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Speaker 1: Let's talk about what's happening in the global economy. You

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Speaker 1: write a fantastic peace in The Guardian just before Christmas.

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Speaker 1: You followed up with a piece in Project Syndicate about

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Speaker 1: the global economy not being out of the woods. Can

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Speaker 1: you just tease some of that out for us just

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Speaker 1: to begin.

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Speaker 2: Well, there seems to be this consensus here in Davos,

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Speaker 2: but i'd also say, more broadly in the States that

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Speaker 2: you know, it's not going to be as good as

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Speaker 2: twenty twenty three, which was surprisingly good, but it's not

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Speaker 2: going to be bad. Inflation is going to come down

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Speaker 2: soft landing, and there seems to be very little understanding that.

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Speaker 3: There's a lot of volatility around that.

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Speaker 2: And if you look at the geopolitical situation, forget about Trump,

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Speaker 2: which we were talking about, but the geopolitical situations like

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Speaker 2: nothing I've seen in my professional lifetime. I mean, we've

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Speaker 2: gone exactly where we are in Cold War two, but

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Speaker 2: we're in Cold War two. Could get to be a

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Speaker 2: hotter Cold War two than it was, and that's very destabilizing.

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Speaker 3: We think what the seventies were like.

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Speaker 2: I mean, part of that, of course was the break

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Speaker 2: up of bread and Woods, but it was also, you know,

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Speaker 2: around geopolitical instability and so that you know, I think

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Speaker 2: there's a lot of volatility.

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Speaker 3: It's not all bad.

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Speaker 2: I mean, we could have a good year, but that's

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Speaker 2: really hanging over our head as.

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Speaker 4: A market participant.

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Speaker 3: What do you do with you don't know? What you

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Speaker 3: don't know? You don't know about the volatility.

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Speaker 4: What do you do with, hey, a President Trump coming

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Speaker 4: in two point zero?

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Speaker 2: Okay, well they're two suffering. What One's a lot of volatility.

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Speaker 2: You know, there's extreme volatility.

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Speaker 3: So I don't know.

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Speaker 2: But no, I mean I think volatility probably is not

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Speaker 2: good for you know, risky assets in general. That's what

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Speaker 2: we teach in economics anyway. If there's a chance that

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Speaker 2: the Red Sea gets closed down for six months and

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Speaker 2: it adds to inflation and the prices of everything, even

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Speaker 2: if you believe at the other side it might be smooth,

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Speaker 2: AI kicks in early and growth is good, our models

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Speaker 2: say the prices should be lower in that case than that.

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Speaker 2: You know, But I mean, I have no idea how

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Speaker 2: to interpret the market. It seems very sanguine, even when

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Speaker 2: I say, look at things like oil prices, I don't

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Speaker 2: get it. I mean, why isn't there more of a

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Speaker 2: premium built in? They, you know, just think this is

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Speaker 2: going to be over in a week, because at least

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Speaker 2: the political scientists I talk to, you know, say, if

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Speaker 2: you look at Ukraine, if you look at what's going

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Speaker 2: in the Middle East, if it's the same next year, that's.

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Speaker 3: Like the good outcome. You know that it's very risky.

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Speaker 5: Well, so far oil vessels have been able to get

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Speaker 5: through the red seat. A lot of it has been

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Speaker 5: consumer goods those vessels. Is it hitting someone's bottom line

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Speaker 5: at this point and that can increase inflation?

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Speaker 2: Well, I mean the questions what's next if it picks up?

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Speaker 2: Where's it going? They're certainly I think shipping rates have

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Speaker 2: gone way up, right. I mean that eventually hits something

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Speaker 2: that's you know, only a component of what you pay.

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Speaker 2: But we're sort of in a volatile stage. It's not

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Speaker 2: that what's happening is going to make inflation and blow

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Speaker 2: through the roof.

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Speaker 3: It's sort of what happens. You say the same thing

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Speaker 3: about Russia and Ukraine.

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Speaker 2: I mean, I you know, I support Ukraine. I've worked

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Speaker 2: with the Ukrainians, but it's not been a good year.

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Speaker 2: I don't know what else to say about it, Well,

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Speaker 2: and you know the air risks of something getting worse

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Speaker 2: and how that feeds into markets, and how that feeds

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Speaker 2: into prices and everything.

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Speaker 4: So you don't buy that the sort of lull of

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Speaker 4: thirteen million plus barrels of oil per day of the

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Speaker 4: US that are being pumped can really offset all of

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Speaker 4: that geopolitical risk.

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Speaker 2: Well it has, I mean it's been a factor, but

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Speaker 2: up to a point, right, I mean, you know, it

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Speaker 2: depends on it doesn't upset all the geopolitical risk because

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Speaker 2: it's not just about oil prices, it's about other commodities,

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Speaker 2: it's about investment, it's about many many global supply chains.

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Speaker 3: Many many thanks.

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Speaker 1: We started the program this morning this afternoon by talking

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Speaker 1: about what was about to happen in the United States

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Speaker 1: and how Europe as a consonant would respond to it.

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Speaker 1: What strikes me early on the World Economic Forum is

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Speaker 1: the absence of a conversation out what an earth Europe

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Speaker 1: is doing for itself, How broken the German growth model is,

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Speaker 1: how it's been totally exposed over the last let's say

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Speaker 1: two years, energy with Russia, the fractures with China, and

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Speaker 1: where the United States stands on that, and maybe the

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Speaker 1: ability or willingness of the United States to provide defense

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Speaker 1: support if we do get the former president back in

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Speaker 1: the White House. What is the European growth model going

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Speaker 1: to be and what does that discussion sound like to you?

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Speaker 3: So, I mean, that's a really good question.

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Speaker 2: So a conversation I've had with many Europeans here is

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Speaker 2: are you planning to do anything for your own defense?

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Speaker 2: Do you realize that even if Biden wins, it's not

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Speaker 2: clear we're going to be able to project defense spending

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Speaker 2: at the same level. If there's two theaters, much less

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Speaker 2: three theaters, you aren't. As far as I understand that

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Speaker 2: Europe has depleted its stocks of munitions, Russia has built

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Speaker 2: up its war machine, Europe not really.

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Speaker 3: That's just one example.

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Speaker 2: And I think you're asking about the European growth mod

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Speaker 2: especially Germany, And you know, maybe my perception of watching

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Speaker 2: this for a long time is that Germany was the

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Speaker 2: sick man of Europe when I was at the IMF,

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Speaker 2: that was the line, that was the headline of the economist.

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Speaker 2: That was the two thousand, the early two thousands, and

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Speaker 2: then they reinvented themselves with the reforms that they did

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Speaker 2: that were made a little bit more easier to fireworkers

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Speaker 2: and things like that, and then they've undone everything with

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Speaker 2: pensions and everything. I mean, they've gone to a much

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Speaker 2: more French style model, and they're getting French style you know,

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Speaker 2: growth rates. And at the same time, China may not

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Speaker 2: be the export destination that it was. The electric vehicles

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Speaker 2: are coming from China instead of the other ways around.

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Speaker 2: So I mean, I'm a believer in Germany that they

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Speaker 2: the East Germany was successful under the they were the

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Speaker 2: most successful of the Soviet Block. They will reinvent themselves,

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Speaker 2: but it's not happening in the current administration. And so

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Speaker 2: more broadly in Europe, you know, there's definitely a question

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Speaker 2: of what their growth model is, and they a little

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Speaker 2: bit like a deer caught in the headlights here of

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Speaker 2: the Russia on one side, the US probably in retreat

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Speaker 2: from Europe. If it's Trump because he's retreating from everything.

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Speaker 2: If it's Biden because he's trying to spread himself too

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Speaker 2: thin one way or the other, you know less in.

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Speaker 3: Europe, what are you doing about it? And I just

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Speaker 3: get blank stares. So they don't have an answer yet.

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Speaker 3: What about the US growth model.

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Speaker 5: And the deficit in the United States that they're running.

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Speaker 5: In the next ten years or so, we'll be paying

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Speaker 5: more on interest payments than our defense bills.

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Speaker 2: So I believe, and I said this last year when

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Speaker 2: I visit you, that the era where interest rates through

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Speaker 2: zero and everything's free is over. We never should have

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Speaker 2: thought everything was free. Interest rates fell off a cliff

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Speaker 2: after the financial crisis. If you look at the long

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Speaker 2: history of interest rates and real interest rates is I

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Speaker 2: have We've had periods where it's been low before, but

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Speaker 2: they end.

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Speaker 3: We've had periods worth high before, but they end.

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Speaker 2: And I think we're much more on trend now in

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Speaker 2: where interest rates are. If that's the case, then there's

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Speaker 2: a lot more adjusting to do. And there seems to

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Speaker 2: be zero political appetite in Washington. The only time they

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Speaker 2: can kind of get things under control is when there's

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Speaker 2: a divided government and.

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Speaker 3: They can't agree on anything. And they can't.

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Speaker 2: But I mean, certainly, if you get the Democrats sweeping

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Speaker 2: into office in a bigger way than last time, you

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Speaker 2: know what's going to happen.

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Speaker 3: And Trump will run deficits too.

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Speaker 2: I mean, I hate to predict anything he's going to

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Speaker 2: do because the whole problems he's completely unpredictable. But there's

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Speaker 2: no appetite for that, and I think, what is the

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Speaker 2: endgame to that? The end games we're going to get

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Speaker 2: these bounts of inflation like we had, and that's not

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Speaker 2: an end in itself because then the bouts of inflation

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Speaker 2: eventually feed into interest rates, and we don't believe that

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Speaker 2: inflation's going back to two percent, and it's a bad cycle.

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Speaker 2: We've seen this movie before.

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Speaker 3: Based on that.

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Speaker 4: Given the fact that everyone's expecting the FED to cut rates,

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Speaker 4: possibly if you leave the market six times this year,

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Speaker 4: what do you think is sort of the end place

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Speaker 4: for this rate cutting cycle?

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Speaker 2: I mean, I think we end up at three and

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Speaker 2: a half percent at the very end of this rate

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Speaker 2: cutting cycle, something like that, and you know long term

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Speaker 2: rates at four to four or five, you know, something

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Speaker 2: like that in the very long run. But you know,

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Speaker 2: we're I think, what happens in the next year, the

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Speaker 2: sixth rate cuts, that's a pipe dream. If we have

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Speaker 2: a soft landing, that's not happening. We'll get two or three.

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Speaker 2: But there is a chance. I've said, the one thing

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Speaker 2: we can probably be sure of is that whatever the

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Speaker 2: consensus is here and not just here, it's going to

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Speaker 2: be wrong. And if we get a deep recession, and

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Speaker 2: definitely it could happen. How is it going to happen.

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Speaker 2: I don't know, but twenty five percent chance it happens. Well,

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Speaker 2: they will cut rates a lot, not six times. They

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Speaker 2: could cut rates, you know, fifteen times I'm doing the

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Speaker 2: math right, but a lot of.

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Speaker 3: Times you know too.

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Speaker 2: If that happens, they're going to drive interest rates to

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Speaker 2: one percent, So that could be built into that sixth

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Speaker 2: rate cuts possibly