1 00:00:10,039 --> 00:00:13,720 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Always 2 00:00:14,000 --> 00:00:17,560 Speaker 1: with Michael McKee. Daily we bring you insight from the 3 00:00:17,560 --> 00:00:22,760 Speaker 1: best in economics, finance, investment, and international relations. Find Bloomberg 4 00:00:22,840 --> 00:00:27,240 Speaker 1: Surveillance on iTunes, SoundCloud, Bloomberg dot Com, and of course, 5 00:00:27,760 --> 00:00:33,599 Speaker 1: on the Bloomberg. The book is called The Euro How 6 00:00:33,640 --> 00:00:37,560 Speaker 1: a Common Currency Threatens the Future of Europe and Joe Stiglitze. 7 00:00:37,560 --> 00:00:40,960 Speaker 1: Everybody knows Joe from Columbia University, winner of the Nobel 8 00:00:41,000 --> 00:00:44,600 Speaker 1: Prize for Economics. Uh, it is his latest work. You're 9 00:00:44,640 --> 00:00:48,680 Speaker 1: starting to do publicity for this. The the reviews are out, 10 00:00:48,880 --> 00:00:52,160 Speaker 1: and I think a lot of people get the concept 11 00:00:52,200 --> 00:00:55,920 Speaker 1: of the book wrong. You don't say junk the Euro. 12 00:00:56,360 --> 00:00:59,720 Speaker 1: You say the Euro can and should be saved. But 13 00:00:59,800 --> 00:01:03,360 Speaker 1: it has fundamental design flaws that need to be addressed. 14 00:01:03,680 --> 00:01:07,280 Speaker 1: You got it. You got it. Pass your class here, 15 00:01:08,200 --> 00:01:10,560 Speaker 1: And I am a little surprised that some of the 16 00:01:10,680 --> 00:01:13,640 Speaker 1: viewers didn't didn't get it. I say, if you can't 17 00:01:13,720 --> 00:01:19,040 Speaker 1: fix it, muddling through, which is what they've been doing. Uh, 18 00:01:19,160 --> 00:01:23,399 Speaker 1: doing the minimum required as each crisis comes on is 19 00:01:23,520 --> 00:01:27,120 Speaker 1: going to be an extraordinary, constantly strategy. He's already cost 20 00:01:27,160 --> 00:01:31,240 Speaker 1: Europe stagnation since two thousand and eight. Even the best 21 00:01:31,240 --> 00:01:35,160 Speaker 1: performing country, Germany, is not doing particularly well. And UH, 22 00:01:35,400 --> 00:01:38,600 Speaker 1: what I try to argue is that actually it is 23 00:01:38,720 --> 00:01:41,880 Speaker 1: possible if they aren't going to do what they need 24 00:01:41,880 --> 00:01:45,840 Speaker 1: to move to a system that I call flexible eurosystem. 25 00:01:45,840 --> 00:01:49,280 Speaker 1: And I'm amicable divorced with two three different currency areas, 26 00:01:49,960 --> 00:01:54,400 Speaker 1: and uh, that transition could be done in a relatively 27 00:01:54,440 --> 00:01:58,960 Speaker 1: smooth way, and the benefits of that would be enormous 28 00:01:59,240 --> 00:02:03,440 Speaker 1: relative to the occurring system. The fundamental idea is a 29 00:02:03,560 --> 00:02:08,160 Speaker 1: fixed currency system takes away to the most important adjustment 30 00:02:08,240 --> 00:02:13,120 Speaker 1: mechanisms exchange rates and interest rates. They didn't put anything 31 00:02:13,120 --> 00:02:15,320 Speaker 1: in their place. Instead of putting something in their place, 32 00:02:15,360 --> 00:02:18,720 Speaker 1: they tied their hands further with constraints and the size 33 00:02:18,760 --> 00:02:22,720 Speaker 1: of the defice countries could have a convergence, would you 34 00:02:22,760 --> 00:02:26,799 Speaker 1: note are important, but not they were not sufficient. They 35 00:02:26,800 --> 00:02:29,320 Speaker 1: were not the things that would make the Euro work, 36 00:02:29,880 --> 00:02:33,079 Speaker 1: and in a recession they make sure that it doesn't work. 37 00:02:33,520 --> 00:02:36,440 Speaker 1: And then they said, you know, we've been having us 38 00:02:36,480 --> 00:02:41,440 Speaker 1: discussion about uh, the FED policy. Their European central Bank 39 00:02:41,919 --> 00:02:45,240 Speaker 1: has a single mandate inflation, so they're not supposed to 40 00:02:45,240 --> 00:02:48,760 Speaker 1: pay any attention to unemployment growth. Once they solve that, 41 00:02:48,840 --> 00:02:53,280 Speaker 1: you know, the focuses inflation. That means they even raised 42 00:02:53,280 --> 00:02:56,080 Speaker 1: interest rates in two thousand eleven as the country, as 43 00:02:56,160 --> 00:02:59,519 Speaker 1: Europe was going into into a recession. You make the 44 00:02:59,600 --> 00:03:02,639 Speaker 1: point in here that the European politicians are very proud 45 00:03:02,680 --> 00:03:05,840 Speaker 1: of their ability to muddle through. They see it as 46 00:03:06,320 --> 00:03:09,040 Speaker 1: a positive that they can come up with a compromise. 47 00:03:09,520 --> 00:03:13,720 Speaker 1: And you argue in the book that that kicks the 48 00:03:13,720 --> 00:03:16,120 Speaker 1: can down the road and keeps the system going. But 49 00:03:16,200 --> 00:03:19,600 Speaker 1: what people aren't focused on is the enormous cost in 50 00:03:19,680 --> 00:03:23,840 Speaker 1: both treasure and to human beings of muddling along exactly, 51 00:03:24,040 --> 00:03:28,160 Speaker 1: and and that cost you can see in the economies 52 00:03:28,200 --> 00:03:34,000 Speaker 1: in Greece, Spain, Portugal, Ireland, even Italy and France. The 53 00:03:34,080 --> 00:03:38,600 Speaker 1: fact is that the worst afflicted countries are in depression, 54 00:03:38,640 --> 00:03:44,560 Speaker 1: and depression greater than the Great Depression in the United States. 55 00:03:44,560 --> 00:03:48,360 Speaker 1: So that's a big event. The other countries are basically 56 00:03:48,400 --> 00:03:53,200 Speaker 1: in in a recession. The one you might say successful country, 57 00:03:53,200 --> 00:03:59,000 Speaker 1: Germany is its growth would get given a D except 58 00:03:59,040 --> 00:04:01,200 Speaker 1: for the fact that you great out a curve, it 59 00:04:01,280 --> 00:04:05,840 Speaker 1: looks relatively good. A third of the people in the 60 00:04:05,880 --> 00:04:10,160 Speaker 1: population aren't doing very well. Germany gets a lot of 61 00:04:10,160 --> 00:04:13,320 Speaker 1: the blame by a lot of observers for for what's 62 00:04:13,320 --> 00:04:17,440 Speaker 1: going on. And you're not alone in UH suggesting that, um, 63 00:04:17,960 --> 00:04:20,880 Speaker 1: the Germans have overdone it in terms of trying to 64 00:04:21,520 --> 00:04:25,799 Speaker 1: make the euro a German a reflection of Germany. Wolfgang 65 00:04:25,839 --> 00:04:29,240 Speaker 1: Streak of the max Plank Institute argues that Germany has 66 00:04:29,320 --> 00:04:32,599 Speaker 1: come to consider the European Union and extension of itself. 67 00:04:33,279 --> 00:04:35,320 Speaker 1: That's right, and one of the that wouldn't be so 68 00:04:35,360 --> 00:04:39,280 Speaker 1: bad if it were weren't for the fact that German 69 00:04:39,960 --> 00:04:44,080 Speaker 1: views about economics differs from that of the rest of 70 00:04:44,120 --> 00:04:46,880 Speaker 1: the world. I saw that very clearly. I was chairman 71 00:04:46,920 --> 00:04:50,040 Speaker 1: of the O E c D Economic Policy Committee, when 72 00:04:50,080 --> 00:04:52,599 Speaker 1: I was chairman of the Council of Economic Advisors under 73 00:04:52,960 --> 00:04:58,480 Speaker 1: President Clinton, and UH, they had a single minded focus 74 00:04:58,680 --> 00:05:01,800 Speaker 1: on inflation. They gave an argument, they said, oh, you know, 75 00:05:01,839 --> 00:05:05,200 Speaker 1: we went through this experience of inflation that led to 76 00:05:05,400 --> 00:05:09,000 Speaker 1: Hitler and all, but they've forgotten their history. It was 77 00:05:09,080 --> 00:05:12,880 Speaker 1: the high unemployment of the Great of the Depression, of 78 00:05:12,920 --> 00:05:15,640 Speaker 1: the Great Depression that led to Hitler, and they should 79 00:05:15,640 --> 00:05:20,240 Speaker 1: be worrying about unemployment as giving rise to people things 80 00:05:20,279 --> 00:05:24,240 Speaker 1: like the far right, the golden dawn and increase, and 81 00:05:24,279 --> 00:05:28,200 Speaker 1: the movements and the righteous movements in France with us 82 00:05:28,200 --> 00:05:32,039 Speaker 1: in support of the Eurohall common currency threatens the future 83 00:05:32,240 --> 00:05:35,640 Speaker 1: of Europe. Of might continue with Professor Stiglets, I like 84 00:05:35,760 --> 00:05:38,120 Speaker 1: this idea of the tension of Germany and the rest 85 00:05:38,160 --> 00:05:41,359 Speaker 1: of Europe. Well, Um, you argue for a commitment to 86 00:05:41,400 --> 00:05:44,400 Speaker 1: shared prosperity in the book, but that has to work 87 00:05:44,440 --> 00:05:48,359 Speaker 1: in a symmetric manner. Uh. Germany argues, this is not 88 00:05:48,440 --> 00:05:51,440 Speaker 1: a transfer union. We're not going to help the rest 89 00:05:52,120 --> 00:05:57,640 Speaker 1: of the European Union. Can a common currency work under 90 00:05:57,640 --> 00:06:01,880 Speaker 1: those circumstances? And one of the things they realized at 91 00:06:01,880 --> 00:06:05,200 Speaker 1: the very beginning is that they had to foster a 92 00:06:05,240 --> 00:06:09,280 Speaker 1: greater similarity among the countries. But then they made a mistake. 93 00:06:09,320 --> 00:06:12,839 Speaker 1: They created a set of rules that actually led to divergence. 94 00:06:13,000 --> 00:06:15,400 Speaker 1: The rich countries got rich, shore that poor countries got poor. 95 00:06:15,560 --> 00:06:19,040 Speaker 1: Germany did very well, the crisis countries did very badly. 96 00:06:19,600 --> 00:06:22,960 Speaker 1: And it led to what might be called a credit 97 00:06:23,080 --> 00:06:27,719 Speaker 1: or debtor relationship. You know, no difference UH, in economic 98 00:06:27,839 --> 00:06:30,279 Speaker 1: terms is greater than that between a creditor and a debtor. 99 00:06:30,839 --> 00:06:34,160 Speaker 1: Creditors like high interest rates that are like low interest rates. Uh, 100 00:06:34,560 --> 00:06:38,960 Speaker 1: and what you wound up with was one big creditor, 101 00:06:39,360 --> 00:06:44,440 Speaker 1: Germany and locks and locks of debtors and UH. That 102 00:06:45,040 --> 00:06:48,680 Speaker 1: kind of a system is inevitably going to have very 103 00:06:48,720 --> 00:06:52,320 Speaker 1: different perspectives. So you began with very different views about 104 00:06:52,800 --> 00:06:56,640 Speaker 1: how economies work, which is good economics, and then you 105 00:06:56,920 --> 00:07:02,919 Speaker 1: compound that with very differences in their economic positions. So 106 00:07:03,160 --> 00:07:05,280 Speaker 1: many other people are on the same page as you. 107 00:07:05,400 --> 00:07:09,240 Speaker 1: I think it's important to state that when Martin Feldstein 108 00:07:09,320 --> 00:07:12,080 Speaker 1: of a school up on a river in Boston and 109 00:07:12,200 --> 00:07:15,440 Speaker 1: Joe Stiglets of Colombia are on the same page, that 110 00:07:15,640 --> 00:07:18,600 Speaker 1: has to get your attention. Where do you and Martin 111 00:07:18,640 --> 00:07:23,200 Speaker 1: Feldstein have common ground on a more independent Germany with 112 00:07:23,320 --> 00:07:26,320 Speaker 1: their own Deutsche mark or some form of new euro 113 00:07:26,720 --> 00:07:31,120 Speaker 1: what we both agree very strongly. I think that the Euro, 114 00:07:31,640 --> 00:07:35,960 Speaker 1: the single currency for this diverse hasn't work. Countries hasn't worked, 115 00:07:36,280 --> 00:07:39,520 Speaker 1: can't work unless there are a lot more institutions. And 116 00:07:39,560 --> 00:07:42,680 Speaker 1: I try to describe those. It's not as I say, 117 00:07:42,680 --> 00:07:46,120 Speaker 1: it's not a Economically, they could do it, it's not 118 00:07:46,400 --> 00:07:49,800 Speaker 1: an enormous amount, but politically it seems a bigger stretch 119 00:07:49,880 --> 00:07:53,320 Speaker 1: than than they are capable of doing now and then 120 00:07:53,360 --> 00:07:58,480 Speaker 1: the question is what is the best way of designing 121 00:07:58,560 --> 00:08:02,400 Speaker 1: what might be called an amicable divorce. There's widespread view 122 00:08:02,480 --> 00:08:06,760 Speaker 1: that it would be easier if Germany left, or at 123 00:08:06,800 --> 00:08:09,080 Speaker 1: least you created a system of what I call flexible 124 00:08:09,120 --> 00:08:13,840 Speaker 1: euro UH. The reason it's easier Germany left is very simple. 125 00:08:14,480 --> 00:08:18,960 Speaker 1: When the decks are denominated in euros. If Germany leaves, 126 00:08:19,640 --> 00:08:23,880 Speaker 1: the currency of the remaining countries will go down in value, 127 00:08:24,520 --> 00:08:27,480 Speaker 1: Their exports will go up, their incomes will go up, 128 00:08:27,800 --> 00:08:32,120 Speaker 1: and they can service those decks much more easily. Germany, meanwhile, 129 00:08:33,120 --> 00:08:37,160 Speaker 1: ex Deutsche Mark will go up. Its current account surpluses, 130 00:08:37,200 --> 00:08:39,760 Speaker 1: which have been a major problem for the globe economy, 131 00:08:39,920 --> 00:08:43,240 Speaker 1: will diminish, and because their currency has gone up, it'll 132 00:08:43,240 --> 00:08:46,720 Speaker 1: be easier to pay back what ittoes. On the other hand, 133 00:08:46,880 --> 00:08:50,120 Speaker 1: if you have the poorer countries leave, their currency will 134 00:08:50,160 --> 00:08:55,160 Speaker 1: go down. It will be equivalent to increase in their 135 00:08:55,240 --> 00:08:59,440 Speaker 1: leverage because their debt is denominated in euro and that 136 00:08:59,440 --> 00:09:02,440 Speaker 1: will weak in those countries and make it more difficult 137 00:09:02,480 --> 00:09:05,160 Speaker 1: for them to repay their debt. The consequence of that 138 00:09:05,880 --> 00:09:08,839 Speaker 1: UH is that it will be inevitable that there will 139 00:09:08,840 --> 00:09:11,319 Speaker 1: be a rash of bankruptcies, and this is what happened 140 00:09:11,360 --> 00:09:14,960 Speaker 1: in case of Argentina. That will have to be managed 141 00:09:15,880 --> 00:09:18,719 Speaker 1: in the second UH. And one way of doing it 142 00:09:18,760 --> 00:09:22,200 Speaker 1: is redominant denominated the debt and have a new bankruptcy law. 143 00:09:22,920 --> 00:09:27,680 Speaker 1: You argue, speaking of the financial aspects of this is UH. 144 00:09:27,920 --> 00:09:31,000 Speaker 1: You argued for debt restructuring, particularly in the case of Greece, 145 00:09:31,040 --> 00:09:33,600 Speaker 1: but you don't say how that would happen. You raise, 146 00:09:33,720 --> 00:09:36,880 Speaker 1: but you don't refute the possibility that the markets would 147 00:09:36,880 --> 00:09:41,600 Speaker 1: punish the countries who restructure. So how do you sell restructuring? 148 00:09:41,679 --> 00:09:46,000 Speaker 1: So far, UM, it hasn't been a really popular idea. Well, 149 00:09:46,040 --> 00:09:49,040 Speaker 1: it already happened once UH, and I think there's a 150 00:09:49,120 --> 00:09:52,839 Speaker 1: general recognition that if they had restructured the debt in 151 00:09:52,920 --> 00:09:55,640 Speaker 1: two thousand and ten, rather than kicking the can down 152 00:09:55,640 --> 00:09:59,200 Speaker 1: the road, things would be much better today. You know, 153 00:09:59,559 --> 00:10:02,360 Speaker 1: Germany talks about the huge amount of money that they've 154 00:10:02,480 --> 00:10:06,120 Speaker 1: went to Greece, or that the Europe has lent to Greece. 155 00:10:06,720 --> 00:10:10,880 Speaker 1: Most of that money went right out of Greece back 156 00:10:10,920 --> 00:10:14,199 Speaker 1: to German and French banks, and so only about ten 157 00:10:14,240 --> 00:10:17,360 Speaker 1: percent state in Greece. It wasn't it wasn't a bail 158 00:10:17,440 --> 00:10:20,560 Speaker 1: out to Greece. It was a bailout to the German 159 00:10:20,600 --> 00:10:23,959 Speaker 1: and French banks who had lent to Greece. They then 160 00:10:24,080 --> 00:10:27,080 Speaker 1: had to have one debt restructuring. The I m F 161 00:10:27,760 --> 00:10:33,360 Speaker 1: says that under its rules it can't lend anymore degrease 162 00:10:33,520 --> 00:10:37,960 Speaker 1: unless there's another debt restructuring. You know, debt restructurings have 163 00:10:38,080 --> 00:10:41,920 Speaker 1: been part of capitalism since the beginning. The United States, 164 00:10:41,960 --> 00:10:44,280 Speaker 1: we have a bankruptcy law that's nothing more than a 165 00:10:44,320 --> 00:10:49,000 Speaker 1: debt restructuring. And the problem is that we haven't developed 166 00:10:49,120 --> 00:10:53,160 Speaker 1: a smooth way of doing sovereign debt restructuring. The U 167 00:10:53,400 --> 00:10:58,120 Speaker 1: N reached a consensus on a set of principles guiding 168 00:10:58,200 --> 00:11:03,280 Speaker 1: sovereign debt restructurings. Unfortunate states supposed that set of principles. 169 00:11:04,080 --> 00:11:06,360 Speaker 1: But but it can't be done, and it has been 170 00:11:06,360 --> 00:11:09,160 Speaker 1: done repeatedly. All right, we got it, just a minute left. 171 00:11:09,280 --> 00:11:12,600 Speaker 1: Martin Sandbu in Europe's Orphan in the book Orphan Adair 172 00:11:12,640 --> 00:11:14,600 Speaker 1: Turner in his new book both kind of pushed back 173 00:11:14,600 --> 00:11:17,400 Speaker 1: against your diagnosis, saying it's not a failure by design, 174 00:11:17,440 --> 00:11:22,640 Speaker 1: but it's a failure of policies, including austerity. So um 175 00:11:22,679 --> 00:11:25,640 Speaker 1: if they if you change the policies. Are you optimistic 176 00:11:25,800 --> 00:11:29,000 Speaker 1: about the Euro's future? No, you know, one of the 177 00:11:29,040 --> 00:11:32,320 Speaker 1: main points in my book is that the Euro was 178 00:11:32,360 --> 00:11:37,240 Speaker 1: flawed at birth. Of course, you could change the institutions, 179 00:11:37,320 --> 00:11:41,920 Speaker 1: the rules that guide it. Uh, you know, the things 180 00:11:41,960 --> 00:11:46,680 Speaker 1: like the conversience criteria, rules about the deficit, rules about 181 00:11:46,880 --> 00:11:52,000 Speaker 1: what the central bank it has to focus just on inflation. Uh. 182 00:11:52,280 --> 00:11:57,319 Speaker 1: The absence of a solidarity fund to help those countries 183 00:11:57,720 --> 00:12:02,760 Speaker 1: that are having problems, the absence of banking union, absence 184 00:12:02,800 --> 00:12:06,360 Speaker 1: of common deposit insurings. Uh. You could change all that, 185 00:12:06,720 --> 00:12:09,280 Speaker 1: and as I say, if you did all that, the 186 00:12:09,280 --> 00:12:11,480 Speaker 1: Euro would work. But that's not a question of policy. 187 00:12:11,720 --> 00:12:16,560 Speaker 1: That's a question of structure. And that's where where I 188 00:12:16,600 --> 00:12:21,040 Speaker 1: think they are fundamentally wrong. What they miss is the 189 00:12:21,080 --> 00:12:23,800 Speaker 1: following point. You took away the exchange rate as an 190 00:12:23,840 --> 00:12:27,560 Speaker 1: adjustment mechanism. You can change g d P up and 191 00:12:27,600 --> 00:12:30,800 Speaker 1: down by austerity, but that doesn't change exchange rate. Joe, 192 00:12:30,800 --> 00:12:33,000 Speaker 1: we gotta leave it there. Joe Stickletts, thank you so much. 193 00:12:33,040 --> 00:12:37,439 Speaker 1: In support of the Euro mustraine in Europe and America. 194 00:12:37,640 --> 00:12:51,400 Speaker 1: This is Bloomberg. One of our most popular guests, Greg Billier, 195 00:12:51,720 --> 00:12:57,000 Speaker 1: with a scathing note yesterday unlikelihood of the GOP losing 196 00:12:57,880 --> 00:13:00,720 Speaker 1: the House for those of you worldwide as the Senate, 197 00:13:01,040 --> 00:13:04,319 Speaker 1: there's the House. The Senate's up for grabs. The House back, 198 00:13:05,480 --> 00:13:09,360 Speaker 1: I believe is Republican. Republican Republican, and even a guy 199 00:13:09,440 --> 00:13:15,640 Speaker 1: like Valier is thinking about, okay, whatever come off by 200 00:13:15,720 --> 00:13:18,199 Speaker 1: sixty years, what do you want? I read three articles 201 00:13:18,280 --> 00:13:21,480 Speaker 1: yesterday on the new leadership team of Mr. Trump. He's 202 00:13:21,520 --> 00:13:23,480 Speaker 1: fired the other guys, well didn't fire him. They're like 203 00:13:23,520 --> 00:13:26,400 Speaker 1: they're they're like honorary chair. And he's brought it in 204 00:13:26,480 --> 00:13:29,880 Speaker 1: a new team. Greg Valier on the new Trump Greg Um, 205 00:13:30,200 --> 00:13:35,280 Speaker 1: this team clearly has a residence with the already voting 206 00:13:35,360 --> 00:13:40,120 Speaker 1: for Trump. Do you see any indication that the Republicans 207 00:13:40,120 --> 00:13:45,160 Speaker 1: and particularly Mr Trump can get the marginal undecided voter. Well, 208 00:13:45,160 --> 00:13:47,240 Speaker 1: that's the key, Tom, and I think the answer is 209 00:13:47,280 --> 00:13:52,000 Speaker 1: probably no. The woman they've hired to be a really 210 00:13:52,040 --> 00:13:54,480 Speaker 1: excellent poll taker to also join the campaign I think 211 00:13:54,480 --> 00:13:57,880 Speaker 1: could help a bit with women. But you know, there's 212 00:13:57,920 --> 00:14:00,079 Speaker 1: a real problem, and it's not at the top of 213 00:14:00,160 --> 00:14:03,760 Speaker 1: the campaign. The problem is the infrastructure of the campaign. 214 00:14:03,840 --> 00:14:07,960 Speaker 1: There's there's a bunch of amateurs, poorly funded in states 215 00:14:08,000 --> 00:14:12,320 Speaker 1: like Florida, Ohio, Pennsylvania. Wouldn't it be ironic with all 216 00:14:12,360 --> 00:14:17,160 Speaker 1: of this rhetoric about emails and you know Hillary Clintons Foundation, 217 00:14:17,440 --> 00:14:20,280 Speaker 1: if this election really turns on the ground game, and 218 00:14:20,320 --> 00:14:26,320 Speaker 1: the Republican ground game is terrible. You combine that with 219 00:14:27,520 --> 00:14:30,800 Speaker 1: what seems to be an effort to let loose the 220 00:14:30,880 --> 00:14:35,280 Speaker 1: hounds of Trump on the internet again. And if you 221 00:14:35,400 --> 00:14:39,680 Speaker 1: are Paul Ryan, if you are running for the Senate, 222 00:14:40,280 --> 00:14:42,000 Speaker 1: and even some people in the House, you've got to 223 00:14:42,000 --> 00:14:44,640 Speaker 1: be terrified. Yeah, you're You're right, Mike, And I think 224 00:14:44,680 --> 00:14:47,840 Speaker 1: this may be the last straw for Paul Ryan and 225 00:14:47,840 --> 00:14:51,800 Speaker 1: Mitch McConnell and John McCain and other Republicans who see 226 00:14:51,920 --> 00:14:56,800 Speaker 1: in this new campaign director somebody who is savagely attacked 227 00:14:57,000 --> 00:15:00,800 Speaker 1: people like Paul Ryan and personal terms. He's reported Ryan's 228 00:15:00,840 --> 00:15:03,960 Speaker 1: primary opponent. So there's a lot of bad blood and 229 00:15:04,280 --> 00:15:10,200 Speaker 1: this is almost a repudiation with the Republican establishment in Washington. 230 00:15:10,960 --> 00:15:12,480 Speaker 1: I want to ask you a question. This is not 231 00:15:13,200 --> 00:15:16,200 Speaker 1: directly to Donald Trump right now, but this came up 232 00:15:16,280 --> 00:15:18,240 Speaker 1: yesterday in a conversation I was having with a very 233 00:15:18,240 --> 00:15:23,200 Speaker 1: senior Republican. At what point does Paul Ryan say enough 234 00:15:23,920 --> 00:15:27,480 Speaker 1: and could he be better off for his long term 235 00:15:27,480 --> 00:15:31,360 Speaker 1: political career by rejecting Donald Trump? Now? Well, first of all, 236 00:15:31,400 --> 00:15:34,040 Speaker 1: I think he's close to that point. I think he's very, 237 00:15:34,120 --> 00:15:37,080 Speaker 1: very close to that point. This guy Stephen Bannon has 238 00:15:37,120 --> 00:15:41,400 Speaker 1: been a really vicious critic of Ryan. But would he 239 00:15:41,400 --> 00:15:43,600 Speaker 1: be better off? I don't know. I think the base 240 00:15:43,720 --> 00:15:47,800 Speaker 1: in the Republican Party, the very activist tea party talk 241 00:15:47,920 --> 00:15:51,960 Speaker 1: radio base maybe of the party, I think would forever 242 00:15:52,160 --> 00:15:56,560 Speaker 1: reject Ryan, as they will forever reject Ted Cruz. If 243 00:15:57,040 --> 00:16:01,360 Speaker 1: Ryan turns against Trump, well, I guess then your question 244 00:16:01,400 --> 00:16:05,160 Speaker 1: is what Republican Party has left the old Groucho Marx 245 00:16:05,200 --> 00:16:06,880 Speaker 1: line of I wouldn't want to be a member of 246 00:16:06,920 --> 00:16:09,600 Speaker 1: any club that would have me. Um, you know, would 247 00:16:09,640 --> 00:16:13,440 Speaker 1: Ryan want to be in charge of the Trump Republican 248 00:16:13,480 --> 00:16:15,840 Speaker 1: Party or would he be better off trying to, you know, 249 00:16:16,240 --> 00:16:19,640 Speaker 1: reform the party from the outside. Were already and isn't 250 00:16:19,640 --> 00:16:23,840 Speaker 1: this ironic? Guys, already we're talking about post election who 251 00:16:23,880 --> 00:16:26,760 Speaker 1: do you blame? The recriminations are going to come hot 252 00:16:26,840 --> 00:16:30,600 Speaker 1: and heavy in November after Trump loses, and I think 253 00:16:30,640 --> 00:16:32,800 Speaker 1: that a lot of people would like to see Ryan, 254 00:16:33,160 --> 00:16:36,080 Speaker 1: you know, rise from the ashes of the defeat, but 255 00:16:36,320 --> 00:16:39,720 Speaker 1: I'm not sure Ryan has the basic party behind him. Well, 256 00:16:39,760 --> 00:16:41,960 Speaker 1: I I want to I was again like eight ways 257 00:16:42,000 --> 00:16:43,800 Speaker 1: to go. We could talk to Greg Valier for three 258 00:16:43,840 --> 00:16:46,760 Speaker 1: hours today and not run out of things to talk about. 259 00:16:46,800 --> 00:16:50,360 Speaker 1: Did I hear you say, Mr Vllier, you would suggest 260 00:16:50,400 --> 00:16:54,560 Speaker 1: Speaker Ryan will act or sash make a decision soon. 261 00:16:55,760 --> 00:16:59,320 Speaker 1: I think he's got to think really strongly about whether 262 00:16:59,320 --> 00:17:02,320 Speaker 1: he could support someone who has a campaign director, this 263 00:17:02,400 --> 00:17:07,560 Speaker 1: guy Bannon, who has been scathing on personal terms toward Ryan. 264 00:17:07,720 --> 00:17:10,080 Speaker 1: I think this maybe the last draw. And I gotta 265 00:17:10,119 --> 00:17:12,879 Speaker 1: tell you, guys, you talk to Republicans in this town 266 00:17:13,200 --> 00:17:16,960 Speaker 1: and they are all rooting for Trump to lose. Okay, 267 00:17:17,080 --> 00:17:19,359 Speaker 1: you know, Gregg, help me here with your research on 268 00:17:19,480 --> 00:17:21,879 Speaker 1: the other day where we all understand the sentence in 269 00:17:22,000 --> 00:17:25,920 Speaker 1: play and even Mr Portman of Ohio seems challenge, etcetera. 270 00:17:26,520 --> 00:17:29,359 Speaker 1: Help me with a house. I saw, you know the 271 00:17:29,359 --> 00:17:33,400 Speaker 1: way I read your world. One article said absolutely out 272 00:17:33,400 --> 00:17:34,960 Speaker 1: of your mind and they'll never lose it, and the 273 00:17:35,000 --> 00:17:38,600 Speaker 1: other one really walked through the GOP losing the house. 274 00:17:38,800 --> 00:17:42,040 Speaker 1: Is that feasible? It's it's not out of a question 275 00:17:42,560 --> 00:17:45,080 Speaker 1: that you have to have a thirty seat turnover for 276 00:17:45,119 --> 00:17:48,879 Speaker 1: the Democrats to regain control. I think they could get twenty. 277 00:17:49,040 --> 00:17:51,080 Speaker 1: I think beyond twenty is going to be a pretty 278 00:17:51,080 --> 00:17:54,240 Speaker 1: tall order. And unless Hillary Clinton wins in a historic 279 00:17:54,359 --> 00:17:57,320 Speaker 1: epic landslide, then all bets are off. But I'm in 280 00:17:57,359 --> 00:18:00,280 Speaker 1: a range of about fifteen to twenty, so They're power 281 00:18:00,359 --> 00:18:03,400 Speaker 1: gets diluted, and I do think the Senate flips back 282 00:18:03,440 --> 00:18:06,040 Speaker 1: to the Democrats. Do you do you have? This is 283 00:18:06,040 --> 00:18:09,560 Speaker 1: a goldwater like election right now, Nate Silver, It's stunning 284 00:18:09,560 --> 00:18:13,000 Speaker 1: what he's got an electoral vote. Not quite. I still 285 00:18:13,080 --> 00:18:15,760 Speaker 1: think there are some variables that have to play out. 286 00:18:16,000 --> 00:18:19,880 Speaker 1: We've got three debates, the first one of September. You've 287 00:18:19,920 --> 00:18:22,919 Speaker 1: got this creepy guy, Julian Assan, who's going to release 288 00:18:23,000 --> 00:18:27,160 Speaker 1: like thirty thousand more Hillary email, Mike McKees and all those. 289 00:18:29,400 --> 00:18:33,120 Speaker 1: So so there's there's still there's still wild cards that 290 00:18:33,359 --> 00:18:36,440 Speaker 1: make me think that while she's obviously the favorite, she's 291 00:18:36,440 --> 00:18:40,320 Speaker 1: not the shoe in Uh. Something we should address here 292 00:18:40,359 --> 00:18:42,600 Speaker 1: because the Washington Post is all over this this morning 293 00:18:42,600 --> 00:18:45,240 Speaker 1: and you have it in your note. Mr Trump has 294 00:18:45,280 --> 00:18:49,840 Speaker 1: now decided he's going to raise health questions about Hillary Clinton. Um. 295 00:18:51,119 --> 00:18:54,800 Speaker 1: The Post does a great line by line takedown of 296 00:18:54,880 --> 00:18:59,000 Speaker 1: everything the the room, every rumor about her health, and 297 00:18:59,080 --> 00:19:05,840 Speaker 1: apparently it's basically everything's a lie. But four pinocchios. The 298 00:19:05,880 --> 00:19:08,679 Speaker 1: Washington Post says, and you know, this criticism from Trump 299 00:19:08,720 --> 00:19:12,680 Speaker 1: comes from someone who's addicted to fried food and cheeseburgers 300 00:19:12,720 --> 00:19:15,760 Speaker 1: and never exercises. So I think he's got to be 301 00:19:15,840 --> 00:19:20,399 Speaker 1: careful about throwing stones from his glass tower or so. 302 00:19:20,520 --> 00:19:23,480 Speaker 1: I I think that in an election this nasty, it 303 00:19:23,560 --> 00:19:26,520 Speaker 1: will be an issue. She had a severe concussion, she fell, 304 00:19:26,640 --> 00:19:28,760 Speaker 1: hit her head when she had a bad flu, had 305 00:19:28,760 --> 00:19:32,439 Speaker 1: blurred vision. But from all indications she's fine. But Trump 306 00:19:32,760 --> 00:19:35,760 Speaker 1: and Sean Hannity and others are trying to allege that 307 00:19:36,080 --> 00:19:39,439 Speaker 1: she has a fatigued problem or a balanced problem. You know, 308 00:19:39,520 --> 00:19:42,119 Speaker 1: she's about to turn sixty nine. I mean, she gets tired. 309 00:19:42,160 --> 00:19:45,680 Speaker 1: She doesn't work every weekend. But for Trump, who's seventy 310 00:19:46,000 --> 00:19:48,760 Speaker 1: and does not appear to be the picture of great health, 311 00:19:49,160 --> 00:19:51,280 Speaker 1: that to me is a stretch. Tom and I get 312 00:19:51,280 --> 00:19:58,639 Speaker 1: tired going to our producer, Greg. Our producer is laughing 313 00:19:58,720 --> 00:20:04,040 Speaker 1: appointment me. Hey, what do you think of this theory 314 00:20:04,320 --> 00:20:06,920 Speaker 1: that's going around? Greg? I know it's going around Washington's 315 00:20:06,920 --> 00:20:12,199 Speaker 1: going around New York. He's got um Mr Bannon from Breitbart. 316 00:20:12,320 --> 00:20:14,960 Speaker 1: He's got Roger Ailes, the deposed head of Fox News 317 00:20:15,680 --> 00:20:18,200 Speaker 1: advising him, and his son in law, Jared Kushner, runs 318 00:20:18,240 --> 00:20:20,119 Speaker 1: the newspaper up here in the New York Observer, that 319 00:20:20,200 --> 00:20:22,080 Speaker 1: he knows he's going to lose. He just wants to 320 00:20:22,080 --> 00:20:24,480 Speaker 1: build the brand and then start a media company when 321 00:20:24,480 --> 00:20:26,440 Speaker 1: this is over. Well, you hear that a lot. I 322 00:20:26,520 --> 00:20:29,800 Speaker 1: travel all around the country and talk to investors for 323 00:20:29,840 --> 00:20:31,840 Speaker 1: the last two or three months. Their main question was 324 00:20:31,960 --> 00:20:34,359 Speaker 1: is this the choice we have? There's no other choice? 325 00:20:34,400 --> 00:20:36,399 Speaker 1: And you know, I don't think Gary Johnson is going 326 00:20:36,440 --> 00:20:38,880 Speaker 1: to do that. Well, But the question I get now 327 00:20:38,960 --> 00:20:40,960 Speaker 1: all the time is does he really want to win? 328 00:20:41,480 --> 00:20:43,560 Speaker 1: Or is there a plan B That this is the 329 00:20:43,640 --> 00:20:48,600 Speaker 1: ultimate branding exercise for Trump Inc. And that he'll land 330 00:20:48,600 --> 00:20:51,520 Speaker 1: on his feet after the election. You know, there may 331 00:20:51,520 --> 00:20:53,600 Speaker 1: be some truth to that, but I do think he 332 00:20:53,680 --> 00:20:58,080 Speaker 1: still feels that solid debates and maybe some new revelations 333 00:20:58,119 --> 00:21:01,320 Speaker 1: on Hillary could put him in the game in November. 334 00:21:01,359 --> 00:21:04,760 Speaker 1: That it's not out of the question. The debates are 335 00:21:04,760 --> 00:21:07,960 Speaker 1: going to be kind of key. Now, um, this new 336 00:21:08,040 --> 00:21:09,800 Speaker 1: group going to help him or is he just gonna 337 00:21:10,280 --> 00:21:12,880 Speaker 1: you know, fire away. Yeah, you know, I'm a I'm 338 00:21:12,880 --> 00:21:15,440 Speaker 1: an old Boston Red Sox fan. We used to always say, 339 00:21:15,720 --> 00:21:18,719 Speaker 1: let Manny be Manny Manny ramires. So they're gonna let 340 00:21:18,720 --> 00:21:21,160 Speaker 1: Trump be Trump. I mean they're gonna let him, uh, 341 00:21:21,760 --> 00:21:24,399 Speaker 1: let it, let it rip, and he's going to be 342 00:21:24,800 --> 00:21:30,440 Speaker 1: incendiary and outrageous and politically incorrect. His base will love it. 343 00:21:30,680 --> 00:21:33,240 Speaker 1: But how does this get him more votes? As you 344 00:21:33,320 --> 00:21:36,680 Speaker 1: said earlier in this interview, does it expand his base? 345 00:21:37,119 --> 00:21:40,160 Speaker 1: I'm not sure it would, Gregg. Thank you so much. 346 00:21:40,240 --> 00:21:42,520 Speaker 1: Never enough time, Greg Valier, And of course we'll be 347 00:21:42,560 --> 00:21:46,520 Speaker 1: speaking him more and more as we move to uh 348 00:21:46,600 --> 00:21:49,320 Speaker 1: the election. It is such a different election, Michael McKey 349 00:21:49,359 --> 00:21:53,920 Speaker 1: what everybody's politics. Most amusing election in a long time. 350 00:21:54,200 --> 00:21:56,199 Speaker 1: And you know, we look at Facebook Live and of 351 00:21:56,200 --> 00:21:59,000 Speaker 1: course thanks to Michael McKay for doing Facebook Live and 352 00:21:59,320 --> 00:22:01,840 Speaker 1: of course all we do out on social and you know, 353 00:22:01,880 --> 00:22:04,000 Speaker 1: I would basically say, Michael Barr, would you say is 354 00:22:04,000 --> 00:22:07,960 Speaker 1: a general if you mentioned Mr Trump, whatever the topic, 355 00:22:08,440 --> 00:22:12,439 Speaker 1: you get three times the hits or whatever digital phrase 356 00:22:12,480 --> 00:22:15,680 Speaker 1: you want to use. Because he makes the news. He's 357 00:22:15,720 --> 00:22:18,120 Speaker 1: making the news. The interest is there, and we thank 358 00:22:18,240 --> 00:22:20,840 Speaker 1: people like Greg Ville for trying to give us, uh 359 00:22:21,000 --> 00:22:40,480 Speaker 1: some form of balanced perspective. Mike, who is completely useless 360 00:22:40,480 --> 00:22:42,720 Speaker 1: for the next five minutes because Ellen, you're not gonna 361 00:22:42,720 --> 00:22:47,080 Speaker 1: talk fishing, Mike. A hundred and twenty acres on the 362 00:22:47,160 --> 00:22:51,600 Speaker 1: Jefferson River in the middle of nowhere in Montana. This 363 00:22:51,680 --> 00:22:54,920 Speaker 1: has Ellen Zentner's name on it. Yeah, well, it's both 364 00:22:54,960 --> 00:22:58,520 Speaker 1: of our we're splitting. It sounds great, doesn't it. We're 365 00:22:58,520 --> 00:23:02,639 Speaker 1: going to build a compound there for the waterloon. Jefferson. 366 00:23:03,359 --> 00:23:07,600 Speaker 1: Have you been there the Jefferson Yeah, Jefferson magnificent river 367 00:23:07,680 --> 00:23:10,919 Speaker 1: for fishing. Catch some big, big trout there, Tom. The 368 00:23:10,960 --> 00:23:15,320 Speaker 1: size of your leg might continue. You know, maybe the 369 00:23:15,440 --> 00:23:17,520 Speaker 1: FED would be better off if we could just take 370 00:23:17,560 --> 00:23:20,800 Speaker 1: them all out exactly and they could relax. Well, the 371 00:23:20,800 --> 00:23:26,200 Speaker 1: whole reason why Jackson Hole is Jackson Hole the Kansas 372 00:23:26,240 --> 00:23:29,600 Speaker 1: City Fed holds their their symposiums there is because of 373 00:23:29,640 --> 00:23:33,840 Speaker 1: fly fishing. Um and. And you know, when when you're 374 00:23:33,880 --> 00:23:37,000 Speaker 1: fly fishing, you don't you don't have room in your 375 00:23:37,000 --> 00:23:39,960 Speaker 1: brain to think about anything else but the task at hand. 376 00:23:40,320 --> 00:23:42,760 Speaker 1: Um And it's such a great reset. And you'll notice 377 00:23:42,800 --> 00:23:47,080 Speaker 1: that the top CEOs, people with high stressed jobs, a 378 00:23:47,119 --> 00:23:50,520 Speaker 1: lot of chief economists. Let's say we love to fly fish, 379 00:23:50,520 --> 00:23:56,679 Speaker 1: and there's this program certain esecutively exactly well, it's this is, 380 00:23:56,720 --> 00:23:59,680 Speaker 1: as Tom likes to say, a segui because it could 381 00:23:59,720 --> 00:24:04,439 Speaker 1: take us right into Jackson all uh, since uh terman 382 00:24:04,680 --> 00:24:07,400 Speaker 1: vocal won't be there fly fishing, And I don't think 383 00:24:07,760 --> 00:24:10,359 Speaker 1: Janet Yellen fly fishes, which leaves her with her speech 384 00:24:10,440 --> 00:24:12,560 Speaker 1: next week. Are you in the camp that thinks that 385 00:24:12,640 --> 00:24:16,040 Speaker 1: she might actually use it in a Bernankee like way 386 00:24:16,080 --> 00:24:19,720 Speaker 1: to send a message. I really don't, and I don't 387 00:24:19,720 --> 00:24:21,879 Speaker 1: think there's a message to send. I think what we 388 00:24:22,000 --> 00:24:25,960 Speaker 1: have been given is a gift that this topic of 389 00:24:26,119 --> 00:24:30,920 Speaker 1: designing new monetary policy frameworks, which has chosen so well 390 00:24:30,920 --> 00:24:33,960 Speaker 1: in advance of the symposium, happens to be the most 391 00:24:33,960 --> 00:24:37,840 Speaker 1: prescient topic of the day and something that policymakers are 392 00:24:37,880 --> 00:24:41,800 Speaker 1: increasingly focused on. Coming to that coming to grips with 393 00:24:41,840 --> 00:24:43,960 Speaker 1: the fact that we could be in a world of 394 00:24:44,200 --> 00:24:48,040 Speaker 1: at or near zero interest rates for a very long time, 395 00:24:48,520 --> 00:24:50,840 Speaker 1: and so how do you design a new monetary policy 396 00:24:50,880 --> 00:24:54,720 Speaker 1: regime around that? To recognize that, Um, you know, the 397 00:24:54,800 --> 00:24:59,720 Speaker 1: minutes yesterday, which are three d pages paired down to 398 00:25:00,160 --> 00:25:03,960 Speaker 1: anywhere from thirteen to seventeen pages. The FED chose to 399 00:25:04,040 --> 00:25:07,320 Speaker 1: devote half a page of that to the discussion of 400 00:25:07,440 --> 00:25:10,520 Speaker 1: how to think about new monetary policy frameworks UM, and 401 00:25:10,560 --> 00:25:13,639 Speaker 1: that really preps us for what the discussion is going 402 00:25:13,680 --> 00:25:16,280 Speaker 1: to be like at Jackson Hole. And so I think 403 00:25:16,320 --> 00:25:18,800 Speaker 1: the important thing for us is to gauge from Janet Ellen. 404 00:25:18,840 --> 00:25:21,360 Speaker 1: Where does she come down in that debate of just 405 00:25:21,480 --> 00:25:23,760 Speaker 1: how long we could be at the zero lower bound? 406 00:25:24,200 --> 00:25:27,639 Speaker 1: Uh and what else can be done? When when you 407 00:25:27,680 --> 00:25:30,400 Speaker 1: are faced with that situation, does she have to come 408 00:25:30,440 --> 00:25:33,000 Speaker 1: down or can she say I don't know yet. Well, 409 00:25:33,040 --> 00:25:34,879 Speaker 1: she can easily say we don't know and this is 410 00:25:34,920 --> 00:25:37,200 Speaker 1: something we're exploring, But that in itself is a devish 411 00:25:37,240 --> 00:25:39,520 Speaker 1: message We're gonna do anything because we don't know what 412 00:25:39,560 --> 00:25:41,760 Speaker 1: to do, because we already know that. Pretty much every 413 00:25:41,760 --> 00:25:44,840 Speaker 1: one of her cronies on the FED has is coming 414 00:25:44,880 --> 00:25:47,960 Speaker 1: to this realization and have talked about real equilibrium rates 415 00:25:48,000 --> 00:25:50,080 Speaker 1: being very low and may not run. Let me move 416 00:25:50,119 --> 00:25:52,760 Speaker 1: away from this ethereal discussion of Trout. I'm watching a 417 00:25:52,800 --> 00:25:56,719 Speaker 1: YouTube video of Jefferson River Brown, Trout, Ellen Setner capture 418 00:25:56,720 --> 00:26:01,600 Speaker 1: and a beast and a nephtis ginormous Ellen. Productivity is nowhere. 419 00:26:01,600 --> 00:26:04,359 Speaker 1: Your Ted Weistman wrote the single best note I saw 420 00:26:05,080 --> 00:26:08,280 Speaker 1: on productivity last week. You've got to explain to me 421 00:26:08,320 --> 00:26:12,520 Speaker 1: how any central banker, at any point, under any circumstances 422 00:26:12,960 --> 00:26:17,360 Speaker 1: can move from Mr Fisher's alter accommodative with a productivity 423 00:26:17,400 --> 00:26:20,719 Speaker 1: statistic like we have. Now that's none of my history books. 424 00:26:20,760 --> 00:26:24,399 Speaker 1: Well they can. And so here's the thing. Policymakers and 425 00:26:24,440 --> 00:26:26,960 Speaker 1: I don't fault them because private forecasts as well have 426 00:26:27,040 --> 00:26:30,600 Speaker 1: been very slow to recognize that these structural issues that 427 00:26:30,640 --> 00:26:34,960 Speaker 1: determine potential growth in the economy remain a problem. Um 428 00:26:35,000 --> 00:26:37,560 Speaker 1: and Janet Ellen or Leio shere said that the real 429 00:26:37,640 --> 00:26:41,160 Speaker 1: equilibrium rate is about flat and will rise over time 430 00:26:41,160 --> 00:26:45,280 Speaker 1: as persistent headwinds fade. Her persistent headwinds was productivity. Then 431 00:26:45,280 --> 00:26:48,120 Speaker 1: that they all expected productivity to rise and the real 432 00:26:48,160 --> 00:26:51,399 Speaker 1: equiliberate would rise alongside that, but it has not risen 433 00:26:52,080 --> 00:26:53,600 Speaker 1: Um and I agree with you. It's one of the 434 00:26:53,640 --> 00:26:56,679 Speaker 1: fantastic notes that Ted Weisman on our team has written. 435 00:26:57,359 --> 00:27:01,200 Speaker 1: Within this complexity, we have adults. We all agree they're brilliant. 436 00:27:01,280 --> 00:27:05,520 Speaker 1: Cherry yelling is fabulous. The fact is Ted Weisman's note. 437 00:27:05,520 --> 00:27:09,200 Speaker 1: If it's handed to her, can she even raise once 438 00:27:09,480 --> 00:27:12,600 Speaker 1: one and done? Well, you know, Janet Yellen has been 439 00:27:12,640 --> 00:27:18,200 Speaker 1: asked directly before, you know, if we back out, if 440 00:27:18,240 --> 00:27:21,520 Speaker 1: we reverse engineer from the FED Zone Summary of Economic Projections, 441 00:27:21,600 --> 00:27:24,760 Speaker 1: what the implied productivity rate is, It's something like like 442 00:27:24,920 --> 00:27:28,560 Speaker 1: one point seven percent, and that's just extremely unrealistic. And 443 00:27:28,600 --> 00:27:32,479 Speaker 1: when pressed on it, she has said, yes, our estimates 444 00:27:32,480 --> 00:27:35,520 Speaker 1: of productivity could be too high, um, and they all 445 00:27:35,560 --> 00:27:39,320 Speaker 1: admit that, right, but putting those stark numbers on paper 446 00:27:39,560 --> 00:27:41,719 Speaker 1: has been very difficult for them to do. And I 447 00:27:41,760 --> 00:27:45,320 Speaker 1: think with with Jackson Holland, with the growing rhetoric coming 448 00:27:45,320 --> 00:27:48,040 Speaker 1: out of the Fed, UH, we're gonna see in that 449 00:27:48,119 --> 00:27:51,480 Speaker 1: September f o MC meeting that Summary of Economic Projections 450 00:27:51,520 --> 00:27:55,120 Speaker 1: tables show a much more sobering take on the longer 451 00:27:55,200 --> 00:27:58,359 Speaker 1: run equilibrium rate and just how slow that still the 452 00:27:58,440 --> 00:28:01,280 Speaker 1: path will be to get there, and that the potential 453 00:28:01,320 --> 00:28:04,800 Speaker 1: growth in the economy UH comes down. It's just it's 454 00:28:04,840 --> 00:28:08,439 Speaker 1: just a very slow moving beast. That's how the FEN operates, 455 00:28:08,760 --> 00:28:13,119 Speaker 1: and it's a new reality. And I think we're on 456 00:28:13,160 --> 00:28:28,520 Speaker 1: the country Stanley hundred and I don't know a hundred 457 00:28:28,640 --> 00:28:32,800 Speaker 1: fifteen years after Scotland became part of the United Kingdom, 458 00:28:32,840 --> 00:28:36,719 Speaker 1: a small shop a hundred miles north of Edinburgh started 459 00:28:36,760 --> 00:28:40,520 Speaker 1: making scotch in The unique feature of their scotch and 460 00:28:40,640 --> 00:28:46,520 Speaker 1: the chemistry of each distillery is McAllen, which is like 461 00:28:46,600 --> 00:28:48,400 Speaker 1: at the end of the James Bond movie. I know 462 00:28:48,480 --> 00:28:53,320 Speaker 1: all that is small stills, which is absolutely unique in 463 00:28:53,360 --> 00:28:55,960 Speaker 1: the industry. It's so rare. It's on the back of 464 00:28:55,960 --> 00:28:58,360 Speaker 1: like a pound note or something. I don't know the details. 465 00:28:59,000 --> 00:29:01,080 Speaker 1: The guy that moves us the United States is Paul 466 00:29:01,200 --> 00:29:04,400 Speaker 1: Ross of Edrington, America's Paul. I want to give you 467 00:29:04,480 --> 00:29:08,160 Speaker 1: a sales pitch here before we talk about Brexit. What 468 00:29:08,360 --> 00:29:11,440 Speaker 1: is it about the copper chemistry of a given Scotch 469 00:29:11,880 --> 00:29:15,480 Speaker 1: that makes it unique? Well, I think there's a number 470 00:29:15,520 --> 00:29:17,960 Speaker 1: of different First of all, thank you for having me um. 471 00:29:17,960 --> 00:29:20,600 Speaker 1: There's a number of different factors really that come together 472 00:29:20,680 --> 00:29:23,600 Speaker 1: to create that alchemy you talked about. The size of 473 00:29:23,640 --> 00:29:26,440 Speaker 1: the stills are very important for giving a rich you know, 474 00:29:26,880 --> 00:29:30,080 Speaker 1: concentrated and you make spirit, which McCallen is unique for. 475 00:29:30,840 --> 00:29:33,680 Speaker 1: But much of it actually is in the is in 476 00:29:33,760 --> 00:29:38,320 Speaker 1: the type of wood that you select. H McAllen uses 477 00:29:38,600 --> 00:29:42,240 Speaker 1: uh cential old casks for most of a range. They're 478 00:29:42,280 --> 00:29:45,320 Speaker 1: about ten times the price of a bourbon bow to produce. 479 00:29:46,440 --> 00:29:50,440 Speaker 1: We produce about the world share old casks and that 480 00:29:50,480 --> 00:29:53,040 Speaker 1: allows us to go, you know, create a single mat 481 00:29:53,120 --> 00:29:57,080 Speaker 1: with natural color, and of the flavor comes from the wood. 482 00:29:57,600 --> 00:30:00,280 Speaker 1: Maybe about of the flavor comes from the from the 483 00:30:00,320 --> 00:30:02,959 Speaker 1: stills and the concentrated liquid in the water you have. 484 00:30:03,760 --> 00:30:06,240 Speaker 1: So it's very complex. Um there's a bit of alchemy, 485 00:30:06,280 --> 00:30:08,640 Speaker 1: there's some signs, but ultimately there's a lot of art 486 00:30:08,880 --> 00:30:12,080 Speaker 1: as well. A few years ago you sold a dram 487 00:30:12,160 --> 00:30:16,800 Speaker 1: for four hundred and sixty dollars pounds. Sterling matters to you, 488 00:30:16,920 --> 00:30:22,320 Speaker 1: doesn't it? Absolutely absolutely? And as you you mentioned, brick 489 00:30:22,440 --> 00:30:25,520 Speaker 1: sit there with the devaluation of the pound at the moment, 490 00:30:26,320 --> 00:30:29,960 Speaker 1: we will we'll see some benefit in North America in 491 00:30:30,040 --> 00:30:32,400 Speaker 1: terms of our sales revenue over the course of the 492 00:30:32,400 --> 00:30:35,120 Speaker 1: next couple of years. But what I would highlight is, 493 00:30:35,320 --> 00:30:37,640 Speaker 1: and you highlighted it yourself, we've been business. We've been 494 00:30:37,640 --> 00:30:40,040 Speaker 1: in business for over two hundred years. There's a lot 495 00:30:40,040 --> 00:30:44,960 Speaker 1: of cycles, economic cycles. We've survived recessions, prohibition, world wars, 496 00:30:45,680 --> 00:30:48,600 Speaker 1: and and really you need to look at the long term. 497 00:30:49,040 --> 00:30:51,320 Speaker 1: You know, we're investing about two million dollars in the 498 00:30:51,320 --> 00:30:54,320 Speaker 1: Macallanist states at the moment, I won't even see the 499 00:30:54,360 --> 00:30:57,480 Speaker 1: benefit of that in my lifetime and only forty five. 500 00:30:58,200 --> 00:31:02,760 Speaker 1: This is a generational investments. Therefore, short term blips bumps 501 00:31:02,760 --> 00:31:05,880 Speaker 1: in the road don't really impact the long term trend, 502 00:31:05,960 --> 00:31:08,880 Speaker 1: which is a growth in the Scotch whiskey across the 503 00:31:08,880 --> 00:31:12,120 Speaker 1: world and specifically mccallndary exceptionally well in North America. At 504 00:31:12,120 --> 00:31:16,480 Speaker 1: the moment. When you say long term, what what is 505 00:31:17,080 --> 00:31:22,080 Speaker 1: long term? Are we talking forty years? Typically if you're 506 00:31:22,120 --> 00:31:26,120 Speaker 1: investing in an expansion of a single malt distillery and 507 00:31:26,680 --> 00:31:29,800 Speaker 1: something like the mccalluend where virtually all of our products 508 00:31:29,800 --> 00:31:33,760 Speaker 1: aged you know, ten years and above UM, then it's 509 00:31:33,880 --> 00:31:35,840 Speaker 1: it's decades before you get a pay back on that 510 00:31:35,920 --> 00:31:39,200 Speaker 1: type of investment. UM Interest rates are low at the moment, 511 00:31:39,320 --> 00:31:41,760 Speaker 1: but they won't remain that way for the next twenty years. 512 00:31:42,440 --> 00:31:45,800 Speaker 1: And cash flow is incredibly important to us. UM. We 513 00:31:45,880 --> 00:31:48,320 Speaker 1: have you know, probably about a billion dollars worth of 514 00:31:48,600 --> 00:31:52,840 Speaker 1: investment in warehouses with casks maturing at the moment, so 515 00:31:53,600 --> 00:31:56,920 Speaker 1: those liquid gold in those in those warehouses, but it 516 00:31:56,920 --> 00:31:59,760 Speaker 1: takes many, many years for about to mature and come 517 00:31:59,800 --> 00:32:03,640 Speaker 1: to pocket. So as we as we expand our operations, um, 518 00:32:03,960 --> 00:32:06,120 Speaker 1: I think it could be at least two decades before 519 00:32:06,160 --> 00:32:09,280 Speaker 1: we see the benefit of that investment. How do you 520 00:32:09,760 --> 00:32:12,160 Speaker 1: financially justify that? When you you know when you're when 521 00:32:12,200 --> 00:32:15,240 Speaker 1: you're going to your bank or whoever's funding it, you know, 522 00:32:15,280 --> 00:32:17,080 Speaker 1: what do you tell them, I'm not gonna have a 523 00:32:17,120 --> 00:32:20,960 Speaker 1: return on investment until your kids are old enough to 524 00:32:21,000 --> 00:32:24,440 Speaker 1: collect the money. The three aspects. First of all, we 525 00:32:24,480 --> 00:32:26,400 Speaker 1: have been in business for two hundred years, so there's 526 00:32:26,440 --> 00:32:29,160 Speaker 1: a lot of sunk cost in terms of our infrastructure. 527 00:32:29,720 --> 00:32:32,400 Speaker 1: The second element is we're privately owned by own by 528 00:32:32,440 --> 00:32:35,240 Speaker 1: Schotland's largest charity, therefore allows us to make long term 529 00:32:35,280 --> 00:32:38,880 Speaker 1: investment decisions. And the second of all, we are actually 530 00:32:38,920 --> 00:32:43,600 Speaker 1: investing in in casks, would and and liquid gold as 531 00:32:43,600 --> 00:32:47,640 Speaker 1: I put it, So therefore you know your your investments safe. 532 00:32:47,720 --> 00:32:51,080 Speaker 1: It's just not quite ready yet. It's maturing about like 533 00:32:51,120 --> 00:32:54,600 Speaker 1: a long term government bond, so you can justify it. 534 00:32:54,640 --> 00:32:56,400 Speaker 1: We we've had the same relationship with some of our 535 00:32:56,400 --> 00:33:00,000 Speaker 1: banks now for decades, but ultimately it's a long term 536 00:33:00,080 --> 00:33:02,320 Speaker 1: business and it's not for one of the fin hearted. 537 00:33:03,120 --> 00:33:07,680 Speaker 1: You acquired a number of years ago Cutty Sark, which 538 00:33:07,720 --> 00:33:10,160 Speaker 1: is a brand from my childhood, and I understand you've 539 00:33:10,160 --> 00:33:14,120 Speaker 1: got to rebuild a brand, etcetera. What does brexit? What 540 00:33:14,200 --> 00:33:18,720 Speaker 1: does the pound conversion do? Forget about something esoteric like McAllen. 541 00:33:19,280 --> 00:33:22,720 Speaker 1: What do you do with a giant elephant like not elephant, 542 00:33:22,760 --> 00:33:25,600 Speaker 1: but a giant brand like Cutty Sark when you're going 543 00:33:25,680 --> 00:33:29,560 Speaker 1: up against your good competition. Well, Cutty Sark is quite 544 00:33:29,600 --> 00:33:31,960 Speaker 1: unusual in the sense it was the Scotch brought in 545 00:33:32,080 --> 00:33:34,760 Speaker 1: Jurdan Prohibition by you know, like the legs of Captain 546 00:33:34,840 --> 00:33:41,000 Speaker 1: McCoy and excuse me, my grandfather, my grandfather, thank you? Yeah, 547 00:33:41,160 --> 00:33:44,240 Speaker 1: so um so it is. It is the Scotch. None 548 00:33:44,280 --> 00:33:46,640 Speaker 1: of your father, about your grandfather. And in many ways 549 00:33:46,680 --> 00:33:49,760 Speaker 1: that is going to help us because in this new 550 00:33:50,320 --> 00:33:53,520 Speaker 1: this new generation are really looking for authenticity. They're looking 551 00:33:53,840 --> 00:33:57,040 Speaker 1: there's a bit of nostalgia there. All is new again 552 00:33:57,680 --> 00:34:00,720 Speaker 1: and a Brian like Cutty Sark, which was built really 553 00:34:00,720 --> 00:34:04,360 Speaker 1: in America, in the United States during Prohibition. There's a 554 00:34:04,360 --> 00:34:08,160 Speaker 1: lot of interest in it and h and social media 555 00:34:08,239 --> 00:34:10,799 Speaker 1: and in terms of you know, younger consumers. So I 556 00:34:10,840 --> 00:34:13,000 Speaker 1: think in some ways the fact that it was a 557 00:34:13,040 --> 00:34:15,560 Speaker 1: brand of the past makes it you know, I was 558 00:34:15,600 --> 00:34:19,000 Speaker 1: able to really look at it sensibly invest in it 559 00:34:19,000 --> 00:34:21,400 Speaker 1: to make it a brand for the future. What is 560 00:34:21,400 --> 00:34:24,040 Speaker 1: the wiggle room that you have on price? I mean, 561 00:34:24,040 --> 00:34:26,080 Speaker 1: if you have the advantage of a weaker pound and 562 00:34:26,520 --> 00:34:28,480 Speaker 1: you know this will get you going Paul Ross the 563 00:34:28,520 --> 00:34:32,760 Speaker 1: idea of Derren Meyer at HSBC predicting a one ten sterling, 564 00:34:33,440 --> 00:34:37,759 Speaker 1: which is clearly an outlier call, but that completely changes 565 00:34:38,320 --> 00:34:41,560 Speaker 1: what Brown liquors do out of the United Kingdom. A 566 00:34:41,560 --> 00:34:45,200 Speaker 1: little bit of gin that's still made is well, do 567 00:34:45,239 --> 00:34:50,520 Speaker 1: you presume there will be a price war in your world? Um? Again, 568 00:34:50,560 --> 00:34:52,960 Speaker 1: it's a it's a this is a long term business, 569 00:34:53,200 --> 00:34:55,480 Speaker 1: you know, and you're talking even some of our youngest 570 00:34:55,520 --> 00:34:58,640 Speaker 1: products are five sex seven years old, So there is 571 00:34:58,680 --> 00:35:01,560 Speaker 1: going to be a bump in the positive way in 572 00:35:01,640 --> 00:35:05,040 Speaker 1: terms of currency in the short term. Um. And typically 573 00:35:05,200 --> 00:35:08,040 Speaker 1: most of our competitors are in the same in the 574 00:35:08,040 --> 00:35:12,160 Speaker 1: same situation. They're looking over the next ten fifteen years. 575 00:35:12,200 --> 00:35:15,040 Speaker 1: So unless it was a sustained reduction in the pound, 576 00:35:15,239 --> 00:35:18,279 Speaker 1: you know, something like five six years, I would be 577 00:35:18,360 --> 00:35:20,800 Speaker 1: very hopeful that what we're looking at is the ability 578 00:35:20,840 --> 00:35:24,759 Speaker 1: to probably reinvest back in the business significant amounts of 579 00:35:24,800 --> 00:35:28,440 Speaker 1: dollars and go out there and communicate consumers more clearly. 580 00:35:28,719 --> 00:35:31,000 Speaker 1: You know, that would be my chosen route, and I 581 00:35:31,000 --> 00:35:34,040 Speaker 1: think that's probably what will happen in practice. One more question, 582 00:35:34,040 --> 00:35:37,240 Speaker 1: Paul Ross, if we could with Drington America's talking about 583 00:35:37,280 --> 00:35:42,279 Speaker 1: Brexit in the reality for Scotch whiskey, your messaging is 584 00:35:42,560 --> 00:35:45,400 Speaker 1: completely changed with digital weys see that with the NBC 585 00:35:45,440 --> 00:35:49,000 Speaker 1: Olympic story, the digital streaming and all that. How are 586 00:35:49,000 --> 00:35:53,200 Speaker 1: you going to message the branding of alcohol products five 587 00:35:53,280 --> 00:35:56,480 Speaker 1: years from now? Well, strangely enough, I don't think it 588 00:35:56,560 --> 00:35:59,040 Speaker 1: changes much for us, and that might sim strange for 589 00:35:59,480 --> 00:36:03,120 Speaker 1: businesses two years old. But we've always built our brands 590 00:36:03,120 --> 00:36:06,319 Speaker 1: on word of mouth through personal recommendation. You know, a 591 00:36:06,400 --> 00:36:09,280 Speaker 1: friend to get friend, or your boss introducing you to McAllen, 592 00:36:10,200 --> 00:36:13,200 Speaker 1: or your father or or your sister or whatever giving 593 00:36:13,239 --> 00:36:16,399 Speaker 1: your gift. So it's been very much about personal recommendation 594 00:36:17,200 --> 00:36:20,160 Speaker 1: and that's how we build our business, the stars in 595 00:36:20,200 --> 00:36:25,360 Speaker 1: the glass and people drinking our products. So ultimately, social 596 00:36:25,400 --> 00:36:29,720 Speaker 1: media and digital just literally just ex amplifies that beyond 597 00:36:29,760 --> 00:36:31,440 Speaker 1: anything we would have been able to do in ten, 598 00:36:31,560 --> 00:36:34,520 Speaker 1: fifty and twenty years ago. So in many ways it 599 00:36:34,760 --> 00:36:36,640 Speaker 1: just allows us to get back in the in the 600 00:36:36,680 --> 00:36:41,400 Speaker 1: business of that personal recommendation. And and you can't hide 601 00:36:41,520 --> 00:36:45,480 Speaker 1: from people's recommendations out in social media. You know, if 602 00:36:45,520 --> 00:36:47,440 Speaker 1: they like the product, they're going to tell you. But 603 00:36:47,480 --> 00:36:49,320 Speaker 1: if they don't like it, they're gonna take lots of people. 604 00:36:49,960 --> 00:36:52,800 Speaker 1: So for us, that means there's even more emphasis and 605 00:36:52,880 --> 00:36:55,000 Speaker 1: making sure that the quality of what we put in 606 00:36:55,000 --> 00:36:58,080 Speaker 1: the glass is exceptional, because if it isn't, people are 607 00:36:58,080 --> 00:36:59,480 Speaker 1: going to tell you, and you're gonna find it a 608 00:36:59,520 --> 00:37:02,080 Speaker 1: very quickly. Michael McKee and I look forward to our 609 00:37:02,120 --> 00:37:04,319 Speaker 1: remote from Murray here when Mike is that the third 610 00:37:04,360 --> 00:37:08,160 Speaker 1: week of October, I think we should Paul Ross, thank 611 00:37:08,200 --> 00:37:11,439 Speaker 1: you so much. Edgington America's on. You know, we're trying 612 00:37:11,480 --> 00:37:14,759 Speaker 1: to do some of the reality your folks of what 613 00:37:14,960 --> 00:37:18,279 Speaker 1: actually happens with Brexit. I get its macroeconomics, and we 614 00:37:18,360 --> 00:37:21,200 Speaker 1: got to do all that we do, Mike, but what 615 00:37:21,280 --> 00:37:24,720 Speaker 1: does it really mean? I you know, I've I've said 616 00:37:24,800 --> 00:37:27,200 Speaker 1: on air, it's not been a secret. I'm gung ho 617 00:37:27,400 --> 00:37:30,480 Speaker 1: on London. I just don't buy the gloom. Well, for 618 00:37:30,520 --> 00:37:34,040 Speaker 1: a minute. I presume that what it what it means 619 00:37:34,120 --> 00:37:36,960 Speaker 1: to a Scotch whiskey distiller is different than somebody who's 620 00:37:37,000 --> 00:37:40,000 Speaker 1: not waiting forty years for a return on investment. That 621 00:37:40,000 --> 00:37:45,360 Speaker 1: would be true. Thanks for listening to the Bloomberg Surveillance podcast. 622 00:37:45,719 --> 00:37:50,800 Speaker 1: Subscribe and listen to interviews on iTunes, SoundCloud, or whichever 623 00:37:50,960 --> 00:37:54,880 Speaker 1: podcast platform you prefer. I'm on Twitter at Tom Keane, 624 00:37:55,280 --> 00:37:59,239 Speaker 1: Michael McKee is at Economy Before the podcast. You can 625 00:37:59,280 --> 00:38:09,840 Speaker 1: always catch us worldwide. I'm Bloomberg Radio. H