WEBVTT - Bloomberg Wall Street Week: Inflation Special 0:00:00.160 --> 0:00:03.360 This is Bloomberg Wall Street Week. What's the state of 0:00:03.400 --> 0:00:06.360 corporate governance? The deficit is a real issue. The US 0:00:06.400 --> 0:00:09.800 economy continues to send mixed signals to the financial stories 0:00:09.840 --> 0:00:12.680 that keep our world. Fed action to con concerns over 0:00:12.760 --> 0:00:16.239 dollar liquidity and encouraging China data the five hundred wealthiest 0:00:16.239 --> 0:00:18.360 people in the world. Through the eyes of the most 0:00:18.480 --> 0:00:22.520 influential voices Larry Summers, the former Treasury Secretary, Star CEO, 0:00:22.640 --> 0:00:26.360 Kevin Johnson sec Chairman j Clayton. Bloomberg wool Street Week 0:00:26.480 --> 0:00:31.320 with David Weston from Bloomberg Radio. Full speed ahead, one 0:00:31.320 --> 0:00:35.760 point nine trillion dollars, one hundred million vaccinations and strong 0:00:35.960 --> 0:00:39.280 new projections for growth. But is there a speed limit 0:00:39.320 --> 0:00:42.879 to how fast Weekend drive this economy? This is Bloomberg 0:00:42.880 --> 0:00:45.600 Wall Street Week. This week devoted to the eye word 0:00:45.800 --> 0:00:49.960 that is inflation. I'm David Weston, So where does this 0:00:50.040 --> 0:00:53.280 all lead to? Yields continue to climb, At what point 0:00:53.280 --> 0:00:55.840 does the FED need to step in? And if it does, 0:00:56.040 --> 0:00:58.480 where does that leave the dollar? When it comes to 0:00:58.640 --> 0:01:02.240 understanding the intricate mechanism that is our financial system, there 0:01:02.320 --> 0:01:05.399 is no one, no one like Ray Dalio, founder of 0:01:05.440 --> 0:01:08.880 Bridgewater Associates. Ray is clear that he's not saying what 0:01:08.920 --> 0:01:12.039 the US should do. Indeed, he has written a book 0:01:12.080 --> 0:01:15.160 on how capitalism needs to be reformed. But Ray has 0:01:15.200 --> 0:01:18.560 a clear and certain view about the consequences of fiscal 0:01:18.959 --> 0:01:22.720 and monetary policy, whatever those policies may be. So we 0:01:22.840 --> 0:01:24.880 turned to him this week to get a sense of 0:01:24.959 --> 0:01:29.760 where we may be headed. Think of the economy as 0:01:29.840 --> 0:01:35.920 being um, like an individual um and their pulses dropping. 0:01:36.400 --> 0:01:39.920 When the pulse is dropping, the doctors come running in 0:01:39.959 --> 0:01:43.960 with the stimulant, and they inject stimulant. Now that the 0:01:44.000 --> 0:01:51.480 economy is rebounding, he's um, and inflation pressures are rebounding UM, 0:01:51.520 --> 0:01:56.720 there's not the same pressure to administer that stimulation. When 0:01:56.800 --> 0:02:00.320 it happens, when it becomes a problem is first the 0:02:00.480 --> 0:02:05.520 rising interest rates start hurting financial asset prices. First, typically 0:02:05.560 --> 0:02:10.040 they hurt bonds, then they pass through and hurt stocks 0:02:10.600 --> 0:02:14.880 because still interest rates affects stocks. And when that starts 0:02:14.919 --> 0:02:18.200 to affect stocks, that's one thing. Maybe the stock market 0:02:18.600 --> 0:02:23.720 can correct, Tenner and the federal reserve can tolerated. When 0:02:23.760 --> 0:02:27.560 it goes beyond that and starts to affect the economy, 0:02:27.840 --> 0:02:31.280 that's when you see the real tradeoff have to search 0:02:31.800 --> 0:02:36.160 uh surface. So that's what that looks like. Okay, so 0:02:36.440 --> 0:02:40.200 let's play a little dickens here and ask about the 0:02:40.200 --> 0:02:42.639 ghost of Christmas future. At the very end, they say, 0:02:42.720 --> 0:02:44.959 is this what has to be? Or can I still 0:02:45.080 --> 0:02:48.399 change it somewhat? Can we change it somewhat? And could 0:02:48.440 --> 0:02:50.680 J Pale specifically change and change it, or for that matter, 0:02:51.040 --> 0:02:56.320 the administrative government. Our basic situation is that we're spending 0:02:56.680 --> 0:03:00.480 a lot more money than we're earning, and so are 0:03:01.360 --> 0:03:04.919 that that gap exists, and a balance sheet means that 0:03:05.000 --> 0:03:08.240 we owe a lot more money, and that owing that 0:03:08.280 --> 0:03:12.880 money is somebody's financial assets, that bonds that they might sell. 0:03:13.600 --> 0:03:16.320 So you can't It's not an easy thing to change 0:03:16.360 --> 0:03:18.960 because what do you do? Spend less money? And if 0:03:19.000 --> 0:03:22.160 you spend less money, you give less checks out, or 0:03:22.639 --> 0:03:25.480 you can't get people to easily earn more money and 0:03:25.600 --> 0:03:28.760 change that. So it's a difficult dilemma. And it's a 0:03:28.800 --> 0:03:32.720 particularly difficult dilemma that I think that you're going to see. 0:03:32.760 --> 0:03:36.840 Particularly the part is late this year and beyond that, 0:03:36.920 --> 0:03:40.480 because late this year you're probably gonna see, um everything 0:03:41.400 --> 0:03:44.720 be a problem. Um you're gonna probably see higher interest 0:03:44.800 --> 0:03:48.880 rates because growth will be stronger, inflation will be stronger, 0:03:49.280 --> 0:03:52.640 and that you'll see probably there won't be enough demand 0:03:52.720 --> 0:03:55.080 on it. So the thing to watch out for is 0:03:55.120 --> 0:03:59.160 a signal if this happens, is that you see the 0:03:59.200 --> 0:04:05.680 need to buy bonds when the economy is strong and 0:04:05.800 --> 0:04:09.600 when inflation. If you take um, there's this year, and 0:04:09.640 --> 0:04:13.240 then there's beyond this year, there's um, and there's the 0:04:13.280 --> 0:04:17.159 next few years. Um. It's a problem because how we're 0:04:17.200 --> 0:04:19.880 going to spend money as a political issue a big 0:04:19.880 --> 0:04:23.280 political issue, and we're gonna have to spend There's gonna 0:04:23.279 --> 0:04:25.960 be too much spending, and so that will affect the 0:04:26.200 --> 0:04:30.599 value of the dollar and or interest rates. Ray. As 0:04:30.600 --> 0:04:34.080 we speak, the Federal Reserve is buying something like billion 0:04:34.120 --> 0:04:37.920 dollars both in treasuries and mortgage bonds right now. How 0:04:37.920 --> 0:04:39.400 can you justify that When they came out and said 0:04:39.400 --> 0:04:43.440 we're gonna have six and a half GDP growth this year, well, um, 0:04:43.560 --> 0:04:49.720 there their position would be, um, that we are having 0:04:49.720 --> 0:04:54.119 a rebound from a depressed level and that we need 0:04:54.120 --> 0:04:58.320 to have that rebound. And that also averages don't tell 0:04:58.520 --> 0:05:02.640 convey the condition of all people, and so the issues 0:05:02.760 --> 0:05:07.280 the stimulation is many times five to seven times the 0:05:07.320 --> 0:05:12.600 amount of income lost through COVID, So that there's a distribution. Now, 0:05:12.760 --> 0:05:16.239 if you were to say, what's that distribution for, which 0:05:16.279 --> 0:05:20.400 is more of a political question, It is for um 0:05:20.720 --> 0:05:25.800 UH child enablement, it is for schools, it is for hospitals, 0:05:25.839 --> 0:05:31.040 it iss for UH for that so UM, the Federal 0:05:31.080 --> 0:05:36.159 Reserve would say, we're just going above their inflation targets, 0:05:36.200 --> 0:05:38.839 not by much. If you look at indicators like the 0:05:38.960 --> 0:05:41.919 break even inflation rate, it's about two and a half percent, 0:05:42.200 --> 0:05:46.320 and they would say not yet. But the important thing 0:05:46.440 --> 0:05:49.760 to convey here on inflation is that there are two 0:05:49.839 --> 0:05:53.680 types of inflation. Okay, I just want to make this clear. 0:05:54.400 --> 0:05:57.800 We're used to one type of inflation, which is when 0:05:57.800 --> 0:06:02.680 the economy is too hot, um, there's a capacity constraint, 0:06:02.760 --> 0:06:07.040 and when demand presses up against existing capacity, prices rise, 0:06:07.760 --> 0:06:10.640 unemployment rates a loow, and so forth. There is a 0:06:10.920 --> 0:06:14.800 thing called a monetary inflation. That's when you can have 0:06:15.200 --> 0:06:21.080 stag inflation. And that monetary inflation means that even when 0:06:21.080 --> 0:06:26.960 the economy weakens, inflation rates rise because there's too much inflation, 0:06:27.040 --> 0:06:28.920 and there's the move out of that thanks to rate 0:06:28.960 --> 0:06:32.760 vario Co chairman and co c i O of Bridgewater Associates. 0:06:33.320 --> 0:06:36.520 Coming up what one point nine trillion dollars and vaccinations 0:06:36.560 --> 0:06:39.839 mean for the real economy. We hear from Brian moynihan, 0:06:39.960 --> 0:06:43.200 chairman and CEO of Bank of America about what all 0:06:43.320 --> 0:06:47.560 this growth means for his customers and the prospect of inflation. 0:06:48.200 --> 0:06:56.440 That's next on Wall Street Read on Bloomberg. This is 0:06:56.480 --> 0:07:01.320 Bloomberg Wall Street Weeks Inflation special. We've David weinsted from 0:07:01.440 --> 0:07:04.640 Bloomberg Radio. Everybody pretty much agrees that the vaccine is 0:07:04.680 --> 0:07:07.040 going into people's arms, and the one point nine trillion 0:07:07.080 --> 0:07:10.280 dollars going into the economy are going to trigger remarkable 0:07:10.360 --> 0:07:13.480 growth this year. The question is how much and how 0:07:13.560 --> 0:07:17.680 we can handle that much growth without triggering inflation, which 0:07:17.680 --> 0:07:19.800 is what we asked Bank of America Chairman and CEO 0:07:20.200 --> 0:07:24.600 Ryan Wynihan. Our team has the US growth predicted Canadas 0:07:24.600 --> 0:07:27.680 Browning plat and the number one research platform for many 0:07:27.680 --> 0:07:30.239 of the last decade, In years since I've been CEO, 0:07:30.720 --> 0:07:33.120 they do a terrific job. They have the US growing 0:07:33.120 --> 0:07:36.600 at six and a half percent for one and around five, 0:07:36.680 --> 0:07:39.080 five and a half or twenty two. Now you have 0:07:39.120 --> 0:07:42.400 to step back and think about that. That's an economy 0:07:42.400 --> 0:07:45.360 basically the same size that was coming into the middle 0:07:45.440 --> 0:07:47.920 to the end of eighteen, which was pretty good times 0:07:47.960 --> 0:07:50.440 in the US predicted to go three times a rate 0:07:51.040 --> 0:07:54.480 with an interest rate environment that is probably half or 0:07:54.520 --> 0:07:56.560 lower than it was. And I there's all the angst 0:07:56.600 --> 0:07:58.680 about the ten year moving to one sixty, but at 0:07:58.720 --> 0:08:00.640 that point it was two and a half moving towards three. 0:08:00.920 --> 0:08:03.720 I think in a FED funds rate was much higher 0:08:03.720 --> 0:08:06.000 than is now. So think about the amount of accommodation, 0:08:06.040 --> 0:08:07.840 and then you add to one point nine trillion dollars 0:08:07.840 --> 0:08:10.240 stimulus on top of it, plus the stimulus is still 0:08:10.240 --> 0:08:12.520 on spent. So when you put that all together and 0:08:12.560 --> 0:08:15.240 then the stimulus frankly from people going back to work 0:08:15.240 --> 0:08:18.680 as economy opens, you know, the team is a six 0:08:18.720 --> 0:08:21.360 and a half percent and a huge economy. You know 0:08:21.360 --> 0:08:23.800 in the US growing faster in the world economies predicted 0:08:23.840 --> 0:08:26.880 they've got five for the world. If you think about that, 0:08:26.880 --> 0:08:29.800 that is a pretty powerful engine that has already recovered 0:08:29.800 --> 0:08:34.520 about seven percent of where it was and now is 0:08:35.080 --> 0:08:38.400 growing at three times or eight. That's a pretty powerful prediction. 0:08:38.440 --> 0:08:41.280 And our team is quite convinced it's all there well, 0:08:41.400 --> 0:08:43.280 and that raises the question a lot of people are asking, 0:08:43.360 --> 0:08:45.880 is is it possible we may be overheating the economy 0:08:45.920 --> 0:08:48.040 because we also have been increasing the money supply. I 0:08:48.040 --> 0:08:51.520 think it's up year over year the m two it's 0:08:51.520 --> 0:08:53.520 been held down the inflation because there hasn't been much 0:08:53.520 --> 0:08:55.679 reloscity because people are at home. What happens when they 0:08:55.720 --> 0:08:58.040 come out of home. In fact, some of those deposits 0:08:58.080 --> 0:09:00.000 you talked about that didn't spend all those stimulus texts, 0:09:00.000 --> 0:09:01.800 they haven't sitting there in their bank account. Are you 0:09:01.800 --> 0:09:04.440 worried we could get inflation That would be troubling. Well, 0:09:04.559 --> 0:09:06.240 that's part of the discussion to see in the market. 0:09:06.280 --> 0:09:08.360 But let me just tell you what we're seeing our customer, 0:09:08.400 --> 0:09:10.839 very Stavid. It will help you think about that. If 0:09:10.840 --> 0:09:14.400 you think about last year up till March ninth or tenth, 0:09:14.679 --> 0:09:17.520 that was before any activities had taken the shutdown and 0:09:18.320 --> 0:09:20.880 we're all hearing about this virus and learning about it. 0:09:20.920 --> 0:09:23.439 It was really the March fifteenth and out where people 0:09:23.440 --> 0:09:26.560 started taking at the government level and in the employee 0:09:26.640 --> 0:09:29.800 level of significant actions. If you look at that period 0:09:29.800 --> 0:09:33.680 of time twenty two thousand, twenty over nineteen grew you know, 0:09:33.720 --> 0:09:37.959 double digit, say ten percent. When you look at it one, 0:09:38.280 --> 0:09:40.640 we're now growing at six percent. And if you look 0:09:40.679 --> 0:09:42.560 at it for the month of March, for the first 0:09:42.559 --> 0:09:47.040 part of March here, it's actually growing above that's pretty unbelievable. 0:09:47.040 --> 0:09:49.440 And what you're frankly seeing now is the chart the 0:09:49.520 --> 0:09:52.000 credit card charges, which had been depressed because there's a 0:09:52.000 --> 0:09:54.959 lot of travel entertainment, are back and actually growing year 0:09:54.960 --> 0:09:58.440 every year, growing year every year of time pre pandemic shutdown. 0:09:58.840 --> 0:10:01.360 And so you're gonna see massive your your comparisons as 0:10:01.360 --> 0:10:03.800 you moved into April when everything was shut down. So 0:10:03.960 --> 0:10:06.480 the raity is the consumers at Bank of America, which 0:10:06.520 --> 0:10:09.679 is you know, fifty million people spending three trillion dollars 0:10:09.679 --> 0:10:12.160 plus a year, and all these different forms are spending 0:10:12.200 --> 0:10:14.720 more money than they did last year in growing at 0:10:14.720 --> 0:10:17.800 ten percent, and that was before the pandemic. That bodes well. 0:10:17.920 --> 0:10:19.920 And then if you look at the charges, you can 0:10:19.920 --> 0:10:22.520 see like on a credit card, the seniors and boomers 0:10:22.559 --> 0:10:25.760 are getting vaccinated. We're up fifty in charges over the 0:10:25.840 --> 0:10:28.720 last few weeks. In terms of travel and related things. 0:10:28.760 --> 0:10:32.040 You're seeing the TSA statistics, so the types of things 0:10:32.080 --> 0:10:34.320 are happy now. By the way, grocery stores are down 0:10:34.360 --> 0:10:37.760 a little bit. Why because people shifted more to restaurants 0:10:37.760 --> 0:10:40.280 and that's all bodes well for normalization economy. So we 0:10:40.360 --> 0:10:43.120 see that very good. Does that overheat the economy? I 0:10:43.160 --> 0:10:45.079 think you've heard it from Chair Pow. In many cases 0:10:45.080 --> 0:10:47.120 they're willing to take the risk to get the you know, 0:10:47.280 --> 0:10:50.200 the average inflation rate above two percent. There are people 0:10:50.280 --> 0:10:52.760 concerned in the market. We all have that concern because inflation. 0:10:52.800 --> 0:10:55.160 Inflation is tough to fight if it gets embedded in there. 0:10:55.480 --> 0:10:59.000 But our economists or have raised or projections from four 0:10:59.040 --> 0:11:01.920 percent to six percent really ninety days, and I think 0:11:02.120 --> 0:11:04.480 likewise other people will do so. And Brian, that's part 0:11:04.520 --> 0:11:05.840 of what I want to ask. You refer to the 0:11:05.880 --> 0:11:09.080 tenure yield of being over one point six now and historically, 0:11:09.120 --> 0:11:11.080 as you point out, that's not that high. Goodness knows, 0:11:11.320 --> 0:11:13.360 but it went up very fast, and some people think 0:11:13.360 --> 0:11:15.480 it's on its way to go higher than that. Are 0:11:15.520 --> 0:11:18.120 you concerned about the rapidity with which it's going up? 0:11:18.160 --> 0:11:19.640 And by the way, where do you think it ends up? 0:11:19.920 --> 0:11:22.600 You know, our team basically thinks that it's gonna potentially 0:11:22.640 --> 0:11:26.040 go through two percent um, and we'll see, we'll see it, 0:11:26.200 --> 0:11:28.839 but it's it's the reason that's going up is because 0:11:28.880 --> 0:11:31.400 people are seeing the economy recovery. In the end of 0:11:31.400 --> 0:11:33.520 the day, this is the healthcare crisis, and we had 0:11:33.520 --> 0:11:35.360 to win the war on the healthcare crisis. It's the 0:11:35.440 --> 0:11:38.840 first way I thought about it, and I thought about 0:11:38.840 --> 0:11:40.200 it ever since. If we have to win the war 0:11:40.240 --> 0:11:42.679 against the fires, and they have done that, and they 0:11:42.679 --> 0:11:45.040 haven't completed it yet, but we have the pieces in place. 0:11:45.200 --> 0:11:48.360 The vaccines are game changer and being deployed a hundred 0:11:48.400 --> 0:11:51.640 million shots and arms, which is unbelievable, thirty million sitting 0:11:51.640 --> 0:11:53.560 on shelves that need to be deployed, and then many 0:11:53.600 --> 0:11:56.280 coming after it. So I think there's concern about that. 0:11:56.440 --> 0:11:58.520 I think it will play out a little bit, David, 0:11:58.520 --> 0:12:00.760 and I think we have to watch it. But it 0:12:00.840 --> 0:12:02.840 went up, but it's still back to where it was, 0:12:03.080 --> 0:12:05.800 you know, only a few months before when it fell 0:12:06.440 --> 0:12:09.040 down into the sixty eight range, And so I think 0:12:09.080 --> 0:12:11.000 people have to be careful about these movements are just 0:12:11.040 --> 0:12:12.960 to get it back in line where it was, even 0:12:12.960 --> 0:12:14.800 at a very low level. If you don't look in 0:12:14.800 --> 0:12:17.040 the last decade and then go back from two thousand 0:12:17.040 --> 0:12:19.760 and seven backwards and try to count the number of 0:12:19.840 --> 0:12:21.880 days a tenure trade of below three percent, you won't 0:12:21.920 --> 0:12:25.280 find a lot. And so as economy normalizes and growth 0:12:25.400 --> 0:12:27.679 rate comes up and we get above two percent, I think, 0:12:27.840 --> 0:12:29.920 you know, you'll see a little higher rate, but it's 0:12:29.960 --> 0:12:32.080 still be in a great grand scheme of things, one 0:12:32.080 --> 0:12:34.280 of the lowest rates we've seen in a long long time. 0:12:34.600 --> 0:12:36.640 What does it mean for Bank of America's business specifically? 0:12:36.640 --> 0:12:38.520 You and I have talked in the past. You are 0:12:38.880 --> 0:12:41.960 a traditional bank, You take deposits. The shape of yield 0:12:41.960 --> 0:12:44.160 curve matters to you. It was flat for a long time, 0:12:44.200 --> 0:12:46.560 even inverted for a minute or two, and now it 0:12:46.679 --> 0:12:48.920 is really steepening quite a bit. What does that mean, 0:12:48.920 --> 0:12:51.640 for example, for net insterest margin? Your chief financial officer 0:12:51.720 --> 0:12:53.920 said he's pretty confident about that. Is it looking good 0:12:54.000 --> 0:12:56.839 for Bank of America. Yeah. We we saw the trough 0:12:56.840 --> 0:12:59.560 in the third quarter of twenty and we still see 0:12:59.559 --> 0:13:01.439 that as a trought, and we see it coming back, 0:13:01.480 --> 0:13:03.120 and by the end of the year it's back to 0:13:03.120 --> 0:13:05.679 where sort it was pre pandemic, but it's much different. 0:13:05.720 --> 0:13:07.920 It's driven more by the sheer volume of deposits. Our 0:13:07.960 --> 0:13:10.480 team has done a great job and driving our deposit 0:13:10.559 --> 0:13:13.840 franchise across the rover trillion eight and deposits. So the 0:13:13.920 --> 0:13:16.280 loans are still down and what we're finally seeing as 0:13:16.320 --> 0:13:18.720 the loans are stabilizing. This is one of the good 0:13:18.720 --> 0:13:21.240 pieces of news. We expected a month of March we 0:13:21.280 --> 0:13:24.160 will cross over to where we're producing more small business 0:13:24.160 --> 0:13:27.400 credit in that month than we did before the pandemic 0:13:27.480 --> 0:13:29.280 and that that's been a long haul. So that's you know, 0:13:29.320 --> 0:13:32.800 thirteen twelve, thirteen months, and so we're seeing some loan 0:13:32.840 --> 0:13:35.480 demand coming in. With capital markets demand has been outstanding 0:13:35.480 --> 0:13:37.800 and huge as you've seen, but in terms of core 0:13:37.880 --> 0:13:41.640 middle market borrowers, they they're starting to it's flattened out 0:13:41.679 --> 0:13:44.240 and that's good. So R and I is affected buyer deposits, 0:13:44.240 --> 0:13:46.680 which are growing very strongly. Again, we'll grow because of 0:13:46.679 --> 0:13:49.040 all the stimulus coming in, but importantly is to get 0:13:49.040 --> 0:13:51.320 loan growth, and we're starting to see that stabilize and 0:13:51.400 --> 0:13:54.360 that looks good for us going forward. The shape the 0:13:54.400 --> 0:13:56.480 O curve, you know, with short rates come up, that 0:13:56.640 --> 0:13:58.720 actually helps us a lot because we have a huge 0:13:58.760 --> 0:14:02.160 amount of non intersparing deposits that don't reprice but but 0:14:02.240 --> 0:14:04.360 that's life of being a great bank and being the 0:14:04.360 --> 0:14:06.840 ability to top deposit gathering bank in the United States 0:14:06.840 --> 0:14:09.960 thanks to Brian moynihan, Chairman and CEO of Back of America. 0:14:10.240 --> 0:14:13.480 Coming up the great Krugman Summers debate over the risk 0:14:13.520 --> 0:14:17.040 of inflation, we hear the doubbish side from Nobel Laureate 0:14:17.120 --> 0:14:20.480 Paul Krugmann. That's next on Wall Street Week on Bloomberg 0:14:25.920 --> 0:14:30.280 z is Bloomberg Wall Street Weeks Inflation Special with David 0:14:30.280 --> 0:14:33.560 Weston from Bloomberg Radio. The question of what the one 0:14:33.600 --> 0:14:36.640 point nine trillion dollar fiscal injection will meet for VIEUS 0:14:36.640 --> 0:14:39.280 economy has generated something of a debate between two of 0:14:39.280 --> 0:14:42.960 our most respected economists, former Treasury Secretary Larry Summers of 0:14:43.000 --> 0:14:47.080 Harvard and Nobel Laureate Paul Krugman. Each recognizes that the 0:14:47.120 --> 0:14:50.040 other has a point, but they have a decided difference 0:14:50.080 --> 0:14:53.600 in emphasis, with Larry concerned were underestimating the risk of 0:14:53.640 --> 0:14:56.480 inflation and Paul saying it's not as big a risk 0:14:56.520 --> 0:14:59.680 as Larry suggests. So we went to the sources themselves, 0:14:59.720 --> 0:15:02.520 and first, as Paul whether in part the problem is 0:15:02.560 --> 0:15:06.360 that we are very much an uncharted territory Okay, this 0:15:06.440 --> 0:15:08.400 is a it's it's a lot of money. I mean 0:15:08.480 --> 0:15:11.840 even um, you know, uh, even for an economy the 0:15:11.880 --> 0:15:14.240 sives the US at one point n actually in here, 0:15:14.240 --> 0:15:16.400 at one point actually in there, and soon you're talking 0:15:16.400 --> 0:15:20.000 about real money, and it's a. UM. If it was 0:15:20.160 --> 0:15:24.040 designed as a fiscal stimulus, it would be a very 0:15:24.200 --> 0:15:27.760 very big fiscal stimulus. Now it's actually not really designed 0:15:27.800 --> 0:15:30.520 that way. Large parts of it are probably not going 0:15:30.600 --> 0:15:34.000 to have a very big, certainly short term multiplier effect 0:15:34.040 --> 0:15:37.080 on the economy. So it is going to boost the economy. 0:15:37.280 --> 0:15:41.680 It's uh, we're going to you know, the consensus forecasts 0:15:41.720 --> 0:15:45.280 are for five and a half six percent growth over 0:15:45.320 --> 0:15:48.960 the course of this year. Some estimates are running higher 0:15:49.000 --> 0:15:53.080 than that. Um. Most of those estimates suggest that we're 0:15:53.120 --> 0:15:57.680 going to be pretty much at full employment by early 0:15:57.800 --> 0:16:01.880 next year, which is uh, which is a good thing. 0:16:02.160 --> 0:16:05.480 Does mean that it's not silly to think that there 0:16:05.560 --> 0:16:08.520 might be some inflationary pressure. But it does not look 0:16:09.120 --> 0:16:11.000 at least as I read it, and I said, I 0:16:11.000 --> 0:16:13.800 think as the consensus of the Wall Street economists read 0:16:13.840 --> 0:16:17.440 it like it's a major inflationary threat. Well, and shared 0:16:17.480 --> 0:16:20.480 pou has said, yes, there will be some uptickings and prices, 0:16:20.520 --> 0:16:23.680 but it will be as he says, transitory. Yeah, how 0:16:23.720 --> 0:16:26.280 will you, as an economist look at the data decide 0:16:26.320 --> 0:16:30.080 whether it's transitory or more than transitory. Well, first of all, 0:16:30.120 --> 0:16:33.200 we're gonna look at things. One of the concepts that 0:16:33.240 --> 0:16:36.920 has really really worked over the past fifteen years is 0:16:36.960 --> 0:16:40.720 core inflation. Uh. It's it's not the only thing to 0:16:40.760 --> 0:16:44.080 look at, but taking out food and energy and maybe 0:16:44.120 --> 0:16:47.120 some other things. Look at look at stuff that's obviously 0:16:47.200 --> 0:16:52.280 just supply bottlenecks. Um, the you know, wood prices are 0:16:52.280 --> 0:16:56.320 way up. That's not a sustained inflationary issue. That's because 0:16:56.320 --> 0:16:58.960 we've had a surge in demand. And uh, and we'll 0:16:59.040 --> 0:17:01.960 deal with It's we want to look at underlying measures 0:17:02.000 --> 0:17:05.439 of inflation. You want to look at wages. Um. You 0:17:05.520 --> 0:17:09.160 want to just generally say, is this is this looking 0:17:09.400 --> 0:17:14.920 like the build up to the seventies? And um, you know, 0:17:15.000 --> 0:17:17.840 my guess is it's very unlikely to look like that. 0:17:17.960 --> 0:17:21.480 It's our kind of worst case scenario. The closest I 0:17:21.480 --> 0:17:25.120 can come to this and is something like the Korean War, 0:17:25.440 --> 0:17:29.720 which actually did lead to a one year spiking inflation, 0:17:29.760 --> 0:17:33.560 but then inflation quickly subsided back to uh to an 0:17:33.640 --> 0:17:37.320 underlying reative around two percent, and that's that's the worst case. 0:17:37.320 --> 0:17:38.760 I don't think this is going to be nearly as 0:17:38.800 --> 0:17:43.440 inflationary as that the similars to the economy will come 0:17:43.480 --> 0:17:47.040 not just from one but also it looks like from 0:17:47.080 --> 0:17:49.600 the vaccines really kicking in a big way. I mean, 0:17:49.600 --> 0:17:52.679 we've had I think a suppression of demand, not just supply, 0:17:52.960 --> 0:17:55.360 because people have been getting checks and haven't been able 0:17:55.400 --> 0:17:57.080 to spend it the way they would have otherwise because 0:17:57.080 --> 0:17:59.639 they're locked up at home, the restaurants aren't open, they 0:17:59.640 --> 0:18:02.919 can't go on flights. Does that give you some pause 0:18:02.960 --> 0:18:05.800 here that we could have a rapid uptake but real 0:18:05.880 --> 0:18:08.359 demand a lot of dollars searching the same number of 0:18:08.359 --> 0:18:11.920 services and goods really quickly. Yeah. So though the it's 0:18:12.040 --> 0:18:15.080 two sided. I mean, the pandemic has prevented people from 0:18:15.119 --> 0:18:18.879 spending in the way they uh, they would have normally, 0:18:18.880 --> 0:18:22.200 but it's also preventing some goods and services from being 0:18:22.720 --> 0:18:25.119 supplied in the way they would have. So on the 0:18:25.160 --> 0:18:29.680 one hand, uh, yeah, people will start eating in restaurants again. 0:18:30.080 --> 0:18:32.280 On the other hand, restaurants will be able to start 0:18:32.280 --> 0:18:35.040 serving meals again. So there's a there's both the demand 0:18:35.080 --> 0:18:38.679 and the supply effect from the vaccines and on. On 0:18:38.800 --> 0:18:42.520 balance is probably somewhat inflationary because some of that increased 0:18:42.520 --> 0:18:44.879 spending will spill over to other stuff. But it's not 0:18:45.000 --> 0:18:48.240 nearly as much as just looking at the growth numbers 0:18:48.560 --> 0:18:52.119 is is not getting the whole story. We we are 0:18:52.240 --> 0:18:54.600 right now have an economy that that is depressed in 0:18:54.720 --> 0:18:58.840 part because of supply constraints that will go away as 0:18:58.920 --> 0:19:02.320 the as facts ation spreads. So you've been in a 0:19:02.359 --> 0:19:05.560 fairly famous now debate with Larry Summers over the risk 0:19:05.600 --> 0:19:07.240 of inflation. And in the fairness to Larry, he's not 0:19:07.280 --> 0:19:09.240 saying it's a certain thing, it's just something he thinks 0:19:09.280 --> 0:19:12.679 it's a serious problem. We have. One of the issues, 0:19:12.680 --> 0:19:14.760 as I understand it, is how you look at it, 0:19:14.800 --> 0:19:17.280 what the model is you apply. As you said, this 0:19:17.359 --> 0:19:20.360 is not a typical situation of a downturn. This is special. 0:19:20.520 --> 0:19:22.920 It's more like a natural disaster or even a war. 0:19:24.080 --> 0:19:26.520 I guess my question really is do we have a 0:19:26.560 --> 0:19:29.200 model that covers this? Do we know what the likely 0:19:29.200 --> 0:19:33.399 effect on inflation would be? Given that it is Sue generous, Well, no, 0:19:34.200 --> 0:19:35.800 this is it's very hard to come up with a 0:19:35.880 --> 0:19:38.240 historical parallel. Actually, one of the funny things I just 0:19:38.240 --> 0:19:40.159 want to say about the debate between me and Larry 0:19:40.359 --> 0:19:44.960 is that we conceptually have very similar views of the economy. 0:19:45.040 --> 0:19:49.160 We're just making some different judgments about the numbers. Uh 0:19:49.200 --> 0:19:51.320 it really, I don't. I don't think you can take 0:19:51.320 --> 0:19:53.320 a look at at the way he's talking about it 0:19:53.359 --> 0:19:55.040 in the way I'm talking about and say that there's 0:19:55.040 --> 0:19:58.280 a fundamental difference in economic philosophy. There is really a 0:19:58.359 --> 0:20:01.760 judgment about the numbers and think that if I was 0:20:01.800 --> 0:20:03.480 going to make my case, I would say I would 0:20:03.520 --> 0:20:08.440 say I would look at the form of this one 0:20:08.480 --> 0:20:11.280 point nine trillion dollars and say that a lot of 0:20:11.320 --> 0:20:15.040 it is, in fact, although useful in important ways, is 0:20:15.119 --> 0:20:18.359 not going to be uh, pushing up demand all that 0:20:18.440 --> 0:20:20.919 much in the short run. That was Paul Krugman, author 0:20:21.040 --> 0:20:24.880 of Arguing with Zombies. Coming up, we'll hear the other 0:20:24.920 --> 0:20:27.600 side of the debate from our special contributor Larry Summers 0:20:27.640 --> 0:20:30.800 of Harvard. That's next on Wall Street Week on Bloomberg. 0:20:34.000 --> 0:20:38.560 This is Bloomberg Well Street Weeks Inflation Special with David 0:20:38.560 --> 0:20:42.560 Weston from Bloomberg Radio. I don't think the right question 0:20:42.680 --> 0:20:45.920 is whether this package would overheat the economy. I think 0:20:45.920 --> 0:20:51.359 if we were passed as written, it would overheat the economy. 0:20:51.440 --> 0:20:56.000 But will this shift the debate towards our doing more? 0:20:56.800 --> 0:21:01.000 Will this shift the debate UH to words doing more 0:21:01.160 --> 0:21:03.360 for those who have been left behind? And I think 0:21:03.440 --> 0:21:07.639 they're on the answers yes, But we are going to 0:21:07.760 --> 0:21:10.919 have to watch this economy very carefully. And I do 0:21:11.080 --> 0:21:20.399 think the conventional wisdom is underestimating the risks of hitting capacity. 0:21:20.960 --> 0:21:23.400 That was special contributor to Larry Summers here on Wall 0:21:23.440 --> 0:21:26.760 Street week back in January. Now two months later, the 0:21:26.840 --> 0:21:29.520 question is what has changed and whether the risk of 0:21:29.560 --> 0:21:33.720 inflation is less or more than what Larry saw back then. David, 0:21:33.800 --> 0:21:38.120 I'm I'm much more concerned. UH markets have had their 0:21:38.160 --> 0:21:41.679 biggest increase in the ten year in a century, with 0:21:41.760 --> 0:21:47.160 only one UH exception showing that they've got a real concern. 0:21:47.920 --> 0:21:51.960 The fiscal policy outlook has dimmed from where it was 0:21:52.200 --> 0:21:56.600 as the full stimulus that was contemplated then has passed. 0:21:57.119 --> 0:22:00.840