WEBVTT - The Streak Down Under 0:00:04.440 --> 0:00:07.440 Hello, and welcome to Stephanomics, the podcast that brings the 0:00:07.440 --> 0:00:16.360 global economy to you. If the heck just happened in Australia. 0:00:16.800 --> 0:00:19.320 That was the headline from one online magazine this week, 0:00:19.400 --> 0:00:22.439 struggling to get its head round the shocking re election 0:00:22.520 --> 0:00:26.800 of the Conservatives in the recent Australian election. Everybody got 0:00:26.800 --> 0:00:31.080 this election wrong, even Bert the psychic Crocodile, who previously 0:00:31.120 --> 0:00:35.360 had an unblemished record of calling elections correctly. In fact, 0:00:35.440 --> 0:00:38.320 the result was considered such a sure thing that some 0:00:38.479 --> 0:00:41.680 bookmakers had already paid out to people betting on Labor 0:00:41.720 --> 0:00:44.479 to win. In a few minutes, I'll be asking our 0:00:44.560 --> 0:00:47.400 in house Australia experts whether there are any lessons here 0:00:47.440 --> 0:00:50.920 for other embattled governments around the world. I'll also have 0:00:50.960 --> 0:00:53.960 a word with FED reporter Chris Condon about the US 0:00:54.040 --> 0:00:57.920 Central Banks search for a new policy framework. But first 0:00:58.200 --> 0:01:01.760 we asked Australia Economy report to Chris Burke to explain 0:01:01.800 --> 0:01:05.600 why the economic recovery down Under has also been defying 0:01:05.640 --> 0:01:11.440 the odds. This has been an extraordinary day in the 0:01:11.440 --> 0:01:14.959 Soviet Union, where Mikhail Gorbachob has been ousted from power 0:01:15.440 --> 0:01:18.200 in what appears to have been a bloodless cool Terminator 0:01:18.240 --> 0:01:20.760 to Judgment Day. It's one of the new summer movies 0:01:20.800 --> 0:01:23.399 we'll be reviewing this week on Cisco and ebrit Home 0:01:23.520 --> 0:01:27.759 videotape of Los Angeles police beating Rodney King on indications 0:01:27.760 --> 0:01:31.240 here at the Pentagon that this war may maybe beginning 0:01:31.319 --> 0:01:33.520 right now and that the president may be going on 0:01:33.880 --> 0:01:38.680 the year the US goes to war with Iraq after 0:01:38.720 --> 0:01:42.520 Saddam Hussein in dades Kuwait, Vanilla Ice tops the music 0:01:42.600 --> 0:01:49.320 charts and the developed world's longest uninterrupted economic expansion begins 0:01:49.520 --> 0:01:56.440 down Under. For almost twenty eight straight years, Australia has 0:01:56.520 --> 0:02:00.480 enjoyed steady economic growth without a recession. Not in two 0:02:00.520 --> 0:02:03.680 thousand and one, where the tech bubble disrupted the US economy, 0:02:04.440 --> 0:02:06.960 not in two thousand and eight, when the global financial 0:02:07.000 --> 0:02:11.440 crisis infected much of the world. Here in Australia, the 0:02:11.480 --> 0:02:14.799 economy has just kept on growing. But that streak now 0:02:14.800 --> 0:02:16.919 looks to be in real danger of coming to an end. 0:02:18.800 --> 0:02:21.520 It's all because a tumbling housing market is having some 0:02:21.680 --> 0:02:25.560 painful side effects. The slump is weighing heavily on household 0:02:25.600 --> 0:02:29.800 spending and inflation in an economy that's already sharply slowed 0:02:30.360 --> 0:02:36.400 and where consumption makes up almost six of GDP. Indeed, 0:02:36.800 --> 0:02:39.800 Australians long held fear of a failing economy was on 0:02:39.919 --> 0:02:44.360 stark display just last weekend in the country's shock election result. 0:02:45.560 --> 0:02:48.280 While polls showed a change of government was all but certain, 0:02:48.919 --> 0:02:51.720 in the end, Ozzies just couldn't bring themselves to do it. 0:02:52.480 --> 0:02:55.880 Prime Minister Scott Morrison managed to convince voters that their 0:02:55.919 --> 0:02:59.720 economic prosperity would suffer if the Labor opposition one office. 0:03:01.800 --> 0:03:06.400 Australians are particularly nervous right now. The house prices have 0:03:06.480 --> 0:03:11.320 lost eight since the peak after a five year property 0:03:11.360 --> 0:03:14.720 boom ended with a thud. But the worst has been 0:03:14.760 --> 0:03:18.520 seen in Sydney, the most populous city in the nation's 0:03:18.560 --> 0:03:23.079 economic powerhouse, where prices have sunk more than fourteen percent 0:03:23.560 --> 0:03:37.680 from their peaks come through. I recently visited Wentworth Point, 0:03:38.480 --> 0:03:42.000 a suburb crammed with new apartment blocks about forty minutes 0:03:42.080 --> 0:03:45.640 northwest of central Sydney by train. I wanted to see 0:03:45.680 --> 0:03:48.840 just how gloomy things were in the housing market, so 0:03:48.920 --> 0:03:52.080 I arranged to meet real estate agent Alex Chittiac at 0:03:52.120 --> 0:03:54.560 an open house he was hosting for a three bedroom 0:03:54.600 --> 0:03:58.360 apartment on the side of the city's Paramatta River. The 0:03:59.560 --> 0:04:03.960 numbers of people attending our homes drop theramatically. This was 0:04:04.040 --> 0:04:06.640 on the market, say two years ago, we were expected 0:04:06.680 --> 0:04:09.880 at least you know, ten groups come through on on 0:04:09.880 --> 0:04:14.160 a Saturday. UM. Now it's you know, we're averaging around 0:04:14.160 --> 0:04:18.000 three to four UM. A lot of that. All the 0:04:18.000 --> 0:04:22.359 reason for that excause the the fiance commissions. It's a 0:04:22.360 --> 0:04:25.520 lot of coupler now and then to borrow money. So 0:04:25.720 --> 0:04:29.480 some people have disappeared altogether. Seen the number of investors 0:04:29.560 --> 0:04:32.040 drops on them. So this was this is currently owned 0:04:32.040 --> 0:04:35.840 by an investor UM and they're they're looking to get out, 0:04:36.480 --> 0:04:41.400 mainly because you know, they finding that finance Chinians are 0:04:41.440 --> 0:04:45.120 hard on. Australia is having its own version of the 0:04:45.200 --> 0:04:49.760 credit crunch. After bingeing on debt for five years to 0:04:49.800 --> 0:04:53.960 buy houses that were becoming more and more unaffordable, Australians 0:04:53.960 --> 0:04:56.800 were saddled with one of the highest household debt levels 0:04:56.880 --> 0:05:00.320 in the O e c D and their banks became 0:05:00.360 --> 0:05:05.240 the most exposed to housing in the world. But the 0:05:05.279 --> 0:05:08.640 money has since dried up. In the last two years, 0:05:09.160 --> 0:05:12.800 a combination of regulatory curbs and a widespread probe into 0:05:12.800 --> 0:05:16.760 the financial industry that exposed lots of bad behavior has 0:05:16.760 --> 0:05:20.640 seen banks turn off the taps. Investors are now getting 0:05:20.680 --> 0:05:24.840 a frosty reception and owner occupiers are being more scrutinized 0:05:24.920 --> 0:05:30.359 than ever. I met anchored Shama and Rony Samanathan, a 0:05:30.400 --> 0:05:33.960 couple inspecting the open home, and Wentworth Point. The two 0:05:34.000 --> 0:05:36.760 young doctors were recently married and are searching for their 0:05:36.760 --> 0:05:39.680 first time together. I asked them about the process of 0:05:39.680 --> 0:05:43.799 getting a home loan the upshot. If you like your Netflix, 0:05:43.960 --> 0:05:46.480 you might be in for a hard time. And are 0:05:46.520 --> 0:05:48.960 you finding that kind of a difficult process getting the homeland? 0:05:49.000 --> 0:05:53.120 Is it maybe taking it longer than you expected? Relying 0:05:53.200 --> 0:05:56.680 in January a long time, we just got a pre approved. 0:05:57.720 --> 0:06:01.119 Was the kind of criteria much stronger than you expected? Yeah, 0:06:01.200 --> 0:06:05.520 I think it's stronger and more more strict with you know, 0:06:05.760 --> 0:06:10.360 what they consider is income and what they conder and 0:06:10.400 --> 0:06:14.320 how much we's been on Netflix and printing counts. Did 0:06:14.360 --> 0:06:17.920 actually ask your stuff like that? That forms with every 0:06:17.920 --> 0:06:21.960 detail of us, bending from sending out to holidays to 0:06:22.480 --> 0:06:27.599 any subscription subscriptions, insurance, any detail have got the credit 0:06:27.640 --> 0:06:31.520 card you know some reason? And they analyzed the credit card, 0:06:31.600 --> 0:06:37.080 so we'd get the vacine. What was this expension? Australia's 0:06:37.080 --> 0:06:41.560 economy is presenting policy makers with something of a conundrum. 0:06:41.680 --> 0:06:44.880 The worst housing slump in the generation has played out 0:06:44.920 --> 0:06:48.880 amid a roaring hiring boom. Thousands of new jobs are 0:06:48.920 --> 0:06:52.040 being added each month, so by and large, most people 0:06:52.040 --> 0:06:55.679 are managing to meet their mortage repayments. And while annual 0:06:55.720 --> 0:06:59.159 GDP growth has slowed to two point three, that's still 0:06:59.200 --> 0:07:02.760 only slightly low it's decade average. This may all provide 0:07:02.800 --> 0:07:05.839 some comfort for now, but the jobs boom is showing 0:07:05.880 --> 0:07:09.279 signs of weakening, and the unemployment rate has been creeping 0:07:09.279 --> 0:07:13.000 back up. The Reserve Bank is worried that's going to 0:07:13.000 --> 0:07:16.320 see a further drag on household spending, and this week 0:07:16.680 --> 0:07:19.720 said it was considering cutting interest rates for the first 0:07:19.760 --> 0:07:30.720 time since you know, the thing that I think would 0:07:30.760 --> 0:07:33.000 really shift the balance of risks, as if we were 0:07:33.040 --> 0:07:36.800 staring down the barrel of a softer labor market over 0:07:36.840 --> 0:07:39.400 the course of two thousand and nine and two thousand 0:07:39.440 --> 0:07:43.240 and twenty, incomes growth will slow further, and it also brings, 0:07:43.480 --> 0:07:46.120 I guess into play the prospect of or selling in 0:07:46.120 --> 0:07:49.160 the housing market. Which is not something we've had as 0:07:49.160 --> 0:07:53.880 I yet. Sally Old is JP Morgan's senior strategist for 0:07:53.920 --> 0:07:57.640 interest rates in Australia, one of many economists who reckon 0:07:57.720 --> 0:07:59.960 the Central Bank will be forced to cut rates twice 0:08:00.160 --> 0:08:02.560 this year to shore up the economy. So you recently 0:08:02.640 --> 0:08:05.120 changed your outlook for interest rates to what extent did 0:08:05.120 --> 0:08:07.640 the housing slump play a part in that decision? So 0:08:07.720 --> 0:08:09.800 housing played a role in the sense that it's clearly 0:08:09.840 --> 0:08:13.560 having an impact on the consumer. We've been quite variosh 0:08:13.640 --> 0:08:16.120 on household consumption for a while now, and part of 0:08:16.160 --> 0:08:18.760 that was to do with the slowing in house prices, 0:08:18.760 --> 0:08:20.560 but more of it was just around some of these 0:08:20.600 --> 0:08:23.920 constraints on the balance sheet starting to to bind and 0:08:24.000 --> 0:08:29.120 make life a little bit difficult for Australian consumers. However, 0:08:29.160 --> 0:08:32.200 the property downturn plays out here, there seems to be 0:08:32.240 --> 0:08:35.160 a wide ranging consensus that it's going to be long 0:08:35.440 --> 0:08:39.240 and painful. While prices aren't falling at the speed they 0:08:39.240 --> 0:08:42.200 were a few months ago, they're unlikely to return to 0:08:42.200 --> 0:08:46.960 their twenties seventeen peaks for years. Not only that, many 0:08:46.960 --> 0:08:49.960 of the investors who once fueled the apartment market have 0:08:50.120 --> 0:08:54.160 left town. Some of those investors were likely scared off 0:08:54.240 --> 0:08:57.920 by the long expected election of a labor government which 0:08:57.920 --> 0:09:02.360 planned to strip investors of lucrative Tact benefits. But that's 0:09:02.360 --> 0:09:05.880 not happening now and could offer buys some incentive to 0:09:05.960 --> 0:09:10.240 return if they can get finance. That is, the Reserve 0:09:10.280 --> 0:09:13.760 Bank recently warned that a glut of Sydney apartments were 0:09:13.800 --> 0:09:17.960 a risk to the economy after eighty thou new units 0:09:17.960 --> 0:09:21.760 flooded the city in the past few years. In Wentworth 0:09:21.800 --> 0:09:25.920 Point alone, more than three thousand apartments are still waiting 0:09:25.960 --> 0:09:30.480 to be started or completed. I joined Alex, the estate 0:09:30.520 --> 0:09:33.000 agent on a quick tour of the area in a 0:09:33.120 --> 0:09:35.640 golf buggy that he uses to get around the large 0:09:35.760 --> 0:09:41.000 estates of apartments. I like to say, you sure were, 0:09:41.080 --> 0:09:46.640 I'll take this golf buggy on the road we're registered. 0:09:46.720 --> 0:09:56.880 Are We're going to be stopped by the clogs. So 0:09:57.080 --> 0:09:59.160 just to give you an idea. So he on the right, 0:09:59.520 --> 0:10:03.920 it's a few development site resigns. There's towers up to 0:10:04.200 --> 0:10:10.720 twenty stories on that block. Who's going to buy them? 0:10:10.760 --> 0:10:12.880 It's hard to say. They haven't started selling them here. 0:10:12.920 --> 0:10:16.400 Who There's another development that was that we just passed 0:10:17.080 --> 0:10:23.720 that was on the market. Um, they have sales happened 0:10:23.760 --> 0:10:27.120 wine as well as they hoped. So we're finding now 0:10:27.559 --> 0:10:30.040 that we've sort of pull things on the back burner 0:10:30.600 --> 0:10:37.640 and the projects being delayed. Um, I think it's until 0:10:37.760 --> 0:10:43.880 they start moving them again we will probably probably won't 0:10:43.880 --> 0:10:54.600 get off the grounds. If everything else in the world 0:10:54.679 --> 0:10:57.880 was a bit rosier, Australia's property slump might not be 0:10:57.960 --> 0:11:01.040 such a threat to the economy on its own. Indeed, 0:11:01.120 --> 0:11:03.760 the Reserve Bank still thinks the correction is an orderly one, 0:11:04.880 --> 0:11:07.079 but the problem is that it's happening at a time 0:11:07.400 --> 0:11:11.440 when wage growth is still sluggish and global uncertainty abounds. 0:11:12.679 --> 0:11:16.640 Australia's economy is more exposed to China than any other 0:11:16.760 --> 0:11:19.120 in the developed world, with about a third of its 0:11:19.120 --> 0:11:22.960 exports going there, and the jury is still out on 0:11:23.000 --> 0:11:26.280 whether China can rebound from a recent soft patch amid 0:11:26.280 --> 0:11:29.960 its ongoing trade dispute with the US. Add to that 0:11:30.120 --> 0:11:33.559 a big question mark hanging over global growth, and it's 0:11:33.640 --> 0:11:37.040 understandable why watches of the record breaking economy are a 0:11:37.080 --> 0:11:44.160 bit nervous. As a Kiwi who spent six years in 0:11:44.200 --> 0:11:46.760 their country, I can tell you that Ozzies are a 0:11:46.760 --> 0:11:50.200 pretty resilient lot. There is something to their age old 0:11:50.200 --> 0:11:53.920 mantrap of She'll be right, which basically means that whatever 0:11:53.960 --> 0:11:56.120 comes along won't be the end of the world. So 0:11:56.240 --> 0:11:58.559 have a beer in a barbie and enjoy the sunshine. 0:11:59.600 --> 0:12:02.240 But if their record stretch of economic growth should come 0:12:02.240 --> 0:12:06.160 to an end, that complacency is going to be sorely tested. 0:12:07.240 --> 0:12:09.880 We also understand that he has to take the good 0:12:09.880 --> 0:12:12.800 with the band. You know that the good times weren't 0:12:12.800 --> 0:12:16.880 gonna last forever um and it's I guess it's just 0:12:16.960 --> 0:12:21.240 a you just got to deal with with what you had. 0:12:22.559 --> 0:12:24.520 So eventually I think we will see a turn, and 0:12:24.920 --> 0:12:27.080 when it does, you know will be here to make 0:12:27.120 --> 0:12:32.520 the most of them. I'm Chris Burke for Bloomberg News. 0:12:44.120 --> 0:12:47.360 So that was a little bit on the miracle of 0:12:47.400 --> 0:12:52.960 the Australian economy and also the miracle of the election 0:12:53.360 --> 0:12:56.800 last week. Surprisingly, the reelection of the Conservative governments in 0:12:56.840 --> 0:13:01.079 Australia when nobody, literally no one expected them to win. 0:13:01.440 --> 0:13:04.280 I'm sitting in a noisy newsroom now talking on the 0:13:04.320 --> 0:13:08.640 phone down the line to Tamara Henderson, who's our economist 0:13:09.120 --> 0:13:13.200 for Australia and indeed Southeast Asia and New Zealand UM 0:13:13.440 --> 0:13:17.320 for Bloomberg Economics and also Malcolm Scott are Managing editor 0:13:17.600 --> 0:13:20.200 for Asia on the news side, Malcolm, can I start 0:13:20.240 --> 0:13:22.760 with you? I mean, person you're sitting in Sydney. Were 0:13:22.800 --> 0:13:26.160 you shocked by the result on Sunday? I was surprised. 0:13:26.200 --> 0:13:28.320 I said to all my friends about a month ago. 0:13:28.400 --> 0:13:30.560 The only way they can win this is by a 0:13:30.600 --> 0:13:34.520 relentless negative attack on what was a very big target. 0:13:35.080 --> 0:13:38.960 In a departure from the norm in Australia, the opposition 0:13:39.040 --> 0:13:42.960 Labor Party went to the electorate with a very detailed 0:13:43.000 --> 0:13:48.680 policy proposal, a whole bunch of tax initiatives, climate initiatives, 0:13:50.160 --> 0:13:55.000 a big redistribution plan moving income from older generation to 0:13:55.080 --> 0:13:59.000 the younger generation. And it was a huge target and 0:13:59.040 --> 0:14:03.120 a backfired. The Liberal Party and the National Party attacked 0:14:03.160 --> 0:14:08.600 the policies. They attacked the climate policies in the seats 0:14:08.600 --> 0:14:13.719 where jobs were at stake from them and it worked well. 0:14:13.760 --> 0:14:15.600 It reminds me actually, it's funny because we've got rather 0:14:15.720 --> 0:14:19.200 used to election upsets, you know, the surprise of Brexit vote, 0:14:19.240 --> 0:14:24.120 the surprise of the Trump election. But the big one 0:14:24.600 --> 0:14:27.560 that was in my sort of early in my life 0:14:27.760 --> 0:14:31.520 was in the UK, and it's the way you're describing 0:14:31.560 --> 0:14:33.600 it was kind of similar that after many years of 0:14:33.640 --> 0:14:38.360 Conservative government, Labor was expected to win and they were 0:14:38.480 --> 0:14:40.440 extremely confident, and on the back of that had a 0:14:40.520 --> 0:14:45.040 very detailed plan which even included raising taxes on a 0:14:45.120 --> 0:14:48.320 certain chunk of the electorate, the people on hire incomes, 0:14:48.480 --> 0:14:52.040 and that was credited afterwards as the reason why they 0:14:52.080 --> 0:14:55.640 had that. The Conservatives actually got reelected against everyone's expectation, 0:14:55.720 --> 0:14:59.400 and then nobody ever ran in Britain on a campaign 0:14:59.520 --> 0:15:02.760 promising to raise anybody's taxes ever again. So I wonder 0:15:02.760 --> 0:15:04.880 whether that will be the lesson for Labor. Is there 0:15:04.920 --> 0:15:09.400 something also, though, in this idea that the economy people 0:15:09.960 --> 0:15:12.080 gave the Conservatives, even though it may have been a 0:15:12.080 --> 0:15:14.520 bit of a mess under the Conservatives in terms of 0:15:14.600 --> 0:15:19.240 changes of leadership and everything else, that they had produced 0:15:19.240 --> 0:15:24.600 this very long recovery, potentially against the odds. Malcolm again, 0:15:25.640 --> 0:15:28.520 there was something to that. And they also restored the 0:15:28.560 --> 0:15:31.280 budget to surplus. Now in Australia, that's a big deal. 0:15:31.720 --> 0:15:35.680 People want the budget insurplus. The former Labor government had 0:15:35.720 --> 0:15:39.320 taken it into deficit in the response to the financial crisis. 0:15:39.720 --> 0:15:43.080 They promised to return it to surplus time and time 0:15:43.120 --> 0:15:46.320 again and never got there. Now the Coalition came into 0:15:46.360 --> 0:15:50.440 power a few years ago and they've restored some some 0:15:50.880 --> 0:15:55.280 kurds on spending and bit by bit they've been able 0:15:55.320 --> 0:15:59.960 to increase revenue. But Josh Feinberg, the Treasurer, just leading 0:16:00.160 --> 0:16:02.720 to the election, was able to declare that yes, after 0:16:02.760 --> 0:16:06.560 a decade of deficits budget surfaces are back and that 0:16:06.680 --> 0:16:11.400 really boosted the traditional view of the Liberal National Coalition 0:16:11.880 --> 0:16:16.600 as strong on the economy, Tamara, if you're an economy 0:16:16.640 --> 0:16:19.640 wanting to know how to have an endless recovery and 0:16:19.720 --> 0:16:22.480 no recessions, is there anything to learn from Australia or 0:16:22.520 --> 0:16:24.640 are they just in the right place at the right time, 0:16:24.800 --> 0:16:29.600 you know, so dependent on the Chinese economy when China 0:16:29.720 --> 0:16:31.560 was strong and the rest of the world was weak, 0:16:31.600 --> 0:16:36.960 but then also with their own domestic growth as well well. 0:16:36.960 --> 0:16:39.880 They have a couple of factors. They've got some shock absorbers, 0:16:39.880 --> 0:16:41.640 and one is the currency. It tends to be very 0:16:41.720 --> 0:16:47.440 responsive to global global demand conditions or commodity prices. And yes, 0:16:47.760 --> 0:16:51.000 they've actually got become much more linked to Asia and 0:16:51.160 --> 0:16:56.720 especially the Chinese Chinese economy and when China stimulating their economy, 0:16:56.880 --> 0:17:00.760 there there are knock on factors for Australia. But also 0:17:00.800 --> 0:17:04.800 this is a domestic demand economy, so that factors in greatly. 0:17:05.000 --> 0:17:07.600 And and during some of the times when when the 0:17:07.640 --> 0:17:10.200 rest of the world have been in a slump, Australia 0:17:10.240 --> 0:17:13.320 has happened to have a situation where the household spending 0:17:13.400 --> 0:17:16.400 has been in the right place, or even investment has 0:17:16.400 --> 0:17:18.439 been in the right in the right spot. So remember 0:17:18.480 --> 0:17:21.639 we had that mining investment boom going on as well 0:17:21.800 --> 0:17:25.360 just after the global financial crisis more recently, And Malcolm, 0:17:25.359 --> 0:17:27.600 what does it mean does the election have any big 0:17:27.720 --> 0:17:30.359 impact on economic policy in the short term. I guess 0:17:30.359 --> 0:17:33.040 there's you're not going to have all of those proposals 0:17:33.040 --> 0:17:36.399 from the Labor Party being implemented. But that's exactly the 0:17:36.480 --> 0:17:39.520 chief the chief difference. That's a removal of risk. You know, 0:17:39.600 --> 0:17:42.199 some of the economists had been worried Laby was going 0:17:42.240 --> 0:17:45.359 to revoke some of the concessions for tech for investment 0:17:45.359 --> 0:17:49.320 in property, right at the time that property is struggling, 0:17:49.720 --> 0:17:54.280 that we're going to add new taxes on the carbon emissions, 0:17:54.600 --> 0:17:56.640 right at the time that there is struggles to get 0:17:56.680 --> 0:18:04.080 sufficient baseline baseload power to Australia's cities, and the tax 0:18:04.160 --> 0:18:07.960 and spend dynamic of labor was was a bit of 0:18:08.000 --> 0:18:11.639 a threat to the continued growth. It was a threat 0:18:12.080 --> 0:18:14.919 that they justified on the grounds of fairness. But the 0:18:14.960 --> 0:18:18.080 removal of that means a status quo, and you know 0:18:18.760 --> 0:18:23.520 economies and economists often like the status quot. H Well, 0:18:23.880 --> 0:18:26.720 I think the lesson for other parts of the world is, 0:18:26.760 --> 0:18:30.480 if you want to have a really long recovery, be 0:18:30.600 --> 0:18:32.600 next to China, and if and if you're going to 0:18:32.720 --> 0:18:36.679 have a debt fueled housing bubble, try not to have 0:18:36.720 --> 0:18:40.520 it burst the same time as everybody else. Australia now 0:18:40.600 --> 0:18:43.000 has its crisis. I suspect it will be much less 0:18:43.000 --> 0:18:45.520 serious because it's not happening at the same time around 0:18:45.520 --> 0:18:56.280 the world. I'm joined now by Federal Reserve reporter Chris 0:18:56.280 --> 0:18:59.760 Condon to talk about something completely different but possibly more 0:19:00.080 --> 0:19:03.120 portent to many of the people listening, which is the 0:19:03.280 --> 0:19:06.399 US Central Bank, the Federal Reserves review of how it 0:19:06.480 --> 0:19:09.080 goes about its work. Because there's a there's a big 0:19:09.119 --> 0:19:13.399 conference coming up which if you just looked at the program, 0:19:13.560 --> 0:19:15.800 it would be one for the nerds, but actually we 0:19:15.800 --> 0:19:18.680 we we should really care about this? Is that right? Absolutely? 0:19:18.840 --> 0:19:21.879 You know, it's a big academic style conference in Chicago. 0:19:22.920 --> 0:19:26.840 It's really part of a year long process. The FED 0:19:26.920 --> 0:19:32.280 in particular is examining its mandate from Congress to keep 0:19:32.359 --> 0:19:34.399 prices low and stable, and they're thinking about how do 0:19:34.480 --> 0:19:37.399 we interpret that and how do we go about trying 0:19:37.440 --> 0:19:41.119 to fulfill that mandate At the moment, of course, you 0:19:41.160 --> 0:19:43.399 know that since two thousand and twelve they've had an 0:19:43.400 --> 0:19:47.959 explicit two percent inflation target, but you know, inflation has 0:19:48.000 --> 0:19:51.480 been low. They've failed to meet that target. For ever 0:19:51.560 --> 0:19:55.920 since they've had that target, that's been below two percent UM. 0:19:55.960 --> 0:19:57.600 So they're trying to think of what should we do 0:19:57.920 --> 0:20:02.840 to lift inflation um And there are a number of ideas, 0:20:02.720 --> 0:20:06.800 and some of them are quite technical, but quite controversial, 0:20:06.880 --> 0:20:10.240 i have to say. And already even before this big conference, 0:20:10.240 --> 0:20:14.560 they're running into some serious pushback from the PhD community 0:20:14.960 --> 0:20:19.280 about whether or not the biggest economy in the world 0:20:19.320 --> 0:20:24.560 should be experimenting essentially with its inflation target. Well, it's 0:20:24.600 --> 0:20:26.919 interesting you say that. Of course, we're all quake at 0:20:26.960 --> 0:20:29.359 the thought of the PhD community being against us. I'm 0:20:29.440 --> 0:20:32.760 roobly glad that they're not against me, but what kind 0:20:32.760 --> 0:20:34.680 of thing are they looking at? I mean, why is it? 0:20:34.680 --> 0:20:37.320 It does obviously seem odd to have we think of 0:20:37.359 --> 0:20:42.040 central banks as being dedicated to fighting inflation, but as 0:20:42.119 --> 0:20:43.520 you say, they've kind of got to get their head 0:20:43.520 --> 0:20:46.000 around the fact that they haven't been producing enough of it. 0:20:46.040 --> 0:20:48.119 And actually the US has been a bit more successful 0:20:48.160 --> 0:20:51.240 at that than countries like the central banks, like the 0:20:51.280 --> 0:20:54.679 European Central Bank in the last few years. But what 0:20:54.760 --> 0:20:57.280 kind of options could they be looking at? And someone 0:20:57.359 --> 0:21:00.480 was talking to me about maybe having a price level 0:21:00.680 --> 0:21:04.120 target or having an average inflation target. I guess those 0:21:04.160 --> 0:21:06.360 things are quite hard to explain to people, But why 0:21:06.359 --> 0:21:09.440 would they work better? Well, mostly I think we can. 0:21:09.760 --> 0:21:12.000 We can put them into a category that we can 0:21:12.000 --> 0:21:15.960 call makeup strategies. So at the moment, when they say 0:21:16.000 --> 0:21:18.640 they want to hit two percent inflation target, that means 0:21:18.640 --> 0:21:21.240 if it's below two percent, they want to push it 0:21:21.280 --> 0:21:24.199 back up um And no matter how long it's been 0:21:24.240 --> 0:21:27.520 below two percent, if it that then subsequently goes above 0:21:27.600 --> 0:21:30.520 two percent, they want to immediately push it back down 0:21:30.800 --> 0:21:34.320 to two. So they're always aiming to bring it closer 0:21:34.359 --> 0:21:38.399 to that target. Now they've been under it for so long. 0:21:38.760 --> 0:21:43.879 They're worried that that becomes ingrained in the way households 0:21:43.880 --> 0:21:46.200 and businesses react. In other words, that they think people 0:21:46.200 --> 0:21:49.120 will expect it to continue to be below and that 0:21:49.119 --> 0:21:53.240 that will worsen the problem. So one of the several 0:21:53.280 --> 0:21:58.320 actually of these proposals, um would have the FED, after 0:21:58.520 --> 0:22:01.879 a period of under shooting persistently for a while, what 0:22:02.040 --> 0:22:07.680 would have them aim to deliberately overshoot so that kind 0:22:07.720 --> 0:22:12.480 of over a longer period, inflation would average around two 0:22:13.359 --> 0:22:17.640 and that would keep the expectations of people, whether it's 0:22:17.680 --> 0:22:22.960 individuals or people running companies, keeping their expectations for inflation 0:22:23.200 --> 0:22:25.840 in the future to still be around two percent, rather 0:22:25.960 --> 0:22:29.720 than deteriorating over time, which they're very much worried about 0:22:29.800 --> 0:22:32.520 right now. I guess the question is, if you've already 0:22:32.560 --> 0:22:35.640 failed to achieve one target and you're gonna effectively trying 0:22:35.680 --> 0:22:38.320 to raise it and then say no, really, this time 0:22:38.359 --> 0:22:40.320 we're going to get We're gonna going to live even 0:22:40.400 --> 0:22:43.960 more inflation than we did before. Is that going to 0:22:44.080 --> 0:22:47.200 be credible to people? Is going to is an extremely 0:22:47.280 --> 0:22:50.000 good question. Really, it comes up all the time. If 0:22:50.000 --> 0:22:51.960 they can't hit two percent, how can they hit two 0:22:52.040 --> 0:22:54.439 and a quarter or two and a half, you know. 0:22:54.520 --> 0:22:58.560 I think it it comes down to their resolve inflation. 0:22:58.600 --> 0:23:02.840 As economists like to say always in everywhere a monetary phenomenon, 0:23:02.840 --> 0:23:05.560 the one thing that central banks ought to really be 0:23:05.680 --> 0:23:09.399 able to do is push around inflation. I think it 0:23:09.480 --> 0:23:13.080 takes a little bit more resolved in and and also 0:23:13.200 --> 0:23:17.560 the freedom that a new strategy would give them. Um, 0:23:17.760 --> 0:23:20.520 with the target set as it is now, I think 0:23:20.600 --> 0:23:24.920 there's always worry that there would be some um political 0:23:24.960 --> 0:23:28.520 reaction if they were seen to be letting it run, 0:23:28.680 --> 0:23:31.960 you know, reacting when it's rising towards two percent in 0:23:32.000 --> 0:23:35.560 a way that's allowing it to go beyond that. If 0:23:35.600 --> 0:23:39.600 they sold the strategy beforehand and then followed through with that, 0:23:39.680 --> 0:23:45.000 perhaps it would be a little braver about actually essentially 0:23:45.119 --> 0:23:48.920 letting it rise. As unemployed, as you know, is quite low. 0:23:49.359 --> 0:23:53.600 If they just don't react to any um initial rise 0:23:53.800 --> 0:23:56.359 in inflation heading as it heads back to two percent, 0:23:56.480 --> 0:23:59.800 and then let it go, perhaps they'll they'll be a 0:24:00.000 --> 0:24:03.720 little bit more successful. But recently, of course, they've they've 0:24:03.760 --> 0:24:07.600 they've they've stuck with their old instincts to keep ahead 0:24:07.640 --> 0:24:10.639 of it and try to cap it at two percent, 0:24:10.720 --> 0:24:13.919 and that's only resulted in them being below You'll be 0:24:13.920 --> 0:24:17.119 going alone. You'll you'll keep us informed. I will be 0:24:17.200 --> 0:24:19.959 several of us will be going off to Chicago. UM. 0:24:20.000 --> 0:24:22.000 And you know, if I could just add, it does 0:24:22.160 --> 0:24:27.000 reveal both in the political field and within economists. I 0:24:27.040 --> 0:24:32.320 think it reveals an interesting generational split. UM. A lot 0:24:32.359 --> 0:24:36.160 of folks who are old enough, who lived as adults 0:24:36.240 --> 0:24:39.720 through the very high period, the great inflation of the 0:24:39.800 --> 0:24:46.480 seventies and eighties, still think quite fearfully about what will 0:24:46.560 --> 0:24:51.440 happen with inflation if the FED doesn't very aggressively fight 0:24:51.480 --> 0:24:54.840 back against any incipient rise in inflation. You see that 0:24:54.920 --> 0:24:57.520 when J. Powel goes to Capitol Hill and some of 0:24:57.560 --> 0:25:01.600 the older lawmakers, UM kind of give a shot across 0:25:01.640 --> 0:25:04.560 the bow when he starts talking about re examining the 0:25:04.600 --> 0:25:07.680 inflation target. And you see it also among PhD s. 0:25:08.080 --> 0:25:10.320 You know, the one guy at the FED who's most 0:25:10.440 --> 0:25:14.680 pushing for a rethink about this is John Williams, one 0:25:14.720 --> 0:25:18.360 of the younger members of the Federal Open Market Committee. 0:25:18.359 --> 0:25:22.439 So I think that's also an interesting revealing aspect of 0:25:22.480 --> 0:25:24.440 all of this debate. Well, we are we are all 0:25:24.480 --> 0:25:26.840 creatures of the times in which we grew up, but 0:25:26.960 --> 0:25:31.400 hopefully not in our clothing ring, return of Flair trousers 0:25:31.440 --> 0:25:34.440 and god knows what count music. Chris, thank you very much. 0:25:34.480 --> 0:25:37.120 I am sure we will return to this topic. I'm 0:25:37.119 --> 0:25:47.080