1 00:00:11,119 --> 00:00:14,600 Speaker 1: Hello, and welcome to another episode of the Thoughts Podcast. 2 00:00:14,720 --> 00:00:18,720 Speaker 1: I'm Tracy Allaway and I'm Joe. WI isn't thal So, Joe, 3 00:00:18,840 --> 00:00:24,640 Speaker 1: you know all those economic recovery shape letters that everyone's 4 00:00:24,680 --> 00:00:31,120 Speaker 1: talking about. Yes, W V U, L lowercase v M, 5 00:00:31,680 --> 00:00:37,080 Speaker 1: the square root sign. OK, I've seen them all. There's 6 00:00:37,080 --> 00:00:40,199 Speaker 1: some really esoteric ones out there. So what do you 7 00:00:40,240 --> 00:00:43,440 Speaker 1: think is the most sort of parish out of all 8 00:00:43,479 --> 00:00:48,479 Speaker 1: those shapes or letters or symbols or whatever. That's a 9 00:00:48,520 --> 00:00:52,040 Speaker 1: good question. I mean probably I guess the L or 10 00:00:52,120 --> 00:00:55,480 Speaker 1: the U something like that. I mean anything that doesn't 11 00:00:55,600 --> 00:00:58,560 Speaker 1: isn't premised on there being some sort of snap by. Also, 12 00:00:58,680 --> 00:01:01,280 Speaker 1: maybe just the eye just as straight letter down, they 13 00:01:01,400 --> 00:01:04,760 Speaker 1: just never never comes back. I suppose that's a possibility 14 00:01:04,800 --> 00:01:07,720 Speaker 1: to that people don't talk about. I'm glad you said 15 00:01:07,800 --> 00:01:11,640 Speaker 1: I so, I actually hadn't heard that many people talking 16 00:01:11,680 --> 00:01:14,280 Speaker 1: about this letter. But yes, there is an eye shaped 17 00:01:14,360 --> 00:01:17,959 Speaker 1: economic recovery which is a straight line going down. So 18 00:01:18,240 --> 00:01:21,919 Speaker 1: it's really not an economic recovery at all. And um, 19 00:01:21,959 --> 00:01:24,720 Speaker 1: it's probably the most parish of all the forecast. And 20 00:01:24,840 --> 00:01:27,479 Speaker 1: the person we're going to speak to today is someone 21 00:01:27,600 --> 00:01:33,680 Speaker 1: who has written about that. I possibility yes, so, um, 22 00:01:34,000 --> 00:01:37,080 Speaker 1: I'm looking forward to our talk today. It's someone who's 23 00:01:37,280 --> 00:01:39,880 Speaker 1: going to be very well known to our audience who 24 00:01:39,959 --> 00:01:42,240 Speaker 1: in the past, and I don't even know if it's 25 00:01:42,360 --> 00:01:45,319 Speaker 1: rightly or wrongly. I'm not even sure where he uh 26 00:01:45,400 --> 00:01:49,800 Speaker 1: if he always embraced the nickname, but nonetheless his nickname 27 00:01:50,920 --> 00:01:54,360 Speaker 1: doctor Doom became many people would have heard it during 28 00:01:54,400 --> 00:01:57,000 Speaker 1: the last crisis. Yeah, and I think as soon as 29 00:01:57,040 --> 00:01:59,600 Speaker 1: you say the name doctor Doom, everyone knows who we're 30 00:01:59,600 --> 00:02:02,880 Speaker 1: going to be talking about. But it's Neureal Rubini, the 31 00:02:02,960 --> 00:02:08,959 Speaker 1: chairman of Rubini Macro Associates, and he's known well, he's 32 00:02:09,000 --> 00:02:12,440 Speaker 1: known for forecasting the previous financial crisis back in two 33 00:02:12,440 --> 00:02:17,359 Speaker 1: thousand eight, but he's also known for pretty bearish prognostications. 34 00:02:17,440 --> 00:02:20,880 Speaker 1: And uh, it's been very parish of late, has it not. 35 00:02:21,240 --> 00:02:24,000 Speaker 1: Things have not been great, So I guess I would 36 00:02:24,040 --> 00:02:27,680 Speaker 1: say that that is a safe call. Alright, understatement of 37 00:02:27,720 --> 00:02:30,839 Speaker 1: the year. Okay, Well, without further ado, then let's bring 38 00:02:30,880 --> 00:02:33,880 Speaker 1: on neur Real Rubini. Neurial, it's so great to have you, 39 00:02:33,919 --> 00:02:36,880 Speaker 1: thanks so much for coming on the show. Great to 40 00:02:36,919 --> 00:02:40,359 Speaker 1: being with you today. It's a pleasure, so Neurial, Joe 41 00:02:40,400 --> 00:02:42,520 Speaker 1: and I were sort of joking just then, But you 42 00:02:42,560 --> 00:02:46,840 Speaker 1: do have the Doctor Doom moniker. Do you feel I 43 00:02:46,840 --> 00:02:51,079 Speaker 1: guess vindicated isn't the right word given current events, But 44 00:02:51,280 --> 00:02:54,080 Speaker 1: do you feel that you are living up to that 45 00:02:54,200 --> 00:02:59,680 Speaker 1: doom reputation? Well, usually I say that I'm doctor really 46 00:02:59,720 --> 00:03:02,679 Speaker 1: is not Dr Doom. If you look at the last decades, 47 00:03:03,400 --> 00:03:06,160 Speaker 1: I have not been negative all the time. Whether a 48 00:03:06,320 --> 00:03:08,799 Speaker 1: risk of episodes, I pointed them out. When there was 49 00:03:08,880 --> 00:03:12,600 Speaker 1: economic and market recovery, I pointed it out as well. 50 00:03:12,800 --> 00:03:16,200 Speaker 1: So it's not as if I'm permanently at perma bear. 51 00:03:16,400 --> 00:03:20,560 Speaker 1: I think that would be a mischaracterization of my views. Um, 52 00:03:20,600 --> 00:03:24,960 Speaker 1: so call me Dr Realists. Something I'm curious about is, 53 00:03:25,000 --> 00:03:28,360 Speaker 1: you know, we see these economists forecast right now. They're like, okay, 54 00:03:28,480 --> 00:03:34,000 Speaker 1: Q two GDP is going to plunge, and then maybe 55 00:03:34,040 --> 00:03:36,360 Speaker 1: we'll have a small recovery in Q three, and then 56 00:03:36,400 --> 00:03:38,680 Speaker 1: maybe we'll have a real bust recovery keyboard, whatever it is, 57 00:03:39,240 --> 00:03:42,600 Speaker 1: How do you go about the process of making a 58 00:03:42,640 --> 00:03:49,000 Speaker 1: recovery forecast? How does anyone while separating them that recovery 59 00:03:49,040 --> 00:03:51,280 Speaker 1: from the policy response, Because of course we got the 60 00:03:51,360 --> 00:03:53,720 Speaker 1: Cars Act at the end of March, and that probably 61 00:03:54,040 --> 00:03:58,200 Speaker 1: helps slow down the crash somewhat, But it seems hard 62 00:03:58,320 --> 00:04:00,960 Speaker 1: to make any sort of forecas usked about Q four 63 00:04:01,080 --> 00:04:04,240 Speaker 1: or Q one of next year without having of you 64 00:04:04,560 --> 00:04:08,960 Speaker 1: on how robust uh the policy response from both the 65 00:04:09,000 --> 00:04:11,920 Speaker 1: Fed and fiscal authorities will continue to be throughout the 66 00:04:11,960 --> 00:04:15,120 Speaker 1: course of this year. Well, usually when there is a recession, 67 00:04:15,440 --> 00:04:18,240 Speaker 1: it's very hard to make a forecast about the length 68 00:04:18,240 --> 00:04:22,159 Speaker 1: of it, and the shape of the recovery by definition, 69 00:04:22,360 --> 00:04:26,720 Speaker 1: is a change in regime, and even traditional economic forecasting 70 00:04:26,760 --> 00:04:30,440 Speaker 1: models essentially break down because those models don't tend to 71 00:04:30,440 --> 00:04:33,920 Speaker 1: predict recessions. So once you are in a recession or 72 00:04:34,000 --> 00:04:37,000 Speaker 1: financial crisis, you have to ask yourself in a more 73 00:04:37,360 --> 00:04:40,560 Speaker 1: i would say qualitative way rather than a quantitative one, 74 00:04:41,200 --> 00:04:43,320 Speaker 1: what is going to be in the shape of the 75 00:04:43,320 --> 00:04:46,760 Speaker 1: economic recovery. So, for example, you know, I wrote a 76 00:04:46,760 --> 00:04:50,719 Speaker 1: recent paper with my global economic outlook with my research colleagues, 77 00:04:50,760 --> 00:04:55,560 Speaker 1: and we argued that there are three scenarios. One is 78 00:04:55,920 --> 00:04:58,920 Speaker 1: what we call the greater recession will be more like 79 00:04:59,000 --> 00:05:03,080 Speaker 1: a YOU shape coovery. Second one is a downside scenario 80 00:05:03,200 --> 00:05:07,400 Speaker 1: quality depression as shaped. And then there is a upside 81 00:05:07,400 --> 00:05:11,159 Speaker 1: scenario of a V shape recovery. Now, markets for the 82 00:05:11,200 --> 00:05:15,120 Speaker 1: last few weeks, especially US equities, seem to be pricing 83 00:05:15,600 --> 00:05:18,480 Speaker 1: a V shaped recovery in that paper, and a lot 84 00:05:18,560 --> 00:05:20,960 Speaker 1: of time to go on every point of it. But 85 00:05:21,120 --> 00:05:26,520 Speaker 1: we present about fourteen separate factors why we believe that 86 00:05:26,880 --> 00:05:29,720 Speaker 1: the recover is going to be YOU shaped rather than 87 00:05:29,800 --> 00:05:33,239 Speaker 1: V shaped. Now, those predictions are not based on a 88 00:05:33,279 --> 00:05:37,840 Speaker 1: formal econometric models, because by definition those forecasting models are 89 00:05:38,000 --> 00:05:40,919 Speaker 1: useless when we are in the depth of recession. But 90 00:05:41,000 --> 00:05:43,960 Speaker 1: you're trying to understand what's going to be the economic 91 00:05:44,040 --> 00:05:48,520 Speaker 1: dynamic of the behavior of the private sector, households and corporates, 92 00:05:48,640 --> 00:05:50,920 Speaker 1: what's going to be the policy response, And of course 93 00:05:51,200 --> 00:05:54,360 Speaker 1: any prediction you make on the shape of the recovery 94 00:05:54,400 --> 00:05:59,200 Speaker 1: of economies and markets depends on the policy response. We 95 00:05:59,240 --> 00:06:02,240 Speaker 1: know a lot of the policy response, how strong it 96 00:06:02,320 --> 00:06:04,960 Speaker 1: has been in the United States, are strong, but not 97 00:06:05,080 --> 00:06:09,159 Speaker 1: as strong in Europe and Japan more constraining emerging markets. 98 00:06:09,200 --> 00:06:13,200 Speaker 1: So an economic forecast, of course makes also predictions about 99 00:06:13,200 --> 00:06:18,600 Speaker 1: the policy pat monetary policy, fiscal policy, credit policy, regulatory 100 00:06:18,640 --> 00:06:21,520 Speaker 1: policy in this case of course help policy, because we 101 00:06:21,560 --> 00:06:25,120 Speaker 1: have to decide how fast or how slowly to reopen 102 00:06:25,440 --> 00:06:28,640 Speaker 1: and you feed that one into your essentially model in 103 00:06:28,720 --> 00:06:32,040 Speaker 1: terms of predicting the shape of the recovery. So certainly 104 00:06:32,080 --> 00:06:35,200 Speaker 1: the shape of the recovery is not independent from the 105 00:06:35,240 --> 00:06:38,480 Speaker 1: policy response, and you can make sense of that policy response. 106 00:06:38,880 --> 00:06:41,960 Speaker 1: We we're already front loaded in one month in terms 107 00:06:41,960 --> 00:06:46,000 Speaker 1: of unconventional amountary fiscal policy. What it took about three 108 00:06:46,120 --> 00:06:50,200 Speaker 1: years during the global financial crisis to occur. The entire 109 00:06:50,240 --> 00:06:54,159 Speaker 1: tool kit of unconventional tools that affect created between two 110 00:06:54,160 --> 00:06:57,839 Speaker 1: thousand and seven thousand and nine have been redeployed in 111 00:06:57,920 --> 00:07:01,240 Speaker 1: less than amounts because were there and they were available, 112 00:07:01,360 --> 00:07:04,719 Speaker 1: and they made the decision of of going in front 113 00:07:04,720 --> 00:07:07,719 Speaker 1: clothing and they created even new ones, like, for example, 114 00:07:07,800 --> 00:07:11,360 Speaker 1: purchasing corporate bonds is something that the fact did not 115 00:07:11,440 --> 00:07:14,080 Speaker 1: do during the global financial crisis, And not only the 116 00:07:14,480 --> 00:07:18,240 Speaker 1: started to purchase high grade investment grade, but they've also 117 00:07:18,280 --> 00:07:21,720 Speaker 1: now gone into willingness to purchase hid something they might 118 00:07:21,720 --> 00:07:24,800 Speaker 1: do is very risky, but changes completely, for example, the 119 00:07:24,880 --> 00:07:29,480 Speaker 1: dynamic of the recovery of spread products, including corporate bonds 120 00:07:29,560 --> 00:07:32,360 Speaker 1: high grade than yield. I want to dig into the 121 00:07:32,440 --> 00:07:35,200 Speaker 1: central pink response, but before we do, if we zoom 122 00:07:35,200 --> 00:07:38,880 Speaker 1: in on the US and talk about your forecast, which 123 00:07:38,920 --> 00:07:42,560 Speaker 1: is this U shaped recovery sort of length the road 124 00:07:42,640 --> 00:07:45,600 Speaker 1: back to economic health. What do you think is the 125 00:07:45,640 --> 00:07:50,320 Speaker 1: biggest factor in driving that scenario. Is it health policy 126 00:07:50,480 --> 00:07:53,720 Speaker 1: or is it economic and monetary policy? I guess another 127 00:07:53,760 --> 00:07:56,560 Speaker 1: way of asking that question is whether or not economic 128 00:07:56,640 --> 00:08:02,760 Speaker 1: and monetary policy can fully offset the impact of the coronavirus. Well, 129 00:08:02,800 --> 00:08:05,920 Speaker 1: I do take the policy respond as being very aggressive 130 00:08:06,120 --> 00:08:10,400 Speaker 1: both monetary credit and physical and that everything else equal 131 00:08:10,640 --> 00:08:14,800 Speaker 1: is positive for making sure that this recession is only 132 00:08:14,880 --> 00:08:17,480 Speaker 1: two quarters Q and and Q two and then there 133 00:08:17,560 --> 00:08:19,960 Speaker 1: is a recovery. But I think that there are many 134 00:08:20,040 --> 00:08:23,120 Speaker 1: factors that lead me to essentially express the view that 135 00:08:23,240 --> 00:08:27,920 Speaker 1: my baseline said sixty percent probability is a U shaped recovery, 136 00:08:28,040 --> 00:08:30,280 Speaker 1: and I signed only a twenty percent probability to the 137 00:08:30,400 --> 00:08:33,400 Speaker 1: V shaped recovery of the economy. The markets is a 138 00:08:33,440 --> 00:08:36,439 Speaker 1: different story. I think the main factors that would point 139 00:08:36,440 --> 00:08:39,199 Speaker 1: out are that on the health side, we know there's 140 00:08:39,240 --> 00:08:42,000 Speaker 1: going to be a second wave. The second wave could 141 00:08:42,000 --> 00:08:46,320 Speaker 1: occur already in July and August, depending on how fast 142 00:08:46,360 --> 00:08:49,079 Speaker 1: we reopen, and there is a temptation to reopen to 143 00:08:49,240 --> 00:08:52,200 Speaker 1: fast Cyconly, there will be another second wave or a 144 00:08:52,200 --> 00:08:54,600 Speaker 1: third wave in the winter when we are not going 145 00:08:54,679 --> 00:08:57,840 Speaker 1: to get a vaccine, and when the cold weather comes back, 146 00:08:58,400 --> 00:09:01,000 Speaker 1: we're gonna have it again. How severe is going to be, 147 00:09:01,080 --> 00:09:03,080 Speaker 1: we don't know, but we don't we know there's not 148 00:09:03,120 --> 00:09:05,600 Speaker 1: gonna be a vaccine by then, and depending on how 149 00:09:05,679 --> 00:09:08,160 Speaker 1: much we flattered the curve, it could be severe or 150 00:09:08,240 --> 00:09:11,040 Speaker 1: less severe. But I think that the fundamental reason why 151 00:09:11,080 --> 00:09:13,200 Speaker 1: I believe it's going to be you is that you 152 00:09:13,240 --> 00:09:16,720 Speaker 1: have two critical agents in the economy in the private sector, 153 00:09:17,120 --> 00:09:20,120 Speaker 1: households and corporations, and both of them are going to 154 00:09:20,160 --> 00:09:22,840 Speaker 1: be stressed. The household sector is going to be in 155 00:09:22,840 --> 00:09:26,360 Speaker 1: a situation which is effectively millions of people that have 156 00:09:26,400 --> 00:09:29,200 Speaker 1: lost jobs. Even when there is a reopening, many of 157 00:09:29,240 --> 00:09:31,320 Speaker 1: them are not going to regain their jobs, or if 158 00:09:31,320 --> 00:09:34,000 Speaker 1: there again, their jobs are going to be part time jobs, 159 00:09:34,040 --> 00:09:38,160 Speaker 1: in formal workers, gig workers, contractors, so their income generation 160 00:09:38,240 --> 00:09:40,800 Speaker 1: is going to be much weaker. So you have consumers 161 00:09:40,800 --> 00:09:44,880 Speaker 1: that are one shell shocked, two they're still scared of 162 00:09:44,920 --> 00:09:50,199 Speaker 1: the virus. Three their income challenged for their asset crashed. 163 00:09:50,679 --> 00:09:54,400 Speaker 1: Five their burden with a huge amount of that mortgages, 164 00:09:54,720 --> 00:09:59,800 Speaker 1: auto loans, student loans, consumer loans, credit cards, and anybody 165 00:10:00,120 --> 00:10:04,800 Speaker 1: sensible should be more precautionary in their consumption and saving behavior. Right, 166 00:10:04,960 --> 00:10:08,080 Speaker 1: there will be a massive increase in a precautionary savings 167 00:10:08,120 --> 00:10:10,920 Speaker 1: for any level of income. And your income is going 168 00:10:10,960 --> 00:10:13,840 Speaker 1: to be certain lower than before. So you have lower income, 169 00:10:14,080 --> 00:10:16,080 Speaker 1: you spend less, you save more. Why do you save 170 00:10:16,160 --> 00:10:21,199 Speaker 1: more because you know of us households allegedly have less 171 00:10:21,200 --> 00:10:23,880 Speaker 1: than four hundred dollars of cash in the case of 172 00:10:23,880 --> 00:10:26,560 Speaker 1: an emergency. So after what has happened, with the risk 173 00:10:26,600 --> 00:10:30,480 Speaker 1: of another shock coming from the corona, you're losing your job, 174 00:10:30,600 --> 00:10:34,200 Speaker 1: not regaining it. Better safe rather than sorry. So I 175 00:10:34,320 --> 00:10:38,079 Speaker 1: expect that the savings rate of the household sector is 176 00:10:38,120 --> 00:10:40,600 Speaker 1: going to be sharply up, and the investment of the 177 00:10:40,600 --> 00:10:44,280 Speaker 1: household sector, what's investment for household is purchases of homes 178 00:10:44,600 --> 00:10:46,439 Speaker 1: is going to be sharply down. Moved you own to 179 00:10:46,480 --> 00:10:49,520 Speaker 1: buy a home, you know, even with the lower mortgage rates, 180 00:10:49,520 --> 00:10:51,400 Speaker 1: and your credit score is going to be worse. So 181 00:10:51,440 --> 00:10:54,440 Speaker 1: you have higher saving your lower investment for households. Same 182 00:10:54,520 --> 00:10:57,720 Speaker 1: story for the corporate sector. The corporate sector, as we know, 183 00:10:57,960 --> 00:11:01,280 Speaker 1: was highly leveraged, leverage rational we have not seen in 184 00:11:01,320 --> 00:11:03,960 Speaker 1: the last forty years. For the corporate sector. This is 185 00:11:04,000 --> 00:11:07,160 Speaker 1: an accident waiting to happen, and every corporate will have 186 00:11:07,240 --> 00:11:11,679 Speaker 1: to survive reduce leverage. How you survive by reducing leverage 187 00:11:11,720 --> 00:11:14,760 Speaker 1: by cutting costs, labor costs and other costs. So you 188 00:11:14,760 --> 00:11:17,000 Speaker 1: have to increase your saving rate and you have to 189 00:11:17,080 --> 00:11:20,760 Speaker 1: cut on your capax option value of waiting. Right, there's 190 00:11:20,760 --> 00:11:22,920 Speaker 1: a lot of capacity. You don't know how recovery is 191 00:11:22,920 --> 00:11:25,760 Speaker 1: going to be, so you're gonna have an increasing savings 192 00:11:25,760 --> 00:11:30,040 Speaker 1: of the corporate reduction of capax. So the financial balances 193 00:11:30,080 --> 00:11:33,400 Speaker 1: of both households and corporates is the difference between their 194 00:11:33,440 --> 00:11:36,360 Speaker 1: savings and the investment. And they're going to improve improve 195 00:11:36,400 --> 00:11:38,520 Speaker 1: because they have to save more and they have to 196 00:11:38,520 --> 00:11:43,840 Speaker 1: cut spending on capax on residential While that's individually rational 197 00:11:44,120 --> 00:11:48,160 Speaker 1: in equilibrium, higher saving and lower investment means that depressed 198 00:11:48,200 --> 00:11:52,200 Speaker 1: economic recovery, even if the physical authority and even the 199 00:11:52,240 --> 00:11:56,360 Speaker 1: monitory authority are doing monitoring physical stamuls. So you have 200 00:11:56,400 --> 00:11:59,800 Speaker 1: one positive coming from the policy, but the deleveraging thes 201 00:11:59,840 --> 00:12:03,520 Speaker 1: to curve in the private sector leads you to this thing. Now, 202 00:12:03,760 --> 00:12:07,600 Speaker 1: during the global financial crisis, the households were highly leveraged, 203 00:12:07,840 --> 00:12:10,880 Speaker 1: and that this deleveraging. But the corporates were not as 204 00:12:10,960 --> 00:12:14,200 Speaker 1: leverage this time around. With high leverage of corporate and 205 00:12:14,320 --> 00:12:16,720 Speaker 1: high leverage of households, so both of them have to 206 00:12:16,760 --> 00:12:20,960 Speaker 1: be leveraged by increasing savings reducing investment. That's a recipe 207 00:12:21,000 --> 00:12:24,120 Speaker 1: for a you shaped recovery. There are many other factors, 208 00:12:24,120 --> 00:12:26,079 Speaker 1: but that's a key argument. But why it's going to 209 00:12:26,160 --> 00:12:28,040 Speaker 1: be a you rather than a V And I think 210 00:12:28,040 --> 00:12:31,520 Speaker 1: it makes a compelling argument when you talk about sort 211 00:12:31,559 --> 00:12:36,600 Speaker 1: of the quasitive behavioral ramifications of this. So households will 212 00:12:36,640 --> 00:12:40,840 Speaker 1: have just watched their incomes vanish at a shocking speed, 213 00:12:40,960 --> 00:12:45,800 Speaker 1: same with corporate revenues. Are there other periods in the past, 214 00:12:45,880 --> 00:12:50,360 Speaker 1: either specific economic events in US or global history, that 215 00:12:50,600 --> 00:12:55,640 Speaker 1: show how sudden shocks to the economy leave lasting changes 216 00:12:55,840 --> 00:13:01,320 Speaker 1: in business or household inclination to in to spend well. 217 00:13:01,360 --> 00:13:04,400 Speaker 1: The difference between this recession and all the other ones 218 00:13:04,600 --> 00:13:07,400 Speaker 1: is that even the Global Financial Crisis, even the Great 219 00:13:07,400 --> 00:13:11,439 Speaker 1: Depression were slow motion train wreck. It took three years 220 00:13:11,440 --> 00:13:14,040 Speaker 1: for output to fall this match for an employmenty to 221 00:13:14,040 --> 00:13:17,920 Speaker 1: go these up, for stock market to fall, fift for 222 00:13:18,080 --> 00:13:21,400 Speaker 1: credit spreads to rise you know at you know, double 223 00:13:21,480 --> 00:13:24,080 Speaker 1: digit levels and so on and so on. This kind 224 00:13:24,080 --> 00:13:27,160 Speaker 1: of a shock instead is like an asteroid hitting Planet 225 00:13:27,200 --> 00:13:29,640 Speaker 1: Heard and not just one country but the entire world 226 00:13:29,880 --> 00:13:32,760 Speaker 1: and shutting down economic activities. So we have never had 227 00:13:32,760 --> 00:13:36,840 Speaker 1: this experiment. We've had experiments, of course, of asolated cases. 228 00:13:36,920 --> 00:13:39,680 Speaker 1: There is a hurricane, you know, in Puerto Rico or 229 00:13:39,720 --> 00:13:42,600 Speaker 1: in somewhere in the Caribbean, or a major natural disaster. 230 00:13:42,720 --> 00:13:45,920 Speaker 1: Of course you have that shock limited to that particular 231 00:13:46,400 --> 00:13:49,720 Speaker 1: you know, region of the world or town or whatever, 232 00:13:50,040 --> 00:13:52,680 Speaker 1: and you have those dynamics of course of a massive 233 00:13:52,920 --> 00:13:55,880 Speaker 1: shock that this economic and financial and otherwise. But this 234 00:13:56,000 --> 00:13:59,920 Speaker 1: is something that's pretty much Planet Heard, so it's very different. 235 00:14:00,040 --> 00:14:04,080 Speaker 1: But even if it's different, you can make inferences intelligently 236 00:14:04,200 --> 00:14:07,480 Speaker 1: based on economic behavior and the dynamic of what's happening 237 00:14:07,520 --> 00:14:10,360 Speaker 1: to income, to jobs and so on. They're gonna lead 238 00:14:10,400 --> 00:14:13,520 Speaker 1: you to understand what's the shape of the recovery. I mean, 239 00:14:13,520 --> 00:14:16,600 Speaker 1: there was already after the global financials, an example, a 240 00:14:16,600 --> 00:14:20,760 Speaker 1: tendency for firms not to hire full time workers with 241 00:14:20,880 --> 00:14:24,840 Speaker 1: full benefits right those jobs were gradually going away. Was 242 00:14:24,880 --> 00:14:30,200 Speaker 1: all gig workers, part time workers, contractors, freelancers, our workers, 243 00:14:30,280 --> 00:14:33,040 Speaker 1: and so on and so on. Given the shock has occurred, 244 00:14:33,080 --> 00:14:35,680 Speaker 1: right now, we know that twenty six billion Americans have 245 00:14:35,800 --> 00:14:38,160 Speaker 1: lost their jobs. Probably at the peak is going to 246 00:14:38,200 --> 00:14:41,760 Speaker 1: be more like thirty five million people. These people are 247 00:14:41,760 --> 00:14:43,600 Speaker 1: not going to get their jobs back. I mean, I 248 00:14:43,680 --> 00:14:46,760 Speaker 1: live in New York City. Take anybody who worked in 249 00:14:46,880 --> 00:14:49,800 Speaker 1: a restaurant or in hospitality and so on. Even when 250 00:14:49,840 --> 00:14:53,560 Speaker 1: you reopen a restaurant, you'll be back in in rent 251 00:14:53,640 --> 00:14:56,280 Speaker 1: by three months, four months. You have to pay back. 252 00:14:56,440 --> 00:14:58,920 Speaker 1: They're not going to cancel it. You'll have to have 253 00:14:58,960 --> 00:15:03,920 Speaker 1: every other table empty for security. And these restaurants live 254 00:15:03,960 --> 00:15:06,520 Speaker 1: on a margin of you know, five time percent. There 255 00:15:06,600 --> 00:15:08,400 Speaker 1: is no way half of the old restaurants in New 256 00:15:08,480 --> 00:15:10,920 Speaker 1: York are gonna be gone for good. Half of the 257 00:15:10,920 --> 00:15:13,240 Speaker 1: retail stores in New York and will be gone for good. 258 00:15:13,520 --> 00:15:15,520 Speaker 1: Even if there is a reopening of these things, the 259 00:15:15,640 --> 00:15:18,480 Speaker 1: opening means nothing. There was an article yesterday in the 260 00:15:18,520 --> 00:15:21,760 Speaker 1: Financial Time saying that they reopened all the shops in Berlin. 261 00:15:22,160 --> 00:15:25,720 Speaker 1: By the way, in Germany they heat too. Income has 262 00:15:25,720 --> 00:15:28,440 Speaker 1: been much less because we're not firing everybody. That this 263 00:15:28,520 --> 00:15:32,160 Speaker 1: system of sharing, right, so you have not had mass unemployment. 264 00:15:32,400 --> 00:15:35,120 Speaker 1: So the stores are open and nobody's going there because 265 00:15:35,120 --> 00:15:38,200 Speaker 1: everybody's scared and everybody's worried about their future. It was 266 00:15:38,240 --> 00:15:41,200 Speaker 1: gonna buy a car, who's gonna buy a home, Who's 267 00:15:41,240 --> 00:15:43,440 Speaker 1: gonna take a vacation, Who's gonna go on an airplane, 268 00:15:43,520 --> 00:15:46,160 Speaker 1: who's gonna take a cruise? I mean, these are changes 269 00:15:46,400 --> 00:15:49,000 Speaker 1: that regardless of where they opened. A close a store, 270 00:15:49,400 --> 00:15:51,480 Speaker 1: or an airplane or a cruise ship are going to 271 00:15:51,640 --> 00:15:54,600 Speaker 1: change behavior. The issue is not whether we reopen, but 272 00:15:54,720 --> 00:15:57,600 Speaker 1: once we're reopened, whether they're gonna show up. In my view, 273 00:15:57,760 --> 00:16:00,720 Speaker 1: most people are not gonna show up. What does that 274 00:16:00,800 --> 00:16:04,240 Speaker 1: imply for inflation? Because on the one hand, you have 275 00:16:04,320 --> 00:16:08,000 Speaker 1: people who are probably saving more and spending less you 276 00:16:08,080 --> 00:16:10,600 Speaker 1: put it. But on the other hand, you have central 277 00:16:10,600 --> 00:16:13,400 Speaker 1: banks who are sort of throwing the kitchen sink and 278 00:16:13,480 --> 00:16:16,520 Speaker 1: everything right now, and some people are even talking about 279 00:16:16,560 --> 00:16:20,360 Speaker 1: debt monetization. So how do you see net net inflation 280 00:16:20,400 --> 00:16:25,680 Speaker 1: shaping up? Well, last November, before this crisis even was 281 00:16:25,800 --> 00:16:29,160 Speaker 1: on the horizon, I wrote a long paper saying, if 282 00:16:29,200 --> 00:16:33,560 Speaker 1: and when the next recession will occur, monetary and physical 283 00:16:33,600 --> 00:16:37,680 Speaker 1: policy is going to become even more unconventional and I said, effectively, 284 00:16:37,920 --> 00:16:41,720 Speaker 1: we're gonna have a monetization of large physical deficits, what 285 00:16:41,840 --> 00:16:47,160 Speaker 1: people call otherwise modern monetary theory melicopter drop of money 286 00:16:47,280 --> 00:16:50,720 Speaker 1: or people's kew ee, or the new euphemism that people 287 00:16:50,760 --> 00:16:55,560 Speaker 1: like Bernanco Stan Fisher uses coordination of monetary physical policies. 288 00:16:55,600 --> 00:16:59,520 Speaker 1: So what's clear that once a recession occurs, policymaker cannot 289 00:16:59,520 --> 00:17:02,600 Speaker 1: sit there doing nothing, pretending they don't have the policy bullets. 290 00:17:02,720 --> 00:17:05,000 Speaker 1: And we're seeing it. We've had now budget deficit in 291 00:17:05,040 --> 00:17:07,760 Speaker 1: the US are going to be twenty of GDP, and 292 00:17:07,800 --> 00:17:10,680 Speaker 1: the FACT is saying unlimited qui. And this morning the 293 00:17:10,760 --> 00:17:13,440 Speaker 1: BJ is saying unlimited qui, and the c B is 294 00:17:13,480 --> 00:17:16,000 Speaker 1: not yet saying unlimited qui, but they're gonna soon be 295 00:17:16,040 --> 00:17:19,680 Speaker 1: a unlimited Q. So you have massive monetization of physical deficits. 296 00:17:19,840 --> 00:17:23,040 Speaker 1: So we're going even more unconventional now. In the short run, 297 00:17:23,560 --> 00:17:28,879 Speaker 1: this shock is a recessionary and is leading to deflation 298 00:17:29,040 --> 00:17:31,760 Speaker 1: because while there is a supply shock, the shock to 299 00:17:31,840 --> 00:17:33,879 Speaker 1: agree with the man is bigger. And then you have 300 00:17:33,920 --> 00:17:37,640 Speaker 1: a massive slack in goods market, tons of capacity machines 301 00:17:37,800 --> 00:17:40,520 Speaker 1: that are not working, and tons of people, tens of 302 00:17:40,600 --> 00:17:43,840 Speaker 1: millions who are not working, so that is deflationary in 303 00:17:43,880 --> 00:17:48,400 Speaker 1: the short run, and therefore monetizing physical deficit prevents one 304 00:17:48,800 --> 00:17:54,080 Speaker 1: economic depression to prevent a deflation from setting in. However, 305 00:17:54,640 --> 00:17:57,119 Speaker 1: the point that I've made in that paper and is 306 00:17:57,160 --> 00:18:00,680 Speaker 1: repeated now is that over time, I fear that the 307 00:18:00,800 --> 00:18:04,280 Speaker 1: one of the medium term consequences of these crisis is 308 00:18:04,280 --> 00:18:08,760 Speaker 1: gonna be permanent negative supply shocks. We're gonna have more 309 00:18:09,119 --> 00:18:12,639 Speaker 1: the globalization. We're gonna have more decap litween US and China, 310 00:18:12,920 --> 00:18:16,320 Speaker 1: with more melchanization of global supply chains because they're not 311 00:18:16,440 --> 00:18:18,879 Speaker 1: safe if they're all conspted on on. China will have 312 00:18:18,960 --> 00:18:23,080 Speaker 1: more fragmentation of the global economy with more populist parties 313 00:18:23,359 --> 00:18:27,120 Speaker 1: in power say I'm going to protect my workers, my firms. 314 00:18:27,320 --> 00:18:30,719 Speaker 1: So more protection is more tariffs, more restriction to trade 315 00:18:30,800 --> 00:18:35,160 Speaker 1: in goods, in services, in capital, in labor, in technology 316 00:18:35,200 --> 00:18:38,919 Speaker 1: and data and information. That's a negative supply shock that 317 00:18:39,080 --> 00:18:44,480 Speaker 1: over time reduces potential growth and reduces actual output. It's 318 00:18:44,520 --> 00:18:48,080 Speaker 1: like the negative all shocks that we had in the nineties, seventies, 319 00:18:48,080 --> 00:18:50,720 Speaker 1: seventies seventy nine. Think of it as a negative supply 320 00:18:50,800 --> 00:18:54,280 Speaker 1: shock that reduces potential growth and increases cost of production. 321 00:18:54,600 --> 00:18:56,359 Speaker 1: Now what happened in the seventh is when we're did 322 00:18:56,400 --> 00:18:59,960 Speaker 1: to all shocks, we monetize them. Monetary policy was done 323 00:19:00,000 --> 00:19:03,119 Speaker 1: a curve and we physicalize them. But the extent, by 324 00:19:03,119 --> 00:19:06,199 Speaker 1: the way of those physical stabulus and monetary stabulus was 325 00:19:06,280 --> 00:19:09,520 Speaker 1: limited compared to today, where we're running budget deficit of 326 00:19:09,600 --> 00:19:13,399 Speaker 1: twenty of GDP and we're fully monetizing with QUI. At 327 00:19:13,440 --> 00:19:16,080 Speaker 1: that time you were just behind the curve in terms 328 00:19:16,080 --> 00:19:19,080 Speaker 1: of monetary policy. You're not that negative policy rate's let 329 00:19:19,080 --> 00:19:22,000 Speaker 1: along QUI. So the extent of the monethor and physical 330 00:19:22,080 --> 00:19:25,960 Speaker 1: stabulus is ten order of magnitude bigger than the seventies. Now, 331 00:19:26,000 --> 00:19:29,879 Speaker 1: you throw monetize physical deficits in an economy where over 332 00:19:30,000 --> 00:19:33,399 Speaker 1: time you have negative supply shocks, and then you end 333 00:19:33,480 --> 00:19:38,920 Speaker 1: up with not stagged deflation like today's stagnation and deflation 334 00:19:39,119 --> 00:19:42,280 Speaker 1: when you get with stagflation that occurred in the seventies, 335 00:19:42,480 --> 00:19:45,680 Speaker 1: where effectively, when you monetize physical deaths were negative supply shock, 336 00:19:45,960 --> 00:19:49,320 Speaker 1: you get inflation and recession over time. Now, this is 337 00:19:49,320 --> 00:19:52,040 Speaker 1: not a story for two thousand and twenty. It may 338 00:19:52,080 --> 00:19:54,400 Speaker 1: not even be a story for two thousand and twenty one. 339 00:19:54,720 --> 00:19:57,879 Speaker 1: But I do believe that the policies over the medium 340 00:19:57,960 --> 00:20:00,240 Speaker 1: term are going to lead us back to start the nation. 341 00:20:00,280 --> 00:20:02,600 Speaker 1: And once you're in start deflation, then you're in a 342 00:20:02,720 --> 00:20:06,119 Speaker 1: nightmare because you have a negative growth and you have inflation. 343 00:20:06,480 --> 00:20:10,200 Speaker 1: When you have started deflation, recession and deflation, it's easy. 344 00:20:10,520 --> 00:20:12,480 Speaker 1: You have to stimulate the column to get you out 345 00:20:12,480 --> 00:20:15,439 Speaker 1: of a recession and out of a deflation, So you 346 00:20:15,480 --> 00:20:18,600 Speaker 1: need to do montor physical stimulus. Once you have inflation 347 00:20:18,680 --> 00:20:22,280 Speaker 1: together with economic stagnation, then you have a problem because 348 00:20:22,280 --> 00:20:25,040 Speaker 1: you can of these monetary policy if you care about inflation. 349 00:20:25,480 --> 00:20:27,840 Speaker 1: So we're gonna get there, but it's gonna take two 350 00:20:27,920 --> 00:20:46,400 Speaker 1: or three years. So we've basically seen for decades now arguably, 351 00:20:46,440 --> 00:20:49,879 Speaker 1: so it's the very early eighties and Vulcar era, the 352 00:20:49,960 --> 00:20:55,040 Speaker 1: sort of gradual opening up of the global economy, expanding supply, 353 00:20:56,080 --> 00:21:01,640 Speaker 1: liberalizing policy, etcetera. And this is the moment to something 354 00:21:01,720 --> 00:21:04,800 Speaker 1: that it reverses all those trends about forty years to 355 00:21:04,920 --> 00:21:09,000 Speaker 1: some extent. What this this virus and the aftermath will 356 00:21:09,400 --> 00:21:13,359 Speaker 1: will finally be the reversal of the nerview. Well, the 357 00:21:13,400 --> 00:21:17,200 Speaker 1: reversal started to occur after the global financial crisis, because 358 00:21:17,240 --> 00:21:22,640 Speaker 1: the era of hyper globalization started either in nineteen seventy 359 00:21:22,680 --> 00:21:25,800 Speaker 1: nine when then shall being opened up China, or nineteen 360 00:21:25,920 --> 00:21:28,520 Speaker 1: eighty nine, when, of course the Berlin Wall collapse and 361 00:21:28,560 --> 00:21:31,959 Speaker 1: the Outer Court and collapse and the opening up of Russia, 362 00:21:32,000 --> 00:21:35,320 Speaker 1: Soviet Union and Eastern Central Europe. So we had four 363 00:21:35,400 --> 00:21:40,360 Speaker 1: decades of globalization, more trading goods, in services, in capital 364 00:21:40,320 --> 00:21:44,800 Speaker 1: and labor, technology, data information, you name it. We reach 365 00:21:44,920 --> 00:21:48,159 Speaker 1: peak globalization in my view, already ten years ago because 366 00:21:48,400 --> 00:21:51,639 Speaker 1: after the global financial crisis there was a slowdown of 367 00:21:51,680 --> 00:21:55,399 Speaker 1: global trade. There was the beginning of protectionist policies or 368 00:21:55,400 --> 00:21:59,600 Speaker 1: inward oriented policies. So peak globalization probably already ten years ago. 369 00:21:59,840 --> 00:22:05,280 Speaker 1: By certainly these crisis implies much more diglobalization, much more 370 00:22:05,320 --> 00:22:08,199 Speaker 1: decoupling within US and China. The cold world is going 371 00:22:08,240 --> 00:22:11,080 Speaker 1: to become colder than two city trap is gonna get 372 00:22:11,119 --> 00:22:16,399 Speaker 1: worse whatever, total balkanization of global supply chains first in 373 00:22:16,520 --> 00:22:20,280 Speaker 1: technology than manufacturing, than in services. You know, you cannot 374 00:22:20,320 --> 00:22:23,359 Speaker 1: rely anymore on China. You have to reach shore. And 375 00:22:23,440 --> 00:22:25,920 Speaker 1: by the way, if you reach shore economic activity, you're 376 00:22:25,920 --> 00:22:29,000 Speaker 1: not going to create jobs because you're restoring economic activity 377 00:22:29,119 --> 00:22:32,320 Speaker 1: from places where costs are low, say China and Asia, 378 00:22:32,600 --> 00:22:35,359 Speaker 1: two places where labor costs are high. So it's gonna 379 00:22:35,480 --> 00:22:38,919 Speaker 1: lead either to use more gig workers and pay them nothing, 380 00:22:39,400 --> 00:22:42,440 Speaker 1: or to use machines. So the process of automation and 381 00:22:42,600 --> 00:22:45,920 Speaker 1: robotization is going to accelerate, so we'll have more activity 382 00:22:45,920 --> 00:22:48,240 Speaker 1: in the US is going to help. Capital is gonna 383 00:22:48,280 --> 00:22:51,200 Speaker 1: still screw labor like it has for the last decades. 384 00:22:51,400 --> 00:22:54,320 Speaker 1: So these trends are gonna get worse. But certainly is 385 00:22:54,400 --> 00:22:56,840 Speaker 1: a world in which will have more restriction to everything, 386 00:22:57,440 --> 00:23:01,119 Speaker 1: and even supply of safe supply chains of food are 387 00:23:01,200 --> 00:23:04,240 Speaker 1: gonna be disrupted globally because every country says, hey, I 388 00:23:04,320 --> 00:23:07,119 Speaker 1: want to keep my food for myself in case coronavirus 389 00:23:07,200 --> 00:23:10,080 Speaker 1: comes back. Well, have restriction to exportation of food. Of course, 390 00:23:10,080 --> 00:23:14,360 Speaker 1: we'll have restriction to exportation of pharma products and medical equipment. 391 00:23:14,600 --> 00:23:17,119 Speaker 1: Everybody's gonna want to keep it for themselves. And we 392 00:23:17,240 --> 00:23:20,119 Speaker 1: of course have given the tech war between US and China. 393 00:23:20,440 --> 00:23:22,920 Speaker 1: The entire text sector is going to the couple, and 394 00:23:23,000 --> 00:23:25,160 Speaker 1: we'll have a splinter night, and we'll have two completely 395 00:23:25,640 --> 00:23:29,280 Speaker 1: system for tech and internet and five G and you 396 00:23:29,440 --> 00:23:33,800 Speaker 1: name it going ahead. So there'll be massive Balkanization of 397 00:23:33,880 --> 00:23:37,440 Speaker 1: the global economy. That's a massive negative supply shock the 398 00:23:37,560 --> 00:23:42,440 Speaker 1: permanently reduces potential growth and is eventually given them North 399 00:23:42,520 --> 00:23:47,840 Speaker 1: and fiscal policy stactulation ary over time. M hm. So, 400 00:23:48,040 --> 00:23:49,960 Speaker 1: one of the things that always strikes me whenever I 401 00:23:50,040 --> 00:23:52,560 Speaker 1: read your work or listen to you talk on TV 402 00:23:53,160 --> 00:23:56,200 Speaker 1: or the radio or podcast like this UM is your 403 00:23:56,280 --> 00:24:00,560 Speaker 1: sort of um specificity of your four cats, as well 404 00:24:00,600 --> 00:24:02,760 Speaker 1: as your confidence in making them. I'm just wondering, in 405 00:24:02,800 --> 00:24:08,040 Speaker 1: the current situation, is there anything that's surprised you or 406 00:24:08,160 --> 00:24:12,520 Speaker 1: that you weren't expecting to happen. Well, initially, of course, 407 00:24:12,640 --> 00:24:16,399 Speaker 1: the free fall in economic activity take took even me 408 00:24:16,520 --> 00:24:19,280 Speaker 1: by surprise. You know, at the beginning was not a you, 409 00:24:19,960 --> 00:24:22,000 Speaker 1: was not a V, was not even an L, was 410 00:24:22,080 --> 00:24:30,080 Speaker 1: a I. Literally free fall. The collapse of output, employment, consumption, investment, export, imports, 411 00:24:30,240 --> 00:24:33,600 Speaker 1: pretty much every component of AGGREITHM and aggree supply was 412 00:24:33,680 --> 00:24:36,400 Speaker 1: like a free fall. And you know, even Morgan, Stanley, 413 00:24:36,480 --> 00:24:40,080 Speaker 1: JP Morgan and Goldman sachs now saying into two the 414 00:24:40,200 --> 00:24:44,359 Speaker 1: contractional output in US, for example, at the annual rate 415 00:24:44,480 --> 00:24:48,359 Speaker 1: is gonna between thirty five and all rate right, So 416 00:24:48,720 --> 00:24:51,600 Speaker 1: so everybody was taken one by the free fall because 417 00:24:51,640 --> 00:24:54,399 Speaker 1: we're not seeing the shocks of this sort of sudden 418 00:24:54,480 --> 00:24:58,439 Speaker 1: stop where everything shuts down. In any typical financial crisis 419 00:24:58,520 --> 00:25:00,840 Speaker 1: or economic crisis, you have a you know, a build 420 00:25:00,880 --> 00:25:04,239 Speaker 1: up of the economic downturn. But it's lawing gradual. As 421 00:25:04,280 --> 00:25:06,680 Speaker 1: I said, what happened in the past, even in the 422 00:25:06,760 --> 00:25:10,320 Speaker 1: Great Depression in three years or during the global financial crisis, 423 00:25:10,440 --> 00:25:14,040 Speaker 1: this time around has according three three weeks. The other 424 00:25:14,160 --> 00:25:17,720 Speaker 1: aspect that has been partially surprising but not totally surprising 425 00:25:17,760 --> 00:25:20,320 Speaker 1: to me has been the policy response. But as I said, 426 00:25:20,680 --> 00:25:23,720 Speaker 1: I wrote last November that when the next recession is 427 00:25:23,760 --> 00:25:25,760 Speaker 1: going to occur, we're not going to do the typical 428 00:25:25,920 --> 00:25:28,920 Speaker 1: zero rate negative rates. A little of que liadle of 429 00:25:29,000 --> 00:25:31,520 Speaker 1: credit is a little of forward guidance. We're gonna go 430 00:25:32,040 --> 00:25:35,600 Speaker 1: full Monty on helicopter drop of money. And by the way, 431 00:25:35,680 --> 00:25:39,760 Speaker 1: what's the difference between having helicopter drop of money and 432 00:25:40,200 --> 00:25:44,600 Speaker 1: full direct monetization of physical deficits and having large deficits 433 00:25:44,680 --> 00:25:48,439 Speaker 1: plut QWI. The only difference between the two is when 434 00:25:48,480 --> 00:25:51,240 Speaker 1: you do QUEI, you buy the bounds in the second 435 00:25:51,280 --> 00:25:54,520 Speaker 1: diary market. Well, when you do direct monetization. You're buying 436 00:25:54,600 --> 00:25:58,000 Speaker 1: them in the primary market, right, But that's a big lift. 437 00:25:58,040 --> 00:26:01,720 Speaker 1: The impact on long rates and financial condition is exactly 438 00:26:01,760 --> 00:26:04,639 Speaker 1: the same. Who cares whether you're buying the bonds, uh, 439 00:26:04,800 --> 00:26:07,800 Speaker 1: you know, directly from the government or the government issues 440 00:26:07,840 --> 00:26:11,200 Speaker 1: them and a week later, literally the fat purchases bonds 441 00:26:11,240 --> 00:26:13,840 Speaker 1: at the rate of a d billions per week. It's 442 00:26:13,920 --> 00:26:16,160 Speaker 1: just the same thing, just a big lift to say 443 00:26:16,359 --> 00:26:19,280 Speaker 1: it's not direct modization, it is direct montization. You just 444 00:26:19,400 --> 00:26:22,359 Speaker 1: wait a week rather waiting one hour. It's just the 445 00:26:22,440 --> 00:26:27,480 Speaker 1: same thing. Right, let's call the call it euphemistically coordination 446 00:26:27,840 --> 00:26:30,960 Speaker 1: of monetor in physical policy. It's a joke. Not coordinational 447 00:26:30,960 --> 00:26:34,760 Speaker 1: amount of fiscal policy. It's fiscal dominance. And the Central 448 00:26:34,840 --> 00:26:38,280 Speaker 1: Plank has no option, given the death of twenty GDP 449 00:26:38,560 --> 00:26:40,639 Speaker 1: but fully to monetize it. Because if they were not 450 00:26:40,960 --> 00:26:43,840 Speaker 1: monetizing them, you know ten, your treasuries would not be 451 00:26:43,960 --> 00:26:45,879 Speaker 1: at zero point six. There will be a two or 452 00:26:45,880 --> 00:26:48,600 Speaker 1: three percent that would happen. So there have no option 453 00:26:48,880 --> 00:26:52,120 Speaker 1: with the death of GDP to fully buy the entire 454 00:26:52,200 --> 00:26:55,360 Speaker 1: stock of new bonds issued by the treasury. That's what's 455 00:26:55,359 --> 00:26:58,160 Speaker 1: happening in the US. That's what's happened in Japan, That's 456 00:26:58,160 --> 00:27:01,679 Speaker 1: what's happened in Europe. That's just happening in all advanced economies. Now, 457 00:27:01,880 --> 00:27:05,560 Speaker 1: emerging market is a different story. In emerging markets humanitize 458 00:27:05,560 --> 00:27:08,200 Speaker 1: physical dias in to this extent, you end up in 459 00:27:08,359 --> 00:27:13,639 Speaker 1: hyper inflation like Zimbabwe, like Argentina, like Venezuela. Luckily, in 460 00:27:13,720 --> 00:27:18,359 Speaker 1: advanced economies, web some modicum of policy credibility left and 461 00:27:18,440 --> 00:27:21,240 Speaker 1: we're not going to end up into high inflation or 462 00:27:21,320 --> 00:27:24,399 Speaker 1: iper inflation. But over the next few years we may 463 00:27:24,480 --> 00:27:27,920 Speaker 1: see inflation rise from the current very low levels to 464 00:27:28,119 --> 00:27:30,760 Speaker 1: higher levels. That can happen in the presence of the 465 00:27:30,840 --> 00:27:34,840 Speaker 1: globalization and the supply shots. Now I want to ask 466 00:27:34,880 --> 00:27:38,240 Speaker 1: you a little bit about the sort of pre crisis here. 467 00:27:38,400 --> 00:27:43,160 Speaker 1: You mentioned corporate leverage, was high household leverage as well, 468 00:27:43,680 --> 00:27:46,320 Speaker 1: you know, after the last after the Great Financial Crisis, 469 00:27:46,400 --> 00:27:49,879 Speaker 1: and you look back at two two sexes obvious all 470 00:27:49,960 --> 00:27:54,440 Speaker 1: kinds of risks suppose related to housing. Was the economy 471 00:27:54,640 --> 00:27:57,680 Speaker 1: inherently fragile pre crisis? I mean, we talked about this 472 00:27:57,800 --> 00:28:01,800 Speaker 1: incredible crash, the speed of which literally everyone by surprise. 473 00:28:02,320 --> 00:28:06,120 Speaker 1: Does that mean that the economy must have had weak foundations? 474 00:28:06,520 --> 00:28:09,560 Speaker 1: Going into this or is it just like we turned 475 00:28:09,560 --> 00:28:11,840 Speaker 1: off the economy due to public health risk and this 476 00:28:12,000 --> 00:28:14,720 Speaker 1: is what was going to happen. How much does the 477 00:28:14,840 --> 00:28:18,639 Speaker 1: current crisis sort of indict the stability of the pre 478 00:28:18,760 --> 00:28:23,960 Speaker 1: crisis ecount, Well, there were plenty of fragilities even before 479 00:28:24,040 --> 00:28:27,120 Speaker 1: this crisis occurred, you know, after the global financial crisis, 480 00:28:27,600 --> 00:28:31,800 Speaker 1: in spite of the talk about the great deleveraging, very 481 00:28:31,880 --> 00:28:35,560 Speaker 1: little deleveraging occurred because, of course, as we know, public 482 00:28:35,760 --> 00:28:39,760 Speaker 1: deficits and that wrote significantly both in advanced economies and 483 00:28:39,800 --> 00:28:45,040 Speaker 1: emerging markets, and also private debts remain high or they increased. 484 00:28:45,400 --> 00:28:47,320 Speaker 1: In the case of the U S. There was partial 485 00:28:47,480 --> 00:28:51,120 Speaker 1: deleveraging of the household sector, but the de leveraging did 486 00:28:51,160 --> 00:28:54,600 Speaker 1: not occur through massive increase in savings. Occurred only because 487 00:28:54,640 --> 00:28:57,920 Speaker 1: lots of people defaulted on their mortgages and personal loans 488 00:28:58,160 --> 00:29:01,200 Speaker 1: and eventually that that were used. But there was a 489 00:29:01,320 --> 00:29:05,000 Speaker 1: massive real leveraging of the corporate sector, right whether it 490 00:29:05,200 --> 00:29:11,880 Speaker 1: was you know, clos leverage loans, massive issuance of junk bones, 491 00:29:12,840 --> 00:29:16,160 Speaker 1: a trillion dollar of fallen angels in a high grade 492 00:29:16,440 --> 00:29:19,520 Speaker 1: they're not going to be done graded. All these share 493 00:29:19,560 --> 00:29:22,320 Speaker 1: buy backs that implied a complete change in the capital 494 00:29:22,400 --> 00:29:26,040 Speaker 1: structure of most firms with less equity and more capital 495 00:29:26,160 --> 00:29:29,520 Speaker 1: is a way of boosting earnings per share and evaluation. 496 00:29:29,680 --> 00:29:33,080 Speaker 1: So the levels of corporate debt and people have been 497 00:29:33,120 --> 00:29:36,160 Speaker 1: writing it for the last year. Even the FED recently 498 00:29:36,240 --> 00:29:38,760 Speaker 1: was saying, we're worried about the build up of corporate debt. 499 00:29:39,000 --> 00:29:42,080 Speaker 1: So this is an accident waiting to happen because the 500 00:29:42,160 --> 00:29:45,320 Speaker 1: corporate were leverage like never before in history. You know, 501 00:29:45,440 --> 00:29:48,640 Speaker 1: my colleague at alt Man who's the expert of corporate default, 502 00:29:48,840 --> 00:29:51,360 Speaker 1: and the writting about years about the build up of 503 00:29:51,440 --> 00:29:53,800 Speaker 1: corporate debt and lots of other people did. And in 504 00:29:53,880 --> 00:29:57,040 Speaker 1: the case of the household sector, the death levels were 505 00:29:57,080 --> 00:29:59,880 Speaker 1: not much lower, They did not increase, but they were 506 00:30:00,040 --> 00:30:02,960 Speaker 1: may and iye. What change was that during the last decade, 507 00:30:03,480 --> 00:30:07,480 Speaker 1: private and public debts were higher. Domestic and foreign debts 508 00:30:07,520 --> 00:30:11,320 Speaker 1: were higher. In the private sector, debts of houses of corporates, 509 00:30:11,600 --> 00:30:14,680 Speaker 1: even of the shadow banking system were higher. But given 510 00:30:15,160 --> 00:30:18,640 Speaker 1: near zero policy rates and given very low long rates, 511 00:30:19,160 --> 00:30:23,320 Speaker 1: that servicing ratios were very low. Right, that ratio were 512 00:30:23,360 --> 00:30:26,760 Speaker 1: not low. What made the system sustainable was that we 513 00:30:26,800 --> 00:30:30,360 Speaker 1: had zero rates, if not negative and were long. Rates 514 00:30:30,440 --> 00:30:33,160 Speaker 1: were extremely low all over the world in advanced economies, 515 00:30:33,360 --> 00:30:36,280 Speaker 1: and therefore there was a false sense of security because 516 00:30:36,400 --> 00:30:39,480 Speaker 1: that servicing ratio where a historical law. But you know, 517 00:30:40,240 --> 00:30:43,400 Speaker 1: once the crisis occurs and credit spread blow up, even 518 00:30:43,480 --> 00:30:47,360 Speaker 1: if safe assets like treasury boons and gerbis can go 519 00:30:47,480 --> 00:30:51,680 Speaker 1: even lower, if the spreads for corporate debt or household 520 00:30:51,880 --> 00:30:54,400 Speaker 1: or credit cards or r m B s S or 521 00:30:54,480 --> 00:30:56,880 Speaker 1: you name it go through the roof, then you can 522 00:30:56,920 --> 00:31:00,400 Speaker 1: have had that crisis even with the yield on safe 523 00:31:00,480 --> 00:31:03,640 Speaker 1: bonds being close to zero, if not negative, because it's 524 00:31:03,680 --> 00:31:06,560 Speaker 1: credit spreads are blowing up. And that's what is happening 525 00:31:06,680 --> 00:31:09,840 Speaker 1: right now now this time around. One of the new 526 00:31:10,000 --> 00:31:12,800 Speaker 1: changes is happening is that not only at the V 527 00:31:13,000 --> 00:31:16,440 Speaker 1: shaped recovery of US acuity, the other V shaped recovery 528 00:31:16,640 --> 00:31:21,320 Speaker 1: has occurd for developed markets. Spread products are n BSS, 529 00:31:21,720 --> 00:31:25,840 Speaker 1: money bonds, high yield, high grade and so on. What 530 00:31:26,080 --> 00:31:29,200 Speaker 1: explains it. It explains it the fact that the FED, 531 00:31:29,520 --> 00:31:32,720 Speaker 1: the CB, and now the BOJ have decided to vary 532 00:31:32,760 --> 00:31:37,560 Speaker 1: aggressively by not just government bonds but also to buy 533 00:31:37,920 --> 00:31:40,440 Speaker 1: corporate bonds. Now the bo J and e c B 534 00:31:40,760 --> 00:31:43,440 Speaker 1: were already buying for the last few years corporate bonds. 535 00:31:43,760 --> 00:31:46,600 Speaker 1: But say the d J today announced they're gonna triple 536 00:31:46,880 --> 00:31:49,440 Speaker 1: the amount of corporate bonds and commercial paper that are buying. 537 00:31:49,720 --> 00:31:53,240 Speaker 1: But for the freed is a new to buy corporate bonds, 538 00:31:53,520 --> 00:31:56,920 Speaker 1: and as long as they're buying a high grade investment grade, 539 00:31:57,120 --> 00:32:00,080 Speaker 1: it was okay. But once they decided to go and 540 00:32:00,200 --> 00:32:03,880 Speaker 1: buy even fallen angels that have been downgraded from three 541 00:32:04,000 --> 00:32:06,840 Speaker 1: or B minals to somewhere in the double B range, 542 00:32:07,520 --> 00:32:10,120 Speaker 1: and when they decided to buy even how yield, the 543 00:32:10,200 --> 00:32:14,080 Speaker 1: f tfs that the FAT is going into totally uncharted 544 00:32:14,520 --> 00:32:17,600 Speaker 1: and dangerous territory because you're really buying stuff that is 545 00:32:17,640 --> 00:32:20,560 Speaker 1: highly risky first of all, and you're creating a huge 546 00:32:20,600 --> 00:32:24,360 Speaker 1: amount of moral hazard, and you're not allowing the necessary 547 00:32:24,760 --> 00:32:28,320 Speaker 1: the leveraging that has to occur among leverage firms. They're 548 00:32:28,320 --> 00:32:30,959 Speaker 1: gonna kick the count down the road if you're aggressively 549 00:32:31,040 --> 00:32:34,240 Speaker 1: trying to narrow the spreads, especially for our yield. So 550 00:32:34,560 --> 00:32:37,520 Speaker 1: to me, that's a mistake is again making sure that 551 00:32:37,680 --> 00:32:42,400 Speaker 1: zombie companies, zombie financial institutions, zombie households are gonna stay 552 00:32:42,440 --> 00:32:45,560 Speaker 1: alive on life support where they should be allowed to 553 00:32:45,680 --> 00:32:49,719 Speaker 1: default and restructure, and they both financial and operational restructurally, 554 00:32:50,000 --> 00:32:52,479 Speaker 1: so we're gonna pay the price for that particular policy. 555 00:32:52,800 --> 00:32:55,880 Speaker 1: I think that everything else the FAT is doing maybe right, 556 00:32:56,320 --> 00:32:59,840 Speaker 1: but moving into the space of buying a highly risky 557 00:33:00,200 --> 00:33:04,040 Speaker 1: junk bonds, I think it's crazy. It's utterly crazy. Just 558 00:33:04,200 --> 00:33:06,480 Speaker 1: on the policy question. Is that the one thing that 559 00:33:06,600 --> 00:33:09,240 Speaker 1: you would do differently if if you were in charge 560 00:33:09,360 --> 00:33:11,920 Speaker 1: of the policy response here. So for instance, if you were, 561 00:33:12,080 --> 00:33:15,960 Speaker 1: you know, either in the US administration or Chairman of 562 00:33:16,040 --> 00:33:18,360 Speaker 1: the third or something like that, what would you be 563 00:33:18,520 --> 00:33:23,680 Speaker 1: doing in response to the economic downturn that we're seeing. Well, 564 00:33:23,800 --> 00:33:26,440 Speaker 1: as I said, the idea that you're gonna run large 565 00:33:26,480 --> 00:33:29,680 Speaker 1: budget deficit, that you're gonna monetize them, it's the right 566 00:33:29,800 --> 00:33:33,520 Speaker 1: response in the short run. I worry about the overrang 567 00:33:33,880 --> 00:33:36,440 Speaker 1: of the balance sheet of central banks, and they're not 568 00:33:36,560 --> 00:33:39,080 Speaker 1: gonna be able to run them down because if they 569 00:33:39,160 --> 00:33:41,560 Speaker 1: run them down, there is a dead crisis. Think of it. 570 00:33:41,680 --> 00:33:47,240 Speaker 1: Even the FED started quantitative tightening in two thousand and seventeen, 571 00:33:47,560 --> 00:33:50,720 Speaker 1: but in the fourth quarter of eighteen, when you adjust 572 00:33:50,840 --> 00:33:55,080 Speaker 1: the minor blip, you know, stock markinging down big dealing 573 00:33:55,240 --> 00:33:59,880 Speaker 1: you four after going by January one, Power said Okay, 574 00:34:00,120 --> 00:34:02,760 Speaker 1: I was kidding. I'm not going to continue quty and 575 00:34:02,800 --> 00:34:06,440 Speaker 1: I'm not gonna raise rates until are gonna stop. And 576 00:34:06,520 --> 00:34:09,280 Speaker 1: then three months later he said, okay, we're gonna start 577 00:34:09,560 --> 00:34:12,520 Speaker 1: cutting rates and we're gonna start doing new ripples, a 578 00:34:12,600 --> 00:34:15,680 Speaker 1: new open market operations to increase the balance sheet. So 579 00:34:16,080 --> 00:34:20,759 Speaker 1: well before even this crisis occurred, the Fed realized we 580 00:34:20,840 --> 00:34:23,279 Speaker 1: cannot run down the balance sheet. They try to do it. 581 00:34:23,600 --> 00:34:25,920 Speaker 1: Then the market shop in Q four of eighteen, and 582 00:34:26,000 --> 00:34:28,800 Speaker 1: what happened last year led them to just change and 583 00:34:28,880 --> 00:34:32,440 Speaker 1: completely increase the balance sheet even before this crisis occurred. 584 00:34:32,719 --> 00:34:35,200 Speaker 1: And now that the crisis occurred, the balance sheet is 585 00:34:35,239 --> 00:34:38,520 Speaker 1: gonna not double, but probably triple. And there's not even 586 00:34:38,600 --> 00:34:40,959 Speaker 1: a sense of whether we're gonna start when we're gonna 587 00:34:40,960 --> 00:34:43,719 Speaker 1: even start raising policy of it's above zero, let alone 588 00:34:43,800 --> 00:34:46,120 Speaker 1: run down the balance sheet. In the case of Europe, 589 00:34:46,760 --> 00:34:50,920 Speaker 1: they quantity of tightening never started. They stopped quei and 590 00:34:51,000 --> 00:34:53,880 Speaker 1: now they've resumed it. In the case of Japan, they 591 00:34:54,000 --> 00:34:57,839 Speaker 1: never stopped their quei qui always continued, and now they're 592 00:34:57,920 --> 00:35:01,560 Speaker 1: ramping it up to infinite ap out right, whatever it takes, 593 00:35:01,640 --> 00:35:04,560 Speaker 1: like the FED has done so these balance sheets are 594 00:35:04,640 --> 00:35:07,480 Speaker 1: never gonna go down, and eventually that type of a 595 00:35:08,000 --> 00:35:13,000 Speaker 1: financial overhang initially leads to asset inflation and asset bubbles. 596 00:35:13,440 --> 00:35:16,960 Speaker 1: Then eventually it leads also to good inflation. Did not 597 00:35:17,120 --> 00:35:19,640 Speaker 1: happen during the last decade because during the last decade, 598 00:35:19,680 --> 00:35:24,799 Speaker 1: with positive supply shocks, with continuation of globalization and technology 599 00:35:25,719 --> 00:35:29,120 Speaker 1: in the next decade whatever reversal of globalization, and that 600 00:35:29,280 --> 00:35:32,399 Speaker 1: the even restriction to what technology can do, because while 601 00:35:32,440 --> 00:35:35,400 Speaker 1: technology is gonna continue to grow, there will be massive 602 00:35:35,440 --> 00:35:40,440 Speaker 1: restriction to the diffusion of technology because of national security technology. 603 00:35:40,520 --> 00:35:43,360 Speaker 1: The TACH sector is going to become a critical component 604 00:35:43,560 --> 00:35:46,840 Speaker 1: of the national security industrial complex and it's going to 605 00:35:46,920 --> 00:35:50,640 Speaker 1: be restricted. So we'll have two major forces gonna lead 606 00:35:50,880 --> 00:35:54,719 Speaker 1: to negative supply shocks rather than positive one. At the time, 607 00:35:54,760 --> 00:35:58,640 Speaker 1: we're doing monetization and physicalization of death icit in an 608 00:35:58,760 --> 00:36:01,600 Speaker 1: order of magnitude of the three or four times bigger 609 00:36:01,880 --> 00:36:04,480 Speaker 1: than what we did after the global financial crisis. That 610 00:36:04,680 --> 00:36:08,080 Speaker 1: eventually leads to asset and credit bubbles and then a 611 00:36:08,160 --> 00:36:12,160 Speaker 1: buston and crush, and it leads even to starculation over time. Again, 612 00:36:12,200 --> 00:36:14,480 Speaker 1: it's not a prediction for this year and next year. 613 00:36:14,520 --> 00:36:16,799 Speaker 1: But for the medium term. My view, by the way, 614 00:36:16,920 --> 00:36:21,080 Speaker 1: is that this decade there will be a coming global depression. 615 00:36:21,719 --> 00:36:24,040 Speaker 1: This is not the short term prediction for two thousand 616 00:36:24,080 --> 00:36:26,839 Speaker 1: and twenty, but I believe there are at least ten 617 00:36:26,960 --> 00:36:30,560 Speaker 1: forces that gonna lead to the coming great depression of 618 00:36:30,600 --> 00:36:34,360 Speaker 1: the two thousand and twenties, not two and two and twenties. 619 00:36:34,600 --> 00:36:37,719 Speaker 1: The coming decade, there will be a global depression in 620 00:36:37,840 --> 00:36:41,800 Speaker 1: the global economy because there are forces and trends and 621 00:36:42,040 --> 00:36:45,560 Speaker 1: risks and imbalances that they were created but the global 622 00:36:45,600 --> 00:36:50,120 Speaker 1: financial crisis they were never resolved. Another outcome this time 623 00:36:50,160 --> 00:36:52,920 Speaker 1: around with a vengeance, and all of these ten negative 624 00:36:53,000 --> 00:36:57,560 Speaker 1: trends are being exacerbated by the coronavirus crisis. I don't 625 00:36:57,560 --> 00:36:59,200 Speaker 1: know if I have time to discuss all of them. 626 00:36:59,280 --> 00:37:02,320 Speaker 1: I'm writing a new book about the subject, about the 627 00:37:02,360 --> 00:37:06,000 Speaker 1: common depression of passion in twenties. But there is essentially 628 00:37:06,200 --> 00:37:08,640 Speaker 1: ten global forces are going to lead us to a 629 00:37:08,760 --> 00:37:11,480 Speaker 1: great depression in the next second. That's my view. So 630 00:37:11,600 --> 00:37:14,600 Speaker 1: in the short run, we avoid that great depression this year. 631 00:37:14,719 --> 00:37:17,840 Speaker 1: My baseline is a U shaped recovery, is not a depression. 632 00:37:18,120 --> 00:37:22,200 Speaker 1: But over time I believe we're gonna face a great depression, Norrio. 633 00:37:22,280 --> 00:37:25,160 Speaker 1: You're certainly living up to your doctor doom Moniker there. 634 00:37:25,200 --> 00:37:27,960 Speaker 1: But I have one final question. So, prior to the crisis, 635 00:37:28,280 --> 00:37:31,520 Speaker 1: one good thing is that we truly had something that 636 00:37:31,680 --> 00:37:35,840 Speaker 1: resembled some wage growth. We had very low unemployment, the 637 00:37:36,040 --> 00:37:41,680 Speaker 1: spread between say, the unemployment in this country among educated 638 00:37:41,760 --> 00:37:45,520 Speaker 1: white people versus minority group different minority groups that started 639 00:37:45,600 --> 00:37:49,040 Speaker 1: to come in. Genuinely positive things that were coming about 640 00:37:49,480 --> 00:37:53,400 Speaker 1: through the long expansion obliterated overnight. What would be a 641 00:37:53,560 --> 00:37:57,680 Speaker 1: model towards getting back to that point that would be 642 00:37:57,800 --> 00:38:00,440 Speaker 1: more sustainable? In your view, if what we so was 643 00:38:00,560 --> 00:38:05,400 Speaker 1: all these sort of un unresolved imbalances, how can we 644 00:38:05,520 --> 00:38:08,360 Speaker 1: get how can we return to what seemed like some 645 00:38:08,560 --> 00:38:12,640 Speaker 1: very positive societal trends in a way that doesn't involve 646 00:38:13,080 --> 00:38:16,680 Speaker 1: and lost bubbles. Well, you know, I would take partial 647 00:38:16,800 --> 00:38:19,840 Speaker 1: issue with your characterization of how well was the situation 648 00:38:19,920 --> 00:38:23,160 Speaker 1: of labor, because you know, the share of labor had 649 00:38:23,239 --> 00:38:26,440 Speaker 1: been falling for a decade and was falling. The share 650 00:38:26,640 --> 00:38:29,920 Speaker 1: of profits was rising in GDP. That's why you had 651 00:38:30,000 --> 00:38:34,279 Speaker 1: outside returns. And yes, people had jobs, but most of 652 00:38:34,360 --> 00:38:37,480 Speaker 1: these jobs were low wages. Yeah, wage gold was picking 653 00:38:37,560 --> 00:38:41,320 Speaker 1: up slightly but was not really robust, and many people 654 00:38:41,400 --> 00:38:44,840 Speaker 1: had jobs that had essentially no benefits because many of 655 00:38:44,960 --> 00:38:48,840 Speaker 1: them became gig workers or part time workers, or contractors 656 00:38:49,239 --> 00:38:53,160 Speaker 1: or freelancers or hourly workers and so on and so on. 657 00:38:53,520 --> 00:38:56,160 Speaker 1: You know, forty percent of Americans did not have more 658 00:38:56,239 --> 00:38:59,319 Speaker 1: than four hundred dollars savings in case of an emergency. 659 00:38:59,560 --> 00:39:03,680 Speaker 1: So those people that were left behind. And they said 660 00:39:03,719 --> 00:39:07,360 Speaker 1: Trump was talking about an American carnage when he was elected. 661 00:39:07,800 --> 00:39:10,600 Speaker 1: I think for most people there is still an American carnage. 662 00:39:10,640 --> 00:39:13,520 Speaker 1: You know, there are eighty tho people today every year 663 00:39:13,760 --> 00:39:17,440 Speaker 1: in the US they die from an opioid overdose. And 664 00:39:17,560 --> 00:39:20,400 Speaker 1: that number is not fallen as following by an epsilon. 665 00:39:20,760 --> 00:39:23,040 Speaker 1: Why do they die of this stuff because they are 666 00:39:23,239 --> 00:39:26,840 Speaker 1: totally socially economically desperate. That what leads to the opioid 667 00:39:26,840 --> 00:39:31,040 Speaker 1: academic you're looking at any measure of social kind of 668 00:39:31,239 --> 00:39:34,759 Speaker 1: success or whatever not, it still is. It is an 669 00:39:34,800 --> 00:39:38,000 Speaker 1: American carnage. People have jobs, but they are you know 670 00:39:38,160 --> 00:39:41,440 Speaker 1: then burger flipping jobs, the lower jobs, the temporary jobs 671 00:39:41,600 --> 00:39:45,319 Speaker 1: that have no benefits, having millions of younger millennials having 672 00:39:45,400 --> 00:39:48,200 Speaker 1: to do three or four times for different gig jobs 673 00:39:48,440 --> 00:39:51,120 Speaker 1: and not being paid enough and not having any benefits 674 00:39:51,480 --> 00:39:54,600 Speaker 1: is no is no kind of panasia of any sort, 675 00:39:55,000 --> 00:39:57,920 Speaker 1: So I do believe it. Actually, the situation for labor 676 00:39:58,320 --> 00:40:02,080 Speaker 1: was extremely fragile. Of course, after a decade of a recovery, 677 00:40:02,560 --> 00:40:05,400 Speaker 1: you had an employment rate gone from ten percent to 678 00:40:05,520 --> 00:40:08,279 Speaker 1: three point five. We created twenty two billion jobs, but 679 00:40:08,360 --> 00:40:11,640 Speaker 1: guess not in four weeks the entire jobs have been 680 00:40:11,680 --> 00:40:15,560 Speaker 1: created in ten years that are gone twenty six million, 681 00:40:15,880 --> 00:40:18,520 Speaker 1: and I think it's gonna be thirty five. And ask yourself, 682 00:40:18,719 --> 00:40:22,520 Speaker 1: if you took a decade, ten years of an anemic 683 00:40:22,600 --> 00:40:27,600 Speaker 1: recovery with something happening, for creating twenty two million jobs, 684 00:40:28,000 --> 00:40:31,880 Speaker 1: how many years is gonna take us to essentially reduced 685 00:40:31,960 --> 00:40:36,000 Speaker 1: unemployment rate from thirty six million new people without jobs 686 00:40:36,320 --> 00:40:38,799 Speaker 1: back to normal. It's gonna take a decade, it's gonna 687 00:40:38,840 --> 00:40:43,840 Speaker 1: take two decades. What's gonna take? So honestly, labor is screwed, 688 00:40:44,280 --> 00:40:46,920 Speaker 1: was always screwed, is now screwed more than before, and 689 00:40:47,000 --> 00:40:50,759 Speaker 1: it's gonna be a nightmare. Okay, Well, on that um 690 00:40:52,120 --> 00:40:56,080 Speaker 1: optimistic note, I think we're gonna leave it therenurial. Thank 691 00:40:56,160 --> 00:40:58,520 Speaker 1: you so much for coming on, and I know, you 692 00:40:58,640 --> 00:41:03,040 Speaker 1: call yourself d your realist, but you're painting a pretty 693 00:41:03,160 --> 00:41:07,080 Speaker 1: uh pretty depressing picture of the future. But thank you 694 00:41:07,200 --> 00:41:10,520 Speaker 1: you appreciate it. I'm all I'm wrong. I feel I'm 695 00:41:10,520 --> 00:41:14,879 Speaker 1: gonna be right. I won't play. Thanks for that was great. 696 00:41:15,560 --> 00:41:24,359 Speaker 1: Thank you so Joe. I'm just trying to think all 697 00:41:24,440 --> 00:41:27,520 Speaker 1: the all the ground we just covered. We had a 698 00:41:27,600 --> 00:41:32,200 Speaker 1: great depression, food shortages, the end of globalization, a new 699 00:41:32,280 --> 00:41:38,320 Speaker 1: Cold war, uh, stagflation, you go on. But like pretty 700 00:41:38,400 --> 00:41:42,520 Speaker 1: much every bad scenario was touched upon. So that was 701 00:41:42,600 --> 00:41:46,840 Speaker 1: fun Yeah, you know, it's funny because like I you know, 702 00:41:46,880 --> 00:41:49,919 Speaker 1: when I set it up the intro when we were talking, 703 00:41:49,960 --> 00:41:51,839 Speaker 1: I was like, oh, they called doctor Doom, but I'm 704 00:41:51,880 --> 00:41:55,160 Speaker 1: not sure if he really is a doctor Doom. Maybe 705 00:41:55,239 --> 00:41:57,120 Speaker 1: that was just sort of like I think people called him. 706 00:41:58,200 --> 00:42:01,600 Speaker 1: He's very negative, like he really you know. What the 707 00:42:01,680 --> 00:42:05,360 Speaker 1: interesting thing is is that, um, you know, there's a 708 00:42:05,440 --> 00:42:08,359 Speaker 1: lot of like there's sort of like perma beare uh 709 00:42:09,080 --> 00:42:11,120 Speaker 1: types out there, Like there's other people. In fact, I 710 00:42:11,200 --> 00:42:13,279 Speaker 1: think there's like ten people at the nickname doctor Doom, 711 00:42:13,640 --> 00:42:15,239 Speaker 1: but a lot of them are like they sort of 712 00:42:15,280 --> 00:42:18,839 Speaker 1: like hardcore gold types. He's not really one of them 713 00:42:18,960 --> 00:42:23,839 Speaker 1: so much. No, No, actually, yeah, we should have asked him. 714 00:42:24,040 --> 00:42:25,680 Speaker 1: I guess we should have asked him where he'd be 715 00:42:25,880 --> 00:42:28,200 Speaker 1: putting his money at this point in time. I would 716 00:42:28,239 --> 00:42:31,000 Speaker 1: have been interested in that. But but it was really 717 00:42:31,040 --> 00:42:35,320 Speaker 1: fascinating to hear him talk about a permanent behavioral change 718 00:42:35,840 --> 00:42:39,839 Speaker 1: for people and consumers. Well, it's also sort of interesting too, 719 00:42:40,000 --> 00:42:43,840 Speaker 1: because there is a lot of talk about permanent behavioral change, 720 00:42:44,440 --> 00:42:49,360 Speaker 1: and it's worth sort of disentangling what is the permanent 721 00:42:49,480 --> 00:42:52,759 Speaker 1: behavioral change due to the health crisis. So, Okay, maybe 722 00:42:52,800 --> 00:42:56,120 Speaker 1: some people are gonna avoid different kinds of leisure, or 723 00:42:56,280 --> 00:42:58,560 Speaker 1: they're you know, they're gonna want more space between them 724 00:42:58,600 --> 00:43:01,680 Speaker 1: and the next person that arrests run versus the permanent 725 00:43:01,760 --> 00:43:06,279 Speaker 1: behavioral change that results from saying your income vanish in 726 00:43:06,360 --> 00:43:09,120 Speaker 1: a minute or visiting the revenue vanish in a minute. 727 00:43:09,120 --> 00:43:11,480 Speaker 1: So it'll be interroding because there's really two sorts of 728 00:43:11,600 --> 00:43:16,279 Speaker 1: things that are simultaneously unprecedented in this crisis that could 729 00:43:16,360 --> 00:43:18,920 Speaker 1: leave lasting scars. Yeah, I guess we'll have to have 730 00:43:19,200 --> 00:43:22,160 Speaker 1: a Rubini on in well a couple of years to 731 00:43:22,600 --> 00:43:24,840 Speaker 1: to talk about those changes and also see whether or 732 00:43:24,880 --> 00:43:28,759 Speaker 1: not that that stagflation idea has come to fruition. The 733 00:43:29,000 --> 00:43:32,440 Speaker 1: stagflation thing is particularly interesting because you do get more 734 00:43:32,600 --> 00:43:36,799 Speaker 1: people who had never really been believers in the inflation 735 00:43:37,080 --> 00:43:41,480 Speaker 1: thesis starting to come around, essentially because of some version 736 00:43:42,120 --> 00:43:46,040 Speaker 1: of the permanent change of the supply global trade landscape 737 00:43:46,080 --> 00:43:49,319 Speaker 1: that he described. It feels like if there is going 738 00:43:49,360 --> 00:43:52,520 Speaker 1: to be a moment where some of the inflation predictions 739 00:43:52,600 --> 00:43:55,719 Speaker 1: could start to come to fruition, it's that combination of 740 00:43:55,800 --> 00:44:00,279 Speaker 1: deglobalization and aggressive stimulus that could theoretically do it. Yeah, 741 00:44:00,719 --> 00:44:04,080 Speaker 1: definitely an interesting one to watch. All right, Uh, shall 742 00:44:04,120 --> 00:44:07,520 Speaker 1: we leave it there? Let's leave it there? All right, Well, 743 00:44:07,640 --> 00:44:11,800 Speaker 1: this has been another depressing episode of the All Thoughts podcast. 744 00:44:11,880 --> 00:44:14,319 Speaker 1: I'm Tracy Alloway. You can follow me on Twitter at 745 00:44:14,400 --> 00:44:17,319 Speaker 1: Tracy Alloway. Uh, and I'm Joe Wisn't all. You can 746 00:44:17,400 --> 00:44:20,479 Speaker 1: follow me on Twitter at a Stalwart. And you should 747 00:44:20,520 --> 00:44:24,040 Speaker 1: follow our guest on Twitter. Nuriel Roubini. He's at Neuriel. 748 00:44:24,520 --> 00:44:27,400 Speaker 1: Be sure to follow our producer on Twitter, Laura Carlson. 749 00:44:27,520 --> 00:44:31,520 Speaker 1: She's at Laura M. Carlson. Follow the Bloomberg head of podcast, 750 00:44:31,640 --> 00:44:34,880 Speaker 1: Francesco Leavi at Francesca Today, as well as all the 751 00:44:34,880 --> 00:44:39,360 Speaker 1: Bloomberg podcasts, Onto the handle at podcasts, Thanks for listening. 752 00:45:00,200 --> 00:45:00,239 Speaker 1: T