1
00:00:03,560 --> 00:00:07,000
Speaker 1: This is Bloomberg Surveillance. What I think the markets are

2
00:00:07,040 --> 00:00:09,200
Speaker 1: doing is adjusting to the fact that things are going

3
00:00:09,240 --> 00:00:11,319
Speaker 1: to be low a longer. Interest rates going to stay

4
00:00:11,480 --> 00:00:15,240
Speaker 1: lower longer than people anticipate. Low inflation is very good

5
00:00:15,280 --> 00:00:17,520
Speaker 1: for stocks. That has proven to be over the last

6
00:00:17,560 --> 00:00:20,919
Speaker 1: fifty plus years. The biggest banks are still in my judgment,

7
00:00:21,000 --> 00:00:23,400
Speaker 1: too big to fail, and if we had multiple banks

8
00:00:23,480 --> 00:00:25,400
Speaker 1: run into trouble at the same time, they would still

9
00:00:25,400 --> 00:00:28,640
Speaker 1: get bailed out. Bloomberg Surveillance your link to the world

10
00:00:28,680 --> 00:00:33,480
Speaker 1: of economics, finance and investment on Bloomberg Radio. Good morning everyone,

11
00:00:33,560 --> 00:00:37,600
Speaker 1: Good morning worldwide. The most amazing morning for global markets

12
00:00:37,600 --> 00:00:40,120
Speaker 1: with Sterling leading the way off the brux of fears,

13
00:00:40,120 --> 00:00:42,800
Speaker 1: but other news as well. We had a one thirty

14
00:00:42,800 --> 00:00:47,559
Speaker 1: eight handle on cable right now one um on pound

15
00:00:47,800 --> 00:00:51,560
Speaker 1: Sterling Bloomberg Surveillance this morning. It's runch you by Cone

16
00:00:51,640 --> 00:00:56,080
Speaker 1: Resident Accounting. Jack's advisory is economic policy changes, So do

17
00:00:56,480 --> 00:01:00,200
Speaker 1: business decisions. Speak to the experts the CONE Resident for

18
00:01:00,200 --> 00:01:03,400
Speaker 1: the forward thinking advice. You need find out more at

19
00:01:03,440 --> 00:01:07,120
Speaker 1: kon Resnik dot com. Without further ado, we need to

20
00:01:07,120 --> 00:01:10,800
Speaker 1: bring in Martin Feldstein of Harvard University. Of course, the

21
00:01:10,880 --> 00:01:14,240
Speaker 1: founder of the force of n b r R National

22
00:01:14,280 --> 00:01:18,200
Speaker 1: Bureau of Economic Research, and leading acolytes of ECT ten

23
00:01:18,880 --> 00:01:23,679
Speaker 1: in teaching basic economics to young upstarts at Harvard. Professor

24
00:01:23,720 --> 00:01:27,640
Speaker 1: wonderful speak to you that we could talk to you

25
00:01:27,680 --> 00:01:30,280
Speaker 1: this morning. I think, Mike, we could go three, if

26
00:01:30,319 --> 00:01:33,759
Speaker 1: not four hours with a good professor. Let me ask

27
00:01:33,840 --> 00:01:37,320
Speaker 1: the fiscal question of the morning. If we all assume

28
00:01:37,640 --> 00:01:45,520
Speaker 1: our monetary institutions are exhausted and you're reading of political history,

29
00:01:45,560 --> 00:01:50,680
Speaker 1: is there any way a society or monetary authorities jaw

30
00:01:50,800 --> 00:01:58,000
Speaker 1: bone good politicians to affect fiscal policy. Well, right now,

31
00:01:58,200 --> 00:02:01,680
Speaker 1: I don't think we need to do any new fiscal policy.

32
00:02:02,400 --> 00:02:05,440
Speaker 1: So it's really a question about what's going to happen

33
00:02:05,480 --> 00:02:10,600
Speaker 1: in the future. Uh. If this recovery continues, if the

34
00:02:10,800 --> 00:02:15,680
Speaker 1: Fed normalizes interest rates, then it will be just like

35
00:02:15,880 --> 00:02:22,120
Speaker 1: any other uh past downturn. UH, and monetary policy will

36
00:02:22,160 --> 00:02:24,440
Speaker 1: be able to do the job. Will you make an

37
00:02:24,480 --> 00:02:26,960
Speaker 1: interesting point you wrote this week in the Wall Street

38
00:02:27,000 --> 00:02:31,040
Speaker 1: Journal that the Fed should continue to raise interest rates,

39
00:02:31,040 --> 00:02:34,440
Speaker 1: that the US economy is in better shape than people think.

40
00:02:35,040 --> 00:02:38,040
Speaker 1: And uh, you seem to be a lonely voice out

41
00:02:38,080 --> 00:02:42,440
Speaker 1: there calling for additional rate moves by the central Bank. Well,

42
00:02:42,440 --> 00:02:45,720
Speaker 1: of course, if if you're the stock market or the

43
00:02:45,800 --> 00:02:50,280
Speaker 1: investors in the stock market, you want another pumping up

44
00:02:50,520 --> 00:02:53,600
Speaker 1: of equity prices by the Fed. But I think that's

45
00:02:53,639 --> 00:02:56,760
Speaker 1: a dangerous strategy. I think the Fed got it right

46
00:02:56,880 --> 00:03:01,919
Speaker 1: last December when they said they would have for increases

47
00:03:02,040 --> 00:03:06,079
Speaker 1: this year, and I don't think things have changed significantly

48
00:03:06,160 --> 00:03:08,680
Speaker 1: since then. Pick it up here, but this is critical.

49
00:03:08,840 --> 00:03:12,880
Speaker 1: How do you, Madame Legarde says, which is Janet yelling,

50
00:03:13,040 --> 00:03:19,680
Speaker 1: must worry about the contagion of global slowdown and it's

51
00:03:19,720 --> 00:03:23,080
Speaker 1: certainly not having a big impact on the United States.

52
00:03:23,760 --> 00:03:27,280
Speaker 1: If you look at what's happened to our net exports

53
00:03:27,680 --> 00:03:30,200
Speaker 1: the last two quarters for which we have data, the

54
00:03:30,400 --> 00:03:34,079
Speaker 1: cumulative effect over the last two quarters was to reduce

55
00:03:34,520 --> 00:03:39,360
Speaker 1: GDP by one quarter of one percent. So this is

56
00:03:39,360 --> 00:03:42,200
Speaker 1: not a problem for the US. It is certainly true

57
00:03:42,760 --> 00:03:46,560
Speaker 1: that Japan is in trouble, that the Eurozone is in trouble,

58
00:03:47,280 --> 00:03:51,000
Speaker 1: China has slowed down a bit, but who wouldn't like

59
00:03:51,200 --> 00:03:54,160
Speaker 1: to be growing at six and a half percent? Are

60
00:03:54,200 --> 00:03:58,480
Speaker 1: you afraid that the Fed is afraid of financial markets?

61
00:03:58,520 --> 00:04:02,200
Speaker 1: At this point they're acting as if they are. The

62
00:04:02,280 --> 00:04:04,720
Speaker 1: question is is that what they're really afraid of, or

63
00:04:04,800 --> 00:04:07,920
Speaker 1: is it that what they're looking for is a further

64
00:04:08,080 --> 00:04:12,760
Speaker 1: reason to keep money very loose, keep interest rates super

65
00:04:12,840 --> 00:04:16,479
Speaker 1: low so they can squeeze another few tenths off the

66
00:04:16,760 --> 00:04:21,479
Speaker 1: unemployment rate. Well, that's that's what they say they want.

67
00:04:21,560 --> 00:04:26,800
Speaker 1: But given the the forecasts that the FED made for

68
00:04:26,839 --> 00:04:31,800
Speaker 1: what happens to the economy in two thousand sixteen, there

69
00:04:31,839 --> 00:04:34,120
Speaker 1: doesn't seem to be a reason to hold off in

70
00:04:34,240 --> 00:04:37,720
Speaker 1: March given the data you're sighting. But they're giving every

71
00:04:37,760 --> 00:04:40,560
Speaker 1: impression that they're going to do that. Well, you're right,

72
00:04:40,680 --> 00:04:43,599
Speaker 1: But as you said, if you look at their forecast,

73
00:04:43,680 --> 00:04:46,280
Speaker 1: if you look at the administration's forecast, if you look

74
00:04:46,320 --> 00:04:49,640
Speaker 1: at the CBO's forecast, if you look at private forecast,

75
00:04:50,040 --> 00:04:52,159
Speaker 1: they're all saying, this is going to be a year

76
00:04:52,240 --> 00:04:54,880
Speaker 1: in which we're going to have two plus percent real

77
00:04:54,960 --> 00:05:00,480
Speaker 1: GDP growth. So I think the fetish about whether we

78
00:05:00,560 --> 00:05:03,880
Speaker 1: have an inflation rate measured the way the FED likes

79
00:05:03,920 --> 00:05:07,719
Speaker 1: to measure it with the PC deflator, whether we have

80
00:05:07,880 --> 00:05:11,960
Speaker 1: one point three or we have two. Gosh, who cares

81
00:05:12,000 --> 00:05:16,320
Speaker 1: about that other than the Fed? Can you put on

82
00:05:16,360 --> 00:05:20,440
Speaker 1: your E ten hat and explain why we are better

83
00:05:20,480 --> 00:05:24,240
Speaker 1: off with higher interest rates at this point, Well, I

84
00:05:24,279 --> 00:05:26,479
Speaker 1: think the way I would put it is, we're in

85
00:05:26,600 --> 00:05:30,520
Speaker 1: trouble with these super low rates. The super low rates

86
00:05:31,000 --> 00:05:34,560
Speaker 1: helped us get this recovery, so that was a good thing.

87
00:05:35,200 --> 00:05:41,400
Speaker 1: But we are causing financial instability. We're causing risk taking

88
00:05:41,960 --> 00:05:48,640
Speaker 1: that could uh come home to create serious problems for

89
00:05:48,720 --> 00:05:51,920
Speaker 1: us in the future. So we're seeing the stock market

90
00:05:52,080 --> 00:05:56,479
Speaker 1: gradually unwinding. Do we want to give it another another

91
00:05:56,640 --> 00:05:59,600
Speaker 1: boost so that when it starts to fall, it has

92
00:05:59,680 --> 00:06:04,120
Speaker 1: to fall faster? I don't think so. We we've reached

93
00:06:04,120 --> 00:06:06,800
Speaker 1: a point. And again with the different attitudes that are

94
00:06:06,839 --> 00:06:08,800
Speaker 1: out there, I think our heads are spending and our

95
00:06:08,839 --> 00:06:13,200
Speaker 1: listeners as they're spinning about this polarity between what the

96
00:06:13,240 --> 00:06:17,120
Speaker 1: FED should do. I go back to global events. In

97
00:06:17,240 --> 00:06:23,320
Speaker 1: your doing the history, professor Feldstein or you're reading of history,

98
00:06:23,440 --> 00:06:27,279
Speaker 1: Can there be a global central banker? Is that something

99
00:06:27,320 --> 00:06:32,680
Speaker 1: in our history? No, we don't have a global monetary system.

100
00:06:33,160 --> 00:06:37,719
Speaker 1: We have a system in the Eurozone. We have a

101
00:06:37,760 --> 00:06:42,200
Speaker 1: monetary policy for Japan, for China and so on. So no,

102
00:06:42,400 --> 00:06:47,080
Speaker 1: there is no global monetary policy. But does the FED

103
00:06:47,200 --> 00:06:50,360
Speaker 1: have any The FED or the United States have any

104
00:06:50,400 --> 00:06:53,640
Speaker 1: responsibility to the rest of the world given our status

105
00:06:54,000 --> 00:06:59,040
Speaker 1: as the world's reserve currency. Uh, well, the status is

106
00:06:59,080 --> 00:07:03,880
Speaker 1: a local reserve currency. To the extent that that's important,

107
00:07:04,160 --> 00:07:08,000
Speaker 1: it is to maintain the value of the currency, and

108
00:07:08,240 --> 00:07:11,520
Speaker 1: that means not allowing inflation to get out of hand.

109
00:07:11,840 --> 00:07:16,840
Speaker 1: And right now inflation is low. Um, it's not worryingly low,

110
00:07:17,320 --> 00:07:20,280
Speaker 1: but it's low. But it's beginning to pick up. And

111
00:07:20,320 --> 00:07:24,520
Speaker 1: we're seeing that in wages and we're seeing that in prices.

112
00:07:24,560 --> 00:07:28,160
Speaker 1: So the core cp I was up two point two

113
00:07:28,200 --> 00:07:33,160
Speaker 1: relative to twelve months ago. It's picking up speed. Average

114
00:07:33,200 --> 00:07:37,560
Speaker 1: hourly earnings picking up speed. So to the extent that

115
00:07:37,600 --> 00:07:41,960
Speaker 1: we have an obligation, it's to prevent future inflation. Professor Felstone,

116
00:07:41,960 --> 00:07:43,480
Speaker 1: I want to switch gears here. I know Mike's got

117
00:07:43,520 --> 00:07:45,280
Speaker 1: a bunch of themes he wants to address as well

118
00:07:45,320 --> 00:07:47,840
Speaker 1: this morning. I think all of our listeners would like

119
00:07:47,880 --> 00:07:51,880
Speaker 1: to know your experience how you plug in future economic

120
00:07:51,960 --> 00:07:55,440
Speaker 1: growth into our budget calculations. We've got a great deficit

121
00:07:55,480 --> 00:07:58,920
Speaker 1: to GDP right now, but real concerns moving forward. CBO

122
00:07:59,000 --> 00:08:02,200
Speaker 1: and others testing um to be kind to use the

123
00:08:02,320 --> 00:08:05,440
Speaker 1: cliche storm clouds on the horizon how can we know

124
00:08:05,480 --> 00:08:10,080
Speaker 1: where the horizon is if we're plugging in GDP estimates

125
00:08:10,120 --> 00:08:14,840
Speaker 1: that are all over the map, depending on one's political persuasion. Well,

126
00:08:14,880 --> 00:08:17,920
Speaker 1: of course, what matters is the medium and longer term,

127
00:08:18,040 --> 00:08:20,200
Speaker 1: not what's going to happen for the next quarter or

128
00:08:20,240 --> 00:08:24,160
Speaker 1: two quarters. So what's going to happen to the debt

129
00:08:24,200 --> 00:08:27,520
Speaker 1: to GDP ratio, which is the thing I worry about

130
00:08:28,160 --> 00:08:32,040
Speaker 1: um depends on what's going to happen to future nominal

131
00:08:32,120 --> 00:08:35,120
Speaker 1: GDP growth and what's going to happen to the deficit.

132
00:08:35,880 --> 00:08:39,240
Speaker 1: So what we've seen is that the debt to GDP

133
00:08:39,480 --> 00:08:43,400
Speaker 1: ratio has more than doubled in the last ten years.

134
00:08:43,559 --> 00:08:46,679
Speaker 1: Used to be thirty five percent. That's okay, we can

135
00:08:46,720 --> 00:08:50,960
Speaker 1: live with that. But now it's over and the Congressional

136
00:08:50,960 --> 00:08:53,640
Speaker 1: Budget Office tells us ten years from now it's going

137
00:08:53,679 --> 00:08:58,079
Speaker 1: to be six percent. If anything, I think that's too optimistic.

138
00:08:58,559 --> 00:09:02,120
Speaker 1: So where it goes depend on just two numbers. What's

139
00:09:02,160 --> 00:09:07,400
Speaker 1: happening to the deficit ratio share of GDP that our

140
00:09:07,440 --> 00:09:12,040
Speaker 1: deficit is, and second, what's happening to nominal GDP? And

141
00:09:12,240 --> 00:09:15,960
Speaker 1: I think the CBO's estimate and they try to do

142
00:09:16,000 --> 00:09:18,800
Speaker 1: the best job they can. I think they're great shooters,

143
00:09:18,840 --> 00:09:21,960
Speaker 1: but I think what they're telling us is that based

144
00:09:22,000 --> 00:09:24,520
Speaker 1: on the assumption that we're going to be growing in

145
00:09:24,600 --> 00:09:29,160
Speaker 1: nominal terms at about four percent real plus two percent inflation,

146
00:09:29,760 --> 00:09:34,560
Speaker 1: and that deficits are gonna come up only slowly, given

147
00:09:34,600 --> 00:09:38,720
Speaker 1: that there putting us on a path toward a hundred

148
00:09:38,720 --> 00:09:43,400
Speaker 1: percent of GDP reaching scent of GDP in the next

149
00:09:43,400 --> 00:09:48,559
Speaker 1: ten years. I think that's too optimistic. Mart with this one,

150
00:09:48,600 --> 00:09:51,280
Speaker 1: like you've got like eight things. Yes, I do. As

151
00:09:51,559 --> 00:09:53,040
Speaker 1: we come back, I want to jump right in to

152
00:09:53,120 --> 00:09:54,960
Speaker 1: follow up on what he was just saying about the

153
00:09:55,000 --> 00:09:57,120
Speaker 1: debt to GDP ratio, but I did need to pass

154
00:09:57,200 --> 00:10:01,800
Speaker 1: this along. Jeffrey Lacker, the Richmond Head president, speaking in Baltimore,

155
00:10:01,840 --> 00:10:06,800
Speaker 1: says there is no evidence that a US recession is imminent.

156
00:10:07,080 --> 00:10:11,040
Speaker 1: He thinks that the decline in inflation expectations maybe more

157
00:10:11,080 --> 00:10:13,880
Speaker 1: a decline in the term premium than anything else. What

158
00:10:13,920 --> 00:10:18,400
Speaker 1: does that mean? That means the that you're not getting

159
00:10:18,400 --> 00:10:21,240
Speaker 1: compensated as much for holding onto things for a longer time,

160
00:10:21,880 --> 00:10:25,640
Speaker 1: not necessarily because there's higher information. My John Tucker, my

161
00:10:25,760 --> 00:10:31,760
Speaker 1: term premium is is under the mattress in a matter

162
00:10:31,800 --> 00:10:34,959
Speaker 1: of months, I was gonna say minutes or hours. We're

163
00:10:34,960 --> 00:10:39,160
Speaker 1: going to continue with Professor Feldsteiny of Harvard University, a

164
00:10:39,200 --> 00:10:42,880
Speaker 1: little bit better tape than an hour ago. Futures negative fifteen,

165
00:10:43,000 --> 00:10:46,920
Speaker 1: DAL futures negative one thirty six Sterly one thirty nine

166
00:10:47,280 --> 00:10:53,839
Speaker 1: oh seven. All right, let's bring John Tucker in now

167
00:10:53,880 --> 00:10:56,720
Speaker 1: with a world in national headlines, John Well Donald Trump

168
00:10:56,880 --> 00:10:59,920
Speaker 1: getting a major boost heading into Super Tuesday contest next week,

169
00:11:00,400 --> 00:11:03,600
Speaker 1: is dominating victory in the Novata koch Is pushes him

170
00:11:03,679 --> 00:11:06,360
Speaker 1: further out ahead of his nearest competitors. With the Republican

171
00:11:06,400 --> 00:11:09,679
Speaker 1: presidential nomination still a lot left to resolve, has the

172
00:11:09,720 --> 00:11:12,679
Speaker 1: effective date of the Syrian truce edges closer in the

173
00:11:12,720 --> 00:11:16,760
Speaker 1: agreement reigns shaky at best. The US Russia proposed truce

174
00:11:16,880 --> 00:11:20,120
Speaker 1: is supposed to begin Friday, major questions or enforcement are

175
00:11:20,200 --> 00:11:24,920
Speaker 1: still unresolved. And Coca Cola's latest bid to win European

176
00:11:25,000 --> 00:11:28,120
Speaker 1: Union trademark protection for a new version of its iconic

177
00:11:28,200 --> 00:11:32,840
Speaker 1: bottle has fallen flat. You judges say it's curvacious design

178
00:11:33,480 --> 00:11:37,800
Speaker 1: isn't distinctive enough. Global News twenty four hours a day,

179
00:11:37,800 --> 00:11:41,400
Speaker 1: powered by our juralist. You heard what I said in

180
00:11:41,440 --> 00:11:44,280
Speaker 1: more than one fifty news bureaus around the world. I'm

181
00:11:44,360 --> 00:11:55,640
Speaker 1: John Tucker. Curvaceous, curvacious, Okay, YouTube Okay, Futures negative, futures negative.

182
00:11:55,720 --> 00:11:59,679
Speaker 1: We will return with Martin Feldstein on the nation's debt

183
00:12:00,160 --> 00:12:07,079
Speaker 1: and deficit, Bloomberg's surveillance. This news update brought to you

184
00:12:07,160 --> 00:12:09,160
Speaker 1: by your Mercedes Benz Tri State Dealer. When it comes

185
00:12:09,160 --> 00:12:11,400
Speaker 1: to winter elements, put your best four wheels forward with

186
00:12:11,440 --> 00:12:14,280
Speaker 1: Mercedes Benz Formatic all wheel Drive. Visitor Mercedes Benz Tri

187
00:12:14,320 --> 00:12:18,199
Speaker 1: State Dealer for a test drive today