WEBVTT - Regulatory System is Absurdly Complex, King Says 0:00:00.080 --> 0:00:13.880 Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom keene Jeleye. 0:00:13.960 --> 0:00:16.960 We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.520 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.000 Bloomberg dot Com and of course on the Bloomberg to 0:00:33.080 --> 0:00:34.920 run you through the market action and what action we 0:00:34.960 --> 0:00:36.599 have seen over the last couple of days. I'm very 0:00:36.600 --> 0:00:38.960 pleased to say we've got a snack show right over 0:00:39.040 --> 0:00:42.760 all over again on are on Bloomberg Surveillance, including Mark Chandler, 0:00:42.960 --> 0:00:46.080 Brown Brothers, harrim and global head of Currency Strategy Kit 0:00:46.200 --> 0:00:49.440 Jugs also joining us of soccer say as general Kit 0:00:49.640 --> 0:00:51.560 joining us from London. I want to begin with you, sir. 0:00:51.600 --> 0:00:54.279 An important note that came into my inbox from your 0:00:54.280 --> 0:00:57.960 south this morning. The addiction to low volatility perhaps bigger 0:00:58.200 --> 0:01:00.480 than the addiction to low rates. Let me throw a 0:01:00.560 --> 0:01:04.080 kit Well, it just strikes me that so that they're related, 0:01:04.160 --> 0:01:06.600 right This, this low interest rate regime we've been in 0:01:06.640 --> 0:01:10.319 since the Financial crisis, has has pushed money looking for 0:01:10.400 --> 0:01:14.759 yield either to be taking low volatility strategies, which meant 0:01:14.800 --> 0:01:16.760 for a long time buying things that were low in 0:01:16.840 --> 0:01:20.480 volatility and that suffered de volatility picked up across markets, 0:01:20.520 --> 0:01:23.560 so corporate bonds, high yield, easy examples of high yielding 0:01:23.640 --> 0:01:26.760 currencies and so on. And then clearly, you know, we 0:01:26.800 --> 0:01:29.640 have invented more and moderivatives that allow people to go 0:01:29.840 --> 0:01:32.600 short of volatility on a retail basis or on a 0:01:32.600 --> 0:01:35.920 wider basis than just outside you know, a few trading rooms. 0:01:35.920 --> 0:01:37.880 And and that's where some of the worst of the 0:01:37.920 --> 0:01:40.880 pain has been felt in this crisis. And I guess 0:01:40.880 --> 0:01:43.200 that's you know, it's an evolution of the market away 0:01:43.280 --> 0:01:46.360 from away from what we saw in two thousand and 0:01:46.520 --> 0:01:51.600 six seven um as as the as the financial bubble grew, 0:01:51.840 --> 0:01:54.960 when money was going into be um an addiction to 0:01:55.000 --> 0:01:58.000 low rate, but an addiction that came through in structured 0:01:58.040 --> 0:02:00.800 credit and through addiction into the into the property. Mark. Yeah, 0:02:01.280 --> 0:02:04.320 this feels different in that sense, Mark Chandler. At the moment, 0:02:04.360 --> 0:02:07.640 the volatility almost isolates its equity. Do you see it 0:02:07.680 --> 0:02:11.200 bleeding through to effex bleeding through to bonds, because that's 0:02:11.200 --> 0:02:14.280 not happening in the material way yet. Yeah. Partly it's 0:02:14.320 --> 0:02:16.440 what's happened is that the dollar has gotten stronger and 0:02:16.480 --> 0:02:18.560 the end has gotten strong. It's primarily because people are 0:02:18.639 --> 0:02:21.000 unwinding these positions where they've used the dollar in the 0:02:21.120 --> 0:02:23.680 end as a funding currency. But I'm not so sure 0:02:23.760 --> 0:02:26.760 that that this is that this is a big crisis 0:02:26.880 --> 0:02:29.320 or anything. I think most retail investors are not really 0:02:29.320 --> 0:02:32.120 involved with these vix plays. At the end of the day, 0:02:32.240 --> 0:02:34.639 I think that this is mostly a Wall Street sort 0:02:34.639 --> 0:02:37.280 of staring at its navel and not really looking at 0:02:37.280 --> 0:02:40.519 the bigger picture and the bigger pictures. Essentially, this emerging 0:02:40.520 --> 0:02:43.359 markets were was up about thirty three percent last year. 0:02:43.560 --> 0:02:46.120 There's still up on the year now. The US stock 0:02:46.160 --> 0:02:49.200 market many people like myself, including some feed officials, dot 0:02:49.200 --> 0:02:51.480 the stock market was elevated and where are we now 0:02:51.639 --> 0:02:54.360 basically where we were at the end of say, early January. 0:02:54.600 --> 0:02:57.920 I think that this is uh, this is grossly exaggerated. 0:02:57.919 --> 0:03:00.680 The economic impact grosly exaggerated. Like I say, I think 0:03:00.680 --> 0:03:03.560 that it hasn't really been a spill over and economic issues. Well, 0:03:03.560 --> 0:03:05.680 I have to say, Mark, I haven't heard an exaggeration 0:03:05.720 --> 0:03:08.079 on the economic issues, and I haven't heard an exaggeration 0:03:08.160 --> 0:03:10.000 from the bulk of the people I've spoken to either 0:03:10.320 --> 0:03:13.079 on the spillover effect. Let's be clear though, this isn't 0:03:13.120 --> 0:03:16.359 an exaggeration When we talk about a key trade last year, 0:03:16.400 --> 0:03:19.280 which was short volt blowing up. The short vault trade 0:03:19.280 --> 0:03:21.680 has blown up. Now we can talk about what that means, 0:03:21.720 --> 0:03:24.040 the spillover effects. But I don't think it's an exaggeration 0:03:24.080 --> 0:03:26.480 to sit here and say that a lot of investors 0:03:26.720 --> 0:03:30.080 worldwide bet on an extended period of calm and that 0:03:30.240 --> 0:03:32.400 has ended. It's blown up in a significant white I'm 0:03:32.440 --> 0:03:34.360 actually sure that there's so many investors have been playing 0:03:34.400 --> 0:03:37.320 for this. For example, myself, what did I do? People 0:03:37.320 --> 0:03:39.960 like myself we've been buying throughout four one key equities. 0:03:40.240 --> 0:03:42.080 Is this a big skire for us? Are we playing 0:03:42.160 --> 0:03:44.520 low volatility as if it's going to last forever by 0:03:44.520 --> 0:03:47.440 being long starts and being longsome ets, we being long credit? 0:03:47.520 --> 0:03:49.800 Is it not an embedded low volatility trade? Being long 0:03:49.880 --> 0:03:52.440 e M? Is that not an embedded low volatility trade? 0:03:52.520 --> 0:03:55.600 Isn't When you project for low volatility, aren't you expecting 0:03:55.880 --> 0:03:58.640 to have risk assets like e M and credit outperfore 0:03:58.760 --> 0:04:02.360 Most people input low volunto that portfolios and expect credit, 0:04:02.400 --> 0:04:04.720 a M and other risk assets to out perform. Well, 0:04:04.720 --> 0:04:06.640 that's why I'm suggesting to you that despite this jump 0:04:06.680 --> 0:04:09.000 in VIX, the e M stocks are still up on 0:04:09.040 --> 0:04:11.000 the year. And when I did last year, you know, 0:04:11.000 --> 0:04:13.560 the Russell one thousand had Russell has a one thousand 0:04:13.600 --> 0:04:16.839 value index and I Rustle one thousand growth index last year. 0:04:17.040 --> 0:04:19.400 As you would imagine, the growth index well outperformed the 0:04:19.520 --> 0:04:22.520 value Last week, when the stock market began selling off, 0:04:22.920 --> 0:04:25.560 the growth index held up better than the value index. 0:04:25.800 --> 0:04:28.160 So I don't see this as some kind of big unworning. 0:04:28.680 --> 0:04:30.920 I've been quiet, folks, because I'm staring at my navel. 0:04:31.839 --> 0:04:35.680 That's what we're doing on I'm I'm, I'm I'm just 0:04:35.760 --> 0:04:40.160 staring there. Good morning everyone. Yesterday we need to say, 0:04:40.880 --> 0:04:43.760 we need to say thank you to the Bloomberg surveillance 0:04:43.800 --> 0:04:47.200 team for heroic work from Friday over to Monday and 0:04:47.240 --> 0:04:50.200 getting smart conversation on and we continue to drive that 0:04:50.640 --> 0:04:52.919 for this morning. I hate to say this, Kitchen, but 0:04:52.960 --> 0:04:55.960 I featured your research note this morning when you were 0:04:56.000 --> 0:04:59.279 not on. You'll get the royalty check. Uh and within 0:04:59.360 --> 0:05:02.840 that was wrong? Yen? How much stronger is strong? Yen? 0:05:02.920 --> 0:05:05.800 If for one O nine, one ten, can this be 0:05:06.200 --> 0:05:10.160 a news item from March or April? Well, I think 0:05:10.200 --> 0:05:13.520 the market is you know, the end is being kept 0:05:13.680 --> 0:05:16.680 deliberately at least ten per cent, about ten percent away 0:05:16.680 --> 0:05:19.560 from its fair value by the Bank of Japan's policies. 0:05:19.720 --> 0:05:21.359 That's what the e c D was doing to the 0:05:21.360 --> 0:05:25.119 Euro year ago. Um, and they mustn't papering under their breath. 0:05:25.200 --> 0:05:28.200 Last May we went, we started moving. The Bank of 0:05:28.279 --> 0:05:30.680 Japan is desperate to not let that happen, and I 0:05:30.680 --> 0:05:32.799 think the market can now see that. It can see 0:05:32.839 --> 0:05:35.440 that the Japanese economy is recovering and the end won't 0:05:35.440 --> 0:05:38.320 be able to stay this week forever in the middle 0:05:38.440 --> 0:05:42.440 with turmoil. UM. I think that at the bare minimum 0:05:42.560 --> 0:05:44.760 in the end is now in a lower range than 0:05:44.839 --> 0:05:47.120 it was, and it's still going to have to work 0:05:47.240 --> 0:05:50.000 flat out stop it appreciating tempercent. That was great. Kit 0:05:50.080 --> 0:05:52.440 didn't answer my question March end. Let me see if 0:05:52.440 --> 0:05:56.479 you can, what is the level where yen becomes stronger. Yeah, 0:05:56.640 --> 0:06:00.000 Kit talks about a new range and all the politics, 0:06:00.240 --> 0:06:04.599 but ken yen is the litmus paper of the flows system. 0:06:04.720 --> 0:06:07.599 Can it really go to some dramatic yen strength? Well, 0:06:07.600 --> 0:06:09.360 here's what I suspect is that is to say that 0:06:09.440 --> 0:06:12.400 I think the Japanese are willing to accept a stronger 0:06:12.480 --> 0:06:16.120 yen provided it takes place among a weaker dollar environment. 0:06:16.160 --> 0:06:19.200 More broadly, and it happens gradually, And so I think 0:06:19.240 --> 0:06:21.000 that the fact I don't I don't think you see 0:06:21.000 --> 0:06:22.920 the Japanese holding the yen down here, but I think 0:06:22.960 --> 0:06:25.280 that the Japanese are willing to accept a stronger yen 0:06:25.440 --> 0:06:29.760 partly to help the deflect some protectionist sentiment coming from 0:06:29.800 --> 0:06:32.320 the United States. As you know, Japan has a large 0:06:32.520 --> 0:06:36.120 and growing current account surplus, which antagonizes some people in 0:06:36.120 --> 0:06:38.760 the administration. So I'll take issue with whether they are 0:06:38.800 --> 0:06:42.240 accepting a stronger yen, and the reason being, if they 0:06:42.320 --> 0:06:44.520 are going to accept a stronger yen, are they willing 0:06:44.560 --> 0:06:47.360 to accept higher yields? And it's quite clear to me 0:06:47.480 --> 0:06:49.960 that they're not. They're trying to camp the Japanese ten 0:06:50.040 --> 0:06:52.960 year just ten basis points mark, and what we saw 0:06:53.120 --> 0:06:55.040 last week, as soon as there was any kind of 0:06:55.120 --> 0:06:57.640 volatility um rates, any kind of pickup in yields, guess 0:06:57.720 --> 0:07:01.080 what the b RJ got aggressive. Again, Let's just assume 0:07:01.120 --> 0:07:03.200 they are willing to accept the stronger yen. Are they 0:07:03.200 --> 0:07:06.400 willing to accept high yields? I say so, I agree 0:07:06.400 --> 0:07:09.120 with you that they pushed back quickly when the yields 0:07:09.160 --> 0:07:11.640 hit their target. And that is to say that the Japanese. 0:07:11.840 --> 0:07:13.800 I think a lot of people are confused the Japanese policy. 0:07:13.800 --> 0:07:17.040 It's not just qualitative quantitative easy anymore, but this yield 0:07:17.040 --> 0:07:19.840 curve control, which requires him to buy fewer bonds. So 0:07:19.880 --> 0:07:22.120 I don't acceptably the fact that they tapered last year 0:07:22.240 --> 0:07:24.920 because the balance sheet only expanded by forty trillion yen 0:07:25.120 --> 0:07:28.080 instead of instead of eighty trillion yen. So but my 0:07:28.200 --> 0:07:30.239 thinking is goes along these lines, is that the Japanese 0:07:30.280 --> 0:07:32.120 are willing to accept. I mean, look what's happened. The 0:07:32.120 --> 0:07:35.120 dollars strengthened, excuse me, the dollar weekend most of last year, 0:07:35.160 --> 0:07:37.800 the yen strength, and they didn't protest that. And so 0:07:37.840 --> 0:07:39.400 I think that that's what I mean by willing to 0:07:39.440 --> 0:07:42.520 accept the especially in the context of a wider move 0:07:42.520 --> 0:07:44.680 in the foreign exchange market. Kit Jukes, before we let 0:07:44.680 --> 0:07:47.080 you run off to your afternoon and suck, and he's 0:07:47.120 --> 0:07:49.960 working to suck John, Afternoon, John, this is like you 0:07:49.960 --> 0:07:56.800 know two. You know, he's an expert action in French parades. 0:07:56.840 --> 0:07:59.080 We'll get him in touch with the president, Kit Jukes. 0:07:59.200 --> 0:08:01.440 When when I look at yields coming in two basis 0:08:01.480 --> 0:08:04.080 points today, two year in two basis points, ten year 0:08:04.120 --> 0:08:07.480 into thirty year bounds three basis points as well. What 0:08:07.520 --> 0:08:11.240 does that signal to you? Lower yields this morning. I 0:08:11.280 --> 0:08:13.080 think it signals to me that once we've given the 0:08:13.080 --> 0:08:14.560 market a bit of a bit of a shock, but 0:08:14.600 --> 0:08:17.160 there are still buyers. There are still buyers out there 0:08:17.200 --> 0:08:19.600 for the fixed in market. That people have seen a 0:08:19.640 --> 0:08:22.120 bad inflation number, they've seen some volatility, you know that 0:08:22.160 --> 0:08:23.880 they they've got themselves a little bit alarmed, but that 0:08:23.960 --> 0:08:25.840 at the end of the day that there were buyers 0:08:25.880 --> 0:08:29.440 above two eighty and tenure notes, they'll be buyers and 0:08:29.440 --> 0:08:31.080 there'll be a lot of buyers at three or five. 0:08:31.120 --> 0:08:33.040 And I just think we might have to see the 0:08:33.040 --> 0:08:35.120 other side of three three defend at some point in 0:08:35.200 --> 0:08:37.360 terms I doubt. Okay, that's the end of the year. Kid, 0:08:38.679 --> 0:08:42.199 John Ferris my name, I'm flustered. You're forgetting in, John. 0:08:42.320 --> 0:08:44.079 This is great when we have kit Chicks and Mark 0:08:44.120 --> 0:08:46.760 Chandler around and it's fantastic to get that real perspective 0:08:46.760 --> 0:08:51.200 and they're unspending the sex market, are they friends? Okay? Alright? 0:08:51.520 --> 0:08:54.360 Kit Chicks is state General, We've gotta let you go, sir. 0:08:54.400 --> 0:09:10.480 Thank you very much for giving its your time without questioning. 0:09:10.520 --> 0:09:13.520 Our interview of the day always timely with a former 0:09:13.559 --> 0:09:16.560 Governor of the Bank of England, but nevermore so with 0:09:16.640 --> 0:09:20.320 a terrific news slow Governor, King, wonderful to speak to 0:09:20.400 --> 0:09:26.560 you again. And I noticed, Governor that Chery Yelling has 0:09:26.600 --> 0:09:31.840 been relegated in a fashion off the Fed is Aston 0:09:32.000 --> 0:09:37.080 Villa was relegated out of the Premier League two years 0:09:37.920 --> 0:09:42.800 are about to come back into the Premier League. Will 0:09:43.160 --> 0:09:46.000 enjoy her retirement? Well we will see, but we know 0:09:46.080 --> 0:09:49.760 for certain she's been relegated. What was the pressure on 0:09:49.920 --> 0:09:53.040 you when you were relegated out of the Bank of England? 0:09:53.559 --> 0:09:58.600 How do you keep quiet the first weeks after your 0:09:58.679 --> 0:10:02.600 life changes. I think the first thing you want to 0:10:02.640 --> 0:10:05.120 do when you leave the Bank of England or indeed 0:10:05.120 --> 0:10:07.800 the Fed, is to have a break on a holiday 0:10:07.840 --> 0:10:10.400 and get away from it all, and then gradually to 0:10:10.640 --> 0:10:13.880 adjust to a new lifestyle. But do not rush to 0:10:14.120 --> 0:10:16.560 decide what you want to do next. It took me 0:10:16.640 --> 0:10:20.480 nine months to decide what I wanted to do next, Governor, 0:10:20.559 --> 0:10:24.400 King Jonathan here. Some central bank governors presidents have the 0:10:24.480 --> 0:10:27.440 luxury of taking some time to to settle in, find 0:10:27.440 --> 0:10:29.920 a way around the offices, and find a way around 0:10:29.920 --> 0:10:33.120 the various rooms down the hallway. M J. Pal Jerome Pale. 0:10:33.280 --> 0:10:35.520 The Chairman of the Federal Reserve turns up at the FED, 0:10:35.880 --> 0:10:38.240 and the market starts falling out of bed. How to 0:10:38.280 --> 0:10:40.480 shoot the chairman? The new Chairman of the Federal Reserve 0:10:40.520 --> 0:10:44.720 approach a situation like the one playing out before us, Well, 0:10:44.760 --> 0:10:47.840 I think in the way that he has done. After Ay, 0:10:47.840 --> 0:10:50.880 he's known for several months that he would become Chairman 0:10:50.880 --> 0:10:52.960 of the Fed. He's been at the FED for several years. 0:10:52.960 --> 0:10:55.440 He knows his way around, so he's been able to 0:10:55.480 --> 0:10:58.319 think through how he would handle the first week or 0:10:58.320 --> 0:11:01.079 a few weeks, and before long there'll be another meeting 0:11:01.080 --> 0:11:02.640 of the f O m C and he will be 0:11:02.679 --> 0:11:07.480 able to put across his views. Then, Governor, I'd like 0:11:07.520 --> 0:11:10.280 to address something you've been thinking a lot about. And folks, 0:11:10.280 --> 0:11:12.440 the history of this is back to mc chesney Martin 0:11:13.000 --> 0:11:16.640 in ninety one, where the Chairman of the Fed really 0:11:16.640 --> 0:11:19.840 went up against President Truman over the independence of a 0:11:19.920 --> 0:11:24.160 central bank. We take that for granted now, Governor King, 0:11:24.400 --> 0:11:28.000 and you suggest we should not how do we reassert 0:11:28.320 --> 0:11:33.040 independence in any central bank and as well a central 0:11:33.080 --> 0:11:37.680 bank and President Trump's Washington. So I think there are 0:11:37.760 --> 0:11:41.000 two different dimensions to this. One is monetary policy and 0:11:41.000 --> 0:11:44.880 the other is dealing with financial crises and in particular 0:11:44.920 --> 0:11:48.400 problems in the banking system. I think on the first 0:11:48.880 --> 0:11:52.400 the important thing is to keep educating the public as 0:11:52.400 --> 0:11:56.640 a whole about the importance of price stability. It's very 0:11:56.679 --> 0:12:00.480 easy for people to take low inflation for granted in need. 0:12:00.720 --> 0:12:03.800 The phrase price stability was once defined as when people 0:12:03.840 --> 0:12:07.800 stopped talking about inflation. But it's very important that they're 0:12:07.840 --> 0:12:10.320 reminded of the dangers of going back to a world 0:12:10.400 --> 0:12:16.200 of high inflation. So constantly explaining the remit and the 0:12:16.240 --> 0:12:19.240 mandate of the central bank and why it needs to 0:12:19.280 --> 0:12:22.120 be a set of decisions taken by a group of people, 0:12:22.520 --> 0:12:26.040 not one person, but a group of people working together 0:12:26.720 --> 0:12:30.559 independently from day to day political pressures is very important, 0:12:30.640 --> 0:12:33.120 and I think that's the question of stating it as 0:12:33.120 --> 0:12:37.200 well as making sure that's what happens. The second one 0:12:37.240 --> 0:12:40.080 is I think more difficult, which is that in a 0:12:40.120 --> 0:12:44.920 financial crisis, it's inevitable that the central bank will be 0:12:45.480 --> 0:12:49.440 the source of liquidity to keep the economy funckoning, but 0:12:49.640 --> 0:12:52.440 it should not be seen as providing that liquidity as 0:12:52.440 --> 0:12:55.040 a favor to the banks. There has to be a 0:12:55.080 --> 0:13:00.840 political agreement between Congress and said or between parliaments in 0:13:00.880 --> 0:13:04.640 the Central Bank as to the circumstances and the terms 0:13:04.679 --> 0:13:07.719 on which they will provide that liquidity. That is what 0:13:07.800 --> 0:13:10.520 was missing during the last crisis, and it's what we 0:13:10.559 --> 0:13:12.640 need to put in place now. You and I have 0:13:12.720 --> 0:13:16.560 talked about your acclaimed speech in Scotland where you essentially 0:13:16.640 --> 0:13:20.280 lectured the United Kingdom toward Badget and the idea that 0:13:20.320 --> 0:13:22.120 there has to be a way to do this, a 0:13:22.320 --> 0:13:25.480 modern Badget, if you would. Alan the late Allan Meltzer, 0:13:25.520 --> 0:13:28.520 of course, has talked about this was some emotion. Are 0:13:28.559 --> 0:13:32.200 we in a good place today? You know, to take 0:13:32.240 --> 0:13:35.880 the present crisis. If we have the equity VALL slip 0:13:35.960 --> 0:13:39.320 over into fixed income vall, are we in a place 0:13:39.320 --> 0:13:44.600 where the proverbial discount window will be open? No, We're 0:13:44.640 --> 0:13:48.480 not in a good place. One of the problems is 0:13:48.520 --> 0:13:52.320 that the response of Congress to the last crisis, understandably so, 0:13:53.240 --> 0:13:56.480 was to try to restrict the discretion of the Federal 0:13:56.480 --> 0:14:01.960 Reserve in providing liquidity to institution and the market, and 0:14:02.120 --> 0:14:04.680 I think that that is the wrong direction in which 0:14:04.720 --> 0:14:07.559 to go. I think the Federal Reserve would have been 0:14:07.600 --> 0:14:12.359 better served by being given the freedom to exercise that discretion, 0:14:13.080 --> 0:14:16.160 but under a set of conditions which Congress had laid 0:14:16.200 --> 0:14:20.440 down in advance, rather than simply limiting or preventing the 0:14:20.480 --> 0:14:23.720 Fed from lending when it feels it's necessary to do 0:14:23.760 --> 0:14:26.200 so in a crisis. So when the banks say they're 0:14:26.320 --> 0:14:29.080 very well capitalized and they're much much stronger than they 0:14:29.120 --> 0:14:33.000 were before, what do you say back to that, Well, 0:14:33.040 --> 0:14:36.800 the banks are certainly better capitalized, particularly in the United 0:14:36.880 --> 0:14:40.360 States and the United Kingdom, less well so in Europe. 0:14:40.680 --> 0:14:43.120 So we ought to be concerned about whether problems in 0:14:43.120 --> 0:14:47.160 the banking system elsewhere in the industrialized world could spill 0:14:47.200 --> 0:14:50.720 over to our banks and our economy. But it's not 0:14:50.880 --> 0:14:54.640 just the amount of equity capital which banks issue that 0:14:54.840 --> 0:14:58.520 matter here. If people, for one reason or another lose 0:14:58.560 --> 0:15:02.120 confidence in banks, or simply do not know whether banks 0:15:02.160 --> 0:15:05.520 will be able to meet their liabilities, then the natural 0:15:05.560 --> 0:15:08.640 thing is for people who provide short term credit to banks, 0:15:09.040 --> 0:15:13.520 whether their retail depositors or wholesale depositors like hedge funds, 0:15:14.000 --> 0:15:16.640 they may run for the exit, and we don't have 0:15:16.880 --> 0:15:20.040 a system that will cope with a run on the 0:15:20.080 --> 0:15:24.040 banking system short of the FED actually throwing large amounts 0:15:24.040 --> 0:15:26.640 of money at it, and as I say, Congress has 0:15:26.680 --> 0:15:29.160 been limiting the ability of the FAD to do that. Well. 0:15:29.200 --> 0:15:32.720 The argument that's being perpetuated by the banks, obviously in 0:15:32.720 --> 0:15:35.120 the United States and by others in Washington, d C. 0:15:35.760 --> 0:15:39.640 As well, is that the regulatory rules post crisis, the 0:15:39.760 --> 0:15:43.440 capital rules, have become a burden and that ultimately it's 0:15:43.480 --> 0:15:46.360 stopped lending. That for some reason, these banks would have 0:15:46.360 --> 0:15:49.000 been able to lend a whole lot more if they 0:15:49.040 --> 0:15:51.840 didn't have these rules on them, and that business would 0:15:51.840 --> 0:15:53.920 be a whole lot better. That's the argument coming from 0:15:53.920 --> 0:15:56.960 this administration as well. To some extent, do you subscribe 0:15:56.960 --> 0:15:58.840 to that argument, because I sense from listening to you 0:15:58.920 --> 0:16:02.280 now you don't. But I have a sympathy with one 0:16:02.320 --> 0:16:07.400 part of the argument. The regulatory system has become absurdly complex. 0:16:07.920 --> 0:16:10.400 If you have a system that can only be described 0:16:10.440 --> 0:16:13.720 in tens of thousands of pages, there is something really 0:16:13.720 --> 0:16:16.080 wrong with it. And I think the attempt to put 0:16:16.120 --> 0:16:19.880 in place so much detail in the regulation is an 0:16:19.920 --> 0:16:23.240 attempt to prevent the last crisis happening. What we need 0:16:23.280 --> 0:16:27.880 is something very simpler, much broad, broader bart brush, which 0:16:27.880 --> 0:16:30.960 would both ensure that the leverage of the banks is 0:16:31.040 --> 0:16:34.080 capped and ensure that we have a method for dealing 0:16:34.160 --> 0:16:36.720 with bank runs if they were to occur. What we 0:16:36.800 --> 0:16:39.440 don't want is a system of banking in which the 0:16:39.480 --> 0:16:44.520 people who determine banking decisions are compliance officers. But then, 0:16:44.600 --> 0:16:48.120 critically with this, what your comments Government, King are extraordinary, 0:16:48.000 --> 0:16:52.960 They're very very timely and very very important. What does 0:16:53.040 --> 0:16:57.120 the quote unquote next crisis look like to governor King 0:16:57.840 --> 0:17:02.640 if it's not the last crisis? Well, I don't want 0:17:02.640 --> 0:17:05.560 to speculate on what the next crisis will look like, 0:17:05.680 --> 0:17:09.560 and we have no idea when it will come. But 0:17:09.680 --> 0:17:13.640 the areas of a weakness in the current system are 0:17:13.720 --> 0:17:17.440 really focused on the amount of debt that exists, not 0:17:17.560 --> 0:17:21.040 just in the US and UK, but really across the 0:17:21.080 --> 0:17:24.560 world as a whole. Debt in the private sector in 0:17:24.600 --> 0:17:27.399 the world relative to GDP is higher now than it 0:17:27.520 --> 0:17:30.320 was in two thousand and seven, and of course public 0:17:30.359 --> 0:17:34.479 debt is even higher still. So what one might fear 0:17:34.640 --> 0:17:38.680 would be that if there were defaults, not very many. 0:17:38.800 --> 0:17:43.479 A few defaults where people then revised their view about 0:17:43.560 --> 0:17:46.280 the value of assets on the balance sheets of financial 0:17:46.320 --> 0:17:50.680 institutions and intermediaries around the world. Then you would find 0:17:50.720 --> 0:17:53.200 that not only would the value of the assets go down, 0:17:54.520 --> 0:17:57.560 but so with the value of the equity cushion available 0:17:57.600 --> 0:17:59.879 to absorb losses. And that's the kind of thing that 0:18:00.080 --> 0:18:04.040 can induce financial panic. Now I'm not saying it will happen. 0:18:04.080 --> 0:18:06.679 It may never happen, but that is the area of 0:18:06.680 --> 0:18:09.000 weakness that I would look to at present. This is 0:18:09.040 --> 0:18:13.320 incredibly important. Comments from Irvin King Folks of course at university, 0:18:13.400 --> 0:18:27.119 the former governor of the Bank of England. Why do 0:18:27.200 --> 0:18:30.440 you bring in a really esteem guest from Washington, Mr 0:18:30.520 --> 0:18:32.920 William Hogland. Yes, he is the senior vice president of 0:18:33.000 --> 0:18:37.240 the Bi Partisan Policy Center, and that really just scratches 0:18:37.280 --> 0:18:41.119 the surface of Mr Hogland's career in Washington and service 0:18:41.119 --> 0:18:43.800 to the country. Formerly staff member director of the Senate 0:18:43.840 --> 0:18:47.639 Budget Committee, reporting to former U S Senator Pete Dominici, 0:18:48.160 --> 0:18:51.120 chairman ranking member, and he's really an expert when all 0:18:51.160 --> 0:18:54.000 things related to Washington and the government. And he's also 0:18:54.119 --> 0:18:58.640 a former attendee of the US Merchant Marine Academy. So um, 0:18:58.640 --> 0:19:01.679 he knows a thing or two about the Jonesack. Mr Hoglan, 0:19:01.760 --> 0:19:04.679 thank you very much for for being with us. I 0:19:04.760 --> 0:19:07.080 just leave it open to you to to give us 0:19:07.119 --> 0:19:10.520 your reaction to the back and forth the slanging match 0:19:10.560 --> 0:19:12.960 that seems to be taking place on a regular basis 0:19:12.960 --> 0:19:18.040 in Washington. Uh, do you believe that they people in Washington, 0:19:18.400 --> 0:19:22.400 the politicians, do they recognize that every time they do this, 0:19:22.680 --> 0:19:26.119 there is the level of a steam sinks lower. I 0:19:26.280 --> 0:19:28.400 can't get much lower than it already is. I think 0:19:28.440 --> 0:19:30.280 when you look at the ratings out there in terms 0:19:30.320 --> 0:19:32.120 of Congress, they are at one of the lowest rates 0:19:32.160 --> 0:19:35.600 they've ever been in terms of recording of that particular statistic. 0:19:36.040 --> 0:19:39.240 So do they understand it? You would think they would 0:19:39.320 --> 0:19:41.560 understand it. I think you understand. I think they now 0:19:41.720 --> 0:19:45.400 understand that the last government shutdown that we went through 0:19:45.440 --> 0:19:47.960 a few weeks ago here for three days is something 0:19:48.000 --> 0:19:49.520 they do not want to go through again. And I 0:19:49.560 --> 0:19:52.800 think you're hearing that both from the Democrats and the Republicans. 0:19:52.840 --> 0:19:55.800 And I didn't hear it from the present yesterday, unfortunately, 0:19:55.840 --> 0:19:59.400 but that definitely is UH an understanding that we don't 0:19:59.400 --> 0:20:01.480 want to shut down over with. The difficulty here is, 0:20:01.520 --> 0:20:04.560 of course, can they come to some sort of an agreement. 0:20:04.600 --> 0:20:07.960 We're almost five five months into the current year and 0:20:07.960 --> 0:20:11.200 we still haven't fixed and set what our spending should 0:20:11.240 --> 0:20:14.280 be for the current year and continue to operate over 0:20:14.359 --> 0:20:17.400 these things called continuing resolutions, which is not a way 0:20:17.440 --> 0:20:21.520 to run government at all. Um and and quite interestingly enough, 0:20:22.359 --> 0:20:26.359 come Monday, under the law, the president is to submit 0:20:26.520 --> 0:20:29.600 his budget for the fiscal year that begins this October. 0:20:29.920 --> 0:20:33.000 So we haven't even finished up the current year and 0:20:33.040 --> 0:20:36.920 we're already starting to get into next year's budget process. 0:20:37.040 --> 0:20:40.879 So it's a it's rather disappointing and uh and and 0:20:41.000 --> 0:20:44.840 despairing on on the way our government is working today. Well, 0:20:44.840 --> 0:20:49.199 in your thirty three years of federal government service, what 0:20:49.400 --> 0:20:52.680 have is there something that you could impart to the 0:20:52.760 --> 0:20:57.160 various participants in this drama that would lead us maybe 0:20:57.160 --> 0:21:01.440 not to an agreement or some kind of uh compromise, 0:21:01.640 --> 0:21:04.399 but some kind of amicable divorce. I mean, you know, 0:21:04.600 --> 0:21:10.119 like actually maybe share the same kitchen but still be divorced. Well, 0:21:10.119 --> 0:21:12.080 be nice, first of all, if they would work five 0:21:12.160 --> 0:21:14.800 days a week instead of but basically three days. If 0:21:14.800 --> 0:21:18.040 they would basically stay in town like everybody else does, 0:21:18.119 --> 0:21:20.920 work a four hour work. We could a minimum and 0:21:21.240 --> 0:21:23.600 be here throughout and get to know one another and 0:21:23.600 --> 0:21:26.600 get to know them on an individual level. Democrats and Republicans. 0:21:26.600 --> 0:21:30.280 It is something that we, uh, we really have lost 0:21:30.320 --> 0:21:32.600 that kind of connection and getting to know the other person, 0:21:32.640 --> 0:21:35.720 to know the other person's position, understand that we have 0:21:35.800 --> 0:21:40.240 differences of opinions. Uh, it might be helpful, But more importantly, 0:21:40.240 --> 0:21:42.679 it just seems to me that what we have to 0:21:42.760 --> 0:21:46.280 understand you cannot do. You cannot govern in a country 0:21:46.280 --> 0:21:48.600 that's as large as the United States, with as many 0:21:48.640 --> 0:21:51.199 diverse views as we have out here in a in 0:21:51.240 --> 0:21:53.679 a partisan way. It has to be a by no 0:21:53.800 --> 0:21:56.800 surprise coming from the Bipartisan Policy Center that I would 0:21:56.800 --> 0:21:59.400 say that the way you get things done is you 0:21:59.400 --> 0:22:02.560 you comper Wise, I think Madison a head and mine 0:22:02.640 --> 0:22:05.679