Speaker 1: Welcome to Bloomberg Opinion. I'm Vonnie Quinn this week. Having
Speaker 1: a very fangile economy with a long set's head of
Speaker 1: policies and a very stubborn and inexperienced prime minister is
Speaker 1: a very dangerous combination of things. Adrian Wooldridge and what
Speaker 1: a potential list Trust premiership in Britain might mean for markets. Later,
Speaker 1: we'll speak with Clara Ferreira Marquez on the legacy of
Speaker 1: Mikhail Gorbachev. First, though, market reaction to Jackson holand Fed
Speaker 1: Jared Jerome Powell's decisive speech. We are taking forceful and
Speaker 1: rapid steps to moderate demand so that it comes into
Speaker 1: better alignment with supply and to keep inflation expectations anchored.
Speaker 1: We joined by Bloomberg Opinions Near Case are near Bloomberg
Speaker 1: Opinions down. Moss called it a festival of hawkishness at
Speaker 1: Jackson Hole this year. Did Powell's speech change your expectations
Speaker 1: for the Fed's monetary policy path? Not for me. I
Speaker 1: have taken the set very seriously. I have believed from
Speaker 1: the very beginning that they're serious about this and that
Speaker 1: they're going to do what it takes to get flash down,
Speaker 1: and I have to say, for one, I have not
Speaker 1: been disappointed so far. I think the criticism of the
Speaker 1: FET has been relatively harsh. If you look at the record,
Speaker 1: if you look at the data that was available to
Speaker 1: them and what they actually did, I think they've been
Speaker 1: reasonable all along. You know, inflation started to take up
Speaker 1: in the spring of one, and it would have been
Speaker 1: I think hasty for them to act in that moment,
Speaker 1: because you want to see a few months of inflation
Speaker 1: to see whether you're dealing with something that's persistent or
Speaker 1: something that's a blip in the data. And they gave
Speaker 1: it several months to see whether inflation continued to remain high,
Speaker 1: and it did into the fall of one, and that's
Speaker 1: when they began job voning about acting. And if you
Speaker 1: look at what happened to markets, they didn't run in
Speaker 1: to raise the FET funds rate at that moment, but
Speaker 1: what happened was because they were signaling to the market
Speaker 1: that they were going to do it, the short term
Speaker 1: insistrates moved up immediately in the fall of and by
Speaker 1: this summer, the two year treasury was, you know, north
Speaker 1: of three and ultimately the it's not the FED funds itself,
Speaker 1: that's the magic pill. It's the effect that the said
Speaker 1: funds rate has on short terminist rates, So they didn't
Speaker 1: need to raise necessarily in order to have the intended effect.
Speaker 1: And I would argue they had the intended effect when
Speaker 1: it was appropriate for them. That it's a very complicated
Speaker 1: inflation this time around, though, right, I mean, I know
Speaker 1: every period of inflation is extremely complicated, but energy is
Speaker 1: really missing this one up now, Yeah, I mean I
Speaker 1: think energy is definitely a driver. I think there are
Speaker 1: some other drivers that are hard to get your fingers on.
Speaker 1: What is the impact of the pandemic on supply lines
Speaker 1: and a lot of unknowns, but I think there's always
Speaker 1: unknown when it comes to inflation. I mean, it seems
Speaker 1: to me that a lot of the criticism of the
Speaker 1: FED is that they're looking at data that is in
Speaker 1: the books rather than making projections about war inflation is
Speaker 1: going to go. But it seems to me they can't
Speaker 1: do anything else because you know, we just don't have
Speaker 1: any good models for predicting inflation. I don't think anyone does.
Speaker 1: The best we can do is look at how bond
Speaker 1: markets are pricing inflation using break evens. But you know
Speaker 1: that data only goes back to the early two thousands.
Speaker 1: It didn't exist in the nineteen seventies nineteen sixties, when
Speaker 1: inflation was the last to scare. And because it's the
Speaker 1: best we have, I think we have to just say
Speaker 1: that economic data always shows up on a lag, and
Speaker 1: therefore the SET is always going to be a bit behind.
Speaker 1: I just don't see any other way. So how does
Speaker 1: this play out? Because he mentioned wages specifically, talking about
Speaker 1: how wages would be going up and that would help
Speaker 1: to moderate demand eventually Bloomberg opinions Connor SND saying don't
Speaker 1: sweat a housing crash as long as wages rise. For example,
Speaker 1: what's next in a recessionary or no growth environment. Well,
Speaker 1: I think it's reasonable to assume that what the FET
Speaker 1: has done so far is going to drag the economy.
Speaker 1: You know how much drags It remains to be seen,
Speaker 1: in part because there is this reflectivity between the tightening
Speaker 1: on the one hand and the impact on inflation on
Speaker 1: the other hand. You could imagine multiple scenarios. You could
Speaker 1: imagine the scenario the so called soft landing, where what
Speaker 1: the SET has done so far and just what it's
Speaker 1: signaling that it will do has enough of an impact
Speaker 1: on inflation that it comes down and you know, we
Speaker 1: have a modest slowdown, nothing terrible. You can also imagine
Speaker 1: a replay of the nineteen seven where you know it's
Speaker 1: going to take a lot more aggressive FED actually to
Speaker 1: bring this inflation under control. And whatever happens to the economy,
Speaker 1: he's sort of a byproduct of it. And to asset prices,
Speaker 1: by the way, But I don't think the fact can
Speaker 1: be in the business of worrying when inflation is running
Speaker 1: this high about ultimately, with the knock on effects are
Speaker 1: going to be it would be nice if they could
Speaker 1: control all the variable simultaneously, but I just don't think
Speaker 1: that's realistic. And I think it's further evidence that ultimately
Speaker 1: the FED does not care too much, if at all,
Speaker 1: about asset crisis, the impact on housing, the impact on
Speaker 1: the stock market, or whatever. I think it's outside the
Speaker 1: realm of what they're concerned about. Yeah, we had Bloomberg opinions,
Speaker 1: Jonathan Evin saying many ampleis as Neil cash Carry said,
Speaker 1: the quiet part out loud on markets. This was of
Speaker 1: course after the sell off, and then Neil cash Carry
Speaker 1: was on the odd lots of podcast saying that he
Speaker 1: was happy with how markets reacted, but we're not really
Speaker 1: seeing markets completely sell off. The data is so interesting because,
Speaker 1: for example, we have consumer confidence boiling over. How is
Speaker 1: it that consumers are so confident? Are they looking ahead
Speaker 1: to higher wages that they think will materialize. Well, that's
Speaker 1: really a difficulty of this situation, right, because you have
Speaker 1: and this goes to the argument that everyone has been
Speaker 1: having about whether we're in a recession or not. I mean,
Speaker 1: you have GDP contracting. On the other hand, you don't
Speaker 1: have other signs that a company recession, such as people
Speaker 1: being down on the economy and about the future and
Speaker 1: so on, or the impact that you would expect to
Speaker 1: see on consumer spending or wages. So we don't have
Speaker 1: sort of a full picture of an economy that is backpeddling,
Speaker 1: which is one of the reasons why I'm a bit optimistic.
Speaker 1: I mean, I think that the fet has room here
Speaker 1: to continue to raise rates if necessary, which I will,
Speaker 1: which I do think they will do without really putting
Speaker 1: the heart breaks down the economy. So I think all
Speaker 1: of those things are somewhat of a silver lining. One
Speaker 1: thing I want to mention, Monny that I think is
Speaker 1: interesting to note because you you brought up the Okascaris
Speaker 1: comments is that, you know, it seems to me that
Speaker 1: when the FEED needs to stimulate like they did during
Speaker 1: the early days of the pandemic, like they did during
Speaker 1: the two thousand financial crisis, they're also accused of stepping
Speaker 1: in to rescue asset prices, stock prices being the one
Speaker 1: example that everyone uses, the major example that everyone uses,
Speaker 1: and now that they're doing the opposite, people accused them
Speaker 1: of sinking stock prices and asset prices, etcetera. But it
Speaker 1: seems to me the only reasonable thing take away from
Speaker 1: all of those examples is that they're going to do
Speaker 1: what they're gonna do, and investors are ultimately going to
Speaker 1: digest that how they will, and the impact on asset
Speaker 1: prices is going to be tangential. I'm not sure though,
Speaker 1: that Discards comment reflect the larger FED feeling around this.
Speaker 1: I don't know that they're cheering for asset prices to
Speaker 1: go down. I just think that ultimately they realize that
Speaker 1: that's not part of their mandate. Near John Alster said
Speaker 1: on the program recently that market wobbles or even worse
Speaker 1: tend to happen in September or October. Should we be
Speaker 1: more concerned given the months that were headed into or
Speaker 1: should we treat past experiences more like you know, Tarot
Speaker 1: card readings. I think probably the latter. I don't think
Speaker 1: it makes a lot of sense, for example, to look
Speaker 1: at how markets did on a particular month or whatever
Speaker 1: and make investment decisions based on that. However, I think
Speaker 1: it does make sense to look at how investors have
Speaker 1: priced assets and to ask yourself, you know, where are
Speaker 1: the risks priced stand or not priced stand? And there
Speaker 1: I think we have some relatively good information. I was
Speaker 1: looking at the S and P today it's trading at
Speaker 1: roughly nineteen times earning to put that in perspective, you know,
Speaker 1: the historical range has been somewhere between you know, the
Speaker 1: high single digits that's called seven eight to the load
Speaker 1: to mid thirties on the high end, and so we're
Speaker 1: roughly in the middle of that range, which tells you
Speaker 1: that it could go either way. That's a bit concerning,
Speaker 1: I think, because you know, you have a lot of uncertainty,
Speaker 1: and depending on where that uncertainty breaks, inflation, supply chains,
Speaker 1: the war in Europe, you could imagine valuations contracting or expanding.
Speaker 1: The reason I bring that up is because that is
Speaker 1: not true for a lot of assets around the world.
Speaker 1: If you look at, for example, where international and emerging
Speaker 1: market stocks are trading, particularly the smaller and value companies
Speaker 1: in those regions, they're trading at ten times earnings or less. Yeah,
Speaker 1: it's hard not to look at that and say, a
Speaker 1: lot of the risks are embedded already in these asset prices,
Speaker 1: and they're closer to the lower end of the rage.
Speaker 1: That seems to me to be a much safer play
Speaker 1: than you know, going all in on US facts, which
Speaker 1: I think you'd go in either direction. Well, speaking of
Speaker 1: emerging markets on I guess frontier markets as well, the
Speaker 1: dollar is hurting them badly. If the FED gets this right,
Speaker 1: and it did sound like J. Powell was going to
Speaker 1: do everything in his power to get this right, doesn't
Speaker 1: the dollar keep strengthening, and doesn't that give us problems
Speaker 1: around the world which might provide a feedback loop to
Speaker 1: the U s E. Mentually, I think that's a reasonable assumption.
Speaker 1: But there's two needs to consider. One is you know,
Speaker 1: ultimately currencies are going to go up and down long term,
Speaker 1: and if you if you are investing in the emerging
Speaker 1: markets because you ultimately believe that there's an inverse relationship
Speaker 1: between valuation and expected return, which I believe there is,
Speaker 1: because you think you're going to get a better than
Speaker 1: average long term return for emerging markets getting in here,
Speaker 1: which I also believe. Then I don't know that it's
Speaker 1: worth focusing on the dollar too much, except to say, frustratingly,
Speaker 1: you might be buying emerging markets and watching prices go
Speaker 1: down even further. But ultimately, there's no way to time
Speaker 1: these things, and I think there's no way to say
Speaker 1: where the bottom is. I think the best you can
Speaker 1: do is say, am I getting an entry that's going
Speaker 1: to give me a good long term return or in
Speaker 1: this case, in my opinion, better than average long term return.
Speaker 1: And I think that's true an emerging market. But near
Speaker 1: what emerging markets are we talking about? Because some countries
Speaker 1: are having a really difficult time with inflation. They don't
Speaker 1: have the types of tools that the Federal Reserve has.
Speaker 1: Their central banks are doing what they can, but they're
Speaker 1: rapidly running out of reserves in some cases. Well, you
Speaker 1: probably should not be in the business of picking individual countries.
Speaker 1: You know, there's developing countries all over the world. I
Speaker 1: think a broad basket of emerging markets is useful because
Speaker 1: you take away some of that individual country risk, but
Speaker 1: also you know there aren't any free lunches here. I
Speaker 1: think the reason that emerging markets are beat up is
Speaker 1: because we have all these risks on the table that
Speaker 1: are well known, and ultimately markets are really good at
Speaker 1: pricing risk. And so when you look at the US
Speaker 1: relative the emerging markets, what that's telling you is that
Speaker 1: the risk in this moment, the emerging market is higher
Speaker 1: for all the reasons you mentioned, Monny, and I think
Speaker 1: investors have to be cognizant of that. They're going to
Speaker 1: have to decide, am I willing to take on more risk,
Speaker 1: particularly near term risk, in order to get possibly a
Speaker 1: higher expected return over the longer term. Well, let's take
Speaker 1: one of the largest and that would be China. I mean,
Speaker 1: are you confident that China can navigate its waters right
Speaker 1: now and that valuations are reflecting reality in China? Well,
Speaker 1: they're reflecting reality I think in the sense that there
Speaker 1: is a lot of uncertainty in China, but also something
Speaker 1: that I think we don't talk about enough. Some developing countries,
Speaker 1: you have authentic rule of law risk. In other words,
Speaker 1: you could imagine a scenario with China where the government
Speaker 1: is able to navigate its economy well, the companies themselves
Speaker 1: do well, but that somehow that's not reflected in the
Speaker 1: returns that investors get, you know, either because ultimately, you know,
Speaker 1: China moves into seas private property, or because it otherwise
Speaker 1: does not respect the rule of law relative to investors,
Speaker 1: either domestic or foreign um. And so that's a real risk,
Speaker 1: and I think that's something that investors had to take
Speaker 1: into account, not only in China but other places as
Speaker 1: you're sizing, and to me, that's the biggest risk in
Speaker 1: a lot of these developing countries. Just to bring it
Speaker 1: back to the US, there's a lot of talk since
Speaker 1: that paper at Jackson Hole on quantitative tightening. We had
Speaker 1: Marcus Ashworth on a couple of weeks ago. He was skeptical,
Speaker 1: though the jury is out for him that this will
Speaker 1: happen very smoothly, that you can withdraw liquidity a double
Speaker 1: the pace in September as it's getting withdrawn up now
Speaker 1: and not cause any ripples. I mean, it's definitely a headwind.
Speaker 1: I think it's very difficult to know the relative impact
Speaker 1: between the fet funds rate on one hand and quantitative
Speaker 1: easing and tightening on the other, primarily because you know,
Speaker 1: the tool of quantitative easing and tightening is relatively new.
Speaker 1: You know, the ft has long moved interest rates, but
Speaker 1: this move to blanket the market with liquidity, which we
Speaker 1: you know it did during two and eight during the
Speaker 1: financial crisis and and more recently during the pandemic, that's
Speaker 1: a relatively new phenomenon, and so I think we should
Speaker 1: be humble about predicting the impact of removing that stimulus
Speaker 1: from the system. Having said that, I mean, I think
Speaker 1: because the economy appears to be in decent shape, I
Speaker 1: don't expect that it's going to fall off a cliff.
Speaker 1: But at this point you should count it as a risk,
Speaker 1: but not one that can be quantified with nuomeer opinions
Speaker 1: near case are as. Always do get in touch, comments
Speaker 1: and opinions always welcome. I'm at vanniy Quinn on Twitter
Speaker 1: or email v Quinn at Bloomberg dot net. Liz trust
Speaker 1: is by a wide margin over Richie Sunak, the front
Speaker 1: runner in the Tory leadership race in Britain. The result
Speaker 1: expected Monday, with Boris Johnson in quitting as Prime Minister Tuesday,
Speaker 1: to make way for a new prime minister. I spoke
Speaker 1: with Bloomberg Opinions Adrian Woodridge on what a list Trust
Speaker 1: premiership would mean for markets. So, Adrian, the betting is
Speaker 1: liszt Trust wins the Tory Party leadership race and becomes
Speaker 1: the next British Prime minister. Let's have a quick listen
Speaker 1: to some comments outlining or fiscal position. During a recent
Speaker 1: Sky News debate, he simply contact your way to and
Speaker 1: I'm afraid the very high taxes we have at the moment,
Speaker 1: a seventy year high, are likely to lead to a recession.
Speaker 1: So what are her intentions regarding taxes and spending? Yeah,
Speaker 1: I mean her broad plan is classic conservative principles of
Speaker 1: reducing the size of the state, reducing the tax burden,
Speaker 1: and you know, handing initiatives back to the people, as
Speaker 1: she would say, so, she would reverse insurance tax increases
Speaker 1: that we she sooner gets put in. She would reduce
Speaker 1: the level of corporate tax and generally taken acts to
Speaker 1: the state as much as can be done at the moment.
Speaker 1: She's also planning a big spending package after she gets
Speaker 1: into power, assuming that's what happens. To help with energy
Speaker 1: bills which are forecast to top six thousand pounds annually
Speaker 1: next year. That's not exactly classic conservative visit. No, absolutely
Speaker 1: absolutely right, and quite interestingly, one of the architects of fatterism,
Speaker 1: the head of Mrs Snatcher's policy unit during the Nagen
Speaker 1: eight is Ryan Griffith, has recently said that, you know,
Speaker 1: this is not what Mrs Bacher would have done. This
Speaker 1: is such raised taxes immediately because she wanted to balance
Speaker 1: the budget, and this trust his policies are much more
Speaker 1: Reagan Night than that. Right, if you remember Reagan increased
Speaker 1: spending and lower taxes, and she wants to do something similar.
Speaker 1: But Britain is not the United States didn't have a
Speaker 1: reserve currency. It's those kinds of an economy of that size.
Speaker 1: So a lot of serious economists are very worried about
Speaker 1: this mixture of cutting taxes and increasing spending. And one
Speaker 1: of the criticisms is that she's promising something to everybody.
Speaker 1: Will she be able to deliver And if she does deliver,
Speaker 1: what would it do to the UK economy? What would
Speaker 1: it do to markets? Were already seeing City saying that
Speaker 1: inflation might get past next year. We're seeing the pound
Speaker 1: at one eighteen was above one forty this time last year,
Speaker 1: so there's already a lot to contend with. I have
Speaker 1: absolutely no doubt that the market would prefer to have
Speaker 1: Chi sooner to his trust soonac was the Chance of
Speaker 1: the Exchequer. He knows a sort about financial and economic policy.
Speaker 1: Before that, she was a banker and investment banker, so
Speaker 1: he knows the markets extremely well, and he looked forward
Speaker 1: a very cautious set of policies which are designed the
Speaker 1: bubble to balance the budget and to cushion the effects
Speaker 1: of this huge spike in energy prices, which would not
Speaker 1: introduce any tax cuts in the short term. I think
Speaker 1: economists are very skeptical about her mixture of tax cuts
Speaker 1: and spending increases. I think the market will react very negatively.
Speaker 1: And this is a time in the British economy doesn't,
Speaker 1: as you'd say, very very fragile. So having a very
Speaker 1: fragile economy with a wrong setted head of policies and
Speaker 1: a very stubborn and inexperienced Prime minister is a very
Speaker 1: dangerous combination of things. There is also the question of
Speaker 1: whether she would actually deliver on everything she's promising, whether
Speaker 1: she would be able to but the other thing is
Speaker 1: that she's a very tough stand on the UK's relationship
Speaker 1: with the European Union and single market access. That doesn't
Speaker 1: vote all that well for trade either. What would her
Speaker 1: relationship with foreign powers be? Absolutely And I think it's
Speaker 1: important to remember that she at the moment is focused
Speaker 1: on winning the notes of Conservative Party members, and there
Speaker 1: are about a hundred and sixty thousand of these Conservative
Speaker 1: Party members. They tend to be quite old and quite
Speaker 1: prosperous and very anti Europeans. So she's speaking to that audience.
Speaker 1: And when she comes to power, she will obviously be
Speaker 1: dealing with a bigger audi inst the nation and she
Speaker 1: may not go through quite as she said with a
Speaker 1: lot of these policies. And already we've seen a certain
Speaker 1: amount of rowing back. She said at first her policy
Speaker 1: towards the fuel crisis would be simply cutting taxes, and
Speaker 1: then she started conceding that that wouldn't really help the
Speaker 1: most needy in society, and she's then started talking about
Speaker 1: a package of policies designed to subsidize school for the
Speaker 1: most median society. So she has changed a bit. Nevertheless,
Speaker 1: overall stance is quite hard line, and it's particularly hardlined
Speaker 1: towards the European Union. She herself was not a Brexitter,
Speaker 1: she voted for in campaigned for Remain, but since then
Speaker 1: she has had a massive conversion. She has become more
Speaker 1: Catholic than the Pope, and she has been very hostile
Speaker 1: towards the European Union. And that's a very dangerous set
Speaker 1: of policies, part because trade is being squeezed anyway by Russia,
Speaker 1: by the increasing hostility of China, but also, you know,
Speaker 1: Europe is Britain's biggest trading partner and we need to
Speaker 1: get on with this block and simply racking the cuts
Speaker 1: is not the making of good policies. So I'm very
Speaker 1: worried her general stance as Prime Minister, and I'm not
Speaker 1: confident that even if she moderates it a bit, she
Speaker 1: can moderates enough to repair the damage that you've been
Speaker 1: done with our relations with Europe. It's also quite singular
Speaker 1: just how much she's changed her perspectives and our principles
Speaker 1: on certain things. The Bank of England question. It might
Speaker 1: put the Bank of England in a very sticky situation.
Speaker 1: She's planning, at least for the moment, on doing a
Speaker 1: review and I'm quoting now to see whether it's fit
Speaker 1: for purpose in terms of its entire exclusionary independence over
Speaker 1: interest rates. I mean, if she tries to merge the
Speaker 1: Treasury and the Bank of England, or to do something
Speaker 1: to counteract the quote unquote independence of the Bank in England,
Speaker 1: how would Margaret's react to that? I think the markets
Speaker 1: would react extremely negatively. They would be very worried about
Speaker 1: politically interference, and particularly about their tendency of politicians to
Speaker 1: set interest rates to suit their electoral cycles rather than
Speaker 1: the overall needs of the economy. And now the Bank
Speaker 1: of England is in a weak position because you know,
Speaker 1: the great thing that was touted about bank independence was
Speaker 1: that they would bring inflation under control, and inflation clearly
Speaker 1: isn't under control at the moment. Nevertheless, the overall record
Speaker 1: of independent central banks as inflation fighting mechanisms is a
Speaker 1: positive one. And the idea of going back to the
Speaker 1: pre independence days when politicians were in charge, when they
Speaker 1: were very influenced obviously by winning votes and things like that,
Speaker 1: is not the way to go with the the Bank
Speaker 1: of bringing that I would make it more independent than
Speaker 1: more thoroughly focused on fighting inflations. Its number one task
Speaker 1: were making it more politicized. Is already getting criticized for
Speaker 1: being too doom and gloomy. If you go through with
Speaker 1: some of repands to raise spending decreased taxes, that might
Speaker 1: make for a very sicky situation in terms of inflation
Speaker 1: and what the Bank of England might have to do
Speaker 1: and how speedily it might have to do it. Absolutely
Speaker 1: and barely made the great mistake I think of using
Speaker 1: the word arm again in some of his evidence to
Speaker 1: a Parliamentary Select Commission. I think one of the first
Speaker 1: rules of being a successful central bankers you don't use
Speaker 1: the word arm again. Um. But he's a slightly weak position.
Speaker 1: But I think one of the things that's going on
Speaker 1: here is that the Conservative Party is transforming itself into
Speaker 1: a populist party from a sort of party of governments.
Speaker 1: And part of being a populist is to blame the
Speaker 1: established institutions for what's gone wrong. You know, it's it's
Speaker 1: either the House of Lords or the Supreme Court or
Speaker 1: the justices. And now the Bank of England finds itself
Speaker 1: in the in the firing line, and I think that
Speaker 1: is extremely dangerous. I think an independent, respected and very
Speaker 1: solid Bank of England, absolutely vital to the management of
Speaker 1: a modern economy and the last thing a responsible conservatively
Speaker 1: there should be doing that the moment were indeed anytime
Speaker 1: is waging war against the Bank of England. Adrian Woodridge.
Speaker 1: There the death of this week of Mikhail Gorbachev elicited
Speaker 1: a massive response. A huge statesman presiding over the death
Speaker 1: of a system, the whole way of governance, and a
Speaker 1: body of countries as they became also maybe a little
Speaker 1: bit of trepidation and underscoring a final legacy for Gorbachev.
Speaker 1: I spoke with Bloomberg Opinions Clara Ferreira Marquez, Clara, what
Speaker 1: for you is the lasting legacy of Michael Gorbachev. I
Speaker 1: think it's a really interesting and a far more difficult
Speaker 1: question than I think a lot of people realize, and
Speaker 1: particularly in the West, where we have a very particular
Speaker 1: view of Gorbachev and what he what he did, and
Speaker 1: what he represents for us, for many of us is
Speaker 1: the end of the evil Empire. It's in re honity
Speaker 1: a lot more complicated. So he was clearly a man
Speaker 1: of the system, a man who wanted to work within
Speaker 1: the system. Obviously he did not start out to collapse
Speaker 1: the Soviet Union. That was unintended consequence largely of economic
Speaker 1: and this cool reform he changed the world. He was
Speaker 1: able to end the Soviet Union largely peacefully, and that
Speaker 1: is remarkable. But also you know that a lot of
Speaker 1: the ill conceived economic reforms that he brought in the
Speaker 1: chaos that he left in his wake, allowed kleptocracy to
Speaker 1: take roots, and in many ways he is responsible for
Speaker 1: where Russia is today. Russians too, of course, putain many
Speaker 1: of us in the West who supported the system. But
Speaker 1: the way that the Soviet Union came to an end,
Speaker 1: the economic plundering that was possible, was to a degree
Speaker 1: because right now. We had Voladimir Yermlenko, Ukrainian philosopher on
Speaker 1: the show a few weeks ago, who actually has been
Speaker 1: tweeting something similar. He says that Gorbachev is an eternal
Speaker 1: problem of Russian democracy, that he's almost a symptom of
Speaker 1: its incapacity to stick with principles. He wanted to democratize
Speaker 1: the U s s R. But finally back to Russia fascism. Now,
Speaker 1: obviously this is coming from a Ukrainian philosopher who is
Speaker 1: experiencing war, but there is some truth to that, right,
Speaker 1: there's a little bit more of a complicated legacy than
Speaker 1: just he presided over the end of the USSR. Absolutely,
Speaker 1: and I think you think about him as a bit
Speaker 1: of a political rules actest. So you know, to us
Speaker 1: in the West, he's the man that Margaret actually said
Speaker 1: she could do business with the many and the foremost
Speaker 1: of Viet States, he's the man that brought down the wall.
Speaker 1: But for Russians, and I think in particular, what must
Speaker 1: is for us as we look at this today and
Speaker 1: we think about and of Augustay September two, is really
Speaker 1: what he means for the Britain regime and for them
Speaker 1: he is the man who lost an empire, the man
Speaker 1: who brought national humiliation to a great nation. And I
Speaker 1: think that's really very very important in understanding where we
Speaker 1: are today. So, just to go back to Paristoia in Glasnows,
Speaker 1: those reforms were life changing events, countries, state changing events.
Speaker 1: Is there any remnants of those left in Russia? I mean,
Speaker 1: obviously the last few months have changed the story completely,
Speaker 1: but even before that, were there any remnants of what
Speaker 1: Gorbach had introduced? Well, And that's a difficult one. I'd
Speaker 1: say almost almost no. So if you think about the
Speaker 1: three things that he really wanted to bring, he really
Speaker 1: wanted a thriving economy, he wanted openness, and he wanted
Speaker 1: democracy and underput and all three have been undone. But
Speaker 1: the concept of parasturing, the concept of glassnes starre slightly
Speaker 1: different and they are sort of self reinforcing. Glassness means transparency, clarity.
Speaker 1: It was about openness um and really that began very
Speaker 1: strongly after cher novel, which was a failure of the
Speaker 1: system that kept so many secrets. And Peristoica was the reconstruction.
Speaker 1: So that's what Pedistroian means, to reconstruct. And what happened,
Speaker 1: in fact is so relevant to today because when he
Speaker 1: started to unpicket, he found that the Soviet Empire was
Speaker 1: sust on nothing. It was built on violence, it was
Speaker 1: built on lies. And really that's what we will find
Speaker 1: with the Putin regime. Archie Brown and the Guardian said Gorbage.
Speaker 1: He was asked a couple of years ago what has
Speaker 1: epitaph should be and he replied, we tried. He was
Speaker 1: devastated apparently by the war, and at the same time, Clara,
Speaker 1: he must have seen us coming in some ways I
Speaker 1: don't want compared to other rises and falls of other
Speaker 1: regimes and so on. But in some ways these things
Speaker 1: are visible in advance, right and certainly in the case
Speaker 1: of Russia, this was potentially extraordinarily visible, especially to a
Speaker 1: statesman like Gorbachev, who then handed off to Yelson, who
Speaker 1: then handed off to Putin. I think in terms of
Speaker 1: thinking about the collapse of the Soviet system, and obviously
Speaker 1: we're all thinking about that now when we remember Gorbachev
Speaker 1: and we think about the Putin regime, two thinks are important.
Speaker 1: One is that they themselves think about this. Beijing thinks
Speaker 1: about this, So Beijing spends an awful lot of time
Speaker 1: studying Perastoika and the errors of Michael Gorbachev. And in fact,
Speaker 1: if you look at the statements sort of commerce fishing
Speaker 1: since his death, I think they really are indicative again
Speaker 1: because going back to the Rulesha Act test, it really
Speaker 1: says everything about Fijing and not much about Mihil Gorbachev.
Speaker 1: The second thing is just in terms of the visibility.
Speaker 1: So when we look at the Soviet collapse, it does
Speaker 1: tell us a lot about what might happen here. But
Speaker 1: I think the most important thing is really to think
Speaker 1: that what was obvious was that it would come to
Speaker 1: an end. It wasn't at all obvious how it would
Speaker 1: come to an end or when. And I think the
Speaker 1: same is through today we have an extremely ritual system
Speaker 1: and a system that is hollowing itself out, stagnant economy,
Speaker 1: and impossible plundering of resources. At the top of predicting
Speaker 1: when that can end, I mean that is is almost impossible.
Speaker 1: You mentioned that Beijing studied peristroika. What lessons did Beijing
Speaker 1: learn from this study? What so called errors of Paristroika
Speaker 1: would Beijing seek to try and avoid. I mean, interestingly,
Speaker 1: I would argue they take all the wrong lessons from this.
Speaker 1: They look at Gorbashof, I mean, obviously there were violent incidents,
Speaker 1: but by and large he was averse to violence, and
Speaker 1: Beijing sees certain I think so. You think he once
Speaker 1: made a comment about, you know that the iron grip
Speaker 1: that Gorbachev did not have. So and they really see
Speaker 1: this as sets of demonstration that forces required. If somebody
Speaker 1: wants to pull out of your empire, you pulled them
Speaker 1: back in by force. And obviously that's what's happened, for
Speaker 1: example with with Hong Kong. The other thing they think
Speaker 1: about it as economic and political reform, which comes first,
Speaker 1: and they really see as a problem that what happened
Speaker 1: in Russia was that political reform was done first, so
Speaker 1: that there was openness, there was an ability to discuss
Speaker 1: the errors, and everything was out in the open of dates.
Speaker 1: That's a fundamental, but it is it's a really interesting
Speaker 1: study because it has changed over time. So Clara, you
Speaker 1: would have seen this happening when you were a youngster
Speaker 1: in school and so on, but you did arrive in
Speaker 1: Russia not that long after some of these changes were enacted.
Speaker 1: What was it like. Was it a free and open
Speaker 1: society where there was a view towards the market, economics
Speaker 1: and so on, or was the Yellson era already showing
Speaker 1: signs of strain. I think what the Alton era really
Speaker 1: showed was that we were heading towards the sort of personalist,
Speaker 1: kleptocratic system, and at the time it perhaps wasn't so obvious.
Speaker 1: We saw a different direction of travel. So I arrived
Speaker 1: in Russia in August ninety seven, so just before the
Speaker 1: financial crisis the year after, and it was a time
Speaker 1: that was extremely chaosic, extremely painful economically, but also a
Speaker 1: time of hope and also quite violent. To be clear,
Speaker 1: this was not an easy time at all, but it
Speaker 1: was a hopeful time in the sense that people did
Speaker 1: see something better down the line. They were sort of
Speaker 1: living through this period, even during the nine crisis, which
Speaker 1: is absolutely catastrophic. I'd say a lot of this has
Speaker 1: been reversed, the hope in particular, but also this idea
Speaker 1: that we could escape stagnation. Take the auto industry or
Speaker 1: take the aviation industry. For example, we have air a
Speaker 1: flot cannibalizing jets in order to keep its planes in
Speaker 1: the air. They're no longer paying air traffic controllers. And
Speaker 1: just think about how essential air travel is in Russia.
Speaker 1: I mean, it's the world's largest country. Clara Putin, how
Speaker 1: would Vladimir Putin have been shaped by the events that
Speaker 1: Mikhail Gorbachev oversaw. I think there are two very important
Speaker 1: events I think important to understand where Putin is today
Speaker 1: and the plisical man that he is one is effectively
Speaker 1: nine eight nine. He was the young FFC KGB officer
Speaker 1: in Dresden in Germany, and there's an episode that he's
Speaker 1: written about. He was at the KCB headquarters and there
Speaker 1: was a mob approaching, and he was desperate to preserve
Speaker 1: what was inside, and he called the Red Army and
Speaker 1: he asked for reinforcements, and they said, we have got
Speaker 1: to orders from Moscow, so you can't do anything. And
Speaker 1: then they said something that stayed with him, which as
Speaker 1: they said, Moscow is silent. And this particular phrase for
Speaker 1: him was really a sort of demonstration of powerlessness. It
Speaker 1: was a humiliation. He felt the country no longer existed,
Speaker 1: and he wanted to reverse this destruction of an empire.
Speaker 1: He said later that the thousand years of our work
Speaker 1: was undone the second important moments to think about what
Speaker 1: we think about that Putiness that he did consider the
Speaker 1: role that a collapsing economy place. So for him, macroeconomic
Speaker 1: stability was and remains absolutely crucial, and he very often
Speaker 1: positions himself in contrast with the chaos of the nine nineties.
Speaker 1: Obviously that's very ironic given where we are today with
Speaker 1: the Russian economy, where he himself has pushed the economy
Speaker 1: back to pretty much of that period. You wrote a
Speaker 1: column in which he said that Putin will actually exploit
Speaker 1: Gorbachev's death. Explained that a little bit more to us,
Speaker 1: how is Gorbachev's seen by the majority of Russians. If
Speaker 1: there is a majority opinion on gav and how will
Speaker 1: Puttin exploit the death. Well, Russian's opinions on quite complicated,
Speaker 1: and it depends to some extent what age you are.
Speaker 1: But I think if you remember he did that absolutely
Speaker 1: awful pizza hast advert in the nineties, and they he
Speaker 1: walks into a restaurant, there's a family there, and the
Speaker 1: family start arguing he he brought economic chaos. And then
Speaker 1: the younger person in the family and his son says
Speaker 1: something like he brought his freedom, although he brought us
Speaker 1: political instability. This sort of debate is a real debate
Speaker 1: for many Russians. But I think for a long time
Speaker 1: he was actually completely ignored. He was a fringe figure.
Speaker 1: He complained about the Prussian regime, though I would say
Speaker 1: that he saw Ukraine in Russia's orbit the way that
Speaker 1: Prusin does. I mean that doesn't mean he advocated an invasion.
Speaker 1: In fact, he clearly spoke up against it, but he
Speaker 1: didn't have a radically different view. And Putin will in
Speaker 1: some way exploit this, you think. I think it's important
Speaker 1: to understand the role that political death, say and the
Speaker 1: regime like this, their political death funeral, the eulogy, the
Speaker 1: whole pageantry around it is not about the person who's died.
Speaker 1: It's about those stuff behind. It's significant that, as far
Speaker 1: as I've seen, there is no state's funeral. Plans for
Speaker 1: the tributes have been exactly as you would expect. So
Speaker 1: frut in criticizing the failures that he is now undoing,
Speaker 1: so the loss of empire, but really glossing over some
Speaker 1: of the failures that tell you a lot about the
Speaker 1: region today. So for example, excessive military spending, for example,
Speaker 1: the misadventures in Afghanistan, or the stagnating economy, all of
Speaker 1: that he will not talk about, so he will use
Speaker 1: it in that sense and really succeed the sort of
Speaker 1: Soviet tinged nostalgia. That is the only thing that the
Speaker 1: current regime has to replace ideology, and they cannot pull
Speaker 1: the country together on the basis of ideology, so they've
Speaker 1: gone back to a lot of the old Soviet imagery,
Speaker 1: the old Soviet narrative. Bloomberg Opinions at Clara Ferreira Marquez.
Speaker 1: Well that doesn't for this week's Bloomberg Opinion, do get
Speaker 1: untouched though I'm at Vane Quinn on Twitter or email
Speaker 1: Quinn at Bloomberg dot net. And we're also available as
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Speaker 1: Eric mollow Till Next Time on Netburg Opinion