WEBVTT - Surveillance: ECB & Real Rates With Pickering 0:00:06.320 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jai Ley. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.640 --> 0:00:27.360 Bloomberg dot Com, and of course, on the Bloomberg Right 0:00:27.400 --> 0:00:30.639 now on this Economy canom picker and joins us with Barenberg, 0:00:30.680 --> 0:00:35.440 their senior economist. Calumn your observations of the duration that 0:00:35.560 --> 0:00:38.880 Christine Legard is looking out to into two thousand twenty 0:00:38.920 --> 0:00:43.640 two into two thousand twenty three. But I think what 0:00:43.800 --> 0:00:47.920 you hoppy is a commitment to ease monetary policy beyond 0:00:47.960 --> 0:00:51.159 the horizon at which you would expect the Eurozone economy 0:00:51.200 --> 0:00:54.319 to return to its pre pandemic level of GDP, which 0:00:54.440 --> 0:00:58.360 is probably going to happen exclude in Italy mid twenty two. 0:00:58.400 --> 0:01:02.000 So the ECB here, I think, is much more focused 0:01:02.000 --> 0:01:06.080 on inflation and inflation expectations than it is long term rates, 0:01:06.120 --> 0:01:10.760 which already at historic close. If the ECB can signal 0:01:10.760 --> 0:01:13.360 to markets that it will create some inflation once the 0:01:13.360 --> 0:01:16.840 economy is at full employment at least, then the ECB 0:01:16.959 --> 0:01:19.600 can get ahold of real interest rates, which is the 0:01:19.680 --> 0:01:21.720 thing that it has lost control of it. That's what 0:01:21.800 --> 0:01:25.080 matters for economic outcomes. So, Kia, this is all about 0:01:25.160 --> 0:01:29.560 generating higher inflationary expectations, which is why, as you mentioned, 0:01:29.800 --> 0:01:32.399 the euro becomes a big deal for the ECB in 0:01:32.440 --> 0:01:35.800 trying to achieve those higher inflation expectations. And just looking 0:01:35.800 --> 0:01:38.319 at the euro, it did shoot higher versus a dollar 0:01:38.440 --> 0:01:40.920 on the session, but has come off those just a 0:01:41.000 --> 0:01:45.080 touch right now, even on the day. Right now. There 0:01:45.160 --> 0:01:48.040 is a question to John's point earlier column. He was 0:01:48.080 --> 0:01:51.720 talking about building that bridge for fiscal policymakers to be 0:01:51.800 --> 0:01:55.200 able to borrow money and to spend to actually create 0:01:55.240 --> 0:01:59.200 that growth and inflation because monetary policymakers cannot do it alone. 0:01:59.600 --> 0:02:02.600 Do you have a sense of how closely they're working 0:02:02.600 --> 0:02:05.680 And is the extension in quantitative easing and bond purchase 0:02:05.880 --> 0:02:09.200 is by the ECB a sign that perhaps those fiscal 0:02:09.320 --> 0:02:12.200 talks aren't going on track or aren't going to get 0:02:12.240 --> 0:02:17.080 going quickly enough. I think the economic conditions, prevailing economic 0:02:17.080 --> 0:02:21.280 conditions justified the monstery policy actions. You have inflation expectations 0:02:21.360 --> 0:02:25.200 well below up the two pretent rate. You have huge 0:02:25.200 --> 0:02:28.280 output gaps across the Eurozone. You have a historic shock, 0:02:28.320 --> 0:02:31.440 which would have been a historic deflation, and the monstery 0:02:31.440 --> 0:02:35.079 policymakers simply care about that. When it comes to fiscal 0:02:35.200 --> 0:02:40.919 matters in Europe, what really matters is first the joint budget, 0:02:40.960 --> 0:02:45.400 which will be negotiated at the upcoming summit today and tomorrow. 0:02:45.800 --> 0:02:49.519 And then you have the the implicit decision by economies 0:02:49.560 --> 0:02:52.240 to say, okay, are we really going to stick to 0:02:52.280 --> 0:02:54.480 the mastric rules? Are we going to suspend these rules 0:02:54.520 --> 0:02:57.000 for a while. So on the fiscal side, governments have 0:02:57.080 --> 0:03:00.320 all the permission that they need to go and borrow it. 0:03:00.520 --> 0:03:04.680 Just it happens down that economic conditions are prevailing that 0:03:04.720 --> 0:03:09.000 allows the ECB to supplement that fiscal policy with aggressive 0:03:09.160 --> 0:03:13.880 monetary policy stimulus. Here's the line from the ECB will 0:03:13.919 --> 0:03:18.440 continue to monitor exchange rate developments. That doesn't even land, 0:03:18.480 --> 0:03:20.640 does it, Callum, It doesn't get it done. E're a 0:03:20.680 --> 0:03:23.680 dollar right now? Seven. I don't think this is a 0:03:23.680 --> 0:03:26.400 big deal right now is the higher the year? It's 0:03:26.400 --> 0:03:28.720 a movement about two tenths of one percent. This was 0:03:28.760 --> 0:03:31.480 the setup, Callum. At the last meeting, they precommitted to 0:03:31.520 --> 0:03:34.120 doing something. There's something everyone agreed on would be a 0:03:34.120 --> 0:03:38.040 five billion dollar euro rather increase to the pandemic emergent 0:03:38.120 --> 0:03:42.040 purchase program. They've done that. The consensus view was that 0:03:42.160 --> 0:03:44.920 extended by six to nine months. They've done that, throwing 0:03:44.960 --> 0:03:47.240 the tow trouble, all that good stuff. They've done everything 0:03:47.320 --> 0:03:51.600 everybody expected and basically nothing more. In thirty seven minutes, 0:03:51.600 --> 0:03:57.920 there's a news conference. What's the objective of that news conference? Again, 0:03:57.960 --> 0:04:00.840 it's to try somehow to raise in place an expectations 0:04:00.920 --> 0:04:04.200 so that the ECB can reclaim its hold on real 0:04:04.240 --> 0:04:06.720 interest rates. But to your point about the euro, let's 0:04:06.760 --> 0:04:09.440 let's let's just step back a second and say the 0:04:09.560 --> 0:04:15.320 riding euro reflects an improvement in economic fundamentals in Europe. 0:04:15.360 --> 0:04:18.479 You have three risks which are fading over the next 0:04:18.560 --> 0:04:23.080 few months, Brexit, COVID, and now we have a more 0:04:23.160 --> 0:04:25.920 European friendly president in the US. On top of that, 0:04:25.960 --> 0:04:30.240 you have historic stimulus and likely a decent growth rate 0:04:30.240 --> 0:04:32.560 over the next couple of years as Europe recaptures the 0:04:32.640 --> 0:04:35.880 lost output from the pandemic. That's a fairly good situation. 0:04:36.000 --> 0:04:38.680 So money will flow into Europe over the next two 0:04:38.839 --> 0:04:41.400 few years. It already is and that's what's pushing the 0:04:41.440 --> 0:04:44.000 euro higher. So on its own the Euro tells you 0:04:44.040 --> 0:04:47.440 that the economy is improving. However, from an ECB point 0:04:47.440 --> 0:04:51.880 of view, a stronger Euro reduces in podcasts, reduces CPI, 0:04:52.160 --> 0:04:55.840 and hurts its medium term monetary policy objectives. So it's 0:04:55.880 --> 0:04:58.520 it's a very difficult situation to the ECB because you 0:04:58.560 --> 0:05:01.919 could argue that the most stimulus the ECB gives the economy, 0:05:01.960 --> 0:05:04.800 the more fiscal policymakers try to stimulate the economy. The 0:05:04.880 --> 0:05:08.200 more the ECB and fiscal policy because actually undermined their 0:05:08.279 --> 0:05:13.040 medium term inflation target. Rock and a hard place callum 0:05:13.080 --> 0:05:20.719 great to catch up the callum pickering of Barrenberg. Right now, 0:05:20.920 --> 0:05:25.320 we will digress to this horrific pandemic. Lawrence Gostin is 0:05:25.320 --> 0:05:28.479 one of the nation's true experts in public health law. 0:05:29.040 --> 0:05:33.520 He is a Georgetown He is definitive Professor Goston. I 0:05:33.560 --> 0:05:35.880 think I need to put scope and scale in here 0:05:35.880 --> 0:05:38.480 and ask if we've lost it. We all know an 0:05:38.480 --> 0:05:43.160 individual story, an individual recovery. Mayor Giuliani, I believe leaving 0:05:43.200 --> 0:05:47.240 the hospital yesterday a tragic single death, and then we 0:05:47.320 --> 0:05:51.839 try to encompass three thousand people in one day. How 0:05:51.880 --> 0:05:56.479 do you keep perspective in this pandemic. Wow, what a 0:05:56.560 --> 0:06:01.040 great question. You know, it's hard. I mean just you know, 0:06:01.120 --> 0:06:03.440 you just step back and you think that this little 0:06:03.560 --> 0:06:07.520 microscopic organism, uh, in a matter of weeks and months 0:06:07.520 --> 0:06:09.720 and now we're into it a year is just literally 0:06:09.760 --> 0:06:16.200 taken over our lives. So many celebrations without that special 0:06:16.240 --> 0:06:19.520 person in the chair next to you. Uh, I think 0:06:19.560 --> 0:06:22.440 you know right now we're just being glazed over by 0:06:22.480 --> 0:06:26.560 the numbers. But you're so right. Every single death is 0:06:26.640 --> 0:06:31.360 you know, somebody's dear loved one and it's just massively, 0:06:31.800 --> 0:06:36.200 um tragic to see it all. Um. But maybe we're 0:06:36.200 --> 0:06:38.640 gonna be the beginning of the end with the light 0:06:38.680 --> 0:06:40.840 at the end of the tunnel with these vaccines. One 0:06:40.839 --> 0:06:44.840 of your acclaim books Power Duty Restraint. Let's go through 0:06:44.880 --> 0:06:47.640 the list and start with power. What is the power 0:06:47.680 --> 0:06:52.440 you request from the Biden administration? Yeah, I mean, I 0:06:52.440 --> 0:06:55.520 think the Biden administration, first of all, is going to 0:06:55.600 --> 0:06:57.960 have to have the power of the purse. They're gonna 0:06:57.960 --> 0:07:01.400 need Congress um to get a lot of funding. They're 0:07:01.440 --> 0:07:05.839 gonna need funding not just to kind of recovery and 0:07:06.200 --> 0:07:10.560 just getting people back to work, business small businesses back 0:07:10.640 --> 0:07:13.040 up and running, but they'll also need state and local 0:07:13.040 --> 0:07:17.120 health departments, and they're also needed for you know, vaccine 0:07:17.600 --> 0:07:22.960 campaigns because a lot of Americans don't trust this vaccine 0:07:23.440 --> 0:07:26.320 and we've got to overcome that and get enough people. 0:07:26.600 --> 0:07:29.800 We've got to get the jabs in people's arms because 0:07:29.840 --> 0:07:32.160 having a good vaccine isn't enough. We've got to get 0:07:32.160 --> 0:07:36.240 about sevent of our population vaccinated. And that's going to 0:07:36.320 --> 0:07:39.200 be a hard task. All right, Well, power, duty and restraint. 0:07:39.240 --> 0:07:41.120 Let's go to duty. And the question is what is 0:07:41.120 --> 0:07:45.360 the duty to vaccinate individuals? After you get the first 0:07:45.400 --> 0:07:49.120 responders and residents at nursing homes, who next? How should 0:07:49.160 --> 0:07:52.000 this be best rolled out to get the virus under 0:07:52.240 --> 0:07:55.120 the control the quickest. Yeah, that seems to be the 0:07:55.120 --> 0:07:59.800 big question right now. Um. You know, in my view, um, 0:08:00.640 --> 0:08:04.800 the the what we need to do is prioritize the 0:08:04.800 --> 0:08:07.840 most disadvantaged and that also has a good public health 0:08:07.960 --> 0:08:11.440 impact because you know, there are communities in this country, 0:08:12.480 --> 0:08:16.760 Black Americans, Indian Americans, others that have had four times 0:08:17.040 --> 0:08:21.880 as many cases and deaths and hospitalizations as anyone else 0:08:22.200 --> 0:08:25.240 getting the vaccine to them, who, by the way, tend 0:08:25.280 --> 0:08:29.040 to distrust the vaccine a lot more than others. UM 0:08:29.240 --> 0:08:33.400 will be very very important, not not just for equity, 0:08:33.440 --> 0:08:37.520 but actually to kind of target the vaccine exactly UM, 0:08:37.720 --> 0:08:40.920 where the illnesses and deaths are occurring. That's going to 0:08:41.000 --> 0:08:44.200 be really really important. And we've got to ramp up 0:08:44.240 --> 0:08:48.160 production using the Defense Production Act. That's another duty to 0:08:48.240 --> 0:08:52.600 actually make sure that the supplies are not as scarce 0:08:52.679 --> 0:08:54.560 as they look like they're going to be. All Right, 0:08:54.640 --> 0:08:57.480 we're gonna keep going out with this let's code of restraint. 0:08:57.720 --> 0:09:00.520 And there is a question about employers and what they 0:09:00.559 --> 0:09:04.480 do in terms of mandating that their employees get vaccinated 0:09:04.480 --> 0:09:07.000 in order to come back to work. What's the law 0:09:07.080 --> 0:09:10.200 on that side? How do they deal with that aspect 0:09:10.200 --> 0:09:15.280 as they try to create a work yet effective UH workplace? Yeah, 0:09:15.320 --> 0:09:17.760 you know the E E o C hasn't weighed in 0:09:17.840 --> 0:09:21.240 on this yet, but from what we know, UM, they've 0:09:21.280 --> 0:09:25.640 said with the flu vaccine, UH, that employers can mandate it. 0:09:26.280 --> 0:09:33.000 Many hospitals, nursing homes, workplaces, universities do. UH. I don't 0:09:33.000 --> 0:09:35.280 see any reason why that they wouldn't be able to 0:09:35.320 --> 0:09:38.120 do it for the COVID nineteen vaccine. I think it's 0:09:38.160 --> 0:09:42.959 ethical because anyone is entitled to you know, take a 0:09:43.080 --> 0:09:46.240 risk with their own health. Um, but employers are there 0:09:46.280 --> 0:09:49.240 to make sure that their customers are safe, their employees 0:09:49.240 --> 0:09:53.880 are safe. And I think at least having a COVID 0:09:53.960 --> 0:09:59.079 nineteen vaccine program at the workplace offering it to every 0:09:59.080 --> 0:10:02.760 single employee at the minimum, is there is there ethical 0:10:02.840 --> 0:10:09.200 responsibility to keep everyone safe because that's their job, Professor. 0:10:09.240 --> 0:10:10.760 Just before we let you go, an important question that 0:10:10.800 --> 0:10:13.120 many people have been asking me over the last few weeks. 0:10:13.480 --> 0:10:16.000 If we can vaccinate the most at risk in society. 0:10:16.160 --> 0:10:19.600 Once we've achieved that, is there any reason to maintain 0:10:19.640 --> 0:10:22.160 the restrictions that have been introduced in countries like the 0:10:22.240 --> 0:10:24.760 United Kingdom, the United States, across Europe and our sweaar 0:10:25.960 --> 0:10:28.240 you mean, do you mean the restrictions in terms of 0:10:28.280 --> 0:10:30.880 who can get the vaccine or the restrictions and the 0:10:30.920 --> 0:10:34.600 restrictions around social distancing, Professor, those kinds of things. Yeah, 0:10:34.600 --> 0:10:37.000 well that's a that's a question I get asked all 0:10:37.040 --> 0:10:41.040 the time. You know, for now, I think even when 0:10:41.040 --> 0:10:44.400 the vaccine rolls out, we're going to continue to have 0:10:44.480 --> 0:10:48.400 to mask up and social distances, No, no question about it. 0:10:48.440 --> 0:10:51.760 There's still going to be a large reservoir of of 0:10:51.800 --> 0:10:55.560 infection in the United States, the UK and other places. 0:10:55.840 --> 0:10:59.080 What we need to do is wait until we're really 0:10:59.240 --> 0:11:04.600 sure that we virtually eliminated um uh stars Kovie two 0:11:04.640 --> 0:11:07.320 in the United States or Britain or wherever it is 0:11:07.679 --> 0:11:10.679 that is we need herd immunity. That's probably not going 0:11:10.720 --> 0:11:14.000 to happen until, you know, maybe that's a late summer 0:11:14.200 --> 0:11:17.800 or even into the fall. Wow, Professor Goustin, we appreciate 0:11:17.840 --> 0:11:24.840 your time, sir, Thank you for Georgetown University. Jane Fowyd 0:11:24.880 --> 0:11:27.080 passes us for Robot Bank. We're thrilled that she could 0:11:27.120 --> 0:11:30.079 join us UM this morning. Jane, let's just review here 0:11:30.160 --> 0:11:33.920 your euro call. I assume it's unchanged off of what 0:11:34.000 --> 0:11:36.839 we've heard in the last hour. If that is so, 0:11:37.400 --> 0:11:41.480 where will euro be a year from now, Well, you know, 0:11:41.559 --> 0:11:44.120 looking at these inflation forecasts, I start think that Europe 0:11:44.160 --> 0:11:46.520 could be really quite weak in any year to go. 0:11:47.040 --> 0:11:48.560 I mean, if we look at one of the reasons 0:11:48.640 --> 0:11:51.920 that really caused the eurodolla to papaya this spring, it 0:11:52.120 --> 0:11:54.880 was that change in real interest rates, and if we 0:11:54.920 --> 0:11:57.800 look at the inflation in the Eurozone, well, neither God 0:11:57.800 --> 0:12:00.439 has just already been saying that we could have negative 0:12:00.480 --> 0:12:03.680 inflation through you know, for a while, just yet, and 0:12:04.000 --> 0:12:09.199 she provides lower the inflation forecast for two and there 0:12:09.240 --> 0:12:11.800 really isn't an awful lot in there for, you know, 0:12:11.880 --> 0:12:15.679 to to change that expectation that real interest rates are 0:12:15.679 --> 0:12:19.319 going to be more attractive in Euros than for the dollar, 0:12:19.720 --> 0:12:22.600 you know, for the foreseeable next year and maybe beyond. 0:12:22.679 --> 0:12:24.160 And if we look at the amount of people buying 0:12:24.200 --> 0:12:26.960 say tips or so in the US, is belief that 0:12:27.040 --> 0:12:30.400 the feder their balance, she can do more to bolster inflation. 0:12:31.000 --> 0:12:33.559 Just isn't that belief in Europe? Right now, let's back 0:12:33.760 --> 0:12:37.240 up to first principles for our global Wall Street audience. 0:12:37.280 --> 0:12:41.280 But for those that are less sophisticated at this, what 0:12:41.520 --> 0:12:46.079 is reflation and is there any evidence a government or 0:12:46.280 --> 0:12:53.720 society can reflate? Is a policy prescription? Well, this is 0:12:53.760 --> 0:12:55.520 what they would like to do. But of course we're 0:12:55.559 --> 0:12:58.599 all very familiar with Japan, and we've seen you for 0:12:58.640 --> 0:13:02.240 a long time and really ability to create an awful 0:13:02.240 --> 0:13:04.520 lot of inflation. And to be honest, if you look 0:13:04.559 --> 0:13:07.040 through the whole of the details, for quite a long 0:13:07.080 --> 0:13:09.839 time now, for a few decades in some cases, it's 0:13:09.840 --> 0:13:13.880 been very difficult to create wage inflation, And it's certainly 0:13:13.920 --> 0:13:16.600 my view that if you can't create wage inflation, it's 0:13:16.679 --> 0:13:20.840 very difficult to create CPI inflation as well. Now that 0:13:20.920 --> 0:13:23.520 there are, of course that going to be exceptions to that. 0:13:23.559 --> 0:13:25.760 There's going to be supply side issues for one reason 0:13:25.880 --> 0:13:27.679 or another. There's going to be certain sectors that might 0:13:27.720 --> 0:13:30.959 see inflation. But generally speaking, I think it's going to 0:13:31.040 --> 0:13:34.640 be difficult to create a north side inflation if you 0:13:34.679 --> 0:13:36.400 can't get the wages up. But the market is of 0:13:36.440 --> 0:13:39.080 the view that the FED will be more successful at 0:13:39.120 --> 0:13:42.160 that than certainly in Europe right now. Are the partial 0:13:42.240 --> 0:13:48.400 differentials of price change between goods versus services? Are they 0:13:48.520 --> 0:13:50.920 very different or are they much the same the way 0:13:50.960 --> 0:13:56.680 they bounce around creating inflation or disinflation? Is there in 0:13:56.720 --> 0:14:01.720 a pandemic the service sector at differently maybe than before. 0:14:03.280 --> 0:14:05.280 I think that's probably right. I mean, I think the 0:14:05.400 --> 0:14:08.080 UK is probably a good example of this. In the 0:14:08.200 --> 0:14:11.199 UK services sector has been really hit. So if we 0:14:11.240 --> 0:14:13.679 think about what services are um you know, are we 0:14:13.760 --> 0:14:16.240 thinking about things that education, Are we thinking about things 0:14:16.240 --> 0:14:19.680 like the hospitality for instance, sectors which in some countries 0:14:19.680 --> 0:14:21.960 have been hit quite hard. And I think from that 0:14:22.000 --> 0:14:24.800 point incause you can expect that some of the prices 0:14:24.840 --> 0:14:27.360 for some of these services will be quite weak. Whereas 0:14:27.360 --> 0:14:29.880 if we look at the sectors of the economies that 0:14:29.960 --> 0:14:32.480 generally have we bounded quite well, well, it tends to 0:14:32.480 --> 0:14:35.480 be manufacturing, produce, and and that perhaps you know, we 0:14:35.520 --> 0:14:38.680 can begin to see a little bit more inflation. We 0:14:38.680 --> 0:14:43.080 could talk also about the theme of a reversal of globalization. 0:14:43.120 --> 0:14:46.680 This relates back, of course to the theme of China tensions. 0:14:46.720 --> 0:14:51.040 That could um, you know, see more wage inflation, more inflation, 0:14:51.120 --> 0:14:54.520 perhaps in in some manufactured goods as well. So there 0:14:54.560 --> 0:14:58.320 are different things and different forces going on, but generally speaking, 0:14:58.520 --> 0:15:00.840 certainly in Europe, that's not going to be you know, 0:15:00.920 --> 0:15:03.080 fast enough to to really create an awful lot of 0:15:03.120 --> 0:15:05.880 inflation in the next couple of years. What's the origin? 0:15:05.960 --> 0:15:08.440 I love that phrase, except you say it's so elegantly 0:15:08.480 --> 0:15:12.640 compared to my ugly American English. Fast enough? What is 0:15:12.720 --> 0:15:16.720 Madame Leguard's fast enough? Right now? What is the desperation 0:15:16.800 --> 0:15:21.480 to get to in two thousand twenty one? Well, I mean, 0:15:21.680 --> 0:15:24.400 there's a headline on the Blieber terminal right now. Ecbcs 0:15:24.400 --> 0:15:28.800 inflation well below two percent target through to three three. 0:15:29.000 --> 0:15:32.600 I think that's in three. So you know this is 0:15:32.720 --> 0:15:34.800 this is a position that we were in. What can 0:15:34.800 --> 0:15:38.120 they do to create inflation and the market. Okay, but 0:15:38.200 --> 0:15:39.760 come on, like, I don't mean to to ruppert chain 0:15:39.840 --> 0:15:41.800 in the time we've got left. The answer is simple 0:15:42.200 --> 0:15:45.440 to classic economics, which is clear the market. We gotta 0:15:45.480 --> 0:15:47.760 go chump at her and we've got to clear out 0:15:47.880 --> 0:15:50.160 a lot of this great grant and a pandemic. I 0:15:50.240 --> 0:15:53.880 get that, But separate from the pandemic, we have to 0:15:54.000 --> 0:15:58.680 clear the market of zombie companies, don't we. But that's 0:15:58.720 --> 0:16:00.520 that's where you get very very to come. I mean, 0:16:00.520 --> 0:16:04.520 there's been zombie companies around in a site global financial crisis, 0:16:04.600 --> 0:16:07.200 supported a course by this stript feat of cheap money, 0:16:07.200 --> 0:16:10.680 but thank you, supported by fiscal policies as well. So 0:16:10.800 --> 0:16:13.800 there's there's a there's a two problemed approach supporting them. 0:16:13.840 --> 0:16:17.120 But to get rid of them becomes extremely political, and 0:16:17.160 --> 0:16:19.600 again it's perhaps more difficult to do that in Europe, 0:16:19.600 --> 0:16:22.160 where governments send to be a little bit more left 0:16:22.160 --> 0:16:26.080 wing than in the US. Okay, well said, but just 0:16:26.200 --> 0:16:29.960 one final question here, and it's just so important. Okay, 0:16:30.000 --> 0:16:33.760 this morning we're talking two thousand twenty three, which means 0:16:33.760 --> 0:16:37.960 in eighteen months we're gonna be talking two thousand. I 0:16:37.960 --> 0:16:42.040 mean I talked to Secretary Geitner about this a million 0:16:42.120 --> 0:16:45.880 years ago. It's just moving the can in all of 0:16:45.920 --> 0:16:50.440 its descriptions down the road. There's a point where you've 0:16:50.480 --> 0:16:54.320 got a de zombie, right, well you would have thought so. 0:16:54.680 --> 0:16:56.600 But which government is going to be brave enough to 0:16:56.640 --> 0:16:59.920 do that? You know? That's the thing. Governments ultimately want 0:16:59.920 --> 0:17:02.800 to get voted in again, and that's you know that 0:17:02.920 --> 0:17:05.159 that's where they become very unbrave when it comes to 0:17:05.200 --> 0:17:07.080 these sorts of issues. And again we come back to 0:17:07.119 --> 0:17:09.680 this issue you know in Japan and how long has 0:17:09.680 --> 0:17:12.440 this been going on? How long can it sustained? And really, 0:17:12.480 --> 0:17:14.399 as always there's a global savings cut. As long as 0:17:14.440 --> 0:17:19.640 people want to buy this debt, it will today very valuable. 0:17:19.680 --> 0:17:21.919 Jane Folly, thank you so much coming off of Christine 0:17:22.000 --> 0:17:24.160 land Guard because that's pretty good. We speak to Christine 0:17:24.240 --> 0:17:27.280 land Garden. Then Jane Folly of Rubble Bank joins us 0:17:30.640 --> 0:17:33.280 double salts he can joins us. He is truly one 0:17:33.320 --> 0:17:38.199 of our most acute minds on fiscal politics, and not 0:17:38.320 --> 0:17:40.479 only our debt and deficit in his wonderful work at 0:17:40.480 --> 0:17:43.719 the Congressional Budget Office over the years, but also as 0:17:43.760 --> 0:17:48.920 acuity of Capitol Hill in our fiscal dynamics, Doctor Holtz, 0:17:48.920 --> 0:17:51.720 he can joins us from the American Action for him dog. 0:17:51.720 --> 0:17:54.679 Wonderful to talk to you, just well well timed Jason 0:17:54.760 --> 0:17:58.439 Furman writing up a Better Economy and the New Foreign 0:17:58.440 --> 0:18:01.600 Affairs magazine. How do we get to a better economy 0:18:01.680 --> 0:18:05.560 with this debt and this deficit? Well, the first step 0:18:05.600 --> 0:18:07.879 is obviously to take on the public health crisis and 0:18:08.400 --> 0:18:12.199 eliminate the coronavirus as a threat to the population. That 0:18:12.400 --> 0:18:14.720 lifts a lot of this supply constraints that we've been 0:18:14.760 --> 0:18:17.200 facing for the past year. And and then you can 0:18:17.240 --> 0:18:20.840 get down to focusing on the core things that matter. 0:18:20.920 --> 0:18:23.639 Can we generate better productivity growth which will raise real 0:18:23.720 --> 0:18:25.800 wags in the standard of living? That should be the 0:18:25.800 --> 0:18:30.879 focus more than anything else. This is great, but you know, 0:18:30.920 --> 0:18:34.240 I looked at the combined twin deficits fiscal and trade, 0:18:34.240 --> 0:18:37.360 and we're at four standard deviations off like Reagan years, 0:18:37.359 --> 0:18:40.040 I mean, going back a million years or well, do 0:18:40.119 --> 0:18:43.000 you assume all the stiglets in the small g that 0:18:43.119 --> 0:18:45.360 we just grow our way out of this, that there's 0:18:45.400 --> 0:18:49.960 a ten twenty thirty year constructive path to grow our 0:18:50.000 --> 0:18:54.080 way out of these excess debts and deficits. No, I 0:18:54.080 --> 0:18:56.479 don't think there's any reasonable aspectation you can do this 0:18:56.520 --> 0:18:59.679 with growth alone. We came into the pandemic recession with 0:18:59.720 --> 0:19:03.080 a sustainable outlook. We're gonna exit with an unsustainable out 0:19:03.359 --> 0:19:06.720 outlook and jumping off the highest record level of debt 0:19:06.720 --> 0:19:09.720 relative to GDP. So that's a that's a tremendous challenge. 0:19:09.720 --> 0:19:13.480 And on the political economy front, Tom, here's the key fact. 0:19:14.080 --> 0:19:16.240 The minimum condition for a sovereign nation is that you 0:19:16.320 --> 0:19:19.439 be able to stabilize your debt relative to GDP, and 0:19:19.480 --> 0:19:21.560 the US has not done that in the twenty one century. 0:19:21.960 --> 0:19:24.479 And so to do that, the minimum condition is going 0:19:24.520 --> 0:19:28.439 to require good growth, more revenue, and control on spending. 0:19:28.560 --> 0:19:30.800 And those are three things that we have not put 0:19:30.840 --> 0:19:33.679 together in play some time. Based on the plans currently 0:19:33.680 --> 0:19:36.400 in Washington, d C, Doug, do you think that they 0:19:36.400 --> 0:19:40.480 will help growth accelerate? That basically, it's spending worth spending 0:19:40.760 --> 0:19:43.440 right now right now. I don't think we should be 0:19:43.440 --> 0:19:46.000 concerned about the level of sending or the level of 0:19:46.000 --> 0:19:48.440 the death sit. I mean, we have a trendish challenge 0:19:48.760 --> 0:19:51.560 and just keeping American families afloat. And I don't think 0:19:52.080 --> 0:19:53.879 the bills that they're talking about should be thought of 0:19:53.880 --> 0:19:58.000 as stimulus bills. They are targeted primarily to giving h 0:19:58.200 --> 0:20:00.080 those who have been unemployed for a long time. At 0:20:00.119 --> 0:20:03.920 eleven million Americans our work since March some financial stability 0:20:03.920 --> 0:20:06.119 over the next couple of months. That should get us 0:20:06.119 --> 0:20:07.800 past the public health crisis, and then we have a 0:20:07.880 --> 0:20:10.159 chance to get back to doing economics well. And this 0:20:10.240 --> 0:20:12.280 sort of goes to the heart of trying to avoid 0:20:12.840 --> 0:20:15.879 another great depression, right that basically, if you prevent the 0:20:15.960 --> 0:20:17.920 depths of the pain, that there won't be as much 0:20:17.960 --> 0:20:20.919 scarring longer term, and that we can recover faster. What 0:20:21.160 --> 0:20:25.640 kind of stimulus, true stimulus, not just plugging the output gap, 0:20:25.880 --> 0:20:28.359 do you think would be appropriate next year? And coming 0:20:28.359 --> 0:20:30.919 from a position of having been the director of the 0:20:30.920 --> 0:20:34.160 Congressional Budget Office having to try to balance the budget, 0:20:34.440 --> 0:20:35.959 how much do you think we ought to be spending 0:20:36.080 --> 0:20:39.359 right now? Well, I don't think we should worry about 0:20:39.400 --> 0:20:42.359 the amount of spending as much as what we're spending 0:20:42.359 --> 0:20:44.639 it on. So you know, if you spend a trillion 0:20:44.680 --> 0:20:48.120 dollars and you targeted it at a high income individuals. 0:20:48.400 --> 0:20:50.000 You're not going to get them go out and replace 0:20:50.040 --> 0:20:51.919 the service spending that they stopped doing because of the 0:20:51.920 --> 0:20:54.920 health prom So it's where you target the money and 0:20:55.119 --> 0:20:57.480 more than how much it is and next year and 0:20:57.520 --> 0:21:00.680 the year after. I think the key is to combine 0:21:01.320 --> 0:21:05.080 uh genuine investments in infrastructure, where people talk a lot 0:21:05.119 --> 0:21:07.520 about done with an eye to the long term, not 0:21:07.680 --> 0:21:09.400 from from the point of view of stimulus, if that's 0:21:09.400 --> 0:21:15.000 waiting out there, and combine that with upfront um uh 0:21:15.040 --> 0:21:19.280 you know, tax relief and UM targeted UH income to 0:21:19.280 --> 0:21:20.720 to the low end. I think that's all we need 0:21:21.119 --> 0:21:23.560 hold on one second income to the low end. Is 0:21:23.560 --> 0:21:27.359 this basically what we've been hearing about in terms of 0:21:27.520 --> 0:21:33.160 giving supplemental income universal income, not a universal basic income. 0:21:33.160 --> 0:21:36.560 But I'm I'm talking about you know, stimulus style temporary policies, 0:21:36.640 --> 0:21:40.359 and and they can be extended U I. Under some circumstances, 0:21:40.400 --> 0:21:42.680 they can be checked UM. But but I think that's 0:21:42.680 --> 0:21:44.280 really the only thing to worry about coming out of 0:21:44.280 --> 0:21:47.880 this particular recession. This recession is unlike any other recession. 0:21:47.920 --> 0:21:50.760 It's important to remember that we've seen income growth throughout 0:21:50.760 --> 0:21:52.800 the recession. We've seen the stock market arise. We've seen 0:21:52.880 --> 0:21:55.960 housing market arise that's never happened before. We had a 0:21:56.000 --> 0:22:00.800 consumption driven decline focused on services that involve personal contact. 0:22:01.040 --> 0:22:02.720 Until you get that back, you don't get the e 0:22:02.720 --> 0:22:05.440 comedy operating yet. The Douglas sulking where the Douglas You've 0:22:05.440 --> 0:22:07.320 just got one more minute, and this is so important, 0:22:07.359 --> 0:22:09.840 I've got to get to it. Our Jenner Rana Randell 0:22:10.280 --> 0:22:14.560 in Europe already has put out an inside view of 0:22:14.600 --> 0:22:19.119 the ECB meeting before Madame Legarde has finished her press conference, 0:22:19.760 --> 0:22:25.240 and there's a raging debate about the duration of monetary experiments. 0:22:25.240 --> 0:22:27.800 In this case, it's the p E p P program 0:22:27.960 --> 0:22:31.560 is well. Our center bankers running out of ideas is 0:22:31.600 --> 0:22:34.919 the tool kit finally where they really don't know what 0:22:35.000 --> 0:22:39.520 to do in terms of policy or duration. I think 0:22:39.560 --> 0:22:42.919 in both the United States and in Europe, the baton 0:22:43.000 --> 0:22:45.639 happy path to the fiscal authorities, the monster authorities have 0:22:45.680 --> 0:22:49.399 done their job. We have seen financial markets stabilized in 0:22:49.400 --> 0:22:53.320 a dramatic fashion. Trading has been uh, you know, quite 0:22:53.359 --> 0:22:55.960 good over the course of the year. Now you need 0:22:56.160 --> 0:22:59.040 some real economic growth cone from the fiscal side. We 0:22:59.119 --> 0:23:01.520