WEBVTT - Lots More on JD Vance and the Future of the US Dollar 0:00:03.120 --> 0:00:07.480 Bloomberg Audio Studios, podcasts, radio news. 0:00:10.080 --> 0:00:14.440 Did you watch jd Vance's with the r n C. 0:00:14.840 --> 0:00:17.239 I saw some clips. Did you watch the whole thing? 0:00:17.560 --> 0:00:18.160 No? 0:00:18.160 --> 0:00:20.959 No, but I saw some. I saw some clips as well. 0:00:21.000 --> 0:00:27.440 Do you think he has read Trade Wars or Class warst. 0:00:26.040 --> 0:00:28.720 As far as you know, has jd Vance read the 0:00:28.720 --> 0:00:31.120 book you co authored with Michael Pettis. 0:00:31.280 --> 0:00:33.600 As far as I know, definitely, people on his staff have, 0:00:33.720 --> 0:00:35.760 and I would not be surprised if he has himself. 0:00:36.920 --> 0:00:41.559 Oh there you go. I did a deadlift one. 0:00:43.080 --> 0:00:47.519 Jim uh barges. 0:00:47.640 --> 0:00:49.680 This isn't after school Special, except. 0:00:49.440 --> 0:00:51.960 I've decided I'm going to base my entire personality going 0:00:52.000 --> 0:00:55.240 forward on campaigning for a strategic pork reserve in the US. 0:00:55.320 --> 0:00:57.040 Where's the best with imposta? 0:00:57.240 --> 0:00:59.720 These are the important question? Is that robots taking over 0:00:59.760 --> 0:01:00.000 the world? 0:01:00.280 --> 0:01:00.400 No. 0:01:00.480 --> 0:01:03.360 I think that like in a couple of years, the 0:01:03.440 --> 0:01:05.640 AI will do a really good job of making the 0:01:05.680 --> 0:01:09.119 Odd Lots podcast and people today, I don't really need 0:01:09.160 --> 0:01:10.800 to listen to Joe and Tracy anymore. 0:01:11.040 --> 0:01:12.000 We do have. 0:01:13.360 --> 0:01:17.520 The perfect You're listening to Lots more where we catch 0:01:17.600 --> 0:01:19.679 up with friends about what's going on right now. 0:01:19.959 --> 0:01:22.680 Because even when the odd lots is over. There's always 0:01:22.760 --> 0:01:23.400 lots more. 0:01:23.600 --> 0:01:25.800 And we really do have the perfect guest. 0:01:28.800 --> 0:01:31.600 We're here with our friend multi time guest Matt Klein. 0:01:31.959 --> 0:01:35.679 Everyone is reading from your hymnal must be pretty well also, listeners. 0:01:35.720 --> 0:01:38.160 In addition to reading the book, go check out his 0:01:38.319 --> 0:01:41.800 uh newsletter, the Overshoot, which is, you know, it's sort 0:01:41.840 --> 0:01:43.760 of like, you know how people used to subscribe to 0:01:43.800 --> 0:01:46.440 the Economist but then never read them in their famously 0:01:46.520 --> 0:01:49.360 piled up That's how I am with substacks, except Matt's 0:01:49.440 --> 0:01:51.360 is one of the ones that I regularly open. 0:01:52.160 --> 0:01:54.240 So you're going to say, like, Matt's is one of 0:01:54.280 --> 0:01:57.880 those newsletters though I don't read just like the economists. No, 0:01:58.000 --> 0:01:59.120 it's really good. 0:01:58.960 --> 0:02:01.160 Hey, something to subscribe. No, I appreciate that. That's that's 0:02:01.200 --> 0:02:03.680 very kind of so. Yeah. 0:02:03.760 --> 0:02:07.600 One of the things that is extremely trade wars are 0:02:07.720 --> 0:02:11.440 class wars coded, so to speak. And this is one 0:02:11.440 --> 0:02:16.080 of these ideas you don't here discuss popularly, particularly among 0:02:16.280 --> 0:02:19.280 politicians or really anyone. But it's like, oh, you're really 0:02:19.320 --> 0:02:21.680 in the know if you make this point. Is this 0:02:21.840 --> 0:02:25.000 notion that maybe the central role of the US dollar 0:02:25.280 --> 0:02:28.079 the reserve currency status is not so great for the US, 0:02:28.320 --> 0:02:30.640 and he has made that point in interviews and I 0:02:30.639 --> 0:02:34.079 think even in some testimonies that like he's not crazy 0:02:34.160 --> 0:02:35.760 about the dominance of the US dollar. 0:02:36.880 --> 0:02:38.840 Yeah, that's right. I mean I think he asked benchairman 0:02:38.880 --> 0:02:41.480 Jerome Powell up this a year ago. So yes, that's 0:02:41.480 --> 0:02:41.880 that's right. 0:02:42.639 --> 0:02:45.600 Wait, are you surprised at all that the dollars reserve 0:02:45.639 --> 0:02:48.760 currency status has been picked up as like a populist 0:02:48.960 --> 0:02:52.040 talking point? I mean seriously, I mean I'm. 0:02:51.960 --> 0:02:54.160 Going to say no, because he's not the first one. Right, 0:02:54.200 --> 0:02:56.920 So Josh Holly is also was you know, Pettes pilled 0:02:56.919 --> 0:02:59.480 as it were, And I remember when the book came out, 0:02:59.520 --> 0:03:02.640 like conversations with people on his staff, I didn't even think. 0:03:02.639 --> 0:03:04.280 I think before the book was efficiently released, I mean 0:03:04.320 --> 0:03:06.960 they somehow got some you know, early preprint or something. 0:03:07.000 --> 0:03:11.079 So it's definitely percolating the ideas and that segment of 0:03:11.160 --> 0:03:14.040 the Republican right. It's obviously also, I mean you probably 0:03:14.040 --> 0:03:16.160 saw the article that Robinson Mayer wrote, and he did. 0:03:16.320 --> 0:03:18.519 There's a lot of people in the Biden administration whove 0:03:18.520 --> 0:03:20.919 also read the book and I think gotten some good 0:03:20.960 --> 0:03:23.320 takeaways from it. So this is you know, it's interesting 0:03:23.320 --> 0:03:24.760 to see that having a really cross part is an 0:03:24.760 --> 0:03:26.760 appeal even if the types of people who liked him 0:03:26.760 --> 0:03:28.400 been very different from each other are very different and 0:03:28.440 --> 0:03:30.919 their priorities for other things, but they seem to appreciate 0:03:30.919 --> 0:03:32.040 the analysis we put together. 0:03:32.720 --> 0:03:35.440 I mean, one thing that is true is it seems 0:03:35.480 --> 0:03:38.040 like there's been a slight evolution or at least a 0:03:38.080 --> 0:03:42.440 clarification in Trump's approach to the dollars. So do you remember, 0:03:42.560 --> 0:03:45.400 like in the early days of his administration or when 0:03:45.440 --> 0:03:48.160 he was running, he used to talk about, like a 0:03:48.200 --> 0:03:51.160 lower dollar would be better for US trade, But then 0:03:51.200 --> 0:03:54.040 he would also talk about how, you know, how great 0:03:54.160 --> 0:03:57.080 the dollar was in the sense of its position in 0:03:57.120 --> 0:04:00.280 the international financial system, and so it always we like 0:04:00.280 --> 0:04:01.920 there was a little bit of tension there. But I 0:04:01.960 --> 0:04:05.120 guess as time has gone on, he's sort of migrated 0:04:05.680 --> 0:04:10.080 towards clearly like this idea that actually the preserve currency 0:04:10.120 --> 0:04:12.920 status isn't that great for the American economy. 0:04:13.720 --> 0:04:15.720 Yeah, I don't know if I can. I don't feel 0:04:15.720 --> 0:04:17.840 comfortable saying what Trump's actual views are on this, because 0:04:17.839 --> 0:04:20.960 it is some point the words. But yeah, I mean, 0:04:21.000 --> 0:04:23.120 I think at least it would be more coherent to 0:04:23.240 --> 0:04:25.359 say say it the way it sort of the advances 0:04:25.440 --> 0:04:28.120 laid out that the use of the dollar outside the 0:04:28.200 --> 0:04:31.720 United States and its popularity as a place for foreigners 0:04:31.720 --> 0:04:35.279 to save money in dollars, that that has harmful effects 0:04:35.320 --> 0:04:37.480 the United States because it makes a dollar relatively more 0:04:37.520 --> 0:04:39.440 expensive than otherwise would be that at least is a 0:04:39.440 --> 0:04:40.880 coherent point if you can disagree with it, but it's 0:04:40.880 --> 0:04:42.680 coherent as opposed to saying we want the dollar to 0:04:42.720 --> 0:04:44.960 be cheaper and it's great that the dollars reserve currency. 0:04:45.520 --> 0:04:49.480 Wait, so, full disclosure, I have probably in my life 0:04:49.600 --> 0:04:53.120 in conversation, said something like, well, did you know that 0:04:53.160 --> 0:04:57.120 the dollar reserve currency status is not a privilege or 0:04:57.160 --> 0:04:59.880 a burden? But the only reason I said that is 0:05:00.040 --> 0:05:01.840 probably because I read it in your book or saw 0:05:01.880 --> 0:05:04.160 it in one of your tweets, And I actually don't 0:05:04.160 --> 0:05:06.920 even really remember the argument. I was just trying to 0:05:07.000 --> 0:05:11.920 sound intelligent and heterodoxy full disclosure. You're a smart guy, 0:05:12.000 --> 0:05:14.240 So if you believe something, I'll just probably accept it 0:05:14.279 --> 0:05:16.440 on faith. But what do you remind us? What is 0:05:16.480 --> 0:05:18.800 the gist here of why maybe it's not so good? 0:05:19.680 --> 0:05:21.560 Sure? So, basically, I mean, first of all, you know, 0:05:21.600 --> 0:05:23.400 people talk about their reserve currency, and that's a little 0:05:23.400 --> 0:05:26.560 bit of a misnomer, like the reason, yeah, people reserve dollars, right, 0:05:26.680 --> 0:05:28.360 I mean the dollar is significant just because the United 0:05:28.360 --> 0:05:30.160 States is really big, Right. There are other countries where 0:05:30.160 --> 0:05:32.120 their currencies are outside, like the UK is a really 0:05:32.120 --> 0:05:35.160 good example, Switzerland is a good example, France in some ways. 0:05:35.320 --> 0:05:38.440 But in general, what it means is that your financial system, 0:05:38.480 --> 0:05:42.480 your domestic financial system, has evolved and adapted to meet 0:05:42.520 --> 0:05:45.840 the needs of foreign savers and borrowers at least as 0:05:45.920 --> 0:05:48.320 much as people in your own country. And that means 0:05:48.320 --> 0:05:51.200 that what people outside your country want to do can 0:05:51.279 --> 0:05:53.760 potentially have big impacts on your domestic economy because that's 0:05:53.760 --> 0:05:55.680 where the adjustment ends up happening. And that can be 0:05:55.760 --> 0:05:57.560 good or it can be bad, depending upon or at 0:05:57.600 --> 0:05:59.720 least it needs it should be managed. Yeah, if it's 0:05:59.720 --> 0:06:01.920 not man some way, can lead a lot of real problems. 0:06:01.920 --> 0:06:04.359 So in the case of the United States, what this 0:06:04.520 --> 0:06:07.880 is meant is that over the past forty plus years 0:06:08.000 --> 0:06:11.880 or so, the overall preference of foreigners has been they 0:06:11.920 --> 0:06:14.760 want to spend less than they earn and save the 0:06:14.800 --> 0:06:17.599 difference by buying financial assets. And what that is meant 0:06:17.760 --> 0:06:19.880 is that Americans have to be on their side of 0:06:19.920 --> 0:06:23.760 this and borrow more selling financial assets to them in exchange. 0:06:24.440 --> 0:06:26.000 That's what has happened to have been the case for 0:06:26.040 --> 0:06:27.880 the past forty plus years. And what that's meant is 0:06:27.920 --> 0:06:30.719 that Americans have been borrowing more than otherwise they would. 0:06:30.960 --> 0:06:33.680 That means more debt, and it also means some combination 0:06:33.800 --> 0:06:36.080 of either incomes being lower than the otherwise would be 0:06:36.440 --> 0:06:39.480 or spending being higher. Now, whether this is good or bad, 0:06:39.560 --> 0:06:42.279 or how it translates into what the American living standards 0:06:42.320 --> 0:06:43.560 and living stands in the rest of the world, that 0:06:43.600 --> 0:06:45.520 depends a lot of specifics, and that's where it's important 0:06:45.520 --> 0:06:47.960 to get into kind of the nitty gritty and say, well, 0:06:48.279 --> 0:06:50.520 we don't necessarily want to just you know, close the 0:06:50.520 --> 0:06:52.880 trade deaf sip by any means necessary. One way to 0:06:52.880 --> 0:06:54.719 do that, of course, is you just impoverish Americans so 0:06:54.720 --> 0:06:57.200 they spend less. That's not good, right, which, by the way, 0:06:57.200 --> 0:06:59.599 it used to be sort of the orthodox view of people, all, well, 0:06:59.600 --> 0:07:01.599 if you don't like the current account deficit, it's because 0:07:01.839 --> 0:07:03.919 the budget, the federal budget debtsit stubis we need to 0:07:03.960 --> 0:07:06.640 raise taxes and cut spending. Which is essentially saying that 0:07:06.680 --> 0:07:08.520 because other people in the rest of the world for 0:07:08.600 --> 0:07:11.640 whatever reason, are choosing to live below their means, in 0:07:11.640 --> 0:07:14.760 other words, spending less and consuming less than they're producing, 0:07:14.960 --> 0:07:17.000 that therefore Americans have to live worse off. And that 0:07:17.000 --> 0:07:19.040 doesn't make sense. Obviously, it'd be better if people in 0:07:19.040 --> 0:07:20.960 the rest of the world live better, and that would 0:07:21.160 --> 0:07:23.160 encourage a healthy rebalancey in the US where we were 0:07:23.160 --> 0:07:25.880 genering more income selling the foreigners. But that's you know, 0:07:25.920 --> 0:07:27.280 if that's not going to happen, then the question is 0:07:27.280 --> 0:07:30.080 what do you do about it? And you know, we 0:07:30.120 --> 0:07:31.680 wrote in the book most of the book is just 0:07:31.720 --> 0:07:33.760 sort of explaining all this in more detail, providing some 0:07:33.800 --> 0:07:36.720 historical context, showing it across different countries and time periods. 0:07:37.160 --> 0:07:39.679 But you know, the conclusion we did say, okay, well 0:07:40.080 --> 0:07:42.640 you've read all this, hopefully you understood it and taking 0:07:42.640 --> 0:07:44.160 it in like what is that? What are the implications 0:07:44.200 --> 0:07:46.040 for a country like the United States. And you know, 0:07:46.120 --> 0:07:47.520 Michael and I had a bit of a you know, 0:07:48.080 --> 0:07:49.920 discussion about how to put that writing. The coclusion was 0:07:49.960 --> 0:07:52.000 very hard to sort of synthesize different points of view, 0:07:52.040 --> 0:07:53.520 and I think we came to a good sort of 0:07:53.560 --> 0:07:58.720 constructive synthesis here and basically saying, if you think that 0:07:59.440 --> 0:08:02.240 foreigners and can change their behavior and they're just going 0:08:02.320 --> 0:08:05.360 to continually be this net inflow of finance in the 0:08:05.480 --> 0:08:09.080 United States, and you know, the corollary being that people 0:08:09.120 --> 0:08:10.000 in the rest of the world are going to be 0:08:10.040 --> 0:08:12.000 producing a bunch of things are not using for themselves 0:08:12.040 --> 0:08:14.560 and selling it to Americans, then there are things that 0:08:14.600 --> 0:08:17.240 the US can do to make that as beneficial for 0:08:17.280 --> 0:08:19.720 Americans as possible. The first thing is if someone is 0:08:19.760 --> 0:08:21.320 going to be borrowing, because someone in the US is 0:08:21.360 --> 0:08:23.200 gonna be borrowing to offset this, it should be the 0:08:23.240 --> 0:08:26.200 federal government because you know their ability to service the 0:08:26.240 --> 0:08:28.000 debt and not face runs. And so if it's going 0:08:28.040 --> 0:08:29.640 to be much better than a private sector, the private 0:08:29.640 --> 0:08:32.240 sector borrows even if people still want to buy dollar 0:08:32.280 --> 0:08:33.720 assets and not always going to want to buy those 0:08:33.720 --> 0:08:35.560 private assets, and that great real problems. That's what happened 0:08:35.559 --> 0:08:37.480 in the two thousands, right there was there was never 0:08:37.520 --> 0:08:40.360 a situation where foreigners stopped wanting to hold dollars. They 0:08:40.400 --> 0:08:42.760 just wanted to stop holding particular types of dollars, and 0:08:42.760 --> 0:08:44.640 that created all sorts of runs. If it's the federal 0:08:44.679 --> 0:08:47.040 government's less likely to be an issued. Okay, so that's 0:08:47.080 --> 0:08:49.400 that's one thing that's like step one. Then step two 0:08:49.480 --> 0:08:51.120 is because you want to make sure your private sector 0:08:51.160 --> 0:08:54.160 is not being reasonably you know, burdened by this, and 0:08:54.200 --> 0:08:55.920 then you say, okay, well we should figure out useful 0:08:55.920 --> 0:08:57.360 things we can do with the money, right, I mean, 0:08:57.400 --> 0:08:59.439 if the government has been borrowing a lot more than otherwise, 0:08:59.480 --> 0:09:01.520 would be as well find things that are constructive. So 0:09:01.559 --> 0:09:03.319 one thing you could do, which I think would make 0:09:03.320 --> 0:09:06.000 sense to say, okay, well, obviously, you know, you have 0:09:06.040 --> 0:09:08.400 a society with some people are poorer than others, some 0:09:08.440 --> 0:09:10.520 people are more financially constrained than others, some people are 0:09:10.559 --> 0:09:13.040 more indebted in than others. If we can, you know, 0:09:13.040 --> 0:09:15.880 to a certain extent, increase overall incomes and living standards 0:09:15.880 --> 0:09:17.800 for people, that would be constructive. Right. People would have 0:09:17.800 --> 0:09:20.000 more money, they'd be more financially secure, less curious, they 0:09:20.000 --> 0:09:21.800 could buy more things that would be good for jobs 0:09:21.800 --> 0:09:24.480 and incomes and well being and social being and so forth. 0:09:24.480 --> 0:09:27.000 That's one thing you could do, pretty straightforwardly. Another thing 0:09:27.000 --> 0:09:28.160 you could do is you could say, we have a 0:09:28.160 --> 0:09:30.040 lot of unmet investment needs. We know what they are 0:09:30.120 --> 0:09:31.760 just because the various reasons you know, where there have 0:09:31.760 --> 0:09:33.800 been backlogs and even done them, or the things we 0:09:33.800 --> 0:09:35.160 think we're going to need in the future, and you 0:09:35.200 --> 0:09:38.280 can say we can borrow, have the treasury borrow at 0:09:38.320 --> 0:09:40.680 you know, relatively lower rates than otherwise would be the case, 0:09:40.720 --> 0:09:43.199 and support the financing of these investments that would be 0:09:43.200 --> 0:09:46.160 productive and hopefully again make people's living standards higher in 0:09:46.160 --> 0:09:48.679 the future. And then the last thing that I think 0:09:48.679 --> 0:09:51.120 would make sense in this context is to the extent 0:09:51.200 --> 0:09:54.920 that foreigners are consuming less than you'd otherwise expect based 0:09:54.960 --> 0:09:57.760 on what they're producing, and they're creating relatives to that 0:09:57.840 --> 0:10:00.439 and excess of production and selling it. You just want 0:10:00.440 --> 0:10:02.920 to make sure that America's ability to produce things, or 0:10:02.920 --> 0:10:04.439 whatever country we're talking about here doesn't have to be 0:10:04.440 --> 0:10:07.520 the US could be like the UK isn't unreasonably displaced. 0:10:07.760 --> 0:10:11.800 There are reasons why it's good to have a sufficiently large, 0:10:12.160 --> 0:10:16.600 diversified complex manufacturing sector in your country, for productivity reasons, 0:10:16.640 --> 0:10:19.720 for national security reasons, and you want to be able 0:10:19.720 --> 0:10:21.800 to preserve that and not have it unreasonably Obviously they're 0:10:21.800 --> 0:10:25.120 technological changes or whatever things like that happens, you know, 0:10:25.160 --> 0:10:26.840 it doesn't necessarily make sense for the US to have 0:10:26.880 --> 0:10:29.240 a huge T shirt manufacturing industry, but you don't want 0:10:29.240 --> 0:10:32.360 to have a situation where, because of people's saving preferences 0:10:32.360 --> 0:10:36.439 which are totally unrelated, that like the US manufacturing sector 0:10:36.559 --> 0:10:40.079 or for other countries that supplies is not unreasonably demolished, 0:10:40.080 --> 0:10:42.719 and so some it makes sense in that case that 0:10:42.840 --> 0:10:45.640 have some government spending set aside to make sure there 0:10:45.720 --> 0:10:48.360 is always demand for American manufacturing. And if you have 0:10:48.480 --> 0:10:50.200 this perspective, which is what we laid out in the book, 0:10:50.200 --> 0:10:52.440 you can, I think reasonably say that in many ways, 0:10:53.040 --> 0:10:54.880 a lot of we've seen in the past three years 0:10:54.880 --> 0:10:57.440 has really been you know, consistent with that that kind 0:10:57.440 --> 0:11:00.600 of policy making. I think that's constructive. 0:11:00.800 --> 0:11:03.520 The one thing, well, there are a lot of things 0:11:03.640 --> 0:11:06.320 that I don't get nowadays, but one thing that I 0:11:06.360 --> 0:11:09.800 really don't get is like Trump, the Trump administration, Like, 0:11:09.880 --> 0:11:12.360 insofar as they've laid it out so far, they seem 0:11:12.400 --> 0:11:16.160 to want like disparate and conflicting things. So, you know, 0:11:16.360 --> 0:11:20.520 a weaker dollar, a change in the dollars reserve status, 0:11:20.559 --> 0:11:26.520 maybe a reduction in the trade deficit, lower interest rates 0:11:26.800 --> 0:11:29.920 of inflation, and lower inflation Yeah, lower inflation seems to 0:11:29.920 --> 0:11:34.240 be like the big contradiction here. And I also feel 0:11:34.280 --> 0:11:36.520 like you could make a very strong argument that if 0:11:36.520 --> 0:11:40.040 we've learned anything from the past few years in terms 0:11:40.040 --> 0:11:44.920 of Americans economic preferences, it's that Americans hate inflation a 0:11:44.960 --> 0:11:48.840 lot more than they seem to like full employment. Right, So, like, 0:11:49.360 --> 0:11:53.120 how does all this come together and actually impact prices? 0:11:53.520 --> 0:11:55.640 Sure? Well, so these are all great questions. First of all, 0:11:55.679 --> 0:11:57.760 as we wrote the book before it became apparent that 0:11:57.760 --> 0:12:00.719 people hated inflation more than they hated full employment unemployment, 0:12:00.800 --> 0:12:02.680 so that you know, that's our fault. I guess I 0:12:02.720 --> 0:12:05.040 still think it's better to have a full employment and 0:12:05.040 --> 0:12:06.920 a little more inflation than the other way around. But 0:12:07.080 --> 0:12:09.240 you know, my linch may faery, But yeah, I agree 0:12:09.280 --> 0:12:11.640 that it is contradictory. I mean, I think you could 0:12:11.679 --> 0:12:14.559 plausibly put together a sort of a reflationist agenda, the 0:12:14.640 --> 0:12:15.800 kind of thing that would have made a lot of 0:12:15.840 --> 0:12:19.000 sense and say two thousand nine twenty ten. You know, 0:12:19.040 --> 0:12:21.880 but does that fully make sense now? Or if it 0:12:21.880 --> 0:12:24.600 does make sense now, like, are people prepared to accept 0:12:24.640 --> 0:12:26.560 the full consequences of that? And I think the answer 0:12:26.600 --> 0:12:29.640 is probably no, Right, I mean, first of all, compressing 0:12:29.679 --> 0:12:32.000 the trade deficit for two sides. Then right, you can 0:12:32.040 --> 0:12:34.280 lower imports, so you can raise exports. If you do 0:12:34.320 --> 0:12:37.040 it by lowering imports, then again, I mean one way 0:12:37.080 --> 0:12:39.200 of doing that is you somehow manage to make more 0:12:39.240 --> 0:12:42.840 things domestically and so you have less need imports stuff. Okay, fine, 0:12:43.080 --> 0:12:45.079 Or you do it by just buying less stuff domestically 0:12:45.080 --> 0:12:47.160 because you're poor, or you're just buying less stuff. So 0:12:47.200 --> 0:12:49.120 again there's like all these different layers of how this 0:12:49.240 --> 0:12:51.240 plays out. Also for exports. By the way, you can 0:12:51.280 --> 0:12:54.319 increase exports because you're selling less stuff in your home 0:12:54.360 --> 0:12:56.760 market but you're able to sell it somewhere else, or 0:12:56.800 --> 0:12:59.440 because you're just producing more and as a consequence, you know, 0:12:59.480 --> 0:13:02.160 whatever share as export goes up. So there's four different 0:13:02.200 --> 0:13:04.600 possibilities there. You can have different combinations. They all have 0:13:04.600 --> 0:13:08.960 different implications for living standards, for potential interactions with how 0:13:09.040 --> 0:13:11.800 much spare resources are available and what that might mean 0:13:11.800 --> 0:13:15.480 for inflation. And so you know, it's dangerous to oversimplify 0:13:15.520 --> 0:13:17.320 these things and just say like, oh, we want to 0:13:17.320 --> 0:13:19.160 have a narrow or trade depths. I mean, what you 0:13:19.160 --> 0:13:22.360 should care about is things like financial stability, things like 0:13:22.400 --> 0:13:25.319 full employment, things like making sure that you know you're 0:13:25.360 --> 0:13:30.280 having a diversified, you know, sophisticated domestic production base. That's tricky, 0:13:30.320 --> 0:13:31.439 but I mean that's kind of I think how it 0:13:31.480 --> 0:13:33.160 would makes sense to prioritize things, right. 0:13:33.200 --> 0:13:35.679 A lot of this is about are you addressing the 0:13:35.800 --> 0:13:38.840 symptom or the underlying issue. 0:13:39.280 --> 0:13:40.840 Well, if the dollar. 0:13:41.320 --> 0:13:45.120 We're less central in the global economy, would the constrain 0:13:45.880 --> 0:13:51.160 foreign policy insofar as sometimes we seize the dollar assets 0:13:51.200 --> 0:13:55.160 of other countries, or we cut off individuals, companies, and 0:13:55.240 --> 0:13:58.080 countries from banks to have access to the dollar system. 0:13:58.120 --> 0:14:00.880 Does that have a constraining a security effect? 0:14:01.640 --> 0:14:04.440 Potentially if you look back historically that some of the 0:14:04.440 --> 0:14:09.120 people who were most in favor of maintaining the status 0:14:09.200 --> 0:14:11.280 call have been people in the national security establishment who 0:14:11.280 --> 0:14:13.760 look at from that perspective. So that's a potential issue. 0:14:13.880 --> 0:14:16.000 The flip side, though, is like, what what are the 0:14:16.040 --> 0:14:18.800 other currencies that lay a larger role potentially? I mean 0:14:18.840 --> 0:14:21.160 one I think obvious one which nobody talked about anymore 0:14:21.200 --> 0:14:24.520 for reasons they don't understand, but would be the Euro. Right, Like, 0:14:25.640 --> 0:14:28.400 the European economy in the aggregate is very large. It 0:14:28.480 --> 0:14:29.920 is sophisticated, has got a lot of stuff that The 0:14:29.960 --> 0:14:33.640 European financial market in the aggregate is again large, it 0:14:33.720 --> 0:14:35.160 is open, but there's a lot of issues they have 0:14:35.240 --> 0:14:37.360 in terms of fragmentation, in terms of legal regime, in 0:14:37.440 --> 0:14:41.680 terms of just weird ideological biases against you know, government 0:14:41.680 --> 0:14:45.880 borrowing particularly you know, again encourage the fragmentation, and so 0:14:45.920 --> 0:14:47.640 that basically they're really punching below their weight. I mean, 0:14:47.680 --> 0:14:49.480 that's sort of the most obvious one. You can also 0:14:49.520 --> 0:14:51.320 talk about Yuan, which is a different story, but like 0:14:52.160 --> 0:14:54.800 Europe's so obvious one. And so from foreign policy, like 0:14:55.640 --> 0:14:58.120 there are situations where sometimes you have disagreements in the 0:14:58.240 --> 0:15:00.520 US and Europeans about foreign policy. But the really big 0:15:00.560 --> 0:15:03.400 stuff that's happened recently there's been locks up, and same 0:15:03.400 --> 0:15:06.760 thing with Japan and Switzerland, and so you could have 0:15:06.840 --> 0:15:11.560 a more diverse, pluralistic regime of financial systems. And nevertheless, 0:15:12.000 --> 0:15:14.160 you know, for when things matter, I mean, you talk 0:15:14.200 --> 0:15:16.480 about sanctions and banks, like there's an element where cutting 0:15:16.480 --> 0:15:18.360 off banks is important, but also what it is is 0:15:18.400 --> 0:15:20.720 like you are being cut off from our real economy 0:15:20.760 --> 0:15:22.800 as well, and to the extent that the real economy 0:15:22.840 --> 0:15:26.200 of the US and allies writ large is still very 0:15:26.280 --> 0:15:29.320 large relative to the global total, and very very large 0:15:29.320 --> 0:15:31.560 when it comes to you know, certain sort of essential 0:15:31.640 --> 0:15:34.400 high tech components. You'd be able to swing a big 0:15:34.440 --> 0:15:36.560 stick if you want to. Even if that were not 0:15:36.600 --> 0:15:39.280 the case, I think that people shouldn't They should not 0:15:39.320 --> 0:15:41.840 be so afraid of that outcome that they you know, 0:15:42.160 --> 0:15:44.080 ignore what's gooding and policy. And by the way, I 0:15:44.120 --> 0:15:46.040 should also add that sometimes you hear people make an 0:15:46.120 --> 0:15:49.320 argument that sanctions are bad because it undermines the reserve status, 0:15:49.360 --> 0:15:51.800 which I mean, that's just circular, right, Like the whole 0:15:51.880 --> 0:15:54.000 value of reserve status are being popular is that you 0:15:54.000 --> 0:15:55.760 can do sanctions, then you can't do something like I mean, 0:15:55.960 --> 0:15:57.040 that doesn't make sense. 0:15:57.520 --> 0:16:14.200 Again, you have the threat of sanctions, is there. This 0:16:14.280 --> 0:16:16.400 might be a kind of weird question, but you know, 0:16:16.440 --> 0:16:19.600 you talked about the conclusions in your book and the 0:16:19.640 --> 0:16:23.280 idea of Okay, well, we can't really force foreign countries 0:16:23.480 --> 0:16:28.480 to necessarily change their behavior, and so if the US 0:16:28.600 --> 0:16:32.960 really wants to reduce the dollar's role as a reserve currency, 0:16:33.440 --> 0:16:36.600 then like, here are some things that the US could do. 0:16:37.120 --> 0:16:39.160 I guess my question is like, is there anything more 0:16:39.320 --> 0:16:41.920 like aggressive that Yeah? 0:16:42.320 --> 0:16:45.120 Yeah, absolutely right, and so actually you're absolutely right. So 0:16:45.280 --> 0:16:47.520 what I laid out to you was, if we assume 0:16:47.640 --> 0:16:49.640 that nothing's going to change on the outside world, here's 0:16:49.640 --> 0:16:52.520 how we can adapt US policy to be as beneficial 0:16:52.520 --> 0:16:55.360 as possible. The alternative, which we also discussed in conclusion, 0:16:55.400 --> 0:16:56.680 this is where again Michael and I were kind of 0:16:56.640 --> 0:16:58.080 trying to figure out how to put all this together 0:16:58.120 --> 0:17:00.440 in a way that was coherent. Is you say, you know, 0:17:00.560 --> 0:17:03.640 screw that, we're just gonna We're just gonna both you know, 0:17:03.760 --> 0:17:05.800 it's their problem, right, And basically what you would do 0:17:05.840 --> 0:17:07.679 is you have some kind of you know, capital controls 0:17:07.760 --> 0:17:10.879 or what the IMF now calls capital flow management measures 0:17:10.880 --> 0:17:12.800 I think is the term they came up with like 0:17:12.800 --> 0:17:15.400 ten years ago to But you know, if it's literally 0:17:15.440 --> 0:17:18.560 the case that foreigners cannot buy us financial assets or 0:17:18.600 --> 0:17:21.760 you make it prohatively expensive for them to do that, 0:17:21.760 --> 0:17:24.680 that would have all sorts of other effects. And basically 0:17:25.200 --> 0:17:27.400 what that would be very chaotic, or could be very kotic, 0:17:27.440 --> 0:17:29.199 could be very you know, a narcic could end up 0:17:29.240 --> 0:17:32.399 leading to an overall poor world. Certainly, I think then 0:17:32.440 --> 0:17:34.680 the one where we have a kind of constructive approach. 0:17:35.119 --> 0:17:37.840 But if your view is foreigners are never going to change, 0:17:38.240 --> 0:17:40.359 and you don't want to do the things we laid out. 0:17:40.359 --> 0:17:43.080 Because to be clear, the alternative path that I mentioned earlier, 0:17:43.320 --> 0:17:45.200 it does come I think it's overall beneficial, but it 0:17:45.240 --> 0:17:47.280 does come with one specific cost. What is that federal 0:17:47.280 --> 0:17:49.560 debt would probably rise to GDP. I think overall that's 0:17:49.600 --> 0:17:51.879 not a problem, but that is like one specific thing 0:17:51.920 --> 0:17:53.680 you could point to, and if you for some reason 0:17:53.800 --> 0:17:56.440 really don't want that, then the alternative is you say, look, 0:17:56.880 --> 0:17:58.359 you have these, you know you the rest of the 0:17:58.400 --> 0:18:02.120 world collectively produce more then you use. You can't sell 0:18:02.240 --> 0:18:03.639 unless you sell to us. So now we're saying you 0:18:03.680 --> 0:18:06.240 can't sell to us, good luck figure it out. That's 0:18:06.280 --> 0:18:08.280 going to hurt Americans initially at first, but it's going 0:18:08.320 --> 0:18:11.880 to hurt other people more probably, And so that's where 0:18:11.960 --> 0:18:13.920 that as the alternative. I mean, you can sort of see, 0:18:14.119 --> 0:18:16.080