WEBVTT - How Science Can Jumpstart Economy: MIT Economists 0:00:02.640 --> 0:00:05.320 Welcome to the Bloomberg Penl podcast. I'm Paul Sweene. You, 0:00:05.360 --> 0:00:07.680 along with my co host Lisa Brahma wits each day 0:00:07.720 --> 0:00:10.240 we bring you the most noteworthy and useful interviews for 0:00:10.280 --> 0:00:12.520 you and your money. Whether at the grocery store or 0:00:12.560 --> 0:00:15.480 the trading floor, find a Bloomberg Penl podcast on Apple 0:00:15.520 --> 0:00:17.959 podcast or wherever you listen to podcasts, as well as 0:00:17.960 --> 0:00:25.080 at Bloomberg dot com. Well, income inequality and uneven economic 0:00:25.400 --> 0:00:31.120 economic opportunity clearly became key issues in the sixteen presidential election. 0:00:31.560 --> 0:00:33.680 To help us kind of dig through some of these issues, 0:00:33.880 --> 0:00:37.720 we welcome our two guests, Dr Jonathan Gruberg, Professor of 0:00:37.720 --> 0:00:41.960 economics at the Massachusetts Institute of Technology, and Simon Johnson, 0:00:42.040 --> 0:00:44.480 professor of Entrepreneurship at m I T and former chief 0:00:44.479 --> 0:00:46.400 economists at the I m f I. M f I 0:00:46.400 --> 0:00:49.559 should also say Dr Gruber is also key architect of 0:00:49.640 --> 0:00:53.840 Obamacare and Romney Care. Dr Gruber, Simon, thank you so 0:00:53.920 --> 0:00:56.920 much for joining us. So you guys, let's talk about 0:00:57.200 --> 0:00:59.880 the book you have written, and we're here to discuss 0:01:00.080 --> 0:01:03.560 it's entitled jump Starting America, How Breakthrough Science can Revive 0:01:03.640 --> 0:01:06.880 Economic Growth and the American Dream, which is available now. 0:01:07.120 --> 0:01:10.280 So with this book, Dr gribber Key findings, what's the 0:01:10.360 --> 0:01:12.680 kind of the key fundings that you guys came up 0:01:12.680 --> 0:01:15.160 with here? I think the key point is that we've 0:01:15.160 --> 0:01:17.560 forgotten an important lesson from the U S history, which 0:01:17.640 --> 0:01:20.960 is the in the boom decades post World War Two, 0:01:21.000 --> 0:01:24.360 what drove US economic growth was a fruitful partnership between 0:01:24.400 --> 0:01:27.720 the government and the private sector in developing new technologies 0:01:28.040 --> 0:01:30.759 that that grew the economy. We can get back to that. 0:01:31.080 --> 0:01:33.280 At the peak, we spent two percent of our entire 0:01:33.319 --> 0:01:36.039 economy on publicly financed R and D. It's now down 0:01:36.040 --> 0:01:38.840 to point seven. We need to get back to investing 0:01:38.840 --> 0:01:41.200 more R and D the causes growth, but we did 0:01:41.280 --> 0:01:43.360 do so in a way that involves the whole country, 0:01:43.560 --> 0:01:46.399 not just a few elite coastal cities that have that 0:01:46.440 --> 0:01:49.000 have been the major beneficiaries of R and D expenditure 0:01:49.000 --> 0:01:52.559 in the recent past. Yeah. With that point, Simon, I'm 0:01:52.600 --> 0:01:55.840 just curious. I think it's a fascinating idea. It's a 0:01:55.920 --> 0:01:59.680 great idea. Is the is there the political will given 0:01:59.720 --> 0:02:02.240 the budget deficits we have now to do this? Well, 0:02:02.240 --> 0:02:05.080 that's a great, great Christian evince Behind closed doors. We 0:02:05.160 --> 0:02:08.160 find a lot of agreement across the entire political spectrum 0:02:08.280 --> 0:02:10.160 on the need to support science and i H, as 0:02:10.200 --> 0:02:12.080 you know, gets a lot of support from Republicans and 0:02:12.120 --> 0:02:15.200 from Democrats. More funny for ni AH more initiatives like 0:02:15.360 --> 0:02:18.240 ni H. I think there's interesting that we're proposing a big, 0:02:18.280 --> 0:02:20.520 bold way to do it. I agree, but it would 0:02:20.520 --> 0:02:23.640 be benefit everyone across the country and that matters on Congress. 0:02:23.919 --> 0:02:26.400 What does indeed it does indeed especially in an election 0:02:26.440 --> 0:02:28.800 here coming up. Yes, so Jonathan, kind of how do 0:02:28.840 --> 0:02:30.079 we get there? What are you? What are something the 0:02:30.160 --> 0:02:33.880 practical suggestions that you have guys who call up with 0:02:33.880 --> 0:02:37.240 within your book. So one important practical suggestion is to 0:02:37.400 --> 0:02:41.480 realize that we have incredible reservoirs of talent all around 0:02:41.480 --> 0:02:43.720 the country. That while most of the growth in the 0:02:43.760 --> 0:02:45.480 US has happened in six or eight cities over the 0:02:45.560 --> 0:02:48.200 last couple of decades, we have places. In the book 0:02:48.200 --> 0:02:50.919 we identify a hundred and two places which are large, 0:02:50.960 --> 0:02:54.080 which have well educated populations, and which have affordable housing, 0:02:54.360 --> 0:02:57.119 which could become the technology hubs of tomorrow. The other 0:02:57.360 --> 0:02:59.480 suggestion we make is we need to move to a 0:02:59.520 --> 0:03:02.840 more ape political process through through sort of a commission 0:03:03.040 --> 0:03:05.799 that's an a political commission model on the base closing commission, 0:03:06.000 --> 0:03:08.359 let's make it a technology helb opening commission to help 0:03:08.440 --> 0:03:11.280 the side worship with the dollars of tomorrow. That's actually 0:03:11.320 --> 0:03:15.679 an interesting point and a political confission. Do you think 0:03:15.320 --> 0:03:19.440 I'm just thinking realistically, with all that we're seeing in 0:03:19.480 --> 0:03:21.880 Congress right now and the all the battling back and forth, 0:03:22.520 --> 0:03:25.800 it seems impossible to get coordination across the aisle. But 0:03:25.880 --> 0:03:29.160 it does if you think about you know, electric cars 0:03:29.160 --> 0:03:32.440 and the potential to invest in electric charging stations across 0:03:32.480 --> 0:03:35.840 the country and move towards That spells right, That plays 0:03:35.920 --> 0:03:38.520 right into the green deals. I mean, I mean that 0:03:38.680 --> 0:03:40.920 is an interesting way to get both sides of the 0:03:40.920 --> 0:03:43.400 aisle on the same page. Because you do you kind 0:03:43.400 --> 0:03:45.680 of dot every eye in course every take. Well, you 0:03:45.680 --> 0:03:49.320 could plug various technology visions into the mechanism that we're proposing, 0:03:49.360 --> 0:03:51.400 So the Green New Deal absolutely could fit there. If 0:03:51.400 --> 0:03:53.080 you want to promote more life science, if you want 0:03:53.120 --> 0:03:55.240 to into cure cancer, that could be the priority that 0:03:55.480 --> 0:03:57.720 gets plugged in. The key point is spend a lot 0:03:57.720 --> 0:03:59.640 more on the on the basic science. Privacy is not 0:03:59.640 --> 0:04:01.440 gonna do that because the private sector can't get and 0:04:01.480 --> 0:04:03.560 no one company can get all the games. But once 0:04:03.600 --> 0:04:06.960 you create that scientific information and infrastructure, it can spread 0:04:07.160 --> 0:04:09.880 and be a catalyst for private sector development. And that 0:04:09.920 --> 0:04:12.560 can happen absolutely everywhere in the country. Is not This 0:04:12.600 --> 0:04:15.040 is not a Silicon Valley or Boston promoting book. This 0:04:15.120 --> 0:04:18.400 is promoting a jump stop for thirty six forty five. Hey, 0:04:18.440 --> 0:04:21.600 let's go for fifty American states. So, Jonathan, I mean, 0:04:21.760 --> 0:04:24.600 when you think about it, the university system of this 0:04:24.680 --> 0:04:28.360 country has been, you know, are one of the backbones 0:04:28.400 --> 0:04:32.359 of technological advances over time. Um is that? And it 0:04:32.400 --> 0:04:35.960 seems like that could be anywhere. That could be anywhere. 0:04:35.960 --> 0:04:38.520 I mean I think of cities like Austin, Texas, which 0:04:38.520 --> 0:04:41.360 have become you know, huge tech areas. I mean, uh, 0:04:41.800 --> 0:04:43.839 my son's at the University of Colorado. There's a tech 0:04:43.880 --> 0:04:46.440 community out there in Boulder, in Denver. It can really 0:04:46.440 --> 0:04:49.960 happen anywhere. But does it? What's again? I'm just kind 0:04:49.960 --> 0:04:52.799 of wondering. I just don't see the government stepping up 0:04:52.839 --> 0:04:57.640 with big dollars today. Well, so two points in that. 0:04:57.720 --> 0:04:59.520 One of one of our favorite examples in the book 0:04:59.560 --> 0:05:02.800 is or lay To, Florida, home of the Emails not 0:05:02.920 --> 0:05:05.720 Mickey Mouse. Forty five minutes east is the center for 0:05:05.760 --> 0:05:08.640 the US micro computer micro simulation industry and the largest 0:05:08.720 --> 0:05:11.400 University of America, University of Central Florida, which went from 0:05:11.480 --> 0:05:14.000 mid sized university to now having the thirteenth rank electrical 0:05:14.000 --> 0:05:16.920 engineering department in the country. That area, forty five minutes 0:05:16.960 --> 0:05:19.320 of Orlando, has created a hundred thousand jobs over the 0:05:19.320 --> 0:05:23.960 past thirty years through a partnership of the government, the university, 0:05:24.000 --> 0:05:27.039 and the private sector. And where confident that this can happen. Look, 0:05:27.040 --> 0:05:29.440 if you want evidence, look at the Republican reaction the 0:05:29.440 --> 0:05:33.080 Green New Deal largely negative. Accept Lamar Alexander said how 0:05:33.120 --> 0:05:34.800 much he liked the research and development part of the 0:05:34.800 --> 0:05:38.359 Green New Deal. That's where we can get consensus. So interesting, 0:05:38.920 --> 0:05:41.400 I asked both of you this question is when you 0:05:41.640 --> 0:05:44.000 when you do this and you move into away from 0:05:44.120 --> 0:05:46.880 the coastal areas, as you say, we've seen what um, 0:05:47.120 --> 0:05:50.279 what this has done to Seattle in terms of real estate. 0:05:50.320 --> 0:05:52.240 We've seen what it's done to San Francisco in terms 0:05:52.240 --> 0:05:55.320 of homelessness. It seems to me there has to be 0:05:55.400 --> 0:05:59.880 a really concerned, uh concerted effort with local communities to 0:06:00.120 --> 0:06:02.560 sure that this doesn't happen in the locals, don't those 0:06:02.600 --> 0:06:06.760 who do not participate in this program don't get priced out. Yeah, absolutely, well, 0:06:06.800 --> 0:06:09.000 thank you to New York for the backlash against Amazon 0:06:09.160 --> 0:06:11.760 for making that point rather abundantly clear. Of course, it's 0:06:11.760 --> 0:06:14.880 a priority, absolutely, And you're also right that local communities 0:06:14.920 --> 0:06:17.000 have to be on board now. And you also know 0:06:17.040 --> 0:06:19.360 that more than two thirty communities in the United States 0:06:19.360 --> 0:06:22.800 bid on Amazon h U two. So they want the jobs. 0:06:23.120 --> 0:06:25.760 The jobs need to come with sustainable growth and and 0:06:25.800 --> 0:06:27.520 real estate is a key piece of this. One thing 0:06:27.600 --> 0:06:29.359 that makes so many parts of the Unit States attractive 0:06:29.360 --> 0:06:31.360 is real estate is really really cheap. If we say 0:06:31.400 --> 0:06:33.000 the numbers on air, and I think a lot of 0:06:33.000 --> 0:06:35.400 your New York based listeners are gonna want to move immediately. 0:06:35.480 --> 0:06:37.400 But you can buy a house in place like Pittsburgh 0:06:37.440 --> 0:06:40.040 for less than two thousand dollars a nice house, right, 0:06:40.279 --> 0:06:42.400 So what you want you don't want to lose that. 0:06:42.440 --> 0:06:45.640 You want to understand and appreciate that as part of 0:06:45.680 --> 0:06:48.200 the package, and you want to use that as a 0:06:48.240 --> 0:06:49.520 big part of the message, and you don't want to 0:06:49.560 --> 0:06:51.560 run out of space. So it's very important you think 0:06:51.720 --> 0:06:53.599 as a community about what kind of zoning you're going 0:06:53.640 --> 0:06:55.680 to have, what kind of develop you're gonna you're going 0:06:55.720 --> 0:06:57.680 to allow. People want to live together, they want to cluster, 0:06:57.880 --> 0:06:59.960 they want to live closer together than in the past. 0:07:00.080 --> 0:07:01.400 You need to make sure there's enough space for that. 0:07:02.240 --> 0:07:06.600 Is there enough trained Does this country have enough trained engineers, 0:07:06.800 --> 0:07:09.240 technical people to to do this? I mean when I, 0:07:09.840 --> 0:07:12.160 you know, several years ago when I came out of college, 0:07:12.160 --> 0:07:14.360 it was everybody on the wall street. Now my kids 0:07:14.400 --> 0:07:16.240 in our college that they're just all thinking tech and 0:07:16.320 --> 0:07:19.280 engineering and apps and things like that. Do we have 0:07:19.480 --> 0:07:23.280 enough technical expertise in this country right now? We have 0:07:23.400 --> 0:07:26.400 enough skill, we don't have enough technical expertise. I think 0:07:26.440 --> 0:07:29.400 that once again, one thing we've fallen behind on. One thing. 0:07:29.400 --> 0:07:31.280 The government did really well in the decades after World 0:07:31.320 --> 0:07:33.760 War Two, through things like the National Defense Education Act, 0:07:34.160 --> 0:07:37.600 was invest in both high school and college education the sciences. 0:07:37.720 --> 0:07:39.640 We need to get back to that. If we simply 0:07:39.960 --> 0:07:43.640 increase government investment in science but don't boost the supply 0:07:43.720 --> 0:07:47.119 of scientists, we're just gonna increase income inequality. We increase 0:07:47.160 --> 0:07:50.200 the demand and the supply. That means a large investment 0:07:50.320 --> 0:07:54.080 with local buying into improved education at both the high 0:07:54.120 --> 0:07:56.800 school and college levels. Yeah, that's that's an actually a 0:07:56.840 --> 0:07:58.640 really good point. I will tell you with my my 0:07:58.800 --> 0:08:02.160 kids who came up with very interesting degrees they wanted 0:08:02.200 --> 0:08:04.720 to study, and I pushed them all towards technology because 0:08:04.720 --> 0:08:06.200 it seemed to be the place to be. As you 0:08:06.240 --> 0:08:09.600 say it, is there a buy in from the university 0:08:09.680 --> 0:08:13.880 level um to help support that, for instance, make technology 0:08:13.920 --> 0:08:17.520 degrees more affordable. That's a kiosk absolutely, And you know 0:08:17.520 --> 0:08:19.520 who's gonna drive that the young people. The young people 0:08:19.560 --> 0:08:22.600 want the technology skills they want. I think that it's 0:08:22.640 --> 0:08:25.240 mixing technology with creative that's the future. That's what the 0:08:25.280 --> 0:08:27.760 artificial intelligence machines are not going to take away from you. 0:08:27.920 --> 0:08:30.000 But it has to be affordable. It has to be affordable, 0:08:30.040 --> 0:08:31.600 and we've got to look at that at the federal level. 0:08:31.640 --> 0:08:35.360 That after Sputnik seven, that's what we did. We made physics, 0:08:35.400 --> 0:08:38.080 math education much more affordable. Spread that around the country. 0:08:38.200 --> 0:08:40.000 There's a federal piece, but there's also a local and 0:08:40.040 --> 0:08:42.680 state piece. Right there's gonna be pathways through community colleges 0:08:42.679 --> 0:08:44.800 and other ways through state schools. We were very good 0:08:44.800 --> 0:08:46.240 at that in the past, and we've taken our eye 0:08:46.280 --> 0:08:48.800 off that ball. Frankly interesting, gentlemen, Thank you very much. 0:08:48.880 --> 0:08:52.040 Dr Jonathan Gruber, Professor of Economics and m I T 0:08:52.160 --> 0:08:55.880 and Simon Johnson, Professor Entrepreneurship at m i T discussing 0:08:56.000 --> 0:08:58.920 their new book, jump Starting America, How Breakthrough Science can 0:08:58.960 --> 0:09:02.480 revive economic oath and the American Dream. That book is 0:09:02.520 --> 0:09:16.440 available now. Thank you very much, gentlemen. I am Paul 0:09:16.440 --> 0:09:18.560 Swingey and we have Vince Cignerella sitting in for Lisa 0:09:18.640 --> 0:09:21.320 brahma Witz this morning. I guess taking a look at 0:09:21.320 --> 0:09:24.240 the f O m C mean minutes from yesterday just 0:09:24.280 --> 0:09:26.400 kind of confirms what I think the market was already discounting, 0:09:26.440 --> 0:09:29.680 which is the Fed remains committed to being on the sideline, 0:09:29.679 --> 0:09:31.640 at least for the near term. To see what that 0:09:31.679 --> 0:09:34.600 means for the credit markets. We welcome our next guest, 0:09:34.800 --> 0:09:37.439 r J. Gallas, and your portfolio manager, head of the 0:09:37.520 --> 0:09:40.600 Municipal Bond Investment Group ahead of the Duration Committee for 0:09:40.640 --> 0:09:44.000 Federated Investors. He joined us on the phone from Pittsburgh. 0:09:44.280 --> 0:09:47.200 R J. Welcome to the show. What did you take 0:09:47.240 --> 0:09:49.760 away from the f O m C notes and kind 0:09:49.760 --> 0:09:52.679 of the recent dubbish uh commentary from the Fed, how 0:09:52.679 --> 0:09:56.440 are you positioning your funds? Well, good morning, thanks for 0:09:56.520 --> 0:10:00.560 having me. I thought on that that the minutes weren't 0:10:00.600 --> 0:10:03.800 really necessarily market moving, but that doesn't mean there wasn't 0:10:03.920 --> 0:10:07.440 there wasn't some revelation in there that that I think 0:10:07.480 --> 0:10:11.640 is material first and foremost. Uh. It basically suggested to 0:10:11.679 --> 0:10:15.160 me the tone of the minutes themselves affirms the FED 0:10:15.240 --> 0:10:18.760 that is at neutral, that that one remaining dot that 0:10:18.840 --> 0:10:21.199 ticks up next year on the dot plot. If you 0:10:21.240 --> 0:10:24.640 look at the medians, um, don't have don't they don't 0:10:24.640 --> 0:10:27.679 put too much confidence in that dot. They sound like 0:10:27.800 --> 0:10:30.760 they're equally likely that the next move is an ease 0:10:30.800 --> 0:10:33.319 as it is a hike. And it's certainly affirmed the 0:10:33.360 --> 0:10:37.040 view that this year is not likely to see any 0:10:37.080 --> 0:10:40.160 move of FED target rates, at least not in twenty nine. Team, 0:10:40.160 --> 0:10:43.120 We'll see what happens next year. J question for you 0:10:43.160 --> 0:10:45.040 because this is kind of baffles me. Just a little 0:10:45.040 --> 0:10:47.320 bit ahead of the Duration committee. This is something I 0:10:47.360 --> 0:10:50.640 assume you're keen on the balance sheet. We went from 0:10:50.760 --> 0:10:53.120 prior to the financial crisis, a balance sheet of under 0:10:53.120 --> 0:10:55.800 a trithlen and now essentially the Fed is saying we 0:10:55.840 --> 0:10:57.880 need to keep it at three and a half TRISN 0:10:58.160 --> 0:11:00.920 does does that create any anxiety and us to why 0:11:00.920 --> 0:11:05.880 they need to leave that much stimulus in the system. Well, 0:11:06.400 --> 0:11:08.120 just for background, I used to work on the Fed's 0:11:08.160 --> 0:11:10.679 open market desk. I was a trader at the New 0:11:10.720 --> 0:11:12.560 York FED back in the nineties. At the time, the 0:11:12.600 --> 0:11:16.679 system open market account was seven hundred or eight hundred billion, 0:11:16.720 --> 0:11:19.679 you know, a fraction of its size today. And I 0:11:19.679 --> 0:11:23.480 think over the decades that have that have followed, the 0:11:23.600 --> 0:11:27.160 implementation of monetary policy changed drastically with all the various 0:11:27.160 --> 0:11:30.000 iterations of q E and then the development of various 0:11:30.000 --> 0:11:33.520 programs to manage short rates, you know, target rates, if 0:11:33.520 --> 0:11:36.560 you will, within the context of a massive amount of 0:11:36.559 --> 0:11:39.400 reserves in the banking system. And I think number one, 0:11:39.400 --> 0:11:43.679 they've shown that that their current framework works, that they 0:11:43.720 --> 0:11:46.680 can target short term rates even with massive amounts of 0:11:46.679 --> 0:11:50.760 excess reserves. Paying interest on reserves is another meaningful change 0:11:51.000 --> 0:11:53.560 that has occurred. Cored about ten or eleven years ago, 0:11:53.600 --> 0:11:55.840 if I recall correctly, So I don't think they're fed. 0:11:56.520 --> 0:12:00.240 UM needs to have UH needs to regress, if you will, 0:12:00.240 --> 0:12:03.240 back to the balance sheet that existed ten twenty years ago. 0:12:03.880 --> 0:12:06.880 UM the framework. It works, and I think they've proven that. 0:12:07.440 --> 0:12:09.960 And since it does, that means they have much more 0:12:10.000 --> 0:12:15.120 flexibility to leave the balance sheet larger if, in fact, 0:12:15.440 --> 0:12:19.559 the markets broadly defined suggests they should. Well, one thing 0:12:19.679 --> 0:12:22.520 that suggests they should leave it larger is the fact 0:12:22.559 --> 0:12:25.199 that the inter bank market for reserves is functioning fine. 0:12:25.760 --> 0:12:28.240 That the demand for cash if you chart on Bloomberg, 0:12:28.360 --> 0:12:31.600 the currency in circulation on the FED balance sheet, because 0:12:31.600 --> 0:12:34.400 that's a big liability, right, has surged in the last 0:12:34.440 --> 0:12:37.440 ten years. Um, So there's there's plenty of reason to 0:12:37.440 --> 0:12:41.080 have a larger balance sheet even without the reserve markets. 0:12:40.960 --> 0:12:44.240 That the demand for currency extremely large and it's grown rapidly. 0:12:44.880 --> 0:12:48.520 So that's one market that's telling you a big balance sheets. Okay, 0:12:48.520 --> 0:12:51.280 I think another set of markets are also telling you that. 0:12:51.600 --> 0:12:56.079 Number One. UH, the confluence of tightening in December and 0:12:56.120 --> 0:13:00.319 the perception of autopilot, which was fueled by the FED 0:13:00.400 --> 0:13:04.840 don't communications uh with respect to the balance sheet painted 0:13:05.000 --> 0:13:09.439 a worrisome picture that rates were still going up, quantitative 0:13:09.440 --> 0:13:12.720 tightening was was was going to persist, and the FED 0:13:13.080 --> 0:13:17.439 ran the risk of of overtightening generally speaking, and that 0:13:17.520 --> 0:13:19.320 had a lot to do with the fourth quarter tumult, 0:13:20.360 --> 0:13:23.480 the FED reacted to financial conditions which became very adversarial. 0:13:23.800 --> 0:13:25.880 They called off the dogs on tightening, and they said, hey, 0:13:25.920 --> 0:13:29.520 the balance sheet can remain large because the markets are 0:13:29.520 --> 0:13:32.120 telling us that's what they sort of need. And if 0:13:32.280 --> 0:13:35.040 the FED is sticking by what share Powell said in 0:13:35.080 --> 0:13:38.360 his January press conference that his primary goal is to 0:13:38.440 --> 0:13:43.040 extend the economic expansion. If that's your primary goal, then 0:13:43.640 --> 0:13:48.199 the balance sheet is a secondary goal, and one primes 0:13:48.280 --> 0:13:50.480 the other. And I think that as a result, they 0:13:50.480 --> 0:13:52.160 can have a big balance sheet and they're okay with it. 0:13:52.160 --> 0:13:55.320 It doesn't really necessarily worry me per se. What worries 0:13:55.360 --> 0:13:57.880 me is when people are talking about, you know, modern 0:13:57.920 --> 0:14:01.400 monetary theory, this idea of there's a free lunch, that 0:14:01.559 --> 0:14:04.560 the era of the currencies has told us that you 0:14:04.600 --> 0:14:08.160 can print your own money to as far as the 0:14:08.200 --> 0:14:11.240 eye can see to fund all kinds of fiscal expansion. 0:14:11.600 --> 0:14:14.520 I think that worries me. That's reckless. And I wonder 0:14:14.600 --> 0:14:18.480 if a large balance sheet is misperceived or misunderstood by 0:14:18.480 --> 0:14:21.480 those proponents of such theories to say, yeah, there's a 0:14:21.520 --> 0:14:25.160 free lunch, that that's worrisome. The politics of this get worrisome. 0:14:25.400 --> 0:14:27.560 So are j just you know, the next three thirty seconds, 0:14:27.840 --> 0:14:29.280 you know, just give us your sense a kind of 0:14:29.320 --> 0:14:32.320 economic growth. Obviously, the first quarter GDP a big slow 0:14:32.360 --> 0:14:34.080 down from the fourth quarter. Are you one of Are 0:14:34.080 --> 0:14:37.520 you in that campus says we will see accelerating growth 0:14:37.640 --> 0:14:41.520 in the remainder of nineteen in the US? Yes, yeah, 0:14:41.520 --> 0:14:44.560 we are. We are clearly the first quarters slower, uh, 0:14:44.720 --> 0:14:47.400 you know, maybe a high one handle, maybe two uh, 0:14:47.480 --> 0:14:49.200 you know, slower than where we've been, but but not 0:14:49.400 --> 0:14:53.120 terribly so. And we do think that's quite possible that 0:14:53.560 --> 0:14:56.880 chare Powell and his colleagues on the FOMC uh, there's 0:14:56.880 --> 0:15:00.200 a reasonable probability they can achieve the soft landing. Word 0:15:00.200 --> 0:15:02.840 of how Chairman Greenspan did back in the nineties, where 0:15:02.880 --> 0:15:05.880 you had an extensive monetary tightening in ninety four. It 0:15:05.960 --> 0:15:08.440 was very difficult at the time for financial markets, but 0:15:08.600 --> 0:15:12.280 on net a recession did not result. The Fed stopped 0:15:12.280 --> 0:15:16.000 tightening and achieved a soft landing, higher monetary policy rates, 0:15:16.000 --> 0:15:19.880 some tightening without the subsequent recession. That's their stated goal. 0:15:20.320 --> 0:15:23.200 I think the markets are suggesting they have a reasonable 0:15:23.200 --> 0:15:25.560 probability of achieving that goal. Of course, they're not the 0:15:25.600 --> 0:15:28.600 only variable. What happens in China, it happens in Europe 0:15:28.600 --> 0:15:31.760 trade policy and all the attenument risks around that are 0:15:31.800 --> 0:15:34.080 things to consider as well. R J. Gallow will have 0:15:34.120 --> 0:15:36.800 you back again. Lots to talk about across the FED. 0:15:37.200 --> 0:15:40.080 R J. Gallo, senior portfolio Managic had the MISS Bond 0:15:40.120 --> 0:15:44.040 Investment Group and head of the Duration Committee for Federated Investors. 0:15:44.080 --> 0:16:05.320 He joined us on the phone from Pittsburgh, Pennsylvania. Well, 0:16:05.320 --> 0:16:08.880 Theresa May accepted the European Union's offer to extend Brexit 0:16:08.960 --> 0:16:11.560 to October thirty one and must now sell it to 0:16:11.720 --> 0:16:15.480 skeptical members of Parliament and a Conservative party losing patients 0:16:15.800 --> 0:16:18.920 in her leadership. To get the latest, we welcome Leonel Laurent, 0:16:19.280 --> 0:16:22.960 columnists covering financial markets for Bloomberg Opinion. He calling us 0:16:23.040 --> 0:16:26.680 from London. Leonel, thank you so much for joining us. 0:16:27.200 --> 0:16:31.760 What does this extension mean for Theresa May and her government? 0:16:33.320 --> 0:16:38.040 So essentially, what this extension does is buy more time 0:16:38.560 --> 0:16:41.200 and we have to again stress that this is the 0:16:41.440 --> 0:16:46.000 second extension granted by EU leaders to the UK. So 0:16:46.080 --> 0:16:48.640 there is a sense not just of deja but is 0:16:48.760 --> 0:16:54.840 now an eternal, never ending political impast setting in but 0:16:55.360 --> 0:16:57.440 as you say, the ball is now in the UK's 0:16:57.520 --> 0:17:00.480 court and Theresa May is simply you're going to have 0:17:00.520 --> 0:17:03.600 to try all of her options again, which a bit 0:17:03.600 --> 0:17:06.520 more time, which includes trying to pass the deal that 0:17:06.600 --> 0:17:09.600 has been rejected three times by her own parliament, perhaps 0:17:09.600 --> 0:17:13.160 it may get through a fourth time, or working more 0:17:13.200 --> 0:17:17.080 with Jeremy Corbyn, the real enemy of the Conservatives, to 0:17:17.320 --> 0:17:20.760 get a potentially different deal that would get a different 0:17:21.160 --> 0:17:23.919 but positive support in Parliament. So there are options, but 0:17:23.960 --> 0:17:27.000 crucially there is more time to achieve those options. But 0:17:27.080 --> 0:17:29.879 even with more options, for history tells us, or at 0:17:29.920 --> 0:17:31.119 least what we've seen in the last two and a 0:17:31.119 --> 0:17:34.240 half years, that the chances of getting this done by 0:17:34.280 --> 0:17:37.639 the thirty one slim to none. What what is concerning 0:17:37.640 --> 0:17:39.280 me as a as a former trader and the guys 0:17:39.320 --> 0:17:41.640 I'm talking to on the street, is I'm hearing that 0:17:41.680 --> 0:17:46.120 this makes the no deal risk gone, that there's a 0:17:46.160 --> 0:17:49.600 sense of complacency that's come over of the currency markets, 0:17:49.680 --> 0:17:52.000 and that we can now step in and by Stirling 0:17:52.840 --> 0:17:56.200 without the worries that preceded it of a deal ending 0:17:56.320 --> 0:18:00.480 by Friday. How does that feel to you? That that 0:18:00.560 --> 0:18:03.160 does not feel too good to me? It doesn't feel 0:18:03.160 --> 0:18:05.600 good to me either. That's why I think I think 0:18:05.600 --> 0:18:07.560 he would be right to be cautious. And the reason 0:18:07.600 --> 0:18:11.800 why it's simply because the next date to bear in 0:18:11.880 --> 0:18:16.320 mind is October thirty one, right Halloween. And essentially what 0:18:16.400 --> 0:18:19.240 you have to bear in mind is if if you 0:18:19.280 --> 0:18:22.520 see this as you know, obviously it's a cliche to 0:18:22.560 --> 0:18:25.000 talk about a game of a game of chicken, but 0:18:25.080 --> 0:18:27.440 the point is, if we get to October thirty one 0:18:27.600 --> 0:18:30.680 and there is no progress, we have to ask ourselves 0:18:31.160 --> 0:18:34.520 whether the EU, which by this point will have already 0:18:34.680 --> 0:18:38.320 had European parliamentary elections which the UK will have had 0:18:38.320 --> 0:18:40.480 to take part in, will now have to decide whether 0:18:40.520 --> 0:18:43.919 it wants the Commission, the Executive arm which is going 0:18:43.960 --> 0:18:48.879 to have a sort of long term and and a 0:18:48.960 --> 0:18:53.600 new a whole new you know, a Risman, take a 0:18:53.600 --> 0:18:57.359 whole new team of people, whether and and they they 0:18:57.400 --> 0:18:59.480 sit on November one, and he's going to have to 0:18:59.480 --> 0:19:03.160 decide whether it really wants Brexit to in effect European 0:19:03.160 --> 0:19:05.560 decision making. And my concern is that the more time 0:19:05.560 --> 0:19:08.440 goes on, the more preparations for an odeal Brexit will 0:19:08.480 --> 0:19:12.960 be finalized. And you know, sadly the accident theory is possible, 0:19:13.480 --> 0:19:17.760 or even the political will to leave with an nodeal 0:19:17.800 --> 0:19:20.320 on either side will be there too. So I'm not 0:19:20.800 --> 0:19:23.720 convinced that the nodial risk has gone well. We can 0:19:23.760 --> 0:19:25.919 sense even over here in the US the sense of 0:19:25.960 --> 0:19:30.080 frustration and resignation on the part of you know, obviously 0:19:30.160 --> 0:19:33.520 the members of Parliament, but also the British people. Isn't 0:19:33.560 --> 0:19:36.920 it to the point now or that you know, it's 0:19:37.000 --> 0:19:40.120 clear that the existing plan isn't going to work, can't work, 0:19:40.200 --> 0:19:42.520 doesn't have any support, that it's probably worth coming back 0:19:42.520 --> 0:19:46.600 and trying something new, whether that's a second referendum or 0:19:46.760 --> 0:19:50.080 something else. Aren't we at that point? We are at 0:19:50.080 --> 0:19:52.199 that point? We you could say we were at that 0:19:52.240 --> 0:19:54.119 point a couple of months ago, you could say we 0:19:54.119 --> 0:19:57.480 were at that point, um, maybe even at the end 0:19:57.520 --> 0:20:01.320 of last year. That the problem is that at politics 0:20:02.280 --> 0:20:04.840 is about other things, and there is a lot of 0:20:05.040 --> 0:20:08.879 layers of self interest here, um And I think that 0:20:09.160 --> 0:20:13.159 the concern is that there is just maybe not not 0:20:13.160 --> 0:20:16.320 not as many incentives to do the right thing by 0:20:16.600 --> 0:20:22.160 the voters. Then then we might prefer so the self 0:20:22.200 --> 0:20:26.359 interest is perhaps elected representatives, is that maybe keep their jobs. 0:20:26.400 --> 0:20:29.400 Maybe they think that they will lose it if they 0:20:29.560 --> 0:20:32.840 advocate for a second referendum or some kind of new 0:20:33.000 --> 0:20:35.800 radical change. And I think on both sides what we 0:20:35.840 --> 0:20:41.240 are seeing is political reluctance to take responsibility for Brexit. 0:20:41.840 --> 0:20:43.960 I appreciate up until now it really has been the 0:20:44.080 --> 0:20:47.280 UK that should have taken responsibility. It hasn't. And I 0:20:47.280 --> 0:20:50.080 think we're also seeing that you reluctant to do the 0:20:50.080 --> 0:20:52.639 work for it and take responsibility for the harm of 0:20:52.640 --> 0:20:54.480 a of a no deal brexit. So right now it 0:20:54.560 --> 0:20:58.760 is very much a political game rather than doing the 0:20:58.840 --> 0:21:05.479 right thing for the country. Any chance of She has 0:21:05.480 --> 0:21:07.240 said perhaps that she would like to have something done 0:21:07.280 --> 0:21:11.960 by is to not participate in the EU elections. Sure, 0:21:12.480 --> 0:21:16.080