, I

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Speaker 1: wouldn't say they ignore it, but they're certainly the focus

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Speaker 1: on monetary policy is short term stimulus. I don't think

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Speaker 1: anyone is may maintaining the idea that negative real interest

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Speaker 1: rates are negative rates and absolute terms over an extended

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Speaker 1: span of time is good or reasonable for economic policy.

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Speaker 1: It suggests and balanced. But importantly, as you suggest that

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Speaker 1: over an extended period of time, very low rates will

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Speaker 1: impair the profitability and sustainability of key financial institutions that

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Speaker 1: make the economy work. Go to the global travel that

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Speaker 1: you did. I'm sure you've got the frequent flyer miles

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Speaker 1: from the I m F. You went to Hanui with

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Speaker 1: one of your original speeches. I remember you speaking about

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Speaker 1: macro prudential risk to me, the lack of earth. I mean,

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Speaker 1: this wasn't in your Standford textbooks. This that we're thinking

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Speaker 1: about now has a global impact away from large institutions

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Speaker 1: that are affected by negative rates. Oh. Absolutely, And you'll

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Speaker 1: find in the i m FS Global Financial Stability Report

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Speaker 1: that was released yesterday as they said, the near term

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Speaker 1: outlook has improved in the financials for with regard to

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Speaker 1: financial stability, but the medium term outlook is riskier. And

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Speaker 1: one of the reasons is because sustained low interest rates

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Speaker 1: is undermining the profitability and hence sustainability of key institutions,

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Speaker 1: not just banks or investment banks, but insurance companies and

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Speaker 1: pension films. A great student of history I think of

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Speaker 1: I believe it was Carradine one volume on Andrew Mellon

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Speaker 1: in the nineteen thirties. Then it was a time of

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Speaker 1: consolidation and combination. Is that where we are now? Tepadnominal

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Speaker 1: g d P, the I m F leads with weak

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Speaker 1: demand front and center. Do you just assume industrial and

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Speaker 1: bank consolidation. Well, that's it's there are so many cross

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Speaker 1: currents here, it's not completely clear. After all, One of

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Speaker 1: the salient developments of recent days and when you just

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Speaker 1: mentioned is Brexit and what that may due to the

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Speaker 1: structure of European financial institutions and markets, So that potentially

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Speaker 1: could could work the other way. On the other hand,

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Speaker 1: it's clear we've seen the emergence, don't forget of giant

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Speaker 1: Chinese financial institutions who are now coming into world markets.

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Speaker 1: So it's a it's a complicated it's a complicated outlook

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Speaker 1: very quickly here on Brexit. Is Brexit about London and

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Speaker 1: the United Kingdom? Or is Brexit really about the response

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Speaker 1: of European leaders? Well, it's it's certainly about both. In

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Speaker 1: in the UK, the concern, of course is where does

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Speaker 1: that leave the UK in the in the European and

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Speaker 1: in the global economy. In the EU, much more important

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Speaker 1: and much more pressing is what is this going to

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Speaker 1: do for European institutionalization and how can we provide how

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Speaker 1: can the European Union provide a much much greater success.

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Speaker 1: So Michael McKee in New York. Tom Keane is in

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Speaker 1: Washington for the annual meetings of the International Monetary and

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Speaker 1: World Bank. And joining him in Washington this morning is

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Speaker 1: John Lipsky, the former deputy Managing Director of the i

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Speaker 1: m F now consultant to the organization. That you're talking

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Speaker 1: about the US domestic politics in the in the first section, John,

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Speaker 1: I want to broaden it out a little bit to

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Speaker 1: global politics and global economics. We're talking about maybe the US,

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Speaker 1: and you see it in the h in most of

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Speaker 1: the numbers, the US stabilizing, if not getting better in

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Speaker 1: terms of growth over the next couple of years. But

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Speaker 1: can we continue to see improvement here and around the

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Speaker 1: world if the banking system around the world is still

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Speaker 1: troubled and I know in the i MS Global Financial

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Speaker 1: Stability Report yesterday they raised questions about where we are.

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Speaker 1: That's right, and not just about the banking system, but

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Speaker 1: more broadly the financial system. UH worries about the the

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Speaker 1: sustain the stability of insurance and pension funds. If there

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Speaker 1: is a sustained period of such low long term interest

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Speaker 1: rates that don't provide the kind of return necessary that

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Speaker 1: the underpins that would be under that would be necessary

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Speaker 1: to underpin those institutions. So I think it's absolutely right.

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Speaker 1: And you can see that the European Union as economy

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Speaker 1: has lagged behind, especially in per capita terms, has lagged

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Speaker 1: behind UH other economies, other advanced economies since the two

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Speaker 1: thousand eight two thousand nine period. And part of that, obviously,

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Speaker 1: as the Fund emphasizes, is the UH the problems and

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Speaker 1: weakness in the European banking system that still need to

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Speaker 1: be addressed. Who can push them to do that? I mean,

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Speaker 1: how do you get a Deutsche Bank bank, a bank

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Speaker 1: of de bandpask cleaned up? Well? Remember when this started,

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Speaker 1: there weren't pan European institutions that were charged and able

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Speaker 1: to address these issues directly. There have been a process

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Speaker 1: of creating new European institutions to deal with these issues,

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Speaker 1: for example, the European Stability Mechanism, the European Banking Authority,

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Speaker 1: and the Banking Union, et cetera. The whole process of

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Speaker 1: creating a financial markets union is still work in progress,

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Speaker 1: and of course Brexit throws a real period of uncertainty

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Speaker 1: into that. That construction. You know every corner of this

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Speaker 1: building and the associated buildings around it. You also know

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Speaker 1: the path to the White House, one of the great

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Speaker 1: issues of this debate eight nine, ten years in is

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Speaker 1: the I m F is an institution for elites, not

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Speaker 1: really for the public, and that's most expressed in financial repression.

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Speaker 1: HSBC has come out with a lower for longer call

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Speaker 1: to two thousand twenty one. I GI haven't even done

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Speaker 1: the math. That's too much math for me at this hour.

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Speaker 1: I think that's that's fourteen years of financial repression from

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Speaker 1: oh seven. How does the I m F and other

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Speaker 1: institutions reach out to people crushed by financial repression? Well,

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Speaker 1: the of course the I m F is UH is

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Speaker 1: a limited staff and a limited limited reach. I understand,

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Speaker 1: but but we are trying to The fund has made

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Speaker 1: very significant efforts over the past few years to produce

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Speaker 1: a message that is understandable, that is oriented towards at

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Speaker 1: least the interested public, and has greatly expanded their efforts

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Speaker 1: at explaining what they do and why. It's a dramatically

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Speaker 1: more trans not just a transparent institution, but makes a

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Speaker 1: lot of effort to communicate. In fact, you're going to

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Speaker 1: be talking to the managing director later today and that's

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Speaker 1: part of that. I would agree to that, but Michael,

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Speaker 1: I mean, I'm sorry, financial repression is like that one

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Speaker 1: year c do you just got and the only reason

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Speaker 1: you got it was you got a Denver Broncos toaster

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Speaker 1: with it. That's how it doesn't short out. Uh Jenner,

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Speaker 1: You know when you look at him if takes no

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Speaker 1: position on the NFL, but or toasters, I would imagine

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Speaker 1: when you look at or toasters, when you look at

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Speaker 1: where we Let me just quickly ask you this. We

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Speaker 1: haven't talked a lot about Asia in this conversation. Let

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Speaker 1: me just bring in China quickly. How we were talking

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Speaker 1: yesterday about how China was the story and now nobody's

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Speaker 1: talking about it. Is it coming back or are we

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Speaker 1: missing something here? Mike. That's probably a little strong, but

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Speaker 1: it's quite true. And and if you read the FUN documents,

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Speaker 1: especially the Wheel addresses that directly that a year ago

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Speaker 1: that was that was a big concern and the near

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Speaker 1: term concern is much less because the Chinese authorities have

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Speaker 1: taken action that has resulted in a apparent stabilization of growth.

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Speaker 1: At the same time, the Fund has been very clear

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Speaker 1: that China faces a challenge in its reform process in

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Speaker 1: shifting the basis of its economic growth towards services and

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Speaker 1: consumption and away from exports and investment. And in that

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Speaker 1: that it also is building up a very substantial amount

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Speaker 1: of non financial sector debt. That is, that poses a

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Speaker 1: medium term challenge at best and potentially a threat to

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Speaker 1: that process. So there's lots to do very very quickly here,

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Speaker 1: unfortunately too quickly. Dr Well, let's leave it at this.

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Speaker 1: We'll come back with Dr Lifsky another time and talk

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Speaker 1: to him about the inner developments of democracy at the

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Speaker 1: i m F and the shift to Asia that many

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Speaker 1: people have predicted. Well, Tom Keane, Uh, you are in

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Speaker 1: Washington at the I m F Annual meetings, and you're

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Speaker 1: not allowed to talk here. Momma and Alary and I

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Speaker 1: have agreed that because your Red Sox are still in

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Speaker 1: the playoffs in our New York Mets we're defeated last night,

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Speaker 1: that you are not allowed to gloat. Please do not

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Speaker 1: mention the Boston Baseball nine. Uh. We'll get along just fine.

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Speaker 1: Who is uh the chief economic advisor to Allie outside

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Speaker 1: Bloomberg View. Columist is joining us here in the studios.

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Speaker 1: We're both sitting Shiva for the Mets. The season is over,

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Speaker 1: so let's move on and talk about the global economy

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Speaker 1: and what's going on with the I, M, F, etcetera.

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Speaker 1: Banking in Europe the big issue right now for kind

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Speaker 1: of everybody the world jumps around from issue to issue,

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Speaker 1: this is the one. Now. Is this any better or

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Speaker 1: any worse than any other of the concerns that keep

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Speaker 1: the central banks on hold and the markets somewhat nervous.

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Speaker 1: It's among the top five concerns, and it speaks to

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Speaker 1: two things. One is, this is a very difficult environment

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Speaker 1: for banking in general. Low interest rates, low growth, higher regulation.

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Speaker 1: That's not something that that that that banks look forward to.

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Speaker 1: But it also speaks to particularly in stu Usians that

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Speaker 1: have lagged in building up capital and have lagged in

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Speaker 1: dealing with the balance sheet. So it is among the

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Speaker 1: top five. I wouldn't put it top I wouldn't say

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Speaker 1: this is a Lehman moment threat, but it is something

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Speaker 1: that will slow growth in Europe, right doctor Laria. And

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Speaker 1: right now we're seeing British pound implode. I mean, there's

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Speaker 1: no other way to put it. We've gone from a

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Speaker 1: one thirty with a little bit of Brexit optimism down

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Speaker 1: to seven and now well into a territory. The zeitgeist

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Speaker 1: is Sterling is acting in a discrete vacuum of United

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Speaker 1: Kingdom politics and economics. I don't buy that for a minute.

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Speaker 1: What are the knock on effects of a brutal move

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Speaker 1: in Sterling for the rest of the system. So, first, Tom,

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Speaker 1: we should discuss this because I think what you're seeing

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Speaker 1: in the UK speaks to two things. One is that

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Speaker 1: there's now a sense that it could be a hot

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Speaker 1: Brexit after roll and not a soft Brexit, and that

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Speaker 1: will mean a much weaker Sterling. And second, the populist

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Speaker 1: comments by Prime Minister Tourism May yesterday in which she

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Speaker 1: criticized the Bank of England and in which she attacked

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Speaker 1: the international leads that adding to the sense of repricing

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Speaker 1: in the effects market. Well, I do agree with you,

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Speaker 1: is that Sterling is the fourth is at the forefront

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Speaker 1: of the upcoming greater volatility in the effects segment, and

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Speaker 1: that great of volatility will transmit to other market segments. Volatility, yes,

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Speaker 1: but um economic danger. That is kind of the question.

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Speaker 1: We just had the ECB minutes come out. Of course

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Speaker 1: that was the first weeknt septever, but they said it

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Speaker 1: was too early to tell. The Fed's been arguing it's

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Speaker 1: too early to tell, and the numbers in Britain have

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Speaker 1: not been bad yet. How much of a threat when

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Speaker 1: you look out, how much for the threat is it

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Speaker 1: going to be? So they haven't been bad because nothing

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Speaker 1: has happened as yet. So whether your household or whether

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Speaker 1: your company, you wait and see. If it ends up

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Speaker 1: being a Hord exit, the numbers will be bad. I

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Speaker 1: keep on saying, imagine that you are on a plane

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Speaker 1: and the pilot announcements that they're going to change the

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Speaker 1: engines in midflight, because that's what is exit, is you're

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Speaker 1: changing the engines of growth, footing, not king. If you

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Speaker 1: on that plane, wouldn't you worry about losing altitude? And

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Speaker 1: I think that that's what's going to happen if indeed

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Speaker 1: it is a hod wexit. Dr Larrian when when? When

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Speaker 1: I first came to the I m F meetings, I

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Speaker 1: read through Ken Rogoff's monograph on fourteen flavors of floating

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Speaker 1: exchange rates. I get the idea that a floating rate

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Speaker 1: environment leads to less shocks than a fixed exchange environment.

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Speaker 1: But are we not even believing we can avoid shocks

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Speaker 1: because currencies compensate each and every moment, So a shock

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Speaker 1: absorber can protect you to some extent, but not completely.

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Speaker 1: Imagine that you're driving a can You're going to a

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Speaker 1: massive pothole. Is it good that you have a shock

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Speaker 1: abs over. Yeah? Will it stop major damage to the car? No?

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Speaker 1: So a lot depends on how smooth or how bumpy

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Speaker 1: the road is. And you're going to get a sense.

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Speaker 1: I suspect Tom from being in d C and we're

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Speaker 1: really glad you're there. You're going to get a sense

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Speaker 1: that this is a pretty bumpy road because of political issues,

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Speaker 1: because of the accumulation of debt without growth, and because

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Speaker 1: policymakers are overdependent on just one instrument, monetary pluss, and

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Speaker 1: that's becoming more ineffective. Dr Larien, let me ask you

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Speaker 1: about one policymaker. Given the blue book, the Green book,

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Speaker 1: the red book, what is the question you would ask

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Speaker 1: Madame Legarde this morning? So I would ask her, how

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Speaker 1: do we reconcile concerns about debt, which tends to imply

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Speaker 1: we need more sterity, was concerned that fiscal policy is

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Speaker 1: no longer contributing to economic growth. How do we reconcile

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Speaker 1: these two very different signals? Because I think that is

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Speaker 1: the challenge of the generation. The challenge is to get

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Speaker 1: higher growth in order to overcome the issues and make

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Speaker 1: it more inclusive. I've got to turn our attention to

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Speaker 1: the political world. I've seen different notes this morning. Just

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Speaker 1: this morning, one analysts saying that we're starting to see

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Speaker 1: the election priced into the markets, and another saying there

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Speaker 1: isn't much election risk in the markets. Uh, which do

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Speaker 1: you think it is? And the kind of follow on

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Speaker 1: is people sort of assume that if Donald Trump is selected,

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Speaker 1: that's very bad for the markets, whereas the analysts who

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Speaker 1: did see something in the market said it's it's not

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Speaker 1: so much Trump as it is uncertainty. So first, I

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Speaker 1: think it's the latter in terms of the market hasn't

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Speaker 1: priced in yet political risk, and for understandable reasons. First

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Speaker 1: is very binary and markets are not good at pricing

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Speaker 1: in binary risk. Second, whether during a campaign doesn't always

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Speaker 1: translate into actions. And third and most importantly, the markets

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Speaker 1: have been conditions over and over again to expect central

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Speaker 1: banks to come in and repress volatility. So when you

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Speaker 1: have these three things there, markets will wait till they

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Speaker 1: have better indications as to the uncertainty. It's absolutely right.

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Speaker 1: Mr Trump has spoken of punishing pariffs on Mexico and

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Speaker 1: China if this were to occur, and it's a big

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Speaker 1: if because it means a he has to be elected

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Speaker 1: and be he has to move on on this promise.

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Speaker 1: If this were to occur, they will most likely be

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Speaker 1: retaliate steps and that will be bad for global growth.

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Speaker 1: So it's that uncertainty that if it gets priced in,

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Speaker 1: would lead to a lot more volatility in markets. There.

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Speaker 1: The counter argument is that, um, if you can control

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Speaker 1: the uncertainty around the Republican that either one who wins

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Speaker 1: has talked about fiscal stimulus, and so may be the

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Speaker 1: markets are not pricing in a better result in two

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Speaker 1: thousand seventeen than UH than we currently expect. Yeah, I

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Speaker 1: understand that argument. But for you to price in a

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Speaker 1: better result than you currently expect because of fiscal stimulus,

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Speaker 1: you're not really betting on the White House. You're betting

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Speaker 1: on Congress. You're betting that we are going to get

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Speaker 1: a Congress that can function where both parties can come together. Alternatively,

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Speaker 1: a single party dominates both houses, and I think most

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Speaker 1: people expect that to be not to be likely. I

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Speaker 1: think that's very unlikely. And the time that we've got

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Speaker 1: left Dr oh Arian, I, I think I look at

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Speaker 1: the realities that we face, and one of them is

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Speaker 1: that Thora and the New York Mets ought to go

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Speaker 1: over to the New York Giants and say the ship.

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Speaker 1: Is that a reasonable prospect? So I was about to

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Speaker 1: commend you on your decency for not mentioning the Mets.

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Speaker 1: You have no idea. Mike and I were talking about

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Speaker 1: this earlier this morning. Yes we have. We expected them

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Speaker 1: to lose, and we aspecting them to lose in the

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Speaker 1: ninth inning, and yet we are devastated. So I was

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Speaker 1: hoping that Tom, the decency that you showed up to

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Speaker 1: now would prevail till the end of the show. Well,

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Speaker 1: I can tell you is I'm suddenly an Indian fan.

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Speaker 1: Doctor Mike. Could you explain to me how a guy

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Speaker 1: as smart as doctor Hillarion is one of the giants

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Speaker 1: of international game theory is lined up with the Mets

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Speaker 1: and the Jets. There are some things, there are some

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Speaker 1: some math problems that have never been solved. This maybe

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Speaker 1: one of Tom Keane is that the i MS meetings

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Speaker 1: in Washington, Muhammad, Hillary and I are sitting here in

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Speaker 1: New York. We're sad. But for those of you online

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Speaker 1: sixty in the Bay Area. Congratulations to your San Francisco giants.

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Speaker 1: They move on and the New York Mets go home.

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Speaker 1: We're not even mentioned the Jets. That's kind of wealth

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Speaker 1: that that's a loss cause. Uh and so we're a'm

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Speaker 1: gonna talk about that. You want to talk to Denver Broncos,

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Speaker 1: we can do that. Thank you very much for joining

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Speaker 1: us here today on Bluebird's surveillance. Who you put your

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00:24:13,960 --> 00:24:18,240
Speaker 1: trust in matters. Investors have put their trust in independent

392
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Speaker 1: registered investment advisors to the tune of four trillion dollars.

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Speaker 1: Why they see their role is to serve, not sell.

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00:24:27,320 --> 00:24:29,680
Speaker 1: That's why Charles Schwab is committed to the success of

395
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Speaker 1: over seven thousand independent financial advisors who passionately dedicate themselves

396
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Speaker 1: to helping people achieve their financial goals. Learn more and

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Speaker 1: find your independent advisor dot com. We are in Washington

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00:24:48,960 --> 00:24:51,639
Speaker 1: at the meetings of the International Monetary Fund Michael McKee

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Speaker 1: and New York. I'm Tom Keane and coming up our

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Speaker 1: conversation with Madame Legard. I just spoke to her briefly

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Speaker 1: and we look forward to a good conversation, but first

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Speaker 1: a better conversation. Nicholas Stern made history and climate change

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Speaker 1: where his public service to Prime Minister Brown and to

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Speaker 1: the United Kingdom and for that matter the developed in

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Speaker 1: UH Emerging market world's Lord Stern of course in education

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Speaker 1: at Cambridge and Oxford and his service to the London

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Speaker 1: School of Economics UH as well, Lord Stern, I want

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Speaker 1: to get to climate change, but we must talk about

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Speaker 1: the plunging Sterling. Is there a naivete right now among

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Speaker 1: politicians and your United Kingdom of the knock on effects

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Speaker 1: of their political rhetoric as we see Sterling well below

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Speaker 1: on this morning. I think what we saw this last

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Speaker 1: week is the Conservative Party Conference where the attitudes to

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Speaker 1: immigration and thus also to trade were made much more clear. Essentially,

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Speaker 1: the more we control immigration, the less of a good

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Speaker 1: deal the UK can get on trade with the European Union.

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Speaker 1: And what we saw at the Tory Party conference with

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Speaker 1: a very strong emphasis on immigration and controlling immigration, and

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Speaker 1: what that I think means and where the markets are

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Speaker 1: probably reading it is that we might get a worse

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Speaker 1: deal on trade and therefore our trade prospects and not

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Speaker 1: so good and we have to devalue to be competitive.

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Speaker 1: You were the John Hicks, Professor at l s e.

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Speaker 1: If we go back to the classic Hicks of ninety nine,

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Speaker 1: five years before that, sterling was five dollars to the pound,

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Speaker 1: come down to Harold Wilson two dollars eighty two dollars

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Speaker 1: forty and we now find a plunging Sterling not plunging

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Speaker 1: in the last couple of hours. I should say, I

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Speaker 1: don't want to be inflammatory. Is it a wealth destruction

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Speaker 1: to the United Kingdom? I think what we've seen in

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Speaker 1: these weeks and months now since the vote on Brexit

432
00:26:46,760 --> 00:26:50,080
Speaker 1: is a reevaluation of the UK's growth prospects and its

433
00:26:50,200 --> 00:26:53,040
Speaker 1: role in the world. And the more difficult trade deal

434
00:26:53,240 --> 00:26:56,159
Speaker 1: with the EU um, the more we're going to have

435
00:26:56,280 --> 00:27:00,439
Speaker 1: to devalue to stay competitive with what is UH big market,

436
00:27:00,560 --> 00:27:03,800
Speaker 1: which is the EU. And I think that's the story

437
00:27:04,119 --> 00:27:06,840
Speaker 1: of the last few months, the very long run story.

438
00:27:06,920 --> 00:27:10,560
Speaker 1: It's of course the UK declining in importance in the world.

439
00:27:10,960 --> 00:27:15,320
Speaker 1: That sterling used to be a very very powerful currency,

440
00:27:15,400 --> 00:27:17,280
Speaker 1: a bit like you know, if you've got dollar now,

441
00:27:17,359 --> 00:27:19,280
Speaker 1: if you've got dollars, you can buy things around the world.

442
00:27:19,480 --> 00:27:21,760
Speaker 1: At that time, if you had sterling you could buy

443
00:27:21,840 --> 00:27:23,879
Speaker 1: things around the world. So the very long run story,

444
00:27:23,960 --> 00:27:27,440
Speaker 1: I think it's a declining role of the UK in

445
00:27:27,520 --> 00:27:30,240
Speaker 1: the world economy, plus, of course long periods of quite

446
00:27:30,280 --> 00:27:32,720
Speaker 1: rapid inflation in the UK which erodes the value of

447
00:27:32,800 --> 00:27:35,080
Speaker 1: your currency. To change the climate change, of course your

448
00:27:35,119 --> 00:27:38,280
Speaker 1: major work right now. You took a lot of criticism,

449
00:27:38,359 --> 00:27:41,760
Speaker 1: including from Prime Minister Brown, about the stridency of the

450
00:27:41,840 --> 00:27:45,280
Speaker 1: Stern Report. You look back now, I'm sorry, you look

451
00:27:45,400 --> 00:27:48,080
Speaker 1: pretty smart. Are we really going to be able to

452
00:27:48,200 --> 00:27:51,520
Speaker 1: take a boat across the Arctic Circle soon? Is there

453
00:27:51,680 --> 00:27:55,000
Speaker 1: enough of them ice melting on the Arctic Circle to

454
00:27:55,119 --> 00:27:59,400
Speaker 1: make you look particularly Prussian? Years ago in the Stern Review,

455
00:27:59,480 --> 00:28:03,000
Speaker 1: I said the costs of inaction, the costs of allowing

456
00:28:03,080 --> 00:28:07,200
Speaker 1: climate change just to row away, were much bigger than

457
00:28:07,320 --> 00:28:11,360
Speaker 1: the costs of action. And I think that primary message

458
00:28:11,480 --> 00:28:15,240
Speaker 1: of the Stern Review I probably underdid it. I think

459
00:28:15,320 --> 00:28:17,639
Speaker 1: that the risks and I think so, I think there

460
00:28:17,720 --> 00:28:20,399
Speaker 1: is some climate change are still bigger than we thought then,

461
00:28:20,640 --> 00:28:24,639
Speaker 1: and actually the costs of action. Look, it looks actually

462
00:28:24,720 --> 00:28:26,600
Speaker 1: that there are benefits of action even if you forget

463
00:28:26,600 --> 00:28:29,400
Speaker 1: about climate change. Cities where you can move, cities where

464
00:28:29,400 --> 00:28:32,720
Speaker 1: you can breathe, cities where you can be productive. Ecosystems

465
00:28:32,760 --> 00:28:36,040
Speaker 1: that don't fall apart. I think actually the new path

466
00:28:36,200 --> 00:28:38,920
Speaker 1: that we see of how to do things differently, and

467
00:28:39,000 --> 00:28:41,640
Speaker 1: we'd see it much better since ten years ago, is

468
00:28:41,800 --> 00:28:45,120
Speaker 1: very attractive, and that's what drove the Paris Agreement. People

469
00:28:45,200 --> 00:28:48,240
Speaker 1: saw that well, the Paris Agreement really front center with

470
00:28:48,360 --> 00:28:50,640
Speaker 1: the recent moving forward on there. Let me bring in

471
00:28:50,720 --> 00:28:54,240
Speaker 1: my colleague in New York, Michael McKee, Mike thank Tom

472
00:28:55,320 --> 00:28:58,480
Speaker 1: to quote one of the presidential candidates here in the

473
00:28:58,560 --> 00:29:01,720
Speaker 1: United States could have, would have should an old remarked

474
00:29:01,760 --> 00:29:06,000
Speaker 1: by Hillary Clinton, You should, you should do this stuff.

475
00:29:06,520 --> 00:29:10,560
Speaker 1: But if it doesn't happen, Uh, what happens? What did

476
00:29:10,600 --> 00:29:13,760
Speaker 1: you find in your report? Can you lay out the

477
00:29:13,960 --> 00:29:19,200
Speaker 1: case for doing it? The case for acting strongly on

478
00:29:19,320 --> 00:29:23,600
Speaker 1: climate change has got two big elements to it. One

479
00:29:23,800 --> 00:29:27,240
Speaker 1: is that we need to operate much more efficiently. We've

480
00:29:27,280 --> 00:29:31,960
Speaker 1: got cities which are congested, cities which are polluted, great

481
00:29:32,080 --> 00:29:35,400
Speaker 1: wastages of energy. We can grow much better and in

482
00:29:35,480 --> 00:29:38,320
Speaker 1: a much more healthy and attractive way if we act

483
00:29:38,400 --> 00:29:43,000
Speaker 1: strongly to curb the use of fossil fuels. The second

484
00:29:43,080 --> 00:29:46,640
Speaker 1: stand in the argument is that climate change is really dangerous.

485
00:29:47,000 --> 00:29:52,640
Speaker 1: It will um disrupt our economies that will lead to desertification.

486
00:29:52,680 --> 00:29:56,120
Speaker 1: In some places extreme weather events are much more intense

487
00:29:56,560 --> 00:29:59,560
Speaker 1: in others sea level rise. This will lead to movement

488
00:29:59,600 --> 00:30:02,040
Speaker 1: of peep along a grand scale. So the risks of

489
00:30:02,120 --> 00:30:05,640
Speaker 1: climate change are really very big. And that's the other

490
00:30:05,720 --> 00:30:07,760
Speaker 1: part of the gain of doing things differently in a

491
00:30:07,880 --> 00:30:10,400
Speaker 1: much lower carbon, much more efficient way, is that we

492
00:30:10,480 --> 00:30:13,160
Speaker 1: avoid those big risks. So there are two big arguments,

493
00:30:13,200 --> 00:30:16,520
Speaker 1: and they're both very powerful. One of the arguments against

494
00:30:16,600 --> 00:30:19,840
Speaker 1: it that is powerful, at least in the US politically

495
00:30:20,520 --> 00:30:23,120
Speaker 1: in a number of stages, is that as you scale

496
00:30:23,160 --> 00:30:27,840
Speaker 1: back on carbon fuels, you scale back on jobs. You

497
00:30:27,960 --> 00:30:30,320
Speaker 1: are going to have to manage change. This is of

498
00:30:30,400 --> 00:30:33,080
Speaker 1: course a different way of doing things. But the jobs

499
00:30:33,320 --> 00:30:36,840
Speaker 1: in energy efficiency, the jobs in renewable in renewables, the

500
00:30:37,000 --> 00:30:40,960
Speaker 1: jobs in recreating our cities a much much more numerous,

501
00:30:41,120 --> 00:30:45,280
Speaker 1: much larger number of those jobs than you would be

502
00:30:45,400 --> 00:30:48,239
Speaker 1: losing from the skating back on fossil fuels. But you've

503
00:30:48,280 --> 00:30:50,120
Speaker 1: got to you've got to manage change. You've got to

504
00:30:50,160 --> 00:30:52,440
Speaker 1: treat people decently, you've got to give him a chance.

505
00:30:52,560 --> 00:30:56,160
Speaker 1: If you're just joining us, Lord Stern with us right

506
00:30:56,240 --> 00:30:58,640
Speaker 1: now with the London School of Economics, and of course

507
00:30:59,000 --> 00:31:03,320
Speaker 1: an important new pour it to sustainable infrastructure imperative. I'd

508
00:31:03,360 --> 00:31:05,600
Speaker 1: like you to fix fifty Street in New York City.

509
00:31:06,160 --> 00:31:08,440
Speaker 1: Maybe if you could do it by Friday, that would

510
00:31:08,480 --> 00:31:12,920
Speaker 1: be good. We have an austerity in infrastructure. Everyone writes

511
00:31:12,960 --> 00:31:16,440
Speaker 1: about it. There's been a great set of articles public

512
00:31:17,080 --> 00:31:19,400
Speaker 1: the public, American public, and even I would say in

513
00:31:19,520 --> 00:31:23,000
Speaker 1: a city like Mumbai, they're reticent to take on debt

514
00:31:23,160 --> 00:31:27,400
Speaker 1: right now, even with low interest rates for big projects.

515
00:31:27,600 --> 00:31:31,800
Speaker 1: Where's the vision that is testitancy is a mistake. We've

516
00:31:31,840 --> 00:31:35,160
Speaker 1: got interest rates on the floor or actually below the floor,

517
00:31:35,480 --> 00:31:37,600
Speaker 1: and we've got a great growth story that we can

518
00:31:37,680 --> 00:31:40,840
Speaker 1: see infrastructure to fix. We can do it in a

519
00:31:40,880 --> 00:31:43,800
Speaker 1: way that's much more sustainable, much more attractive. We really

520
00:31:43,840 --> 00:31:46,920
Speaker 1: should be investing around the world very strongly in infrastructure now.

521
00:31:47,280 --> 00:31:49,880
Speaker 1: And that's the big story of our report. It's the

522
00:31:49,960 --> 00:31:52,760
Speaker 1: growth story of the shorter run. That's best way of

523
00:31:52,840 --> 00:31:56,200
Speaker 1: rekindling demand. It's going to set up all kinds of

524
00:31:56,360 --> 00:31:59,400
Speaker 1: innovation and discovery in the medium term, and it is

525
00:31:59,480 --> 00:32:01,560
Speaker 1: the own legue growth story on offer in the longer

526
00:32:01,680 --> 00:32:05,480
Speaker 1: term because high carbon attempt at high carbon growth self destructs.

527
00:32:05,720 --> 00:32:08,880
Speaker 1: So this is absolutely the moment rich countries and poor

528
00:32:08,960 --> 00:32:13,640
Speaker 1: countries to be investing very strongly in infrastructure. Michael, if

529
00:32:13,720 --> 00:32:17,080
Speaker 1: we invest in infrastructure, is there a multiplier you can

530
00:32:17,160 --> 00:32:21,000
Speaker 1: put on that that would suggest what kind of additional

531
00:32:21,080 --> 00:32:24,000
Speaker 1: benefits you get other than I mean, obviously we need

532
00:32:24,040 --> 00:32:27,280
Speaker 1: a team climate change, but to the economy to counter

533
00:32:27,360 --> 00:32:29,640
Speaker 1: the arguments that it cost jobs and it hurts people,

534
00:32:31,200 --> 00:32:36,280
Speaker 1: it actually creates jobs. Investing in uh in much better

535
00:32:36,360 --> 00:32:40,800
Speaker 1: structures and our cities for roads, um, investing in energy,

536
00:32:40,960 --> 00:32:45,480
Speaker 1: investing in sustainable energy, energy efficiency. All these are labor

537
00:32:45,560 --> 00:32:49,440
Speaker 1: intensive activities which have very strong employment. There's a big

538
00:32:49,520 --> 00:32:53,160
Speaker 1: multiplier there. But on top of that, they enable people

539
00:32:53,240 --> 00:32:55,680
Speaker 1: to operate their lives in a much more efficient way.

540
00:32:56,080 --> 00:32:58,960
Speaker 1: It's less congested, less polluted, they're more productive. So there's

541
00:32:59,000 --> 00:33:01,760
Speaker 1: two big multiplier, is there? One through the creation of

542
00:33:01,840 --> 00:33:04,880
Speaker 1: the infrastructure, and the other is the services infrastructure delivers

543
00:33:05,040 --> 00:33:06,840
Speaker 1: lords turn. In the time that we have left, you

544
00:33:06,880 --> 00:33:09,840
Speaker 1: have been one of the great educators on economics. Certainly

545
00:33:09,960 --> 00:33:13,080
Speaker 1: with your decades at the London School of Economics, do

546
00:33:13,160 --> 00:33:16,239
Speaker 1: you face the urgency of other academics that we need

547
00:33:16,320 --> 00:33:20,120
Speaker 1: a new style, a new method, even a less Mathew

548
00:33:20,240 --> 00:33:24,760
Speaker 1: way of teaching adult economics. I certainly do. I think

549
00:33:24,800 --> 00:33:27,400
Speaker 1: that looking back, we've had a rather particularly in the

550
00:33:27,480 --> 00:33:31,880
Speaker 1: nineteen nineties, and you had a rather narrow, simplistic view

551
00:33:32,040 --> 00:33:35,720
Speaker 1: where all markets are competitive, all markets exist, and all

552
00:33:35,840 --> 00:33:39,520
Speaker 1: markets clear, and all individuals understand all the information it's

553
00:33:39,560 --> 00:33:42,240
Speaker 1: coming absolutely at LS was one of them that really

554
00:33:42,280 --> 00:33:45,640
Speaker 1: pushed against us. Yeah, and I have my colleague make

555
00:33:45,720 --> 00:33:49,520
Speaker 1: that decide. Quite a group of us LS have argued

556
00:33:49,560 --> 00:33:53,480
Speaker 1: that this is a much too simplistic and dangerously simplistic

557
00:33:53,560 --> 00:33:56,680
Speaker 1: way of looking at things, because if you think everything

558
00:33:56,720 --> 00:34:00,280
Speaker 1: works perfectly and people look at their information strongly, you

559
00:34:00,360 --> 00:34:03,200
Speaker 1: don't see the bad things coming and you lose creativity

560
00:34:03,280 --> 00:34:05,560
Speaker 1: as well. Very good, Lord sir, thank you so much.

561
00:34:05,640 --> 00:34:08,759
Speaker 1: Nicholas Stern, of course on climate change and also on

562
00:34:09,120 --> 00:34:25,399
Speaker 1: his u United Kingdom and from the International Monetary Fund

563
00:34:25,440 --> 00:34:29,520
Speaker 1: headquarters their annual meetings always an important discussion with Christine

564
00:34:29,560 --> 00:34:33,000
Speaker 1: la guard but most importantly francinem to line it up

565
00:34:33,080 --> 00:34:36,640
Speaker 1: to talk about Brexit that changes Sterling much weaker this

566
00:34:36,880 --> 00:34:39,680
Speaker 1: morning and the issues of debt as lot on the

567
00:34:39,760 --> 00:34:41,800
Speaker 1: cover of the ft this morning, the hundred and fifty

568
00:34:42,080 --> 00:34:46,120
Speaker 1: trillion dollar number still banking in the dynamics of global

569
00:34:46,200 --> 00:34:49,120
Speaker 1: banking and particularly European banking in front of if you

570
00:34:49,160 --> 00:34:51,279
Speaker 1: look around the world time, there's nothing rosy to write

571
00:34:51,320 --> 00:34:52,919
Speaker 1: home about. But actually want to cut to the chase.

572
00:34:52,960 --> 00:34:56,120
Speaker 1: First of all, welcoming Madame leg the MD there of

573
00:34:56,200 --> 00:34:57,440
Speaker 1: the I m F. But ma, then I got if

574
00:34:57,480 --> 00:34:59,160
Speaker 1: we cut to the chase. So there's so much concern

575
00:34:59,200 --> 00:35:01,440
Speaker 1: about Deutsche Bank, how much do you worry about it?

576
00:35:02,719 --> 00:35:06,239
Speaker 1: You know, Deutsche Bank is a systemic institution and he

577
00:35:06,400 --> 00:35:11,680
Speaker 1: is very strongly interrelated with many other banking institutions around

578
00:35:11,680 --> 00:35:17,440
Speaker 1: the world. We believe that Deutsche Banks, like many other banks,

579
00:35:18,640 --> 00:35:21,759
Speaker 1: has to look at its business model, which I'm sure

580
00:35:21,800 --> 00:35:23,760
Speaker 1: it does because it is in the process of selling

581
00:35:23,800 --> 00:35:27,319
Speaker 1: assets here and there. Has to look at its long

582
00:35:27,480 --> 00:35:31,720
Speaker 1: term profitability given the um you know, lower bound interest

583
00:35:31,840 --> 00:35:33,640
Speaker 1: rates that we have around the world and probably for

584
00:35:33,760 --> 00:35:38,000
Speaker 1: longer than than many expect, and decide, you know, what

585
00:35:38,200 --> 00:35:40,520
Speaker 1: size it wants to have and how it wants to

586
00:35:40,920 --> 00:35:44,960
Speaker 1: strengthen its it. It's a whole balance sheet. But it's

587
00:35:45,000 --> 00:35:47,920
Speaker 1: not the only one in the in the banking landscape

588
00:35:47,960 --> 00:35:49,680
Speaker 1: to have to do that job. But we believe that

589
00:35:49,800 --> 00:35:52,239
Speaker 1: many banks have to look and to do a bit

590
00:35:52,320 --> 00:35:55,759
Speaker 1: of introspection into how they want to to be. I

591
00:35:55,800 --> 00:35:58,520
Speaker 1: would mention something else which has been made quite obvious

592
00:35:58,719 --> 00:36:03,200
Speaker 1: this week. The digital banking is really hitting the radar

593
00:36:03,280 --> 00:36:04,719
Speaker 1: screen in a big way. If you look at what

594
00:36:04,840 --> 00:36:07,320
Speaker 1: I n G announced a few days ago. This is

595
00:36:07,360 --> 00:36:11,399
Speaker 1: going to happen too many banks, which will probably move

596
00:36:11,520 --> 00:36:15,879
Speaker 1: more in the direction of using digital tools, leveraging day

597
00:36:15,920 --> 00:36:20,000
Speaker 1: technology platform and probably as a result cutting cost. Got

598
00:36:20,040 --> 00:36:21,800
Speaker 1: what you're talking There is a business model that we

599
00:36:21,880 --> 00:36:24,120
Speaker 1: often talk about for a lot of these European banks.

600
00:36:24,560 --> 00:36:26,800
Speaker 1: But do you think that institutions have to rush to

601
00:36:26,880 --> 00:36:29,759
Speaker 1: find a settlement on Deutsche Bank in specific and what

602
00:36:29,880 --> 00:36:35,040
Speaker 1: happens if they don't? You know, I'm a lawyer by background,

603
00:36:35,239 --> 00:36:38,600
Speaker 1: and I think that a bad settlement is always better

604
00:36:38,760 --> 00:36:41,840
Speaker 1: than a good a good trial. We're not in a

605
00:36:41,960 --> 00:36:45,560
Speaker 1: trial mode clearly in the case of Deutsche Bank, but

606
00:36:45,800 --> 00:36:50,160
Speaker 1: a settlement would certainly be welcome because it would deliver

607
00:36:50,320 --> 00:36:55,040
Speaker 1: some certainty as to what weight UH the bank will

608
00:36:55,120 --> 00:36:57,839
Speaker 1: have to to carry and whether it matches with its

609
00:36:57,880 --> 00:37:01,200
Speaker 1: provision or not. So the sooner the better n the guard.

610
00:37:01,239 --> 00:37:04,080
Speaker 1: Early in our collective financial crisis, you stood up at

611
00:37:04,120 --> 00:37:07,440
Speaker 1: the Council and Foreign Relations in Washington and was in

612
00:37:07,520 --> 00:37:11,360
Speaker 1: search of adults in the room. For European banking in general.

613
00:37:11,440 --> 00:37:14,160
Speaker 1: What this is about is the courage in the will

614
00:37:14,640 --> 00:37:19,040
Speaker 1: to clear bad loans, npls and non performing loans. How

615
00:37:19,160 --> 00:37:23,359
Speaker 1: can the I M F assist Italian banks, German banks,

616
00:37:23,440 --> 00:37:27,560
Speaker 1: banks in general to find the courage to finally write

617
00:37:27,600 --> 00:37:31,719
Speaker 1: down the balance sheet? Well, you know Tom that we

618
00:37:31,840 --> 00:37:34,520
Speaker 1: have advocated for a long time that they be real

619
00:37:34,640 --> 00:37:39,000
Speaker 1: banking union within the EU area that would there is

620
00:37:39,360 --> 00:37:42,560
Speaker 1: a degree of banking union. Efforts have been made, it's

621
00:37:42,600 --> 00:37:45,879
Speaker 1: not completed. There is not a fiscal backstop that would

622
00:37:45,880 --> 00:37:51,239
Speaker 1: actually support a significant effort in in reforming and and

623
00:37:51,400 --> 00:37:55,840
Speaker 1: probably right sizing the system as as as they're probably

624
00:37:55,920 --> 00:37:59,279
Speaker 1: planning to do. So that's step number one. Step number two.

625
00:37:59,400 --> 00:38:02,560
Speaker 1: We have to say things as we see them, and

626
00:38:02,760 --> 00:38:07,400
Speaker 1: sometimes it's not welcome, but if we see significant amount

627
00:38:07,520 --> 00:38:11,759
Speaker 1: and percentages of npls in balance sheets, we have to

628
00:38:11,840 --> 00:38:15,080
Speaker 1: say so. We do that privately in our bilateral discussions,

629
00:38:15,440 --> 00:38:18,839
Speaker 1: and we do that publicly aggregating numbers because we never

630
00:38:18,960 --> 00:38:22,319
Speaker 1: want to single out one particular institution versus the other.

631
00:38:22,800 --> 00:38:25,400
Speaker 1: You will have noted that in our Global Financial Stability

632
00:38:25,480 --> 00:38:29,000
Speaker 1: Report we don't mention. We hardly mentioned any name, but

633
00:38:29,160 --> 00:38:32,239
Speaker 1: we talk in general about what its banks after the

634
00:38:32,360 --> 00:38:33,840
Speaker 1: I m F to do that. Do you see how

635
00:38:33,920 --> 00:38:36,880
Speaker 1: they do that? Very diplomatic, It's almost like Berk surveillance,

636
00:38:36,960 --> 00:38:40,160
Speaker 1: you know, back and forth. I think the Guards is

637
00:38:40,239 --> 00:38:44,040
Speaker 1: far more diplomatic than we are. Is Europe overbanked? Do

638
00:38:44,120 --> 00:38:47,080
Speaker 1: we need to consolidate banks and actually our regulators? You know?

639
00:38:47,239 --> 00:38:50,200
Speaker 1: Looking at that, I think that you know, the findings

640
00:38:50,239 --> 00:38:55,320
Speaker 1: of the GFSR is that even if the economic situation

641
00:38:55,440 --> 00:38:59,520
Speaker 1: improves as we hope it will, if policymakers make the

642
00:38:59,600 --> 00:39:03,439
Speaker 1: right decisions and move into action mode, there is still

643
00:39:03,480 --> 00:39:06,759
Speaker 1: about twenty of the banking system that is not going

644
00:39:06,840 --> 00:39:11,400
Speaker 1: to be prosperous. So that calls for re examination the

645
00:39:11,520 --> 00:39:14,440
Speaker 1: work that any business leader has to do looking at

646
00:39:14,480 --> 00:39:16,800
Speaker 1: its business with the time that we have with you today.

647
00:39:16,880 --> 00:39:19,800
Speaker 1: This quote from the Green Report, the Financial Stability Report,

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00:39:20,040 --> 00:39:22,800
Speaker 1: and this speaks to Steve Major in HSBC looking for

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00:39:22,920 --> 00:39:25,560
Speaker 1: low rates and low rates out to two thousand twenty

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00:39:25,600 --> 00:39:28,840
Speaker 1: one in the ft today. This quote, the solvency of

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00:39:28,960 --> 00:39:33,120
Speaker 1: many life insurance companies and pension funds is threatened by

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00:39:33,160 --> 00:39:37,759
Speaker 1: a prolonged period of low interest rates. You've provided leadership

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00:39:38,000 --> 00:39:41,960
Speaker 1: on this and saying it's about duration, about the chronic

654
00:39:42,120 --> 00:39:45,640
Speaker 1: nature of low rates, how to negative rates fold into

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00:39:45,719 --> 00:39:49,960
Speaker 1: this chronic sense of lack of return. It calls for

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00:39:50,280 --> 00:39:54,520
Speaker 1: re examination of those two sectors as well, the insurance

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00:39:55,160 --> 00:39:58,000
Speaker 1: sector and the pension fund sector. This is particularly true

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00:39:58,040 --> 00:40:03,640
Speaker 1: for the life insurance sector, specifically in those countries where, uh,

659
00:40:04,040 --> 00:40:08,239
Speaker 1: the level of return is prescribed by law. You know,

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00:40:08,280 --> 00:40:12,680
Speaker 1: in a country like Japan, for instance, it's under the

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00:40:12,800 --> 00:40:16,840
Speaker 1: law required to actually serve a particular level of return

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00:40:16,920 --> 00:40:20,600
Speaker 1: on those life insurance policies. So there is work to

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00:40:20,640 --> 00:40:22,640
Speaker 1: be done in those two sectors as well. I think

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00:40:22,680 --> 00:40:25,680
Speaker 1: they know it. They are doing the work, probably a

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00:40:25,760 --> 00:40:28,239
Speaker 1: bit quietly at the moment, But our duty is to

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00:40:28,360 --> 00:40:32,680
Speaker 1: say there is urgency about it. Do you feel like

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00:40:32,840 --> 00:40:34,880
Speaker 1: a central bank policy is coming at the end of

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00:40:34,920 --> 00:40:37,160
Speaker 1: the line, and how difficult is it for a government

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00:40:37,200 --> 00:40:40,320
Speaker 1: to pick it up when we're so indebted. I just

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00:40:40,440 --> 00:40:42,840
Speaker 1: want to call a little bit of caution on that

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00:40:43,000 --> 00:40:45,800
Speaker 1: massive number of a hundred and fifty two trillion dollars,

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00:40:46,520 --> 00:40:51,400
Speaker 1: which is about two global GDP, because about two thirds

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00:40:51,440 --> 00:40:55,879
Speaker 1: of that is corporate debt, household debts and A third

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00:40:56,040 --> 00:40:58,960
Speaker 1: is sovereign debt, and not all countries are in the

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00:40:59,040 --> 00:41:03,480
Speaker 1: same position. Some countries are heavily indebted and some of

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00:41:03,560 --> 00:41:07,239
Speaker 1: that debt is held by domestic holders, which also is

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00:41:07,280 --> 00:41:14,200
Speaker 1: a particular problematic, particular situation. So we can't just cry

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00:41:14,360 --> 00:41:16,799
Speaker 1: full and say, oh, this is a huge, huge debt

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00:41:16,840 --> 00:41:20,080
Speaker 1: around the world. We need to be country specific. But

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00:41:21,200 --> 00:41:24,680
Speaker 1: there is an issue of the dead burden, and there

681
00:41:24,800 --> 00:41:29,400
Speaker 1: is an issue of what monetary policy can be conducted

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00:41:29,760 --> 00:41:32,160
Speaker 1: on its own, as has been the case for too long,

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00:41:32,400 --> 00:41:35,000
Speaker 1: which is the reason why we're calling for the three

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00:41:35,040 --> 00:41:39,200
Speaker 1: pronged approach monetary fiscal structural reforms, and they have to

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00:41:39,320 --> 00:41:48,239
Speaker 1: come together. Thanks for listening to the Bloomberg Surveillance podcast.

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00:41:48,600 --> 00:41:53,640
Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever

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00:41:53,840 --> 00:41:57,680
Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keene.

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00:41:58,160 --> 00:42:01,960
Speaker 1: Michael McKee is at mc eonomy. Before the podcast, you

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00:42:02,040 --> 00:42:17,279
Speaker 1: can always catch us worldwide. I'm Bloomberg Radio. Who you

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00:42:17,400 --> 00:42:21,239
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00:42:21,360 --> 00:42:24,640
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00:42:24,800 --> 00:42:29,840
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00:42:29,960 --> 00:42:30,359
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