WEBVTT - The MMT Experiment is Underway 0:00:00.440 --> 0:00:03.840 Strap on your parachute. It's time for What Goes Up 0:00:04.120 --> 0:00:13.720 with Sarah Ponzik and Mike Reagan. Hello and welcome to 0:00:13.840 --> 0:00:17.880 What goes Up, a Bloomberg Weekly markets podcast. I'm Mike Reagan, 0:00:18.040 --> 0:00:21.599 a senior editor at Bloomberg, and I'm Katie Greifeld Across 0:00:21.640 --> 0:00:24.479 as a reporter, filling in for Sarah Ponzak, who's on 0:00:24.520 --> 0:00:29.320 a much deserved vacation. No pressure, Katie, but Sarah pretty 0:00:29.400 --> 0:00:31.200 much carries the show on her back, you know, so 0:00:31.600 --> 0:00:33.479 you better, you better be good. Yeah. No, I'm a 0:00:33.520 --> 0:00:36.519 frequent listener. I've got big shoes to fill, right, and 0:00:36.560 --> 0:00:38.680 the only role is you have to laugh at my jokes, 0:00:38.800 --> 0:00:42.000 or at least pretend to laugh. Alright, I do. That's 0:00:42.120 --> 0:00:44.800 a little week, but we'll we'll, we'll work on it 0:00:45.200 --> 0:00:48.879 anyway this week on the show. Obviously, government and central 0:00:48.880 --> 0:00:52.879 bank policies have once again became the main drivers of 0:00:53.000 --> 0:00:56.200 financial markets. Our guest this week will help us make 0:00:56.280 --> 0:00:59.080 sense of all of it. He has served in important 0:00:59.080 --> 0:01:02.880 economic position is under five different US presidents. He's an 0:01:02.880 --> 0:01:07.800 expert on how policy and diplomacy and investments interact and Kenny, 0:01:07.920 --> 0:01:11.119 he will hopefully help us sort out these crazy times 0:01:11.120 --> 0:01:14.520 in markets, and as always, will close out this episode 0:01:14.520 --> 0:01:17.680 with our tradition, which is the craziest thing I saw 0:01:17.720 --> 0:01:20.639 in markets this week? And remember, if you see something 0:01:20.640 --> 0:01:23.280 crazy and markets, give us a call on the Bloomberg 0:01:23.400 --> 0:01:29.280 Podcast hotline at six four six three two four three 0:01:29.360 --> 0:01:32.960 four nine zero and leave us a voicemail and maybe 0:01:32.959 --> 0:01:35.720 we'll play it on the next episode. Kay, Yes, we 0:01:35.720 --> 0:01:38.480 were talking about this before. I think this week's guest 0:01:38.560 --> 0:01:41.720 has one of the most fascinating resumes I've ever read. 0:01:42.120 --> 0:01:44.080 Um I was reading. I was very impressed reading his 0:01:44.120 --> 0:01:48.120 Wikipedia page. Firstly because he's got a Wikipedia page that's 0:01:48.120 --> 0:01:51.240 that's sort of impressive in and of itself. But he's 0:01:51.280 --> 0:01:56.160 been in government a long time. He was had roles 0:01:56.160 --> 0:01:59.520 such as Deputy US Trade Representative with the rank of 0:01:59.520 --> 0:02:03.600 ambassad He was a senior economic advisor to Henry Kissinger. 0:02:04.120 --> 0:02:07.880 He most recently served in the Obama into administration as 0:02:08.000 --> 0:02:12.000 Under Secretary of State for Economic Growth, Energy and the 0:02:12.080 --> 0:02:14.959 Environment and UH. To top it all off, he was 0:02:15.080 --> 0:02:18.400 vice chairman of Goldman Sachs International for quite a long time. 0:02:19.000 --> 0:02:22.639 U Currently he is a managing director at the wealth 0:02:22.919 --> 0:02:27.120 management firm of Taman Advisers, and his name is Robert Hormaz. 0:02:27.840 --> 0:02:30.520 Rob welcome to the show. Thanks very much, Mike. Great 0:02:30.560 --> 0:02:32.400 to be with you, and great to be with you, 0:02:32.480 --> 0:02:36.440 Katie Bob. I was reading a recent piece you had, oh, 0:02:36.480 --> 0:02:39.000 and Katie Bob also with all that going on, he 0:02:39.040 --> 0:02:41.640 manages to get more bylines in the financial press than 0:02:41.680 --> 0:02:45.520 I do. I think somehow very impressive. But Bobby had 0:02:45.639 --> 0:02:49.680 a recent piece in Baron's talking about obviously the federal 0:02:49.760 --> 0:02:54.160 deficit is just ballooning. UH. It's gonna get bigger and 0:02:54.200 --> 0:02:57.440 bigger for the foreseeable future as the government sort of 0:02:57.560 --> 0:03:01.240 counteracts the economic damage from the pandemic mc um and 0:03:01.280 --> 0:03:04.200 you write about sort of, you know that the risks 0:03:04.280 --> 0:03:08.200 of sort of political extremism on both sides that could 0:03:08.360 --> 0:03:12.080 come as a result of, you know, the nation just 0:03:12.160 --> 0:03:14.280 kind of trying to wrap its head around how we 0:03:14.320 --> 0:03:18.600 can possibly solve this deficit issue. But one thing I 0:03:18.760 --> 0:03:21.800 want to ask in regards to that is what are 0:03:21.840 --> 0:03:24.799 those sort of fringe economic ideas that I feel like 0:03:24.960 --> 0:03:27.800 is going more and more mainstream uh these days? Is 0:03:27.840 --> 0:03:32.720 the idea of uh modern monetary theory. Uh. Stephaniekelton, who 0:03:32.760 --> 0:03:35.280 is a columnist for Bloomberg, has a book out that's 0:03:35.360 --> 0:03:38.440 that's really hot, called the Deficit Myth, you know, and 0:03:39.000 --> 0:03:42.080 you know, for listeners who are unfamiliar, there's it's kind 0:03:42.120 --> 0:03:45.240 of a complex thing to discuss mm T. But the 0:03:45.240 --> 0:03:48.000 the gist of it, as that book title suggests, is 0:03:48.200 --> 0:03:51.720 perhaps we've been too afraid of of deficit spending, and 0:03:51.760 --> 0:03:53.840 that when you're a sovereign country like the US that 0:03:53.960 --> 0:03:56.520 issues its own currency, it's not as big of a 0:03:56.560 --> 0:04:01.600 deal as deficit hawks would uh claim it is. Um 0:04:01.680 --> 0:04:04.320 If you issue your own currency, theoretically you can never 0:04:04.440 --> 0:04:08.120 default on your debt. I'm just curious, given your vast 0:04:08.200 --> 0:04:10.800 experience in the government and and thinking about the depth 0:04:10.880 --> 0:04:14.360 sit thinking about the global economies, what is your take 0:04:14.480 --> 0:04:19.279 on modern monetary theory these days as we are faced 0:04:19.320 --> 0:04:24.159 with this unprecedented depthsit situation. Well, now we have a 0:04:24.240 --> 0:04:29.920 particularly unusual set of circumstances whereby we're in the midst 0:04:29.920 --> 0:04:35.599 of forced or involuntary utilization of modern monetary theory. That 0:04:35.760 --> 0:04:39.520 is to say, the federal government is issuing and will 0:04:39.520 --> 0:04:45.040 continue to issue trillions of dollars worth of bonds, and 0:04:45.120 --> 0:04:48.760 the market is by and large buying them up at 0:04:48.760 --> 0:04:53.000 a very low interest rate. And the Fed if the 0:04:53.040 --> 0:04:55.520 market is not going to do it. The FED has 0:04:55.560 --> 0:05:00.800 demonstrated its desire and its willingness to buy the assets 0:05:00.920 --> 0:05:05.440 up and keep interest rates extremely low. This is not 0:05:05.640 --> 0:05:07.800 unheard of, and then as states, this was done during 0:05:07.880 --> 0:05:13.240 World War Two where the FED guaranteed the Treasury that 0:05:13.320 --> 0:05:17.520 it would buy Treasury bonds at a very low rate 0:05:17.600 --> 0:05:20.920 to keep interest rates low, to keep the death service 0:05:20.960 --> 0:05:24.880 and costs of the of the government low. So theoretically 0:05:24.920 --> 0:05:28.360 this can last a very long time as long as 0:05:28.480 --> 0:05:33.680 the Treasury is making these big bond issues a regular occurrence, 0:05:33.720 --> 0:05:37.480 as it appears to be, although now it's not decided 0:05:37.560 --> 0:05:39.680 what the next step is, but there will be some 0:05:39.720 --> 0:05:44.479 additional spending, large additional spending. It's necessary, and the Fed. J. 0:05:44.640 --> 0:05:49.200 Powell has said he is going to in effect continue 0:05:49.240 --> 0:05:52.800 to keep rates low. But he said also something we 0:05:52.800 --> 0:05:55.720 should be aware of. The Fed can't do at all, 0:05:55.960 --> 0:05:59.880 the fan FED cannot do this indefinitely. But what is 0:06:00.080 --> 0:06:05.279 definitely mean? How long can this occur? What are the 0:06:05.480 --> 0:06:09.760 end results of this? At some point if trees don't 0:06:09.760 --> 0:06:13.000 go to the sky, what could disrupt the markets and 0:06:13.040 --> 0:06:16.600 what could cause either the Treasury to run into trouble 0:06:16.640 --> 0:06:20.720 with its issues or the FAT to feel uncomfortable and 0:06:20.960 --> 0:06:24.560 underwriting those issues for the indefinite future. We don't know 0:06:24.680 --> 0:06:27.760 that this is all terra incongnito. Well, I do want 0:06:27.800 --> 0:06:29.720 to jump in and ask, even though you just said 0:06:29.760 --> 0:06:32.440 we don't know, but what do you think is the 0:06:32.520 --> 0:06:35.159 breaking point? You know, as the US just continues to 0:06:35.200 --> 0:06:38.680 sell more and more debt, the budget deficit is just ballooning. 0:06:39.120 --> 0:06:42.120 At what point does that become a problem and might 0:06:42.200 --> 0:06:45.440 cause that disruption you touch on, Well, I think one 0:06:45.480 --> 0:06:49.880 thing we have to bear in mind is that foreigners 0:06:50.000 --> 0:06:54.560 are major players in the debt market here. The FED 0:06:54.680 --> 0:06:58.480 is a bigger player, and obviously American financial institutions are 0:06:58.520 --> 0:07:02.840 bigger players. But feigners are still buying debt issued by 0:07:02.839 --> 0:07:07.520 the Treasury in part because they see other parts of 0:07:07.520 --> 0:07:12.400 the world less stable than the US. With all of 0:07:12.440 --> 0:07:15.840 our problems that we have here, we're probably the most 0:07:15.880 --> 0:07:19.520 reliable creditor, well, certainly the most reliable creditor in the 0:07:19.560 --> 0:07:26.280 world by by all traditional standards. The problem would occur 0:07:26.920 --> 0:07:31.360 if there are doubts about the FED and the particularly 0:07:31.400 --> 0:07:36.280 doubts about the Treasury repaying the debt of the United States. 0:07:36.680 --> 0:07:39.440 For instance, there is some discussion in the United States 0:07:40.120 --> 0:07:44.200 UH Congress and and in Washington in general about maybe 0:07:44.240 --> 0:07:48.040 the US will decide it doesn't want to pay interest 0:07:48.160 --> 0:07:50.520 on some of the deck that it owes China. No 0:07:50.560 --> 0:07:53.720 one has actually threatened this, but it's sort of part 0:07:53.720 --> 0:07:56.440 of the Washington rumor mill. That would be the kind 0:07:56.480 --> 0:08:00.480 of thing that would be highly disruptive and could really 0:08:00.600 --> 0:08:04.520 undermine this scenario, because the key to the American credit 0:08:04.600 --> 0:08:07.480 market all the way back to Alexander Hamilton, is the 0:08:07.520 --> 0:08:09.960 full faith and credit of the United States is behind 0:08:10.560 --> 0:08:14.320 the bonds issued by the United States, and that is 0:08:14.440 --> 0:08:18.120 critically important. The second is that if rates stay low 0:08:18.240 --> 0:08:22.080 and inflation starts going up, then people who are holding 0:08:22.800 --> 0:08:27.440 dollar assets low yielding dollar assets find that they're losing 0:08:27.480 --> 0:08:30.960 more and more in real terms every year, and that 0:08:31.040 --> 0:08:34.960 could be a problem. And third, the question of the 0:08:35.040 --> 0:08:38.840 dollar itself, and that is if if the dollar, which 0:08:38.840 --> 0:08:44.240 has been relatively strong, the dollar weakens further, then other 0:08:44.400 --> 0:08:50.120 countries like the Europeans will be in a better position 0:08:50.160 --> 0:08:53.160 to if, depending on what their own rates are, to 0:08:53.480 --> 0:08:56.760 attract some of the money that's now currently going into 0:08:56.760 --> 0:08:59.880 the dollar. But we have seen some weakening in the 0:09:00.000 --> 0:09:03.720 dollar this year. I mean, nothing too dramatic yet, but 0:09:04.080 --> 0:09:06.439 last time I checked the some of the broad indexes 0:09:06.440 --> 0:09:09.240 were down near the lowest in in a couple of years. 0:09:09.840 --> 0:09:12.120 Is that the beginning of that? Do you think? And 0:09:12.240 --> 0:09:14.720 is that you know, for an investor to sort of 0:09:14.720 --> 0:09:17.720 wrap their heads around all these issues, is that sort 0:09:17.760 --> 0:09:20.000 of the main where the main focus should be is 0:09:20.400 --> 0:09:24.080 what role the dollar plays in the global economy in 0:09:24.280 --> 0:09:26.640 sort of this new world we have of of a 0:09:26.679 --> 0:09:31.239 little bit of political isolationism, um and these massive deficits. 0:09:31.280 --> 0:09:34.040 I mean, if you're an investor, you mainly just focused 0:09:34.120 --> 0:09:36.720 on the risks to the dollar at this point. I 0:09:36.760 --> 0:09:40.360 think you're focused to a degree on the risk of 0:09:40.400 --> 0:09:43.760 the dollar. Probably that's not the main thing you're focused on. 0:09:43.800 --> 0:09:49.720 You're focused on essentially interest rates. You're focused on the 0:09:49.760 --> 0:09:54.400 credibility of the federal government's commitment to repay its debt. 0:09:54.880 --> 0:09:58.040 But I do think the dollar, if you're abroad, and 0:09:58.080 --> 0:10:01.600 even if you're an American, is important in part if 0:10:01.640 --> 0:10:06.800 you're abroad and you're buying dollar denominated assets and you're 0:10:06.840 --> 0:10:10.400 seeing that all our weakening, you're you're losing money, and 0:10:10.440 --> 0:10:13.360 particularly if you're buying fixed income assets where you're getting 0:10:13.360 --> 0:10:17.120 no interests, practically you're really losing money. You're certainly losing 0:10:17.160 --> 0:10:21.319 it in real terms. That's a factor. The second thing 0:10:21.400 --> 0:10:24.080 we have to bear in mind is that low interest 0:10:24.160 --> 0:10:27.839 rates are not free in the sense that there are 0:10:27.880 --> 0:10:34.640 a lot of Americans, particularly retirees, older Americans, who don't 0:10:34.880 --> 0:10:39.080 like to buy equities because they consider them risky. They 0:10:39.120 --> 0:10:44.360 want secure assets, they want to secure flow of income. 0:10:45.080 --> 0:10:49.760 And you know that is a problem for them because 0:10:50.360 --> 0:10:54.360 if they're holding a lot of treasuries, they're holding secure 0:10:54.400 --> 0:10:58.880 assets for sure, but they're losing year after year after year. 0:10:59.600 --> 0:11:04.280 If Treasury is paying twenty basis points or thirty basis 0:11:04.320 --> 0:11:09.520 points and the inflation rate is two work two and 0:11:09.559 --> 0:11:12.200 a half percent or whatever will turn out to be. 0:11:12.320 --> 0:11:18.559 So it's really a huge burden on savers who want 0:11:18.720 --> 0:11:35.240 secure flows of income but want to avoid risk. But 0:11:35.400 --> 0:11:38.840 one of the more fascinating parts of your career was 0:11:38.880 --> 0:11:42.559 sort of helping to negotiate diplomacy with China way back 0:11:42.600 --> 0:11:47.400 in the Nixon administration. I'm curious just your sort of 0:11:47.480 --> 0:11:51.240 overall thoughts of the U. S. China relationship right now. 0:11:51.760 --> 0:11:55.920 Obviously it's seen better days, it's deteriorating. Is this friction 0:11:55.960 --> 0:11:59.280 between these two countries here to stay regardless of who 0:11:59.320 --> 0:12:01.600 the next president and is, And how do you sort 0:12:01.640 --> 0:12:06.160 of see it all shaping up in terms of, you know, 0:12:06.559 --> 0:12:10.319 geopolitics from one thing, but also just what the economic 0:12:10.480 --> 0:12:14.280 and market implications will be saying the next decade between 0:12:14.280 --> 0:12:17.800 the US and China. Relations between US and China are 0:12:18.480 --> 0:12:24.079 more fraught, more tense, more acrimonious then I have seen 0:12:24.320 --> 0:12:27.040 in all the time I've been working on China, and 0:12:27.120 --> 0:12:29.920 I started, as you mentioned, in the early nineteen seventies 0:12:29.920 --> 0:12:32.720 with Henry Kissinger, and there have been a lot of 0:12:32.760 --> 0:12:36.640 issues between the United States and China, but the relationship 0:12:36.720 --> 0:12:40.520 really is deteriorating, and deteriorating badly. It was beginning to 0:12:40.600 --> 0:12:44.520 deteriorate even before COVID. It was the beginning to deteriorate 0:12:44.600 --> 0:12:49.200 because of differences over trade, differences over intellectual property, differences 0:12:49.320 --> 0:12:53.359 over who would be the dominant player in global technology. 0:12:54.080 --> 0:12:58.320 All these things were important in the relationship. And China 0:12:58.400 --> 0:13:03.720 now is a country that sees the US preoccupied with 0:13:04.679 --> 0:13:08.160 very difficult domestic issues and believes that this is an 0:13:08.200 --> 0:13:12.559 opportunity for it to expand its role internationally. Which it 0:13:12.679 --> 0:13:15.880 is doing, not just through the Belton Road initiative, but 0:13:16.360 --> 0:13:19.079 trying to write some of the rules or a lot 0:13:19.120 --> 0:13:23.080 of the rules for global trade, for global technology, et cetera. 0:13:23.760 --> 0:13:26.520 The problem for China though, is that it has a 0:13:26.559 --> 0:13:32.760 lot of domestic issues, and there's issues relating to joblessness. 0:13:32.840 --> 0:13:35.040 That's a problem. There are a lot of people who 0:13:35.120 --> 0:13:38.320 are big borrowers in China. Now they're unable to pay 0:13:38.360 --> 0:13:45.160 their debts. So China is not immune to economic difficulties. 0:13:45.200 --> 0:13:48.880 That the death situation there is quite substantial, and it 0:13:49.000 --> 0:13:53.200 now has to rely more and more, and President Chijin 0:13:53.240 --> 0:13:55.760 pain has made this point, rely more and more on 0:13:55.840 --> 0:13:58.320 its own economy. It can't rely as much on the 0:13:58.400 --> 0:14:03.520 United States, so it has to bolster its own economy domestically, 0:14:03.559 --> 0:14:07.319 and it has to develop relationships with other markets Southeast 0:14:07.400 --> 0:14:10.960 Days and Europe and other markets as well. So it's 0:14:11.040 --> 0:14:15.920 becoming more and more I wouldn't say detached from the 0:14:15.960 --> 0:14:19.320 United States, but it's coming to rely less and less 0:14:19.400 --> 0:14:23.080 on the American market. And also it's worried that the 0:14:23.120 --> 0:14:26.880 United States, at some point, for political or other reasons, 0:14:26.920 --> 0:14:31.880 will cut off Chinese access to certain important technologies that 0:14:32.080 --> 0:14:36.360 Chinese companies need China realize very heavily, for instance, on 0:14:36.400 --> 0:14:42.360 American semiconductors. And there's also this concern that the United 0:14:42.400 --> 0:14:46.680 States will interfere with the capital market relationship, with the 0:14:46.680 --> 0:14:49.600 financial relationship between the United States and China. So China 0:14:49.720 --> 0:14:53.160 is beginning to realize that it is vulnerable to what 0:14:53.200 --> 0:14:56.200 the United States has been doing and what the United 0:14:56.240 --> 0:14:59.520 States is threatening or implying that it might do, which 0:14:59.520 --> 0:15:02.520 could be a disruptive to the Chinese economy. I wanted 0:15:02.560 --> 0:15:04.320 to talk about that a little bit. You know, we 0:15:04.360 --> 0:15:07.800 mentioned earlier in the pod that there's been some talk about, 0:15:07.960 --> 0:15:10.960 you know, perhaps Chinese companies wouldn't be able to list 0:15:11.000 --> 0:15:14.520 on US exchanges. I mean, when you sort of think 0:15:14.560 --> 0:15:18.240 about that happening, in the implications of that, do you 0:15:18.360 --> 0:15:22.440 view that as a real threat, something that could happen 0:15:22.600 --> 0:15:24.440 that we could see in the next you know, a 0:15:24.520 --> 0:15:27.120 couple of months or years, or do you think still 0:15:27.160 --> 0:15:29.360 a lot of the back and forth between the US 0:15:29.440 --> 0:15:33.480 and China is posturing? Well, I think so far it's posturing. 0:15:33.600 --> 0:15:36.560 I I do think there are people who in the 0:15:36.600 --> 0:15:39.440 financial markets who don't like the idea of the listing 0:15:40.080 --> 0:15:46.600 Chinese assets and American equities markets. So the issue is 0:15:46.720 --> 0:15:50.680 what kind of reporting requirements the US is going to 0:15:50.880 --> 0:15:55.240 impose on China. Will China comply with those, because partly 0:15:55.240 --> 0:15:58.560 it's about that as well, not just about the political threat, 0:15:58.600 --> 0:16:03.080 but about it and regulatory issues. But these have existed 0:16:03.120 --> 0:16:05.360 in the past and the US government has sort of 0:16:05.440 --> 0:16:09.400 overlooked them. Now that's becoming a more serious issue. I 0:16:09.440 --> 0:16:13.000 do think it would be a problem in part for 0:16:13.120 --> 0:16:17.280 China because it does get the broad benefits of being 0:16:17.320 --> 0:16:21.600 able to list in New York, but it also has 0:16:21.680 --> 0:16:23.760 other markets where it can list. If it can list 0:16:23.800 --> 0:16:26.680 in Hong Kong, for instance, it can list in Shanghai, 0:16:26.880 --> 0:16:30.120 can list in Beijing, can list in London. So the 0:16:30.240 --> 0:16:35.200 Chinese would regard this as a disruptive act by the 0:16:35.280 --> 0:16:39.320 United States, but they could find alternatives if if they 0:16:39.400 --> 0:16:43.120 had to be considered a very bad political signal threatening 0:16:43.320 --> 0:16:48.200 the repayment of debt owed to China, that is a 0:16:48.200 --> 0:16:52.440 wholly different issue, and that would be very disruptive to 0:16:52.640 --> 0:16:56.200 the Chinese who expect to get paid when they invest 0:16:56.240 --> 0:17:01.160 in American assets. But other countries, well then say well, 0:17:01.200 --> 0:17:04.080 if US does this to China, maybe it will do 0:17:04.119 --> 0:17:08.119 it to US. For other political reasons or exert leverage. 0:17:08.160 --> 0:17:12.480 So I think you'd see a highly disruptive reaction in 0:17:12.480 --> 0:17:15.640 the US financial markets and certainly in the dollar. So Bob, 0:17:15.680 --> 0:17:18.280 if the next president, whoever it is, we're able to 0:17:18.359 --> 0:17:21.120 lure you back into the Beltway to to give them 0:17:21.119 --> 0:17:24.840 some advice on this issue. What's your advice on how 0:17:24.840 --> 0:17:27.960 to handle China going forward? I think there are various 0:17:27.960 --> 0:17:33.840 issues where the United States should take a tough negotiating position. 0:17:33.960 --> 0:17:37.560 I've negotiated with the Chinese on a number of technology 0:17:37.600 --> 0:17:41.160 and related issues, and uh, it's possible to take tough 0:17:41.200 --> 0:17:46.240 positions visa of each China without being confrontational towards China. 0:17:46.440 --> 0:17:49.840 So you have to find the right balance. Um, and 0:17:50.119 --> 0:17:52.480 one can say, well, we haven't gotten as much as 0:17:52.480 --> 0:17:54.879 we would like to in terms of the kind of 0:17:54.960 --> 0:17:58.639 changes that we've been asking the Chinese or negotiating for. 0:17:59.359 --> 0:18:02.679 But we also have to come to the understanding in 0:18:02.880 --> 0:18:07.239 in our policy framework the way we set up our 0:18:07.280 --> 0:18:10.439 relations with China, that we're gonna need China for a 0:18:10.520 --> 0:18:13.720 variety of reasons. For instance, if there is a major 0:18:13.840 --> 0:18:17.760 global financial crisis as a result of this pandemic, as 0:18:17.760 --> 0:18:20.640 a result of all the debt that has been accumulated 0:18:20.680 --> 0:18:23.240 by a great many countries, not just the US and China, 0:18:23.320 --> 0:18:26.720 but many emerging economies. China was critical in two thousand 0:18:26.720 --> 0:18:32.080 and eight resolving the financial problems of that period of time. Second, 0:18:32.640 --> 0:18:34.919 we also have to bear in mind that Chinese and 0:18:34.960 --> 0:18:38.280 American scientists are working very closely and companies are working 0:18:38.359 --> 0:18:45.640 very closely on trying to find various kinds of immunization technologies, therapies, 0:18:46.359 --> 0:18:49.680 drugs to deal with COVID, and we do not want 0:18:49.680 --> 0:18:53.840 to sever those relationships with American and Chinese scientists. We 0:18:53.880 --> 0:18:56.040 can learn from them and they can learn from us. 0:18:56.080 --> 0:19:00.399 They have some very very good scientists working on back scenes. 0:19:01.040 --> 0:19:05.000 They have a wholly different testing regime from the United States. 0:19:05.000 --> 0:19:08.920 We have a we have a different more rigorous testing 0:19:08.960 --> 0:19:13.440 regime or trials than the Chinese do, or at least 0:19:13.480 --> 0:19:17.200 it's different. They need to be seeing in Washington is 0:19:17.320 --> 0:19:22.520 part of dealing with the COVID issue through various vaccines 0:19:22.560 --> 0:19:25.919 and various therapies, and to deal with the post COVID 0:19:26.080 --> 0:19:30.840 financial issues that were clearly going to face. So Bob 0:19:30.880 --> 0:19:33.040 I actually wanted to go back to the dollar. It's 0:19:33.080 --> 0:19:35.760 one of my favorite things to talk about and within that, 0:19:35.920 --> 0:19:38.280 one of my favorite things to talk about is the 0:19:38.320 --> 0:19:41.840 reserve status of the dollar, and hearing you talk about 0:19:41.920 --> 0:19:45.040 you know how much debt were issuing the importance of 0:19:45.400 --> 0:19:49.520 foreigners in buying that debt. You know, how important is 0:19:49.640 --> 0:19:52.280 the reserve stas of the dollar to the US. Do 0:19:52.359 --> 0:19:54.960 you think and do you think there's any risk that 0:19:55.040 --> 0:19:58.160 the dollar could lose some of that reserve status going 0:19:58.240 --> 0:20:00.919 forward from here? At the mom meant, I think the 0:20:01.000 --> 0:20:04.360 dollar is still pretty secure as a reserve currency as 0:20:04.400 --> 0:20:08.200 the major global transaction currency, is the major global store 0:20:08.200 --> 0:20:12.679 of value. Most global trade, even trade between China and 0:20:12.680 --> 0:20:18.920 other countries, is denominated in dollars. Oil trades denominated in dollars. 0:20:18.960 --> 0:20:20.399 So for the moment, I think the role of the 0:20:20.440 --> 0:20:24.240 dollar is quite secure. On the other hand, it's not 0:20:24.640 --> 0:20:28.080 a god given right for the United States to have 0:20:28.560 --> 0:20:31.760 the world's reserve currency. And what you're going to get 0:20:31.800 --> 0:20:34.800 over a period of time are countries that will be 0:20:35.000 --> 0:20:41.240 exploring digital currencies, that will be exploring other kinds of assets, 0:20:41.520 --> 0:20:45.480 reserve assets, that will be using their own currencies like 0:20:45.560 --> 0:20:50.880 the EU and the Euro. The Chinese want the RMB currency. 0:20:50.880 --> 0:20:55.320 If you want to play a greater reserve role, and 0:20:55.920 --> 0:21:01.320 the US has to recognize that everyone does trust the 0:21:01.400 --> 0:21:05.320 US dollar as the major reserve currency in the world. 0:21:06.200 --> 0:21:10.040 But what we don't want to do is overdo the 0:21:10.119 --> 0:21:13.960 dollar as a way of imposing sanctions on other countries, 0:21:14.080 --> 0:21:18.879 which we often do. We don't want to cause anyone 0:21:18.960 --> 0:21:21.440 the doubt the ability and the United States to meet 0:21:21.560 --> 0:21:25.640 its obligations. We want to make sure that we behave 0:21:25.840 --> 0:21:28.760 responsibly when it comes to the management of the dollar. 0:21:36.680 --> 0:21:38.600 The flip side of the coin, Bob so to speak 0:21:38.680 --> 0:21:42.199 of a week dollar is obviously uh, somewhat of a 0:21:42.280 --> 0:21:45.879 tailwind for the US equity market uh, and for gold 0:21:45.920 --> 0:21:50.159 obviously has been been roaring this year, especially with equities 0:21:50.440 --> 0:21:56.440 UM now SMP flirting with another record high territory this week. 0:21:57.400 --> 0:22:00.960 How much are equity markets, in your opinion, in pricing 0:22:01.000 --> 0:22:04.560 in sort of the best possible outcome to the virus, 0:22:04.880 --> 0:22:06.639 you know, is it seems like there's a lot of 0:22:06.680 --> 0:22:10.480 optimism about a vaccine coming perhaps in the fall or 0:22:10.520 --> 0:22:13.200 by the end of the year. UM. How much risk 0:22:13.320 --> 0:22:16.960 you do you see equities at this type of loft 0:22:17.000 --> 0:22:21.880 evaluation given UM, you know there is some potential risk 0:22:22.000 --> 0:22:25.560 with how well the vaccine plays out in the near future, 0:22:25.960 --> 0:22:28.159 what the economy looks like in the fall as we 0:22:28.200 --> 0:22:30.359 go back to school in the US and and the 0:22:30.440 --> 0:22:33.000 virus potentially could flare up again. How do you see 0:22:33.000 --> 0:22:35.320 it all playing out for the rest of the year. Well, 0:22:35.359 --> 0:22:38.439 I do think for the rest of the year, the 0:22:38.520 --> 0:22:41.919 markets are more and more going to be focused on 0:22:41.960 --> 0:22:46.439 the virus and on the treatments for the virus or 0:22:46.480 --> 0:22:52.600 a vaccine. We have a lot of experience in developing vaccines, 0:22:52.640 --> 0:22:54.919 and the one thing we know about vaccines is they 0:22:54.960 --> 0:22:58.200 take a long time to develop. Now, it's certainly true 0:22:58.280 --> 0:23:03.560 that a lot of big companies are putting all the ammunition, 0:23:03.680 --> 0:23:07.000 all the brainpower, all the capacity they can in the 0:23:07.160 --> 0:23:10.800 developing vaccines, but you have to test them, you have 0:23:10.920 --> 0:23:14.520 to go through trials. You have the trials are quite 0:23:14.560 --> 0:23:17.439 have to be quite extensive because you're actually giving the 0:23:17.520 --> 0:23:20.240 vaccine to well people, so you don't want to make 0:23:20.280 --> 0:23:24.680 them sick by giving them the vaccine. It's very optimistic 0:23:24.920 --> 0:23:27.440 to think that we're going to get a vaccine as 0:23:27.520 --> 0:23:29.520 quickly as a lot of people think. Now. There are 0:23:29.520 --> 0:23:33.320 a lot of announcements about candidate vaccines. There's something like 0:23:33.400 --> 0:23:38.119 twenty six candidate vaccines. Of those, just as a matter 0:23:38.160 --> 0:23:41.919 of interest, China is engaged in nine of them, so 0:23:42.160 --> 0:23:44.479 show see that China is playing a role. There are 0:23:44.480 --> 0:23:50.520 other countries Britain, Oxford University, Israel, Germany, even Russia. The 0:23:50.640 --> 0:23:53.880 role of science, the role of medicine in dealing with 0:23:54.080 --> 0:23:58.040 COVID has actually led to a lot of progress and 0:23:58.080 --> 0:24:00.600 a lot of lives have been saved and we're some 0:24:00.680 --> 0:24:04.399 of our very best people. We looked at science and 0:24:04.520 --> 0:24:08.880 scientists after World War Two as heroes of the war 0:24:08.960 --> 0:24:11.720 and developing new weapons and heroes of the space age. 0:24:11.800 --> 0:24:14.640 We took people from all over the world and they 0:24:14.680 --> 0:24:17.840 helped us to build up our capability in the military 0:24:17.840 --> 0:24:22.400 area after World War Two, you know the rocket program, 0:24:22.600 --> 0:24:26.320 nuclear program, etcetera. We have to look now at our 0:24:26.359 --> 0:24:29.720 security and say we can't just do this on our own. 0:24:29.960 --> 0:24:32.560 We have to get the best and the brightest here, 0:24:33.000 --> 0:24:35.080 but also open up to the best and the brightest 0:24:35.119 --> 0:24:37.960 from the rest of the world. The scientists who come 0:24:38.160 --> 0:24:41.200 from or work with people all over the world. That 0:24:41.200 --> 0:24:44.760 that that new definition security is that it's military, but 0:24:44.840 --> 0:24:48.520 it's military plus health and military plus the environment. And 0:24:48.520 --> 0:24:51.199 we're gonna need to work with our own best and 0:24:51.280 --> 0:24:56.840 brightest and give more of respect to scientists and others, 0:24:57.200 --> 0:24:59.840 but also interact with those from other countries who have 0:24:59.880 --> 0:25:02.480 a lot to offer. Also, I hear you, Bob. I'm 0:25:02.480 --> 0:25:05.359 all for working with the best and the brightest. But now, Bob, 0:25:05.400 --> 0:25:08.480 it's time to work with the craziest things I think 0:25:08.560 --> 0:25:11.560 we've seen in markets. This is our our gimmick to 0:25:11.720 --> 0:25:14.320 close the show every week. A lot of people love it. 0:25:14.320 --> 0:25:17.760 It's the craziest thing we've seen in markets. Stand clear 0:25:17.880 --> 0:25:22.199 of the craziest things we saw in markets this week, Katie, 0:25:22.280 --> 0:25:24.119 I want to start with you, what's the craziest thing 0:25:24.160 --> 0:25:27.200 you saw in markets this week? So it's not in markets, 0:25:27.280 --> 0:25:30.320 but it's about markets, so I think it counts. Um 0:25:30.880 --> 0:25:36.520