Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: Let's bring our first guest on The Asia Trade. Paul
Speaker 2: Kriegman is, of course, Nobel laureate and professor of economics
Speaker 2: at City University of New York. Professor Krieman, it's a
Speaker 2: pleasure to have you with us on this first episode
Speaker 2: of The Asia Trade. I wanted to start off with
Speaker 2: the US economic outlook because I know recently you've written
Speaker 2: about this idea of inflation brain right, the idea that
Speaker 2: you know, perhaps price pressures are the scapegoat for all
Speaker 2: economic afflictions in the US. The balance of risks for
Speaker 2: the FED and a lot of other central banks, including
Speaker 2: the RBA for example, the RBNZ seems so fine at
Speaker 2: the moment. What would make you suggest that they should
Speaker 2: go for a small cut in June.
Speaker 1: Okay, the first thing to say is that we are
Speaker 1: pretty sure the recent inflation data have been you know,
Speaker 1: there's noise, there's probably some funny stuff with season, but
Speaker 1: it basically inflation has been beaten. You know, we're we're
Speaker 1: arguing over whether underlying inflation is two point six or
Speaker 1: two point one percent. We're not that the range of
Speaker 1: disagreement there is fundamental disagreement is really small.
Speaker 3: We're basically there.
Speaker 1: And the the big uncertainty is how long can the
Speaker 1: economy continue to you.
Speaker 3: Know, power along with rates this high.
Speaker 1: And we're at this point now where they're just you know,
Speaker 1: faint hints soft data suggesting that we're starting to lose steam,
Speaker 1: that consumers are starting to falter. It's nothing drastic, but
Speaker 1: then it never is at this point.
Speaker 3: And if you're beginning a downturn.
Speaker 1: So it's the chance of reaccelerating inflation looks very small.
Speaker 1: If the Fed cuts rates, the chance that they will
Speaker 1: look back and say, my god, why didn't we take
Speaker 1: at least a little bit of precautionary action against the
Speaker 1: looming downturn looks very much larger. So I would I
Speaker 1: would go for the rate cut, if only to signal, hey,
Speaker 1: you know, we're we're not asleep here. We're not going
Speaker 1: to be obsessed with inflation until that's so far in
Speaker 1: the rear view mirror that we really should have been
Speaker 1: focusing on the on the car wreck in front of us.
Speaker 2: Right, So, like a protective cut, and I think we've
Speaker 2: kind of talked about that a little bit with regard
Speaker 2: to other economies, as well. Do you worry about the
Speaker 2: potential for fiscal to undermine the monetary at this point?
Speaker 1: Well, actually, you know not in the United States. Everything
Speaker 1: everything is up in the air because of the election.
Speaker 1: I don't worry about fiscal being as serious in the US.
Speaker 3: You know, we have not gotten our house in order.
Speaker 1: But the in terms of there being a significant fiscal
Speaker 1: boost if Biden is re elected not going to happen
Speaker 1: as where we've sort of done that. If Trump wins,
Speaker 1: then all bets are off. I mean his he's made
Speaker 1: it clear that he doesn't want the FED to retain
Speaker 1: its independence. He's shown in the past a clear inclination
Speaker 1: towards kind of a Turkey style, you know, print money
Speaker 1: to help me politically.
Speaker 3: The it is talking about.
Speaker 1: Unfunded tax cuts, but also tariffs that are directly inflationary.
Speaker 1: So no, if I mean, I have to say, markets
Speaker 1: are way too calm given that this is a toss
Speaker 1: up election. And then what the side would represent the
Speaker 1: huge departure on policy of every kind.
Speaker 4: Especially with risks around trade tariffs also increasing. What is
Speaker 4: the view when it comes to geopolitical tensions arising that
Speaker 4: could further the real risk assets not to mention global
Speaker 4: economies that really have close training partnerships with the US.
Speaker 3: Oh, if this is huge.
Speaker 1: I mean we are very much regardless of who wins,
Speaker 1: we are at the end of an era. I mean,
Speaker 1: my political science friends talk about hegemonic stability.
Speaker 3: Which was that we had a long era of pretty
Speaker 3: smooth globalization.
Speaker 1: You know, the things worked because the US was number one,
Speaker 1: and the US kind of believed in a rules based
Speaker 1: order and all of that, and it was always kind
Speaker 1: of hypothetical, what would happen if we no longer had that.
Speaker 3: Well it's gone right now we have.
Speaker 1: You know, as long as it was the US and
Speaker 1: the Euro Area, then well we share a lot of views,
Speaker 1: share a lot of values. But with the US and
Speaker 1: China now is the two big players on the block,
Speaker 1: everything's wide open and the you know, it doesn't necessarily
Speaker 1: mean that we descend into a collapse of world trade
Speaker 1: right away, but it does mean that nothing, none of
Speaker 1: the ground rules that everybody counted on for the past
Speaker 1: several decades can be counted on anymore.
Speaker 4: And here in the Asia and the columnies really watching
Speaker 4: this on I'm hearing in Japan now, and what and
Speaker 4: for the writering being is not. Actually, Japan has benefited
Speaker 4: a lot from the tensions between China and the United
Speaker 4: States that a lot of these businesses are now veering
Speaker 4: towards setting up more connections with Japan. Are you seeing
Speaker 4: a meaningful demand driven sort of inflationary pressure that can
Speaker 4: be sustainable finally in this country, it's very.
Speaker 1: I mean, I've been worried about Japan for a long time,
Speaker 1: and I have to admit that I worried about LESCA.
Speaker 1: I said, worried about lots of other things, including my
Speaker 1: own country.
Speaker 3: I'm not, I hope, So I'm not convinced.
Speaker 1: When I try to look at the Japanese data, I
Speaker 1: still don't see the kind of you know, fundamental strength.
Speaker 1: I mean, a lot of Japan's long term weakness has
Speaker 1: to do with demography, has to do with extremely low
Speaker 1: fertility that hasn't changed. Although Japan is at least more
Speaker 1: open to immigration than it used.
Speaker 3: To be, it's it's a long way. I mean, I
Speaker 3: would say that the talk about.
Speaker 1: Exiting zero rates, I understand why Japan really wants to
Speaker 1: be able to declare that we've ended that period, but
Speaker 1: it's not all clear in the data that it really has.
Speaker 4: And yet what choice do Japanese policy makers have when
Speaker 4: you have this immense pressure on the Japanese yen, Are
Speaker 4: you saying that this could potentially be another falls down
Speaker 4: when it comes to bog policy normalization?
Speaker 3: It could well be. I mean, will you know, we'll see.
Speaker 1: I mean it's you know, the bo j U leadership
Speaker 1: is not stupid to say the least.
Speaker 3: Uh, they're they're watching this.
Speaker 1: But I have to say what puzzles me is why
Speaker 1: Japan is so worried about the following yen? Uh, you know,
Speaker 1: it's it's uh, it's not as if I mean, yes,
Speaker 1: that does hurt consumer prices some.
Speaker 3: But Japan, as we say, it's been a.
Speaker 1: Country that has long had a problem in convincingly exiting
Speaker 1: defl and a weaker yen after a little, you know,
Speaker 1: give it a bit of a lag that's actually positive
Speaker 1: for demand for Japanese goods and services.
Speaker 3: So the thing that I find.
Speaker 1: Puzzling is why the weaker yen is inspiring as much
Speaker 1: panic as it seems to be.
Speaker 2: Does it make more sense if you think about the
Speaker 2: sort of geostrategic tensions, right? Does it create more panic
Speaker 2: for Beijing for example?
Speaker 3: Oh? For sure. I mean, look, I mean, China is
Speaker 3: in much worse shape. I mean a fundamental sense.
Speaker 1: China has a whole economic model that is not sustainable.
Speaker 1: It has vastly inadequate domestic spending, vastly inadequate consumer demand,
Speaker 1: has run out of sufficient investment opportunities to keep the
Speaker 1: economy rolling, and but seems bizarrely unable to change its
Speaker 1: operating you know, to do even modest steps towards a
Speaker 1: refundocusing on domestic demand, and China sort of kind of
Speaker 1: it's still seems inclined to try to export its way out,
Speaker 1: which is not going to happen. The world is not
Speaker 1: going to accept it. And a following end, if you like,
Speaker 1: adds to that unacceptability, because if there's one thing that
Speaker 1: we can be sure, it's that the rest of the
Speaker 1: world is not going to accept a simultaneous Japanese and
Speaker 1: Chinese exports surge on the scale that could what happened
Speaker 1: without some kind of action.
Speaker 2: Professor Krugman, it's really great to have you with us.
Speaker 2: We appreciate your time, and we could continue this conversation
Speaker 2: and hopefully you'll join us again soon. That's a noble
Speaker 2: laureate and City University of New York professor Paul Krugman.
Speaker 3: There