WEBVTT - Episode 19: Pow! Pow! El-Erian Talks Central Bank Ammunition 0:00:05.600 --> 0:00:08.639 Welcome to on Blocks. I'm Tracy Alloway. Joe Wisenthal is 0:00:08.680 --> 0:00:11.680 away today, but don't worry because I have with me 0:00:11.760 --> 0:00:16.159 here a very able and capable replacement co host. It is, 0:00:16.200 --> 0:00:20.279 of course, Dan Moss. He's executive editor of Economics for 0:00:20.520 --> 0:00:23.480 Bloomberg News and he's also the co host of another 0:00:23.520 --> 0:00:27.680 Bloomberg podcast, Benchmark. Dan, thanks for being here. It's really 0:00:27.720 --> 0:00:30.120 great to be here, all right. So Dan and I 0:00:30.160 --> 0:00:32.720 have a treat for our listeners today. We have with 0:00:32.960 --> 0:00:35.800 us here in the studio, Muhammad el Arian. He's a 0:00:35.840 --> 0:00:40.199 Bloomberg View columnist. He's chair of President Obama's Global Development Council, 0:00:40.520 --> 0:00:44.080 he's chief economic advisor at Alliance, and he's also a 0:00:44.120 --> 0:00:48.880 prolific writer. I'm pretty sure he writes more than full 0:00:48.920 --> 0:00:53.600 time journalists, which is pretty anyway. That's right, and he 0:00:53.680 --> 0:00:56.600 also has a new book out which feeds directly into 0:00:56.640 --> 0:00:59.480 what we're actually going to talk about today. That's right. 0:00:59.560 --> 0:01:02.120 Today going to be talking about central banks and the 0:01:02.160 --> 0:01:06.160 extraordinary influence they wielded not just on markets but on 0:01:06.200 --> 0:01:10.240 the economic life of nations since the financial crisis. The 0:01:10.360 --> 0:01:14.199 secondary question is whether they are running out of ammunition, 0:01:14.319 --> 0:01:17.880 whether their influence is diminishing, or as a colleague of 0:01:17.880 --> 0:01:22.080 ours has put it, whether they've become impotent. And on 0:01:22.120 --> 0:01:24.399 that note, it's a really good time to talk about it, 0:01:24.440 --> 0:01:27.280 because just last week we had the European Central Bank 0:01:27.400 --> 0:01:30.720 announced a whole raft of new stimulus measures, and we 0:01:30.760 --> 0:01:34.320 didn't necessarily see the market reaction we might have expected. 0:01:34.600 --> 0:01:39.520 So this question, oh Dan's disagreeing with me. The initial 0:01:39.560 --> 0:01:43.280 market reaction was quite powerful because they frontloaded a lot 0:01:43.360 --> 0:01:46.760 of the announcement. Typically, the ECB goes for the rate 0:01:46.800 --> 0:01:50.040 announcement and then anything on QUEI or special ops has 0:01:50.080 --> 0:01:53.120 had to wait for drugs press conference. They went out 0:01:53.120 --> 0:01:55.320 of the gate at seven forty five New York time, 0:01:55.360 --> 0:01:59.000 and out of the gate strong. I think Tracy Markets 0:01:59.040 --> 0:02:02.480 retraced that in initial move because they heard something else 0:02:02.520 --> 0:02:06.480 from him, which is that interest rates won't go much lower, 0:02:07.000 --> 0:02:09.400 and they appeared to listen, all right, we're going to 0:02:09.400 --> 0:02:11.880 talk so much more about that, but before we do, 0:02:12.040 --> 0:02:14.160 I want to set the scene a little bit. I 0:02:14.200 --> 0:02:16.720 want to go back in time to the deep dark 0:02:16.840 --> 0:02:20.520 days of two thousand eight early two thousand nine. Lehman 0:02:20.560 --> 0:02:24.359 Brothers had just collapsed. Money markets were disintegrating. There was 0:02:24.400 --> 0:02:29.520 a banking crisis, asset prices were falling, and basically it 0:02:29.560 --> 0:02:32.360 looked like the world was kind of falling apart. But 0:02:32.440 --> 0:02:37.160 then came the central banks, and suddenly everything was slightly better, 0:02:37.520 --> 0:02:40.320 and things were pretty good for a while. The economy 0:02:40.360 --> 0:02:43.519 didn't double dip as some people had warned it would, 0:02:43.880 --> 0:02:47.440 though there were occasional bouts of volatility, But then the 0:02:47.560 --> 0:02:50.480 narrative started to change. Around the turn of this year, 0:02:50.880 --> 0:02:55.040 more than seven years after the financial crisis, economic growth 0:02:55.160 --> 0:03:01.000 still hadn't picked up significantly, despite multiple expansion and reprograms, 0:03:01.280 --> 0:03:05.400 multiple steps of stimulus, trillions of dollars worth of asset purchases. 0:03:05.880 --> 0:03:09.600 People started talking about this idea, and drug confronted this 0:03:09.680 --> 0:03:13.520 directly that they run out of ammunition, worrying that they 0:03:13.520 --> 0:03:16.840 wouldn't be able to keep markets happy forever. Let's hear 0:03:16.880 --> 0:03:19.639 what Mario Joggy actually had to say about that ammunition 0:03:19.720 --> 0:03:22.920 question last week. Well, I think the best answer to 0:03:23.160 --> 0:03:28.440 this is being given by our decisions today. It's a 0:03:28.480 --> 0:03:32.720 fairly long list of measures, and each one of them 0:03:32.880 --> 0:03:38.560 is very significant and devised to have the maximum impact 0:03:39.440 --> 0:03:45.600 into boosting the economy and the return to price stability. 0:03:45.680 --> 0:03:47.680 So we have shown that we are not short of 0:03:47.720 --> 0:03:52.960 ammunitions on the table for today's discussion is basically markets 0:03:53.120 --> 0:03:57.080 crisis of faith. Let's call it in central banks and Mohammed, 0:03:57.160 --> 0:04:00.560 you're actually perfectly placed to discuss this topic because you've 0:04:00.600 --> 0:04:03.640 just written a book. In your book is called the 0:04:03.680 --> 0:04:07.360 only game in town, the only game being those central banks. 0:04:07.680 --> 0:04:09.880 How did you come up with that topic? So it 0:04:09.920 --> 0:04:12.480 came from a central banker. I was at a conference 0:04:12.640 --> 0:04:17.040 in November of organized by the Central Bank of France 0:04:17.240 --> 0:04:21.800 the Band of France, and the outgoing governor Chris shan 0:04:22.000 --> 0:04:26.000 Yer opened it and it was attended by lots and 0:04:26.040 --> 0:04:28.680 lots of central bankers around the world, and I was 0:04:28.680 --> 0:04:37.000 sitting there and he basically defined the conference in the 0:04:37.000 --> 0:04:40.120 following term. He said, we have become the only game 0:04:40.160 --> 0:04:44.440 in town, and we don't like it. The title comes 0:04:44.520 --> 0:04:48.400 from him because it really speaks to the fact that 0:04:48.480 --> 0:04:52.240 central banks have been forced They haven't chosen to, They 0:04:52.240 --> 0:04:55.039 have been forced to take on more and more responsibility, 0:04:55.760 --> 0:05:00.240 knowing really well that their instruments are badly suited for 0:05:00.360 --> 0:05:03.000 the responsibilities that taken on. But they have felt that 0:05:03.040 --> 0:05:06.640 I had no choice to do it, and increasingly they 0:05:06.720 --> 0:05:11.440 became the only game in town, and their success has 0:05:11.480 --> 0:05:14.720 become a function of somebody else. And that's a very 0:05:14.800 --> 0:05:19.200 uncomfortable position to be in. And that's why the governor said, 0:05:19.760 --> 0:05:22.560 we don't like it. We'll talk to us about those 0:05:22.600 --> 0:05:26.160 instruments and what effect they actually have on markets. So, 0:05:26.240 --> 0:05:29.560 like you said, the first part of the story is 0:05:29.600 --> 0:05:33.000 a simple one, which is post financial crisis. Had they 0:05:33.040 --> 0:05:36.760 not stepped in, stepped in with whatever it takes, and 0:05:36.839 --> 0:05:41.359 that means using balance sheets, flooring interest rates, creating markets 0:05:41.360 --> 0:05:43.960 where markets where dysfunctional, we would have had a multi 0:05:44.040 --> 0:05:48.520 year depression around the world that would have undermined this 0:05:48.600 --> 0:05:53.000 generation and probably the next generation. Then comes Phase two. 0:05:53.200 --> 0:05:57.560 Phase two was in the United States and in Europe. 0:05:58.240 --> 0:06:02.960 In at the end of when the immediate crisis is resolved, 0:06:03.320 --> 0:06:05.120 the patient, if you like, is out of the I 0:06:05.240 --> 0:06:10.119 c U, but the patient is still not doing really well. 0:06:11.040 --> 0:06:14.600 Central banks looked around and came to the conclusion that 0:06:14.640 --> 0:06:17.960 no other policymaker was able and willing to step in, 0:06:18.960 --> 0:06:22.040 so they, like any doctor would do, Rather than abandoned 0:06:22.080 --> 0:06:25.440 the patient, they decided that they would continue to treat 0:06:25.480 --> 0:06:29.279 the patient, even though the medicine they were using wasn't 0:06:29.320 --> 0:06:32.760 well suited for that, and they sound at times both 0:06:32.960 --> 0:06:37.240 resentful and defensive about that. You know, they're absolutely right. 0:06:37.600 --> 0:06:41.200 They're resentful because they are going from being part of 0:06:41.200 --> 0:06:46.240 the solution to now causing complications and potentially becoming part 0:06:46.240 --> 0:06:49.240 of the problem, and they don't like that. They also 0:06:49.320 --> 0:06:54.200 know that if our politicians in Europe, in Japan, in 0:06:54.200 --> 0:06:57.320 the United States where to get the act together, there 0:06:57.360 --> 0:07:01.880 are measures that have been identified ide that could make 0:07:01.960 --> 0:07:05.040 things a lot better, and that would allows central banks 0:07:05.080 --> 0:07:08.279 to normalize and be and remain part of the solution. 0:07:08.880 --> 0:07:11.840 There's a perception that fiscal policies out to lunch, that 0:07:11.960 --> 0:07:16.480 these guys have no choice. In the immediate, very immediate 0:07:16.560 --> 0:07:19.880 post crisis period, there was a sense that fiscal and 0:07:19.920 --> 0:07:23.560 monetary were swimming together. Then that narrative broke down. What 0:07:23.600 --> 0:07:27.080 do you think happened there? The sense of immediate crisis passed. 0:07:27.080 --> 0:07:32.160 So I remember very clearly when government officials turned up 0:07:32.160 --> 0:07:36.720 in Washington, d c. In the fall of two thousand 0:07:36.840 --> 0:07:40.480 and eight and they realized that what they were facing 0:07:40.480 --> 0:07:43.600 at home was a global crisis, that other countries were 0:07:43.600 --> 0:07:47.320 facing exactly the same thing. And at that point there 0:07:47.480 --> 0:07:52.360 was a common understanding that you need to deploy the 0:07:52.400 --> 0:07:56.240 whole range of policies, fiscal, monetary and structural, and you 0:07:56.280 --> 0:07:59.280 need to do it in coordinate fashion. And we had 0:07:59.600 --> 0:08:04.040 the successful G twenty summit in April two tho and 0:08:04.160 --> 0:08:09.160 nine in London. Then two things went wrong. One, the 0:08:09.240 --> 0:08:14.320 mindset remains cyclical. Somehow people believed that since the crisis 0:08:14.360 --> 0:08:18.480 occurred in advanced countries, advanced countries live in cyclical space, 0:08:18.520 --> 0:08:20.960 so this would be a V shaped recovery. You come 0:08:21.000 --> 0:08:24.880 down very quickly, yes, but you recover very quickly. There 0:08:24.920 --> 0:08:28.080 wasn't enough appreciation that this was something much more fundamental. 0:08:28.640 --> 0:08:31.080 It was structural in nature. It was a new normal 0:08:31.400 --> 0:08:35.520 that there it is new normal, right, and there was 0:08:35.559 --> 0:08:39.800 no understanding at that point that this was something secular 0:08:39.800 --> 0:08:43.360 in nature. The second thing that went wrong is with 0:08:43.400 --> 0:08:49.000 the sense of immediate crisis behind us, politicians started relaxing 0:08:49.520 --> 0:08:54.360 and they didn't realize that anger would start growing in 0:08:54.480 --> 0:08:57.760 society that would make it even more difficult to take 0:08:57.920 --> 0:09:00.800 bold actions later on. So I think, you know, it 0:09:00.920 --> 0:09:03.880 was a question of the crisis didn't last long enough, 0:09:04.200 --> 0:09:08.679 and the mindset was wrong. And it's ironic that the 0:09:08.760 --> 0:09:12.880 fiscal policy bankers and we're talking about governments and legislatures 0:09:12.880 --> 0:09:17.760 that undertook those measures during the crisis, many paid the price, 0:09:18.559 --> 0:09:20.720 and yet the narrative when they were hounded out of 0:09:20.720 --> 0:09:26.760 office was you haven't done enough for me. I'm still 0:09:26.800 --> 0:09:29.960 feeling like it's a recession, even though technically the economies 0:09:29.960 --> 0:09:33.240 were expanding. Again, it's pretty ironic, don't you think. I 0:09:33.240 --> 0:09:35.240 don't know if it's ironic as much as it's a 0:09:35.280 --> 0:09:40.400 reflection that while the economies were expanding, they weren't expanding 0:09:40.440 --> 0:09:44.920 fast enough, and the benefits of that expansion we're going 0:09:44.960 --> 0:09:48.520 to a very small segment of the population, the rich. 0:09:48.720 --> 0:09:52.800 So what you had is insufficient growth, and the benefits 0:09:52.800 --> 0:09:55.640 of that growth were not shared in an inclusive fashion, 0:09:56.559 --> 0:09:59.160 and that's why people started getting angry. And the reason 0:09:59.200 --> 0:10:03.760 why that happened is because we relied on finance to 0:10:03.800 --> 0:10:06.400 get us out of the problem. So private finance got 0:10:06.480 --> 0:10:11.720 us into the crisis, and public finance a central banks 0:10:12.600 --> 0:10:14.600 were relied on to get us out of the crisis, 0:10:14.720 --> 0:10:20.319 and we didn't invest in genuine creators of economic growth. 0:10:20.600 --> 0:10:23.640 Being you're familiar with the arguments of Ben Banankee and 0:10:23.640 --> 0:10:25.959 to an extent, Paul Krugman, who say, look as long 0:10:26.000 --> 0:10:28.560 as we're here, we're going to keep swinging. We're not 0:10:28.600 --> 0:10:30.920 going to be the guys who went down in history 0:10:31.360 --> 0:10:34.880 as allowing another depression to happen. And you have some 0:10:34.920 --> 0:10:37.520 sympathy for that view, Yeah, I think of central banks 0:10:37.559 --> 0:10:40.440 as doctors. No doctor will walk away from a patient 0:10:41.200 --> 0:10:45.440 even if they don't have the right medication. They will remain. So, yes, 0:10:45.480 --> 0:10:49.199 they will continue swinging, to use your phrase, but they 0:10:49.240 --> 0:10:54.240 will become increasingly ineffective. But a fiscal policy is perceived 0:10:54.280 --> 0:10:57.920 to remain out to lunch, then what choice do these 0:10:57.960 --> 0:11:04.439 guys have. So are four things that need to happen, fiscal, monetary, 0:11:04.920 --> 0:11:09.120 structural reforms, and a bit of that forgiveness. If you 0:11:09.240 --> 0:11:11.640 rule out three of them and just leave monetary policy 0:11:11.679 --> 0:11:13.720 on the table, which what we have, what we've done, 0:11:14.160 --> 0:11:18.199 not only do you get inadequate outcomes, but you start 0:11:19.160 --> 0:11:23.760 getting tensions that ultimately undermine the pathy wrong And that's 0:11:23.840 --> 0:11:26.360 where I think we're on now. Because policy monetary policy 0:11:26.400 --> 0:11:29.400 becomes ineffective. Do you think the political system is up 0:11:29.400 --> 0:11:33.240 to instituting those three other things you talked about? From 0:11:33.280 --> 0:11:36.800 an engineering perspective, absolutely, I don't think the engineering of 0:11:36.840 --> 0:11:41.600 this is difficult. From an implementation perspective, we probably will 0:11:41.640 --> 0:11:45.120 need some sort of crisis, hopefully a small crisis, to 0:11:45.160 --> 0:11:48.280 wake up the political class. I mean, if anything, right now, 0:11:48.320 --> 0:11:53.040 it seems like we're veering even more towards isolationism, protectionism, 0:11:53.080 --> 0:11:58.560 and populist outrage at authorities in general. You're absolutely right, 0:11:58.559 --> 0:12:03.160 and certain things happen when you grow slowly and when 0:12:03.200 --> 0:12:07.720 inequality goes up. Most importantly, people get angry. Now what 0:12:07.760 --> 0:12:09.520 do you do when you get angry? You blame your neighbor. 0:12:09.600 --> 0:12:11.319 And if your neighbor happens to be a foreigner, that's 0:12:11.320 --> 0:12:14.160 even better. So it's not surprising to me at all 0:12:14.280 --> 0:12:16.319 that there's a populous movement. It is not surprising me 0:12:16.360 --> 0:12:21.800 at all that that we're hearing both sides of the 0:12:21.800 --> 0:12:26.360 political spectrum the United States talk about protectionism. That is 0:12:26.400 --> 0:12:30.160 what happens when economies grow slowly for a prolonged period 0:12:30.160 --> 0:12:34.320 of time. It's rhetorick right now. I don't think that 0:12:34.360 --> 0:12:37.400 we are going to swing from where we are now 0:12:37.440 --> 0:12:42.960 to protectionism because it's actually very difficult to get lobbies 0:12:43.320 --> 0:12:46.640 for protectionism today because we are consumers and producers at 0:12:46.679 --> 0:12:49.720 the same time. But what we will get is an 0:12:49.760 --> 0:12:53.600 emphasis on fair trade, so you'll hear less the phrase 0:12:53.800 --> 0:12:56.840 free trade, and you'll hear more the phrase fair trade. 0:12:57.600 --> 0:13:00.280 Let's go back to monetary policy for a second, because 0:13:00.440 --> 0:13:04.280 we've been talking about fiscal policy. The assumption here being 0:13:04.400 --> 0:13:08.640 that fiscal policy is possibly the only thing left to 0:13:09.160 --> 0:13:12.560 help boost economic growth at this point is that you're 0:13:12.600 --> 0:13:16.960 thinking it's one of the freak of the four components. 0:13:17.360 --> 0:13:20.959 So monetary policy can play a role if supported by 0:13:21.240 --> 0:13:25.120 fiscal policy that matches the will and the wallet to spend. 0:13:25.400 --> 0:13:28.480 We have separated the will from the wallet to spend, 0:13:28.720 --> 0:13:31.480 so we have a problem of aggregate demand. We also 0:13:31.520 --> 0:13:36.360 need to deal with structure reforms to promote genuine engines 0:13:36.360 --> 0:13:39.840 of growth. That means investing in infrastructure, that means corporate 0:13:39.840 --> 0:13:44.760 tax reform, that means greater emphasis on labor retooling, and 0:13:44.840 --> 0:13:46.960 there's a lot of scope for private public partnership. And 0:13:47.000 --> 0:13:50.200 then we have to do the very difficult thing and 0:13:50.240 --> 0:13:53.679 I hate, I would hate doing it because there's huge 0:13:53.679 --> 0:13:56.760 issues of fairness. But we need to also look at 0:13:56.920 --> 0:14:00.280 excessive indebtedness in the system and deal with it. This 0:14:00.320 --> 0:14:03.640 is particularly acute for Europe in the case of Greece, 0:14:03.880 --> 0:14:06.320 and it will become acute in the United States with 0:14:06.400 --> 0:14:10.960 student loans, so debt forgiveness on the table, selective debt 0:14:11.000 --> 0:14:15.400 forgiveness in the next five years for part of our 0:14:15.920 --> 0:14:18.880 younger people who have taken on way too much student 0:14:18.960 --> 0:14:23.320 debt and whose return on education will never be high enough. 0:14:24.200 --> 0:14:28.920 We've learned a few things from episodes of excessive indebtedness, 0:14:28.960 --> 0:14:32.400 particularly what's called the debt overhang. It's one of the 0:14:32.480 --> 0:14:35.640 contributors to the last decade in Latin American the eighties. 0:14:35.640 --> 0:14:38.160 When you have too much debt, too things happen. First, 0:14:38.160 --> 0:14:42.280 it crushes you directly. Second, it discourages any new capital 0:14:42.320 --> 0:14:44.760 from coming in, so you end up in a vicious 0:14:44.760 --> 0:14:46.800 cycle that's almost impossible to get out. You see it 0:14:46.800 --> 0:14:50.560 in Greece every single day. And now there was a 0:14:50.680 --> 0:14:54.280 there was a risk that we may have this as 0:14:54.320 --> 0:14:56.880 a headwind to growth. There's not an immediate crisis, but 0:14:56.920 --> 0:14:59.800 it will be a headwind to growth. And yet, Muhammad, 0:15:00.040 --> 0:15:03.880 the central Bank is same resigned to playing this role 0:15:04.600 --> 0:15:08.800 that has outlived its usefulness. Mario Dragi said at his 0:15:08.840 --> 0:15:12.600 press conference. Quote the measure driver of the economy and 0:15:12.680 --> 0:15:17.640 the recovery basically remains our monetary policy. How do they 0:15:17.680 --> 0:15:22.120 get out of that? So they need we all need 0:15:22.200 --> 0:15:26.240 the handoff. We need the handoff from prolonged and excessive 0:15:26.360 --> 0:15:32.560 dependence on central bank policies to a more comprehensive policy response. 0:15:32.960 --> 0:15:38.120 Remember when the first central bank went unconventional to pursue 0:15:38.200 --> 0:15:44.040 economic objectives as as opposed to normalize dysfunctional financial markets, 0:15:44.080 --> 0:15:46.480 which is August two and ten in the case of 0:15:46.480 --> 0:15:50.080 the US. Ben Bernacki made it very clear. He said, 0:15:50.160 --> 0:15:55.680 when you go unconventional, it's about quote benefits, costs and risks. 0:15:56.640 --> 0:16:01.040 And the longer you see unconventional, the gay to the 0:16:01.160 --> 0:16:04.920 threat that the benefits come down and the risks and 0:16:04.960 --> 0:16:07.480 the costs go up. I that the collateral damage and 0:16:07.480 --> 0:16:12.920 the unintended consequences exceed the benefits. Central bankers know that, 0:16:13.440 --> 0:16:17.640 they know that, and yet they're unable to hand off 0:16:18.520 --> 0:16:20.800 to the more comprehensive So they are in a really 0:16:20.800 --> 0:16:23.160 difficult situation. And that's why I said at the beginning, 0:16:23.560 --> 0:16:26.400 they no longer control their destiny, and that makes them 0:16:26.440 --> 0:16:33.600 really uncomfortable. Do they worry that the independence of central banks, 0:16:33.640 --> 0:16:37.280 which has really been a hallmark of the past thirty years, 0:16:37.800 --> 0:16:42.320 began in the US, But it's spread to the UK, 0:16:42.680 --> 0:16:45.400 it spread to the Eurosystem members and in the late 0:16:45.480 --> 0:16:50.120 nineties to Japan. Is that at risk? In other words, 0:16:50.120 --> 0:16:53.960 their very identity is that at risk from these popularist 0:16:54.040 --> 0:16:56.720 pressures that you've said a growing Ultimately, will there be 0:16:56.760 --> 0:16:59.880 a legislative response and is that what they deeply fear 0:17:01.000 --> 0:17:03.640 they do? And it is at risk? We already saw 0:17:03.800 --> 0:17:08.639 the Japanese parliament go crazy over the Bank of Japan 0:17:08.680 --> 0:17:12.600 when the Bank of Japan took create negative um. In 0:17:12.640 --> 0:17:17.080 the US, there are calls for greater audit of the 0:17:17.080 --> 0:17:22.200 central bank. We are very close to a politician realizing 0:17:22.280 --> 0:17:26.359 that when they expand their balance sheets as the e 0:17:26.400 --> 0:17:29.399 c P announced would do more of last week, that 0:17:29.520 --> 0:17:34.080 they really are quasi fiscal agencies. And the minute you talk, 0:17:34.280 --> 0:17:37.280 you put fiscal in the phrase. Even if it's quasi fiscal, 0:17:38.160 --> 0:17:41.960 there's a question, why aren't they coming to parliament for approval? So, yes, 0:17:42.080 --> 0:17:44.280 central banks are worried, and they're right to be worried. 0:17:44.640 --> 0:17:47.600 Will they use Will they lose their independence? I don't 0:17:47.600 --> 0:17:50.840 think it will happen very quickly, but they will find 0:17:51.119 --> 0:17:54.359 that they will become more political than they have in 0:17:54.359 --> 0:17:56.440 the past. Do you think one of these days one 0:17:56.440 --> 0:18:01.399 of these bills in Congress will sneak through. It's really 0:18:01.400 --> 0:18:04.760 hard to say then. I mean, so many crazy things 0:18:04.800 --> 0:18:09.959 are happening on the political side, and some of them 0:18:09.960 --> 0:18:12.600 are not very rational, so it's hard to say. It 0:18:12.640 --> 0:18:14.800 really is a risk, and that would be a disaster. 0:18:15.800 --> 0:18:18.439 It's gone from being very much a fringe view in 0:18:18.520 --> 0:18:23.200 Congress to almost a mainstream view. The audit the FED, 0:18:23.240 --> 0:18:26.879 for example, each year gets more and more adherents, but 0:18:26.960 --> 0:18:29.600 it can't quite get through. That's why I wonder whether 0:18:29.640 --> 0:18:31.640 one of these days something is going to get through. 0:18:32.359 --> 0:18:34.960 It's certainly a risk. I want to go back to 0:18:35.000 --> 0:18:38.240 the ammunition question for a bit, because it seems like 0:18:38.640 --> 0:18:41.840 late last year we did suddenly see a chorus of 0:18:41.920 --> 0:18:45.920 voices expressing concern over the idea that central banks had 0:18:46.040 --> 0:18:49.439 fired off all the monetary policy shots they had in 0:18:49.480 --> 0:18:54.359 their collective armory. I guess to stretch the analogy, what 0:18:54.400 --> 0:18:58.040 do you think about that, Mohammed? Is that true? So 0:18:58.119 --> 0:19:00.159 they have instruments. I don't think the issues were they 0:19:00.160 --> 0:19:02.960 have instruments or not. I think it's how well suited 0:19:02.960 --> 0:19:06.360 are the instruments for the objectives are trying to pursue 0:19:06.960 --> 0:19:10.240 and from day one. They weren't perfectly suited, and the 0:19:10.280 --> 0:19:15.840 longer they've relied on imperfect instruments, the greater the collateral damage. 0:19:15.880 --> 0:19:18.840 Go back to the example of the doctor. If she 0:19:19.080 --> 0:19:23.199 or he prescribes you the wrong medication because the right 0:19:23.320 --> 0:19:26.160 medication isn't available, you will worry about the side effects. 0:19:26.400 --> 0:19:28.920 And we're starting to worry about the side effects. It's 0:19:28.960 --> 0:19:32.360 the old notion that at some point the side effects 0:19:32.480 --> 0:19:39.560 totally overwhelmed the good that the medication was doing. So yeah, so, 0:19:39.560 --> 0:19:41.159 so people should be worried. But it's not because of 0:19:41.200 --> 0:19:43.280 the lack of instruments. It's just that the instruments aren't 0:19:43.320 --> 0:19:47.600 well suited for the objectives that are being pursued by 0:19:47.640 --> 0:19:51.920 central banks alone. Mohammed, one last question before we let 0:19:51.920 --> 0:19:55.919 you go to use your doctor analogy again. How should 0:19:55.920 --> 0:19:59.800 we be judging the success of central banks? You know, 0:20:00.040 --> 0:20:03.359 if they're doctors, they've kept markets alive for this long, 0:20:03.760 --> 0:20:08.359 but they haven't really treated the underlying illness. So I 0:20:08.400 --> 0:20:12.879 would give them a plus for effort throughout the whole period. 0:20:13.880 --> 0:20:16.840 A plus effort. You know, they they have really done 0:20:16.960 --> 0:20:21.160 enormous I'll give them a plus. Between two thousand and 0:20:20.920 --> 0:20:24.320 eight and two thousand and ten for the FED for 0:20:24.680 --> 0:20:29.359 helping us to avoid a multiyear depression. I would give 0:20:29.440 --> 0:20:35.080 him a B for buying time for the system between 0:20:35.440 --> 0:20:39.439 two thousand and ten and two thousand and fifteen, in 0:20:39.560 --> 0:20:42.439 the hope, the misplaced hope, as it turned out, in 0:20:42.480 --> 0:20:46.359 the hope that our political class would respond, and I 0:20:46.359 --> 0:20:49.639 would give them an incomplete as to whether they become 0:20:49.640 --> 0:20:52.840 part of the problem having been part of the solution. 0:20:54.040 --> 0:20:56.240 All right, Muhammad al Arian, thank you so much for 0:20:56.240 --> 0:21:02.600 your time. Thank you, all right, Dan, Have we come 0:21:02.640 --> 0:21:05.280 away from that any clearer on whether or not central 0:21:05.280 --> 0:21:08.400 banks are running out of bullets? I think we've come 0:21:08.400 --> 0:21:11.639 out of this with an understanding of the framework that 0:21:11.640 --> 0:21:15.200 that debate is happening in, and few if any, people 0:21:15.200 --> 0:21:18.880 are as articulate on the subject as our guest. I thought. 0:21:18.880 --> 0:21:22.480 The idea of fiscal policy is really interesting, especially since 0:21:22.520 --> 0:21:24.840 we seem to be hearing more and more economists and 0:21:24.920 --> 0:21:28.080 analysts talk about the need for these sort of measures. 0:21:28.400 --> 0:21:32.439 The thing that concerns me, which Mohammed touched on, was 0:21:32.480 --> 0:21:35.320 this idea that suddenly we're going to have an epiphany 0:21:35.359 --> 0:21:37.160 and be able to come out of all the politics 0:21:37.200 --> 0:21:41.880 surrounding those issues and actually tackle things like debt overhangs. 0:21:41.880 --> 0:21:44.560 How plausible do you think that is? I don't know. 0:21:45.240 --> 0:21:49.000 There's almost an element of tragedy about this. The Central 0:21:49.000 --> 0:21:53.080 Banks were widely perceived to have, if not saved the world, 0:21:53.280 --> 0:21:57.040 then staved off a second great depression. They're not getting 0:21:57.119 --> 0:22:00.840 much thanks for their action now, and yet, as Mohammed 0:22:00.920 --> 0:22:05.399 pointed out, this little sign that fiscal policy makes are 0:22:05.440 --> 0:22:09.400 willing to help them out of this trap into which 0:22:09.400 --> 0:22:12.840 they've got themselves. It is tragic. Don't you think it's 0:22:12.840 --> 0:22:16.760 definitely tragic? It's also definitely interesting times. And I mean 0:22:16.840 --> 0:22:22.400 that in the classic Chinese curse use of the word right. Okay. 0:22:22.400 --> 0:22:26.080 Thanks again to Dan for being my co host for 0:22:26.119 --> 0:22:29.240 this episode of Odd Lots, and thanks to Mohammed el Arian. 0:22:29.560 --> 0:22:32.280 His book is the only game in town Central Banks, 0:22:32.359 --> 0:22:35.960 Instability and avoiding the next collapse. I'm Tracy Alloway. You 0:22:36.000 --> 0:22:38.680 can follow me on Twitter at Tracy Alloway. You can 0:22:38.720 --> 0:22:43.480 also follow Mohammed el Ariyan he is at el Arian M. 0:22:43.520 --> 0:22:46.320 I'm Daniel Moss. You can get me at Daniel Moss 0:22:46.400 --> 0:22:47.959 d C. Thanks for listening.