Speaker 1: Hello, and welcome to another episode of the Odd Lots podcast.
Speaker 1: I'm Joe wi Isn't All and I'm Tracy Allaway. Tracy
Speaker 1: obviously on the podcast lately, I would say we've been
Speaker 1: talking about events in this crisis that are extremely fast moving,
Speaker 1: and we've kind of been joking around that perhaps in
Speaker 1: some cases by the time people actually listen to the episode,
Speaker 1: it'll become it'll be irrelevant or extremely out of date
Speaker 1: by by the time it actually gets out. Yeah, I'm
Speaker 1: not even sure it's a joke really, because there have
Speaker 1: been a few episodes that have been sort of superseded
Speaker 1: by events. It's been a struggle. So in light of that,
Speaker 1: I think today's episode might be a little bit risky,
Speaker 1: like even riskier than our normal one. Oh boy. Why. Well,
Speaker 1: the reason I say it is because we're going to try,
Speaker 1: and I don't know if we'll be successful, but we're
Speaker 1: going to try and look a little bit big picture
Speaker 1: and sort of bigger lessons, bigger themes that we can
Speaker 1: take away from all the events that we've seen over
Speaker 1: the last couple of months. And I think almost everyone
Speaker 1: who tries to project forward on what it all means
Speaker 1: will probably be looking a little bit foolish in some respect,
Speaker 1: but that's kind of what we're gonna attempt to do today.
Speaker 1: I mean, it's what everyone is interested in at the moment.
Speaker 1: But as you say, forecasting this is hard because, as
Speaker 1: we have discussed, a sort of ad nauseum at this point,
Speaker 1: everything has the potential to change with the current crisis,
Speaker 1: and we really are in uncharted territory in many ways.
Speaker 1: So yeah, sympathy for the forecasters at this point. It's
Speaker 1: it's a tough call of putting your neck out there
Speaker 1: for something completely unknown, right, So fortunately, I don't think
Speaker 1: we're going to make our guests today forecast the future,
Speaker 1: which is, as you say, extremely difficult even in normal times.
Speaker 1: But our guest today is someone who has a sort
Speaker 1: of very good ability to sum up the big themes
Speaker 1: of the moment and identify what, at essence, what what
Speaker 1: a crisis is really all about. Who are we speaking to?
Speaker 1: So today we're going to be speaking to Adam Two's uh.
Speaker 1: A lot of people will know him as the author
Speaker 1: of the book Crashed, which was the sort of magnificent
Speaker 1: overview of the last financial crisis, and he is also
Speaker 1: the Catherine and Shelby Colin Davis, Professor of History at
Speaker 1: Columbia University. And for those who don't know who didn't
Speaker 1: read it, Crashed was. You know, there were a lot
Speaker 1: of crisis books, but Crashed really sort of identified the
Speaker 1: tensions that emerge from the sort of global dollar system
Speaker 1: and how that really sort of played a huge part
Speaker 1: in the coming undone of the economy just over a
Speaker 1: decade ago. And we'll talk to Adam about what he
Speaker 1: sees as potentially this is the equivalent stresses that he's
Speaker 1: seeing in the system today. So Adam, thank you very
Speaker 1: much for joining us. God, it's a pleasure to be here.
Speaker 1: Thanks for having me on your your book, Crashed was.
Speaker 1: I think it came out in a summer of eighteen.
Speaker 1: Actually did read the whole thing during a week vacation
Speaker 1: that I had on the beach. I was a big
Speaker 1: fan of it. But for those who don't know, I
Speaker 1: I sort of gave a half a sentence summary. But
Speaker 1: it came out on so basically eight years after the crisis.
Speaker 1: What was it about that crisis that took so long
Speaker 1: for you to sort of really tied together the big
Speaker 1: themes and to sort of put it all together in
Speaker 1: such a such a big work. Well, I think, I mean,
Speaker 1: I'm I'm somewhat accidental tourists, if you like, in century
Speaker 1: financial history, and I now found myself in the room
Speaker 1: and stuck on this particular island. But I came to
Speaker 1: it some bliquely, I have to say, I mean, I
Speaker 1: came to the topic through the history of the Eurozone crisis,
Speaker 1: which concerned me deeply as as somebody who's deeply passionately
Speaker 1: identified with the EU as a result of my upbring
Speaker 1: and then thinking hard about what sort of a crisis
Speaker 1: that was following the track back to the story really
Speaker 1: about the bank based crisis as opposed to the sovereign
Speaker 1: debt crisis as being a kernel really of the disruption. Um,
Speaker 1: setting aside the immediate Greek issue, thinking about the instability
Speaker 1: of the European banking system that echoes through from two
Speaker 1: thousand and eight, and then basically stumbling across the b
Speaker 1: I S papers um, you know, the work of Shin
Speaker 1: and Boreo and others that matt this vary in some
Speaker 1: sense sort of counterintuitive story of the world before two
Speaker 1: thousand and eight, not as a world of you know,
Speaker 1: driven essentially by current encountering the current accounting balances, trade deficits,
Speaker 1: and surfaces, but thinking through the flows of money through
Speaker 1: the the global dollar system and understanding that as one
Speaker 1: of the ways in which the supposedly American subcrime crisis
Speaker 1: of two thousand and eight in fact entangled all of
Speaker 1: the European banks. And it was really that that set
Speaker 1: me going, and I did then have I've always heard
Speaker 1: I've had a longstanding preoccupation with the question of American
Speaker 1: and Germany American power, which goes all the way back
Speaker 1: to the beginning unit to World War One, and recognizing
Speaker 1: all of a sudden that looking at this twenty first
Speaker 1: century crisis two thousand and eight, I was actually looking
Speaker 1: at because it were the latest chapter, then the latest
Speaker 1: chapter of the fed's role as the pivot, the anchor
Speaker 1: of the global dollar system, which is a story that
Speaker 1: goes back to the very origins of the FED just
Speaker 1: before World War One and then critically from nine onwards.
Speaker 1: So that's how I ended up engaging with it, and
Speaker 1: then the public keep publishing opportunity of the anniversary, the
Speaker 1: tenure anniversary came along, and that's how the sort of
Speaker 1: the book came to be released. When it was there
Speaker 1: is I think if you go back to and subsequent
Speaker 1: like a strand of analysis, and you think of the
Speaker 1: likes Assault and Post are perimodil, and all of the
Speaker 1: people you've had on your show who have been had
Speaker 1: been in real time teasing away at the problem from
Speaker 1: that side. And really what Crash tried to do was
Speaker 1: to connect that rather technical literature on the dollar system,
Speaker 1: on the financing, the market based financing of the global
Speaker 1: banking system, connect that to a grand narrative which had
Speaker 1: previously really revolved around current account deficits, the standard story
Speaker 1: of you know, the nightmare of the Chinese treasury sell off,
Speaker 1: that entire fantasy with support is not what actually happened.
Speaker 1: So that was really the wager of that book was
Speaker 1: that you could take this technical analysis which in some
Speaker 1: you know, some people will refer to as the plumbing
Speaker 1: of the system, and connected to broader issues of political economy,
Speaker 1: which is now of course very much the dumb thing.
Speaker 1: This is really the analysis where where you guys obviously pioneers,
Speaker 1: but you could also think of Alphabill Perry to Assault
Speaker 1: and Post, Daniel Legarbor. There's an entire genre of macro
Speaker 1: finance really now as critical political economy of which crashed.
Speaker 1: I would I would take, just to be one example.
Speaker 1: I was about to ask, just on that note, how
Speaker 1: much of that sort of dollar dominance of the financial
Speaker 1: system slash US hegemony would you say exists today, because
Speaker 1: people we certainly talk to you you seem to suggest that,
Speaker 1: if anything, it's become more entrenched than it was pretty
Speaker 1: two thousands. Yeah, I mean, I think pross Had's idea
Speaker 1: of the dollar trap is a is a quite compelling idea, right, because,
Speaker 1: after all, the the reliance on global commerce, on global finance,
Speaker 1: on the dollar is is not is not simply reducible
Speaker 1: to politics or geopolitics, right, and so therefore is not
Speaker 1: vulnerable to the shenanigans in Washington, or the character of
Speaker 1: Donald Trump, or any of these other sorts of things.
Speaker 1: I mean, it's an incredibly powerful entrenched system which originated
Speaker 1: in power political shifts in the early twentieth century and
Speaker 1: the rise of the United States economy and their eyes
Speaker 1: of Wall Street and Wall Street based banks, and now
Speaker 1: of course it's sustained my massive network effects. So you know,
Speaker 1: if you have major commodities being traded in this way,
Speaker 1: if you have major sources of trade finance being organized
Speaker 1: around the dollar. If you have the depth and sophistication
Speaker 1: of America's financial institutions, then all sorts of actors around
Speaker 1: the world will begin to coordinate, will begin to use
Speaker 1: the dollar as their basic vehicle. And you're absolutely right.
Speaker 1: I mean the drift of the emerging market world, I mean,
Speaker 1: which is a sort of you know, a monika, which
Speaker 1: is becoming less and less helpful because if you never remember,
Speaker 1: it used to include countries like South Korea, highly sophisticated
Speaker 1: twenty one century players in a multipolar globalization. Those countries
Speaker 1: are also piggybacking on the dollar. We know that private
Speaker 1: borrowers and China even heavily rely on the dollar for funding,
Speaker 1: so so that indeed does tend to create a sort
Speaker 1: of a bandwagon, a snowballing dependence on the dollar, which
Speaker 1: is very pervasive. So I remember when I read Crashed,
Speaker 1: and you focused a lot of attention on the necessity
Speaker 1: of these UH dollar swap lines or swap lines that
Speaker 1: the Federal Reserve set up with central banks around the
Speaker 1: world so that domestic borrowers and other countries could get
Speaker 1: access to dollar liquidity. Since there was the central problem,
Speaker 1: and I remember thinking at the time, man, if they
Speaker 1: ever had to do this again, this would probably be
Speaker 1: very politically controversial. Maybe people weren't as aware at the
Speaker 1: time of that, But now here we are and they've
Speaker 1: done it again, and yet there's about a million other
Speaker 1: things that people are focused on, so it actually has
Speaker 1: not gotten that much attention. In a sense. The issue
Speaker 1: that you identified is as central then is just like
Speaker 1: it almost feels like a minor chapter in a sense
Speaker 1: of the given the enormity of this crisis. Well, I mean,
Speaker 1: I think from the point of view if the recipients
Speaker 1: of the swap lines in the current moment, it's been
Speaker 1: pretty important and um in oh a, it was critical
Speaker 1: because the people on the other end of the swap
Speaker 1: lines were essentially the big financial centers in in Europe, right,
Speaker 1: So if you look at the flow of funds through
Speaker 1: the swap line system in twenty it's completely different from
Speaker 1: the flow of funds through the swap line system in
Speaker 1: I mean, the biggest recipients, you know, eight were basically
Speaker 1: the CP and that was because we had these gigantic,
Speaker 1: monolithic European banks which were engaged in deeply entangled in
Speaker 1: the American mortgage boom and the financial engineering of the
Speaker 1: early two thousands and were in serious and the serious
Speaker 1: funding stress, and the FED was doing its best to
Speaker 1: support them in Wall Street. And when they ran out
Speaker 1: of good dollar collateral, that needed roundabout mechanisms for supporting them.
Speaker 1: And that's why at that moment the swap lines were
Speaker 1: absolutely critical. They already then rolled them out to a
Speaker 1: select group of emerging markets. But if you look at
Speaker 1: the flow of funds through the system, it's overwhelmingly to
Speaker 1: the e CP this time around. You know, a lot
Speaker 1: of folks are monomiting, monitoring this in very closely in
Speaker 1: real time, and it's pretty obvious. I think that this
Speaker 1: time around the main flow of funds in absolute size
Speaker 1: and also proportionally it is to a bubble bank of Japan,
Speaker 1: another borrowers in Asia, where we think various types of
Speaker 1: currency mismatch exists, or shall we say, on the balance sheets,
Speaker 1: if not even necessarily banks, but some non bank actors
Speaker 1: in in Asia. So in a sense I agree that
Speaker 1: the swap lines are as it were less quantitatively significant
Speaker 1: than they were. But then this is also a very
Speaker 1: different type of financial crisis. Um. The one thing that
Speaker 1: is very telling is that They were rolled out almost
Speaker 1: immediately as part of the first big spontaneous action by
Speaker 1: the well, the first big action by the FED on
Speaker 1: the weekend of March fift so swap lines were immediately
Speaker 1: part of the package. The Fed wanted to eliminate the
Speaker 1: possibility really of distressed selling I think, or stressed selling
Speaker 1: of treasuries, which they saw some of I think um
Speaker 1: in the second and third week of of March, and
Speaker 1: that of course would have been profoundly destabilizing. So that's
Speaker 1: what they wanted to eliminate. Then here is a very
Speaker 1: good news from the Treasury's point of view. This is
Speaker 1: a bit of the system which seems to be working
Speaker 1: quite well. And then I think it's also quite telling
Speaker 1: that they created this new innovative mechanism through which, at
Speaker 1: least notionally, are the central banks are going to be
Speaker 1: able to repot treasury is. Again I think basically devised
Speaker 1: as a mechanism, it was something that Brad Sets at
Speaker 1: the CFR was arguing for as a way of allowing
Speaker 1: central banks in the emerging market world to gain dollar
Speaker 1: liquidity without actually having to sell off any parts of
Speaker 1: their treasury portfolios. I've been trying to sort of get
Speaker 1: this idea straight in my head. But two thousand eight
Speaker 1: feels to me like a very very financial crisis, like
Speaker 1: all the problems were sort of isolated in the financial
Speaker 1: system and then that's spilled over into the economy, Whereas
Speaker 1: what we're experiencing now is arguably a very very big
Speaker 1: economic crisis and it doesn't feel like the problems are
Speaker 1: as serious in the financial system. Is that the right
Speaker 1: way of looking at it, or what would you say
Speaker 1: is actually different about now versus two thousand eight. I
Speaker 1: think that question is going to preoccupy all of us
Speaker 1: till Kingdom come. I mean, historians will be trying to
Speaker 1: pinpoint quite apart from the absurd ninety degree pivots in
Speaker 1: several of our major indicators. You know, the contrasting headlines
Speaker 1: of the Financial Times. I think this morning with the
Speaker 1: oil gag in the negative and unemployment number in New
Speaker 1: York Times cover Yes, clearly this is a very different event.
Speaker 1: I think two and eight in retrospect, looks like an
Speaker 1: absolutely massive transnational version of a of a classic boom
Speaker 1: bust cycle, driven by the classic driver, which is the
Speaker 1: harnessing together of real and financial in the real estate
Speaker 1: construction mortgage finance sector, and then various other things spinning
Speaker 1: off from that. But that's kind of what that christ is. Increasingly,
Speaker 1: I think it looks like very very enormous so quantity
Speaker 1: into quality. At some point when a when a classic
Speaker 1: crisis gets that big, it changes nature because all of
Speaker 1: a sudden, you know, the American mortgage finance system enrolled
Speaker 1: basically all of European high finance too, never had to
Speaker 1: manage a crisis quite like that before. But I agree
Speaker 1: that has a kind of classic feel, and it's a
Speaker 1: classic cycle also in that that it's it's tail wagging dog.
Speaker 1: In other words, you have some small, dynamic over leverage
Speaker 1: cyclically sensitive sector which then causes a ripple effect systemic
Speaker 1: shock to the rest of the economy. The truly unusual
Speaker 1: thing about this crisis is that we were just full
Speaker 1: body checked, if you like, the largest slice of the
Speaker 1: modern economy, which is the service sector and household consumption.
Speaker 1: We're just stop dead or not, if not stop dead,
Speaker 1: then subject to an absolutely massive shop So there isn't
Speaker 1: the tail wagging the dog quality. In fact, it feels
Speaker 1: a little bit more as though anticipating that because it
Speaker 1: hadn't the shock hadn't even really quite arrived yet, let
Speaker 1: alone the virus itself. In March. Financial markets then really
Speaker 1: began to panic. And that is in a sense where
Speaker 1: we suddenly get the very close analogies between or at
Speaker 1: least some similarities between March and two thousand and seven eight.
Speaker 1: It's in that moment, in a sense, when the financial
Speaker 1: markets realize, oh my god, something utterly unprecedented is coming
Speaker 1: our way in let's call it the real economy, that
Speaker 1: you begin to get, as it were, anxiety around the
Speaker 1: whole range of products and the whole range of credit
Speaker 1: markets that the FED also found itself intervening in oh
Speaker 1: seven or eight, that I agree to a very different
Speaker 1: The causation is is radically different. And and we of
Speaker 1: course also don't know what our system looks like under
Speaker 1: the sorts of stresses that we might be headed into
Speaker 1: at the pace we're heading into them, and we don't
Speaker 1: I'm not sure that we really know what the world
Speaker 1: economy or the American national economy, how it functions, its
Speaker 1: subject to the kind of hits we're going to be
Speaker 1: absorbing over the next two or three months. So is
Speaker 1: the difference this time around, are one of the differences
Speaker 1: the speed of the regulatory response, maybe because the Federal
Speaker 1: Reserve sort of have the experience of two thousand eads
Speaker 1: and had tools ready to go in some sense, such
Speaker 1: as the dollar swaplines and a few other programs that
Speaker 1: were quickly revived. Yeah, I mean asset purchasing. You know,
Speaker 1: you've got people like low Logan and so on at
Speaker 1: the FED who just really know how to buy if
Speaker 1: they have to epic quantities of assets incredibly quickly. They
Speaker 1: know what the legal instruments have got to be, they
Speaker 1: know who their partners are in the market, and so
Speaker 1: they can just do this. Again, we have to recognize
Speaker 1: the novelty of what they're doing because it is asset purchasing,
Speaker 1: but it's asset purchasing or or eight. Yeah, and you
Speaker 1: know the numbers like a million dollars a second, ninety
Speaker 1: billion a day. That's the sort of rate and business
Speaker 1: that the FED was doing once a month under the Nankee,
Speaker 1: and they're doing it on a day by day basis,
Speaker 1: and they're doing it day after day after day. I mean,
Speaker 1: we're down to forty five billion a day now, but
Speaker 1: it's still absolutely astonishing in its scale. And for that,
Speaker 1: you need teams of people, you know, who know what
Speaker 1: they're doing and for whom it's not just a completely
Speaker 1: crazy request. Um, so yes, they had all of those
Speaker 1: instruments in place. I do think again, we're going to
Speaker 1: be historians and for a long time we're gonna be
Speaker 1: puzzling over, you know, the makeup of the FED, in fact,
Speaker 1: the ECB at this moment. I did a post last
Speaker 1: night just trying to pull together the input from all
Speaker 1: of the journalist teams around the world who've been doing
Speaker 1: these stories on who are these central bankers? Because we've
Speaker 1: been Nankee, we kind of had it, you know, we
Speaker 1: felt and at least as an academic, I felt I
Speaker 1: had some kind of red on the Nankee because he
Speaker 1: was after economic historian. We know that he was a
Speaker 1: student of you know, Freedman and Schwartz as that famous
Speaker 1: birthday address where you know, he speaks to Milton Friedman
Speaker 1: and Anna Schwartz and says, you know, you were right,
Speaker 1: We the FED were wrong in the nineteen thirties, and
Speaker 1: thanks to you, we won't do it again. So we
Speaker 1: kind of had a sense that this was a man
Speaker 1: who had met his moment in history and were acting
Speaker 1: that script with Powell, I think most people's read was
Speaker 1: that he was a bit of a blank somehow, and
Speaker 1: then now he's ended up as you know, he's going
Speaker 1: to go down in history as the most activist FED
Speaker 1: chairman we've ever seen. And furthermore, breaching all sorts of
Speaker 1: boundaries in terms of the sort of assets they're buying
Speaker 1: and in an incredibly close relationship. It's making me want
Speaker 1: to revisit, like what I think this conventional story is
Speaker 1: on the FED and the Treasury in oh nine, I'm
Speaker 1: not sure that it is as it was then as
Speaker 1: close as it appears to be between Treasury and FED
Speaker 1: with new can and and POAL because the that's one
Speaker 1: of the innovative things about what they're doing is how
Speaker 1: closely coupled is. So there's another dimension to this crisis
Speaker 1: that we haven't talked about. So obviously, of course there's
Speaker 1: the financial dimension. There's the extraordinary political ash, the virtual
Speaker 1: complete halt of much aspect of the services sector and
Speaker 1: household consumption, and then I'm wondering, and then of course
Speaker 1: there's this just enormous stress tests that we're seeing of
Speaker 1: state capacity all over the world, and the fundamental questions
Speaker 1: of can governments simply do what's necessary, not on the
Speaker 1: spending side, not on the regulatory side, but on the
Speaker 1: basic question of can they get their act together on testing?
Speaker 1: Can they implement a public health strategy that involves quarantines
Speaker 1: or lockdowns in the sustainable way while maintaining the underpinnings
Speaker 1: of a civil society. And I'm curious, you know, as
Speaker 1: your I assume in your mind um percolating your ideas
Speaker 1: for whatever the next crashed is going to be. Maybe
Speaker 1: it'll come out into hearty hopefully for readers it will
Speaker 1: be sooner. How much that is an important dimension to
Speaker 1: you of what the story will be. Yeah, I mean,
Speaker 1: this guy's back to this point. Jo, think we sort
Speaker 1: of slipped away that you had earlier on where you
Speaker 1: were saying. A lot of us when we were thinking
Speaker 1: about the swap lines, you know, going forward, we felt
Speaker 1: that there was a real problem here because the swap
Speaker 1: lines in O A O nine were kind of fed internationalism,
Speaker 1: if you like, and fed cosmopolitanism. The FED was providing
Speaker 1: liquidity to the entire world, and surely in an era
Speaker 1: of Donald Trump, this wouldn't be possible. There will be
Speaker 1: some difficulties with the Trump administration or someone in Congress,
Speaker 1: one of the you know, one of the hawkish or
Speaker 1: more slightly bad elements of the GOP would stick a
Speaker 1: spanner in the works and would trip up the world economy.
Speaker 1: And this wasn't just us. I mean, I've had conversations
Speaker 1: with extremely seniors people in the I m F who
Speaker 1: wanted to ask me that question specifically. And you know,
Speaker 1: I don't have any better read on Congress than later
Speaker 1: in fact, and clearly they're better informed, but that is
Speaker 1: what they wanted to talk about. So if that kind
Speaker 1: of fed lender of last resort thing was as crucial
Speaker 1: as it is, will we be able to do that again?
Speaker 1: And as you pointed out, the answer turns out to
Speaker 1: be that if you've got power the mutition and a
Speaker 1: Republican in the White House, which I think is probably
Speaker 1: the absolutely crucial thing here, there are a lot of
Speaker 1: people in the GOP and Congress who really want to
Speaker 1: make trouble. Though. I actually think in the Spring Week
Speaker 1: meetings last week it was probably a constraint on what
Speaker 1: Nucian thought he could do for the I m F.
Speaker 1: I mean, because everyone wanted you know, new sdr issuance.
Speaker 1: It didn't happen. I think it's a reasonable hypothesis that
Speaker 1: Nucien really thought it was a bad idea to stir
Speaker 1: up the sleeping dogs in Congress over that issue, because
Speaker 1: you know, said Cruis and people like that had had
Speaker 1: played up very badly under the Abama administration on precisely
Speaker 1: that issue. So that constraint didn't arrive or hasn't arrived,
Speaker 1: and instead something else did blind us cide us, which
Speaker 1: is just simply this issue of state malfunction. It wasn't
Speaker 1: It wasn't as it were, the manifest at times to
Speaker 1: most people, I think, sort of craziness of the GOP
Speaker 1: that turned out to be the issue. It was, in
Speaker 1: fact structural capacities, and to some extent also obviously the
Speaker 1: the negligence of the Trump administration which allowed this crisis
Speaker 1: in the United States to become a really profound shock.
Speaker 1: And of course you could say that's far from coincidental,
Speaker 1: because where would you expect that but the American health system,
Speaker 1: except of course, America's public health, It's pandemic preparedness is
Speaker 1: in fact, you know, world class. So there are other
Speaker 1: series of you know, there are a series of other
Speaker 1: links which snapped in a in an unpredictable way. It
Speaker 1: did turn out that, as it were, this linkage between
Speaker 1: global financial management governance on the one hand and domestic
Speaker 1: governance on the other was critical, but not critical in
Speaker 1: the way we expected. It wasn't the simple nationalist populism interrupts,
Speaker 1: you know, benign hegemonic functioning kind of model that was
Speaker 1: the problem. It was just simply that several both European
Speaker 1: and the European states and the US turn out just
Speaker 1: simply to have failed to have managed this problem competently.
Speaker 1: That then did landless in a position where all of
Speaker 1: the trade offs are terrible, your economic choices and your
Speaker 1: public health options are both bad, and that then caused
Speaker 1: a panic in the financial system, which the FED and
Speaker 1: the other central banks have had to react with absolute
Speaker 1: massive force too. But I think that for me is
Speaker 1: where you know, we kind of we do come back
Speaker 1: to that story. In other words, how does national state
Speaker 1: capacity linked or not link to global governance capacity. It
Speaker 1: just wasn't on the axis that we necessarily anticipated. M M. Yeah,
Speaker 1: it feels like there's a big divergence between I guess
Speaker 1: the authorities in the US who are managing the financial
Speaker 1: aspects um like the FED and the authorities who are
Speaker 1: managing the public health aspects at the moment. Yeah, no
Speaker 1: links at all. It seems to me it's really strange
Speaker 1: if you think about what was hooked up, right, So
Speaker 1: last year, trade policy and the FED were in a
Speaker 1: really bad clinch. Right, every time the Trump people and
Speaker 1: hawkish security people raised the temperature on China, it would
Speaker 1: send panic signals. And we did get after all, remarkable
Speaker 1: reversals in central bank policy last year, broadly motivated by
Speaker 1: the sense that globalization and the world economy were in trouble.
Speaker 1: Expectations were really uncertain, there was risk of deflation, new
Speaker 1: pleasure building up. There was massive radical uncertainty, and so
Speaker 1: with monetary policy needed to ease right. So there there was.
Speaker 1: It wasn't a functional relationship, but at least there was
Speaker 1: a connection. And the other area that folks like me
Speaker 1: were very interested in building out the relationships and the
Speaker 1: connections was climate policy. I mean, as people began to
Speaker 1: get serious about climate you have folks like Mark Karney
Speaker 1: speaking up and saying, well, could we have a climate
Speaker 1: Minsky moment? Right? Could we be facing a really serious
Speaker 1: disruption to the financial system from stranded assets? We need
Speaker 1: to be thinking about this hypothetical. But at least there
Speaker 1: you've seen a joined up connectionship between a kind of,
Speaker 1: as it were, the client that field of policy and
Speaker 1: financial regulation and monetary policy management. But exactly you're saying,
Speaker 1: I'm tracy. There was clearly there were people in the
Speaker 1: pandemic world and the national security world who knew the
Speaker 1: risks there. But it's not clear to me that it
Speaker 1: would be easy to point to anyone on the financial
Speaker 1: governance side who could really say they had thought through
Speaker 1: what the central banks would have to do in the
Speaker 1: event of a global shutdown as a result of our
Speaker 1: failure to contain a pandemic. I think that's just a
Speaker 1: connection which I don't think it ever been. Now there
Speaker 1: is a paper by Larry Summers, it should be said,
Speaker 1: on Pandemic flu from I think twenty six, but he
Speaker 1: doesn't look at financial stress. It's just a standard matter
Speaker 1: economic modeling exercise based off stars and saying like how
Speaker 1: big would the shop be? And it's very big, and
Speaker 1: that the losses all come from the containment policy. But
Speaker 1: I don't the paper doesn't look at the financial stability
Speaker 1: implications of that diagnosis. Adam, you wrote an essay a
Speaker 1: couple of weeks ago, I think for the London Review
Speaker 1: of Books, and you sort of talk about all the
Speaker 1: different structural flaws that this particular crisis has exposed, and
Speaker 1: I think three that you identified, at least on the
Speaker 1: political front or sort of domestic US politics, um, the
Speaker 1: sort of incompleteness of the European project and we see
Speaker 1: that with a lot of the tension building up about
Speaker 1: euro bonds and fiscal sharing and so forth. And then China,
Speaker 1: China's own over indebted domestic economy. No one is doing
Speaker 1: great when you look at the sort of regions and
Speaker 1: each one of them having to do, uh, you know,
Speaker 1: sort of make pretty huge steps in a short period
Speaker 1: of time to address this. Who do you think has
Speaker 1: sort of the best shot of emerging? I don't know
Speaker 1: if it's better from this, but at where there is
Speaker 1: the will or the capacity to meaningfully address some of
Speaker 1: the structural problem that they finished going into this, well,
Speaker 1: I mean it's I mean, I wrote that piece in
Speaker 1: a very gloomy mood. I mean, as you were saying
Speaker 1: earlier on and I'm completely agreed with you. I mean,
Speaker 1: I've done several podcasts recently where we've had to add
Speaker 1: a tender late at night the morning. I mean, I
Speaker 1: wrote that piece, you know, in full max gloom moment,
Speaker 1: I would say, and I know, broadly speaking, still think
Speaker 1: it stands up and clearly parts of you know, from
Speaker 1: the perspective of a kind of you know, left liberal,
Speaker 1: kind of Westerner. I mean, one of the things which
Speaker 1: I think is should make us feel gloomy is that
Speaker 1: it's difficult to avoid the conclusion that our governance regimes
Speaker 1: of which we're proud and failed this test. And you know,
Speaker 1: either short answer to your question, and I think it's tempting,
Speaker 1: and I think it's difficult to risk. Is it that
Speaker 1: it's triba that looks as though it's going to emerge
Speaker 1: from this strengthened in relative terms, because apart from anything
Speaker 1: else they're authoritarianism gives them an ability to sculpt the narrative,
Speaker 1: to put it euphemistically, very brutally if necessary, and as
Speaker 1: it were, maintained a degree of control over the storyline,
Speaker 1: which is not something that Europeans or the Americans are
Speaker 1: papable of or if you like, have a very convincing
Speaker 1: story to tell. I mean, you know, the Germans and
Speaker 1: the South Koreans come out of this looking not bad
Speaker 1: at all. That in Abrial the case, it's clearly dispiriting.
Speaker 1: And for all of the kudos I think the Germans
Speaker 1: will rightly earn for their domestic management of the public
Speaker 1: health problem, their contribution to the resolution of the constructive
Speaker 1: resolution of the Eurozone crisis is not is rather different,
Speaker 1: shall we say so? Yes, it's difficult, I think to
Speaker 1: avoid the conclusion that the China's coming out of this
Speaker 1: first it has at least contained the first wave. If
Speaker 1: you I was scanning the other day just the the
Speaker 1: inside story of the global auto industry, because you know,
Speaker 1: it's very fascinated by how the shutdown actually happened, and
Speaker 1: it's an extraordinarily interesting case study. And and again and
Speaker 1: again you read like v W currently only has plants
Speaker 1: operating and selling cars in China. So that shift in
Speaker 1: the balance of the global economy that has been looming
Speaker 1: on the horizon for over a decade, now you know,
Speaker 1: it's radically real. I believe the only Apple stores in
Speaker 1: the world that are opened up also those in China,
Speaker 1: though there maybe some others in Asia. Now like that
Speaker 1: that sense of a really quite fundamental shift in the balance,
Speaker 1: and a quite sudden shift in the balance. Is it's
Speaker 1: difficult to escape that. There will be, of course answers
Speaker 1: and responses that we can make, and I'm sure that
Speaker 1: you know, the story of china success will be chipped
Speaker 1: away out because it's clear that they have things that
Speaker 1: they are hiding and there are clearly costs to it.
Speaker 1: After all, this was an extraordinary mobilization of Maoist kind
Speaker 1: of discipline within the party and this extraordinary repressive system
Speaker 1: of lockdown that they operated for a few weeks there.
Speaker 1: But nevertheless, the outcome in terms of their ability to
Speaker 1: essentially contain it to one big province the size of
Speaker 1: Italy is remarkable. We are actually talking about some really
Speaker 1: big picture stuff. But how do those different political systems
Speaker 1: exist alongside each other going forward, especially given the sort
Speaker 1: of economic relationship that you described earlier with the dominance
Speaker 1: the dollar. How do you square those two things? Well,
Speaker 1: I mean, this is is how I would I would
Speaker 1: I completely agree and is it is sort of jaw dropping,
Speaker 1: isn't it. Um? You know, and last year we were
Speaker 1: getting quite panicky about the fact that we were realizing
Speaker 1: just how serious the gulf between China and the United
Speaker 1: states might become. You know, we were getting quite panicky
Speaker 1: about Huawei and Apple and decoupling and all of those
Speaker 1: kind of memes, and there was a lot of talk
Speaker 1: about whether markets had really priced all of that in.
Speaker 1: And that is to reiterate why the central banks, you know,
Speaker 1: it was extremely costly for them to perform the pivots
Speaker 1: that they did last year, both Pale and Druggi even
Speaker 1: more in Europe took huge flak, and all of it
Speaker 1: pales by compare with the reality that we confront today.
Speaker 1: I mean, it's just quite our concerns for radical you know,
Speaker 1: remember that meme of like everyone's smarting finances talking about
Speaker 1: radical uncertainty. Well, this is what we're experiencing right now.
Speaker 1: It's actual radical and you know, none of us can
Speaker 1: really in any reasonable and confident way predict what we're
Speaker 1: going to be doing this for um and that's level
Speaker 1: of existential uncertainty, which which is just novel in that form,
Speaker 1: and and it does expose really quite fundamental differences in
Speaker 1: our in our in our political systems and their ability
Speaker 1: to frame authoritatively frame, And I mean that in a
Speaker 1: general sense, not just in an authoritarian fashion, but just
Speaker 1: in a convincing way frame an outlook, and without that,
Speaker 1: how do you do long term investment? Um what is
Speaker 1: the horizon against which you invest now? And we could
Speaker 1: make some wild gambles as you were saying, that tech
Speaker 1: comes out of this looking pretty good, But beyond that,
Speaker 1: what is our sense of how these things fit together?
Speaker 1: Given how stock these differences are, it isn't a matter
Speaker 1: simply a political regime and constitution and the rule of law.
Speaker 1: It's also quite fundamental issues just simply about government's capacity.
Speaker 1: Whose quarantine system do you trust, who can do the
Speaker 1: tracking that you really need, whose tests are going to
Speaker 1: be tests that you think are actually reliable. Those kind
Speaker 1: of questions are going to become key to just basic
Speaker 1: questions of whether Americans can travel to Europe anymore, and
Speaker 1: vice versa. So I joked earlier about you know, your
Speaker 1: sequel to crash, which will probably come out into your
Speaker 1: which prized not a joke because I suspect you will
Speaker 1: write another book on this, But I am just curious
Speaker 1: started from a personal perspective after you've finished the last
Speaker 1: book in your mind, where you're like, okay, well that
Speaker 1: was sort of the one big financial crisis I would
Speaker 1: see in my career, and now I can go back
Speaker 1: to being a you know, a non well known academic, like,
Speaker 1: how surprised are you to see so many of these
Speaker 1: things erupt yet again in such a short period of time,
Speaker 1: based done where where you were headed. Well, I would
Speaker 1: go back to trace this point, you know, a while back,
Speaker 1: to say this isn't a financial crisis, like what it
Speaker 1: is is an absolutely epic, unprecedented economic crisis. And it
Speaker 1: is also and to pick up President Macross rather more
Speaker 1: kind of optimistic typically sort of broad gage reading. It's
Speaker 1: a sort of anthropological shock in the sense that I mean,
Speaker 1: I don't know whether you see this I low number,
Speaker 1: but the I l O estimates that two point seven
Speaker 1: billion of the global workforce at three point three billion
Speaker 1: people are currently under one or other form of lockdown
Speaker 1: or exiting a lockdown. That's one of the total global workforce. Well,
Speaker 1: they think one point three billion kids and young people
Speaker 1: have been furtherough from education, like now the entire planets
Speaker 1: doing it at once. I mean, it's a completely unprecedented events.
Speaker 1: On the one hand, it's totally shocking. On on the
Speaker 1: other hand, for those of us who are interested in
Speaker 1: late twentieth and early twenty one century history as being
Speaker 1: the history of a kind of global interconnection and global interaction,
Speaker 1: a sort of strange synchronization of our activities, of which
Speaker 1: the global dollar is one very powerful and important expression.
Speaker 1: But just one this is you know, this is this
Speaker 1: is the most mind blowing confirmation of that of that premise.
Speaker 1: Think back a hundred years to the worst pandemic of
Speaker 1: the Spanish flu. No one's talking about shutting India down.
Speaker 1: The British Imperial administration doesn't really get to grips with
Speaker 1: the problem at all. And now you could argue the
Speaker 1: toss about whether or not Moody's strategy was right, but nevertheless,
Speaker 1: the government in Delhi felt it completely incumbent to respond,
Speaker 1: as a powerful global state, as a member of the
Speaker 1: G twenty, to roll out a crisis response package, and
Speaker 1: to do it, you know, at warp speed in a
Speaker 1: society with the limited resources of of India. So that
Speaker 1: in and of itself is an absolutely sort of dramatic
Speaker 1: confirmation if you like, the fact that we're in the multipolarity,
Speaker 1: which was one of the big themes of crash. So
Speaker 1: I will absolutely, you know, hands up to saying I
Speaker 1: don't and I still don't think we're going to see
Speaker 1: a bank centered crisis like oh eight, that doesn't be
Speaker 1: our prospect at all. But I'm, on the other hand,
Speaker 1: not surprised that we're seeing this escalating series of prices,
Speaker 1: because I will, on the other hand, like most people
Speaker 1: also agree that you know that that I was. I
Speaker 1: was very much for the book I was writing at
Speaker 1: the beginning of this year was Political Economy and Climate Church,
Speaker 1: because I was I still am commitsd that you know
Speaker 1: is the biggest structural challenge facing us. But pandemics fit
Speaker 1: within that in the sense that they are, you know,
Speaker 1: as it were, this symptom of our unbalanced relationship with
Speaker 1: nature and the extraordinary risk that we run through the
Speaker 1: interconnections of the global system, and our struggle in a
Speaker 1: very uneven but interrelated way to grasp that. So at
Speaker 1: that level, it fits the molds neatly. It is, however,
Speaker 1: specifically not a shock that I had spent any time
Speaker 1: in Adam. It was so great to finally have you on.
Speaker 1: I feel like you're one of the guests that definitely
Speaker 1: a lot of people have wanted to hear, and in
Speaker 1: our minds is like we gotta have Adam on. We
Speaker 1: gotta have Adam on, and finally we had the right
Speaker 1: moment on it. So I really appreciate you joining us. Well,
Speaker 1: thank you for having me on. It's been good, great,
Speaker 1: so much. Thanks Adam. That's awesome. So Tracy, I do
Speaker 1: think it was a little bit risky too in the
Speaker 1: middle of this, like right at the peak, start talking
Speaker 1: big picture and long term. But I do think uh
Speaker 1: Adam is particularly skilled at tying really big themes together.
Speaker 1: I totally agree, but I have to ask, have we
Speaker 1: done our standard disclaimer about when we are actually recording
Speaker 1: this podcast? We have it so for those who are curious,
Speaker 1: so because the world could change by the time you
Speaker 1: hear it. It is Tuesday, April, and right now it's
Speaker 1: at New York Times, So you know, if the world
Speaker 1: changes by the time you're hearing this, or if this
Speaker 1: entire conversation sounds completely out of date. That's why I'm
Speaker 1: trying to think of those big picture topics that we
Speaker 1: just discussed, which one of them is most vulnerable to
Speaker 1: sort of changing or flipping in the near term. I mean,
Speaker 1: we're talking about international political economy type stuff. It's hard
Speaker 1: to see an entire political model really flipping in the
Speaker 1: next week. But in this environment you never know. The
Speaker 1: only one that could modestly change, to my mind, is
Speaker 1: probably Europe in the sense that in theory you could
Speaker 1: have you know, China isn't going to change its economic
Speaker 1: model overnight, the US is not going to change its
Speaker 1: political structure overnight. You could in theory, have you know
Speaker 1: the leaders of Austria and Germany in the Netherlands come
Speaker 1: out tomorrow and say, okay, we we we uh, we
Speaker 1: support some form of debt mutualization. It probably would not happen,
Speaker 1: and it seems very unlikely, but like in terms of well,
Speaker 1: like a few people could change their minds on something
Speaker 1: that she was plausibly it. But honestly, I mean, who knows,
Speaker 1: are you making a forecast too? No, not understand. I
Speaker 1: just think, like in theory, what what's the the thing
Speaker 1: actually that I think was really uh, sort of striking about.
Speaker 1: I mean, he made a lot of good points, but
Speaker 1: this sort of cliche of radical uncertainty and everyone talks
Speaker 1: about it and the good times and the normal times,
Speaker 1: how we don't know the future. But I do think,
Speaker 1: like I've been thinking about this a lot, like as
Speaker 1: he said, like We don't really know what life is
Speaker 1: going to be like in the US and the fall
Speaker 1: right now. We just don't. I mean, we might have
Speaker 1: some guesses of some different ways things could be structured,
Speaker 1: but no one can really get I can't remember ever
Speaker 1: a time, anytime recent lee in which not only was
Speaker 1: the future so uncertain, but the future was so uncertain
Speaker 1: about a few months from now. Yeah. Absolutely. It's also
Speaker 1: one thing that strikes me is all these uncertainties sort
Speaker 1: of you know, last year, when we had the trade
Speaker 1: war between the US and China, we were thinking about
Speaker 1: a lot of these uncertainties, like the clash of political
Speaker 1: systems and economic systems between the US and China, but
Speaker 1: we were thinking about it at a sort of low
Speaker 1: level of concern. And now with the coronavirus, basically everything
Speaker 1: that we worried about with the trade war has gone
Speaker 1: into complete overdrive. So the dominance of the US dollar
Speaker 1: in trade financing, uh, the clash of social and political
Speaker 1: systems between the US and China, like big picture stuff
Speaker 1: has just gone into really overdrive. Yeah, it's all at once.
Speaker 1: Is really is just everything happening at once? Is really
Speaker 1: how it feels. Is this sort of defined and characteristic
Speaker 1: of this crisis. Yeah. Yeah, it's a good way to
Speaker 1: put it, putting it everything crisis, all right. Uh well,
Speaker 1: on that note, this has been another episode of the
Speaker 1: All Thoughts podcast. I'm Tracy Alloway. You can follow me
Speaker 1: on Twitter at Tracy Alloway and I'm Joe wi Isn't all.
Speaker 1: You could follow me on Twitter at the Stalwart, and
Speaker 1: you should be sure to follow our guest on Twitter,
Speaker 1: Adam Two's. He's at Adam Two's. Be sure to follow
Speaker 1: our producer on Twitter, Laura Carlson. She's at Laura M. Carlson,
Speaker 1: The Bloomberg head of podcast Francesca Levie at Francesca Today,
Speaker 1: and check out all of our podcasts under the handle
Speaker 1: at podcasts. Thanks for listening. A