WEBVTT - Surveillance: Fed Will Emphasize Patience, Kroszner Says 0:00:00.080 --> 0:00:13.040 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:16.960 Jay Lee. We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.480 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.320 Bloomberg dot Com and of course on the Bloomberg Right now. 0:00:34.680 --> 0:00:37.360 On Brexit, it has been an extraordinary forty eight hours 0:00:37.360 --> 0:00:40.680 for the United Kingdom. Too much complexity even to know 0:00:40.800 --> 0:00:42.640 where to begin. And we must go to the true 0:00:42.680 --> 0:00:45.760 expert for Bloomberg News, and that is Anna Edwards on 0:00:45.840 --> 0:00:49.560 the Green in Westminster. Anna, the eight amendments. I tried 0:00:49.600 --> 0:00:56.120 to memorize them. I only got to two amendments. I'm sorry, 0:00:56.240 --> 0:00:59.640 that's okay, you've forgiven. Tom. Well, all you needed to 0:00:59.640 --> 0:01:01.920 know was most of them went the government's way, I suppose, 0:01:02.520 --> 0:01:05.399 so most things did go the government's way, at least 0:01:05.440 --> 0:01:07.399 in the very short term. She won a victory of sorts, 0:01:07.440 --> 0:01:09.920 didn't she. She goes to back to Brussels to try 0:01:09.959 --> 0:01:14.080 and to renegotiate the backstop. Brussels and said no, they 0:01:14.160 --> 0:01:16.720 keep saying no. The UK that says, that's just a 0:01:16.959 --> 0:01:20.000 negotiating position. So we wait to see what can possibly 0:01:20.000 --> 0:01:22.440 be achieved. In two weeks. That has not been achieved 0:01:22.440 --> 0:01:24.880 over the last two years. And could we be all 0:01:24.920 --> 0:01:29.399 back here on Valentine's Day looking at amendments once again. Tom, 0:01:29.480 --> 0:01:31.759 You know, I'm reading the newspapers and it's real simple. 0:01:31.760 --> 0:01:35.119 The Irish Prime ministers asked the European Union to hold 0:01:35.160 --> 0:01:38.400 their nerve. I believe somebody over in Brussels at some 0:01:38.480 --> 0:01:43.400 point said nothing's open for renegotiation. What is prime minister 0:01:43.520 --> 0:01:51.600 made trying to accomplish in Brussels given that immediate response. Yeah, 0:01:51.640 --> 0:01:54.240 the immediate response has been very negative. I suppose the 0:01:54.360 --> 0:01:59.200 linguists have been passing the language and trying to work 0:01:59.240 --> 0:02:01.640 out if there is a room between the two to 0:02:01.720 --> 0:02:03.920 find some sort of compromise. So the EU has said 0:02:03.960 --> 0:02:08.280 no change to the withdrawal agreement. Absolutely not the words 0:02:08.360 --> 0:02:10.720 used by Thereason May yesterday whether she was looking for 0:02:10.840 --> 0:02:14.680 legally binding changes, She didn't say she wanted to actually 0:02:14.720 --> 0:02:18.280 replace the backstop. So is that code for can we 0:02:18.720 --> 0:02:21.880 write on a different piece of paper some legally binding words, 0:02:21.880 --> 0:02:26.360 a code of sill as it's called to satisfy both sides? 0:02:26.680 --> 0:02:29.440 Would that satisfy the European Research Group, though the far 0:02:30.440 --> 0:02:33.920 Brexit here side of the Conservative Party. They've come together 0:02:33.960 --> 0:02:37.400 over the last twenty four hours in an act of unity, 0:02:37.919 --> 0:02:39.760 and they're sending her back to Brussels to try and 0:02:39.840 --> 0:02:43.280 seek something. But whatever she comes back from Brussels with, 0:02:43.360 --> 0:02:47.080 would it be satisfactory to them? As I say, in 0:02:47.120 --> 0:02:49.240 two weeks, we could be back here again doing this 0:02:49.280 --> 0:02:51.799 all again, looking at amendments, just like we did last 0:02:51.919 --> 0:02:56.040 night around Article fifty extensions and and blocking no deal. 0:02:56.120 --> 0:03:00.880 So we could still be talking about those things. Um 0:03:00.919 --> 0:03:06.000 so I know where's labor and all of this well 0:03:06.120 --> 0:03:08.880 in incident into one of the interesting things happened last 0:03:09.000 --> 0:03:11.480 night in the in the Commons when Theresa May stood 0:03:11.520 --> 0:03:14.240 up to speak after the results of all of these 0:03:14.280 --> 0:03:18.000 amendments were voted on, and Labor in the shape of 0:03:18.040 --> 0:03:20.320 Jeremy Corbyn did say, okay, I'll come and meet you. 0:03:20.320 --> 0:03:22.840 And remember he had refused to do that for some time, 0:03:22.919 --> 0:03:24.800 so it seems as if he is willing to at 0:03:24.840 --> 0:03:28.959 least go and speak to Thereason May. He will be 0:03:29.240 --> 0:03:31.560 a bit of a bystander though for the next two weeks. Also, 0:03:31.680 --> 0:03:33.640 I want to assumes, because she is the one who's 0:03:33.639 --> 0:03:35.040 going to go back to Brussels and see what she 0:03:35.080 --> 0:03:38.480 can come back with in terms of rewriting that backstop. 0:03:38.480 --> 0:03:40.360 But but he is at least going to meet her, 0:03:40.360 --> 0:03:57.320 which is progress compared to the last few weeks. Stephen 0:03:57.360 --> 0:04:01.440 Stanley dropping by the studio Amherst Pierpont Economists. Good morning 0:04:01.480 --> 0:04:04.440 to Stephen. What is the FED decision day guide over 0:04:04.480 --> 0:04:07.080 at your shop? Good morning? Well, I think you know, 0:04:07.120 --> 0:04:10.480 the FED has declared themselves on pause, so um, and 0:04:10.560 --> 0:04:12.320 it actually is kind of a good time for that, 0:04:12.360 --> 0:04:14.280 given that we haven't really had much data over the 0:04:14.360 --> 0:04:17.640 last month. So I think really the FED wants to 0:04:18.240 --> 0:04:21.440 emphasize that they're being flexible, that they're listening. I think 0:04:21.480 --> 0:04:24.719 the markets viewed, uh for for better for worse in 0:04:24.800 --> 0:04:28.040 December that the Fed was somehow not listening to what 0:04:28.080 --> 0:04:29.680 the markets were trying to tell them, and so the 0:04:29.720 --> 0:04:34.160 Fed wants to uh lend a sympathetic ear even though ultimately, 0:04:34.480 --> 0:04:36.200 you know, they may end up having to raise rates 0:04:36.240 --> 0:04:38.400 further later in the year. So Stephen, we could talk 0:04:38.440 --> 0:04:41.559 about they're going to reclaim optionality. I'm just wondering whether 0:04:41.560 --> 0:04:44.800 that come to formalize patients on rates and flexibility on 0:04:44.800 --> 0:04:47.480 the balance sheet. In the statement in the news conference, 0:04:47.520 --> 0:04:49.800 do you expect that to happen. Well, I think, you know, 0:04:49.839 --> 0:04:52.480 in terms of the statement, you've got the forward guidance 0:04:52.520 --> 0:04:56.600 about continued gradual rate hikes, and the question is, really 0:04:56.640 --> 0:04:58.440 are they going to continue to soften that? Are they 0:04:58.480 --> 0:05:00.960 going to take it out altogether in January? Worry? Um, 0:05:01.000 --> 0:05:04.400 they starting at the November f MC minutes, they started 0:05:04.720 --> 0:05:06.880 UH with the idea that they do want to get 0:05:06.920 --> 0:05:09.520 away from forward guidance, So that does lend itself toward 0:05:10.080 --> 0:05:12.920 a more flexible UH stance. I don't know that they're 0:05:12.920 --> 0:05:15.719 gonna want to talk too much about the balance sheet. Um. 0:05:15.760 --> 0:05:18.239 My guess is that you're gonna have to ask UH 0:05:18.320 --> 0:05:20.200 Chairman pala question to get much out of him. On 0:05:20.240 --> 0:05:23.000 the balance sheet. What's the effect right now the economy 0:05:23.279 --> 0:05:26.080 on the fiction of real yields that we still have? 0:05:27.360 --> 0:05:30.040 What's the effect right now? I've just diminished real yields 0:05:30.040 --> 0:05:33.080 from any of our experience. Well, I mean, I think 0:05:33.279 --> 0:05:36.640 you know, the the UH we have peaked just above 0:05:36.760 --> 0:05:42.800 zero in terms of where yields are um relative to inflation. Yeah, 0:05:42.839 --> 0:05:46.440 but we're still very low historically. And you know, for 0:05:46.600 --> 0:05:49.800 my money, I I still think the economy as a result, 0:05:50.440 --> 0:05:53.760 I think policies relatively easy in the economy, UH still 0:05:53.800 --> 0:05:55.839 should have a lot of momentum, and certainly we've seen 0:05:55.880 --> 0:05:58.400 that in the UH jobs numbers that we've gotten and 0:05:58.440 --> 0:06:00.359 I think everything we haven't gotten a lot data, but 0:06:00.360 --> 0:06:02.679 the consumer seems to be still well. The hard data, 0:06:03.160 --> 0:06:04.840 let's be clear and jord distinction, if we count the 0:06:04.880 --> 0:06:08.120 hard data has still being absolutely fantastic in many aspects 0:06:08.120 --> 0:06:10.359 of this U S economy. The soft data has just 0:06:10.400 --> 0:06:12.000 started to roll over a little bit. A lot of 0:06:12.080 --> 0:06:15.640 people latched onto the consumer confidence numbers we had yesterday, 0:06:16.040 --> 0:06:18.320 and just to paint the picture for us here on radio, 0:06:18.680 --> 0:06:21.440 there was a bigger spread between the confidence in the 0:06:21.480 --> 0:06:24.720 here and now and the confidence about the future, and 0:06:24.839 --> 0:06:27.800 the confidence in the here and now substantially higher than 0:06:27.839 --> 0:06:30.159 the way people feel about the future. And a lot 0:06:30.200 --> 0:06:32.920 of people are concerned about that spread. Should they be well, 0:06:33.320 --> 0:06:34.880 you know, I would say, let's wait a month and 0:06:34.920 --> 0:06:38.000 see what happens, because the survey was taken right in 0:06:38.040 --> 0:06:40.000 the middle of the government shutdown, and that clearly had 0:06:40.040 --> 0:06:43.360 an effect on the way people were thinking about the future. Um, 0:06:43.680 --> 0:06:47.000 so you know, factors, we could be in another government 0:06:47.000 --> 0:06:49.520 shutdown in a month's time. So I'm not sure we 0:06:49.560 --> 0:06:53.279 we have full resolution on that, but I would say, um, 0:06:53.560 --> 0:06:55.679 that the fact that people are still feeling good about 0:06:55.680 --> 0:06:59.400 their actual situations is a good sign. We've talked about 0:06:59.400 --> 0:07:02.599 the tension between the market and the data. Chairman Pal 0:07:02.720 --> 0:07:05.680 talked about that very tension, and I'm wondering whether the 0:07:05.760 --> 0:07:08.680 chairman can sit there today inside that tension has resolved itself. 0:07:09.120 --> 0:07:11.200 Do you think it's too eady to tell? It's way 0:07:11.200 --> 0:07:14.080 too early? UM? I think the markets again, the markets 0:07:14.080 --> 0:07:17.679 are still talking about a recession either this year or next. Um. 0:07:17.760 --> 0:07:19.720 And I just you know the Fed obviously we've seen 0:07:19.760 --> 0:07:22.520 their projections. They don't believe that. They don't believe. Let's 0:07:22.520 --> 0:07:23.920 go to the y that because I would see just 0:07:23.960 --> 0:07:26.280 a lot of our listeners worldwide and coast to coast, 0:07:26.440 --> 0:07:29.760 coast of frozen coast, I should say, actually believe in 0:07:30.200 --> 0:07:33.000 maybe not an n b our recession, but some form 0:07:33.080 --> 0:07:36.720 of lesser growth off of make America great again growth. 0:07:36.760 --> 0:07:41.679 That's the the zeitgeist right now. You don't agree, right? Yeah? 0:07:41.760 --> 0:07:44.040 I think what the market is seeing is they say, okay, 0:07:44.080 --> 0:07:46.640 we think that growth topped out last year, so the 0:07:46.680 --> 0:07:49.080 pace of growth is going to slow down. In two 0:07:49.120 --> 0:07:52.200 thousand and nineteen versus two thousand and eighteen, and and 0:07:52.240 --> 0:07:55.880 I don't think that there's a I think most people 0:07:55.880 --> 0:07:57.800 feel that it's a straight line. Once it starts on 0:07:57.840 --> 0:08:00.720 a downward path, it's inevitable that it's gonna make its 0:08:00.760 --> 0:08:04.640 way into negative territory. So Stephen, global uncertainty has increased, 0:08:04.760 --> 0:08:07.200 inflation is low enough that it gives them some space 0:08:07.240 --> 0:08:09.160 to be patient. I understand all of that. What I 0:08:09.200 --> 0:08:12.640 don't understand really is to what degree the trade debate 0:08:12.960 --> 0:08:15.559 down in Washington could open the door for the Federal 0:08:15.560 --> 0:08:17.640 Reserve later this year. Is it a big factor, a 0:08:17.640 --> 0:08:20.320 small factor. How much weight do you assign to the 0:08:20.360 --> 0:08:23.040 importance of that. I think it's a pretty big factor. 0:08:23.120 --> 0:08:25.840 I think what the markets are focused on is really 0:08:25.920 --> 0:08:29.880 the tariff situation, right because we've got the big issues 0:08:29.960 --> 0:08:31.720 that I think are going to be that certainly the U. 0:08:31.760 --> 0:08:35.000 S Side wants to deal with this week around intellectual 0:08:35.080 --> 0:08:38.600 property protection and some of these broad structural issues that 0:08:38.600 --> 0:08:40.720 are going to take years to hash out. But what 0:08:40.800 --> 0:08:43.640 the markets are really worried about is the possibility that 0:08:43.679 --> 0:08:45.480 tears are going to ratchet up in them. Okay, that's 0:08:45.600 --> 0:08:47.920 n X. I believe on white calls C plus I 0:08:48.080 --> 0:08:52.280 plus G plus n X, how much of growth is 0:08:52.960 --> 0:08:58.199 terroiffs or trade or n X? What percentages it? Well, 0:08:58.240 --> 0:09:01.040 I mean exports are about twelve percentage DP, imports about 0:09:01.040 --> 0:09:03.640 fifteen UM. But from one year to the next, in 0:09:03.720 --> 0:09:06.880 terms of looking at the growth um that exports tends 0:09:06.920 --> 0:09:08.760 to be very volatile, so it can have a big 0:09:08.800 --> 0:09:12.320 positive or negative contribution to GDP. It was pretty negative 0:09:12.400 --> 0:09:14.400 last year, and I think part of that was because 0:09:14.760 --> 0:09:18.000 firms were trying to front load imports. But does it 0:09:18.160 --> 0:09:24.160 does it threaten the sea which is well, I think 0:09:24.200 --> 0:09:28.400 that's a great question. In one Yeah, I think that 0:09:29.559 --> 0:09:32.600 the that the consumer is in pretty good shape. I mean, 0:09:32.600 --> 0:09:36.480 the labor market is strong, wages around. Can I digress here? 0:09:37.440 --> 0:09:42.079 You want to claims we were in Davos. No, we 0:09:42.080 --> 0:09:49.360 were in Davos, Steve Pharrells too young to understand this. 0:09:49.559 --> 0:09:52.520 You and I have never thought about that statists, right, Yeah, 0:09:52.679 --> 0:09:56.720 we're never John, that's the outlier of outliers. We've been 0:09:56.720 --> 0:09:58.880 near multi decade lows for a long long time on 0:09:58.920 --> 0:10:01.520 initial jobless claims. What I do think is interesting, Stephen, 0:10:01.720 --> 0:10:05.520 we're not even factoring in population change from decades ago. 0:10:05.840 --> 0:10:08.760 Excuse me, I had that it's even for really more 0:10:08.880 --> 0:10:12.400 stunning now relative to the size of the population. Sure, sure, 0:10:12.400 --> 0:10:15.400 I mean up until this cycle, anything below three hundred 0:10:15.480 --> 0:10:19.720 was considered extraordinary. Now we're talking about two hundred amazing statements. Stanny, 0:10:19.760 --> 0:10:27.400 great to catch up with you please, consumer shopping, Uh, 0:10:27.640 --> 0:10:44.520 probably not so great in the short run. On a 0:10:44.559 --> 0:10:47.400 FED day, it is always our joy, indeed our academic 0:10:47.400 --> 0:10:49.640 honor to speak with Randall Crossing in the booth schools 0:10:49.720 --> 0:10:53.480 Chicago joins us. Now the former FED governor is well 0:10:53.720 --> 0:10:56.120 Randy within all your experience, And it comes down to 0:10:56.160 --> 0:10:59.839 a choice set, an opportunity set, did any chairman face? 0:11:00.080 --> 0:11:04.520 Is how constrained is Chairman Powell into this meeting, or 0:11:04.520 --> 0:11:06.720 for that matter, is a set into the next two 0:11:06.840 --> 0:11:09.400 or three meetings? Does he have a wide set of 0:11:09.520 --> 0:11:15.640 choices or is he limited? Well? I think, um, well, 0:11:15.840 --> 0:11:18.719 he has choices open to him. But I don't think 0:11:18.720 --> 0:11:20.959 he's going to exercise those. I think he's going to 0:11:21.040 --> 0:11:24.640 stay in a in a pretty limited lane. I think 0:11:24.679 --> 0:11:27.800 they're gonna emphasize that they're going to be patient. I 0:11:27.800 --> 0:11:31.200 think they're going to emphasize that they see some some 0:11:31.360 --> 0:11:34.920 clouds on the horizon, and as they had mentioned in 0:11:34.920 --> 0:11:38.400 their December statement, that they're downside risks, although they probably 0:11:38.440 --> 0:11:40.560 will still say that the balance of risks is is 0:11:40.640 --> 0:11:45.719 relatively or the risks are relatively balanced. But I think 0:11:45.760 --> 0:11:48.720 they're going to leave themselves a little bit more wiggle 0:11:48.800 --> 0:11:51.000 room for maybe not moving quite as much as they 0:11:51.000 --> 0:11:53.600 were suggesting back in December. Grandy, A lot of people 0:11:53.600 --> 0:11:56.960 are drawing parallels with the O five, O six period 0:11:57.520 --> 0:11:59.679 m of a decade or so ago. You were on 0:11:59.720 --> 0:12:02.880 the f MC around that time, Randy, Does it feel 0:12:02.920 --> 0:12:04.880 like that to you? Are there any kind of parallels 0:12:04.920 --> 0:12:07.240 that you would draw and what lesson would you have 0:12:07.280 --> 0:12:09.600 learned from that period that the Federal Reserve can apply today? 0:12:11.559 --> 0:12:15.240 So I think that, uh, the FIT feels that they've 0:12:15.400 --> 0:12:19.160 raised rates to roughly the area where they are neither 0:12:19.240 --> 0:12:23.760 being expansionary nor contractionary, the so called neutral range. And 0:12:24.240 --> 0:12:26.360 you know, now there's debating, well, should they go a 0:12:26.400 --> 0:12:29.520 little bit further or not? Are they seeing inflation pressure 0:12:29.600 --> 0:12:31.800 or not? And so far they really haven't seen a 0:12:31.800 --> 0:12:35.080 lot of inflation pressure. But there's a lot of uncertainty 0:12:35.120 --> 0:12:38.760 about whether the hot labor market will lead to more 0:12:38.800 --> 0:12:42.400 inflation or not and um, and that's why they continue 0:12:42.400 --> 0:12:45.360 to debate. And that's why I think that the markets 0:12:45.360 --> 0:12:48.800 were unsure of where they would be because people were 0:12:49.679 --> 0:12:52.480 a supposing different different points of view. Randy, there is 0:12:52.520 --> 0:12:55.120 this belief that the Federal Reserve is now done that, 0:12:55.240 --> 0:12:57.520 so why be how belief on Wall Street that perhaps 0:12:57.559 --> 0:12:59.920 there is nothing left for this cycle? Do you think 0:13:00.000 --> 0:13:03.000 Federal Reserve has a duty to reclaim some optionality at 0:13:03.000 --> 0:13:07.079 today's mating? That's well said. Yeah, So I don't think 0:13:07.080 --> 0:13:09.920 they need to reclaim the optionality. I think they still 0:13:09.960 --> 0:13:14.080 have it and sometimes the markets just need to sort 0:13:14.080 --> 0:13:18.560 of u catch up to it. Is Uh. Certainly the 0:13:18.640 --> 0:13:24.160 you know, expectations of interesting increases and uh uh have 0:13:24.160 --> 0:13:26.800 have changed quite a bit over time. Uh, and so 0:13:27.000 --> 0:13:30.440 make an increase or decrease depending on underlying inflation and 0:13:30.880 --> 0:13:34.160 underlying economic activity. So I don't think he's going to 0:13:34.320 --> 0:13:37.320 try to push that. I think he feels that he 0:13:37.360 --> 0:13:39.920 has the option if he needed, if the underlying data 0:13:40.440 --> 0:13:42.720 would want to push them to do more. But I 0:13:42.720 --> 0:13:45.160 don't think he's going to push that today. Professor Krasner, 0:13:45.240 --> 0:13:47.360 we really enjoy you and Davos, we thought you were 0:13:47.400 --> 0:13:49.240 great there when you got yourself out of the snow 0:13:49.280 --> 0:13:53.079 bank to talk to us, that you missed it, Randy. 0:13:53.280 --> 0:13:57.160 The theme in Davos was about the effect of low 0:13:57.280 --> 0:14:00.880 real rates on the banking system. Okay, Europe, we all 0:14:00.920 --> 0:14:05.000 get with negative interest rates is hugely distorted. How distorted 0:14:05.160 --> 0:14:09.000 is our world right now with these low real rates 0:14:09.040 --> 0:14:12.160 that we enjoy in the United States? Are is the 0:14:12.200 --> 0:14:15.440 FED looking at it in the meeting that we're significantly 0:14:15.480 --> 0:14:20.160 distorted or is it a non event? Well, that's it's 0:14:20.200 --> 0:14:22.640 a very interesting question because if you look over a 0:14:22.720 --> 0:14:28.120 longer horizon, like from back thirty years, real interest rates 0:14:28.160 --> 0:14:31.040 that is the inflation adjustor rates have been falling globally 0:14:31.440 --> 0:14:35.600 for for for decades, really since the nineteen eighties, so 0:14:35.720 --> 0:14:39.360 thirty forty years. And so a lot of people say, well, 0:14:39.360 --> 0:14:41.840 it's just a recent thing that central banks have pushed 0:14:41.920 --> 0:14:43.960 rates down so low, but it's really been part of 0:14:43.960 --> 0:14:47.440 a longer, longer term trend. And and I think that 0:14:47.480 --> 0:14:50.000 has to do with the supply and demand of savings 0:14:50.000 --> 0:14:54.280 and really introducing an enormous amounts of UH savings from 0:14:54.360 --> 0:14:57.640 China into the world world economy. The US has now 0:14:57.760 --> 0:15:01.360 raised rates um and so we're at least having a 0:15:01.360 --> 0:15:05.440 real rate of slightly positive, unlike most countries of the world. 0:15:05.760 --> 0:15:07.880 So I don't think the FIT is worried that we're 0:15:07.920 --> 0:15:09.760 sort of out of step with the rest of the world. 0:15:10.160 --> 0:15:12.000 And I think they would like to see rates to 0:15:12.040 --> 0:15:15.400 be a little bit more more positive, real rates to 0:15:15.400 --> 0:15:19.000 be a bit more positive. But um, I think they're 0:15:19.000 --> 0:15:21.280 comfortable with where we are at the moment. Brandy, Can 0:15:21.280 --> 0:15:23.600 we talk about the weather just briefly. You're amand that 0:15:23.680 --> 0:15:27.400 know Chicago. Well, I understand you're not in Chicago, and 0:15:27.440 --> 0:15:29.880 imagine you're happy you're not right now, but just your 0:15:29.880 --> 0:15:32.480 experience with the weather and what it means for the economy. 0:15:32.560 --> 0:15:35.200 We are going into a real cold snap over the 0:15:35.240 --> 0:15:41.560 next week and potentially a whole lot longer. Uh. Certainly, Uh, 0:15:41.840 --> 0:15:44.400 it is not so warm a Chicago. But I am 0:15:44.440 --> 0:15:48.160 in Hong Kong where we have a new campus and 0:15:48.680 --> 0:15:51.200 complex here and we just had an opening and through 0:15:51.240 --> 0:15:55.760 the really spectacular and strictly spectacular because it's not freezing. Um. 0:15:55.800 --> 0:15:59.920 These cold snaps can have negative impacts on economic actor. 0:16:00.080 --> 0:16:03.480 It will depend on how long it's sustained. If it's 0:16:03.520 --> 0:16:05.600 just a day or two, it really won't leave much 0:16:05.600 --> 0:16:08.720 of the more. Randa Crosser, thank you so much. The 0:16:08.760 --> 0:16:12.400 former governor of the fellow Reserve Wisconsin, Degree Hong Kong 0:16:12.840 --> 0:16:17.880 he is John may I stayed editorially, Professor Krasner is 0:16:17.960 --> 0:16:33.240 smarter than we are. Yes, So let us migrate forward 0:16:33.280 --> 0:16:35.440 to trade, which is the most important right now. Let 0:16:35.520 --> 0:16:38.760 us do that with Debra Lett Paulson Institute Vice Chairman. Debora, 0:16:38.800 --> 0:16:40.600 great to have you with us on the program. High 0:16:40.640 --> 0:16:43.200 level trade talks commencing in Washington, d C. What is 0:16:43.240 --> 0:16:46.320 your base case this week? Well, it's a very positive 0:16:46.360 --> 0:16:50.680 sign that Vice Premier Leoja is here and the chances 0:16:50.880 --> 0:16:53.160 I think are good that they'll get some kind of 0:16:53.280 --> 0:16:57.280 framework deal, not not the final deal, but at least 0:16:57.480 --> 0:17:01.440 enough to have it go to the two presidents to finalize. So, Debor, 0:17:01.600 --> 0:17:03.720 is that something a little bit more than talks about talks. 0:17:03.800 --> 0:17:06.240 What do you think the framework will actually look like? Well, 0:17:06.280 --> 0:17:08.440 there are several components that need to be included in 0:17:08.520 --> 0:17:11.200 any kind of final deal. One, the President has made 0:17:11.240 --> 0:17:14.320 clear that he wants to see additional exports from the 0:17:14.400 --> 0:17:17.200 United States to China, so expect the Chinese to announce 0:17:17.280 --> 0:17:20.280 purchases of US products they've already announced some in the 0:17:20.320 --> 0:17:24.920 agricultural area, including commitments on soybeans, and then there needs 0:17:25.000 --> 0:17:28.520 to be market access for companies. You know, it's it 0:17:28.760 --> 0:17:31.000 is um It doesn't make sense at all when you've 0:17:31.040 --> 0:17:33.280 got the largest banks in the world in China and 0:17:33.359 --> 0:17:36.920 you can't have a hundercent owned securities firm. Where are 0:17:37.040 --> 0:17:42.120 we on the legal history of joint ventures? If we're 0:17:42.119 --> 0:17:46.800 going to do more with trade, there has to be combinations, mergers, 0:17:46.880 --> 0:17:49.960 joint ventures. Can US companies still go in and do 0:17:50.160 --> 0:17:54.119 jvs to get things done in China? Legally they're allowed, 0:17:54.200 --> 0:17:56.200 of course to go in and do joint ventures, but 0:17:56.440 --> 0:17:59.040 I think what the government US government is pushing for 0:17:59.400 --> 0:18:01.320 is that the voice of a joint venture should be 0:18:01.440 --> 0:18:03.639 up to the company and based on commercial terms, not 0:18:03.840 --> 0:18:07.480 to be required by the Chinese government. Obviously, we understand 0:18:07.520 --> 0:18:09.800 if there are some sectors that are sensitive, but the fact, 0:18:09.840 --> 0:18:11.680 as I was saying, if you have you know, the 0:18:11.760 --> 0:18:14.439 Goldman Sacks or JP Working can't have in a hundred 0:18:14.480 --> 0:18:18.400 percent owned securities firm is just outrageous. Debora. We honor 0:18:18.400 --> 0:18:21.119 at a point where maybe China is beyond having the 0:18:21.359 --> 0:18:23.679 standard excuse of an emerging market, where by they need 0:18:23.800 --> 0:18:25.919 to do these kind of things. But do you think 0:18:25.960 --> 0:18:28.200 we are passed that point with China? Is China developed 0:18:28.280 --> 0:18:30.439 enough that they can no longer lean on that emerging 0:18:30.520 --> 0:18:33.480 market status as an excuse. I think in in some 0:18:33.680 --> 0:18:37.600 sectors it might be an excuse, but in those we 0:18:37.680 --> 0:18:40.080 need to see some kind of timetable for opening. But 0:18:40.359 --> 0:18:45.120 certainly in some sectors, particularly in the financial and technology area, 0:18:45.200 --> 0:18:48.920 there's no excuse at all. Debora Laerwether, she's vice chairman 0:18:49.000 --> 0:18:52.120 Pulson Institute, and we get we're we have a run 0:18:52.160 --> 0:18:53.960 for an hour to talk about some of the questions 0:18:54.000 --> 0:18:58.120 of antiquity. She's expert in the world's antiquities. Let's dovetail 0:18:58.240 --> 0:19:01.360 trade into that. All him at trade Deborah Lair, Which 0:19:01.400 --> 0:19:04.159 is tourism And I can go back to the seventy 0:19:04.240 --> 0:19:06.760 four and the magic of finding the terra cotta army 0:19:07.200 --> 0:19:10.720 in China. Everyone goes there, everybody makes a track. It's 0:19:10.760 --> 0:19:13.080 one of the few reasons to go inland from the 0:19:13.160 --> 0:19:16.760 Pacific rim for American tourists. Is tourism part of the 0:19:16.840 --> 0:19:20.679 trade debate? And where is that right now? That's an 0:19:20.720 --> 0:19:23.439 excellent question. It hasn't really been part of the debate, 0:19:23.480 --> 0:19:25.840 although It's one of the us is great exports and 0:19:25.920 --> 0:19:29.680 certainly one of China's great exports. The numbers of Chinese 0:19:29.760 --> 0:19:33.879 tourists continue to grow significantly, and it's become a huge 0:19:34.320 --> 0:19:37.320 potential market for you know, countries like France, which is 0:19:37.359 --> 0:19:40.920 the number one destination, and even now growing for countries 0:19:40.960 --> 0:19:43.000 in the Middle East. Well, I mean John Farrell sees 0:19:43.040 --> 0:19:45.200 that when he's in Gucci on Fifth Avenue. I get that, 0:19:45.600 --> 0:19:48.679 But what about us over there? When Americans go over 0:19:48.720 --> 0:19:51.200 to China? Has that diminished? With all the uproar of 0:19:51.240 --> 0:19:54.359 the last couple of years it has there is not 0:19:54.560 --> 0:19:58.800 the same numbers of American tourists traveling, even though there's 0:19:58.880 --> 0:20:03.680 a significant number. It's it has been um dropped because 0:20:03.680 --> 0:20:06.560 there have been concerns, including travel warnings, coming out of 0:20:06.640 --> 0:20:10.320 the State Department. Recently. Let's talk about something that came 0:20:10.359 --> 0:20:12.520 out the Department of Justice in the last couple of days. 0:20:12.600 --> 0:20:16.360 This following paragraph. The alleged conduct described in the indictment 0:20:16.400 --> 0:20:20.760 occurred from and includes an internal Huawei announcement that the 0:20:20.800 --> 0:20:23.960 company was offering bonuses to employees who succeeded in stealing 0:20:24.040 --> 0:20:28.960 confidential information from other companies, ratcheting up the pressure on 0:20:29.080 --> 0:20:32.000 Huawei ahead of these trade talks. Debora, how does this 0:20:32.240 --> 0:20:35.960 feature as these individuals sit down in Washington, d C. 0:20:36.480 --> 0:20:38.600 To try and come up with what you describe as 0:20:38.840 --> 0:20:41.680 a trade framework. It's Huawei the elephant in the room. 0:20:42.720 --> 0:20:44.480 I'm not driven to the elephant in the room, but 0:20:44.600 --> 0:20:48.760 it's certainly like the Chinese government going after Microsoft, IBM, 0:20:49.440 --> 0:20:51.560 and Apple all at the same time. I mean, it's 0:20:51.600 --> 0:20:54.119 a it's a national champion in terms of it's a 0:20:54.160 --> 0:20:58.080 company that people are very proud of. And while Huawei 0:20:58.160 --> 0:21:01.040 has been under its scrutiny for almost too years, this 0:21:01.240 --> 0:21:03.159 is the first time they've gone after it in a 0:21:03.280 --> 0:21:06.879 significant way, and the Justice Department has decided to go 0:21:07.000 --> 0:21:11.040 after an individual, which is what has really gotten people's 0:21:11.040 --> 0:21:13.560 attention in China versus just the company like they did 0:21:13.640 --> 0:21:17.240 with z T. But from where you sit to John's 0:21:17.320 --> 0:21:22.159 good question, the Chinese at these tables of trade can't 0:21:22.359 --> 0:21:26.119 ignore that, can they? Given the history and heritage of 0:21:26.240 --> 0:21:30.560 mss Meng with the Communist Party, No, they can't ignore it. 0:21:30.600 --> 0:21:33.120 I mean it's a very significant issue, and as I said, 0:21:33.200 --> 0:21:35.840 it's it's gotten a lot of attention in China because 0:21:35.920 --> 0:21:40.159 they have gone after an individual versus the company. And 0:21:40.800 --> 0:21:45.000 while they understand, maybe not completely, but at least a 0:21:45.040 --> 0:21:48.520 little bit, that our justice system works separately from the 0:21:48.600 --> 0:21:51.880 political system, the fact that the President did come out 0:21:51.920 --> 0:21:54.040 and say it could potentially be part of a trade 0:21:54.080 --> 0:21:58.159 deal led many to believe that this was political. This 0:21:58.240 --> 0:22:00.760 has been very helpful Debra Laying because so much. She's 0:22:00.840 --> 0:22:04.159 vice chairman the Pulsit Institute and greatly appreciated John. I 0:22:04.200 --> 0:22:07.960 thought you phrased that question just perfectly about you know, 0:22:08.119 --> 0:22:10.680 thinks there's as she said, if it was a T 0:22:10.800 --> 0:22:13.960 and tier Microsoft or Apple, we'd be in an uproar. Yeah. Best. 0:22:14.600 --> 0:22:16.920 Let's be clear about something though. The Chinese have blocked 0:22:17.440 --> 0:22:21.080 many American companies from operating within China, so I know 0:22:21.200 --> 0:22:23.399 this is a very different It's not it's not apples 0:22:23.440 --> 0:22:25.960 for apples, but certainly let's not pretend that we have 0:22:26.160 --> 0:22:29.600 sort of unfettered access into Chinese. That is why they're 0:22:29.600 --> 0:22:32.639 sitting around the table down in Washington today, because the 0:22:32.760 --> 0:22:35.520 United States does not. I would say, on and off 0:22:35.720 --> 0:22:39.520