Speaker 1: This is Bloomberg Wall Street Week. What's the state of
Speaker 1: corporate governance? The deficit is a real issue. The US
Speaker 1: economy continues to send mixed signals. The financial stories that
Speaker 1: cheap our world fed action to con concerns over dollar
Speaker 1: liquidity and encouraging China data. The five hundred wealthiest people
Speaker 1: in the world. Through the eyes of the most influential voices,
Speaker 1: Larry Summers, the former Treasury Secretary, star Ward CEO, Kevin
Speaker 1: Johnson sec Chairman J Clayton. Bloomberg wool Street Week with
Speaker 1: David Weston from Bloomberg Radio. Don't bring me no bad news.
Speaker 1: Market shrug off, higher consumer prices and even a vaccination
Speaker 1: program put on hold as they see a glass more
Speaker 1: than half full. This is Bloomberg Wall Street Week. I'm
Speaker 1: David Weston. The markets took it all in stride, with
Speaker 1: the banks posting earnings no one could have dreamed of
Speaker 1: just a year ago, and the S and P and
Speaker 1: Dow and NASDAC one all reaching new record highs. Even
Speaker 1: the US Treasury tenure barely blinked on the J and
Speaker 1: J news, with the yield ticking up only for a
Speaker 1: moment and then turning around and dropping the most since February.
Speaker 1: Heelp us understand the market reaction or maybe lack of reaction.
Speaker 1: We're going down by our Wall Street Week round table
Speaker 1: of Nancy Davis, chief investment officer at Quadratic Capital, and
Speaker 1: also Laird Landman. He is a portfolio manager for a
Speaker 1: fixed income at TCW. So welcome both of you. Lead.
Speaker 1: Let me start with you. You are a fixed income guy.
Speaker 1: One of the big questions I think on investor's minds
Speaker 1: right now is inflation. Is it transitory? Is J? Powell
Speaker 1: tells us? Or it could have been more troubling than that.
Speaker 1: If as you look at the fixed income market, what
Speaker 1: do you look at to answer that question? Well, I
Speaker 1: think it's very hard to know what to look at.
Speaker 1: In the sixties, people looked at the Philips curve. In
Speaker 1: the seventies, the theory of monet of inflation was that
Speaker 1: it was monetary in all places you looked at him
Speaker 1: and to growth. UM. In the in the nineties it
Speaker 1: was pce Star. There's been all different models and none
Speaker 1: of them have really worked. UM. Today we're in a
Speaker 1: we're clearly moved into a direction of uh. This this
Speaker 1: modern monetary One of my favorite charts you can pull
Speaker 1: up on your terminal. Is just just chart the budget
Speaker 1: deficit versus the growth in the Fed balance sheet. It's
Speaker 1: a one for one sort of item. So if anyone
Speaker 1: thinks we're not in modern monetary policy world, take a
Speaker 1: hard look at that um and I think that given
Speaker 1: that it's it's going to be very difficult to know
Speaker 1: whether inflation is going to be real or transitory. But
Speaker 1: as we increase the amount of government spending going on,
Speaker 1: and as we move from the government transferring money to
Speaker 1: individuals to actually spending the money themselves, I believe the
Speaker 1: price elasticities will become will change, and you'll actually see
Speaker 1: more persistent inflation. So that's something we're focused on, is
Speaker 1: the idan that government spending does tend to be subject
Speaker 1: to more inflationary pressures, and they will also crowd out
Speaker 1: as they do infrastructure, they're going to crowd out traditional
Speaker 1: commodities like copper, lumber, steel. So Nancy, you actually try
Speaker 1: to hedge against inflation with your eyeball. Yeah, Uh, give
Speaker 1: us as what you look at an inflation because in
Speaker 1: additional one Lard said, for example, you cook money supply.
Speaker 1: I mean, like M two I think is increased by
Speaker 1: more than year every year. I mean, if you if
Speaker 1: you look at the data and you look at what's
Speaker 1: happening in reality, between the FED having an average inflation target,
Speaker 1: between having fiscal spending, between having the FED not even
Speaker 1: thinking about thinking about raising rates UM and UH a
Speaker 1: blue wave right now, and relative to the rest of
Speaker 1: the world really exporting inflation now from emerging market companies
Speaker 1: and countries. I don't know why people wouldn't have inflation
Speaker 1: in their portfolio. To me, it's sort of like why
Speaker 1: would you why would you take a risk and take
Speaker 1: a bet? To me, UM, inflation is actually a bigger
Speaker 1: risk to investors and a recession because if you think
Speaker 1: about what you know, not not healthy normal inflation, but
Speaker 1: if we had runaway inflation, that would decrease our purchasing
Speaker 1: power right UM, the cost of drugs, the cost of housing,
Speaker 1: the cost of travel, especially if we have a weaker dollar. UM.
Speaker 1: To me, I don't see why people are thinking or
Speaker 1: overthinking it. I think you should just have a diversified portfolio.
Speaker 1: And just because we haven't had runaway inflation for many
Speaker 1: years doesn't mean we're not going to have it in
Speaker 1: the future, So learn pick up on what Nancy just said,
Speaker 1: What about the symmetry of the risk? I mean, we
Speaker 1: don't know what's going to happen, obviously, but what about
Speaker 1: the symmetry. Do you think that's a greater risk of
Speaker 1: out of control they'd say, unmoored inflation, or of disinflation
Speaker 1: or even recession. Well, I was trying to be subtle
Speaker 1: in my first answer, so I'll be direct in this
Speaker 1: one and just say I don't think anybody has a
Speaker 1: good model of inflation, and I certainly don't think the
Speaker 1: FED has it. So the notion that the FED targets
Speaker 1: a variable that they don't really have a model to
Speaker 1: understand seems a little absurd on the surface. So I
Speaker 1: do think it leads to a symmetry. And again, just
Speaker 1: look at that chart that I mentioned before, federal federal
Speaker 1: deficits versus the size of the balance sheets? Do it
Speaker 1: across countries? And we're clearly in a new monetary environment, um,
Speaker 1: And so I do think the risk is asymmetric at
Speaker 1: the end of the day, that this new type of
Speaker 1: economic approach may result in inflation that we previously wouldn't
Speaker 1: have understood from our models. And Nancy, one of the
Speaker 1: things that I wonder about is the length of time
Speaker 1: over which we will not know the answer. We had
Speaker 1: an interview with Jim Bullard in the St. Louis FED
Speaker 1: this week, and he said, basically, we're not even gonna
Speaker 1: have numbers. We're gonna rely on inflation until the end
Speaker 1: of the year. As we get these cp A numbers
Speaker 1: and even PC numbers, CORPS PC numbers. We can't trust
Speaker 1: him right now because the base effects and all those
Speaker 1: sort of things. Does that actually increase the risk because
Speaker 1: we're running blind for some period of time, assuming maybe
Speaker 1: contrary to what Larry says, we have a model at all. Well,
Speaker 1: I do think we have to keep in mind that
Speaker 1: all of these whether it's CPI or PC, these are
Speaker 1: all in disease right there. Their baskets of goods and
Speaker 1: services that you know, the FED officials of your labor statistics,
Speaker 1: they're trying to do the best they can with the
Speaker 1: baskets that they've created. But it's almost like if you
Speaker 1: if you own the US equity market, but you have
Speaker 1: the Dala Jones Index and you just say, oh, I'm good,
Speaker 1: I've got it, but you don't have the NASTAC or
Speaker 1: you don't have the Russell. I think there are lots
Speaker 1: of different ways to measure inflation, and and David, that's
Speaker 1: one of the things you know, we tried to do
Speaker 1: with the IBOLL e t F is give another measure
Speaker 1: of inflation expectations. It's not linked to a government entity
Speaker 1: creating an index for it. Thank you so much for
Speaker 1: our Wall Street Week roundtable. Lard Lamon from TCW and
Speaker 1: Nancy Davis from Quadratic Capital. Coming up dealing with high
Speaker 1: tech one problem with the United States and China have
Speaker 1: in common, and former IBM CEO Sam Paulmisano sees the
Speaker 1: differences and the similarities. That's next on Wall Street Week
Speaker 1: on Gloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. Big Brother is going after jack
Speaker 1: Mas Tech Empire. As part of a string of crackdowns.
Speaker 1: Beijing and post a record two point eight billion dollar
Speaker 1: fine on ali Baba for abusing its market dominance and
Speaker 1: ordered it to stop making merchants choose between Ali Baba
Speaker 1: and competing platforms. Here's company vice chair and co founder
Speaker 1: Joe Tsi with this uh a penalty decision. Uh we've
Speaker 1: uh you know, received a good guidance on some of
Speaker 1: the specific issues under the anti monopoly law. China also
Speaker 1: ordered an overhaul of ANT Group, which has expanded into payments, banking,
Speaker 1: wealth management and insurance over the years. I didn't think
Speaker 1: the government wants this story to dominate through one and
Speaker 1: specifically they've been guiding media to report on how um
Speaker 1: they the government is pro what they called platform economy.
Speaker 1: There pro the innovation, that's Duncan Clark, chairman of b
Speaker 1: DA China. The revamp leaves Aunt's main businesses in tact,
Speaker 1: but the new directive makes it harder for the firm
Speaker 1: to direct traffic from its payment service Alipay, which has
Speaker 1: a billion users, to other AUNT financial services, including wealth management,
Speaker 1: consumer lending, and even on demand neighborhood services and delivery.
Speaker 1: Here's Rabbi Menon from the Monetary Authority of Singapore and
Speaker 1: our philosophy is simple. If you carry out similar activities,
Speaker 1: similar risks as a bank, then you subject to similar
Speaker 1: rules and similar requirements. This week, Chinese regulators also summoned
Speaker 1: thirty four of the country's largest tech companies, from ten
Speaker 1: Cent to TikTok owner Byte Dance, warning them to curb
Speaker 1: their excesses joining a global rush by governments to regulate
Speaker 1: big tech once again Ali Baba's Joe Tsig. Globally, the
Speaker 1: trend is that regulators will be more keen to look
Speaker 1: at some of the areas where you could have unfair competition.
Speaker 1: Sam Paulmisano knows what it is to run a tech
Speaker 1: giant the government wants to regulate from his time as
Speaker 1: CEO of IBM, when the U. S Government and the
Speaker 1: European Commission we're both pursuing IBM. We asked him to
Speaker 1: evaluate the Chinese moves to restrict big tech and how
Speaker 1: they compare with US efforts. If you go back, I'll
Speaker 1: start with China first and they'll get to the United States.
Speaker 1: But if go back in the early stages of technology
Speaker 1: or in emerging economic opportunities, to view it broadly, government's
Speaker 1: always trying to provide in sentence or clear a path
Speaker 1: for companies, and that started really in fintech in China,
Speaker 1: and basically, you know, I was over there a lot
Speaker 1: when I was working, and it was clear from the
Speaker 1: central banking system that they wanted to be able to
Speaker 1: get more liquidly going to small businesses and the Stono
Speaker 1: state on enterprise banks are really focused on midsize to
Speaker 1: large companies, so they gave a lot of flexibility in
Speaker 1: the regulations. So let these guys get going, and they
Speaker 1: did a phenomenal job. They get really big. Unless they
Speaker 1: get really big, the government decides that we need to
Speaker 1: bring them back into the banking system and therefore create
Speaker 1: the holding company and subject them to more regulation. At
Speaker 1: the time, that really struck me that after there was
Speaker 1: that record fine imposed against Ali Baba, Ali Baba thanked
Speaker 1: the regulators for the fine. I don't remember IBM back
Speaker 1: in your day thanking the federal government for pursuing them. Well,
Speaker 1: you know, we we uh, as I used to say.
Speaker 1: And when I was the CEO, I'm elected every year
Speaker 1: by the shareholders. Uh So it's a different system, you
Speaker 1: know here versus there. Uh But I really mean, I
Speaker 1: mean I could see that. Why if you are operated
Speaker 1: in China, you need to maintain a close relationship and
Speaker 1: partnership with the government because they can impact your business
Speaker 1: either positively negatively, in a very direct way, in a
Speaker 1: very quick and direct way. Does that suggest that China
Speaker 1: may have an easier time, if you can call it easy,
Speaker 1: really getting their control over the big tech companies in
Speaker 1: China because of that different relationship than for example, Washington
Speaker 1: would have with the big tech here in the United States.
Speaker 1: When you think about it, you know, it's not it's
Speaker 1: not it's not a the split government of any way.
Speaker 1: It's a centralized government and complete control. So if she
Speaker 1: usually main decides he does he wants to stop the
Speaker 1: ipl of it. He just stops the I P O
Speaker 1: of a you know, right, they don't have to go
Speaker 1: through the process. There's not checks and balances and those
Speaker 1: sorts of things. So therefore the government does have a
Speaker 1: lot of control and in a lot of a lot
Speaker 1: of the early stage government companies, I should say governments
Speaker 1: are actually active shareholders in those companies UH and over
Speaker 1: time they divest and sometimes they don't. An example be
Speaker 1: Lenovo what we did with UH selling the PC business
Speaker 1: and Lenovo, but at the early stage of that relationship,
Speaker 1: the Chinese government had about share of Lenovo. Now they've
Speaker 1: divested over time, but nonetheless that they come in and
Speaker 1: out of companies. At the same time, President has made
Speaker 1: it very clear he wants to compete in the world
Speaker 1: stage when it comes to tech. He's made that a
Speaker 1: priority of his. Does he have to be somewhat concerned
Speaker 1: about going too far and really curtailing big tech in
Speaker 1: China because it will be as competitive with for example,
Speaker 1: the United States. The kicks needs innovation, right, and there's
Speaker 1: a lot of the areas that they don't have the
Speaker 1: same expertise and experience and take entrepreneurship. I mean, there
Speaker 1: are a lot of great entrepreneurs in China, but not
Speaker 1: necessarily in tech in China. So therefore there's going to
Speaker 1: be a encouragement But I believe by the Chinese government
Speaker 1: for foreign investment in entrepreneurial endeavors, even though in other
Speaker 1: places they're trying to control foreign investment. UM. So you'll
Speaker 1: see this sort of almost like it's uh split perspective
Speaker 1: or split uh interactions. Some areas are gonna say they
Speaker 1: want to uh indigenous innovation, but they need foreign help, uh,
Speaker 1: and that's how they'll pursue it. In my opinion, look
Speaker 1: at Hong Kong, for example, they're getting more controlled Hong Kong,
Speaker 1: but they're putting tax in set ups to attract hedge
Speaker 1: funds and wealthy people to Hong Kong. So you see
Speaker 1: this isn't that aren't they counter counter interests of each other?
Speaker 1: The communist system of socialism, or as attracting hedge funds
Speaker 1: and large wealthy people. Well, they're very pragmatic, you know,
Speaker 1: and depending upon their goals they will adjust. Well, it
Speaker 1: seems thus partly perhaps we're working in Hong Kong because
Speaker 1: you see a lot of new money managers being created
Speaker 1: in Hong Kong and a lot of big banks, including
Speaker 1: US banks, increasing their personnel in Hong Kong despite all
Speaker 1: the civil unrest. There's a during sytums to do that.
Speaker 1: And like you know, companies learn like we learn. You
Speaker 1: operate with any system that you operate within um you know,
Speaker 1: in some ways, and I know this sounds crazy, but
Speaker 1: there's more stability and essentially controls governments than there isn't
Speaker 1: our system because every four years you get a whole
Speaker 1: new set of priorities. So you could argue that once
Speaker 1: you adjust to their systems and you work within their systems,
Speaker 1: there's much more stability over time and from a business perspective,
Speaker 1: give you more certainty of investment. If you go back
Speaker 1: in history, the federal government in the United States has
Speaker 1: tried to regulate technology. IBM certainly they went after they
Speaker 1: went after Microsoft. Do you think looking back and it
Speaker 1: did curtail innovation. You talked about China having to be careful.
Speaker 1: It didn't curtail innovation. There's no doubt about it. If
Speaker 1: you look at all of us went through it. What
Speaker 1: happens is that as you're going through the process, as
Speaker 1: they're trying to split you up or any trust, you
Speaker 1: are so focused on those cases of the government involvement
Speaker 1: you spend you tend to miss shifts in the technology.
Speaker 1: And that happened to have you have the IPM, Microsoft,
Speaker 1: A T and T all of us. I mean you
Speaker 1: just want could hissue of these things and that could
Speaker 1: happen here that the more government involvement that there happens
Speaker 1: to be, you will curtail innovation. Uh, and that's a tradeoff.
Speaker 1: I don't know that governments look at it that way,
Speaker 1: and I really don't think they worry about that because
Speaker 1: their view will be that, look, we created more competitives.
Speaker 1: So yes, your company is not as innovative as it
Speaker 1: was before. We look at all these other companies that
Speaker 1: we're created because we the baby bells in the A
Speaker 1: T example, you know alternatives that IBM, Microsoft in the
Speaker 1: PC into etcetera, etcetera. That was Wall Street. We contributed
Speaker 1: Sam paulms out out coming up how the economy looks
Speaker 1: from the top of one of America's with leading banks.
Speaker 1: We talked with Brian moynihan, a Bank of America. That's
Speaker 1: next on Wall Street Week on Bloomberg. This is Bloomberg
Speaker 1: Wall Street Week with David Weston from Bloomberg Radio. The
Speaker 1: Federal Reserve can putting money into this system by increasing
Speaker 1: the money supply. That if banks are unwilling to lend
Speaker 1: it to corporations because they are afraid of bad loans
Speaker 1: and rescue loans and write offs, then the private economy
Speaker 1: will suffer. That was Pimco's Bill Gross on Wall Street Week.
Speaker 1: Back in this week, bank lending was back in the
Speaker 1: news again as the banks posted eye popping numbers despite
Speaker 1: sluggish loan growth. As in the Federal Reserve has done
Speaker 1: its part in putting money into the system, but this
Speaker 1: time it's not because the banks are reluctant to lend. No,
Speaker 1: this time is that the government has given a lot
Speaker 1: of money to households that have used it to pay
Speaker 1: off debt, leaving less reason to borrow. We talked with
Speaker 1: the head of one of the biggest lenders of the country.
Speaker 1: He's Brian moynihan, a backup America, and we asked him
Speaker 1: what this says about the economy going forward. Yeah, this
Speaker 1: is a healthcare crisis, and the very good news is
Speaker 1: you're seeing the vaccine numbers go up. You're seeing the
Speaker 1: ability then to reopen without the risk that the governments
Speaker 1: can do in the states and cities and towns, and
Speaker 1: you're seeing people move around. So are spending levels for
Speaker 1: our Bank of American consumer customer base or record in
Speaker 1: the first quarter March is the biggest month ever. If
Speaker 1: you go back and compared to nineteen, they're up and
Speaker 1: so divide that by two, it's up ten percent a year,
Speaker 1: which is much faster than they were growing in fifteen
Speaker 1: and sixteen seventeen. So there's a bigger number growing at
Speaker 1: a faster rate. And yet people still have a lot
Speaker 1: of the stimulus in their accounts and haven't spent it.
Speaker 1: So the world still has a group. We have a
Speaker 1: group of Americans and a group of people around the
Speaker 1: world who you know aren't back to work yet, and
Speaker 1: we need to get that done. Whose businesses can't open
Speaker 1: yet because the nature of them. We've got to get
Speaker 1: those done, but a big part of the economy, and
Speaker 1: I think our predictions for economy across over the next
Speaker 1: couple of quarters to be bigger than it was before
Speaker 1: the pandemic is is open and operating, and the consumers
Speaker 1: are spending money, and that's a good news. And then
Speaker 1: when you translate the Bank of America, what you're seeing
Speaker 1: is our depositor way up because that money went into
Speaker 1: people's accounts and it's sitting there. But our loans are
Speaker 1: not as you fell, because largely because people are paying
Speaker 1: us off because they have so much cash sitting around.
Speaker 1: So now the commercial side, we expect that to change.
Speaker 1: The economy growing at seven percent, which is what we predict,
Speaker 1: it would require companies to borrow to service at economy.
Speaker 1: It's just that company has had a lot of cash too.
Speaker 1: So we look for more long growth as year progresses.
Speaker 1: But the good news is the customer consumers in good shape.
Speaker 1: There's an unemployment issue. We've got to get that the
Speaker 1: rest of the way down to where it should be.
Speaker 1: The business has got to get open. That couldn't be.
Speaker 1: But by and large, a big portion economy is up
Speaker 1: and operating very well. Back over here is a very
Speaker 1: special viewpoint into the America coutomy because you have such
Speaker 1: a consumer, such a retail presence, and also the middle
Speaker 1: market you really deal with small and medium sized enterprise
Speaker 1: across the country. Are you see any pickup in the
Speaker 1: borrowing from your medium sized companies yet? If we've sent
Speaker 1: it bump along the bottom usage of our business banking segment,
Speaker 1: which is fifty million under revenue companies in our metal
Speaker 1: market which is to an half billion, we're seeing the
Speaker 1: line US it's really pretty flat. But the goodness is
Speaker 1: a quick going down. We saw in the months during
Speaker 1: the quarter January fe Everry March, it got a little
Speaker 1: stronger origination activity meaning uh, you know, new clients and
Speaker 1: new deals done. Is still is strong. Bodes well for
Speaker 1: the for the year. But but we've got to see
Speaker 1: it comes through um. And that goes back to those
Speaker 1: companies having a lot of cash and had to run
Speaker 1: very efficiently during the crisis because you didn't know what
Speaker 1: happened next and and and now they're gonna be you
Speaker 1: need to start spending money on supplies and things to
Speaker 1: redo their inventory. Now. The one thing I think we
Speaker 1: all have to be mindful is we've got to get
Speaker 1: the trade. The trade is growing fast out you know,
Speaker 1: into the country, but the ports and things still need
Speaker 1: to get straightened out because of just the dynamics of
Speaker 1: the virus and the supply chains are still iron out.
Speaker 1: So I think one of the things I worry about
Speaker 1: from mid sized companies king that they get the supplies
Speaker 1: to do do what they do. So you've heard about
Speaker 1: lumber prices or residant things like that. I think it
Speaker 1: little straight out. We hope it will straight now. But
Speaker 1: that's the next sort of channel outside the healthcare. The
Speaker 1: next challenge to get the supply chains really up in
Speaker 1: oil and greased and running through to serve that fast
Speaker 1: growing economy. So when you're talking about settling down, one
Speaker 1: thing that doesn't seem to be settling down yet the spacks,
Speaker 1: those special purpose acquisition companies. How much of your equity business,
Speaker 1: because you had a pretty robust quarter and equities, how
Speaker 1: much of other SPACs? And do you expect that to continue? Yeah,
Speaker 1: whether it continues not going to do some of the dynamics,
Speaker 1: and we do we do selective ones were not as
Speaker 1: big in the business as other people and and that's fine,
Speaker 1: and in different times we're stronger and investment grade issuance
Speaker 1: and other people are stronger and and spacts, and that's
Speaker 1: fine with us, and we go forward. But you know,
Speaker 1: it seems to be holding on right now. Let's talk
Speaker 1: about yields. The yields have been pushing up on fixed
Speaker 1: income despite the fact that this week actually we had
Speaker 1: a downturn that maybe a flip flip or not. But
Speaker 1: it's really important to Bank of America given the way
Speaker 1: your business works, what the ten year yield on this
Speaker 1: treasury is, and what the yield curve is, the spread
Speaker 1: between the twos and the tens. What are you projecting
Speaker 1: for the rest of the year. Many people think that
Speaker 1: yields are just going to keep marching up. We're all
Speaker 1: projecting that, and so we're up over the ten year,
Speaker 1: got up to one seventy plus. And the reality is
Speaker 1: if the economic activities picking up and and prices are
Speaker 1: picking up what you've seen unemployments going down, you know,
Speaker 1: the yield curve will start to normalize. And you saw
Speaker 1: that start to happen as we came in out of
Speaker 1: last year fourth quarter in the first quarter. That helps
Speaker 1: us because as a curve gets higher, that we can
Speaker 1: make more money from the loans and other things we do. Now,
Speaker 1: what's really important to us, honestly is short rates and
Speaker 1: the questions when the Fed raises rates. The market has
Speaker 1: it pretty well deferred, and they've been clear that they
Speaker 1: want to see the inflation levels. They've share pals talked
Speaker 1: about they want to see the unemployment numbers, and they've
Speaker 1: been clear about that. The question is whether it will
Speaker 1: happen faster than they they have in their projections as
Speaker 1: that even they have projections at six percent plus for
Speaker 1: GDP growth this year, and so we'll see when those rates.
Speaker 1: But that's the that's the quicker route to success for
Speaker 1: us because we have all we have all these no
Speaker 1: interest bearing deposits that instantaneously you're worth more that we
Speaker 1: don't have to do any more work. Thanks the Bank
Speaker 1: of America Chairman and CEO, Brian moynihan. Coming up, we
Speaker 1: wrap up the week with special Wall Street Week contributed
Speaker 1: Larry Summers of Harvard. That's next on Wall Street Week
Speaker 1: on Bloomberg. This is Bloomberg Wall Street Week with David
Speaker 1: Weston from Bloomberg Radio. As we do every week, we're
Speaker 1: gonna wrap up the week with our special contributor. Here's
Speaker 1: Larry Summers, Oh Harvard, Larry, welcome back. Great to have
Speaker 1: you here. Let's talk about inflation. And we've talked about
Speaker 1: on this program. You've talked about elsewhere quite a few times.
Speaker 1: But this week. This week we had the Council Economic
Speaker 1: Advisors put out a blog post, a fairly long essay
Speaker 1: that I'm not sure, but I think it might have
Speaker 1: been responding to you. They think we don't have a
Speaker 1: long term problem. What do you say. I read the
Speaker 1: CEA analysis pretty carefully. I can't say put my mind
Speaker 1: at ease. Here are some things that didn't talk about.
Speaker 1: Didn't talk about the housing market on fire more than
Speaker 1: any time since the statistics were being created. Didn't talk
Speaker 1: about all the employers who reported that they were having
Speaker 1: difficulty finding UH labor, or the fact that the vacancy
Speaker 1: rate is already back to UH normal levels. Didn't talk
Speaker 1: about the purchasing manager surveys would show things UH to
Speaker 1: be an unprecedented territory. Didn't talk about the largest one
Speaker 1: quarter movement upwards in ten year bond yields in UH decades.
Speaker 1: It didn't talk about the consequences for inflation psychology of
Speaker 1: a change in the policy regime, away from preempting inflation
Speaker 1: towards UH pre empting the idea of doing something about
Speaker 1: UH inflation. It argued that there was gonna be a
Speaker 1: variety of transient factors that would lead to high inflation.
Speaker 1: Now it's right about that, but that's a little bit
Speaker 1: like arguing that we're about to have a blizzard, but
Speaker 1: doesn't mean anybody should worry about how bad the winter
Speaker 1: is going to be. So there are no certainties, and
Speaker 1: god knows, economists aren't very good at forecasting UH inflation.
Speaker 1: But if you look at the overheating economy theory of inflation,
Speaker 1: looks like we're headed towards an overheating economy. If you
Speaker 1: look at the monitorius theory of inflation, money aggregates are
Speaker 1: growing at unprecedented rates. If you look at the fiscal
Speaker 1: theory of inflation, we're in an unprecedented UH fiscal experiment.
Speaker 1: So it certainly didn't convince me that one should be
Speaker 1: relaxed about inflation. And David, I have to say that
Speaker 1: the frequency with which people return to this argument and
Speaker 1: debate suggests to me that there is a certain amount
Speaker 1: of discomfort and UH concern out there. But we'll see
Speaker 1: what happens, and I don't think we'll know, uh for
Speaker 1: eighteen months or so, uh what the consequences of the
Speaker 1: experiment we're engaged in are. But so far, nothing's happened
Speaker 1: that has given me any reassurance. And if anything, the
Speaker 1: flow of the numbers has been more rapid than I
Speaker 1: would have expected and more cause for concern. Let's talk
Speaker 1: about growth. Uh. We've long heard about how delightful it
Speaker 1: is to have global synchronized growth. Right now, it doesn't
Speaker 1: look like we're headed there. We have asynchronous growth. We
Speaker 1: certainly have China doing quite well. The United States apparently
Speaker 1: has headed at least for a year or so, into
Speaker 1: pretty robust growth. On the other hand, Europe seems to
Speaker 1: be lagging behind. And then don't even get me started
Speaker 1: about some of the emerging markets. They seem to be
Speaker 1: really suffering quite a bit. What are the risks in
Speaker 1: that kind of asymmetry in the global economy, you know,
Speaker 1: to paraph paraphrase dickens, we may be headed for a
Speaker 1: tale of two worlds, between the US and China on
Speaker 1: the one hand, and large parts of the developing world
Speaker 1: on the other. I heard a debate the other day,
Speaker 1: and it's the most depressing debate I've heard in a
Speaker 1: long time about whether when you look at Latin America
Speaker 1: and Africa and even parts of India, you're gonna be
Speaker 1: looking at a lost decade or you're gonna be looking
Speaker 1: at a lost generation. We just have not seen remotely
Speaker 1: the kind of boldness and imagination that we've seen in
Speaker 1: responding to this with monetary and fiscal policy for the
Speaker 1: rich countries like the United States. In some of the
Speaker 1: poorest countries said to have that kind of effort requires
Speaker 1: the international system to step up, and so far it's
Speaker 1: really stepped up in a rather inadequate way. I think
Speaker 1: this is gonna have huge political consequences for our security,
Speaker 1: not to mention the tragic consequences for millions, if not
Speaker 1: ten millions of people. At the same time. I can
Speaker 1: hear in my head some people up on Capitol Hill,
Speaker 1: I will say, they tend to be Republicans, maybe not exclusively,
Speaker 1: who say, why is that our problem? You heard that
Speaker 1: in some of the exchanges with Janet yell In, the
Speaker 1: Secretary of Treasury actually over the SDR of the Special
Speaker 1: Drawing Rights contest about the a m F, which basically,
Speaker 1: why are we helping out the rest of the world.
Speaker 1: I'll tell you why, because there's one human gene pool.
Speaker 1: The longer this is out there, the more it evolves.
Speaker 1: The more it evolves, the greater the risk that our
Speaker 1: vaccines won't keep us immune and the Americans will start
Speaker 1: dying in large quantity again, that we'll have to lock
Speaker 1: up and closed down again. This is not a charitable endeavor.
Speaker 1: This is forward defense of our global interests. And look,
Speaker 1: I'm I'm as worried as anybody about China. I'm as
Speaker 1: worried about anybody as Russia. But frankly, over the next decade,
Speaker 1: I think we've got more to fear from microbes than
Speaker 1: we do from shijin ping. So let's wrap up this
Speaker 1: week with a lightning around here. If Summer says number one,
Speaker 1: let me ask you, do you think that we'll have
Speaker 1: a ten year yield at three percent before we get
Speaker 1: down to four percent on the unemployment number. It's a race,
Speaker 1: my guesses will get to the four percent unemployment rate first,
Speaker 1: because we'll get to it this year. Uh. And secondly,
Speaker 1: there's a lot of talking about in income, inequality, income
Speaker 1: and wealth and equality this country. It's been great and
Speaker 1: growing for some time. A lot of people say we
Speaker 1: have to fix it, including J. Powell at the Federal Reserve.
Speaker 1: If you're going to really address that issue, can you
Speaker 1: do it through fiscal policy or other means, or do
Speaker 1: you need labor law reform such as President Biden is
Speaker 1: trying to implement. I hesitate ever to use the word need,
Speaker 1: but I'll say this, we sure could use UH labor
Speaker 1: law reform UH in UH this country. I think it's
Speaker 1: something where we Democrats have not been aggressive enough UH
Speaker 1: for a long time. The impunity with which employers can
Speaker 1: break up union organizing efforts and fire union organizers with
Speaker 1: only a slap on the wrist is a national embarrassment
Speaker 1: and it is something that should be changed very quickly.
Speaker 1: Beyond that, we we we need to think about our
Speaker 1: approaches to UH labor bargaining because there's certainly some excesses
Speaker 1: in the other direction, and we need to find some
Speaker 1: new models. But I think we're not going to change
Speaker 1: this fundamentally enough unless we change what's happening in workplaces
Speaker 1: as well as changing national fiscal policies. And finally, there
Speaker 1: are you, of course, word Secretary Treasury age or at
Speaker 1: the end of the week. On Thursday, we heard the
Speaker 1: United States government they're gonna impose new sanctions on Russia
Speaker 1: for that solar wind hack, as well as for inference
Speaker 1: in the election, And part of the sanctions were really
Speaker 1: specifically on Russian sovereign debt. From your experience, is that
Speaker 1: a gesture or could it actually change Russian behavior? How
Speaker 1: effective is that sort of sanction? I think it has
Speaker 1: I think it has some impact. But it's easier to
Speaker 1: be critical of sanctions than it is to identify an alternative.
Speaker 1: When countries do things that are sufficiently wrong from our viewpoint,
Speaker 1: and we don't and we want to do more than talk,
Speaker 1: and God knows we don't want to do anything violent,
Speaker 1: there's a tendency for policy to go to sanctions, and
Speaker 1: it's probably the best of bad alternatives. Okay, thank you
Speaker 1: so very much to our Wall Street Weeks special contrainer
Speaker 1: Larry Summers of Harvard University. Finally, one more thought, Bernie
Speaker 1: made off. This week Wall Street lost one of its
Speaker 1: most infamous villains. We all know the story of the
Speaker 1: man who spent decades building an investment fund that didn't invest,
Speaker 1: who told his investors they were worth sixty five billion dollars.
Speaker 1: That wasn't there who took advantage of the rich and
Speaker 1: the famous, and the not so rich and the not
Speaker 1: so famous, his close friends, and even the endowment of
Speaker 1: the Orthodox University whose board he chaired. This week, Bernie
Speaker 1: Madoff died in prison like Charles Ponzi did seventy years ago.
Speaker 1: The man who gave his name to the scheme made off, copied,
Speaker 1: and then took to a scale no one could have imagined.
Speaker 1: When something as big and as bad as Bernie made
Speaker 1: us crime happens, we all look for some larger meaning.
Speaker 1: Does it show us that we're all gullible, that we're
Speaker 1: all greedy, that we are all too willing to wish
Speaker 1: ourselves to success even when it's too good to be true.
Speaker 1: Does it tell us that no matter how much we
Speaker 1: may regulate, we can never regulate our way to integrity?
Speaker 1: Or maybe, just maybe it's an important reminder that there
Speaker 1: are some people who are out there who and there
Speaker 1: is no other word for it, at evil in their heart.
Speaker 1: But they're rare, and the willingness of the rest of
Speaker 1: us to trust despite knowing they are out there is
Speaker 1: what makes it all work in the end, isn't it
Speaker 1: that does it. For this episode of Wall Street Week,
Speaker 1: I'm David Weston. This is Bloomberg. See you next week.