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Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.

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Speaker 2: Let's bring our first guest on The Asia Trade. Paul

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Speaker 2: Kriegman is, of course, Nobel laureate and professor of economics

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Speaker 2: at City University of New York. Professor Krieman, it's a

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Speaker 2: pleasure to have you with us on this first episode

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Speaker 2: of The Asia Trade. I wanted to start off with

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Speaker 2: the US economic outlook because I know recently you've written

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Speaker 2: about this idea of inflation brain right, the idea that

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Speaker 2: you know, perhaps price pressures are the scapegoat for all

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Speaker 2: economic afflictions in the US. The balance of risks for

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Speaker 2: the FED and a lot of other central banks, including

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Speaker 2: the RBA for example, the RBNZ seems so fine at

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Speaker 2: the moment. What would make you suggest that they should

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Speaker 2: go for a small cut in June.

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Speaker 1: Okay, the first thing to say is that we are

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Speaker 1: pretty sure the recent inflation data have been you know,

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Speaker 1: there's noise, there's probably some funny stuff with season, but

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Speaker 1: it basically inflation has been beaten. You know, we're we're

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Speaker 1: arguing over whether underlying inflation is two point six or

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Speaker 1: two point one percent. We're not that the range of

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Speaker 1: disagreement there is fundamental disagreement is really small.

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Speaker 3: We're basically there.

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Speaker 1: And the the big uncertainty is how long can the

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Speaker 1: economy continue to you.

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Speaker 3: Know, power along with rates this high.

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Speaker 1: And we're at this point now where they're just you know,

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Speaker 1: faint hints soft data suggesting that we're starting to lose steam,

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Speaker 1: that consumers are starting to falter. It's nothing drastic, but

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Speaker 1: then it never is at this point.

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Speaker 3: And if you're beginning a downturn.

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Speaker 1: So it's the chance of reaccelerating inflation looks very small.

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Speaker 1: If the Fed cuts rates, the chance that they will

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Speaker 1: look back and say, my god, why didn't we take

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Speaker 1: at least a little bit of precautionary action against the

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Speaker 1: looming downturn looks very much larger. So I would I

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Speaker 1: would go for the rate cut, if only to signal, hey,

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Speaker 1: you know, we're we're not asleep here. We're not going

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Speaker 1: to be obsessed with inflation until that's so far in

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Speaker 1: the rear view mirror that we really should have been

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Speaker 1: focusing on the on the car wreck in front of us.

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Speaker 2: Right, So, like a protective cut, and I think we've

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Speaker 2: kind of talked about that a little bit with regard

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Speaker 2: to other economies, as well. Do you worry about the

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Speaker 2: potential for fiscal to undermine the monetary at this point?

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Speaker 1: Well, actually, you know not in the United States. Everything

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Speaker 1: everything is up in the air because of the election.

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Speaker 1: I don't worry about fiscal being as serious in the US.

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Speaker 3: You know, we have not gotten our house in order.

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Speaker 1: But the in terms of there being a significant fiscal

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Speaker 1: boost if Biden is re elected not going to happen

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Speaker 1: as where we've sort of done that. If Trump wins,

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Speaker 1: then all bets are off. I mean his he's made

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Speaker 1: it clear that he doesn't want the FED to retain

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Speaker 1: its independence. He's shown in the past a clear inclination

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Speaker 1: towards kind of a Turkey style, you know, print money

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Speaker 1: to help me politically.

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Speaker 3: The it is talking about.

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Speaker 1: Unfunded tax cuts, but also tariffs that are directly inflationary.

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Speaker 1: So no, if I mean, I have to say, markets

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Speaker 1: are way too calm given that this is a toss

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Speaker 1: up election. And then what the side would represent the

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Speaker 1: huge departure on policy of every kind.

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Speaker 4: Especially with risks around trade tariffs also increasing. What is

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Speaker 4: the view when it comes to geopolitical tensions arising that

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Speaker 4: could further the real risk assets not to mention global

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Speaker 4: economies that really have close training partnerships with the US.

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Speaker 3: Oh, if this is huge.

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Speaker 1: I mean we are very much regardless of who wins,

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Speaker 1: we are at the end of an era. I mean,

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Speaker 1: my political science friends talk about hegemonic stability.

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Speaker 3: Which was that we had a long era of pretty

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Speaker 3: smooth globalization.

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Speaker 1: You know, the things worked because the US was number one,

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Speaker 1: and the US kind of believed in a rules based

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Speaker 1: order and all of that, and it was always kind

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Speaker 1: of hypothetical, what would happen if we no longer had that.

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Speaker 3: Well it's gone right now we have.

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Speaker 1: You know, as long as it was the US and

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Speaker 1: the Euro Area, then well we share a lot of views,

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Speaker 1: share a lot of values. But with the US and

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Speaker 1: China now is the two big players on the block,

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Speaker 1: everything's wide open and the you know, it doesn't necessarily

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Speaker 1: mean that we descend into a collapse of world trade

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Speaker 1: right away, but it does mean that nothing, none of

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Speaker 1: the ground rules that everybody counted on for the past

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Speaker 1: several decades can be counted on anymore.

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Speaker 4: And here in the Asia and the columnies really watching

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Speaker 4: this on I'm hearing in Japan now, and what and

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Speaker 4: for the writering being is not. Actually, Japan has benefited

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Speaker 4: a lot from the tensions between China and the United

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Speaker 4: States that a lot of these businesses are now veering

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Speaker 4: towards setting up more connections with Japan. Are you seeing

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Speaker 4: a meaningful demand driven sort of inflationary pressure that can

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Speaker 4: be sustainable finally in this country, it's very.

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Speaker 1: I mean, I've been worried about Japan for a long time,

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Speaker 1: and I have to admit that I worried about LESCA.

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Speaker 1: I said, worried about lots of other things, including my

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Speaker 1: own country.

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Speaker 3: I'm not, I hope, So I'm not convinced.

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Speaker 1: When I try to look at the Japanese data, I

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Speaker 1: still don't see the kind of you know, fundamental strength.

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Speaker 1: I mean, a lot of Japan's long term weakness has

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Speaker 1: to do with demography, has to do with extremely low

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Speaker 1: fertility that hasn't changed. Although Japan is at least more

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Speaker 1: open to immigration than it used.

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Speaker 3: To be, it's it's a long way. I mean, I

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Speaker 3: would say that the talk about.

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Speaker 1: Exiting zero rates, I understand why Japan really wants to

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Speaker 1: be able to declare that we've ended that period, but

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Speaker 1: it's not all clear in the data that it really has.

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Speaker 4: And yet what choice do Japanese policy makers have when

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Speaker 4: you have this immense pressure on the Japanese yen, Are

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Speaker 4: you saying that this could potentially be another falls down

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Speaker 4: when it comes to bog policy normalization?

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Speaker 3: It could well be. I mean, will you know, we'll see.

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Speaker 1: I mean it's you know, the bo j U leadership

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Speaker 1: is not stupid to say the least.

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Speaker 3: Uh, they're they're watching this.

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Speaker 1: But I have to say what puzzles me is why

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Speaker 1: Japan is so worried about the following yen? Uh, you know,

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Speaker 1: it's it's uh, it's not as if I mean, yes,

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Speaker 1: that does hurt consumer prices some.

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Speaker 3: But Japan, as we say, it's been a.

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Speaker 1: Country that has long had a problem in convincingly exiting

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Speaker 1: defl and a weaker yen after a little, you know,

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Speaker 1: give it a bit of a lag that's actually positive

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Speaker 1: for demand for Japanese goods and services.

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Speaker 3: So the thing that I find.

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Speaker 1: Puzzling is why the weaker yen is inspiring as much

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Speaker 1: panic as it seems to be.

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Speaker 2: Does it make more sense if you think about the

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Speaker 2: sort of geostrategic tensions, right? Does it create more panic

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Speaker 2: for Beijing for example?

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Speaker 3: Oh? For sure. I mean, look, I mean, China is

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Speaker 3: in much worse shape. I mean a fundamental sense.

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Speaker 1: China has a whole economic model that is not sustainable.

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Speaker 1: It has vastly inadequate domestic spending, vastly inadequate consumer demand,

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Speaker 1: has run out of sufficient investment opportunities to keep the

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Speaker 1: economy rolling, and but seems bizarrely unable to change its

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Speaker 1: operating you know, to do even modest steps towards a

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Speaker 1: refundocusing on domestic demand, and China sort of kind of

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Speaker 1: it's still seems inclined to try to export its way out,

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Speaker 1: which is not going to happen. The world is not

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Speaker 1: going to accept it. And a following end, if you like,

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Speaker 1: adds to that unacceptability, because if there's one thing that

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Speaker 1: we can be sure, it's that the rest of the

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Speaker 1: world is not going to accept a simultaneous Japanese and

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Speaker 1: Chinese exports surge on the scale that could what happened

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Speaker 1: without some kind of action.

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Speaker 2: Professor Krugman, it's really great to have you with us.

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Speaker 2: We appreciate your time, and we could continue this conversation

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Speaker 2: and hopefully you'll join us again soon. That's a noble

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Speaker 2: laureate and City University of New York professor Paul Krugman.

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Speaker 3: There