WEBVTT - An Interview with Ray Dalio 0:00:02.720 --> 0:00:13.880 Bloomberg Audio Studios, Podcasts, radio News. Welcome to the City of. 0:00:13.800 --> 0:00:16.439 London, the City of the City, the City of London. 0:00:19.079 --> 0:00:22.800 Please mind the gap between the tree and the platform. 0:00:23.000 --> 0:00:30.880 The financial hearts of the country, the city, the city. 0:00:31.120 --> 0:00:32.519 Welcome to in the city. 0:00:34.600 --> 0:00:40.560 Stand clear of the doors, pea Welcome to in the city. 0:00:40.680 --> 0:00:43.559 Each week we unpack a story that's crucial to the 0:00:43.560 --> 0:00:47.480 world's financial capitals. I'm from Saint Laqua and this week 0:00:47.680 --> 0:00:50.840 we speak to Ray Dalio. It's been a crazy week 0:00:51.040 --> 0:00:54.720 on the markets because of Trump's tariffs. Well, Ray Dalio 0:00:54.800 --> 0:00:57.640 warns that investors are way too focused on tariffs and 0:00:57.800 --> 0:01:01.959 just not paying enough attention to the breakdown in major monetary, political, 0:01:02.040 --> 0:01:05.759 and geopolitical orders. He says the US reliance on debt 0:01:05.800 --> 0:01:09.160 to finance success and creditor countries like China holding too 0:01:09.240 --> 0:01:12.319 much debt is a worry and that will lead to 0:01:12.360 --> 0:01:15.240 our correction of these imbalances and a change in the 0:01:15.280 --> 0:01:19.160 monetary order. Let's begin, Ray Dalio, thank you so much 0:01:19.440 --> 0:01:21.240 for joining us now. This week was a little bit 0:01:21.319 --> 0:01:24.600 rough on the markets. I know you've also the way 0:01:24.640 --> 0:01:27.880 you view the world is basically by identifying five major 0:01:27.959 --> 0:01:31.400 forces that drive the rise and fall of nations and 0:01:31.440 --> 0:01:35.319 shape the global economy. So we have debt, money, economic cycles. 0:01:35.360 --> 0:01:39.720 There's internal order and disorder, external geopolitical order and disorder, 0:01:39.840 --> 0:01:44.600 acts of nature and technology. Given all these competing forces, 0:01:45.480 --> 0:01:47.880 what do you think is the most worrying right now? 0:01:51.880 --> 0:01:56.040 Yeah, I think it's important to step back and see 0:01:56.080 --> 0:01:59.480 this big picture to understand where we are and what 0:01:59.600 --> 0:02:03.200 I What I mean is there are orders, which are systems, 0:02:03.680 --> 0:02:07.680 like a monetary order. We have a monetary order, and 0:02:07.880 --> 0:02:11.120 related to that monetary order, it has to do with 0:02:11.200 --> 0:02:14.880 a debt cycle. And when you get into too much debt, 0:02:15.480 --> 0:02:18.240 it's a problem. Too much debt one man's debts another 0:02:18.280 --> 0:02:22.279 man's money. And then it's related of course to the economy, 0:02:22.440 --> 0:02:27.000 and it's related to the imbalances such as we have 0:02:27.040 --> 0:02:30.280 a very large imbalance in trade, and we have a 0:02:30.400 --> 0:02:34.200 very large imbalance in capital, and there's a supplied demand 0:02:34.800 --> 0:02:41.959 problem with debt. The second influence through time is the 0:02:42.320 --> 0:02:49.200 domestic political order in other words, for example, democracy and 0:02:49.280 --> 0:02:53.960 so on, and we are changing in a form that's 0:02:54.080 --> 0:02:56.560 very similar to the thirties. All of this pattern is 0:02:56.639 --> 0:02:59.960 very similar to the thirties, in which there's an internal 0:03:00.240 --> 0:03:05.560 conflict you know in Europe, make the trains run on time. 0:03:06.000 --> 0:03:12.480 The inefficiency, the conflict of the wealth gaps, the opportunities gaps, 0:03:12.560 --> 0:03:15.440 the left and the right getting to the point where 0:03:15.440 --> 0:03:21.560 they have irreconcilable differences, and there's great internal conflict about that. 0:03:22.520 --> 0:03:26.600 The third force changes in the. 0:03:26.200 --> 0:03:29.320 World order, the world geopolitical order, you know, which began 0:03:29.400 --> 0:03:32.760 in nineteen forty five as a result of what happened 0:03:32.800 --> 0:03:36.200 in the thirties, which is then you have a new 0:03:36.240 --> 0:03:40.520 world order, an American world order. The winning country desides 0:03:40.600 --> 0:03:43.520 how things are going to go. And we had an 0:03:43.560 --> 0:03:45.960 American world order, which is why we have the United 0:03:46.080 --> 0:03:48.560 Nations and the IMF and the World NINK and so on. 0:03:49.040 --> 0:03:51.280 In the United States, and the United States was a 0:03:51.320 --> 0:03:56.600 dominant power, and now we're having a conflict. There's no rule, 0:03:56.680 --> 0:04:02.440 who rules, and there's a conflict. Those orders are changing 0:04:02.480 --> 0:04:07.800 because of excesses. In addition, through time, there's always been 0:04:09.040 --> 0:04:12.480 acts of nature. Droughts, floods, and pandemics have killed more 0:04:12.480 --> 0:04:13.360 people than wars. 0:04:15.240 --> 0:04:16.600 And then there's technology. 0:04:16.720 --> 0:04:20.520 So those forces and you could see them in a cycle. 0:04:21.120 --> 0:04:25.520 So right now we have imbalances. We have a lot 0:04:25.560 --> 0:04:28.719 of debt, we have and it'll be it. There's a 0:04:28.760 --> 0:04:34.200 supply demand problem. We have a lot of debt with 0:04:34.200 --> 0:04:37.280 more men's debts from another men's assets. That means that 0:04:37.360 --> 0:04:42.880 some people, some holders of these debts are concerned about 0:04:42.880 --> 0:04:44.480 those both because they have. 0:04:44.480 --> 0:04:46.880 A lot of it. Then they have to buy a 0:04:46.920 --> 0:04:47.599 lot more. 0:04:47.880 --> 0:04:52.080 When this treasury runs a large deficit, that means they 0:04:52.080 --> 0:04:57.040 have to sell bonds. And then in this environment it's 0:04:57.320 --> 0:05:00.640 not as desirable. There are countries that worry about actions 0:05:00.680 --> 0:05:04.440 and so on that with China and other countries worry 0:05:04.480 --> 0:05:07.799 about those things, and so there's a supply demand balance. 0:05:07.920 --> 0:05:13.200 These are the main drivers their problems. 0:05:14.160 --> 0:05:17.360 They have to reduce the debt issue, they have to 0:05:17.440 --> 0:05:23.359 reduce the imbalances, you know, the trade imbalance and the 0:05:23.440 --> 0:05:27.279 capital and balance, particularly at a time when there's conflict 0:05:27.320 --> 0:05:31.039 and there needs to be a sense of self sufficiency 0:05:31.480 --> 0:05:34.520 that you produce it at home. And then also there's 0:05:34.880 --> 0:05:38.279 the hollowing out of the loss of manufactory. 0:05:39.640 --> 0:05:42.440 So anyway, that's the framing of it. 0:05:42.800 --> 0:05:48.440 And now we're seeing the particular manifestations and actions pertaining. 0:05:47.960 --> 0:05:48.280 To that. 0:05:50.240 --> 0:05:52.800 Y what we've lived through in the last week with 0:05:52.960 --> 0:05:56.200 these traffs by Donald Trump that really sent the markets 0:05:56.200 --> 0:06:01.200 in disarray with possible distress. Was it good idea badly 0:06:01.240 --> 0:06:06.000 thought out or was it just a bad idea. 0:06:08.760 --> 0:06:13.960 Let's go to the problem, the problem, and then we 0:06:14.080 --> 0:06:19.120 deal with the solution. The problem is in a world 0:06:19.360 --> 0:06:23.880 that's in war, almost in conflict, and there's too much 0:06:24.000 --> 0:06:30.360 debt somehow, and the hollowing out of the middle class somehow, 0:06:31.120 --> 0:06:37.479 those imbalances, which means interdependencies have got to be reduced. 0:06:38.440 --> 0:06:48.279 Now the way that was handled rather than through negotiations, 0:06:48.360 --> 0:06:50.040 you know, I'm not the politician. 0:06:50.160 --> 0:06:51.480 I'm not the negotiator. 0:06:51.960 --> 0:06:55.200 I'm not the person to say whether that style of 0:06:55.240 --> 0:06:59.920 handling it was better or worse. I would say that 0:07:00.120 --> 0:07:08.279 it dramatically affected psychology and attitude about the United States' reliability, 0:07:09.360 --> 0:07:15.440 and also it exacerbated concerns, so I would say it 0:07:15.440 --> 0:07:19.040 could have been handled better. I would also say that 0:07:19.160 --> 0:07:26.640 it's very theoretical too to think that we are in 0:07:26.680 --> 0:07:30.920 the necessary timeframe to eliminate those imbalances, which have our 0:07:31.080 --> 0:07:35.720 capital balances as well as trade imbalances. That it's difficult 0:07:35.800 --> 0:07:43.200 to make manufacturing happen here in the same way because 0:07:43.680 --> 0:07:46.320 of the structural things. Do you have the labor force, 0:07:47.560 --> 0:07:51.040 what are the regulations. It's very difficult nowadays to produce here, 0:07:51.080 --> 0:07:54.040 that's part of the bureaucracy. How do you get to 0:07:54.120 --> 0:07:58.240 become efficient? How do you get that population which has 0:07:58.320 --> 0:08:02.600 been hollowed out? Sty percent of Americans have below a 0:08:02.680 --> 0:08:06.360 sixth grade reading level and are having a problem to 0:08:06.360 --> 0:08:11.480 be productive. So can you build the alternatives that can? 0:08:11.520 --> 0:08:15.920 You build ships? And with that, I use ships as 0:08:15.960 --> 0:08:16.600 an example. 0:08:17.480 --> 0:08:17.880 If you. 0:08:19.640 --> 0:08:23.240 If you're a shipbuilder, it's going to be very difficult 0:08:23.280 --> 0:08:27.760 to in a reasonable time frame to build be become 0:08:27.800 --> 0:08:33.040 an effective shipbuilder. And even as a shipbuilder or the 0:08:33.120 --> 0:08:39.120 analogous UH industry, you still have to you have instability. 0:08:39.720 --> 0:08:43.320 You don't know if the next administration is going to 0:08:43.360 --> 0:08:45.400 have that, and then all of a sudden you're competing 0:08:45.440 --> 0:08:50.400 with the Chinese or alternative shipbuilders around the world. So 0:08:52.280 --> 0:08:54.720 I think it could have been UH. I think it 0:08:54.720 --> 0:08:58.360 could have been handled better. I think it's you know, 0:08:58.559 --> 0:09:06.560 very very to And then when you have the retaliatory tariffs, 0:09:07.400 --> 0:09:11.680 you have a situation where basically production sort of grinds 0:09:11.679 --> 0:09:16.920 to a halt because there's these interdependencies. 0:09:16.400 --> 0:09:18.280 And that is very bad. 0:09:18.920 --> 0:09:23.760 It's almost like another COVID in that it raises costs, 0:09:25.760 --> 0:09:31.520 it lowers revenues for companies, and it worsens the capital markets. 0:09:32.120 --> 0:09:36.240 That the capital markets are very important for a lot 0:09:36.240 --> 0:09:39.440 of companies to be able to do things, particularly let's say, 0:09:39.400 --> 0:09:44.920 if you're developing technologies or whatever that you so that 0:09:45.080 --> 0:09:52.280 market is tightening up. So this, I would say was 0:09:52.320 --> 0:09:57.040 not done in the best way. And I'm pleased at 0:09:57.120 --> 0:10:01.440 least that that's been changed. I think that was a 0:10:01.480 --> 0:10:05.439 smart move to change it, and we have hopefully negotiations. 0:10:05.480 --> 0:10:10.400 But you still have these very big issues and the 0:10:10.400 --> 0:10:11.160 budget issues. 0:10:11.160 --> 0:10:12.720 You see right now we're. 0:10:12.559 --> 0:10:16.760 Paying attention to the tariff. 0:10:18.600 --> 0:10:22.520 And the budget issue. Yeah, and the budget issue is 0:10:22.559 --> 0:10:24.720 probably the one that will also focus on, which I 0:10:24.760 --> 0:10:26.880 know is a subject of your new book. But did 0:10:26.880 --> 0:10:29.880 you see the risk of a global financial crisis this 0:10:30.000 --> 0:10:33.000 week on a scale of what we saw after Lehman collapsed. 0:10:33.920 --> 0:10:34.520 Yeah. 0:10:34.559 --> 0:10:40.959 Well, as explained in my earlier book, The Changing World Order, 0:10:41.760 --> 0:10:46.440 and as explained in this other book, How Countries Go 0:10:46.600 --> 0:10:52.240 Broke the Big Cycle, these risks have been I think 0:10:52.240 --> 0:10:56.560 apparent for some time. They're measurable and so on. So yes, 0:10:56.679 --> 0:10:59.920 I think that I think now when I thought before, 0:11:00.000 --> 0:11:03.440 as expressed in the book when I do the pro 0:11:03.520 --> 0:11:09.200 form of financials for the supply of debt and who 0:11:09.240 --> 0:11:14.120 are the buyers of the debt, I'm deeply concerned it'll 0:11:14.160 --> 0:11:19.680 be about the deficit will be probably in the order 0:11:19.720 --> 0:11:25.200 of seven percent of GDP. And when I do the 0:11:25.240 --> 0:11:29.160 supply demand estimates, if the demand is probably going to 0:11:29.160 --> 0:11:33.800 be closer to three percent of GDP, so there needs 0:11:33.840 --> 0:11:38.199 to be a cut in that. And in my book 0:11:38.240 --> 0:11:43.240 I explain how that could be done as it was 0:11:43.240 --> 0:11:47.480 done between nineteen ninety two and nineteen ninety eight through 0:11:47.520 --> 0:11:51.880 a mix of policies. I'm not the political person to 0:11:52.000 --> 0:11:54.480 decide which it is, but I would say there's a 0:11:54.520 --> 0:11:57.920 mantra that I have. Everybody should take the three percent 0:11:58.040 --> 0:12:01.040 pledge in one way or another. They have to bring 0:12:01.120 --> 0:12:03.880 that deficit down to that or I do believe we're 0:12:03.920 --> 0:12:07.480 going to have a supplied demand problem. And if you 0:12:07.679 --> 0:12:13.360 have that together with the other problems, the tariff problem 0:12:13.400 --> 0:12:17.599 and the like, and you have that in an environment 0:12:17.679 --> 0:12:24.640 that is socially and politically very sensitive, imagine you know 0:12:24.800 --> 0:12:29.040 how much we'll be fighting with each other if you 0:12:29.360 --> 0:12:35.800 have that perfect storm, and you know those circumstances are 0:12:35.840 --> 0:12:36.680 all significant. 0:12:38.600 --> 0:12:41.480 Have players become too big to fail in the US 0:12:41.840 --> 0:12:46.240 was you know, the rescue effectively from President Trump about that. 0:12:49.880 --> 0:12:55.760 Of course, you know, of course, of course. 0:12:55.800 --> 0:13:00.199 And that's why, in one way or another, the government, 0:13:00.920 --> 0:13:06.959 either directly through the central government or indirectly through the 0:13:07.000 --> 0:13:14.680 Central bank, always needs to make those that are makes 0:13:14.679 --> 0:13:18.040 a choice which are those that are too big to fail? 0:13:18.800 --> 0:13:23.559 And then the way they do it always is the 0:13:23.559 --> 0:13:28.960 central government does its thing, which has provide supports in 0:13:29.000 --> 0:13:32.360 one way or another, and the central bank works with 0:13:32.480 --> 0:13:38.679 the central government to create the credit and the money 0:13:38.880 --> 0:13:43.520 that's necessary to do that. And so this is always 0:13:43.559 --> 0:13:46.439 the case, and it's so this is certainly the case. 0:13:46.760 --> 0:13:48.400 We've seen this many times before. 0:13:50.360 --> 0:13:50.600 Right. 0:13:50.720 --> 0:13:54.199 Do you think some investors would have basically blown up 0:13:54.440 --> 0:13:58.800 if the President hadn't reverse course on teriffs because of 0:13:58.840 --> 0:13:59.720 the market turmoil? 0:14:03.240 --> 0:14:08.440 Yes, some some certainly would, not only just because of 0:14:08.480 --> 0:14:14.840 the tariffs, but because of the capital markets implications. So 0:14:15.000 --> 0:14:19.400 there's a spiral that is reinforcing. When the capital markets 0:14:19.480 --> 0:14:25.040 tighten up for certain companies or certain people, and then 0:14:25.440 --> 0:14:29.000 there is the concern and that goes down there needs 0:14:29.000 --> 0:14:29.680 to be. 0:14:31.720 --> 0:14:35.440 An action, and that's you know, always the case. 0:14:35.760 --> 0:14:39.080 So, yes, we have these vulnerabilities, and then we have 0:14:40.360 --> 0:14:43.680 what governments do in the face of those vulnerabilities. 0:14:43.720 --> 0:14:45.280 This is this has always happened. 0:14:47.080 --> 0:14:49.640 But so given all of this, and given the market 0:14:49.680 --> 0:14:52.400 to themal that we saw, where should regulators be looking 0:14:52.480 --> 0:14:53.080 for risks? 0:15:00.120 --> 0:15:03.440 We went through the two thousand and eight financial crisis, 0:15:04.280 --> 0:15:08.520 a number of rules were put into place about how 0:15:08.840 --> 0:15:14.960 governments should and central banks should be handling things. So 0:15:15.120 --> 0:15:24.000 many rules that there was an absence of discretion and 0:15:24.880 --> 0:15:28.720 in other words, discretion was taken away for dealing with 0:15:28.760 --> 0:15:32.920 some of these issues. It's dependent on those rules working 0:15:33.120 --> 0:15:38.560 very well. Those who went through that time, Tim Geidner, 0:15:41.280 --> 0:15:42.480 Ben bernanke. 0:15:43.760 --> 0:15:45.520 Hank Paul Said, and so on. 0:15:46.840 --> 0:15:50.840 Spoke very clearly about the fact that you can have 0:15:50.960 --> 0:15:55.160 so many rules and in a crisis there needs to 0:15:55.200 --> 0:15:56.440 be a quick. 0:15:58.080 --> 0:15:58.360 Action. 0:16:00.600 --> 0:16:06.160 So my bigger worry is not that there would be 0:16:06.920 --> 0:16:09.960 it's a little bit that the rules themselves and the 0:16:10.000 --> 0:16:14.560 need to operate by the rules might could stand in 0:16:14.600 --> 0:16:19.480 the way of that. I'm not especially concerned about that, 0:16:20.120 --> 0:16:21.720 but I am concerned about that. 0:16:21.760 --> 0:16:23.840 What I am really mostly. 0:16:23.440 --> 0:16:30.520 Concerned about is the basic supplied demand of debt. It's 0:16:30.560 --> 0:16:33.960 together with these other factors because they work together. The 0:16:34.040 --> 0:16:38.680 debt combines with the politics, combines with the economy, combines 0:16:38.720 --> 0:16:44.480 with the geopolitical and so we talk about China, of course, 0:16:45.200 --> 0:16:51.400 but there are now dynamics at work Russia and Europe, 0:16:53.240 --> 0:16:59.240 the Middle East, there are, and there is not the 0:16:59.400 --> 0:17:05.040 same order in dealing with those. So it's that combination 0:17:05.600 --> 0:17:09.560 that I think is particularly dangerous. Any one of them, 0:17:09.600 --> 0:17:13.040 the supply demand would be dangerous, but these other things 0:17:13.359 --> 0:17:15.200 are dangerous. 0:17:16.280 --> 0:17:18.400 So we know ray that a lot of the banks 0:17:18.440 --> 0:17:21.320 are looking at their risk levels, and some have grown 0:17:21.359 --> 0:17:24.200 so much in prime brokerage, right, they've done this quite 0:17:24.240 --> 0:17:27.440 aggressively that they've had to give margin calls to some clients. 0:17:28.560 --> 0:17:32.399 Could they just terms under which they provide repo financing 0:17:32.440 --> 0:17:35.680 against treasuries? Is this a way to cool off the system? 0:17:38.520 --> 0:17:41.960 Yes, and they always do. And then. 0:17:44.359 --> 0:17:50.880 And I'm I'm not particularly concerned at that level because 0:17:50.960 --> 0:17:56.920 I think that those things can be handled. They'll be 0:17:57.400 --> 0:18:01.920 if you look at liquidity measures and ill liquidity measures 0:18:02.240 --> 0:18:05.520 and the tightness I've we have a liquidity gauge that 0:18:05.840 --> 0:18:09.560 you know has gone back actually you know, to nineteen 0:18:09.640 --> 0:18:11.520 thirty and so on a new you can measure these 0:18:11.560 --> 0:18:16.720 ill liquidity and this country, it has not reached and 0:18:16.800 --> 0:18:21.320 I think it would be unlikely to reach such extreme levels. 0:18:21.359 --> 0:18:24.960 And if it does, I think, except for. 0:18:24.960 --> 0:18:28.880 These regulatory hurdles, I think, you know, buy and large, 0:18:28.880 --> 0:18:32.119 they'll be handled. I think it's the greater watch the 0:18:32.440 --> 0:18:38.160 thirty year bond. Look at the market action of the 0:18:38.200 --> 0:18:43.119 thirty year bond relative to the ten year bond relative 0:18:43.200 --> 0:18:51.000 to cash, and that's reflecting the market action. Watch when 0:18:51.040 --> 0:18:54.480 the bond market goes down at the same time as 0:18:54.520 --> 0:18:59.560 the dollar goes down, at the same time as gold 0:18:59.680 --> 0:19:06.040 goes up, it is reflecting a shift in the capital market. 0:19:06.119 --> 0:19:09.080 So if the yield curve becomes more. 0:19:09.560 --> 0:19:14.439 Steep at the same time as the currency is going down, 0:19:14.800 --> 0:19:19.560 and you have that market action, it's reflecting the movement of. 0:19:21.520 --> 0:19:23.000 A supply demand in balance. 0:19:23.040 --> 0:19:26.960 So I would I'm concerned about that supply demand in balance, 0:19:27.160 --> 0:19:30.440 and I should say I don't want to just complain 0:19:30.520 --> 0:19:37.080 about things. In this book, I suggested what I call 0:19:37.119 --> 0:19:40.640 a three percent solution and three factor solution. 0:19:42.000 --> 0:19:43.920 Three percent of GDP which. 0:19:43.760 --> 0:19:45.840 Can be gotten, and three Let's keep in mind there 0:19:45.840 --> 0:19:53.480 are three factors they're spending. There's Texas, and there's interest rates, 0:19:54.320 --> 0:20:01.000 and interest rates are now more important than spending or taxes, 0:20:01.080 --> 0:20:05.960 even because of the size of that debt, so that 0:20:06.000 --> 0:20:10.080 we're dealing with a trillion dollars in interest rates and 0:20:10.240 --> 0:20:13.919 about nine trillion dollars more than that that has to 0:20:13.960 --> 0:20:16.639 be rolled over, which means has to be sold again. 0:20:17.240 --> 0:20:18.720 That's the issue. I think. 0:20:20.480 --> 0:20:23.320 There's also a number of papers right that talk about 0:20:23.320 --> 0:20:26.560 safety valve given really in the more immediate term what 0:20:27.040 --> 0:20:29.359 happened in the last week, and one of them said 0:20:29.359 --> 0:20:31.800 that the FED could consider, for example, setting up an 0:20:31.800 --> 0:20:35.880 emergency program that would close out highly leveraged hedge fund 0:20:35.880 --> 0:20:39.240 trades in the event of a crisis. Does that seem 0:20:39.320 --> 0:20:41.600 like something that you'd agree with? Does that seem like 0:20:41.640 --> 0:20:43.720 a good idea? 0:20:43.960 --> 0:20:47.040 I don't think that there's the understanding of that. 0:20:48.920 --> 0:20:58.199 I I'm all in favor of smart controls in a 0:20:58.240 --> 0:21:06.240 certain circumstance, but the amount of knowledge and the elements 0:21:06.280 --> 0:21:09.359 of whether it's a hedge fund or whether it's a bank, 0:21:09.520 --> 0:21:15.480 or whether it's some form of dealer, the actual knowledge 0:21:15.560 --> 0:21:21.679 to quickly make smart decisions is of concern to me 0:21:22.600 --> 0:21:24.160 that it's not adequate. 0:21:26.200 --> 0:21:30.560 Do you believe there's yea? Do you believe right there's 0:21:30.560 --> 0:21:35.440 permanent damage from the trade war. Right, despite Trump's turnaround, 0:21:35.960 --> 0:21:38.879 has damage been done to the global economy by this 0:21:39.040 --> 0:21:42.560 lingering sense of unpredictability in US policy? 0:21:43.560 --> 0:21:52.800 Yes, that all entities that I speak with. 0:21:54.119 --> 0:22:03.760 Here or around the world have an element of trauma 0:22:03.920 --> 0:22:14.359 or shock or fear and lack of confidence that there 0:22:14.400 --> 0:22:20.439 will be And I'm going to be careful not to 0:22:20.480 --> 0:22:24.800 say lack of confidence in general, but lack of certainty 0:22:25.000 --> 0:22:29.840 or the volatility is a scary thing together with the 0:22:30.080 --> 0:22:36.920 underlying circumstances. So the sense of stability has gone down 0:22:37.200 --> 0:22:37.560 a lot. 0:22:37.640 --> 0:22:39.359 The sense of the trust in. 0:22:42.720 --> 0:22:48.119 Policy being stable and the environment being stable has gone 0:22:48.160 --> 0:22:51.320 down a lot. The sense of being able to work 0:22:51.400 --> 0:22:54.200 things out has gone down a lot. 0:22:57.000 --> 0:23:00.680 How does the US regain that trust and what does 0:23:00.720 --> 0:23:04.520 that mean for treasuries, the US dollar as a reserve 0:23:04.600 --> 0:23:11.440 currency and actually US exceptionalism. 0:23:11.640 --> 0:23:17.240 Rust is the most important thing in all the capital markets, 0:23:21.480 --> 0:23:28.560 and I think that there's I think that that's a 0:23:28.640 --> 0:23:32.040 source of great of great concern. It takes a very 0:23:32.200 --> 0:23:37.440 long time to build a reputation that the capital markets 0:23:37.480 --> 0:23:45.320 are free, safe, that there's reasonableness, and that there's a 0:23:45.320 --> 0:23:52.080 way of working things out collectively that's not damaging. And 0:23:52.119 --> 0:23:53.800 you know, I don't know what the saying is, but 0:23:54.320 --> 0:23:56.520 you know how long it takes to build a reputation, 0:23:56.680 --> 0:23:59.720 and it only takes one or two times to lose 0:23:59.760 --> 0:24:02.920 that reputation, takes a long time to. 0:24:02.840 --> 0:24:06.240 Get it back. So I think. 0:24:08.040 --> 0:24:12.040 A lot will depend on the quality of all these 0:24:12.080 --> 0:24:18.040 decisions making the cooperation. And I'm not saying it won't happen, 0:24:19.040 --> 0:24:25.919 but it it better happened quickly, I think. And so 0:24:26.200 --> 0:24:32.680 in other words, how does it work? Negotiations and beyond negotiations, 0:24:33.800 --> 0:24:38.960 less volatility, just the sense that the capital markets now 0:24:39.840 --> 0:24:47.880 could lock up itself creates a change in the way 0:24:49.040 --> 0:24:54.439 that everyone, most importantly companies deal with their businesses and 0:24:54.480 --> 0:24:57.120 their capital capital raising and all of that. 0:24:59.680 --> 0:25:02.399 And so what's the right way of dealing with China 0:25:02.480 --> 0:25:05.280 given all of this, and given your specific worry that 0:25:05.320 --> 0:25:08.160 you've had for quite some time about US debt. 0:25:11.440 --> 0:25:17.040 Well, first, there has to be a recognition that we 0:25:17.080 --> 0:25:23.080 have a structural problem in that we have an interdependency 0:25:24.280 --> 0:25:31.640 that the United States can't either financially or geopolitically, because 0:25:31.680 --> 0:25:36.359 of the risks be in a position where it's dependent 0:25:37.320 --> 0:25:45.000 on getting stuff from China and Similarly, for the Chinese, 0:25:45.040 --> 0:25:51.200 they can't be feel safe about getting their capital returns. 0:25:52.520 --> 0:25:53.120 In that way. 0:25:53.280 --> 0:25:58.320 So in a global economy you can't have by definition 0:25:58.680 --> 0:26:03.360 large imbalances. So now the question is how to deal 0:26:03.400 --> 0:26:08.040 with that. That's an engineering exercise in my opinion. They 0:26:08.080 --> 0:26:12.320 can have a negotiated way in which. 0:26:14.520 --> 0:26:17.199 The currency is raised. 0:26:17.200 --> 0:26:19.600 They have to in one way or another to deal 0:26:19.640 --> 0:26:23.680 with this reduce that so the currency can be raised 0:26:23.760 --> 0:26:28.600 or mm B, which would happen by then starting to 0:26:28.680 --> 0:26:33.280 sell off reserves. The United States likes the fact that 0:26:33.320 --> 0:26:40.000 the currency would appreciate, and that the and probably the 0:26:40.080 --> 0:26:43.360 Chinese like the fact that they can get less in 0:26:43.480 --> 0:26:47.359 debt by selling off some of their holdings in that 0:26:47.520 --> 0:26:52.600 dynamic to support the currency, in which case then China 0:26:53.640 --> 0:26:59.120 has to not just be a manufacturer, but it has 0:26:59.200 --> 0:27:06.200 to be a consumer. And so right now about thirty 0:27:06.240 --> 0:27:10.119 three percent of all manufacturing in the world, which is 0:27:10.160 --> 0:27:15.199 more than the United States, Germany and Japan combined, is 0:27:15.240 --> 0:27:21.399 from China. So they manufacture. The United States does not manufacture, 0:27:22.680 --> 0:27:27.359 and so what the world needs now is the Chinese 0:27:27.400 --> 0:27:30.359 to be consumers. So if you would have that foreign 0:27:30.440 --> 0:27:36.080 exchange increase and you were to deal with trade together 0:27:36.480 --> 0:27:40.600 in a sensible way. I think ideally then you would 0:27:40.680 --> 0:27:46.600 also have naturally Chinese doing an increase in monetary and 0:27:46.640 --> 0:27:56.040 fiscal policies to raise demand, particularly consumption, because exports. 0:27:55.560 --> 0:28:00.159 Are going to go down. Manufacturing is going to be 0:28:00.200 --> 0:28:00.760 a problem. 0:28:01.160 --> 0:28:04.600 So that if they raise consumption and the United States 0:28:04.640 --> 0:28:10.200 becomes less consumption driven and more production driven, at least 0:28:10.200 --> 0:28:17.320 those are movements in the right right direction. Such negotiations, unfortunately, 0:28:17.840 --> 0:28:25.240 and such actual big changes are unlikely to take place 0:28:26.480 --> 0:28:29.919 quickly enough and well enough is my fear. 0:28:33.119 --> 0:28:33.280 Right. 0:28:33.320 --> 0:28:36.640 I mean, given that, and given this possible permanent scarring 0:28:36.680 --> 0:28:41.600 of US dollar and treasuries, is a US recession actually avoidable? 0:28:47.120 --> 0:28:50.960 I think it's likely that we're going to be in 0:28:51.560 --> 0:28:55.400 a recession. And the question really recession is you know, 0:28:55.440 --> 0:28:58.320 a line at zero you get and then you know 0:28:58.360 --> 0:29:02.160 sort of two quarters in that And I think right 0:29:02.200 --> 0:29:05.960 now it's you know, it's it's close call, and it's probable. 0:29:07.160 --> 0:29:08.360 But who cares about. 0:29:10.200 --> 0:29:13.480 Stat let's say two quarters of stagnation or a little 0:29:13.480 --> 0:29:19.360 bit of negative. I'm more worried about the greater dynamic 0:29:20.480 --> 0:29:26.240 of these conflicts. Uh they you know, I'm worried about 0:29:26.400 --> 0:29:28.480 more serious. 0:29:29.280 --> 0:29:34.920 Issues that are structural, financial. 0:29:35.320 --> 0:29:41.560 Political, the financial, the political and uh and the geo 0:29:41.680 --> 0:29:45.400 political because they feed on itself if you get a 0:29:45.400 --> 0:29:52.520 bad one, you know, yeah, this is not this is 0:29:52.560 --> 0:29:58.680 not a normal recession kind of situation. We are changing 0:29:58.760 --> 0:30:01.440 the monetary order in other words, when we start to 0:30:01.520 --> 0:30:06.480 think there's supply and the demand for debt and one 0:30:06.520 --> 0:30:09.640 man's debts or another man's assets, as I said, and 0:30:09.680 --> 0:30:14.280 then the question is money which is debt is supposed 0:30:14.280 --> 0:30:17.000 to be both the medium of exchange and a. 0:30:17.080 --> 0:30:18.320 Storehold of wealth. 0:30:20.400 --> 0:30:22.480 And there are times in history and this is one 0:30:22.520 --> 0:30:26.000 of those times in history that there's a question of 0:30:26.080 --> 0:30:32.920 whether bonds are an effective storehold of wealth because of 0:30:32.960 --> 0:30:37.560 this supply de man and so on, and then the 0:30:37.600 --> 0:30:41.640 need for you know, what does the central bank do? 0:30:41.760 --> 0:30:45.000 They try to push down the rates and provide liquidity, 0:30:45.040 --> 0:30:46.960 and that we. 0:30:47.000 --> 0:30:47.719