WEBVTT - Leaders Come; Leaders Go 0:00:03.840 --> 0:00:07.120 Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. Having 0:00:07.120 --> 0:00:10.079 a very fangile economy with a long set's head of 0:00:10.119 --> 0:00:14.000 policies and a very stubborn and inexperienced prime minister is 0:00:14.040 --> 0:00:17.840 a very dangerous combination of things. Adrian Wooldridge and what 0:00:17.880 --> 0:00:21.560 a potential list Trust premiership in Britain might mean for markets. Later, 0:00:21.680 --> 0:00:24.319 we'll speak with Clara Ferreira Marquez on the legacy of 0:00:24.360 --> 0:00:28.360 Mikhail Gorbachev. First, though, market reaction to Jackson holand Fed 0:00:28.440 --> 0:00:32.479 Jared Jerome Powell's decisive speech. We are taking forceful and 0:00:32.560 --> 0:00:36.040 rapid steps to moderate demand so that it comes into 0:00:36.080 --> 0:00:39.520 better alignment with supply and to keep inflation expectations anchored. 0:00:39.600 --> 0:00:42.720 We joined by Bloomberg Opinions Near Case are near Bloomberg 0:00:42.760 --> 0:00:45.680 Opinions down. Moss called it a festival of hawkishness at 0:00:45.720 --> 0:00:49.000 Jackson Hole this year. Did Powell's speech change your expectations 0:00:49.000 --> 0:00:52.080 for the Fed's monetary policy path? Not for me. I 0:00:52.200 --> 0:00:54.959 have taken the set very seriously. I have believed from 0:00:55.200 --> 0:00:57.880 the very beginning that they're serious about this and that 0:00:57.920 --> 0:01:00.000 they're going to do what it takes to get flash down, 0:01:00.720 --> 0:01:02.760 and I have to say, for one, I have not 0:01:02.920 --> 0:01:05.600 been disappointed so far. I think the criticism of the 0:01:05.640 --> 0:01:09.119 FET has been relatively harsh. If you look at the record, 0:01:09.160 --> 0:01:10.920 if you look at the data that was available to 0:01:10.959 --> 0:01:13.560 them and what they actually did, I think they've been 0:01:13.600 --> 0:01:16.679 reasonable all along. You know, inflation started to take up 0:01:16.720 --> 0:01:19.679 in the spring of one, and it would have been 0:01:19.720 --> 0:01:22.679 I think hasty for them to act in that moment, 0:01:22.800 --> 0:01:25.520 because you want to see a few months of inflation 0:01:25.600 --> 0:01:28.480 to see whether you're dealing with something that's persistent or 0:01:28.520 --> 0:01:31.200 something that's a blip in the data. And they gave 0:01:31.240 --> 0:01:35.839 it several months to see whether inflation continued to remain high, 0:01:35.920 --> 0:01:38.160 and it did into the fall of one, and that's 0:01:38.160 --> 0:01:41.399 when they began job voning about acting. And if you 0:01:41.440 --> 0:01:44.120 look at what happened to markets, they didn't run in 0:01:44.160 --> 0:01:47.080 to raise the FET funds rate at that moment, but 0:01:47.200 --> 0:01:49.520 what happened was because they were signaling to the market 0:01:49.520 --> 0:01:51.360 that they were going to do it, the short term 0:01:51.360 --> 0:01:55.200 insistrates moved up immediately in the fall of and by 0:01:55.240 --> 0:01:58.280 this summer, the two year treasury was, you know, north 0:01:58.320 --> 0:02:01.880 of three and ultimately the it's not the FED funds itself, 0:02:01.920 --> 0:02:04.520 that's the magic pill. It's the effect that the said 0:02:04.520 --> 0:02:07.080 funds rate has on short terminist rates, So they didn't 0:02:07.080 --> 0:02:09.639 need to raise necessarily in order to have the intended effect. 0:02:09.840 --> 0:02:11.960 And I would argue they had the intended effect when 0:02:11.960 --> 0:02:14.600 it was appropriate for them. That it's a very complicated 0:02:14.639 --> 0:02:16.960 inflation this time around, though, right, I mean, I know 0:02:17.160 --> 0:02:20.880 every period of inflation is extremely complicated, but energy is 0:02:20.960 --> 0:02:24.000 really missing this one up now, Yeah, I mean I 0:02:24.080 --> 0:02:26.240 think energy is definitely a driver. I think there are 0:02:26.400 --> 0:02:28.960 some other drivers that are hard to get your fingers on. 0:02:29.040 --> 0:02:31.680 What is the impact of the pandemic on supply lines 0:02:31.720 --> 0:02:34.320 and a lot of unknowns, but I think there's always 0:02:34.400 --> 0:02:36.880 unknown when it comes to inflation. I mean, it seems 0:02:36.919 --> 0:02:38.520 to me that a lot of the criticism of the 0:02:38.560 --> 0:02:40.800 FED is that they're looking at data that is in 0:02:40.840 --> 0:02:43.760 the books rather than making projections about war inflation is 0:02:43.800 --> 0:02:45.760 going to go. But it seems to me they can't 0:02:45.760 --> 0:02:48.600 do anything else because you know, we just don't have 0:02:48.639 --> 0:02:52.079 any good models for predicting inflation. I don't think anyone does. 0:02:52.160 --> 0:02:54.079 The best we can do is look at how bond 0:02:54.080 --> 0:02:58.000 markets are pricing inflation using break evens. But you know 0:02:58.080 --> 0:03:00.360 that data only goes back to the early two thousands. 0:03:00.440 --> 0:03:03.600 It didn't exist in the nineteen seventies nineteen sixties, when 0:03:03.639 --> 0:03:06.320 inflation was the last to scare. And because it's the 0:03:06.320 --> 0:03:09.040 best we have, I think we have to just say 0:03:09.200 --> 0:03:11.880 that economic data always shows up on a lag, and 0:03:11.919 --> 0:03:14.120 therefore the SET is always going to be a bit behind. 0:03:14.320 --> 0:03:16.799 I just don't see any other way. So how does 0:03:16.800 --> 0:03:19.960 this play out? Because he mentioned wages specifically, talking about 0:03:20.000 --> 0:03:21.839 how wages would be going up and that would help 0:03:21.840 --> 0:03:25.079 to moderate demand eventually Bloomberg opinions Connor SND saying don't 0:03:25.080 --> 0:03:27.480 sweat a housing crash as long as wages rise. For example, 0:03:27.600 --> 0:03:30.920 what's next in a recessionary or no growth environment. Well, 0:03:30.960 --> 0:03:33.200 I think it's reasonable to assume that what the FET 0:03:33.200 --> 0:03:36.520 has done so far is going to drag the economy. 0:03:36.760 --> 0:03:39.240 You know how much drags It remains to be seen, 0:03:39.320 --> 0:03:43.120 in part because there is this reflectivity between the tightening 0:03:43.160 --> 0:03:44.920 on the one hand and the impact on inflation on 0:03:44.960 --> 0:03:48.040 the other hand. You could imagine multiple scenarios. You could 0:03:48.040 --> 0:03:51.520 imagine the scenario the so called soft landing, where what 0:03:51.680 --> 0:03:53.600 the SET has done so far and just what it's 0:03:53.600 --> 0:03:56.240 signaling that it will do has enough of an impact 0:03:56.240 --> 0:03:58.400 on inflation that it comes down and you know, we 0:03:58.440 --> 0:04:02.400 have a modest slowdown, nothing terrible. You can also imagine 0:04:02.400 --> 0:04:04.760 a replay of the nineteen seven where you know it's 0:04:04.760 --> 0:04:06.680 going to take a lot more aggressive FED actually to 0:04:06.760 --> 0:04:10.320 bring this inflation under control. And whatever happens to the economy, 0:04:10.680 --> 0:04:13.640 he's sort of a byproduct of it. And to asset prices, 0:04:13.680 --> 0:04:15.440 by the way, But I don't think the fact can 0:04:15.480 --> 0:04:19.080 be in the business of worrying when inflation is running 0:04:19.080 --> 0:04:21.720 this high about ultimately, with the knock on effects are 0:04:21.720 --> 0:04:23.400 going to be it would be nice if they could 0:04:23.440 --> 0:04:26.440 control all the variable simultaneously, but I just don't think 0:04:26.440 --> 0:04:29.560 that's realistic. And I think it's further evidence that ultimately 0:04:29.560 --> 0:04:32.560 the FED does not care too much, if at all, 0:04:32.640 --> 0:04:35.880 about asset crisis, the impact on housing, the impact on 0:04:35.960 --> 0:04:38.880 the stock market, or whatever. I think it's outside the 0:04:38.880 --> 0:04:41.480 realm of what they're concerned about. Yeah, we had Bloomberg opinions, 0:04:41.560 --> 0:04:44.320 Jonathan Evin saying many ampleis as Neil cash Carry said, 0:04:44.320 --> 0:04:46.400 the quiet part out loud on markets. This was of 0:04:46.400 --> 0:04:48.320 course after the sell off, and then Neil cash Carry 0:04:48.440 --> 0:04:50.359 was on the odd lots of podcast saying that he 0:04:50.440 --> 0:04:53.000 was happy with how markets reacted, but we're not really 0:04:53.000 --> 0:04:56.040 seeing markets completely sell off. The data is so interesting because, 0:04:56.120 --> 0:04:59.599 for example, we have consumer confidence boiling over. How is 0:04:59.600 --> 0:05:02.440 it that consumers are so confident? Are they looking ahead 0:05:02.480 --> 0:05:05.560 to higher wages that they think will materialize. Well, that's 0:05:05.640 --> 0:05:09.240 really a difficulty of this situation, right, because you have 0:05:09.720 --> 0:05:11.800 and this goes to the argument that everyone has been 0:05:11.839 --> 0:05:14.000 having about whether we're in a recession or not. I mean, 0:05:14.040 --> 0:05:17.600 you have GDP contracting. On the other hand, you don't 0:05:17.640 --> 0:05:21.919 have other signs that a company recession, such as people 0:05:21.960 --> 0:05:24.240 being down on the economy and about the future and 0:05:24.240 --> 0:05:26.400 so on, or the impact that you would expect to 0:05:26.400 --> 0:05:29.560 see on consumer spending or wages. So we don't have 0:05:29.680 --> 0:05:33.440 sort of a full picture of an economy that is backpeddling, 0:05:33.760 --> 0:05:36.400 which is one of the reasons why I'm a bit optimistic. 0:05:36.440 --> 0:05:38.800 I mean, I think that the fet has room here 0:05:38.920 --> 0:05:41.839 to continue to raise rates if necessary, which I will, 0:05:42.080 --> 0:05:44.760 which I do think they will do without really putting 0:05:44.760 --> 0:05:47.320 the heart breaks down the economy. So I think all 0:05:47.360 --> 0:05:49.719 of those things are somewhat of a silver lining. One 0:05:49.720 --> 0:05:51.880 thing I want to mention, Monny that I think is 0:05:52.240 --> 0:05:55.360 interesting to note because you you brought up the Okascaris 0:05:55.480 --> 0:05:58.160 comments is that, you know, it seems to me that 0:05:58.200 --> 0:06:00.520 when the FEED needs to stimulate like they did during 0:06:00.560 --> 0:06:02.960 the early days of the pandemic, like they did during 0:06:03.000 --> 0:06:06.040 the two thousand financial crisis, they're also accused of stepping 0:06:06.080 --> 0:06:09.760 in to rescue asset prices, stock prices being the one 0:06:09.800 --> 0:06:12.880 example that everyone uses, the major example that everyone uses, 0:06:13.360 --> 0:06:16.440 and now that they're doing the opposite, people accused them 0:06:16.600 --> 0:06:20.080 of sinking stock prices and asset prices, etcetera. But it 0:06:20.120 --> 0:06:22.200 seems to me the only reasonable thing take away from 0:06:22.240 --> 0:06:24.440 all of those examples is that they're going to do 0:06:24.480 --> 0:06:26.840 what they're gonna do, and investors are ultimately going to 0:06:26.920 --> 0:06:29.880 digest that how they will, and the impact on asset 0:06:29.920 --> 0:06:32.719 prices is going to be tangential. I'm not sure though, 0:06:33.040 --> 0:06:37.000 that Discards comment reflect the larger FED feeling around this. 0:06:37.200 --> 0:06:39.240 I don't know that they're cheering for asset prices to 0:06:39.279 --> 0:06:42.520 go down. I just think that ultimately they realize that 0:06:42.520 --> 0:06:45.120 that's not part of their mandate. Near John Alster said 0:06:45.160 --> 0:06:47.599 on the program recently that market wobbles or even worse 0:06:47.640 --> 0:06:50.719 tend to happen in September or October. Should we be 0:06:50.760 --> 0:06:53.240 more concerned given the months that were headed into or 0:06:53.279 --> 0:06:55.760 should we treat past experiences more like you know, Tarot 0:06:55.760 --> 0:07:00.200 card readings. I think probably the latter. I don't think 0:07:00.360 --> 0:07:03.000 it makes a lot of sense, for example, to look 0:07:03.040 --> 0:07:05.480 at how markets did on a particular month or whatever 0:07:05.520 --> 0:07:08.560 and make investment decisions based on that. However, I think 0:07:08.560 --> 0:07:11.320 it does make sense to look at how investors have 0:07:11.440 --> 0:07:15.000 priced assets and to ask yourself, you know, where are 0:07:15.000 --> 0:07:17.840 the risks priced stand or not priced stand? And there 0:07:17.880 --> 0:07:20.000 I think we have some relatively good information. I was 0:07:20.040 --> 0:07:22.400 looking at the S and P today it's trading at 0:07:22.480 --> 0:07:25.400 roughly nineteen times earning to put that in perspective, you know, 0:07:25.400 --> 0:07:28.120 the historical range has been somewhere between you know, the 0:07:28.200 --> 0:07:31.400 high single digits that's called seven eight to the load 0:07:31.440 --> 0:07:34.440 to mid thirties on the high end, and so we're 0:07:34.520 --> 0:07:36.760 roughly in the middle of that range, which tells you 0:07:36.800 --> 0:07:39.640 that it could go either way. That's a bit concerning, 0:07:39.680 --> 0:07:42.520 I think, because you know, you have a lot of uncertainty, 0:07:42.520 --> 0:07:46.760 and depending on where that uncertainty breaks, inflation, supply chains, 0:07:47.160 --> 0:07:51.440 the war in Europe, you could imagine valuations contracting or expanding. 0:07:52.080 --> 0:07:54.000 The reason I bring that up is because that is 0:07:54.040 --> 0:07:56.480 not true for a lot of assets around the world. 0:07:56.800 --> 0:07:59.840 If you look at, for example, where international and emerging 0:08:00.000 --> 0:08:03.720 market stocks are trading, particularly the smaller and value companies 0:08:03.760 --> 0:08:07.320 in those regions, they're trading at ten times earnings or less. Yeah, 0:08:07.400 --> 0:08:09.240 it's hard not to look at that and say, a 0:08:09.240 --> 0:08:12.480 lot of the risks are embedded already in these asset prices, 0:08:12.520 --> 0:08:14.400 and they're closer to the lower end of the rage. 0:08:14.760 --> 0:08:17.480 That seems to me to be a much safer play 0:08:17.560 --> 0:08:19.840 than you know, going all in on US facts, which 0:08:19.840 --> 0:08:22.640 I think you'd go in either direction. Well, speaking of 0:08:22.680 --> 0:08:25.240 emerging markets on I guess frontier markets as well, the 0:08:25.320 --> 0:08:29.160 dollar is hurting them badly. If the FED gets this right, 0:08:29.200 --> 0:08:30.960 and it did sound like J. Powell was going to 0:08:30.960 --> 0:08:33.040 do everything in his power to get this right, doesn't 0:08:33.040 --> 0:08:35.800 the dollar keep strengthening, and doesn't that give us problems 0:08:35.800 --> 0:08:37.960 around the world which might provide a feedback loop to 0:08:37.960 --> 0:08:41.120 the U s E. Mentually, I think that's a reasonable assumption. 0:08:42.080 --> 0:08:44.680 But there's two needs to consider. One is you know, 0:08:44.760 --> 0:08:47.560 ultimately currencies are going to go up and down long term, 0:08:47.720 --> 0:08:49.720 and if you if you are investing in the emerging 0:08:49.800 --> 0:08:53.480 markets because you ultimately believe that there's an inverse relationship 0:08:53.559 --> 0:08:56.480 between valuation and expected return, which I believe there is, 0:08:57.000 --> 0:08:58.880 because you think you're going to get a better than 0:08:58.960 --> 0:09:01.960 average long term return for emerging markets getting in here, 0:09:02.200 --> 0:09:04.400 which I also believe. Then I don't know that it's 0:09:04.400 --> 0:09:08.000 worth focusing on the dollar too much, except to say, frustratingly, 0:09:08.120 --> 0:09:10.720 you might be buying emerging markets and watching prices go 0:09:10.840 --> 0:09:13.440 down even further. But ultimately, there's no way to time 0:09:13.520 --> 0:09:15.200 these things, and I think there's no way to say 0:09:15.200 --> 0:09:17.120 where the bottom is. I think the best you can 0:09:17.120 --> 0:09:19.040 do is say, am I getting an entry that's going 0:09:19.080 --> 0:09:21.680 to give me a good long term return or in 0:09:21.720 --> 0:09:24.520 this case, in my opinion, better than average long term return. 0:09:24.720 --> 0:09:26.920 And I think that's true an emerging market. But near 0:09:26.960 --> 0:09:29.280 what emerging markets are we talking about? Because some countries 0:09:29.280 --> 0:09:31.840 are having a really difficult time with inflation. They don't 0:09:31.880 --> 0:09:34.000 have the types of tools that the Federal Reserve has. 0:09:34.080 --> 0:09:36.200 Their central banks are doing what they can, but they're 0:09:36.320 --> 0:09:39.240 rapidly running out of reserves in some cases. Well, you 0:09:39.280 --> 0:09:41.920 probably should not be in the business of picking individual countries. 0:09:42.000 --> 0:09:44.360 You know, there's developing countries all over the world. I 0:09:44.400 --> 0:09:47.559 think a broad basket of emerging markets is useful because 0:09:47.600 --> 0:09:50.880 you take away some of that individual country risk, but 0:09:51.040 --> 0:09:53.559 also you know there aren't any free lunches here. I 0:09:53.600 --> 0:09:56.280 think the reason that emerging markets are beat up is 0:09:56.360 --> 0:09:58.480 because we have all these risks on the table that 0:09:58.520 --> 0:10:00.960 are well known, and ultimately markets are really good at 0:10:01.000 --> 0:10:03.040 pricing risk. And so when you look at the US 0:10:03.120 --> 0:10:05.240 relative the emerging markets, what that's telling you is that 0:10:05.280 --> 0:10:07.960 the risk in this moment, the emerging market is higher 0:10:07.960 --> 0:10:10.199 for all the reasons you mentioned, Monny, and I think 0:10:10.320 --> 0:10:12.439 investors have to be cognizant of that. They're going to 0:10:12.520 --> 0:10:14.680 have to decide, am I willing to take on more risk, 0:10:14.960 --> 0:10:18.319 particularly near term risk, in order to get possibly a 0:10:18.400 --> 0:10:21.120 higher expected return over the longer term. Well, let's take 0:10:21.120 --> 0:10:23.199 one of the largest and that would be China. I mean, 0:10:23.280 --> 0:10:26.200 are you confident that China can navigate its waters right 0:10:26.240 --> 0:10:30.960 now and that valuations are reflecting reality in China? Well, 0:10:31.040 --> 0:10:33.920 they're reflecting reality I think in the sense that there 0:10:34.000 --> 0:10:36.680 is a lot of uncertainty in China, but also something 0:10:36.720 --> 0:10:39.720 that I think we don't talk about enough. Some developing countries, 0:10:39.760 --> 0:10:42.800 you have authentic rule of law risk. In other words, 0:10:42.840 --> 0:10:46.000 you could imagine a scenario with China where the government 0:10:46.000 --> 0:10:49.920 is able to navigate its economy well, the companies themselves 0:10:49.960 --> 0:10:52.960 do well, but that somehow that's not reflected in the 0:10:52.960 --> 0:10:56.960 returns that investors get, you know, either because ultimately, you know, 0:10:57.120 --> 0:11:00.720 China moves into seas private property, or because it otherwise 0:11:00.760 --> 0:11:03.640 does not respect the rule of law relative to investors, 0:11:03.640 --> 0:11:07.280 either domestic or foreign um. And so that's a real risk, 0:11:07.360 --> 0:11:09.280 and I think that's something that investors had to take 0:11:09.320 --> 0:11:11.400 into account, not only in China but other places as 0:11:11.440 --> 0:11:14.120 you're sizing, and to me, that's the biggest risk in 0:11:14.160 --> 0:11:16.360 a lot of these developing countries. Just to bring it 0:11:16.400 --> 0:11:18.480 back to the US, there's a lot of talk since 0:11:18.520 --> 0:11:21.360 that paper at Jackson Hole on quantitative tightening. We had 0:11:21.360 --> 0:11:24.760 Marcus Ashworth on a couple of weeks ago. He was skeptical, 0:11:25.000 --> 0:11:27.400 though the jury is out for him that this will 0:11:27.480 --> 0:11:30.880 happen very smoothly, that you can withdraw liquidity a double 0:11:30.920 --> 0:11:33.120 the pace in September as it's getting withdrawn up now 0:11:33.240 --> 0:11:36.360 and not cause any ripples. I mean, it's definitely a headwind. 0:11:36.840 --> 0:11:39.720 I think it's very difficult to know the relative impact 0:11:39.880 --> 0:11:43.640 between the fet funds rate on one hand and quantitative 0:11:43.679 --> 0:11:46.760 easing and tightening on the other, primarily because you know, 0:11:46.800 --> 0:11:50.520 the tool of quantitative easing and tightening is relatively new. 0:11:50.760 --> 0:11:53.520 You know, the ft has long moved interest rates, but 0:11:53.640 --> 0:11:56.880 this move to blanket the market with liquidity, which we 0:11:57.000 --> 0:11:59.040 you know it did during two and eight during the 0:11:59.040 --> 0:12:02.240 financial crisis and and more recently during the pandemic, that's 0:12:02.240 --> 0:12:05.000 a relatively new phenomenon, and so I think we should 0:12:05.000 --> 0:12:09.760 be humble about predicting the impact of removing that stimulus 0:12:09.760 --> 0:12:12.080 from the system. Having said that, I mean, I think 0:12:12.160 --> 0:12:15.360 because the economy appears to be in decent shape, I 0:12:15.400 --> 0:12:17.400 don't expect that it's going to fall off a cliff. 0:12:17.679 --> 0:12:19.800 But at this point you should count it as a risk, 0:12:19.840 --> 0:12:22.840 but not one that can be quantified with nuomeer opinions 0:12:22.960 --> 0:12:25.720 near case are as. Always do get in touch, comments 0:12:25.720 --> 0:12:28.400 and opinions always welcome. I'm at vanniy Quinn on Twitter 0:12:28.520 --> 0:12:31.760 or email v Quinn at Bloomberg dot net. Liz trust 0:12:32.000 --> 0:12:34.600 is by a wide margin over Richie Sunak, the front 0:12:34.679 --> 0:12:37.160 runner in the Tory leadership race in Britain. The result 0:12:37.200 --> 0:12:40.560 expected Monday, with Boris Johnson in quitting as Prime Minister Tuesday, 0:12:40.640 --> 0:12:43.160 to make way for a new prime minister. I spoke 0:12:43.200 --> 0:12:45.920 with Bloomberg Opinions Adrian Woodridge on what a list Trust 0:12:45.960 --> 0:12:49.160 premiership would mean for markets. So, Adrian, the betting is 0:12:49.200 --> 0:12:51.839 liszt Trust wins the Tory Party leadership race and becomes 0:12:51.840 --> 0:12:54.120 the next British Prime minister. Let's have a quick listen 0:12:54.160 --> 0:12:57.000 to some comments outlining or fiscal position. During a recent 0:12:57.000 --> 0:13:00.600 Sky News debate, he simply contact your way to and 0:13:00.600 --> 0:13:03.560 I'm afraid the very high taxes we have at the moment, 0:13:03.960 --> 0:13:07.479 a seventy year high, are likely to lead to a recession. 0:13:08.080 --> 0:13:11.920 So what are her intentions regarding taxes and spending? Yeah, 0:13:12.000 --> 0:13:16.080 I mean her broad plan is classic conservative principles of 0:13:16.160 --> 0:13:18.800 reducing the size of the state, reducing the tax burden, 0:13:19.360 --> 0:13:22.439 and you know, handing initiatives back to the people, as 0:13:22.440 --> 0:13:26.640 she would say, so, she would reverse insurance tax increases 0:13:26.640 --> 0:13:28.959 that we she sooner gets put in. She would reduce 0:13:29.080 --> 0:13:32.640 the level of corporate tax and generally taken acts to 0:13:32.679 --> 0:13:34.520 the state as much as can be done at the moment. 0:13:34.640 --> 0:13:37.720 She's also planning a big spending package after she gets 0:13:37.760 --> 0:13:40.520 into power, assuming that's what happens. To help with energy 0:13:40.559 --> 0:13:43.760 bills which are forecast to top six thousand pounds annually 0:13:43.800 --> 0:13:48.720 next year. That's not exactly classic conservative visit. No, absolutely 0:13:48.760 --> 0:13:52.559 absolutely right, and quite interestingly, one of the architects of fatterism, 0:13:52.640 --> 0:13:55.200 the head of Mrs Snatcher's policy unit during the Nagen 0:13:55.240 --> 0:13:57.840 eight is Ryan Griffith, has recently said that, you know, 0:13:57.880 --> 0:13:59.719 this is not what Mrs Bacher would have done. This 0:13:59.880 --> 0:14:03.000 is such raised taxes immediately because she wanted to balance 0:14:03.040 --> 0:14:06.319 the budget, and this trust his policies are much more 0:14:06.320 --> 0:14:09.320 Reagan Night than that. Right, if you remember Reagan increased 0:14:09.360 --> 0:14:12.120 spending and lower taxes, and she wants to do something similar. 0:14:12.360 --> 0:14:14.720 But Britain is not the United States didn't have a 0:14:14.760 --> 0:14:17.520 reserve currency. It's those kinds of an economy of that size. 0:14:17.880 --> 0:14:20.640 So a lot of serious economists are very worried about 0:14:20.680 --> 0:14:23.640 this mixture of cutting taxes and increasing spending. And one 0:14:23.680 --> 0:14:26.720 of the criticisms is that she's promising something to everybody. 0:14:26.840 --> 0:14:28.920 Will she be able to deliver And if she does deliver, 0:14:29.000 --> 0:14:31.760 what would it do to the UK economy? What would 0:14:31.760 --> 0:14:34.640 it do to markets? Were already seeing City saying that 0:14:34.680 --> 0:14:37.960 inflation might get past next year. We're seeing the pound 0:14:38.200 --> 0:14:41.040 at one eighteen was above one forty this time last year, 0:14:41.520 --> 0:14:43.560 so there's already a lot to contend with. I have 0:14:43.600 --> 0:14:46.360 absolutely no doubt that the market would prefer to have 0:14:46.640 --> 0:14:49.880 Chi sooner to his trust soonac was the Chance of 0:14:49.920 --> 0:14:54.760 the Exchequer. He knows a sort about financial and economic policy. 0:14:54.920 --> 0:14:57.320 Before that, she was a banker and investment banker, so 0:14:57.440 --> 0:15:00.720 he knows the markets extremely well, and he looked forward 0:15:00.720 --> 0:15:03.240 a very cautious set of policies which are designed the 0:15:03.280 --> 0:15:06.560 bubble to balance the budget and to cushion the effects 0:15:06.680 --> 0:15:10.160 of this huge spike in energy prices, which would not 0:15:10.680 --> 0:15:13.920 introduce any tax cuts in the short term. I think 0:15:13.960 --> 0:15:18.200 economists are very skeptical about her mixture of tax cuts 0:15:18.280 --> 0:15:21.800 and spending increases. I think the market will react very negatively. 0:15:21.880 --> 0:15:23.760 And this is a time in the British economy doesn't, 0:15:23.920 --> 0:15:27.120 as you'd say, very very fragile. So having a very 0:15:27.160 --> 0:15:30.520 fragile economy with a wrong setted head of policies and 0:15:30.600 --> 0:15:34.760 a very stubborn and inexperienced Prime minister is a very 0:15:34.880 --> 0:15:37.880 dangerous combination of things. There is also the question of 0:15:37.880 --> 0:15:40.640 whether she would actually deliver on everything she's promising, whether 0:15:40.640 --> 0:15:42.760 she would be able to but the other thing is 0:15:42.800 --> 0:15:45.920 that she's a very tough stand on the UK's relationship 0:15:45.960 --> 0:15:48.920 with the European Union and single market access. That doesn't 0:15:48.960 --> 0:15:52.080 vote all that well for trade either. What would her 0:15:52.120 --> 0:15:55.760 relationship with foreign powers be? Absolutely And I think it's 0:15:55.760 --> 0:15:59.160 important to remember that she at the moment is focused 0:15:59.200 --> 0:16:02.400 on winning the notes of Conservative Party members, and there 0:16:02.400 --> 0:16:04.640 are about a hundred and sixty thousand of these Conservative 0:16:04.640 --> 0:16:07.680 Party members. They tend to be quite old and quite 0:16:07.720 --> 0:16:11.680 prosperous and very anti Europeans. So she's speaking to that audience. 0:16:12.360 --> 0:16:14.720 And when she comes to power, she will obviously be 0:16:14.760 --> 0:16:17.920 dealing with a bigger audi inst the nation and she 0:16:17.960 --> 0:16:20.600 may not go through quite as she said with a 0:16:20.600 --> 0:16:22.440 lot of these policies. And already we've seen a certain 0:16:22.480 --> 0:16:24.840 amount of rowing back. She said at first her policy 0:16:24.880 --> 0:16:28.960 towards the fuel crisis would be simply cutting taxes, and 0:16:29.000 --> 0:16:31.600 then she started conceding that that wouldn't really help the 0:16:31.640 --> 0:16:34.200 most needy in society, and she's then started talking about 0:16:34.440 --> 0:16:38.800 a package of policies designed to subsidize school for the 0:16:38.800 --> 0:16:42.840 most median society. So she has changed a bit. Nevertheless, 0:16:43.240 --> 0:16:47.280 overall stance is quite hard line, and it's particularly hardlined 0:16:47.280 --> 0:16:50.760 towards the European Union. She herself was not a Brexitter, 0:16:50.920 --> 0:16:53.880 she voted for in campaigned for Remain, but since then 0:16:54.040 --> 0:16:57.640 she has had a massive conversion. She has become more 0:16:57.680 --> 0:17:01.239 Catholic than the Pope, and she has been very hostile 0:17:01.600 --> 0:17:05.120 towards the European Union. And that's a very dangerous set 0:17:05.119 --> 0:17:08.640 of policies, part because trade is being squeezed anyway by Russia, 0:17:08.760 --> 0:17:12.280 by the increasing hostility of China, but also, you know, 0:17:12.440 --> 0:17:15.800 Europe is Britain's biggest trading partner and we need to 0:17:15.840 --> 0:17:19.840 get on with this block and simply racking the cuts 0:17:20.280 --> 0:17:22.880 is not the making of good policies. So I'm very 0:17:22.920 --> 0:17:26.119 worried her general stance as Prime Minister, and I'm not 0:17:26.200 --> 0:17:28.639 confident that even if she moderates it a bit, she 0:17:28.720 --> 0:17:31.359 can moderates enough to repair the damage that you've been 0:17:31.400 --> 0:17:34.080 done with our relations with Europe. It's also quite singular 0:17:34.280 --> 0:17:37.200 just how much she's changed her perspectives and our principles 0:17:37.240 --> 0:17:40.160 on certain things. The Bank of England question. It might 0:17:40.160 --> 0:17:42.200 put the Bank of England in a very sticky situation. 0:17:42.520 --> 0:17:45.040 She's planning, at least for the moment, on doing a 0:17:45.080 --> 0:17:48.040 review and I'm quoting now to see whether it's fit 0:17:48.119 --> 0:17:51.560 for purpose in terms of its entire exclusionary independence over 0:17:51.640 --> 0:17:55.040 interest rates. I mean, if she tries to merge the 0:17:55.080 --> 0:17:57.240 Treasury and the Bank of England, or to do something 0:17:57.280 --> 0:18:00.600 to counteract the quote unquote independence of the Bank in England, 0:18:00.760 --> 0:18:03.399 how would Margaret's react to that? I think the markets 0:18:03.440 --> 0:18:07.080 would react extremely negatively. They would be very worried about 0:18:07.240 --> 0:18:11.600 politically interference, and particularly about their tendency of politicians to 0:18:11.600 --> 0:18:15.000 set interest rates to suit their electoral cycles rather than 0:18:15.040 --> 0:18:17.560 the overall needs of the economy. And now the Bank 0:18:17.560 --> 0:18:19.679 of England is in a weak position because you know, 0:18:19.760 --> 0:18:23.280 the great thing that was touted about bank independence was 0:18:23.320 --> 0:18:27.200 that they would bring inflation under control, and inflation clearly 0:18:27.240 --> 0:18:31.080 isn't under control at the moment. Nevertheless, the overall record 0:18:31.440 --> 0:18:35.719 of independent central banks as inflation fighting mechanisms is a 0:18:35.720 --> 0:18:38.840 positive one. And the idea of going back to the 0:18:38.840 --> 0:18:41.840 pre independence days when politicians were in charge, when they 0:18:41.840 --> 0:18:45.639 were very influenced obviously by winning votes and things like that, 0:18:45.840 --> 0:18:48.040 is not the way to go with the the Bank 0:18:48.080 --> 0:18:50.359 of bringing that I would make it more independent than 0:18:50.440 --> 0:18:55.480 more thoroughly focused on fighting inflations. Its number one task 0:18:55.560 --> 0:19:00.040 were making it more politicized. Is already getting criticized for 0:19:00.160 --> 0:19:02.480 being too doom and gloomy. If you go through with 0:19:02.520 --> 0:19:05.440 some of repands to raise spending decreased taxes, that might 0:19:05.480 --> 0:19:07.680 make for a very sicky situation in terms of inflation 0:19:07.680 --> 0:19:09.000 and what the Bank of England might have to do 0:19:09.119 --> 0:19:11.639 and how speedily it might have to do it. Absolutely 0:19:11.720 --> 0:19:13.880 and barely made the great mistake I think of using 0:19:13.880 --> 0:19:16.560 the word arm again in some of his evidence to 0:19:16.600 --> 0:19:18.760 a Parliamentary Select Commission. I think one of the first 0:19:18.880 --> 0:19:21.600 rules of being a successful central bankers you don't use 0:19:21.640 --> 0:19:28.840 the word arm again. Um. But he's a slightly weak position. 0:19:29.320 --> 0:19:32.119 But I think one of the things that's going on 0:19:32.160 --> 0:19:35.760 here is that the Conservative Party is transforming itself into 0:19:35.760 --> 0:19:39.120 a populist party from a sort of party of governments. 0:19:39.160 --> 0:19:41.960 And part of being a populist is to blame the 0:19:42.119 --> 0:19:45.680 established institutions for what's gone wrong. You know, it's it's 0:19:45.680 --> 0:19:48.439 either the House of Lords or the Supreme Court or 0:19:48.480 --> 0:19:52.199 the justices. And now the Bank of England finds itself 0:19:52.200 --> 0:19:54.399 in the in the firing line, and I think that 0:19:54.600 --> 0:19:58.720 is extremely dangerous. I think an independent, respected and very 0:19:58.800 --> 0:20:02.320