WEBVTT - Italy is Falling Behind, Kapoor Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance podcast. I'm Tom Keane. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:33.600 Bloomberg dot Com, and of course on the Bloomberg. Let's 0:00:33.640 --> 0:00:37.120 begin with Paul Donovan. He is the chief economist for IT. 0:00:37.159 --> 0:00:40.640 You bys joining us from London. Paul Donovan, thank you 0:00:40.720 --> 0:00:43.199 very much for being with us. Um. Your most recent 0:00:43.360 --> 0:00:46.120 note has to do with, as you describe it, the 0:00:46.200 --> 0:00:50.800 Italian job, and you counsel that everyone needs to take 0:00:50.840 --> 0:00:53.959 a deep breath and calm down. All right, So now 0:00:54.000 --> 0:00:59.280 that we've calmed down, what should we know? Well, I 0:00:59.280 --> 0:01:01.960 think what we should know first and foremost is that 0:01:02.200 --> 0:01:06.080 no one is suggesting that this ely should leave the Euro. 0:01:06.800 --> 0:01:10.160 Neither of the anti establishment parties are suggesting it, and 0:01:10.200 --> 0:01:13.800 certainly none of the establishment parties are suggesting it. So 0:01:13.920 --> 0:01:16.679 any thought that that there's going to be some kind 0:01:16.720 --> 0:01:20.600 of existential crisis for the Euro, I think needs to 0:01:20.640 --> 0:01:23.720 be dismissed. While we have got here is a good 0:01:23.760 --> 0:01:27.679 old fashioned Italian political crisis. And you know what, they're 0:01:27.680 --> 0:01:30.880 not that rare. We've had seventy years of this. What 0:01:30.959 --> 0:01:36.040 we have is unstable government and lots of internal politics 0:01:36.080 --> 0:01:38.920 going on in Rome. Well, what's so wrong about having 0:01:38.959 --> 0:01:41.360 a country that's in the European Union that doesn't use 0:01:41.400 --> 0:01:46.759 the euro. There's nothing wrong with having somebody in the 0:01:46.760 --> 0:01:50.680 EU which doesn't use the Euro. The UK occupied that 0:01:50.720 --> 0:01:53.560 position and will continue to occupy that position until next March. 0:01:54.600 --> 0:01:57.960 But joining a monetary union and then leaving that's different. 0:01:58.320 --> 0:02:00.680 Monitory unions are like hotel call or you you can 0:02:00.760 --> 0:02:03.960 check out, but you can never leave. Um, because if 0:02:04.000 --> 0:02:07.920 you break up a month for union, the prospects of 0:02:08.240 --> 0:02:12.760 of what that does to the economy is extraordinarily destructive. Um, 0:02:12.840 --> 0:02:16.800 you are defaulting on your debt, you are creating bank runs, 0:02:16.840 --> 0:02:20.880 instability and the financial system. You're wiping out the value 0:02:20.880 --> 0:02:24.800 of people's savings. And there's no coincidence that in almost 0:02:24.919 --> 0:02:28.800 every single monetary union breakup of the twentieth century we 0:02:28.960 --> 0:02:33.519 either ended up with extreme civil disturbance or civil war, 0:02:33.919 --> 0:02:36.280 or we ended up with authoritarian governments in some parts 0:02:36.320 --> 0:02:38.639 of the untary Union. So we're just not going to 0:02:38.720 --> 0:02:41.560 see this happen. UM. You know, once you're in, you're in. 0:02:42.200 --> 0:02:45.080 You can't mess around with the value of people's savings, 0:02:45.400 --> 0:02:48.119 the value of your debt, the value of your obligations 0:02:48.160 --> 0:02:50.639 and so forth. So there's no way that you could 0:02:50.720 --> 0:02:54.280 maintain the current status quo of having your savings in 0:02:54.320 --> 0:02:57.760 euros and debts denominated in euros. You couldn't have a 0:02:57.840 --> 0:03:01.240 dual currency situation as they have in other economies of 0:03:01.280 --> 0:03:06.200 the world, like Panama for example. No, absolutely not, because 0:03:06.200 --> 0:03:09.840 you're starting from a position here where you know it. 0:03:10.080 --> 0:03:12.639 It's all very well saying okay, well we'll keep Italy's 0:03:12.639 --> 0:03:16.640 debt denominated in euros, but we'll tax in lira. Well, 0:03:16.639 --> 0:03:18.239 where do you think the value with the new lira 0:03:18.520 --> 0:03:20.720 is going to be against the euro if if you 0:03:21.000 --> 0:03:25.000 Italy were to leave the the Eurozone. The other point 0:03:25.080 --> 0:03:27.000 to bear in mind, if you don't just leave the euro. 0:03:27.320 --> 0:03:30.559 If you leave the Euro you automatically leave the EU. 0:03:30.639 --> 0:03:34.120 You're breaking the Treaty of Rome, which is the founding 0:03:34.160 --> 0:03:37.280 institution and the constitution of the European Union. You know, 0:03:37.360 --> 0:03:40.440 if you're out, you're out um and that then becomes 0:03:40.640 --> 0:03:44.640 extraordinarily problematic. Pass So much of this comes back to 0:03:44.800 --> 0:03:49.360 economic growth. I mentioned earlier, folks on television. The Guardian 0:03:49.560 --> 0:03:53.200 Overnight has a wonderful article and the austerity of the 0:03:53.280 --> 0:03:57.040 United Kingdom, and within that, Paul is maybe the austerity 0:03:57.080 --> 0:04:01.680 of Europe, or certainly just the stri having for economic growth. 0:04:01.920 --> 0:04:04.240 And yet things are better in Europe. That's been one 0:04:04.280 --> 0:04:07.960 of our themes this morning. Is Europe free and clear 0:04:08.600 --> 0:04:14.320 from the eurosclerosis of another time in place. I think 0:04:14.360 --> 0:04:19.880 that by and large, yes, Europe has emerged from the 0:04:19.960 --> 0:04:23.680 recession that came in really from two thousand and ten 0:04:23.720 --> 0:04:27.000 onwards in the case of the Eurozone, UM, but there 0:04:27.000 --> 0:04:30.280 are some problems with that. So we've got two essential problems. 0:04:30.480 --> 0:04:35.680 Problem number one is Italy. Unfortunately, whilst Italy has done better, 0:04:36.080 --> 0:04:38.960 it's still legged behind the rest of Europe, and its 0:04:39.000 --> 0:04:42.000 banking system is a big part of that problem as well, 0:04:42.040 --> 0:04:46.120 where bank lending has persisted UM as a negative force 0:04:46.200 --> 0:04:49.200 in the in the Italian economy. And then the second 0:04:49.200 --> 0:04:53.600 issue is that whilst cyclically I think Europe has recovered, structually, 0:04:53.600 --> 0:04:57.000 there are still challenges. The Europe doesn't work properly. We 0:04:57.120 --> 0:04:59.640 know that, but to be honest, I in the U S. 0:04:59.680 --> 0:05:02.080 Dollars and work properly either, and the pound sterling has 0:05:02.080 --> 0:05:05.839 one or two issues. But we're not making enough structural 0:05:05.920 --> 0:05:09.200 effort to make the euro work better. There are other 0:05:09.279 --> 0:05:13.880 impediments to growth across the Eurozone, which also needs structural adjustment. 0:05:14.240 --> 0:05:16.840 So I think in a technical sense, absolutely Europe is 0:05:16.880 --> 0:05:19.839 on a better track, and there are some structural improvements 0:05:19.880 --> 0:05:24.760 as well, but it's not necessarily on a very very 0:05:24.800 --> 0:05:28.040 strong projection for growth over the medium term. I mean 0:05:28.080 --> 0:05:31.200 within this in you know, the projection and growth in 0:05:31.279 --> 0:05:34.560 Italy is a distraction. Is how it redounds over to 0:05:34.600 --> 0:05:37.000 the US markets. I mean, we're gonna open up today. 0:05:37.279 --> 0:05:39.320 I think pim things are going to be better. I mean, 0:05:39.320 --> 0:05:42.080 that's the basic idea in the market tone right now. 0:05:42.320 --> 0:05:45.039 Part down, I'm and explain to our US audience why 0:05:45.120 --> 0:05:50.040 they should care about Italy. Well, I think you should 0:05:50.040 --> 0:05:53.000 care about Italy a bit. I don't think you need 0:05:53.040 --> 0:05:55.520 to get over excited about it, although that may be 0:05:55.560 --> 0:05:58.200 a little bit late to be saying now, but I 0:05:58.200 --> 0:06:00.000 think you need to care about it a bit because 0:06:00.160 --> 0:06:03.279 it is an important part of what is still the 0:06:03.279 --> 0:06:06.280 world's largest economy. The world's argist economy is not, I'm 0:06:06.320 --> 0:06:08.920 afraid to say, the United States. The world's largest economy 0:06:08.960 --> 0:06:11.760 is the European Union. Um at least until the British 0:06:11.839 --> 0:06:15.200 leave it. And so it's an important part of an 0:06:15.240 --> 0:06:18.839 important market. Europe is very important to the US as 0:06:19.560 --> 0:06:23.440 an export destination. And remember the the S and P 0:06:23.920 --> 0:06:26.880 is not a US equity index, not at all. The 0:06:27.000 --> 0:06:31.000 SMP is a global equity index where companies are earning 0:06:31.120 --> 0:06:36.200 money through manufacturing, through providing services, and through trading globally. 0:06:36.360 --> 0:06:39.440 So that's why Italy doesn't matter. But Paul, let me 0:06:39.520 --> 0:06:41.720 just challenge you here when you talk about the European 0:06:41.800 --> 0:06:45.359 Union is one economy. You don't have consistent banking laws, 0:06:45.480 --> 0:06:48.680 you don't have consistent immigration laws, and you know as 0:06:48.680 --> 0:06:51.440 well as anyone you talk to people from Italy, they're 0:06:51.480 --> 0:06:54.799 not even interested in the Italian dead crisis, the amount 0:06:54.800 --> 0:06:58.560 of money that their government owes. And most Italians that 0:06:58.640 --> 0:07:01.080 you talk to will tell you that unless you have 0:07:01.160 --> 0:07:04.800 either a family business or you have some sinecure, you're 0:07:04.839 --> 0:07:07.760 living at home waiting for someone to hire you, or 0:07:07.800 --> 0:07:13.400 you're going abroad because that's where the opportunity is. Well, yes, 0:07:13.480 --> 0:07:17.680 I mean Europe has differences, um in between you know 0:07:17.720 --> 0:07:20.160 the national states. Of course it does, although those differences 0:07:20.160 --> 0:07:23.200 have lessons over time, um. But then Frankly, there are 0:07:23.200 --> 0:07:25.840 a lot of differences between say, Texas and New York. 0:07:26.520 --> 0:07:29.640 The polarization of the United States, and indeed the declining 0:07:29.680 --> 0:07:33.080 led mobility in the United States is a different economic challenge. 0:07:33.400 --> 0:07:36.600 So I don't think we should be too concerned about this. Um. 0:07:36.680 --> 0:07:41.520 And Northern Italy, at least, cell has a very dynamic economy. Um. 0:07:41.600 --> 0:07:43.880 You know, the southern Italy is a is a somewhat 0:07:43.920 --> 0:07:47.320 different issue. But Northern Italy remains a very dynamic place 0:07:47.320 --> 0:07:49.800 in which to do business. And and I think this 0:07:49.920 --> 0:07:53.280 is an important point to remember. We should bear in 0:07:53.400 --> 0:07:57.000 mind that Italy is one of the wealthiest countries on 0:07:57.040 --> 0:08:00.280 the planet, far wealthier than Germany is, say, and this 0:08:00.360 --> 0:08:03.800 is an important saving growth because Italians own a lot 0:08:03.800 --> 0:08:07.080 of their own debt and that reduces the damage over time. 0:08:07.240 --> 0:08:09.600 Paul One come in and this comes folks as Mr 0:08:09.720 --> 0:08:15.520 Soros's team sends me the transcript of his important speech yesterday. 0:08:15.680 --> 0:08:20.800 Very cautious and the European Experiment, Pod Donovan, some how 0:08:21.040 --> 0:08:25.560 you would push against George Soros's gloom and your Europe. 0:08:27.680 --> 0:08:32.439 I think that there is still a degree of optimism 0:08:32.480 --> 0:08:35.439 about Europe. I think Europe has a number of advantages 0:08:35.960 --> 0:08:39.600 which are likely to become more important as we go 0:08:39.760 --> 0:08:42.920 through the changes of the Fourth Industrial Revolution and and 0:08:43.000 --> 0:08:46.480 so on and so forth. An aging population, which Europe has, 0:08:46.800 --> 0:08:49.760 becomes less of an economic problem as we get in 0:08:49.920 --> 0:08:53.760 robotics and automation, because you know what, you can operate 0:08:53.760 --> 0:08:55.840 a robot at the age of eighty just as well 0:08:55.880 --> 0:08:57.600 as you can operate it at the age of eighteen. 0:08:58.360 --> 0:09:01.679 So an aging population becomes of an issue. The skills 0:09:01.720 --> 0:09:05.800 and talents that Europe has, the education system which had 0:09:05.840 --> 0:09:09.560 its laws, but you know it provides good caliber education. 0:09:09.600 --> 0:09:11.400 That's the plus as well. So I think there are 0:09:11.400 --> 0:09:15.200 reasons to be optimistic over the medium term, not to 0:09:15.320 --> 0:09:18.360 downplay the challenges, but there you know, we don't need 0:09:18.400 --> 0:09:22.120 to be in a doomed spiral. It's not that bad 0:09:22.520 --> 0:09:24.640 to inspiral. Paul Dunavan, thank you so much with you 0:09:24.760 --> 0:09:28.760 BS greatly appreciate the effort from their zeroch offices on 0:09:28.840 --> 0:09:45.560 this morning. We're gonna do it now, folks with Italy 0:09:45.600 --> 0:09:48.200 on the brain, and of course a huge market moves 0:09:48.280 --> 0:09:52.600 yesterday to talk to a gentleman who can synthesize Italy 0:09:53.600 --> 0:09:55.520 for what it means for Europe, what it means for 0:09:55.559 --> 0:09:58.679 the United Kingdom and what it means for America. That's 0:09:58.679 --> 0:10:05.240 sunny comp actually hugely qualified to synthesize international relations and 0:10:05.360 --> 0:10:10.199 political economics. He's with redefined, but that barely disguise describes 0:10:10.280 --> 0:10:14.839 his portfolio of knowledge on his Europe. Sonny, wonderful day 0:10:14.880 --> 0:10:19.079 have you with this this morning? The Cynic, not that 0:10:19.080 --> 0:10:22.080 that would be moi, but the Cynic would say, this 0:10:22.160 --> 0:10:25.360 is just normal Italy. They've gone through like forty seven 0:10:25.400 --> 0:10:29.559 million governments since World War Two. What's different now, Sonny? 0:10:29.720 --> 0:10:33.080 What is different in Italy now versus all the other 0:10:33.160 --> 0:10:39.520 previous collapses? Well, for one, we had got used to 0:10:39.600 --> 0:10:44.439 an unusual period in Italy's recent history. And for all 0:10:44.520 --> 0:10:48.280 that we criticized Silvio Belusconi, the one thing he gave 0:10:48.400 --> 0:10:52.640 Italy was stable government. I think him alone brought down 0:10:52.760 --> 0:10:57.760 the brought up the average tenure of Italian prime ministers significantly, 0:10:57.840 --> 0:11:01.600 and him and Matteo Renzy and and the next prime minister. 0:11:01.679 --> 0:11:05.640 And now it seems that the old days are back, 0:11:05.720 --> 0:11:09.320 and I think that seems to be the single biggest problem. 0:11:09.440 --> 0:11:15.080 Before Italy had sort of the pulling effect of the 0:11:15.240 --> 0:11:19.800 membership of the Eurodic convergence, et cetera. And now that 0:11:19.960 --> 0:11:24.240 positive influence has gone, the fear is that they may 0:11:24.280 --> 0:11:27.800 continue to diverge from Germany and France. As a task 0:11:27.840 --> 0:11:31.880 for the postible year, my colleagues, Sonny pim Fox observed 0:11:31.920 --> 0:11:36.880 today that the Italian government of Rome is essentially removed 0:11:37.000 --> 0:11:42.880 from the Italian people. Describe the linkage emotionally the Italian 0:11:43.120 --> 0:11:51.319 people to their Italian federal system. Well, Italy is I mean, 0:11:51.880 --> 0:11:55.200 before you go down to the to the region level, 0:11:55.360 --> 0:12:01.040 I mean it is essentially two separate economic zones cobbled 0:12:01.080 --> 0:12:05.080 into one, which explains the rise of the League which 0:12:05.160 --> 0:12:07.559 used to be called the Northern League, and it's primarily 0:12:08.160 --> 0:12:12.320 from the far more sort of Germanic northern part of Italy, 0:12:12.920 --> 0:12:16.680 which has been growing where gdpeoper capita has actually been growing, 0:12:16.760 --> 0:12:20.120 which has where unemployment is low and sort of work 0:12:20.280 --> 0:12:23.720 culture institutions a sort of much better developed, it's quite 0:12:23.800 --> 0:12:27.520 Germanic in nature, whereas the southern half of fy Uh 0:12:28.040 --> 0:12:31.079 is lagging behind economically, and a lot of what you 0:12:31.240 --> 0:12:35.840 see at the macro level outside and the political divisions, etcetera, 0:12:36.000 --> 0:12:40.080 are the fact that there are these two economically fairly 0:12:40.160 --> 0:12:44.959 distinct entities cobbled together into one country and they just 0:12:45.360 --> 0:12:49.320 can't get their act together. There in lies the big contradiction, 0:12:49.400 --> 0:12:52.520 and that is why the political instipidity we are seeing 0:12:52.600 --> 0:12:55.559 now is not likely to go away any time soon. 0:12:55.720 --> 0:12:57.839 This is going to be with us for for a 0:12:57.840 --> 0:13:02.240 while to come a stain. It does. Does Italy embody 0:13:02.400 --> 0:13:07.280 the contradictions that bedeviled the European Union as a whole. 0:13:10.559 --> 0:13:14.079 At one level, Um, it's both sort of the best 0:13:14.360 --> 0:13:17.559 and the worst of Europe. If you look at the 0:13:17.840 --> 0:13:21.880 quality of life, if you look at the cultural richness, 0:13:22.000 --> 0:13:27.920 life expectancy, most things actually worked pretty well, um. And 0:13:28.280 --> 0:13:31.760 the quality of life for most people is still pretty 0:13:31.800 --> 0:13:36.160 fantastic compared to most other places in the world. But 0:13:36.880 --> 0:13:40.880 it is falling behind. And you know, from Roman times 0:13:41.120 --> 0:13:45.760 it's been a story of study decline, which has accelerated 0:13:45.800 --> 0:13:48.120 in the last century. And that is I think also 0:13:48.280 --> 0:13:51.640 one of the reasons why it is highly unlikely that 0:13:51.800 --> 0:13:54.719 Italians will ever choose to leave the euro or the 0:13:54.800 --> 0:13:59.960 European Union. This is the sort of last vestige of greatness, 0:14:00.240 --> 0:14:04.719 pretensions to greatness, of being part of this core European 0:14:04.880 --> 0:14:09.000 Union as a founding member. Otherwise, if you look at 0:14:09.200 --> 0:14:12.080 what happened, you know, in the World Wars. What happened 0:14:12.120 --> 0:14:16.599 since then? France, Germany and the UK have defined the 0:14:16.760 --> 0:14:21.080 destiny of where Europe has gone. Italy has only had 0:14:21.120 --> 0:14:24.000 a marginal role, whereas historically it used to be the 0:14:24.080 --> 0:14:28.960 exact opposite. And Italy sort of his desperately sticking to 0:14:29.560 --> 0:14:32.280 be part of the Euro which is the core of 0:14:32.400 --> 0:14:37.960 the European Union, because it still sees itself as a 0:14:38.080 --> 0:14:43.160 great European power um and it's unlikely that that will change. 0:14:43.440 --> 0:14:47.560 Italy being thrown out or choosing to leave the EU 0:14:47.680 --> 0:14:50.120 would be the end of that pretension. And I don't 0:14:50.160 --> 0:14:53.320 think it's Ouian. The ready for that is the is 0:14:53.400 --> 0:14:59.360 the Euro or proxy for the former deutsch Mark. Sadly yes, 0:15:00.080 --> 0:15:03.640 uh be. Given the weight of the German economy. And 0:15:03.920 --> 0:15:08.400 there's old thing you've heard before. Germany is too small 0:15:08.480 --> 0:15:11.600 for the world and too large for Europe. Are too 0:15:11.800 --> 0:15:17.960 many of Euro related policies are driven by Germany's economic weight, 0:15:18.280 --> 0:15:22.040 And the problem is that the older, larger economies, and 0:15:22.160 --> 0:15:26.040 that includes Germany and Transtant to some extent Italy, what 0:15:26.360 --> 0:15:30.000 they need in monetary policy is very different from what 0:15:30.280 --> 0:15:35.040 some younger, more dynamic economies need which need to catch up, 0:15:35.720 --> 0:15:39.840 and the Euro will always never be able to provide 0:15:39.880 --> 0:15:42.760 the right monetary policy for any of the country. Sonny, 0:15:42.840 --> 0:15:45.040 let me ask you an unfair question for your remit 0:15:45.080 --> 0:15:48.400 of international relations. But let's pretend you're a market effect 0:15:48.440 --> 0:15:52.760 strategist right now to Pims, good question. If we're at 0:15:52.800 --> 0:15:55.640 one sixteen, which is right where we were well at 0:15:55.680 --> 0:15:58.760 the advent of the euro. If Italy was to leave, 0:15:58.920 --> 0:16:01.840 where would the euros for Germany like a one forty 0:16:02.280 --> 0:16:08.640 one thirty one? Probably not all that hype, but it 0:16:08.760 --> 0:16:11.040 would definitely the direction of the move will be very 0:16:11.120 --> 0:16:15.320 care it will be significantly higher than where it is now. 0:16:16.440 --> 0:16:18.560 Let's leave it there, Sonny, thank you so much. Great brief, 0:16:18.760 --> 0:16:22.440 Sonny Kopor with this is redefined and filtering in international 0:16:22.520 --> 0:16:24.480 relations in a lot of the market. You know, I 0:16:24.640 --> 0:16:27.840 just want to underscore what you just described, what would 0:16:27.880 --> 0:16:29.920 happen in the value of the EU, because I don't 0:16:29.960 --> 0:16:34.160 think most people recognize the value of the Euro would 0:16:34.200 --> 0:16:51.400 actually increase. We are speaking with Megan Green, managing director, 0:16:51.480 --> 0:16:56.560 chief economist MANU Life Investments, and Megan, I'm wondering whether 0:16:57.040 --> 0:17:01.760 officials in Berlin and in Brussels, they've been rather silent 0:17:02.080 --> 0:17:04.520 about what's going on in Italy. Do you think that 0:17:04.680 --> 0:17:10.600 there are somehow rushed meetings behind closed doors asking themselves 0:17:10.960 --> 0:17:14.480 what do we do with Greece? Part two? Yeah, so 0:17:14.640 --> 0:17:16.640 I think they're definitely talking about it, but what can 0:17:16.760 --> 0:17:19.760 they do? Right? So, back in two eleven, if you recall, 0:17:19.840 --> 0:17:21.680 the e c B sent a letter to Rome saying 0:17:21.720 --> 0:17:24.680 get your fiscal house in order, um. Berlsconi had to 0:17:24.760 --> 0:17:27.680 leave a few days later, and off the back of that, 0:17:27.920 --> 0:17:31.760 actually Berlin gave the e c B permission essentially to 0:17:32.400 --> 0:17:34.879 to give the whatever it takes speech and eventually unleash 0:17:34.960 --> 0:17:37.840 QUI only because Italy had proven it was going to 0:17:37.920 --> 0:17:41.399 be fiscally responsible this time around. You know, Frankfurt and 0:17:41.400 --> 0:17:43.920 Berlin and Brussels can't really pull that because if they do, 0:17:44.160 --> 0:17:46.920 if they end up pushing out any government that is 0:17:46.960 --> 0:17:50.000 eventually formed, um, that will just symbol in the Populace, 0:17:50.119 --> 0:17:52.920 that will play out in the populace hands, and so 0:17:53.040 --> 0:17:55.000 in the next election then you can only expect more 0:17:55.040 --> 0:17:57.720 support for Populace. So they're kind of hamstrung in that sense. 0:17:58.000 --> 0:18:00.240 The ECB has come out and said, you know, Italy 0:18:00.320 --> 0:18:03.120 would be wise to remember the rules and to reread 0:18:03.200 --> 0:18:05.840 them um, which is a bit of a kind of warning. 0:18:05.960 --> 0:18:08.359 But that's all they've said. I think that suggests the 0:18:08.400 --> 0:18:11.160 ECP is just going to sit by and watch what happens. 0:18:11.160 --> 0:18:13.720 As long as there isn't significant contagion outside of Italy, 0:18:14.000 --> 0:18:16.320 they're going to try to let the market impost some 0:18:16.400 --> 0:18:22.600 discipline on Italian politicians. Let us turn to America and 0:18:22.720 --> 0:18:27.320 within all the data, Megan, I saw four point two 0:18:27.400 --> 0:18:32.080 percent nominal GDP. I guess that's a little dampened inflation 0:18:32.240 --> 0:18:37.280 combined with okay, real g d P. Is that politically 0:18:37.400 --> 0:18:40.320 acceptable in America to have a run rate of four 0:18:40.440 --> 0:18:45.199 point whatever nominal um? So fundamentally, when you're looking at 0:18:45.440 --> 0:18:48.240 GDP and recoveries, especially in the US, you have to 0:18:48.280 --> 0:18:50.840 ask whose recovery it really is and whose growth is this? 0:18:51.160 --> 0:18:54.240 And there's you know, huge and increasing inequality. So is 0:18:54.240 --> 0:18:56.840 that an acceptable run rate? It is for some, it's 0:18:56.840 --> 0:18:59.000 certainly not for all, And I think it's the lower 0:18:59.080 --> 0:19:02.119 classes that won't be lifted by that kind of growth. 0:19:02.760 --> 0:19:05.760 Does have fed adapt to that to your good observation 0:19:05.880 --> 0:19:10.040 of two America's or three America's. So no, not really, 0:19:10.119 --> 0:19:12.680 I don't think. Um. The FED sort of fed that 0:19:12.880 --> 0:19:16.199 in part with quantitative easing, so lifting up asset prices 0:19:16.280 --> 0:19:18.800 so that only those who actually hold those assets really 0:19:18.840 --> 0:19:21.720 benefit from it. Um. You know they're keen to They've 0:19:21.800 --> 0:19:25.399 they've stopped buying up assets. They're reinvesting them still, but 0:19:25.440 --> 0:19:28.320 they're shrinking their balance sheet. UM. They're not really keen 0:19:28.400 --> 0:19:31.119 to fire up KUWI in the next down turn if 0:19:31.119 --> 0:19:33.120 they can avoid it. For this exact reason, the FED 0:19:33.160 --> 0:19:35.560 doesn't want to be in the headlines being told that 0:19:35.640 --> 0:19:38.399 they're responsible for rising inequality in the US. So I 0:19:38.480 --> 0:19:40.440 think that they would like to shrink away from that. 0:19:41.800 --> 0:19:45.399 I've got a headline here, Pim and Megan would be 0:19:45.480 --> 0:19:49.239 perfect to talk to. Maybe you already did this, uh, 0:19:50.160 --> 0:19:56.080 Wilburt Ross says, US trade process already bearing good results. 0:19:56.560 --> 0:20:00.119 Mr Ross, our Secretary of Commerce, says, quote U US 0:20:00.119 --> 0:20:06.240 in a situation of asymmetrical tariffs, Megan, what are asymmetrical terroriffts? 0:20:06.680 --> 0:20:09.240 That's a great question. UM. I think it just suggests 0:20:09.280 --> 0:20:12.879 that we're imposing more tariffs than UM other countries and 0:20:12.920 --> 0:20:15.960 they're imposing on us. Of course that that doesn't actually 0:20:16.040 --> 0:20:19.159 mean anything. UM. In a global economy of countries that 0:20:19.200 --> 0:20:20.879 are really good at making some things and not good 0:20:20.920 --> 0:20:23.800 at making other things, so they specialize. UM, And so 0:20:23.920 --> 0:20:26.320 everybody's not making the same goods and services, So you 0:20:26.320 --> 0:20:29.840 shouldn't have symmetric tariffs. Anyhow, that doesn't make any sense. UM. 0:20:29.920 --> 0:20:33.359 This argument that we're you know, our trade policy is 0:20:33.359 --> 0:20:37.959 already paying off. I think UM is probably economically illiterate. UM. 0:20:38.560 --> 0:20:42.120 Tariffs only introduced rigidities into an economy and create dead 0:20:42.160 --> 0:20:45.479 weight losses, and so nobody really wins in the end 0:20:45.520 --> 0:20:48.600 from that kind of trade war. UM imposing tariffs someone another. 0:20:49.080 --> 0:20:50.760 Can I just say I thought you were going to 0:20:51.160 --> 0:20:53.160 and I appreciate the answer, but I thought that where 0:20:53.200 --> 0:20:56.359 you were going with, as you said, a headline was 0:20:56.480 --> 0:21:01.360 a tweet from the President of the United States. No, well, 0:21:01.560 --> 0:21:06.200 he's just about five minutes ago. UM, he's speaking on 0:21:06.400 --> 0:21:12.719 Twitter and writing, UM, sort of channeling Representative Trey Goudy 0:21:13.200 --> 0:21:18.440 talking about Senator Sessions. Uh. Well yes, but in the 0:21:18.560 --> 0:21:23.480 tweet is referred to as Senator Sessions, UM, and the 0:21:23.640 --> 0:21:25.399 quote is, oh, by the way, I'm not going to 0:21:25.480 --> 0:21:27.840 be able to participate in the most important case in 0:21:27.920 --> 0:21:32.680 the office, meaning Attorney General Sessions. I would be frustrated too, 0:21:32.720 --> 0:21:35.280 And that's how I read that, Senator Sessions, why didn't 0:21:35.320 --> 0:21:38.440 you tell me before I picked you? And that is 0:21:38.480 --> 0:21:40.600 followed by a tweet that says, there are lots of 0:21:40.720 --> 0:21:43.760 really good lawyers in the country. He could have picked 0:21:43.840 --> 0:21:48.920 somebody else end quote, and then Donald Trump, President Trump writes, 0:21:49.119 --> 0:21:53.480 and I wish I did exclamation point. So I just 0:21:53.560 --> 0:21:56.639 thought I would you know. I'm glad you shared that 0:21:56.680 --> 0:22:02.040 because that's important within the moment by moment tick of Washington. 0:22:02.160 --> 0:22:05.159 Kevin Curlier thought was really quite good today on the 0:22:05.280 --> 0:22:08.360 broad set of issues. Has the president's attention? I don't 0:22:08.359 --> 0:22:13.040 I don't want to derailed up. Well, we're talking economics here, 0:22:13.119 --> 0:22:16.639 and Megan, you've been so good at explaining basic stuff. 0:22:17.080 --> 0:22:22.240 Paul Krugman has written whatever anybody thinks of the laureates politics, 0:22:22.960 --> 0:22:29.439 brilliant macroeconomics of trade and this dreaded phrase deadweight loss. 0:22:30.240 --> 0:22:34.600 What is a deadweight loss to America when we when 0:22:34.680 --> 0:22:38.879 we impose tariffs? Yeah, So the ideas every time you 0:22:39.560 --> 0:22:41.960 introduce a rigidity like a tariff or a subsidy in 0:22:42.040 --> 0:22:45.160 an economy, um, some parts of your economy benefits. UM. 0:22:45.520 --> 0:22:47.359 So the government, for example, will be able to collect 0:22:47.440 --> 0:22:51.440 more taxes um. If tariffs are imposed um and you know, 0:22:51.520 --> 0:22:54.119 the other producers of that good will benefit because they 0:22:54.160 --> 0:22:56.280 have less competition, But then a whole bunch of actors 0:22:56.359 --> 0:22:58.879 will lose out. So consumers are the obvious case here 0:22:58.920 --> 0:23:00.920 because they'll end up having to pay more for these 0:23:00.960 --> 0:23:03.879 goods um. And so it did we loss is kind 0:23:03.880 --> 0:23:05.520 of the balance of that there are more losers than 0:23:05.520 --> 0:23:08.879 there are winners. And within that, in within the modern economy, 0:23:09.520 --> 0:23:12.879 if we do tariffs on a certain products, say it's automobiles, 0:23:13.600 --> 0:23:18.520 and China adjust, they adjust for all the other countries 0:23:18.720 --> 0:23:22.320 as well when they adjust their terrorists. It's not just 0:23:22.480 --> 0:23:26.159 about American auto manufacturers, is it. No, that's right, Um, 0:23:26.400 --> 0:23:29.119 that's absolutely right. And in the same way, when you 0:23:29.200 --> 0:23:32.040 know China agrees to buy more of our goods, it's 0:23:32.080 --> 0:23:34.240 not like we're going to produce more as a result. 0:23:34.320 --> 0:23:36.040 We're just going to sell more to them and sell 0:23:36.119 --> 0:23:38.479 less to others as well, So it all ends up 0:23:38.520 --> 0:23:42.200 being kind of a a zero weight. These are the 0:23:42.280 --> 0:23:48.879 complexities of certitude of simplicity. Certitude of simplicity. Wow, people 0:23:48.920 --> 0:23:51.440 that don't know what they're talking about, who we won't mention, 0:23:51.960 --> 0:23:55.000 but maybe that would include me say stupid simple things, 0:23:55.480 --> 0:24:00.600 where Megan is working in a more complex and dynamic range. 0:24:00.800 --> 0:24:03.200 I just want to bring up one topic that is 0:24:03.280 --> 0:24:05.560 perhaps more prosaic, and this has to do with the 0:24:05.680 --> 0:24:10.000 cost of energy, specifically the cost of gasoline, because if 0:24:10.040 --> 0:24:12.520 you've been driving around the United States, you know that 0:24:12.640 --> 0:24:17.200 the cost of gasoline has increased now, albeit it is 0:24:17.640 --> 0:24:21.000 very inexpensive compared to what most of the world ends 0:24:21.080 --> 0:24:24.320 up paying. Having said that, do you believe that the 0:24:24.520 --> 0:24:28.480 increase in the cost of gasoline is going to create 0:24:28.560 --> 0:24:31.920 any kind of economic dread. Yeah, so that's a great question. 0:24:31.960 --> 0:24:33.240 I think to answer it, we should look at what 0:24:33.280 --> 0:24:36.159 happened when oil prices fell significantly UM a couple of 0:24:36.240 --> 0:24:37.920 years ago, and we thought that would be a huge 0:24:37.960 --> 0:24:40.080 stimulus for the economy, and in the end, people just 0:24:40.200 --> 0:24:43.160 drove a bit more and households repaired their balance sheets 0:24:43.200 --> 0:24:45.040 so it went into savings and they pay down some 0:24:45.119 --> 0:24:46.800 of their debt, which was a good medium to long 0:24:46.960 --> 0:24:49.919 term dynamic, but didn't boost growth. UM. I think now 0:24:49.960 --> 0:24:52.399 that oil prices are going up, we're probably seeing the 0:24:52.520 --> 0:24:54.280 inverse of that, So I think households are having to 0:24:54.359 --> 0:24:56.399 leverage up a bit and they're just driving less. I 0:24:56.440 --> 0:24:59.760 don't think it's a huge headwind. Part of it depends 0:24:59.800 --> 0:25:01.360 on how along this last, and I think it could 0:25:01.440 --> 0:25:03.480 last for quite a while. UM, so far, I don't 0:25:03.480 --> 0:25:05.359