WEBVTT - Adam Tooze On How This Crisis Is Different Than The Last 0:00:10.680 --> 0:00:14.360 Hello, and welcome to another episode of the Odd Lots podcast. 0:00:14.400 --> 0:00:17.960 I'm Joe wi Isn't All and I'm Tracy Allaway. Tracy 0:00:18.200 --> 0:00:21.880 obviously on the podcast lately, I would say we've been 0:00:21.920 --> 0:00:28.000 talking about events in this crisis that are extremely fast moving, 0:00:28.200 --> 0:00:31.000 and we've kind of been joking around that perhaps in 0:00:31.040 --> 0:00:34.240 some cases by the time people actually listen to the episode, 0:00:34.680 --> 0:00:38.080 it'll become it'll be irrelevant or extremely out of date 0:00:38.120 --> 0:00:41.120 by by the time it actually gets out. Yeah, I'm 0:00:41.159 --> 0:00:44.280 not even sure it's a joke really, because there have 0:00:44.400 --> 0:00:47.080 been a few episodes that have been sort of superseded 0:00:47.360 --> 0:00:51.200 by events. It's been a struggle. So in light of that, 0:00:51.360 --> 0:00:54.280 I think today's episode might be a little bit risky, 0:00:54.400 --> 0:00:59.600 like even riskier than our normal one. Oh boy. Why. Well, 0:00:59.640 --> 0:01:02.320 the reason I say it is because we're going to try, 0:01:02.440 --> 0:01:04.440 and I don't know if we'll be successful, but we're 0:01:04.440 --> 0:01:07.640 going to try and look a little bit big picture 0:01:07.760 --> 0:01:11.520 and sort of bigger lessons, bigger themes that we can 0:01:11.560 --> 0:01:13.800 take away from all the events that we've seen over 0:01:13.920 --> 0:01:19.080 the last couple of months. And I think almost everyone 0:01:19.200 --> 0:01:21.679 who tries to project forward on what it all means 0:01:21.720 --> 0:01:25.080 will probably be looking a little bit foolish in some respect, 0:01:25.560 --> 0:01:28.680 but that's kind of what we're gonna attempt to do today. 0:01:28.760 --> 0:01:31.840 I mean, it's what everyone is interested in at the moment. 0:01:31.959 --> 0:01:35.600 But as you say, forecasting this is hard because, as 0:01:35.640 --> 0:01:39.000 we have discussed, a sort of ad nauseum at this point, 0:01:39.040 --> 0:01:42.280 everything has the potential to change with the current crisis, 0:01:42.319 --> 0:01:46.080 and we really are in uncharted territory in many ways. 0:01:46.160 --> 0:01:49.600 So yeah, sympathy for the forecasters at this point. It's 0:01:49.680 --> 0:01:52.080 it's a tough call of putting your neck out there 0:01:52.120 --> 0:01:55.960 for something completely unknown, right, So fortunately, I don't think 0:01:55.960 --> 0:01:59.000 we're going to make our guests today forecast the future, 0:01:59.160 --> 0:02:04.200 which is, as you say, extremely difficult even in normal times. 0:02:04.240 --> 0:02:08.120 But our guest today is someone who has a sort 0:02:08.120 --> 0:02:12.640 of very good ability to sum up the big themes 0:02:12.680 --> 0:02:17.120 of the moment and identify what, at essence, what what 0:02:17.240 --> 0:02:20.840 a crisis is really all about. Who are we speaking to? 0:02:21.320 --> 0:02:25.120 So today we're going to be speaking to Adam Two's uh. 0:02:25.160 --> 0:02:27.600 A lot of people will know him as the author 0:02:27.720 --> 0:02:31.080 of the book Crashed, which was the sort of magnificent 0:02:31.280 --> 0:02:34.680 overview of the last financial crisis, and he is also 0:02:34.800 --> 0:02:38.560 the Catherine and Shelby Colin Davis, Professor of History at 0:02:38.639 --> 0:02:42.720 Columbia University. And for those who don't know who didn't 0:02:42.720 --> 0:02:45.720 read it, Crashed was. You know, there were a lot 0:02:45.720 --> 0:02:49.120 of crisis books, but Crashed really sort of identified the 0:02:49.160 --> 0:02:52.680 tensions that emerge from the sort of global dollar system 0:02:52.680 --> 0:02:55.440 and how that really sort of played a huge part 0:02:55.480 --> 0:02:58.280 in the coming undone of the economy just over a 0:02:58.320 --> 0:03:02.120 decade ago. And we'll talk to Adam about what he 0:03:02.240 --> 0:03:07.000 sees as potentially this is the equivalent stresses that he's 0:03:07.000 --> 0:03:10.000 seeing in the system today. So Adam, thank you very 0:03:10.040 --> 0:03:12.120 much for joining us. God, it's a pleasure to be here. 0:03:12.200 --> 0:03:15.720 Thanks for having me on your your book, Crashed was. 0:03:16.200 --> 0:03:19.280 I think it came out in a summer of eighteen. 0:03:19.840 --> 0:03:23.520 Actually did read the whole thing during a week vacation 0:03:24.000 --> 0:03:26.160 that I had on the beach. I was a big 0:03:26.160 --> 0:03:28.639 fan of it. But for those who don't know, I 0:03:28.840 --> 0:03:31.720 I sort of gave a half a sentence summary. But 0:03:32.200 --> 0:03:35.280 it came out on so basically eight years after the crisis. 0:03:35.840 --> 0:03:38.840 What was it about that crisis that took so long 0:03:38.920 --> 0:03:42.800 for you to sort of really tied together the big 0:03:42.840 --> 0:03:45.240 themes and to sort of put it all together in 0:03:45.320 --> 0:03:48.360 such a such a big work. Well, I think, I mean, 0:03:48.440 --> 0:03:53.600 I'm I'm somewhat accidental tourists, if you like, in century 0:03:53.640 --> 0:03:56.360 financial history, and I now found myself in the room 0:03:56.440 --> 0:03:59.560 and stuck on this particular island. But I came to 0:03:59.640 --> 0:04:01.720 it some bliquely, I have to say, I mean, I 0:04:01.800 --> 0:04:05.400 came to the topic through the history of the Eurozone crisis, 0:04:06.200 --> 0:04:09.760 which concerned me deeply as as somebody who's deeply passionately 0:04:09.800 --> 0:04:12.040 identified with the EU as a result of my upbring 0:04:13.000 --> 0:04:15.560 and then thinking hard about what sort of a crisis 0:04:15.600 --> 0:04:20.119 that was following the track back to the story really 0:04:20.160 --> 0:04:22.719 about the bank based crisis as opposed to the sovereign 0:04:22.720 --> 0:04:26.560 debt crisis as being a kernel really of the disruption. Um, 0:04:26.560 --> 0:04:30.840 setting aside the immediate Greek issue, thinking about the instability 0:04:30.880 --> 0:04:33.640 of the European banking system that echoes through from two 0:04:33.640 --> 0:04:37.240 thousand and eight, and then basically stumbling across the b 0:04:37.360 --> 0:04:40.440 I S papers um, you know, the work of Shin 0:04:40.600 --> 0:04:45.080 and Boreo and others that matt this vary in some 0:04:45.120 --> 0:04:48.279 sense sort of counterintuitive story of the world before two 0:04:48.279 --> 0:04:50.800 thousand and eight, not as a world of you know, 0:04:50.880 --> 0:04:55.080 driven essentially by current encountering the current accounting balances, trade deficits, 0:04:55.080 --> 0:04:59.080 and surfaces, but thinking through the flows of money through 0:04:59.680 --> 0:05:03.840 the the global dollar system and understanding that as one 0:05:03.920 --> 0:05:08.600 of the ways in which the supposedly American subcrime crisis 0:05:08.640 --> 0:05:11.240 of two thousand and eight in fact entangled all of 0:05:11.279 --> 0:05:14.480 the European banks. And it was really that that set 0:05:14.560 --> 0:05:17.360 me going, and I did then have I've always heard 0:05:17.400 --> 0:05:19.960 I've had a longstanding preoccupation with the question of American 0:05:20.000 --> 0:05:22.240 and Germany American power, which goes all the way back 0:05:22.279 --> 0:05:25.800 to the beginning unit to World War One, and recognizing 0:05:25.839 --> 0:05:27.520 all of a sudden that looking at this twenty first 0:05:27.560 --> 0:05:30.359 century crisis two thousand and eight, I was actually looking 0:05:30.400 --> 0:05:33.480 at because it were the latest chapter, then the latest 0:05:33.560 --> 0:05:37.600 chapter of the fed's role as the pivot, the anchor 0:05:37.680 --> 0:05:40.680 of the global dollar system, which is a story that 0:05:40.720 --> 0:05:43.560 goes back to the very origins of the FED just 0:05:43.680 --> 0:05:46.640 before World War One and then critically from nine onwards. 0:05:46.680 --> 0:05:48.640 So that's how I ended up engaging with it, and 0:05:48.680 --> 0:05:51.680 then the public keep publishing opportunity of the anniversary, the 0:05:51.680 --> 0:05:54.680 tenure anniversary came along, and that's how the sort of 0:05:54.720 --> 0:05:57.320 the book came to be released. When it was there 0:05:57.400 --> 0:05:59.760 is I think if you go back to and subsequent 0:05:59.839 --> 0:06:02.440 like a strand of analysis, and you think of the 0:06:02.520 --> 0:06:04.440 likes Assault and Post are perimodil, and all of the 0:06:04.440 --> 0:06:07.279 people you've had on your show who have been had 0:06:07.360 --> 0:06:10.560 been in real time teasing away at the problem from 0:06:10.560 --> 0:06:13.680 that side. And really what Crash tried to do was 0:06:13.760 --> 0:06:18.760 to connect that rather technical literature on the dollar system, 0:06:18.920 --> 0:06:22.640 on the financing, the market based financing of the global 0:06:22.680 --> 0:06:25.599 banking system, connect that to a grand narrative which had 0:06:25.600 --> 0:06:29.520 previously really revolved around current account deficits, the standard story 0:06:29.600 --> 0:06:32.120 of you know, the nightmare of the Chinese treasury sell off, 0:06:32.160 --> 0:06:35.560 that entire fantasy with support is not what actually happened. 0:06:36.000 --> 0:06:37.719 So that was really the wager of that book was 0:06:37.760 --> 0:06:40.719 that you could take this technical analysis which in some 0:06:40.839 --> 0:06:42.719 you know, some people will refer to as the plumbing 0:06:42.720 --> 0:06:48.960 of the system, and connected to broader issues of political economy, 0:06:49.000 --> 0:06:51.320 which is now of course very much the dumb thing. 0:06:51.400 --> 0:06:55.720 This is really the analysis where where you guys obviously pioneers, 0:06:55.760 --> 0:06:59.600 but you could also think of Alphabill Perry to Assault 0:06:59.640 --> 0:07:02.719 and Post, Daniel Legarbor. There's an entire genre of macro 0:07:02.839 --> 0:07:06.599 finance really now as critical political economy of which crashed. 0:07:06.640 --> 0:07:08.680 I would I would take, just to be one example. 0:07:09.760 --> 0:07:12.560 I was about to ask, just on that note, how 0:07:12.640 --> 0:07:15.560 much of that sort of dollar dominance of the financial 0:07:15.560 --> 0:07:20.400 system slash US hegemony would you say exists today, because 0:07:20.720 --> 0:07:22.920 people we certainly talk to you you seem to suggest that, 0:07:22.960 --> 0:07:26.640 if anything, it's become more entrenched than it was pretty 0:07:26.640 --> 0:07:30.200 two thousands. Yeah, I mean, I think pross Had's idea 0:07:30.240 --> 0:07:33.640 of the dollar trap is a is a quite compelling idea, right, because, 0:07:33.680 --> 0:07:38.679 after all, the the reliance on global commerce, on global finance, 0:07:38.720 --> 0:07:43.080 on the dollar is is not is not simply reducible 0:07:43.160 --> 0:07:46.000 to politics or geopolitics, right, and so therefore is not 0:07:46.080 --> 0:07:48.640 vulnerable to the shenanigans in Washington, or the character of 0:07:48.680 --> 0:07:51.080 Donald Trump, or any of these other sorts of things. 0:07:51.480 --> 0:07:56.040 I mean, it's an incredibly powerful entrenched system which originated 0:07:56.120 --> 0:07:58.720 in power political shifts in the early twentieth century and 0:07:58.800 --> 0:08:01.000 the rise of the United States economy and their eyes 0:08:01.000 --> 0:08:04.160 of Wall Street and Wall Street based banks, and now 0:08:04.200 --> 0:08:07.240 of course it's sustained my massive network effects. So you know, 0:08:07.320 --> 0:08:09.640 if you have major commodities being traded in this way, 0:08:09.680 --> 0:08:13.280 if you have major sources of trade finance being organized 0:08:13.280 --> 0:08:15.480 around the dollar. If you have the depth and sophistication 0:08:15.520 --> 0:08:19.720 of America's financial institutions, then all sorts of actors around 0:08:19.760 --> 0:08:21.880 the world will begin to coordinate, will begin to use 0:08:21.920 --> 0:08:25.400 the dollar as their basic vehicle. And you're absolutely right. 0:08:25.440 --> 0:08:29.120 I mean the drift of the emerging market world, I mean, 0:08:29.200 --> 0:08:30.800 which is a sort of you know, a monika, which 0:08:30.840 --> 0:08:32.960 is becoming less and less helpful because if you never remember, 0:08:32.960 --> 0:08:36.840 it used to include countries like South Korea, highly sophisticated 0:08:37.120 --> 0:08:41.520 twenty one century players in a multipolar globalization. Those countries 0:08:41.559 --> 0:08:44.520 are also piggybacking on the dollar. We know that private 0:08:44.520 --> 0:08:48.079 borrowers and China even heavily rely on the dollar for funding, 0:08:48.559 --> 0:08:53.000 so so that indeed does tend to create a sort 0:08:53.000 --> 0:08:56.920 of a bandwagon, a snowballing dependence on the dollar, which 0:08:57.040 --> 0:09:01.800 is very pervasive. So I remember when I read Crashed, 0:09:01.800 --> 0:09:05.640 and you focused a lot of attention on the necessity 0:09:05.840 --> 0:09:09.160 of these UH dollar swap lines or swap lines that 0:09:09.240 --> 0:09:12.400 the Federal Reserve set up with central banks around the 0:09:12.400 --> 0:09:15.240 world so that domestic borrowers and other countries could get 0:09:15.280 --> 0:09:18.240 access to dollar liquidity. Since there was the central problem, 0:09:18.240 --> 0:09:20.640 and I remember thinking at the time, man, if they 0:09:20.679 --> 0:09:22.960 ever had to do this again, this would probably be 0:09:23.040 --> 0:09:26.600 very politically controversial. Maybe people weren't as aware at the 0:09:26.679 --> 0:09:30.160 time of that, But now here we are and they've 0:09:30.200 --> 0:09:32.720 done it again, and yet there's about a million other 0:09:32.840 --> 0:09:35.319 things that people are focused on, so it actually has 0:09:35.360 --> 0:09:39.840 not gotten that much attention. In a sense. The issue 0:09:39.880 --> 0:09:44.600 that you identified is as central then is just like 0:09:44.880 --> 0:09:47.880 it almost feels like a minor chapter in a sense 0:09:48.280 --> 0:09:52.240 of the given the enormity of this crisis. Well, I mean, 0:09:52.480 --> 0:09:54.600 I think from the point of view if the recipients 0:09:54.640 --> 0:09:56.760 of the swap lines in the current moment, it's been 0:09:56.800 --> 0:10:01.000 pretty important and um in oh a, it was critical 0:10:01.200 --> 0:10:03.840 because the people on the other end of the swap 0:10:03.880 --> 0:10:08.040 lines were essentially the big financial centers in in Europe, right, 0:10:08.080 --> 0:10:10.040 So if you look at the flow of funds through 0:10:10.120 --> 0:10:13.800 the swap line system in twenty it's completely different from 0:10:13.800 --> 0:10:15.719 the flow of funds through the swap line system in 0:10:16.679 --> 0:10:19.400 I mean, the biggest recipients, you know, eight were basically 0:10:19.400 --> 0:10:22.640 the CP and that was because we had these gigantic, 0:10:22.760 --> 0:10:28.520 monolithic European banks which were engaged in deeply entangled in 0:10:28.559 --> 0:10:32.720 the American mortgage boom and the financial engineering of the 0:10:32.720 --> 0:10:35.480 early two thousands and were in serious and the serious 0:10:35.480 --> 0:10:38.120 funding stress, and the FED was doing its best to 0:10:38.120 --> 0:10:39.959 support them in Wall Street. And when they ran out 0:10:39.960 --> 0:10:43.280 of good dollar collateral, that needed roundabout mechanisms for supporting them. 0:10:43.320 --> 0:10:45.960 And that's why at that moment the swap lines were 0:10:45.960 --> 0:10:48.680 absolutely critical. They already then rolled them out to a 0:10:48.720 --> 0:10:50.760 select group of emerging markets. But if you look at 0:10:50.800 --> 0:10:53.680 the flow of funds through the system, it's overwhelmingly to 0:10:53.720 --> 0:10:56.480 the e CP this time around. You know, a lot 0:10:56.520 --> 0:10:59.720 of folks are monomiting, monitoring this in very closely in 0:10:59.760 --> 0:11:01.800 real time, and it's pretty obvious. I think that this 0:11:01.920 --> 0:11:05.480 time around the main flow of funds in absolute size 0:11:05.520 --> 0:11:09.000 and also proportionally it is to a bubble bank of Japan, 0:11:10.000 --> 0:11:14.600 another borrowers in Asia, where we think various types of 0:11:15.480 --> 0:11:18.800 currency mismatch exists, or shall we say, on the balance sheets, 0:11:19.000 --> 0:11:21.880 if not even necessarily banks, but some non bank actors 0:11:21.920 --> 0:11:25.200 in in Asia. So in a sense I agree that 0:11:25.640 --> 0:11:29.599 the swap lines are as it were less quantitatively significant 0:11:29.600 --> 0:11:31.280 than they were. But then this is also a very 0:11:31.280 --> 0:11:35.440 different type of financial crisis. Um. The one thing that 0:11:35.640 --> 0:11:37.760 is very telling is that They were rolled out almost 0:11:37.800 --> 0:11:41.040 immediately as part of the first big spontaneous action by 0:11:41.040 --> 0:11:42.800 the well, the first big action by the FED on 0:11:43.480 --> 0:11:47.360 the weekend of March fift so swap lines were immediately 0:11:47.400 --> 0:11:49.600 part of the package. The Fed wanted to eliminate the 0:11:49.600 --> 0:11:52.920 possibility really of distressed selling I think, or stressed selling 0:11:52.960 --> 0:11:55.760 of treasuries, which they saw some of I think um 0:11:56.080 --> 0:11:58.840 in the second and third week of of March, and 0:11:58.880 --> 0:12:01.760 that of course would have been profoundly destabilizing. So that's 0:12:01.760 --> 0:12:04.920 what they wanted to eliminate. Then here is a very 0:12:04.960 --> 0:12:06.720 good news from the Treasury's point of view. This is 0:12:06.720 --> 0:12:09.160 a bit of the system which seems to be working 0:12:09.240 --> 0:12:11.440 quite well. And then I think it's also quite telling 0:12:11.440 --> 0:12:16.480 that they created this new innovative mechanism through which, at 0:12:16.559 --> 0:12:18.400 least notionally, are the central banks are going to be 0:12:18.440 --> 0:12:22.719 able to repot treasury is. Again I think basically devised 0:12:22.760 --> 0:12:24.680 as a mechanism, it was something that Brad Sets at 0:12:24.679 --> 0:12:27.760 the CFR was arguing for as a way of allowing 0:12:28.200 --> 0:12:31.240 central banks in the emerging market world to gain dollar 0:12:31.320 --> 0:12:34.440 liquidity without actually having to sell off any parts of 0:12:34.480 --> 0:12:40.720 their treasury portfolios. I've been trying to sort of get 0:12:40.760 --> 0:12:43.880 this idea straight in my head. But two thousand eight 0:12:43.960 --> 0:12:49.920 feels to me like a very very financial crisis, like 0:12:50.320 --> 0:12:52.880 all the problems were sort of isolated in the financial 0:12:52.920 --> 0:12:56.480 system and then that's spilled over into the economy, Whereas 0:12:56.520 --> 0:13:00.560 what we're experiencing now is arguably a very very big 0:13:00.640 --> 0:13:04.240 economic crisis and it doesn't feel like the problems are 0:13:04.400 --> 0:13:07.839 as serious in the financial system. Is that the right 0:13:07.880 --> 0:13:10.800 way of looking at it, or what would you say 0:13:10.880 --> 0:13:15.040 is actually different about now versus two thousand eight. I 0:13:15.080 --> 0:13:17.280 think that question is going to preoccupy all of us 0:13:17.400 --> 0:13:20.120 till Kingdom come. I mean, historians will be trying to 0:13:20.280 --> 0:13:25.160 pinpoint quite apart from the absurd ninety degree pivots in 0:13:25.200 --> 0:13:29.160 several of our major indicators. You know, the contrasting headlines 0:13:29.200 --> 0:13:31.040 of the Financial Times. I think this morning with the 0:13:31.040 --> 0:13:33.920 oil gag in the negative and unemployment number in New 0:13:34.000 --> 0:13:36.880 York Times cover Yes, clearly this is a very different event. 0:13:36.920 --> 0:13:40.480 I think two and eight in retrospect, looks like an 0:13:40.520 --> 0:13:46.319 absolutely massive transnational version of a of a classic boom 0:13:46.320 --> 0:13:49.720 bust cycle, driven by the classic driver, which is the 0:13:49.800 --> 0:13:53.959 harnessing together of real and financial in the real estate 0:13:54.040 --> 0:13:57.960 construction mortgage finance sector, and then various other things spinning 0:13:58.000 --> 0:14:00.880 off from that. But that's kind of what that christ is. Increasingly, 0:14:00.960 --> 0:14:04.400 I think it looks like very very enormous so quantity 0:14:04.400 --> 0:14:06.920 into quality. At some point when a when a classic 0:14:06.960 --> 0:14:10.040 crisis gets that big, it changes nature because all of 0:14:10.040 --> 0:14:14.040 a sudden, you know, the American mortgage finance system enrolled 0:14:14.120 --> 0:14:16.840 basically all of European high finance too, never had to 0:14:16.880 --> 0:14:19.560 manage a crisis quite like that before. But I agree 0:14:19.600 --> 0:14:21.520 that has a kind of classic feel, and it's a 0:14:21.560 --> 0:14:25.440 classic cycle also in that that it's it's tail wagging dog. 0:14:25.480 --> 0:14:29.200 In other words, you have some small, dynamic over leverage 0:14:29.320 --> 0:14:34.480 cyclically sensitive sector which then causes a ripple effect systemic 0:14:34.480 --> 0:14:37.680 shock to the rest of the economy. The truly unusual 0:14:37.720 --> 0:14:40.400 thing about this crisis is that we were just full 0:14:40.440 --> 0:14:43.360 body checked, if you like, the largest slice of the 0:14:43.400 --> 0:14:47.119 modern economy, which is the service sector and household consumption. 0:14:47.600 --> 0:14:50.120 We're just stop dead or not, if not stop dead, 0:14:50.160 --> 0:14:53.680 then subject to an absolutely massive shop So there isn't 0:14:53.720 --> 0:14:56.240 the tail wagging the dog quality. In fact, it feels 0:14:56.240 --> 0:15:00.320 a little bit more as though anticipating that because it 0:15:00.360 --> 0:15:02.680 hadn't the shock hadn't even really quite arrived yet, let 0:15:02.720 --> 0:15:07.120 alone the virus itself. In March. Financial markets then really 0:15:07.160 --> 0:15:09.480 began to panic. And that is in a sense where 0:15:09.600 --> 0:15:12.920 we suddenly get the very close analogies between or at 0:15:13.000 --> 0:15:19.160 least some similarities between March and two thousand and seven eight. 0:15:19.320 --> 0:15:21.760 It's in that moment, in a sense, when the financial 0:15:21.800 --> 0:15:25.400 markets realize, oh my god, something utterly unprecedented is coming 0:15:25.400 --> 0:15:28.640 our way in let's call it the real economy, that 0:15:28.680 --> 0:15:32.720 you begin to get, as it were, anxiety around the 0:15:32.760 --> 0:15:35.400 whole range of products and the whole range of credit 0:15:35.480 --> 0:15:38.600 markets that the FED also found itself intervening in oh 0:15:38.640 --> 0:15:40.800 seven or eight, that I agree to a very different 0:15:41.000 --> 0:15:45.000 The causation is is radically different. And and we of 0:15:45.040 --> 0:15:49.000 course also don't know what our system looks like under 0:15:49.040 --> 0:15:52.200 the sorts of stresses that we might be headed into 0:15:52.240 --> 0:15:54.000 at the pace we're heading into them, and we don't 0:15:54.000 --> 0:15:56.800 I'm not sure that we really know what the world 0:15:56.800 --> 0:16:00.240 economy or the American national economy, how it functions, its 0:16:00.240 --> 0:16:02.160 subject to the kind of hits we're going to be 0:16:02.240 --> 0:16:05.840 absorbing over the next two or three months. So is 0:16:05.920 --> 0:16:08.360 the difference this time around, are one of the differences 0:16:08.680 --> 0:16:12.520 the speed of the regulatory response, maybe because the Federal 0:16:12.560 --> 0:16:15.840 Reserve sort of have the experience of two thousand eads 0:16:15.960 --> 0:16:20.360 and had tools ready to go in some sense, such 0:16:20.400 --> 0:16:23.360 as the dollar swaplines and a few other programs that 0:16:23.800 --> 0:16:27.800 were quickly revived. Yeah, I mean asset purchasing. You know, 0:16:27.840 --> 0:16:29.920 you've got people like low Logan and so on at 0:16:29.920 --> 0:16:33.440 the FED who just really know how to buy if 0:16:33.480 --> 0:16:37.520 they have to epic quantities of assets incredibly quickly. They 0:16:37.560 --> 0:16:39.600 know what the legal instruments have got to be, they 0:16:39.640 --> 0:16:42.080 know who their partners are in the market, and so 0:16:42.160 --> 0:16:44.840 they can just do this. Again, we have to recognize 0:16:44.840 --> 0:16:48.080 the novelty of what they're doing because it is asset purchasing, 0:16:48.640 --> 0:16:50.720 but it's asset purchasing or or eight. Yeah, and you 0:16:50.760 --> 0:16:54.320 know the numbers like a million dollars a second, ninety 0:16:54.360 --> 0:16:57.520 billion a day. That's the sort of rate and business 0:16:57.520 --> 0:17:00.520 that the FED was doing once a month under the Nankee, 0:17:00.520 --> 0:17:02.360 and they're doing it on a day by day basis, 0:17:02.360 --> 0:17:04.159 and they're doing it day after day after day. I mean, 0:17:04.200 --> 0:17:06.000 we're down to forty five billion a day now, but 0:17:06.040 --> 0:17:09.000 it's still absolutely astonishing in its scale. And for that, 0:17:09.080 --> 0:17:12.080 you need teams of people, you know, who know what 0:17:12.119 --> 0:17:14.119 they're doing and for whom it's not just a completely 0:17:14.359 --> 0:17:17.080 crazy request. Um, so yes, they had all of those 0:17:17.119 --> 0:17:19.760 instruments in place. I do think again, we're going to 0:17:19.800 --> 0:17:21.320 be historians and for a long time we're gonna be 0:17:21.320 --> 0:17:23.880 puzzling over, you know, the makeup of the FED, in fact, 0:17:23.920 --> 0:17:25.760 the ECB at this moment. I did a post last 0:17:25.840 --> 0:17:29.120 night just trying to pull together the input from all 0:17:29.119 --> 0:17:31.600 of the journalist teams around the world who've been doing 0:17:31.640 --> 0:17:34.480 these stories on who are these central bankers? Because we've 0:17:34.600 --> 0:17:36.040 been Nankee, we kind of had it, you know, we 0:17:36.160 --> 0:17:38.240 felt and at least as an academic, I felt I 0:17:38.240 --> 0:17:40.159 had some kind of red on the Nankee because he 0:17:40.240 --> 0:17:43.239 was after economic historian. We know that he was a 0:17:43.240 --> 0:17:46.120 student of you know, Freedman and Schwartz as that famous 0:17:46.160 --> 0:17:49.119 birthday address where you know, he speaks to Milton Friedman 0:17:49.160 --> 0:17:51.440 and Anna Schwartz and says, you know, you were right, 0:17:51.600 --> 0:17:53.639 We the FED were wrong in the nineteen thirties, and 0:17:53.640 --> 0:17:55.439 thanks to you, we won't do it again. So we 0:17:55.520 --> 0:17:57.720 kind of had a sense that this was a man 0:17:57.880 --> 0:18:00.479 who had met his moment in history and were acting 0:18:00.520 --> 0:18:03.439 that script with Powell, I think most people's read was 0:18:03.480 --> 0:18:05.639 that he was a bit of a blank somehow, and 0:18:05.640 --> 0:18:07.800 then now he's ended up as you know, he's going 0:18:07.840 --> 0:18:09.920 to go down in history as the most activist FED 0:18:10.000 --> 0:18:13.080 chairman we've ever seen. And furthermore, breaching all sorts of 0:18:13.080 --> 0:18:15.520 boundaries in terms of the sort of assets they're buying 0:18:15.720 --> 0:18:19.120 and in an incredibly close relationship. It's making me want 0:18:19.160 --> 0:18:22.119 to revisit, like what I think this conventional story is 0:18:22.160 --> 0:18:24.320 on the FED and the Treasury in oh nine, I'm 0:18:24.359 --> 0:18:26.880 not sure that it is as it was then as 0:18:26.920 --> 0:18:29.560 close as it appears to be between Treasury and FED 0:18:29.600 --> 0:18:32.719 with new can and and POAL because the that's one 0:18:32.800 --> 0:18:34.920 of the innovative things about what they're doing is how 0:18:34.920 --> 0:18:52.280 closely coupled is. So there's another dimension to this crisis 0:18:52.320 --> 0:18:56.240 that we haven't talked about. So obviously, of course there's 0:18:56.320 --> 0:19:01.160 the financial dimension. There's the extraordinary political ash, the virtual 0:19:01.200 --> 0:19:04.119 complete halt of much aspect of the services sector and 0:19:04.160 --> 0:19:08.800 household consumption, and then I'm wondering, and then of course 0:19:09.080 --> 0:19:12.719 there's this just enormous stress tests that we're seeing of 0:19:12.840 --> 0:19:16.280 state capacity all over the world, and the fundamental questions 0:19:16.359 --> 0:19:20.679 of can governments simply do what's necessary, not on the 0:19:20.720 --> 0:19:23.919 spending side, not on the regulatory side, but on the 0:19:23.960 --> 0:19:27.400 basic question of can they get their act together on testing? 0:19:27.760 --> 0:19:32.280 Can they implement a public health strategy that involves quarantines 0:19:32.359 --> 0:19:36.680 or lockdowns in the sustainable way while maintaining the underpinnings 0:19:36.720 --> 0:19:41.880 of a civil society. And I'm curious, you know, as 0:19:41.960 --> 0:19:46.359 your I assume in your mind um percolating your ideas 0:19:46.359 --> 0:19:48.760 for whatever the next crashed is going to be. Maybe 0:19:48.760 --> 0:19:51.880 it'll come out into hearty hopefully for readers it will 0:19:51.920 --> 0:19:56.359 be sooner. How much that is an important dimension to 0:19:56.400 --> 0:19:58.520 you of what the story will be. Yeah, I mean, 0:19:58.560 --> 0:20:00.520 this guy's back to this point. Jo, think we sort 0:20:00.520 --> 0:20:02.600 of slipped away that you had earlier on where you 0:20:02.640 --> 0:20:04.240 were saying. A lot of us when we were thinking 0:20:04.240 --> 0:20:07.520 about the swap lines, you know, going forward, we felt 0:20:07.600 --> 0:20:10.080 that there was a real problem here because the swap 0:20:10.119 --> 0:20:13.920 lines in O A O nine were kind of fed internationalism, 0:20:13.920 --> 0:20:16.640 if you like, and fed cosmopolitanism. The FED was providing 0:20:16.640 --> 0:20:19.760 liquidity to the entire world, and surely in an era 0:20:19.800 --> 0:20:22.199 of Donald Trump, this wouldn't be possible. There will be 0:20:22.280 --> 0:20:25.680 some difficulties with the Trump administration or someone in Congress, 0:20:25.720 --> 0:20:28.199 one of the you know, one of the hawkish or 0:20:28.280 --> 0:20:31.440 more slightly bad elements of the GOP would stick a 0:20:31.520 --> 0:20:35.160 spanner in the works and would trip up the world economy. 0:20:35.200 --> 0:20:37.919 And this wasn't just us. I mean, I've had conversations 0:20:37.920 --> 0:20:40.880 with extremely seniors people in the I m F who 0:20:40.920 --> 0:20:43.159 wanted to ask me that question specifically. And you know, 0:20:43.160 --> 0:20:45.360 I don't have any better read on Congress than later 0:20:45.440 --> 0:20:47.240 in fact, and clearly they're better informed, but that is 0:20:47.280 --> 0:20:50.080 what they wanted to talk about. So if that kind 0:20:50.080 --> 0:20:52.400 of fed lender of last resort thing was as crucial 0:20:52.440 --> 0:20:54.840 as it is, will we be able to do that again? 0:20:54.880 --> 0:20:57.080 And as you pointed out, the answer turns out to 0:20:57.119 --> 0:20:59.119 be that if you've got power the mutition and a 0:20:59.240 --> 0:21:03.000 Republican in the White House, which I think is probably 0:21:03.000 --> 0:21:05.879 the absolutely crucial thing here, there are a lot of 0:21:05.880 --> 0:21:08.600 people in the GOP and Congress who really want to 0:21:08.600 --> 0:21:11.720 make trouble. Though. I actually think in the Spring Week 0:21:11.760 --> 0:21:14.760 meetings last week it was probably a constraint on what 0:21:14.920 --> 0:21:17.399 Nucian thought he could do for the I m F. 0:21:17.520 --> 0:21:21.120 I mean, because everyone wanted you know, new sdr issuance. 0:21:21.160 --> 0:21:23.919 It didn't happen. I think it's a reasonable hypothesis that 0:21:24.000 --> 0:21:26.280 Nucien really thought it was a bad idea to stir 0:21:26.480 --> 0:21:29.320 up the sleeping dogs in Congress over that issue, because 0:21:29.359 --> 0:21:31.920 you know, said Cruis and people like that had had 0:21:31.920 --> 0:21:35.680 played up very badly under the Abama administration on precisely 0:21:35.720 --> 0:21:39.480 that issue. So that constraint didn't arrive or hasn't arrived, 0:21:39.720 --> 0:21:42.320 and instead something else did blind us cide us, which 0:21:42.359 --> 0:21:46.000 is just simply this issue of state malfunction. It wasn't 0:21:46.040 --> 0:21:49.800 It wasn't as it were, the manifest at times to 0:21:49.920 --> 0:21:52.639 most people, I think, sort of craziness of the GOP 0:21:52.880 --> 0:21:55.119 that turned out to be the issue. It was, in 0:21:55.160 --> 0:22:00.320 fact structural capacities, and to some extent also obviously the 0:22:00.320 --> 0:22:04.640 the negligence of the Trump administration which allowed this crisis 0:22:04.640 --> 0:22:07.680