Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg It
Speaker 1: got real for Wall Street yesterday to compete five hundred
Speaker 1: equities gapping lower off the back of several headlines around
Speaker 1: the impeachment inquiry. I want to bring in Lorie Calvasino
Speaker 1: of MPC. She heads up the Equity strategy division over there. Laurie,
Speaker 1: what changed for you yesterday in the last twenty four hours,
Speaker 1: if anything at all? Well, look, I think, you know,
Speaker 1: talking to investors about what happened yesterday, I think there's
Speaker 1: still a state of disbelief, you know, questions I was getting,
Speaker 1: are is this real? What will really change? I think
Speaker 1: the street is still digesting this. But you did see
Speaker 1: a negative reaction in the market, and we've thought that
Speaker 1: the stage was set for a pullback anyway before year end.
Speaker 1: This is bringing some of the potential triggers for that
Speaker 1: into focus. Lord the regressor forward is the earnings call
Speaker 1: for October. We spoke with b MP Perry by yesterday.
Speaker 1: They've got an exceptionally cautious view on equities and it
Speaker 1: centers back to earnings. What is your earning UH call
Speaker 1: at RBC and how does it fit into owning equities today?
Speaker 1: So we're at one six five for this year, one
Speaker 1: seventy four for next year. You know, I think that
Speaker 1: the concerns about second half Earnie's expectations have died down
Speaker 1: a little bit. I do think there's going to be
Speaker 1: some teriff adjustment that has to happen generally, though companies
Speaker 1: have been finding a way to sort of deal with
Speaker 1: these issues in the short term. I think the real issue,
Speaker 1: frankly is next year. I think Arnie's expectations are way
Speaker 1: too high. The street is still at ten percent. I'm
Speaker 1: at five and a half percent. I have what I
Speaker 1: think are pretty reasonable assumptions on GDP growth slowing a bit,
Speaker 1: buy back slowing a bit. Those numbers are going to
Speaker 1: have to be cut at some point. My guess as
Speaker 1: we do that before the year is up. Laurie, I
Speaker 1: know you're doing your best to look through the political
Speaker 1: know and I also know you're adding just a little
Speaker 1: bit of sicklicality pulling away just a little bit from
Speaker 1: the defensive sectors in the equity market. Give us a
Speaker 1: little bit more detail on that. So look, I think
Speaker 1: the move in bond fields that we saw, you know,
Speaker 1: sort of late August, early September, and that vicious style
Speaker 1: rotation that we saw was a little bit of a
Speaker 1: wake up call um, and I think we do, you know,
Speaker 1: sort of we have a lot of concerns, especially on
Speaker 1: the tariffs in the short term. You know, I'm not
Speaker 1: convinced that this is necessarily a turning point, as a
Speaker 1: tipping as opposed to a tipping point in the economy.
Speaker 1: That being said, I think we're trying to look through
Speaker 1: the day to day trading. We're trying to think about
Speaker 1: in three or five years, what will we have wished
Speaker 1: we did today, And we simply found we kept talking
Speaker 1: to investors about industrial stocks, we think they're pricing in um,
Speaker 1: pretty onerous outcomes. You're literally back at financial crisis lows
Speaker 1: if you look at a relative pe against the broad market.
Speaker 1: So we think that you should shouldn't be so worried
Speaker 1: about what this quarter is going to look like. Take
Speaker 1: advantage of the fact that they've been derisked and we
Speaker 1: actually think you should be taking money out of consumer
Speaker 1: stocks where all the good news and resilience is baked.
Speaker 1: LORI thank you so much, flour Kelvinsina, RBC Company, Marcus
Speaker 1: here at the Bloomberg Global Business Forum. This is joy John,
Speaker 1: because this is as John tafted in his book a
Speaker 1: number of years ago about stewardship. And what is so
Speaker 1: wonderful here with the descendants of the Mars family of
Speaker 1: Minnesota from years ago is they got together, they had
Speaker 1: the courage to make with Wrigley of Chicago, and I
Speaker 1: remember the emotion of that day. Stephen Badger joins us
Speaker 1: right now of the Mars family and driving forward the
Speaker 1: Mars Wrigley story as well. The company is not Mars Wrigley.
Speaker 1: It's Mars, right, Mars Incorporated. Yes, I mean, it's so
Speaker 1: interesting what you've brought in. You've brought in dog food,
Speaker 1: you've brought in the chewing gunment all that. Are you
Speaker 1: the dominant confectionery player now in the world, Well, we
Speaker 1: would certainly in any given market be the leader. And
Speaker 1: we have some of the leading brands in the world
Speaker 1: with M and M's and Snickers and so forth. See
Speaker 1: how he did that he wa, I can't concentrate. I
Speaker 1: can't concentrate from what we were like growing up in
Speaker 1: a family like that with with that kind of business
Speaker 1: around you. Well, you know, it's a normal family, it
Speaker 1: really is. Uh. You know, in normal families go through
Speaker 1: normal family issues. That being said, we were very clear
Speaker 1: that uh, as we matured that we had a responsibility
Speaker 1: with regards to the business and the associates that we have,
Speaker 1: and and really we're here today at Climate Week because
Speaker 1: of that responsibility. We we see the science that has
Speaker 1: been out for some period of time and which which
Speaker 1: is only getting clear about the threat to the climate
Speaker 1: that uh, there's a real and significant issue that needs
Speaker 1: systemic changed and transformational action to really address the issue.
Speaker 1: And so I think one of the great things that
Speaker 1: that we grew up with and that I carry with
Speaker 1: me today is that sense of responsibility. So I told
Speaker 1: to us about the kind of things you focused on
Speaker 1: the monment. What are you guys standing to address that? Well,
Speaker 1: we've had for many years in place what we call
Speaker 1: are sustainable and the generation plan that we are spending
Speaker 1: a billion dollars on. We've also are spending a billion
Speaker 1: dollars on what we call responsible cocoa sourcing, and we're
Speaker 1: here this week to really advocate for the fact that
Speaker 1: we need to all collectively step up the actions needed
Speaker 1: to address climate change. The issue is only ever more serious.
Speaker 1: I would suggest you're in the cross ears here on
Speaker 1: two items. One is you make small items thing a
Speaker 1: pack of Wrigley's Experiment gum that when my father had
Speaker 1: for years, or you make the fame candy bars which
Speaker 1: got me through three years of my youth. I get
Speaker 1: that for the Mars bar, Folks is the one I
Speaker 1: always went for. You've got the little units of sustainability
Speaker 1: along with the messaging to children. You're here over the
Speaker 1: head constantly about sugar. You know we don't need to
Speaker 1: get into that today, But how do you handle sustainability
Speaker 1: given the responsibility of kids and your small unit product show? Well,
Speaker 1: if you look at the totality of our business, whether
Speaker 1: it's gum or or chocolate, or pet food or other
Speaker 1: brands like Uncle Ben's, all of those products buying large
Speaker 1: rely upon smallholder farms around the world for their ingredients.
Speaker 1: Explain that with a pack of gum. How does that work? Well?
Speaker 1: Mint mint is the key ingredient in one of the
Speaker 1: key ingredients and gum. It's grown by farmers in the US,
Speaker 1: but also by many farmers in India who are struggling
Speaker 1: to deal with the effects of climate change and in
Speaker 1: how they in their growing operations, and so helping them
Speaker 1: actually become more sustainable to generate a greater income and
Speaker 1: also address issues like women's empowerment. Uh IN at the
Speaker 1: local level is key to the ongoing sustainability of products
Speaker 1: like that. You can be incredibly focused on sustainable production
Speaker 1: and then all of a sudden, imagine there's a line
Speaker 1: of banks and a line of investors knocking on the
Speaker 1: door and sounding you you can do it better, you
Speaker 1: can make more money. How do you keep slapping them
Speaker 1: away year after yet? Well, the reality is if we
Speaker 1: don't deal with climate change, of business doesn't face into
Speaker 1: the reality of climate change, there there will not be
Speaker 1: a future as we know it. Uh So for us
Speaker 1: to have a sustainable future, we have to spend money
Speaker 1: on this issue, and that's what we're committed to doing,
Speaker 1: both through the commitments that we're making and trying to
Speaker 1: galvanize the industry, as well as through our own commitments
Speaker 1: with our business. I gotta get to the sensitive topic
Speaker 1: as well, not just about sustainability and climate change, but
Speaker 1: as Tom mentioned, sugar, the war against sugar, thebasity epidemic
Speaker 1: in this country and in other other countries in the
Speaker 1: developed world as well. What you're role going to be
Speaker 1: in all of that, Well, obesity is a global issue
Speaker 1: without a shadow of a doubt, uh. And we're a
Speaker 1: food business and so we have a great responsibility to
Speaker 1: ensure that we're marketing uh and selling our products responsibly.
Speaker 1: We have a marketing code that's been in place for
Speaker 1: many years and we adhere to that strictly. And it's
Speaker 1: all about how we position our products, particularly in terms
Speaker 1: of confectionery, as treats that are are to be enjoyed
Speaker 1: on occasion, as opposed to you know, daily so to speak.
Speaker 1: And what do we do about the kids where it's
Speaker 1: not daily, it's not portion control the corporate messaging, what
Speaker 1: do we do about the X percent of any nations
Speaker 1: kids that don't have that discipline around them. Well, I
Speaker 1: think it's about trying to be clear as to what
Speaker 1: the role of a food business is, what the role
Speaker 1: of government is, and what the role of parents are.
Speaker 1: It's a collective issue and no one actor can solve it.
Speaker 1: But what we can do is we can take responsibility
Speaker 1: for our part, be very clear about that and try
Speaker 1: to galvanize the industry to to step up agree with this.
Speaker 1: And the thing is the parents have to have a
Speaker 1: massive discipline here. So when the Snickers is developed, I
Speaker 1: get half, you get half, and the time we got left,
Speaker 1: I gotta talk. And this is wonderful that you hear
Speaker 1: Steve Badger and we celebrate Friday, folks. I am thrilled
Speaker 1: that Ken Burns will be with us with his magisterial
Speaker 1: effort on national and country music. Everybody in the music
Speaker 1: industry goes thank you, thank you, thank you, Stephen Badger
Speaker 1: for what you did with the House of Wilson Pickett.
Speaker 1: Muscle Shoals is beloved. There's a sound, there's an authenticity there.
Speaker 1: It goes back to him and B Three's did things
Speaker 1: that no one had ever heard before. What was it
Speaker 1: like to put together your wonderful film and Muscle Shoals? Well,
Speaker 1: thank you, You're so kind of reference that it was.
Speaker 1: It was it was incredible, I mean it was. It
Speaker 1: was an emotional journey, a spiritual journey, a lot of
Speaker 1: hard work and it was a great joy and honor
Speaker 1: to be able to engage with the folks in Muscle
Speaker 1: Shoals and the other artists who made that. Lack has
Speaker 1: his wonderful movie Catholic Records of Beyonce, and in it
Speaker 1: they've got the Stones show up in nineteen sixty whatever,
Speaker 1: like Children from England. Did you talk to Mick Jagger
Speaker 1: or any of the Stones about Muscle Shoals. I had
Speaker 1: the great pleasure and opportunity to talk to Keith and
Speaker 1: to Mick uh and they couldn't have been more gracious
Speaker 1: and and um have a greater love for Muscle Shoals
Speaker 1: than you know I then I would have expected. And
Speaker 1: and more more recently in terms of some of the
Speaker 1: heroes and Muscle Shoals, Rick Hall, the dear Rick Hall
Speaker 1: has passed away. Jimmy Johnson just passed away. I didn't
Speaker 1: know that. So to be able to capture those guys
Speaker 1: on film before that transparred was great. Like he's got
Speaker 1: a terrible job, isn't it still on the planet. I mean,
Speaker 1: Chuck Levols been a wonderful friend of the show up
Speaker 1: playing with the Stones keyboards. He's with us once or
Speaker 1: twice a year on himself, and he talks about the room. Sound.
Speaker 1: I mean, it's all about the room, isn't it. It's
Speaker 1: it's a concrete block, right, It's town. It's town, absolutely, Steven.
Speaker 1: A final question in it comes from home. It comes
Speaker 1: from my mom. Oh you're the Good Morning was about
Speaker 1: many decades the Snickers Bar used to be called the
Speaker 1: Marathon Bar in the UK. But we're gonna make that
Speaker 1: change again. Can we have a special edition? I wish
Speaker 1: I could say otherwise, but no. We we moved it
Speaker 1: to Snickers because we're a global business. We operate in
Speaker 1: eighty countries and they're just are some efficiencies that come
Speaker 1: along with Yeah, there's God bless this is this is
Speaker 1: a can we tell company secrets here with Steve bar
Speaker 1: please day carry. I come out of the meeting every
Speaker 1: morning usually was team coming out of my years and
Speaker 1: the only thing that saves me is I wander by
Speaker 1: the desk of a hundred and six mayor of New York.
Speaker 1: There's a small candy thing and it is a Mars
Speaker 1: container and Mike Bloomberg every single morning saves me with
Speaker 1: the TwixT. Well, thank you. We we need we need
Speaker 1: to make sure that he's a wealth stocked going into
Speaker 1: the future, Steven, great to catch up you, thank you,
Speaker 1: thank you, Stephen Badger of the mass Family. Fasciniting conversation.
Speaker 1: Tell how much more coming up? This is an annual visit.
Speaker 1: We're going to crow bar him in here right now.
Speaker 1: Dr Ferguson, of course, his public service at the Federal
Speaker 1: Reserve System serving Sherman Greenspan, and particularly on September eleven,
Speaker 1: his esteemed academics, his public service to the Economic Club
Speaker 1: of New York is should point out. I get to
Speaker 1: enjoy the lunches. Roger Ferguson serves at the Economic uh
Speaker 1: of New York as well. But I really want to
Speaker 1: devote this entire time with Vice Chairman Ferguson to his
Speaker 1: true expertise with t I A and his public leadership.
Speaker 1: And I don't know if it's a number one problem
Speaker 1: in the nation, Roger, but let's just begin by saying,
Speaker 1: retirement in America is in a terrible, terrible state. Good morning.
Speaker 1: We we talked to you a year ago. In my
Speaker 1: frustration is just do something. How close are we to
Speaker 1: a Roger Ferguson. I mean, you're one of the most
Speaker 1: impatient guys I know in the crucible of a meeting.
Speaker 1: How close are we to ferguson immediacy in slow motion Washington? Look,
Speaker 1: I think we're a long way away from it. Frankly,
Speaker 1: on the other hand, there are some green shoots that
Speaker 1: might give us some optimism that we're returning to this
Speaker 1: really big, important, long term issue. So, um, why don't
Speaker 1: I say we're a long way away from it? Every Congressman,
Speaker 1: every Senator must have the constituent saying, look, it was
Speaker 1: all best in engines, but actually it is not worked
Speaker 1: out for anybody of any given age. The incentivizing of
Speaker 1: younger people, the middle age, those confronting the failure of
Speaker 1: Arissa seventy four that do something is front center. Why
Speaker 1: is its slow motion in Washington? It's slow motion Washington
Speaker 1: because this is one of those really long term, slow
Speaker 1: moving challenges. It's not an immediate crisis. Washington, I think
Speaker 1: is wired towards the immediacy of the headline. And this
Speaker 1: challenge is, you know, to use a cliche, a bit
Speaker 1: of a melting iceberg, and society, policymakers, etcetera. All turn
Speaker 1: their attention much more slowly to these slow moving challenges.
Speaker 1: The second reason why it's it's a little bit difficult.
Speaker 1: Is the answers are all difficult. Um, you know, figuring
Speaker 1: out how to fix Social Security means for sure, maybe
Speaker 1: touching retirement age, which people are uncomfortable increasing retirement age
Speaker 1: and may mean cutting benefits for certain of people, may
Speaker 1: mean increasing taxes. All of those are tough calls. Politicians
Speaker 1: are not wired towards making the toughest calls very very quickly.
Speaker 1: So Dr Fergus, just for our listening audience, could you
Speaker 1: scale out what you think is really again kind of
Speaker 1: the scale of the issue, the problem some just some
Speaker 1: broad numbers. Okay, So let me start with my uh friends,
Speaker 1: former colleagues were fed. They've come up with numbers of
Speaker 1: a shortfall and retirement savings of anywhere from four to
Speaker 1: seven trillion dollars. So that's a massive number. Another way
Speaker 1: to think about it is only about half of Americans
Speaker 1: have access to retirement savings at work. So that's the
Speaker 1: second way to think about it is stunning. Third way
Speaker 1: to think about it, it's something we already know, which
Speaker 1: is that you know, more than half of Americans couldn't
Speaker 1: get hold of four hundred dollars for an emergency, and
Speaker 1: so there are lots of different ways to scale this problem.
Speaker 1: As this problem, he's gotten worse, is it? How has
Speaker 1: it evolved over the last couple of generations. Well, it's
Speaker 1: actually gotten more. So Here's here's what's happened. For our
Speaker 1: grandparents generation. The vast majority of them had of retirement
Speaker 1: plan at work called a defined benefit plan. Now only
Speaker 1: about ten of Americans have a defined benefit plan. So
Speaker 1: the vast majority of Americas now defend on a so
Speaker 1: called defined contribution plan. And that has pushed risk from
Speaker 1: the company to the individuals at a point when we
Speaker 1: know individuals have a low level of financial literacy, so
Speaker 1: the problem has become more challenging. If you're just joining us,
Speaker 1: the former vice Chairman of the Federal Reserve System, Roger
Speaker 1: Ferguson with us an annual visit here at the Bloomberg
Speaker 1: Global Business Forum, and we're thrilled to focus on his
Speaker 1: true expertise and leadership in America's retirement crisis. The Times
Speaker 1: of London two weeks ago Roger the business section, the
Speaker 1: big headline the annuity. You get a retirement pot, you
Speaker 1: buy a life annuity for you and your wife whatever.
Speaker 1: The annuity at a number of four point one percent.
Speaker 1: We are nowhere near the proper actual assumption, are we
Speaker 1: That's exactly right. Uh, And that's yet another thing that
Speaker 1: makes us challenging. So in an interest a low interest
Speaker 1: rate environment, lower for longer, may be lower forever. There's
Speaker 1: no doubt that generating the returns have become more difficult.
Speaker 1: There's a solution of that, which is a broadly diversified portfolio. Right,
Speaker 1: And so people think of retirement is being driven by
Speaker 1: fixed income and think of low interest rates. But the
Speaker 1: reality is a really good retirement will be driven by
Speaker 1: fixed income, by alternatives, by equities, thereby giving a chance
Speaker 1: to get to a much more sustainable retirement income. And
Speaker 1: so one has to think about, you know, the basic
Speaker 1: rules of investing apply for retirement as well as anything else,
Speaker 1: and diversification is one of those basic rules which will
Speaker 1: help overcome the challenge that we're currently seeing. So as
Speaker 1: we think about, you know, thinking about some of the
Speaker 1: solution to this grand problem, which is so complex, it
Speaker 1: sounds like it might be one of those situations where
Speaker 1: it's some combination of government, of corporate, the private sector,
Speaker 1: of educating the individual. I mean, it seems like it's
Speaker 1: it can't just be the government stepping in and no, no,
Speaker 1: And the reality is to rethink retirement involves three separate components. UH.
Speaker 1: Government for sure, because the government drives social security, and
Speaker 1: here we need to think about reforming social security. The
Speaker 1: Social Security administrators have told us that the trust fund
Speaker 1: UH will be pretty much out of out of gas,
Speaker 1: so to speak, UH, completely utilized by the twenty seventeen
Speaker 1: I'm sorry, something like that, maybe a little further out.
Speaker 1: And so we do need government solutions in that space. UM.
Speaker 1: The government can also help by setting up rules and
Speaker 1: regulations that help create more savings in the private sector.
Speaker 1: So there's an act now in Congress called the Secure
Speaker 1: Act has been passed in the House, has passed the Senate.
Speaker 1: That would be very helpful in creating more safe and
Speaker 1: secure retirement. So we need to get government acting in
Speaker 1: that way to increase the private sector. Can I ask
Speaker 1: a dumb question of the day, I do I do
Speaker 1: and ariska define contribution. Whatever the program is, I get
Speaker 1: immediate tax savings which can build the growth and down
Speaker 1: the road, I end up paying the taxes due to
Speaker 1: the government. Why does the government, Why are they so
Speaker 1: reticent to let anyone put more money into their account
Speaker 1: if they know they're going to get the money eventually, well,
Speaker 1: you put your finger on it, it's actually the time
Speaker 1: value of money. And so they're concerned that broke. Look
Speaker 1: the laying trillions of dollars and taxes until all of
Speaker 1: us get to be seventy or seventy two. It's not
Speaker 1: to be taken lightly when you think about the state,
Speaker 1: the fiscal situation United States, and so you know, the
Speaker 1: tax view around retirement has always been we're willing to
Speaker 1: let you differ, but until a certain age, and then
Speaker 1: you know, it's seventy two and a half. They required
Speaker 1: the distributions in part to make sure they get the
Speaker 1: taxes paid where they're going to get the Texas paid
Speaker 1: down the road. We've got experts at what what number
Speaker 1: of people across the broad American wage paying wtube landscape
Speaker 1: are below their actual assumption. It's a big statistic. It's
Speaker 1: a big statistic at this stage, What where is the
Speaker 1: urgency if there's no cost to the government other than
Speaker 1: as you correctly state, the time value of money. That's
Speaker 1: that's part of the issue. And you know, the urgency
Speaker 1: is starting to come from the citizen to me. As
Speaker 1: we all get older and older, and we start to
Speaker 1: recognize the insecurity that we face around retirement, and that's
Speaker 1: going to drive what happens in more. I mean, Paul,
Speaker 1: the number of people I know older than me who
Speaker 1: are seriously looking to move abroad because they can't afford
Speaker 1: to retire here. Those are tangible numbers for people thinking.
Speaker 1: You know, obviously it's always been Florida, but even North Carolina,
Speaker 1: low tax states, things like that. But I haven't heard
Speaker 1: they're moving to Pan Costa Rica. Thailand is very popular. Yeah,
Speaker 1: you know Italy, I mean Rogers, you know, this is
Speaker 1: very popular, right, These low income states are very very popular.
Speaker 1: What is the study that you have researched at T. I. A.
Speaker 1: Kraft about across different death stiles of the American population.
Speaker 1: If you say you can put in all you want,
Speaker 1: do they put in more money? The answer is it
Speaker 1: depends um. And so what we see for the younger
Speaker 1: individuals is because of the student loan and students issues,
Speaker 1: they are delaying retirement and delaying putting money into retirement.
Speaker 1: Middle income folks tend to be doing better, and obviously
Speaker 1: the older individuals are staying with a frenzy, perhaps because
Speaker 1: they started too late um. And so what this is
Speaker 1: all ending up with is another study that we did
Speaker 1: recently that shows is the degree of financial insecurity is
Speaker 1: very high. So we surveyed a bunch of folks on
Speaker 1: only about a third of them said they were feeling sick.
Speaker 1: You're about their retirements. We've got people listening worldwide. Al
Speaker 1: from New Jersey emails in and says, when you talk
Speaker 1: to about something that matters, because they Al's got his
Speaker 1: retirement all set up. I believe Vice Chairman Ferguson I
Speaker 1: there's any number of ways to go with a beleaguer
Speaker 1: Chairman Powell, the criticism to the FED and FED independence,
Speaker 1: we've got the repo uproar of the recent days. I
Speaker 1: want to talk to you about something that you're quite
Speaker 1: good at. And this is off of your steam work
Speaker 1: at Harvard, which is the experiment of negative interest rates.
Speaker 1: This wasn't This wasn't on the chalkboard at Harvard, was it.
Speaker 1: This was not on the chalkboard at Harvard, nor wasn't
Speaker 1: on the chalkboard at m I T on the University
Speaker 1: of Chicago. So they we are in uncharted territory. UH
Speaker 1: sixteen seventy trillion dollars a debt carrying negative interest rates
Speaker 1: never a place that we've studied, UH, and frankly, I
Speaker 1: think not a place any of us ever expected to be.
Speaker 1: Let's take the dynamics of someone who competent as Richard
Speaker 1: Clarative Columbia, who has your shingle out at the FED
Speaker 1: right now and expert on DSG. We won't go into
Speaker 1: that because we're at the plaza where it would be
Speaker 1: unsightly to speak of something. So there was like that
Speaker 1: sculpture over there's half dress Paul here at the plot?
Speaker 1: What is this about this family Entertainment UM vice chairman first?
Speaker 1: And the glide path from negative to whatever normal is
Speaker 1: gonna be? Can we do this with stability? Can the
Speaker 1: drift function, the reaction functions be in control. I think
Speaker 1: that's a really strong and important question, right. UH we
Speaker 1: saw a few years ago when UH then Chairman Banankee
Speaker 1: mentioned normalizing rates. There is a so called taper tantrum
Speaker 1: where markets got very excited UM about the possibility of normalizing.
Speaker 1: So I think there are some red, some yellow flags
Speaker 1: saying as we move in Europe, not in the US,
Speaker 1: but is Europe tries to move from negative to more
Speaker 1: normal rates. You know, a lot of that economy has
Speaker 1: gotten used to negative rights and the possibility of some
Speaker 1: instability cannot be ignored, can't be discounted. What do you
Speaker 1: think that is for some of these European economies that
Speaker 1: are experiencing negative rates in half for some time, what
Speaker 1: is the path for them to get to more Look
Speaker 1: what the Europeans, I think we're working to try to
Speaker 1: do is to get two things happening that haven't happened
Speaker 1: thus far. First, get their economies, pickly their largest economies,
Speaker 1: you know, off of this borderline area where a few
Speaker 1: of them might. One might argue Italy, maybe Germany are
Speaker 1: in or close to recession for a variety of reasons.
Speaker 1: Others may be slowing. They also are working hard to
Speaker 1: get inflation as others are back closer to their targets.
Speaker 1: Once those two things start to occur, then you will
Speaker 1: be able to start to see rates normalize. Uh, the
Speaker 1: same thing. It's also two in Switzerland. So this is
Speaker 1: a big macroeconomic challenge. And they've been at this place
Speaker 1: and fighting this for a long period of time, and
Speaker 1: you know, we wish them best because the European economy
Speaker 1: is one of what could be one of the one
Speaker 1: of the drivers for global growth. I know when you
Speaker 1: were on the Charles River, you didn't you ignored Chicago
Speaker 1: and microeconomics, not at all. We had a conversation with
Speaker 1: Dudley of the New York FED the other day, the
Speaker 1: micro economist from Berkeley, and it's really interesting to see
Speaker 1: the behavioral function and the microeconomic dynamics of something like
Speaker 1: the repurchase agreement. Or do you have confidence in a
Speaker 1: New York FED and John Williams and the new team
Speaker 1: there to get it done and do it right? Absolutely,
Speaker 1: I have a high, de great confidence John and the
Speaker 1: team with the New York FED. I think what they're
Speaker 1: confronting the repo market was, you know, trying to understand
Speaker 1: the amount of reserves, the sort of technical that have
Speaker 1: to be held by the FED to get the market
Speaker 1: itself to do its business, UH, to set the repo
Speaker 1: rate the right way. And this is a new territory
Speaker 1: for for the FED, so one would expect to see
Speaker 1: every once in a while just a little bit of
Speaker 1: the rough edges as the markets and the FED get
Speaker 1: used to a new process. But they're moving in the
Speaker 1: right direction. I have a high confidence in John and
Speaker 1: the team. Did President Bush the younger ever tweet out
Speaker 1: on Roger Ferguson, I think of the crucival you were
Speaker 1: in an early sub member of two thousand eleven two one.
Speaker 1: It wasn't funny. You didn't have to put up with
Speaker 1: presidential tweets. Right. Well, I'll be honest with you. Um,
Speaker 1: you know there has been periods on and off presidential
Speaker 1: pressure on the FED. Um, this one is highly unusual,
Speaker 1: and that it is so public. But if you go
Speaker 1: back to the history of the FED, L B J
Speaker 1: l B J. Richard Nixon knows, you know, come over
Speaker 1: and have a quiet talk moment um and so, you know,
Speaker 1: not surprising given how powerful the FED is to have
Speaker 1: these kinds of press. You mentioned the pit bull, Roger
Speaker 1: Ferguson on the balcony, the particle there, but conversation giving
Speaker 1: it back. Yeah, but aether thing. You have to recognize
Speaker 1: that j Pal has been very clear about protecting the
Speaker 1: independence of the FED. So we give the FED, I
Speaker 1: give the FED others. Do you know a lot of
Speaker 1: a lot of credibility right now putting up with some Yeah,
Speaker 1: tough and difficult times. Roger Ferguson, thank you so much.
Speaker 1: Particularly with T I A this conversation on retirement in America.
Speaker 1: This is a joy. And he has come to us
Speaker 1: on impeachment. Short notice. He is Professor Sunstein of Harvard University.
Speaker 1: For anybody that knows me, he was way out front
Speaker 1: on impeachment. And I made it a book of the summer.
Speaker 1: It is readable, it is short, it is must must
Speaker 1: read on this strange word, and the joy of it
Speaker 1: is Cass Sunstein, who has been affiliated with Republicans and Democrats.
Speaker 1: Of course, his recent public service to President Obama kept
Speaker 1: the T word out of it. He does not mention
Speaker 1: President Trump in a hundred and seventy five pages of
Speaker 1: your need to understand the word impeachment. Professor Sunstein, thank
Speaker 1: you so much for joining us today. Great pleasure to
Speaker 1: be here. Cass. Your book is so important. You begin
Speaker 1: with James Madison and Walso's through the founders, and then
Speaker 1: of the modern age. How did the comments of Speaker
Speaker 1: Pelosi yesterday link to the impeachments of Clinton and Nixon
Speaker 1: or will this be a new and discrete process. I
Speaker 1: think they linked pretty well in the sense that the
Speaker 1: general tenor of her remarks were connected with the I
Speaker 1: think legitimate inquiry into President Nixon and the questionable inquiry
Speaker 1: into President Clinton. I think that's kind of it's best
Speaker 1: understood from the constitutional point of view. I think she
Speaker 1: got out a little in front of her skis. That is,
Speaker 1: she was a little too decisive about the breaches of
Speaker 1: the constitutional firewall. Let's call it by President Trump pending
Speaker 1: an investigation. Probably it's good to be more cautious and
Speaker 1: um inquisitive rather than categorical. And she said he violated
Speaker 1: his oath of office, which and let's just practice the
Speaker 1: question whether that's true. That's not the constitutional standard. Uh,
Speaker 1: the on social standards, high crimes or misdemeanors, and you can,
Speaker 1: you know, not take care that the lawsby faithfully executed
Speaker 1: by making mistakes honest or even zealous, and you can't
Speaker 1: be impeached for that reason. Truman did that. Most presidents
Speaker 1: have made mistakes honest or not so honest, and that
Speaker 1: doesn't mean they're impeachable. But generally she was in the ballpark.
Speaker 1: Are we anywhere in the vicinity of the high crimes
Speaker 1: and misdemeanors? I think of your dog snow lead out
Speaker 1: into the mud of conquered Massachusetts in the muck and
Speaker 1: there's a high crime and misdemeanor. Is President Trump anywhere
Speaker 1: near the sunsteined definition of high crimes and misdemeanors. I
Speaker 1: want to defend my dog that she, you know, uh,
Speaker 1: maybe make a number one or number two in a
Speaker 1: way that was littally illegal, but that was not a
Speaker 1: high crime in that was just uh inappropriate, let's call
Speaker 1: it um. In terms of President Trump, I would say
Speaker 1: that we need to know more about the facts of
Speaker 1: the most recent turn, which seems to be what Speaker
Speaker 1: Pelosi is principally focused on. So if it's the case
Speaker 1: as the President says that there was an appropriate conversation
Speaker 1: in which he mentioned let's call it the B word, Biden,
Speaker 1: but he didn't put any pressure on or suggest any
Speaker 1: quick pro quo in terms of financial aid, then there's
Speaker 1: really no basis for teaching President Trump in that conversation. Uh.
Speaker 1: If it's the case that it was explicit or implicit
Speaker 1: that he was wielding let's say the taxpayer funding uh
Speaker 1: possibility or not for Ukraine as a inducement to investigate
Speaker 1: a political opponent, Uh, then we're a very severe concern
Speaker 1: as the inquiry and possibly you know, follow up in
Speaker 1: the form of an article of impeachment with the completely legitimate.
Speaker 1: So Professor Sunstein, there's an argument out there that is
Speaker 1: being floated that the real issue that the Democrats should
Speaker 1: focus on is the mere fact that the pres isn't
Speaker 1: it made a phone call to a foreign head of government, uh, suggesting,
Speaker 1: you know, to interfere in our elections by uh investigating
Speaker 1: a political opponent. It wasn't necessarily the quid pro quo.
Speaker 1: It was just a mere phone call asking for interference.
Speaker 1: Is that ring true to you? Uh, it's in the ballpark,
Speaker 1: and you know, whether you're a Democrat or Republican, it
Speaker 1: just is not legitimate. Let's practical the impeachment question for
Speaker 1: the moment, and they'll get there very soon. But it's
Speaker 1: not legitimate for a president of the United States too, uh,
Speaker 1: talk to the head of a foreign country about investigation
Speaker 1: of a political opponent. Uh, even in a context in
Speaker 1: which there's no quick pro quo, and to get to
Speaker 1: the impeachment question, it's not as clear as if there's
Speaker 1: an inducement. But if the president in the context in
Speaker 1: which withheld funds are kind of the elephant in the room,
Speaker 1: and the president saying that and UM let's just say
Speaker 1: that both Republicans and Democrats, UM uh appropriately explore the
Speaker 1: impeachment question. And I say this with um, you know,
Speaker 1: with awareness of the severity and gravity of even the word.
Speaker 1: But but that is the president can't do that. Can't
Speaker 1: say in a context in which everyone knows that there's
Speaker 1: an economic background to this and there's a economic relationship.
Speaker 1: Can't say you investigate a political opponent. Kess Sunstein of
Speaker 1: Harvard Law, We're thrilled that he could be with us today.
Speaker 1: I really can't say enough about his wonderful book, Impeachment.
Speaker 1: It is a sprawling walk through of American history from
Speaker 1: the Revolution to the present day. On Impeachment, We're thrilled
Speaker 1: to have with us today, Kess Sunstein, this is a joy.
Speaker 1: As we've spoken with Roger Ferguson, the former vice chairman,
Speaker 1: with Cass Sunstein of Harvard on Impeachment. One of the
Speaker 1: moments of of this September we speak to David Lipton, now,
Speaker 1: who I believe as title as of this. I'm looking
Speaker 1: at my watch and I think we've got like a
Speaker 1: two hour ticks. Acting Managing Director David Lipton joins us. Now,
Speaker 1: certainly without question. Dr Lipton, the American representative to the
Speaker 1: UH International Monetary Fund to get an update, and it
Speaker 1: is truly a day of celebration for the International Monetary Fund.
Speaker 1: Krystallina Georgieva of Bulgaria, truly a frontline academic, will join
Speaker 1: the i m F. Is it in the matter of ours?
Speaker 1: Dr Lipton? Yeah, this week is a big week of
Speaker 1: transition for us. We have Christine Legard departed, will be
Speaker 1: celebrating her this weekend. We expect Krystalline and Georgieva to
Speaker 1: be approved by our decision body, the Executive Board in
Speaker 1: a matter of ours, and she'll be managing director starting
Speaker 1: Monday morning. It's an extraordinary transition of geography and and tone.
Speaker 1: Is is well uh the former leader of the World Bank,
Speaker 1: of course, esteemed in international economics for years. What does
Speaker 1: the shift like within the institution? Is it just business
Speaker 1: as usual? Well, we're very good at transitions. This happens
Speaker 1: quite a bit. The institution is used to it ready
Speaker 1: to help her take the helm. You know, you're right.
Speaker 1: She has vast experience. Not only is she from Europe,
Speaker 1: but her experience across emerging and developing economies in her
Speaker 1: work uh in in in UH the in Europe and
Speaker 1: at the World Bank. I think gives her a huge
Speaker 1: reservoir of support from our membership really very broadly emerging
Speaker 1: market countries. Correctly say this is the first managing director
Speaker 1: from an emerging market Bulgaria. So everyone's very excited and
Speaker 1: I'm looking forward to this transition myself. Remember the first
Speaker 1: rate Bulgarian mathematics of the Koran School of New York
Speaker 1: University in the academics just extraordinary. I find it fascinating
Speaker 1: here within the tone of modern capitalism, like Angela Merkel
Speaker 1: coming out of East Germany that uh the crystallity GRGIEVA
Speaker 1: came out of the Carl Marks Higher Institute of Economics.
Speaker 1: I mean, there's this is a real shift. This is
Speaker 1: not thesis antithesis, and now we're going to have synthesis. Paul,
Speaker 1: please David, so as a new managing director comes in, David,
Speaker 1: what do you think is the one of the key
Speaker 1: challenges facing the I m F right now? You know,
Speaker 1: we see uh UH risks to growth in the short term,
Speaker 1: and we've had a period of slowing growth in core
Speaker 1: economies for a number of years. After all, just two
Speaker 1: years ago global global growth that's closer to four percent,
Speaker 1: and now it's closer to three percent. So in this
Speaker 1: era where there's questions about integration and interconnectedness and multilateralism,
Speaker 1: the challenges to get our members to cooperate, to ward
Speaker 1: off the risks, to try to secure continued growth UH
Speaker 1: and to promote faster growth in the future. So I
Speaker 1: think it will be a growth orientation achieved through international cooperation.
Speaker 1: One of the threats to that growth orientation is uncertainty
Speaker 1: that we have in the global economy, principally from trade
Speaker 1: issues and uncertainty about global trade. How does that play
Speaker 1: into kind of the mandate at the I m F. Well,
Speaker 1: we do see trade tensions and uncertainty around that as
Speaker 1: as the number one risk. Yes, but but you know
Speaker 1: and and that it is important that the US and
Speaker 1: China sit down and resolve this through dialogue. And I
Speaker 1: think that will mean China having to deal with some
Speaker 1: of the shortcomings in policies that are um causing spillovers
Speaker 1: that are causing discontent in other countries around the world.
Speaker 1: But that said, there are other uncertainties to Brexit is
Speaker 1: a huge John certainty. Um, there are geopolitical uncertainties in
Speaker 1: the in in the tensions with Iran, various others, and
Speaker 1: so if uncertainty is UH allowed to continue, this slowdown
Speaker 1: in trade, which is bringing a slowdown in investment, may
Speaker 1: become a crippling problem for the global economy. It's not
Speaker 1: our base case, our base cases for continued growth UM
Speaker 1: and it really is important that the world work together
Speaker 1: to try to address these uncertainties and not have unforced errors.
Speaker 1: Let's get out front of the meetings that you will
Speaker 1: have here in a number of weeks or at lease
Speaker 1: the World Economic Outlook, the Green Book, the stability. I
Speaker 1: can't remember the color of the books right now. You
Speaker 1: keep changing them, I mean, David, But the bottom line
Speaker 1: is what our audience wants to know, our global Wall
Speaker 1: Street audience wants to know, is the second derivative? Right now,
Speaker 1: I look at Korean export important numbers that German numbers
Speaker 1: the other day. I'm not asking the acting managing director
Speaker 1: to have these memorized, but you're very aware of the GAMA,
Speaker 1: the convexity accelerations that are out there right now. How
Speaker 1: urgent is it. I think that the way to think
Speaker 1: about this is that UH, with the trade tensions we're
Speaker 1: seeing trade investment and manufacturing slowing and that's very broad.
Speaker 1: But at the same time, consumer sentiment, consumer spending, and
Speaker 1: service sector is very strong. And so the question is
Speaker 1: what will happen in the future. Will the um difficulties
Speaker 1: in the business sector eventually impair consumer sentiment and slow
Speaker 1: things down, or will the consumer strength and service sector
Speaker 1: strength eventually help pull business up. That's possible if we're
Speaker 1: able to reduce uncertainties for the future. So I think
Speaker 1: the uh you know to me? The bottom line is
Speaker 1: growth is slowing, risks are growing, and policy makers need
Speaker 1: to get going in That rhymes and it's an easy
Speaker 1: to remember. So well. Evid Lipton with us of the
Speaker 1: International Monetary Fund, the acting managing director here as we
Speaker 1: celebrate Christallina George Eva of Bulgaria will become the new
Speaker 1: managing director, replacing Christine Legard. Christine Legard will become the
Speaker 1: President of the European Center Bank. I'm not gonna ask
Speaker 1: you to get out front of negative interest rates in
Speaker 1: the ECB. That would be rude. But I can I
Speaker 1: ask you. I can ask you, David, the questions of
Speaker 1: our Buenos Aires office. They have a lot of questions
Speaker 1: of how the I m F will handle the original experiment,
Speaker 1: that is Argentine Uh, political economics, even social economics. What's
Speaker 1: the next step for the I m F with an
Speaker 1: ever dynamic Argentina. You know, Argentina's situation right now is
Speaker 1: extremely complex. They've had a shock based on the political
Speaker 1: results of a of a primary and in that setting
Speaker 1: have had to take some very strong measures to try
Speaker 1: to calm things down, and I think they have calmed
Speaker 1: markets down. So our job in this setting is to
Speaker 1: help them get through this period, give them advice, work
Speaker 1: towards an eventual uh resumption of a relationship between of
Speaker 1: some kind of financial relationship with them, which may have
Speaker 1: to wait a while. UM, but we're we're in discussion,
Speaker 1: they are. The Minister is going to be in Washington
Speaker 1: having discussions with our team shortly and we'll be continuing
Speaker 1: those discussions at the the annual meetings that you mentioned
Speaker 1: that come up in later in October. You know, we're
Speaker 1: trying to help Argentina deal with a very difficult situation
Speaker 1: and they're working hard to do that. David, do you
Speaker 1: think the political will exists in Argentina today to move
Speaker 1: that country or rude questions Argentine's want to stabilize their
Speaker 1: country and resume growth. I think everyone shares that it's
Speaker 1: not our business to try to uh uh divine the
Speaker 1: political path forward. We can't do that, but we're standing
Speaker 1: ready to help whichever uh side wins the presidential election
Speaker 1: and help them find the best way forward for the
Speaker 1: sake of the Argentine people. The hallmark of the modern
Speaker 1: I m F is transparency of data. What do you
Speaker 1: do in any given nation where you haven't quoted in
Speaker 1: this case Argentine and Paso in a black market set
Speaker 1: with a greater depreciation, how does the institution like you
Speaker 1: deal with the multiple markets of currency or yield day
Speaker 1: to day. Look, there are places where data are are
Speaker 1: a big problem, like Venezuela where the data flow has stopped,
Speaker 1: but that's not the case in Argentina. We've dealt with
Speaker 1: countries that have parallel markets in many, many circumstances before.
Speaker 1: That's not a big challenge. You know, they're they've had
Speaker 1: to put on capital controls in the midst of the
Speaker 1: market developments that they've had. And when you have capital controls,
Speaker 1: of course, some people try to um uh look for
Speaker 1: another way to move money out of the country and
Speaker 1: parallel rates arise. I think that's something that we can
Speaker 1: monitor and we can help them over time deal with UH.
Speaker 1: You know, I think the bigger the bigger issues there
Speaker 1: are how to calm the markets and stabilize the situation
Speaker 1: so that there can be UH an administration after the
Speaker 1: election that makes longer term plans and policies that can
Speaker 1: help bring stability, lasting stability and growth to Argentina. You
Speaker 1: mentioned that it's a very complex issue obviously. Is there
Speaker 1: any sense of timing based upon your discussions with the
Speaker 1: administration of maybe how this might play now, It's too
Speaker 1: soon to be able to say that. I mean, we
Speaker 1: we were having discussions with them. Those will be continuing
Speaker 1: in Washington this week and then again during the meetings.
Speaker 1: You know, their election is coming up later in October.
Speaker 1: It's it's just uh, not something one can foresee if
Speaker 1: you're just joining us a few more minutes with David
Speaker 1: Lipton and the International Monetary Phone. Of course out of
Speaker 1: Wesleyan and Harvards sterling economics over the years, and I
Speaker 1: always David love to go back with you to your
Speaker 1: tenure with Jeffrey Sachs on Russia. Could we go you
Speaker 1: have a visceral I would suggest you and Professor Sachs
Speaker 1: have more of a visceral understanding of the Russian economic
Speaker 1: experiment out of n than anyone breathing. And give us
Speaker 1: an update on putin economics in the strength of Russia
Speaker 1: right now, he had a difficult Moscow election. Granted that's
Speaker 1: a one off, but give us an update on Russia.
Speaker 1: Is a frontier economy, an E M economy, or a
Speaker 1: G eight nation. The Russian economy has been managed very
Speaker 1: well from the standpoint of macroeconomic stability. They've been very
Speaker 1: careful about their maintaining a sound budget. As a result,
Speaker 1: they have almost no uh federal debt. Uh. You know,
Speaker 1: President Putin has given strong mandates to his Central Bank
Speaker 1: governor nev you in a too, make sure that inflation
Speaker 1: is under control. That's not the issue they have as
Speaker 1: as a result of there the oil situation and the
Speaker 1: economic situation and the sanctions, they have a low growth rate.
Speaker 1: When we project their growth rate forward, we see it
Speaker 1: as lower than or roughly the same as Europe in
Speaker 1: per capita terms. Now that what that means is we
Speaker 1: are not foreseeing Russian standards of living catching up or
Speaker 1: going in the direction of catching up to Europe. That's
Speaker 1: a problem because their their their standard living is lower
Speaker 1: than Europe, and they should be able, they should be
Speaker 1: aspiring to raise that standard of living. So I think
Speaker 1: the challenge for Russia is the broader, long term business
Speaker 1: model question. What is their strength where they they are
Speaker 1: a country with great uh education and great technological prowess.
Speaker 1: The question is how to build a system that has
Speaker 1: a stronger private sector drive in the adoption and use
Speaker 1: of technology in ways that will bring prosperity to Russia.
Speaker 1: That's the challenge. I think they understand that, but that's
Speaker 1: the challenge. But this is fascinating because with you and
Speaker 1: Jeff Sex at the nascent capitalism of the collapse of
Speaker 1: the Soviet Union, you go to the era I'm going
Speaker 1: to say, the oligarchs or whatever that means. How do
Speaker 1: you perceive Russian capitalism forward? Do they move beyond the
Speaker 1: early models of the nineties and the two thousand's. Well,
Speaker 1: I don't know quite how they get from where they
Speaker 1: are to what I'm talking about, because I think it
Speaker 1: does mean uh having a system in which there's a
Speaker 1: more vibrant private economy with true competition and UH corporations
Speaker 1: that are able to UH compete with global counterparts and
Speaker 1: be modern, and it's I think it's not happening sufficiently
Speaker 1: at this point, and to me that the challenge for
Speaker 1: them is to find a way to have a more vibrant, vigorous,
Speaker 1: dynamic private sector. David, are we seeing direct private investment
Speaker 1: in Russia today? Just give us a sense of our companies,
Speaker 1: Western companies investing in Russia. I think it's modest and
Speaker 1: more modest than before the the UH conflict in Ukraine
Speaker 1: led to sanctions and great hesitancy on the part of
Speaker 1: UH country companies from a number of Western countries uneasy
Speaker 1: about their participations. David Lipton, thank you so much. We
Speaker 1: look forward to all of us at Bloomberg to your
Speaker 1: meetings here. He's I'm gonna say this to the acting
Speaker 1: managing director do one more time as we truly celebrate
Speaker 1: the changing of the guard APTI UH International Monetary fune
Speaker 1: Krystelina or Gava will take over as managing director of
Speaker 1: course Frontline Economics from Bulgaria. Dr Lipton, thank you so
Speaker 1: much for joining us Bloomberg Surveillance. Thanks for listening to
Speaker 1: the Bloomberg surveillance podcast. Subscribe and listen to interviews on
Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm
Speaker 1: on Twitter at Tom Keene before the podcast. You can
Speaker 1: always catch us worldwide. I'm Bloomberg Radio