1 00:00:00,120 --> 00:00:03,760 Speaker 1: Hey, they're Odd Lots listeners. The following episode was recorded 2 00:00:03,960 --> 00:00:08,160 Speaker 1: May second on the Princeton campus. Obviously, some things have 3 00:00:08,360 --> 00:00:11,119 Speaker 1: changed since then, but I still think it's a very 4 00:00:11,160 --> 00:00:14,480 Speaker 1: interesting and relevant conversation, So take a listen. 5 00:00:17,239 --> 00:00:28,520 Speaker 2: Bloomberg Audio Studios, Podcasts, Radio News. 6 00:00:33,080 --> 00:00:36,159 Speaker 1: Hello and welcome to another episode of the Odd Lots Podcast. 7 00:00:36,360 --> 00:00:37,680 Speaker 1: I'm Tracy Alloway. 8 00:00:37,440 --> 00:00:38,520 Speaker 3: And I'm Joe Wisenthal. 9 00:00:38,960 --> 00:00:41,760 Speaker 1: Joe, do you feel like you are hearing the term 10 00:00:42,080 --> 00:00:45,400 Speaker 1: exorbitant privilege a lot more than you used to? 11 00:00:46,720 --> 00:00:47,040 Speaker 3: Yes? 12 00:00:47,440 --> 00:00:49,120 Speaker 1: Is that a loaded question? Maybe it is. 13 00:00:49,240 --> 00:00:51,400 Speaker 3: Yes, you heard it a lot. 14 00:00:51,560 --> 00:00:55,080 Speaker 4: You know, large budget deficits, right, those were explainable or 15 00:00:55,120 --> 00:00:58,480 Speaker 4: people claimed that they were explainable because of something called 16 00:00:58,560 --> 00:01:01,920 Speaker 4: exorbitant privilege. I've never totally known what that term means, 17 00:01:02,320 --> 00:01:04,760 Speaker 4: but obviously with some of the policy volatility in the 18 00:01:04,880 --> 00:01:07,040 Speaker 4: United States, which is a very nice way of putting it, 19 00:01:07,360 --> 00:01:09,080 Speaker 4: you hear it again and whether it can last or 20 00:01:09,120 --> 00:01:10,200 Speaker 4: whether it could be exhausted. 21 00:01:10,800 --> 00:01:13,279 Speaker 1: So I had the same reaction to you. I started 22 00:01:13,280 --> 00:01:15,080 Speaker 1: thinking about it, like, why are we hearing this over 23 00:01:15,120 --> 00:01:17,880 Speaker 1: and over again? And then I was curious when we 24 00:01:18,000 --> 00:01:21,000 Speaker 1: first started using that term, and I think to your 25 00:01:21,040 --> 00:01:24,440 Speaker 1: point about what exactly this means. We first started using 26 00:01:24,480 --> 00:01:27,600 Speaker 1: it in the nineteen sixties and sort of going into 27 00:01:27,640 --> 00:01:30,200 Speaker 1: the early nineteen seventies. Yes, And it was this idea 28 00:01:30,400 --> 00:01:33,600 Speaker 1: that because we had built the financial system around the 29 00:01:33,720 --> 00:01:37,520 Speaker 1: US dollar visa vi Bretton Woods, which we've talked about 30 00:01:37,520 --> 00:01:41,200 Speaker 1: on the show, that the US was in this privileged 31 00:01:41,280 --> 00:01:44,240 Speaker 1: position where it felt like people in other countries were 32 00:01:44,319 --> 00:01:46,319 Speaker 1: basically subsidizing the US lifestyle. 33 00:01:46,440 --> 00:01:50,080 Speaker 4: The constraints that typical countries might face in terms of 34 00:01:50,080 --> 00:01:53,000 Speaker 4: spending don't to the same extent seem to apply to 35 00:01:53,040 --> 00:01:55,960 Speaker 4: the United States in general. When it comes to talk 36 00:01:56,000 --> 00:01:59,120 Speaker 4: about the dollar, I find that there's just a lot 37 00:01:59,160 --> 00:02:03,640 Speaker 4: of slaty definitions thrown around. People will talk about dollar strength, 38 00:02:03,720 --> 00:02:06,200 Speaker 4: but they're not always clear whether they're talking about dollar 39 00:02:06,280 --> 00:02:09,360 Speaker 4: euro as an exchange rate, or dollars share of transactions, 40 00:02:09,400 --> 00:02:12,160 Speaker 4: or dollar share of reserves or the global reserve current 41 00:02:12,160 --> 00:02:15,919 Speaker 4: scare the global safe haven assets. Lots of fuzzy defined 42 00:02:16,000 --> 00:02:18,200 Speaker 4: terms that I'm satisfied that's totally fair. 43 00:02:18,320 --> 00:02:21,200 Speaker 1: I don't get as mad at fuzzy terms because we 44 00:02:21,280 --> 00:02:23,760 Speaker 1: don't have all day like do we have to define 45 00:02:23,800 --> 00:02:28,080 Speaker 1: everything into like obsolescence? No, But anyway, speaking of someone 46 00:02:28,080 --> 00:02:31,240 Speaker 1: who probably also doesn't like fuzzy terms. To your point, 47 00:02:31,320 --> 00:02:33,440 Speaker 1: we have the perfect guest, yes, to talk about all 48 00:02:33,480 --> 00:02:35,520 Speaker 1: of this, and I guess a big moment that keeps 49 00:02:35,560 --> 00:02:38,000 Speaker 1: coming up on our show quite a few times over 50 00:02:38,240 --> 00:02:40,720 Speaker 1: recent episodes, and that is the Nixon Shock. 51 00:02:40,919 --> 00:02:44,120 Speaker 4: The Nixon shock, right, because people look at the tariffs 52 00:02:44,480 --> 00:02:47,360 Speaker 4: that Trump announced on April second, and you reach for 53 00:02:47,480 --> 00:02:50,799 Speaker 4: historical analogies about the changing relationship between the US and 54 00:02:50,840 --> 00:02:52,840 Speaker 4: the rest of the world, and part via trade and 55 00:02:52,880 --> 00:02:56,560 Speaker 4: part via currency, and so much to mine from the past. 56 00:02:56,840 --> 00:02:59,120 Speaker 1: So we have the perfect guest, and we're actually at 57 00:02:59,120 --> 00:03:01,520 Speaker 1: the perfect event to do this as well. So we're 58 00:03:01,560 --> 00:03:02,760 Speaker 1: at Princeton University. 59 00:03:02,919 --> 00:03:04,440 Speaker 3: That's right. We came down here. 60 00:03:04,480 --> 00:03:07,320 Speaker 4: We did a podcast which either if you're listening to this, 61 00:03:07,360 --> 00:03:09,080 Speaker 4: either it's going to come out or you'll have already 62 00:03:09,120 --> 00:03:11,880 Speaker 4: heard it, depending on the sequence. We're at a conference. 63 00:03:12,000 --> 00:03:15,920 Speaker 4: Brendan Greeley invited us down a conference on currencies and 64 00:03:15,919 --> 00:03:17,280 Speaker 4: what is a currency and. 65 00:03:17,200 --> 00:03:19,840 Speaker 1: So forth, how to write a biography of a currency. 66 00:03:19,880 --> 00:03:22,280 Speaker 4: That's the name of the conference. So anyway, yes, perfect guest, 67 00:03:22,320 --> 00:03:24,119 Speaker 4: at the perfect context to talk about the dollar. 68 00:03:24,240 --> 00:03:26,440 Speaker 1: Okay, so we do have the perfect guest. We're going 69 00:03:26,480 --> 00:03:29,600 Speaker 1: to be speaking with He's a long time out lots guest, Yes, 70 00:03:29,680 --> 00:03:32,240 Speaker 1: although he hasn't been on for a while. Yeah, we're 71 00:03:32,280 --> 00:03:36,080 Speaker 1: speaking with Perry Marling, a professor of international political economy 72 00:03:36,120 --> 00:03:40,120 Speaker 1: at the Party School of Global Studies over at Boston University. Perry, 73 00:03:40,120 --> 00:03:41,480 Speaker 1: thank you for coming back on the show. 74 00:03:41,560 --> 00:03:42,360 Speaker 5: Happy to be here. 75 00:03:42,480 --> 00:03:44,320 Speaker 3: Great to catch up with you in person. 76 00:03:44,480 --> 00:03:46,920 Speaker 1: Okay, I'm just going to jump in with the exorbitant 77 00:03:46,920 --> 00:03:51,000 Speaker 1: privilege question, because this keeps coming up. Is the US 78 00:03:51,160 --> 00:03:55,000 Speaker 1: dollar's role in the global financial system a net positive 79 00:03:55,440 --> 00:03:57,600 Speaker 1: or a net negative for the country? 80 00:03:58,040 --> 00:04:01,760 Speaker 5: Well, I guess it depends on who you ask. This 81 00:04:01,880 --> 00:04:06,840 Speaker 5: exorbitant privileged thing, Okay, was coming from Europe. Okay, so 82 00:04:06,920 --> 00:04:11,280 Speaker 5: clearly Europe France in particular was viewing this as a 83 00:04:11,320 --> 00:04:14,440 Speaker 5: net positive for the United States and negative for themselves. 84 00:04:14,840 --> 00:04:17,560 Speaker 5: But in the United States there was coming to be 85 00:04:17,680 --> 00:04:19,400 Speaker 5: a view that it was a net negative, that it 86 00:04:19,400 --> 00:04:22,599 Speaker 5: was exorbitant burden, and that in fact, that something about 87 00:04:22,600 --> 00:04:26,120 Speaker 5: being the international reserve currency was getting in the way 88 00:04:26,520 --> 00:04:31,000 Speaker 5: of our manufacturing development and overvaluing our exchange rate. And 89 00:04:31,040 --> 00:04:35,799 Speaker 5: that became a theory that was accepted by the political forces. 90 00:04:35,520 --> 00:04:37,440 Speaker 1: Just to be clear, we're talking in the nineteen sixties. 91 00:04:37,800 --> 00:04:41,280 Speaker 1: Was the French politician I think who first said that term. 92 00:04:41,360 --> 00:04:43,120 Speaker 5: I think it was your scar tost name. But the 93 00:04:43,160 --> 00:04:46,039 Speaker 5: important point is that the view from one side of 94 00:04:46,040 --> 00:04:48,120 Speaker 5: the Atlantic and the view from the other side of 95 00:04:48,120 --> 00:04:51,680 Speaker 5: the Atlantic were quite different. So yes, let me take 96 00:04:51,720 --> 00:04:54,640 Speaker 5: you back to the sixties, okay. One way to understand 97 00:04:54,680 --> 00:04:57,279 Speaker 5: Bretton Woods ninety forty four, okay, was that this was 98 00:04:57,320 --> 00:05:00,640 Speaker 5: a pass off from Sterling pre World War One to 99 00:05:00,920 --> 00:05:03,960 Speaker 5: the dollar to build the post World War two international 100 00:05:04,000 --> 00:05:07,760 Speaker 5: monetary system. Okay, And so the bankers in New York thought, oh, 101 00:05:07,880 --> 00:05:10,600 Speaker 5: that's just great. You know, New York will become like London. 102 00:05:10,920 --> 00:05:13,320 Speaker 5: London had been the center of the world money market, 103 00:05:13,320 --> 00:05:16,000 Speaker 5: the center of the world capital market with Stirling before 104 00:05:16,040 --> 00:05:18,120 Speaker 5: World War One, and all the bankers knew that, and 105 00:05:18,160 --> 00:05:20,200 Speaker 5: they had been chomping in the bit to do this 106 00:05:20,279 --> 00:05:23,120 Speaker 5: for a long time. Okay. So that's what they thought 107 00:05:23,120 --> 00:05:26,039 Speaker 5: they were doing in building up during the fifties. But 108 00:05:26,120 --> 00:05:28,920 Speaker 5: in the sixties there started to be political resistance in 109 00:05:28,960 --> 00:05:31,320 Speaker 5: the United States, and the United States government started to 110 00:05:31,360 --> 00:05:36,160 Speaker 5: put taxes on people who came from abroad to float bonds. 111 00:05:36,480 --> 00:05:39,159 Speaker 5: And they tried to prevent it from happening. They tried 112 00:05:39,200 --> 00:05:42,160 Speaker 5: to prevent from happening. This is sort of American politics 113 00:05:42,320 --> 00:05:46,160 Speaker 5: that Americans are very suspicious of finance probably you know that, Okay. 114 00:05:46,000 --> 00:05:48,040 Speaker 1: Especially globalist finance here. 115 00:05:48,000 --> 00:05:50,880 Speaker 5: Yes, right, yeah, And so there came to be some 116 00:05:51,080 --> 00:05:54,000 Speaker 5: view that this was very bad for America, you know, 117 00:05:54,160 --> 00:05:56,600 Speaker 5: to have and so they tried to kill the private 118 00:05:56,640 --> 00:06:00,280 Speaker 5: capital markets throughout the sixties. Okay, there were various interventions, 119 00:06:00,080 --> 00:06:02,719 Speaker 5: and I go through in my book on Kinderberger. But 120 00:06:02,760 --> 00:06:05,719 Speaker 5: the danoument of all of this was nineteen seventy one. Okay, 121 00:06:05,880 --> 00:06:09,480 Speaker 5: August fifteenth, actually nineteen seventy one, when Richard Nixon took 122 00:06:09,520 --> 00:06:11,640 Speaker 5: the dollar off gold, which was the promise that had 123 00:06:11,680 --> 00:06:14,880 Speaker 5: been made at Bretton Woods, and increased tariffs by ten percent. 124 00:06:15,320 --> 00:06:19,720 Speaker 5: This was intended as leverage for forcing our allies to 125 00:06:19,760 --> 00:06:22,360 Speaker 5: revalue their currencies. So if you have the view that 126 00:06:22,400 --> 00:06:25,560 Speaker 5: the dollar is overvalued because it's a reserve currency, you 127 00:06:25,600 --> 00:06:29,400 Speaker 5: can force your allies to revalue their currency. So that happened. 128 00:06:29,480 --> 00:06:32,320 Speaker 5: Actually in December of that same year, nineteen seventy one, 129 00:06:32,320 --> 00:06:34,960 Speaker 5: the en went up and there wasn't euro then you know, 130 00:06:35,040 --> 00:06:38,400 Speaker 5: this was this. So this is August fifteenth, nineteen seventy one. Okay. 131 00:06:38,560 --> 00:06:40,560 Speaker 5: The reason I go through this in some detail is 132 00:06:40,600 --> 00:06:43,560 Speaker 5: that I think that the current events, the events of 133 00:06:43,600 --> 00:06:46,120 Speaker 5: the last is it only two months. 134 00:06:45,839 --> 00:06:49,000 Speaker 3: Okay, yeah, two months, yeah, are. 135 00:06:49,279 --> 00:06:52,640 Speaker 5: Quite analogous to what is going on, okay. And in fact, 136 00:06:52,680 --> 00:06:54,880 Speaker 5: some of the theories that were around back then have 137 00:06:55,000 --> 00:06:58,120 Speaker 5: been re emerged, you know, And so it's as if 138 00:06:58,120 --> 00:07:01,680 Speaker 5: no time has gone by. Okay, Trump is replaying the 139 00:07:01,760 --> 00:07:06,600 Speaker 5: Nixon Handbook, but times ten, because he's doing much more tariffs. 140 00:07:06,640 --> 00:07:08,560 Speaker 5: Of course, the world is much bigger than this was 141 00:07:08,600 --> 00:07:11,760 Speaker 5: really just a US versus Europe spat, okay, you know, 142 00:07:11,840 --> 00:07:14,480 Speaker 5: even you know, getting Japan to revalue was not such 143 00:07:14,480 --> 00:07:16,640 Speaker 5: a big Japan was not a big player yet in 144 00:07:16,720 --> 00:07:19,640 Speaker 5: nineteen seventy one, you know, Europe was the main object 145 00:07:19,760 --> 00:07:22,239 Speaker 5: of this, and the pound, sterling and the French franc 146 00:07:22,280 --> 00:07:24,240 Speaker 5: and the Deutsch mark, you know, there were separate currencies 147 00:07:24,240 --> 00:07:26,240 Speaker 5: at that time. They had the euro had not just happened. 148 00:07:26,360 --> 00:07:30,000 Speaker 5: So the world is now much more global, and so 149 00:07:30,320 --> 00:07:32,480 Speaker 5: it's quite a different kind of a shock. It's a 150 00:07:32,560 --> 00:07:33,840 Speaker 5: much more comprehensive shock. 151 00:07:34,040 --> 00:07:38,120 Speaker 4: I think Nixon Playbook times ten is a very promising headline. 152 00:07:38,560 --> 00:07:39,840 Speaker 1: I literally just read it. 153 00:07:40,080 --> 00:07:41,080 Speaker 3: I know it is a very. 154 00:07:40,880 --> 00:07:46,520 Speaker 4: Promising headline for this episode. I'm just curious the premise 155 00:07:46,560 --> 00:07:50,320 Speaker 4: that the dollar is this global reserve asset lead to 156 00:07:50,360 --> 00:07:53,800 Speaker 4: an overvaluation. You know, a country cares about overvaluation because 157 00:07:53,800 --> 00:07:56,320 Speaker 4: it wants to have competitive exports, or that seems to 158 00:07:56,320 --> 00:07:59,000 Speaker 4: be won't there does that actually bear out in the fact, 159 00:07:59,200 --> 00:08:00,800 Speaker 4: because when I you know, as I sort of said 160 00:08:00,800 --> 00:08:02,680 Speaker 4: in the intro, you could talk about a dollar strength 161 00:08:02,680 --> 00:08:06,200 Speaker 4: in terms of its reserve status or trade status or 162 00:08:06,400 --> 00:08:11,560 Speaker 4: dollar yen, dollar euro, is there actually a stable relationship 163 00:08:11,600 --> 00:08:16,760 Speaker 4: between the dollar share of X versus the exchange rate. 164 00:08:17,120 --> 00:08:21,160 Speaker 5: Well, this is a debate among economists, and there's empirical 165 00:08:21,160 --> 00:08:26,440 Speaker 5: studies on both sides. I incline to say no, okay, 166 00:08:26,840 --> 00:08:30,840 Speaker 5: and in particular no now okay, because so much of 167 00:08:30,880 --> 00:08:34,640 Speaker 5: the dollar system is offshore, so you can get dollar 168 00:08:34,679 --> 00:08:37,560 Speaker 5: reserves if you want, you know, by having a euro 169 00:08:37,640 --> 00:08:40,520 Speaker 5: dollar deposit in France. You know that is not touching 170 00:08:40,559 --> 00:08:43,679 Speaker 5: the US shores at all. So some of this argument, 171 00:08:43,880 --> 00:08:47,360 Speaker 5: you know, is outdated. You know that the the globalization 172 00:08:47,480 --> 00:08:50,280 Speaker 5: of the dollar, the fact that the US refused to 173 00:08:50,440 --> 00:08:53,480 Speaker 5: make New York into London has led the world to 174 00:08:53,480 --> 00:08:55,760 Speaker 5: become a dollar system. And so I don't know that 175 00:08:55,800 --> 00:08:59,160 Speaker 5: those arguments work quite so well. I'm not sure those 176 00:08:59,200 --> 00:09:02,360 Speaker 5: people who are making them, you know, have paid attention 177 00:09:02,440 --> 00:09:04,640 Speaker 5: to the way in which the world has changed since 178 00:09:04,720 --> 00:09:05,800 Speaker 5: nineteen seventy one. 179 00:09:05,920 --> 00:09:09,160 Speaker 1: Well, speaking of what changed after nineteen seventy one, there's 180 00:09:09,200 --> 00:09:11,600 Speaker 1: one more historical question that I want to ask you, 181 00:09:11,880 --> 00:09:14,560 Speaker 1: and please forgive me for not remembering this from your book, 182 00:09:14,800 --> 00:09:18,560 Speaker 1: But Charles Kindelberger, what did he think was going to 183 00:09:18,640 --> 00:09:22,760 Speaker 1: happen after Nixon unveiled all his policies. 184 00:09:22,880 --> 00:09:28,559 Speaker 5: So he was very worried about this because he had 185 00:09:28,800 --> 00:09:31,480 Speaker 5: just finished this book, The World in Depression. Okay. That 186 00:09:31,600 --> 00:09:35,679 Speaker 5: made the argument that when Sterling was forced off gold, okay, 187 00:09:35,760 --> 00:09:39,200 Speaker 5: in September of nineteen thirty one, Okay, that the failure 188 00:09:39,240 --> 00:09:41,000 Speaker 5: to do the pass off to the dollar at that 189 00:09:41,160 --> 00:09:43,760 Speaker 5: time meant that there was no world currency, and so 190 00:09:43,840 --> 00:09:45,760 Speaker 5: there was a collapse of world trade and we had 191 00:09:45,800 --> 00:09:48,920 Speaker 5: world depression. Okay. And the reason he calls it the 192 00:09:49,000 --> 00:09:51,480 Speaker 5: crime of nineteen seventy one is that, in fact, the 193 00:09:51,600 --> 00:09:54,040 Speaker 5: US was not forced off of gold. This was a 194 00:09:54,080 --> 00:09:58,439 Speaker 5: decision by the president to just abrogate these agreements. So 195 00:09:58,480 --> 00:10:01,800 Speaker 5: he felt this was a fail of responsibility that was 196 00:10:02,000 --> 00:10:04,360 Speaker 5: just wrongheaded, and it came out of nowhere and there 197 00:10:04,400 --> 00:10:06,800 Speaker 5: was no reason to do this. But Nixon was very 198 00:10:06,840 --> 00:10:10,120 Speaker 5: clear about this that he saw the dollar system emerging 199 00:10:10,360 --> 00:10:11,959 Speaker 5: and he just wanted to kill it. And it was 200 00:10:12,000 --> 00:10:14,640 Speaker 5: America first, and he wanted to kill it. And as 201 00:10:14,679 --> 00:10:16,319 Speaker 5: I said, the bankers wouldn't let him. But that's a 202 00:10:16,320 --> 00:10:17,560 Speaker 5: little bit longer a story. 203 00:10:17,880 --> 00:10:20,920 Speaker 1: But that's not what happened. We didn't have deflation. We 204 00:10:21,000 --> 00:10:23,800 Speaker 1: had inflation in the mid nineteen seventies, and we saw 205 00:10:23,960 --> 00:10:26,760 Speaker 1: the rest of the financial system sort of expand to 206 00:10:27,160 --> 00:10:30,480 Speaker 1: absorb what had been lost through the Nixon crime. I'm 207 00:10:30,480 --> 00:10:31,480 Speaker 1: doing air quotes here. 208 00:10:31,800 --> 00:10:33,360 Speaker 3: He certainly didn't kill the dollar system. 209 00:10:33,720 --> 00:10:35,440 Speaker 5: He did not kill the dollar system. It took a 210 00:10:35,440 --> 00:10:38,000 Speaker 5: while to put it back together again. I grew up 211 00:10:38,000 --> 00:10:40,560 Speaker 5: in the seventies. I think I'm a little older than you. 212 00:10:40,960 --> 00:10:42,520 Speaker 5: I was in high school in the seventies, and it 213 00:10:42,559 --> 00:10:44,880 Speaker 5: was not a pleasant time to be alive. Stagflation You've 214 00:10:44,920 --> 00:10:47,920 Speaker 5: heard the words stagflation, so where you have unemployment and 215 00:10:47,960 --> 00:10:50,959 Speaker 5: inflation at the same time, and it was about there 216 00:10:51,080 --> 00:10:53,600 Speaker 5: was a breakdown of the international monitor system. The story. 217 00:10:53,880 --> 00:10:57,440 Speaker 5: The important date for that is maybe in nineteen seventy three, 218 00:10:57,600 --> 00:10:59,360 Speaker 5: because I haven't filled in the rest of it that 219 00:11:00,040 --> 00:11:03,240 Speaker 5: after the stabilization of exchange rates in December of nineteen 220 00:11:03,280 --> 00:11:05,840 Speaker 5: seventy one, the revaluation of the end, as I say, 221 00:11:06,160 --> 00:11:09,160 Speaker 5: Nixon took advantage of that new fixed exchange rate to 222 00:11:09,200 --> 00:11:11,600 Speaker 5: try to get himself re elected by leaning on the 223 00:11:11,600 --> 00:11:14,079 Speaker 5: FED to lower interest rates. And the Fed did lower 224 00:11:14,080 --> 00:11:16,320 Speaker 5: interest rates, but the rest of the world did not. 225 00:11:17,160 --> 00:11:19,240 Speaker 5: And so now you have a real problem because with 226 00:11:19,280 --> 00:11:22,200 Speaker 5: the fixed exchange rate, you have free money by borrowing 227 00:11:22,240 --> 00:11:24,760 Speaker 5: in dollars at a low rate and lending in deutsch 228 00:11:24,760 --> 00:11:28,760 Speaker 5: marks in Germany, and the Central Bank of Germany has 229 00:11:28,840 --> 00:11:30,640 Speaker 5: to defend the exchange rate, and so they have to 230 00:11:30,679 --> 00:11:34,400 Speaker 5: absorb all of this, and they did until they couldn't 231 00:11:34,559 --> 00:11:38,000 Speaker 5: or decided not to, And so after seventy three there 232 00:11:38,080 --> 00:11:40,760 Speaker 5: was dis floating exchange rates. And so I think that 233 00:11:40,960 --> 00:11:44,320 Speaker 5: is a kind of incipient breakdown of the international monetary 234 00:11:44,360 --> 00:11:47,559 Speaker 5: system where you don't have stable exchange rates. And Kimderberger 235 00:11:47,800 --> 00:11:50,480 Speaker 5: thought that that could be a replay of the hot 236 00:11:50,559 --> 00:11:54,120 Speaker 5: money periods of the nineteen thirties, where speculators would say 237 00:11:54,480 --> 00:11:56,000 Speaker 5: I need to be safe, Oh, I should be in 238 00:11:56,040 --> 00:11:58,120 Speaker 5: the pound sterling, and then they would say, no, I 239 00:11:58,120 --> 00:12:00,079 Speaker 5: think maybe the pounds sterling is going to devalue to 240 00:12:00,120 --> 00:12:03,040 Speaker 5: be in the French franc No. And in as consequence, 241 00:12:03,080 --> 00:12:06,440 Speaker 5: they're destabilizing all the exchange rates. And with the exchange 242 00:12:06,520 --> 00:12:09,560 Speaker 5: rates fluctuating like that, how can you plan. So it 243 00:12:09,600 --> 00:12:12,520 Speaker 5: basically broke down capitol flows, short term capital flows, long 244 00:12:12,559 --> 00:12:15,240 Speaker 5: term capital flows trade. So the whole thing broke down, 245 00:12:15,559 --> 00:12:18,160 Speaker 5: and so he was afraid that that would happen. But 246 00:12:18,280 --> 00:12:20,800 Speaker 5: it didn't happen because the bankers wouldn't let it. And 247 00:12:20,840 --> 00:12:24,200 Speaker 5: in particular, the BIS played an important role in providing 248 00:12:24,240 --> 00:12:27,199 Speaker 5: currency swaps for countries that were under attack. They were 249 00:12:27,200 --> 00:12:29,760 Speaker 5: taking the opposite side of some of these trades, and 250 00:12:29,840 --> 00:12:33,240 Speaker 5: gradually we built what we now experience as the offshore 251 00:12:33,280 --> 00:12:37,680 Speaker 5: dollar system, where there's dollars borrowing and lending offshore doesn't 252 00:12:37,679 --> 00:12:40,560 Speaker 5: touch New York at all. That happened during the nineteen 253 00:12:40,559 --> 00:12:44,480 Speaker 5: seventies as a consequence of these policy actions in seventy 254 00:12:44,480 --> 00:12:48,079 Speaker 5: one and seventy three, and by nineteen seventy nine when 255 00:12:48,160 --> 00:12:50,720 Speaker 5: Vulcar comes. This is the time when the United States 256 00:12:50,840 --> 00:12:54,440 Speaker 5: is now taking responsibility again, okay, and you now have 257 00:12:54,480 --> 00:12:57,840 Speaker 5: the infrastructure, you know where it is offshore. Okay, so 258 00:12:58,160 --> 00:13:01,720 Speaker 5: maybe it's more politically acceptable than it was in the sixties. 259 00:13:01,960 --> 00:13:03,480 Speaker 5: And then we go to the races. You know, it 260 00:13:03,520 --> 00:13:05,280 Speaker 5: takes a little while for the you know, go to 261 00:13:05,280 --> 00:13:08,880 Speaker 5: the races. Do double digit interest rates at twenty percent 262 00:13:08,920 --> 00:13:10,880 Speaker 5: interest rates? I remember that too, you know, I was 263 00:13:10,920 --> 00:13:13,880 Speaker 5: in college then and taking out student loans, and so 264 00:13:13,960 --> 00:13:16,640 Speaker 5: it wasn't until nineteen eighty five at Plaza where the 265 00:13:16,640 --> 00:13:18,920 Speaker 5: rest of the world sort of they actually agreed to 266 00:13:18,920 --> 00:13:21,560 Speaker 5: some parodies and so forth. But the system got put 267 00:13:21,600 --> 00:13:25,480 Speaker 5: back together again. That's the story, and I think maybe 268 00:13:25,600 --> 00:13:42,840 Speaker 5: that's a hopeful story for this moment, the Nixon playbook. 269 00:13:45,400 --> 00:13:49,040 Speaker 4: Before we get to the current moment. This is just 270 00:13:49,080 --> 00:13:52,400 Speaker 4: a theoretical question. When you look at the world economy, 271 00:13:52,400 --> 00:13:56,080 Speaker 4: either in the past or specifically now, does it inevitably 272 00:13:56,200 --> 00:13:59,720 Speaker 4: tend towards sort of like one dominant currency. I mean, 273 00:13:59,760 --> 00:14:02,160 Speaker 4: you know, and there's obviously countries hold other currencies too. 274 00:14:02,200 --> 00:14:05,280 Speaker 4: They hold euros, and theyailed some Swiss frank probably and 275 00:14:05,320 --> 00:14:07,480 Speaker 4: maybe a little gold, et cetera. But is there a 276 00:14:07,520 --> 00:14:11,960 Speaker 4: tendency towards like a power law distribution where one typically 277 00:14:12,040 --> 00:14:14,959 Speaker 4: becomes the currency, kind of like in social networking, it's 278 00:14:15,000 --> 00:14:15,960 Speaker 4: like there's Facebook. 279 00:14:16,480 --> 00:14:18,720 Speaker 5: I don't think that's the right analogy power law distribution. 280 00:14:18,760 --> 00:14:21,280 Speaker 5: I know what you're talking about. There. There is a tendency, 281 00:14:21,600 --> 00:14:24,560 Speaker 5: but it comes from sort of efficiency in exchange. 282 00:14:24,640 --> 00:14:24,960 Speaker 3: Okay. 283 00:14:25,160 --> 00:14:28,480 Speaker 5: Kinderberger always made the analogy that before we had the FED, 284 00:14:28,800 --> 00:14:31,680 Speaker 5: there was not park clearing between California and New York, right, 285 00:14:31,960 --> 00:14:35,080 Speaker 5: So that was itself a sort of tax on trade 286 00:14:35,160 --> 00:14:37,800 Speaker 5: inside the United States, and you weren't really sure how 287 00:14:37,800 --> 00:14:39,520 Speaker 5: it was going to work, and there wasn't par check 288 00:14:39,560 --> 00:14:42,520 Speaker 5: clearing and so forth. With the creation of the FED 289 00:14:42,640 --> 00:14:44,720 Speaker 5: and with war finance, that all went away and we 290 00:14:44,760 --> 00:14:47,520 Speaker 5: got park clearing. So he was always impressed by the analogy. 291 00:14:47,640 --> 00:14:49,840 Speaker 5: If this was a good idea for the United States, 292 00:14:50,160 --> 00:14:53,080 Speaker 5: maybe we should do this for the world as well. 293 00:14:53,240 --> 00:14:55,200 Speaker 5: And he saw, as I said, this hot money. When 294 00:14:55,240 --> 00:14:59,200 Speaker 5: you have multiple key currencies, you are inviting speculation, so 295 00:14:59,320 --> 00:15:02,080 Speaker 5: your de stateabilizing the exchange rates, and therefore that's the 296 00:15:02,160 --> 00:15:04,520 Speaker 5: tax on trade and on capitol flows. You don't want 297 00:15:04,520 --> 00:15:07,600 Speaker 5: to do that, Okay. Now, the analogy with the United States, 298 00:15:07,960 --> 00:15:10,440 Speaker 5: you know, in retrospect went too far because he was 299 00:15:10,480 --> 00:15:13,280 Speaker 5: a big advocate of fixed exchange rates, and it seems 300 00:15:13,320 --> 00:15:17,160 Speaker 5: like that's a bridge too far, that's too that's too demanding. 301 00:15:17,240 --> 00:15:19,520 Speaker 5: So we do not have fixed exchange rates. We have 302 00:15:19,720 --> 00:15:22,960 Speaker 5: managed floating exchange rates that are that are managed through 303 00:15:23,480 --> 00:15:26,280 Speaker 5: joint intervention of of sort of the Club of six, 304 00:15:26,520 --> 00:15:29,480 Speaker 5: the major central banks. This is another Kinderberger point that 305 00:15:29,560 --> 00:15:31,920 Speaker 5: if you stabilize the core of the system, then you 306 00:15:31,920 --> 00:15:34,520 Speaker 5: stabilize the system as a whole. That there will always 307 00:15:34,600 --> 00:15:37,800 Speaker 5: be countries that are facing crises and so forth, but 308 00:15:37,840 --> 00:15:40,760 Speaker 5: as long as you stabilize the core, you'll be all right. 309 00:15:40,920 --> 00:15:42,640 Speaker 5: The system is as a whole will be all right. 310 00:15:42,680 --> 00:15:44,840 Speaker 5: That's why the global financial crisis was such a problem, 311 00:15:44,840 --> 00:15:48,280 Speaker 5: because that came from the core. It threatened the core. 312 00:15:48,560 --> 00:15:50,160 Speaker 5: You may remember where I don't know if you were 313 00:15:50,160 --> 00:15:54,120 Speaker 5: doing odd lots yet then quite but I was. You're 314 00:15:54,120 --> 00:15:56,360 Speaker 5: a financial journalist, and you know that they thought the 315 00:15:56,360 --> 00:15:57,600 Speaker 5: world was going to come to an end and that 316 00:15:57,680 --> 00:15:59,240 Speaker 5: was the end of the dollar and all of that. 317 00:15:59,400 --> 00:16:01,600 Speaker 5: But in fact, that's what happened, was the expansion of 318 00:16:01,640 --> 00:16:04,200 Speaker 5: the dollar system to the global South. Because of zero 319 00:16:04,280 --> 00:16:07,680 Speaker 5: interest rates in the North. And so this offshore dollar 320 00:16:07,720 --> 00:16:10,320 Speaker 5: system that, as I was saying, it was given a 321 00:16:10,320 --> 00:16:12,800 Speaker 5: big boost by the Nixon Shock of nineteen seventy one. 322 00:16:12,960 --> 00:16:15,240 Speaker 5: In retrospect, as I say, it was not pleasant to 323 00:16:15,280 --> 00:16:17,920 Speaker 5: live through, Okay, was given a big boost by the 324 00:16:17,920 --> 00:16:21,520 Speaker 5: global financial crisis. Okay, and now we have the Trump shock. Okay, 325 00:16:21,560 --> 00:16:24,960 Speaker 5: that's happening. And so I think that the lesson of 326 00:16:25,040 --> 00:16:29,680 Speaker 5: history may be that the bankers won't let them, you 327 00:16:29,720 --> 00:16:32,920 Speaker 5: know that. But it's going to be painful, it's not 328 00:16:32,920 --> 00:16:35,560 Speaker 5: going to be pleasant. But I do not think that 329 00:16:35,640 --> 00:16:37,280 Speaker 5: the dollar system is going away. 330 00:16:38,000 --> 00:16:40,800 Speaker 1: I guess the obvious question to ask after that is, Okay, 331 00:16:40,840 --> 00:16:42,840 Speaker 1: we have these other moments in time where there was 332 00:16:42,840 --> 00:16:45,840 Speaker 1: a crisis in the dollar system, and yet it came 333 00:16:45,880 --> 00:16:49,840 Speaker 1: back stronger. And I guess the question is is Trump 334 00:16:50,040 --> 00:16:54,320 Speaker 1: different to the policymakers that were in charge at that 335 00:16:54,480 --> 00:16:59,520 Speaker 1: particular time. He seems much more interested and willing in 336 00:16:59,720 --> 00:17:03,400 Speaker 1: try buying very very new things and potentially destroying some 337 00:17:03,480 --> 00:17:06,719 Speaker 1: really really big things. Is he going to want to 338 00:17:06,800 --> 00:17:09,720 Speaker 1: maintain that system? I'm thinking, you know, something specific like 339 00:17:09,960 --> 00:17:13,280 Speaker 1: the dollar swap lines. You can imagine the headlines if 340 00:17:13,320 --> 00:17:16,240 Speaker 1: the FED is extending billions of dollars to Europe or something. 341 00:17:16,400 --> 00:17:20,480 Speaker 1: Imagine how Trump would feel about headlines about Americans bailing 342 00:17:20,520 --> 00:17:21,880 Speaker 1: out Europe or something like that. 343 00:17:22,600 --> 00:17:26,120 Speaker 5: Yes, so this is another thing that is different today 344 00:17:26,359 --> 00:17:29,040 Speaker 5: than it was back then. As I say, Arthur Burns 345 00:17:29,800 --> 00:17:33,840 Speaker 5: caved in to mister Nixon, helped him try to get reelected. 346 00:17:34,280 --> 00:17:38,240 Speaker 5: Economists know this, and it was a shameful episode at 347 00:17:38,240 --> 00:17:41,160 Speaker 5: the FED. You know that that should never be so, 348 00:17:41,600 --> 00:17:44,800 Speaker 5: that should never be. So. So what we're seeing play 349 00:17:44,840 --> 00:17:47,800 Speaker 5: out right now is quite a different drama. Okay, Mister 350 00:17:47,840 --> 00:17:51,080 Speaker 5: Powell is not caving in. Mister Powell is very publicly 351 00:17:51,240 --> 00:17:53,879 Speaker 5: going and saying that equidity swap lines are in place, 352 00:17:54,600 --> 00:17:57,159 Speaker 5: and I am not lowering interest rates, okay until I 353 00:17:57,240 --> 00:18:00,600 Speaker 5: see that the inflationary effects of these tariffs are not 354 00:18:00,680 --> 00:18:05,480 Speaker 5: going to undermine our economy. And so there is a conflict, okay, 355 00:18:05,560 --> 00:18:09,639 Speaker 5: that is developing. There an immovable object facing an irresistible force. Okay. 356 00:18:09,840 --> 00:18:13,000 Speaker 5: And so it's just started. It's just started. But that's 357 00:18:13,119 --> 00:18:15,440 Speaker 5: very different from ninety seventy one, okay. And the other 358 00:18:15,480 --> 00:18:18,679 Speaker 5: thing that's different from ninety seventy one is that the 359 00:18:18,880 --> 00:18:22,719 Speaker 5: apparatus of the offshore dollar system is up and running, right. 360 00:18:22,840 --> 00:18:25,520 Speaker 5: It does. You don't have to create it. It exists. 361 00:18:25,680 --> 00:18:28,640 Speaker 5: It exists already, and I'm sure it's being put into 362 00:18:29,160 --> 00:18:31,879 Speaker 5: force already that you can move a lot of this 363 00:18:31,960 --> 00:18:36,359 Speaker 5: stuff offshore, Okay, and you will. It is a little 364 00:18:36,760 --> 00:18:40,600 Speaker 5: peculiar that we're talking about. It's a globalized financial world, 365 00:18:40,880 --> 00:18:43,200 Speaker 5: the extent to which is a global world is much 366 00:18:43,240 --> 00:18:46,800 Speaker 5: more true in finance than it is in trade, notwithstanding 367 00:18:46,800 --> 00:18:49,520 Speaker 5: global supply chains and everything like that. But you know, 368 00:18:49,600 --> 00:18:52,520 Speaker 5: it takes a long time to get a car from 369 00:18:52,680 --> 00:18:55,840 Speaker 5: China to New York, you know, through the Panama Canal 370 00:18:55,960 --> 00:18:58,520 Speaker 5: or whatever. It doesn't take any time for money to 371 00:18:58,600 --> 00:19:01,840 Speaker 5: flow this way and that way. So and they're not 372 00:19:02,000 --> 00:19:05,760 Speaker 5: putting any tariffs on capital flows. They're not putting it. 373 00:19:05,840 --> 00:19:09,520 Speaker 5: So the financial system is not being threatened, this financial 374 00:19:09,560 --> 00:19:12,440 Speaker 5: system that grew up over this period. Maybe I shouldn't 375 00:19:12,440 --> 00:19:13,760 Speaker 5: give them any ideas well. 376 00:19:14,200 --> 00:19:17,200 Speaker 1: I mean there's some discussion. Is that the possibility? 377 00:19:17,280 --> 00:19:17,520 Speaker 2: Yeah? 378 00:19:17,560 --> 00:19:21,240 Speaker 1: And I think, well, for instance, maybe, I mean they've 379 00:19:21,240 --> 00:19:24,560 Speaker 1: they've done some stuff around Chinese companies listing in the US, 380 00:19:24,680 --> 00:19:28,280 Speaker 1: and there's talk about maybe you stopped US investors from 381 00:19:28,359 --> 00:19:29,240 Speaker 1: investing in China. 382 00:19:29,280 --> 00:19:31,359 Speaker 5: So that's the same thing as the Nixon playbook. That's 383 00:19:31,359 --> 00:19:34,280 Speaker 5: in the sixties. You're trying to push that offshore somewhere, 384 00:19:34,600 --> 00:19:37,159 Speaker 5: and so there will develop other financial centers and that 385 00:19:37,240 --> 00:19:39,840 Speaker 5: will take a while. It takes a while to develop, 386 00:19:39,920 --> 00:19:42,439 Speaker 5: but there are a number of competing financial centers. You know, 387 00:19:42,520 --> 00:19:45,160 Speaker 5: London was happy to take the euro dollar business. They 388 00:19:45,160 --> 00:19:47,080 Speaker 5: were like champion in the bed. We know how to 389 00:19:47,080 --> 00:19:49,000 Speaker 5: do this. We did this for Sterling. We just need 390 00:19:49,040 --> 00:19:51,120 Speaker 5: to change the little symbol in front and we can go. 391 00:19:51,520 --> 00:19:53,560 Speaker 5: You know, it took a while to make it all go. 392 00:19:53,880 --> 00:19:55,720 Speaker 5: It was the old guys who remembered, you know, and 393 00:19:55,720 --> 00:19:58,160 Speaker 5: they had to teach the young things. But the structure 394 00:19:58,280 --> 00:20:00,560 Speaker 5: was there, and so it could have and again, but 395 00:20:00,600 --> 00:20:02,679 Speaker 5: I'm just saying it's there now. You don't need to 396 00:20:02,680 --> 00:20:04,560 Speaker 5: build it. You don't need to build it. And so 397 00:20:04,800 --> 00:20:08,080 Speaker 5: I think that the chance that it's going to all 398 00:20:08,119 --> 00:20:11,480 Speaker 5: fall apart, okay, it's much bigger now, so that makes 399 00:20:11,520 --> 00:20:14,640 Speaker 5: it harder to manage, okay, But it also means that 400 00:20:14,760 --> 00:20:18,520 Speaker 5: it's evolved through crisis before from you know, every time 401 00:20:18,560 --> 00:20:22,000 Speaker 5: it's counted out, it's come back stronger, and not just stronger, 402 00:20:22,119 --> 00:20:24,840 Speaker 5: but expanding over the face of the globe that there 403 00:20:24,880 --> 00:20:26,919 Speaker 5: are these phases. You know, in ninety seventy one, it 404 00:20:26,960 --> 00:20:29,520 Speaker 5: was the US versus Europe. Okay. Then there's the Asian 405 00:20:29,560 --> 00:20:33,399 Speaker 5: financial crisis, which which I understand as the way we 406 00:20:33,400 --> 00:20:35,919 Speaker 5: were integrating Europe into the global dollar system that it 407 00:20:36,000 --> 00:20:39,200 Speaker 5: expanded and then you had to consolidate. Now it's gone 408 00:20:39,200 --> 00:20:41,520 Speaker 5: to the global South. We expanded and now we're in 409 00:20:41,560 --> 00:20:44,159 Speaker 5: consolidation phase. So I think we could come out of 410 00:20:44,160 --> 00:20:47,840 Speaker 5: this with a more robust system that's actually energetic and 411 00:20:48,040 --> 00:20:52,040 Speaker 5: has growth. But politics are the problem. You know, Are 412 00:20:52,040 --> 00:20:54,359 Speaker 5: the Americans going to be okay with this? You know? 413 00:20:54,600 --> 00:20:57,040 Speaker 5: Are the American political forces going to be okay with this? 414 00:20:57,480 --> 00:21:01,480 Speaker 5: Can a new political agreement between countries you know, be 415 00:21:01,640 --> 00:21:04,919 Speaker 5: made about this? And so that's where I'm out of 416 00:21:04,920 --> 00:21:07,359 Speaker 5: my depth. I don't really know. I don't really know. 417 00:21:07,400 --> 00:21:10,560 Speaker 5: What I have observed in life, okay, is that the 418 00:21:10,600 --> 00:21:13,000 Speaker 5: financial system sort of grows, grows, grows, grows, and then 419 00:21:13,040 --> 00:21:15,120 Speaker 5: the political system decides shall we bless this or shall 420 00:21:15,200 --> 00:21:17,879 Speaker 5: we kill it? You know, So there's a political settlement, okay, 421 00:21:18,000 --> 00:21:20,359 Speaker 5: and then you grow, grow, grow, grow, grow, and then 422 00:21:20,359 --> 00:21:22,760 Speaker 5: it happens again, you know. So that's how I see 423 00:21:23,160 --> 00:21:27,040 Speaker 5: what's happening now for me as a library rat as 424 00:21:27,080 --> 00:21:29,359 Speaker 5: I am, you know, there's just too much noise. I 425 00:21:29,359 --> 00:21:31,680 Speaker 5: don't know what's noise and what's signal at the moment. 426 00:21:31,880 --> 00:21:35,000 Speaker 5: So and I do think that this, you know, attempt 427 00:21:35,040 --> 00:21:38,520 Speaker 5: to play games with market valuations by announcing tariffs and 428 00:21:38,520 --> 00:21:40,879 Speaker 5: then taking them off but telling your friends beforehand, you know, 429 00:21:41,200 --> 00:21:43,840 Speaker 5: is very bad for market liquidity. You know, why would 430 00:21:43,920 --> 00:21:45,919 Speaker 5: you be a dealer to take the other side of 431 00:21:45,920 --> 00:21:48,199 Speaker 5: these trades, okay, if they're just going to take this 432 00:21:48,280 --> 00:21:50,520 Speaker 5: money away from you, you know. So I think that's 433 00:21:50,560 --> 00:21:53,959 Speaker 5: another place where there's stress in the system and pushback. 434 00:21:54,240 --> 00:21:56,320 Speaker 5: You noticed in the last week, you know, the lack 435 00:21:56,320 --> 00:21:58,880 Speaker 5: of liquidity and treasuries and things like that. I think 436 00:21:58,920 --> 00:22:00,720 Speaker 5: that's a lot of what that's about. Out It's that 437 00:22:01,160 --> 00:22:03,359 Speaker 5: the system seems to be rigged. 438 00:22:04,520 --> 00:22:08,080 Speaker 4: Let's just talk about the events since April second for 439 00:22:08,080 --> 00:22:10,760 Speaker 4: a second, because the really and you alluded to it already, 440 00:22:10,760 --> 00:22:13,960 Speaker 4: But there's at least two dimensions. One is the sort 441 00:22:14,000 --> 00:22:18,320 Speaker 4: of pure economics of tariffs. It's a taxike. One useful 442 00:22:18,320 --> 00:22:23,480 Speaker 4: way to think about tariffs. Efforts to reassure manufacturing, perhaps 443 00:22:23,640 --> 00:22:27,400 Speaker 4: efforts to kneecap China specifically, and we don't know where 444 00:22:27,400 --> 00:22:29,639 Speaker 4: the tariffs are going to settle, and there's the final 445 00:22:29,680 --> 00:22:32,240 Speaker 4: relationship as the time we're recording this, and we may 446 00:22:32,280 --> 00:22:35,160 Speaker 4: never really know for the next four years. It seems plausible. 447 00:22:35,480 --> 00:22:38,080 Speaker 4: And then there's the politics, which you mentioned, which is 448 00:22:38,240 --> 00:22:40,680 Speaker 4: here you have a president who made a trade agreement 449 00:22:40,760 --> 00:22:43,560 Speaker 4: with Mexico and Canada, and suddenly it's like, maybe he 450 00:22:43,560 --> 00:22:46,000 Speaker 4: doesn't like it anymore, or he's willing to declare an 451 00:22:46,000 --> 00:22:50,480 Speaker 4: emergency to change the trading relationship with the rest of 452 00:22:50,520 --> 00:22:51,080 Speaker 4: the world. 453 00:22:51,680 --> 00:22:52,440 Speaker 3: What's happening? 454 00:22:52,480 --> 00:22:54,880 Speaker 4: And when I say what's happening, I mean is when 455 00:22:54,920 --> 00:22:58,000 Speaker 4: this all gets announced to your mind, what are the 456 00:22:58,040 --> 00:23:02,560 Speaker 4: first order effects of this sort of flurry of we're. 457 00:23:02,400 --> 00:23:03,600 Speaker 3: Changing the rules right now? 458 00:23:04,080 --> 00:23:08,200 Speaker 5: Well, I think the first art effects will be surprising, Okay. 459 00:23:08,280 --> 00:23:10,840 Speaker 5: I doubt that there's going to be much change in 460 00:23:10,920 --> 00:23:14,200 Speaker 5: net trade flows. That may be surprising to you, okay. 461 00:23:14,320 --> 00:23:16,240 Speaker 5: But what there's going to be is a change in 462 00:23:16,320 --> 00:23:20,160 Speaker 5: gross trade flows. Right This is a tax on trade 463 00:23:20,280 --> 00:23:22,640 Speaker 5: is essentially what it is, okay, So that there will 464 00:23:22,680 --> 00:23:26,280 Speaker 5: be less exports and less imports. The net is the 465 00:23:26,320 --> 00:23:28,639 Speaker 5: difference between those. So the net could stay the same 466 00:23:28,960 --> 00:23:32,520 Speaker 5: even as both exports and imports fall, and that will 467 00:23:32,520 --> 00:23:36,000 Speaker 5: be increasing inefficiency in global you know, division of labor. 468 00:23:36,400 --> 00:23:39,360 Speaker 5: So we're moving in the direction of autarchy. I don't 469 00:23:39,359 --> 00:23:41,399 Speaker 5: think we're going to get there completely because there's a 470 00:23:41,680 --> 00:23:43,600 Speaker 5: I mean, it's more possible for the United States because 471 00:23:43,600 --> 00:23:45,919 Speaker 5: it's a very big country. You know, there's almost everything 472 00:23:45,960 --> 00:23:49,639 Speaker 5: we need we have. It's cheaper from other places, you know, 473 00:23:49,800 --> 00:23:52,760 Speaker 5: but almost everything we need we have. It would take 474 00:23:52,760 --> 00:23:54,840 Speaker 5: a while to build up the capacity. And so this 475 00:23:54,880 --> 00:23:56,840 Speaker 5: is a very big country. But I think that this 476 00:23:56,960 --> 00:24:01,119 Speaker 5: is in fact killing global trade. That is very bad. 477 00:24:01,400 --> 00:24:04,840 Speaker 5: That's very bad for growth, that's very bad for people. Okay. 478 00:24:05,080 --> 00:24:08,520 Speaker 5: So I don't know what's going to happen to global 479 00:24:08,520 --> 00:24:11,760 Speaker 5: capital flows, okay, because, as I say, Kinderberger in the 480 00:24:11,760 --> 00:24:16,200 Speaker 5: seventies was surprised that capital flows actually continued even though 481 00:24:16,280 --> 00:24:19,480 Speaker 5: you were in a flexible exchange rate, because businesses were 482 00:24:19,520 --> 00:24:22,280 Speaker 5: looking through and saying, you know, this is a long 483 00:24:22,359 --> 00:24:25,080 Speaker 5: term investment. Exchange rates are moving this way that way. 484 00:24:25,240 --> 00:24:27,919 Speaker 5: I'm not thinking about that, okay. And there was some 485 00:24:28,040 --> 00:24:31,359 Speaker 5: backstop for short term bounds of payments, deficits and so 486 00:24:31,400 --> 00:24:34,119 Speaker 5: forth behind the scenes. So they sort of kept the 487 00:24:34,119 --> 00:24:37,119 Speaker 5: wheels from falling completely off the wagon in the seventies, 488 00:24:37,200 --> 00:24:39,399 Speaker 5: and as I say, I think there's even more capacity 489 00:24:39,480 --> 00:24:42,760 Speaker 5: to do that now. So I think the bottom line, 490 00:24:43,080 --> 00:24:45,320 Speaker 5: the most likely thing that's going to happen is that 491 00:24:45,480 --> 00:24:48,480 Speaker 5: just trade stops. I mean, I think people say, I 492 00:24:48,560 --> 00:24:50,640 Speaker 5: just listened to the news like you do, that essentially 493 00:24:50,640 --> 00:24:52,840 Speaker 5: there's a trade embargo in China right now, like there's 494 00:24:53,000 --> 00:24:56,480 Speaker 5: nothing is happening at all, and that's a pretty big 495 00:24:56,520 --> 00:24:59,800 Speaker 5: trading partner. So I mean, I don't know that that 496 00:25:00,080 --> 00:25:02,280 Speaker 5: will be the end result of this, you know, but 497 00:25:02,320 --> 00:25:05,640 Speaker 5: that's the immediate shock result of this. And I think 498 00:25:05,680 --> 00:25:09,120 Speaker 5: that if these tariffs were to persist, there would be much, 499 00:25:09,240 --> 00:25:12,280 Speaker 5: much less trade in the world economy, and that's not 500 00:25:12,440 --> 00:25:13,919 Speaker 5: good for ordinary people. 501 00:25:14,280 --> 00:25:16,720 Speaker 1: Perry, Marilyn, thank you so much for coming back on again. 502 00:25:16,720 --> 00:25:17,240 Speaker 1: That was great. 503 00:25:17,440 --> 00:25:32,640 Speaker 3: It's good to see you, Joe. 504 00:25:32,680 --> 00:25:34,560 Speaker 1: It was great to catch up with Perry. Truly the 505 00:25:34,600 --> 00:25:35,160 Speaker 1: perfect guest. 506 00:25:35,280 --> 00:25:37,359 Speaker 3: I love, I do love catching up with Perry. 507 00:25:37,480 --> 00:25:40,560 Speaker 1: Yeah, And I mean, the analogy to the Nixon shock 508 00:25:40,640 --> 00:25:42,880 Speaker 1: seems to be one that people are reaching for over 509 00:25:42,920 --> 00:25:46,120 Speaker 1: and over again. And I guess I can see Perry's 510 00:25:46,160 --> 00:25:49,160 Speaker 1: point that there have been multiple instances where the dollar 511 00:25:49,200 --> 00:25:51,639 Speaker 1: system has been tested. Yeah, and it's sort of like 512 00:25:51,760 --> 00:25:54,040 Speaker 1: I don't know, a rubber ball that you like, stretch 513 00:25:54,480 --> 00:25:56,879 Speaker 1: and you test it and then it just like snaps 514 00:25:56,920 --> 00:25:58,800 Speaker 1: back to where it was, or it gets even bigger. 515 00:25:58,960 --> 00:26:02,280 Speaker 1: Right the dollars says done. And I guess the obvious 516 00:26:02,359 --> 00:26:04,360 Speaker 1: question is is it different this time? 517 00:26:04,480 --> 00:26:04,600 Speaker 2: Right? 518 00:26:05,240 --> 00:26:07,160 Speaker 4: I mean to me, like, you know, there's a few 519 00:26:07,160 --> 00:26:09,520 Speaker 4: different ideas here. So one is, you know, I think 520 00:26:09,560 --> 00:26:13,520 Speaker 4: it is useful to conceptualize the quote dollar system unquote 521 00:26:13,800 --> 00:26:17,400 Speaker 4: as this thing that exists independently of the United States government, 522 00:26:17,520 --> 00:26:21,200 Speaker 4: obviously through banks wanting to have you know, one medium 523 00:26:21,240 --> 00:26:23,879 Speaker 4: of exchange more or less, and global financial flows that 524 00:26:23,920 --> 00:26:26,840 Speaker 4: are everywhere. Then there is also this element and this 525 00:26:26,920 --> 00:26:29,439 Speaker 4: idea that you know, you could like tax trade and 526 00:26:29,480 --> 00:26:31,199 Speaker 4: you can have a shrinkage of trade, but that's not 527 00:26:31,240 --> 00:26:33,840 Speaker 4: necessarily going to make it so that there's a different 528 00:26:33,880 --> 00:26:36,359 Speaker 4: calculation about the global currency to use, et cetera. And 529 00:26:36,440 --> 00:26:40,639 Speaker 4: there's no obvious replacement just yet. All that being said, 530 00:26:41,560 --> 00:26:45,760 Speaker 4: like part of the reason this moment, and honestly before April, 531 00:26:45,840 --> 00:26:49,439 Speaker 4: second part of the reason this moment seems so fraught, 532 00:26:49,520 --> 00:26:53,080 Speaker 4: Perhaps to people is precisely because of the politics. Specifically 533 00:26:53,160 --> 00:26:55,800 Speaker 4: exactly which paracide you can't really talk to. But if 534 00:26:55,840 --> 00:26:59,280 Speaker 4: there's going to be some sort of real disruption, I 535 00:26:59,280 --> 00:27:03,000 Speaker 4: suspect it would from a political change rather than just 536 00:27:03,200 --> 00:27:04,600 Speaker 4: a change in fiscal policy. 537 00:27:04,680 --> 00:27:07,280 Speaker 1: Right, And this is sort of the policy point. This 538 00:27:07,400 --> 00:27:10,520 Speaker 1: is exactly it. Whereas before I think everyone had like 539 00:27:10,600 --> 00:27:15,280 Speaker 1: a relatively decent or reasonable grasp of what policy makers 540 00:27:15,280 --> 00:27:19,840 Speaker 1: were trying to do. That seems very unclear, and we've 541 00:27:19,840 --> 00:27:22,040 Speaker 1: written about this in the newsletter. But if you think 542 00:27:22,080 --> 00:27:26,320 Speaker 1: about the dollar and dollar based assets as a sort 543 00:27:26,359 --> 00:27:34,400 Speaker 1: of symbol or token of America's rule of constitutional strength, 544 00:27:35,080 --> 00:27:37,280 Speaker 1: then it does seem different this time. 545 00:27:37,760 --> 00:27:38,640 Speaker 3: Yeah, kind of does. 546 00:27:38,840 --> 00:27:40,960 Speaker 1: Okay, So shall we leave it on that happy note. 547 00:27:41,040 --> 00:27:41,600 Speaker 3: Let's leave it there. 548 00:27:41,920 --> 00:27:44,240 Speaker 1: This has been another episode of the Odd Thoughts podcast. 549 00:27:44,320 --> 00:27:47,560 Speaker 1: I'm Tracy Alloway. You can follow me at Tracy Alloway. 550 00:27:47,280 --> 00:27:49,960 Speaker 4: And I'm Jill Wisenthal. You can follow me at the Stalwart. 551 00:27:50,320 --> 00:27:52,879 Speaker 4: Check out our guest Perry Marling. 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