WEBVTT - Roubini Macro Associates Chairman, CEO Nouriel Roubini Talks Economic Policy

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<v Speaker 1>No, we are abeeny of rebeiny macro associates looking ahead

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<v Speaker 1>to the new year and writing this, some of Trump's

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<v Speaker 1>policies will increase growth and reduce inflation, while others could

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<v Speaker 1>be stagflationary. So the impact on growth, inflation, and on

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<v Speaker 1>markets depends on how much of the former versus the

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<v Speaker 1>latter nori are joint. Is now for more one for

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<v Speaker 1>to see is a great singer. How difficult does it

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<v Speaker 1>make it to look ahead to next year with any

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<v Speaker 1>real clarity to come up with some kind of outlook

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<v Speaker 1>when things are so difficult.

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<v Speaker 2>There's a lot of policy uncertainty. As I pointed out,

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<v Speaker 2>some of the economic policies of Traum may increase over

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<v Speaker 2>time growth, reduce inflation, being overall pro business, keeping tax

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<v Speaker 2>rates on capital and a liberal law, deregulating the economy,

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<v Speaker 2>and things like increasing the production of hostil fuels and

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<v Speaker 2>pushing down the prices of energy. Probably also this Dodge initiative,

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<v Speaker 2>overtiming greaser economic efficiency and so on. So those are

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<v Speaker 2>the positives, and over time they could increase growth, they

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<v Speaker 2>could reduce inflation. But we know there are some of

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<v Speaker 2>other policy we don't know how much they're going to

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<v Speaker 2>be implemented, they will increase inflation and potentially be stockflationary.

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<v Speaker 2>In my view, tariffs are inflationary. Protection is the risk

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<v Speaker 2>of the economic world with China, first draconia, restriction to migration,

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<v Speaker 2>if not the mass deportation. If we have unfunded physical

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<v Speaker 2>deficits and the promises imply eight trillion dollars of deficits

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<v Speaker 2>over additional over the next ten years, that's going to

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<v Speaker 2>crowd out growth by increasing interest rates norminal and real,

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<v Speaker 2>and the bond market digilans are going to wake up.

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<v Speaker 2>If you try to disorderly weaken the dollar, that could

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<v Speaker 2>be inflationary, and if you interfere with independence of the FAT.

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<v Speaker 2>Now I think on the positive side, I think there

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<v Speaker 2>are a number of factors that are going to constrain the

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<v Speaker 2>bad policies. One is market discipline. If you follow pulse

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<v Speaker 2>that inflationary, then bond market digitalans are going to wake up.

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<v Speaker 2>Bond is going to go higher, the stock market is

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<v Speaker 2>going to correct, and it cares about the bond market.

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<v Speaker 2>It cares about the stock market. Secondly, Fed independence. If

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<v Speaker 2>he follows policies the lead to inflation, the FED may

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<v Speaker 2>not continue to cut thraight it's next year, may even

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<v Speaker 2>raise rates if inflation.

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<v Speaker 3>Were to be going higher.

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<v Speaker 2>And also policy choices, as you pointed out, on one side,

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<v Speaker 2>you have people like Scott Bessett want to escalate the

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<v Speaker 2>escalate on tariffs, and others are total trade hawks on

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<v Speaker 2>trade and on China, like Peter Navarro. So it depends

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<v Speaker 2>on the balance between who's going to be in powered.

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<v Speaker 1>Let's unpack some of that pe can't tariffs pick to

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<v Speaker 1>pay already so far this morning, you've heard some of it.

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<v Speaker 1>Plase weigh in if it's targeted, could be a good

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<v Speaker 1>thing for the American economy.

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<v Speaker 2>Well, if it's targeted, I would say that the impacts

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<v Speaker 2>on inflation are going to be modest, and maybe some

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<v Speaker 2>of the reassuring that radio is occurring is going to continue,

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<v Speaker 2>and there'll be actually pressure on our trade partners to say,

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<v Speaker 2>if you don't want tariffs, you have to bring more

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<v Speaker 2>investment semiconductors. Authors it Besy, you name it to the

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<v Speaker 2>United States. So that's the escalator in order to de escalate.

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<v Speaker 2>But I would say the higher does STARTFF become, the

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<v Speaker 2>more there's an impact on improprices, the more there's an

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<v Speaker 2>impact on inflation, and the more, there is global fragmentation,

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<v Speaker 2>and there's also the risk, of course of trade wars

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<v Speaker 2>of our trade partner retaliating against the United States. If

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<v Speaker 2>that occurs, the impact on growth is going to be

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<v Speaker 2>more negative than impact on inflation is going to be.

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<v Speaker 2>Value depends on the size of these STARTUS. If it's

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<v Speaker 2>Navaro types of policies on trade is taflationary. If it's

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<v Speaker 2>escalated the escalate, maybe the impact inflation is moldest and

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<v Speaker 2>the negative impact on growth is also modest.

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<v Speaker 4>So some people are arguing that we're in this wave

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<v Speaker 4>of deglobalization that basically reverses some of the disinflationary forces

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<v Speaker 4>of the three decades following really the mid eighties. I'm

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<v Speaker 4>wondering whether that's actually true, whether that's what we're seeing,

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<v Speaker 4>because there still is quite a bit of trade, it's

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<v Speaker 4>just going different routes, and frankly, you could see that

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<v Speaker 4>overproduction from places like China are going to lower prices

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<v Speaker 4>in certain places even if they don't in the US

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<v Speaker 4>if there walls up. In other words, are we overestimating

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<v Speaker 4>the inflationary impact on a dramatic level of a lot

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<v Speaker 4>of these tariffs?

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<v Speaker 2>Well, the impact of high tariffs on the United States

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<v Speaker 2>would be inflationary. But if you think about the impact

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<v Speaker 2>on growth and inflation, rest of the world will be

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<v Speaker 2>this inflationary because if there is a shock to the

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<v Speaker 2>demand for the experts of Europe, Asia, China, then there'll

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<v Speaker 2>be excess supply. Growth is weakened in those parts of

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<v Speaker 2>the world, and that leads to this inflation the rest

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<v Speaker 2>of the world. So the impact on the US of

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<v Speaker 2>high tariff is inflationary. The impact on the rest of

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<v Speaker 2>the world is this inflationary because the access supplied.

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<v Speaker 4>You used to be called doctor doom. Are you retiring

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<v Speaker 4>that mantle?

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<v Speaker 3>I always said, I'm.

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<v Speaker 2>Not doctor douma, doctor realist. There are plenty of upside

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<v Speaker 2>in hellmic growth, and by the way, some of them

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<v Speaker 2>are thinking that are more secular. I think the impact

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<v Speaker 2>of technological innovation implied that potential growth in the US

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<v Speaker 2>by the end of the decade could be close to

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<v Speaker 2>three percent. And the fact we already have seen for

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<v Speaker 2>the last couple of years growth of two point five

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<v Speaker 2>to twenty eight percent with inflation falling, is signed that

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<v Speaker 2>maybe PRODUCTI growth is increasing and potential is increasing, and

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<v Speaker 2>we can grow faster with having lower inflation.

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<v Speaker 3>So I'm not doctor.

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<v Speaker 5>Dum when it comes to terrorists. Just to go back

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<v Speaker 5>to this idea of the personnel. We know what Jamison

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<v Speaker 5>Greer as well thinks about China. In hearing to Congress,

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<v Speaker 5>he had talked about strategically coupling. Do you expect that

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<v Speaker 5>over the next four years between Beijing and Washington.

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<v Speaker 3>Yes, I do.

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<v Speaker 2>I think that one of the biggest risks is not

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<v Speaker 2>just tarif in general, but a broader economic war against China.

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<v Speaker 3>Ifles.

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<v Speaker 2>Listen to the long list of complaints of the Drum administration.

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<v Speaker 2>They say China has been thriding on free riding on

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<v Speaker 2>international trading system, tariff, non TARIFERI barriers, government procurement policies,

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<v Speaker 2>FTI policies, intellectual property rights and of course fend and

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<v Speaker 2>lots of other things. And also geopolitically, there may be

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<v Speaker 2>an attempt to try to contain the rise of China.

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<v Speaker 2>So the biggest risk is not just TARIF on China,

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<v Speaker 2>but how much the overall policies forward. China is going

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<v Speaker 2>to be confrontational, and if they feel that we're trying

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<v Speaker 2>to contain their rise, they could become quite aggressive themselves.

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<v Speaker 3>Well.

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<v Speaker 5>From page of the ft today talking about these four

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<v Speaker 5>government back authorities that are telling local chip companies that

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<v Speaker 5>you can no longer buy silicone from the United States,

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<v Speaker 5>they're no longer safe or reliable or we already in

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<v Speaker 5>this moment you're describing, Well.

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<v Speaker 2>Certainly in anything to do with the high tech, we've

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<v Speaker 2>started already in the by the administration to be in

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<v Speaker 2>a process of de coupling, restriction to experts, both of

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<v Speaker 2>semiconductor and circonductor equipment, restriction to anything investiated with AI

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<v Speaker 2>and high technology.

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<v Speaker 3>Under Biden was an arrow yard and.

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<v Speaker 2>High fences and stuff that was supposed to be critical.

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<v Speaker 3>So the risking.

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<v Speaker 2>I think that in the case of Trump administration, we

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<v Speaker 2>may move from the risking with China to decoupling with

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<v Speaker 2>China did something much more, how to say, severe.

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<v Speaker 1>Does Europe need to pick a side.

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<v Speaker 2>They'll be in a very very tough position because geopolitically

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<v Speaker 2>Europeans are close to the United States, NATO and so on,

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<v Speaker 2>but they do a lot of trade and investment with China.

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<v Speaker 2>You know, under the buy the administration was easy because

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<v Speaker 2>there was a compromise within the digit seven about the

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<v Speaker 2>risking as opposed to the coupling. If his US goes

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<v Speaker 2>towards the coupling, It says European I have to follow

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<v Speaker 2>us otherwise that consequences not just on trade but also

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<v Speaker 2>NATO security and you name it. Then I think Europe

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<v Speaker 2>is already weak being a tougher spot.

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<v Speaker 1>How much worse could things get for the Europeans. We've

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<v Speaker 1>been saying through this morning that France is ungovernable at

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<v Speaker 1>the moment, which means it can't deliver reforms. And you

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<v Speaker 1>know in Europe things have to get worse before ultimately

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<v Speaker 1>they find solutions. How much worse does it need to get?

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<v Speaker 2>Well, things are really pretty bad already in Europe. I

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<v Speaker 2>think that potential growth is below one percent in Europe

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<v Speaker 2>growth Europe is going to be in the Eurozone less

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<v Speaker 2>than one percent next year. So and structural reform I'm

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<v Speaker 2>not going to occur anytime soon. There's a fragmentation between

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<v Speaker 2>these twenty seven countries. Some of them want more integration,

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<v Speaker 2>some of them want less. At the core of Europe,

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<v Speaker 2>German in Germany and France are going to politically unstable.

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<v Speaker 2>So I don't see either the Letter Report or the

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<v Speaker 2>Drug Report for more integers, for a common market, for

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<v Speaker 2>more productivity, Combatants being implemented.

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<v Speaker 3>So it looks pretty dark for your brain.

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<v Speaker 4>Now, which is the reason why I'm surprised that so

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<v Speaker 4>many people come in and they say it's priced in.

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<v Speaker 4>We don't really see a path out of here. We

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<v Speaker 4>don't necessarily see an economic engine or the political will

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<v Speaker 4>or capability to really counter it. At what point are

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<v Speaker 4>we facing off with the potential dollar shock? And I

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<v Speaker 4>ask this because yes, THEO is likely to stay around

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<v Speaker 4>here a week and further, but what if it actually

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<v Speaker 4>weakens dramatically. Is the ECB is forced to cut rates

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<v Speaker 4>and that divergence widens.

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<v Speaker 2>Well, there are many good reasons why the dollar may

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<v Speaker 2>continue to strengthen. One is, of course, star if if

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<v Speaker 2>they reduce the trade deficit is going to strengthen.

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<v Speaker 3>Two.

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<v Speaker 2>Trumpet said, I want to have actually the dollar at

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<v Speaker 2>the center of the global reserve system, and therefore that

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<v Speaker 2>implies you want strong dollar than a week dollar relative

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<v Speaker 2>grow differential relative monetary policies. The fact that the US

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<v Speaker 2>is innovating and capital is flowing into the US capital

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<v Speaker 2>markets and the stock market all implied that the dollar

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<v Speaker 2>over time should become stronger. The euro and other currencies

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<v Speaker 2>should become weaker. The problem however, is that Trump says

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<v Speaker 2>a strong dollar has led to the industrialization, to American carnage,

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<v Speaker 2>people free writing on us, to having large trade deficits,

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<v Speaker 2>and we want at some point a week dollar. The

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<v Speaker 2>fundamentals imply a stronger dollar, but policy that may be

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<v Speaker 2>an attempt eventually, maybe in the second half of an administration,

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<v Speaker 2>to find an agreement on currency, maybe to say either

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<v Speaker 2>you accept ten percent tariffs or you accept a ten

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<v Speaker 2>percent depreciation of the dollar.

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<v Speaker 3>I would not rule out there'll.

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<v Speaker 2>Be some big Mara Lago agreement. Is you know, the

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<v Speaker 2>effects agreement are always in a resort, you know Breta,

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<v Speaker 2>No Woods America, the coach Lasa, you know Louver and

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<v Speaker 2>so on, so and mar Lago acord is something that

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<v Speaker 2>they're going to think about, not in the first two years,

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<v Speaker 2>but down the line they're going to say to the

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<v Speaker 2>trading partners, you don't want tariffs.

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<v Speaker 3>You have to do other things for us.

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<v Speaker 1>No reale. You've had a big move in bigcoin over

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<v Speaker 1>the last month or so. I had a big move

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<v Speaker 1>over the last several years. Have you rethought the way

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<v Speaker 1>you think about what happening care.

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<v Speaker 3>Not really?

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<v Speaker 2>I mean, people talk about bitcoin being a cryptocurrency like

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<v Speaker 2>the other ones, but they're not really currencies. They're not

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<v Speaker 2>a unit of account, they're not a scalable means of payment,

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<v Speaker 2>they're not a stable store of value. They're not a

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<v Speaker 2>single numeror Bitcoin in the past, when to seventeen down

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<v Speaker 2>then to sixteen and has above one hundred, you could

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<v Speaker 2>have another fifty percent correction. So it's a speculative act,

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<v Speaker 2>like mime stocks, sparks.

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<v Speaker 3>And others, highly volatile.

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<v Speaker 2>Many people are going to it, but don't take El

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<v Speaker 2>Salvador the force. Everyone's used bitcoin as legal tender and

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<v Speaker 2>less than one percent of ale transaction occurring in bitcoin,

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<v Speaker 2>so I don't think it's going to ever become a currency.

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<v Speaker 3>There's going to be a speculative act.

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<v Speaker 1>One thing the dolar is appreciated against is bitcoin, and

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<v Speaker 1>I think this is where I would see some separation

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<v Speaker 1>between what's happening with main coins and mainstocks and what

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<v Speaker 1>is happening with bitcoin. There seems to be a preference.

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<v Speaker 1>There are market participants who believe that this is a

0:10:58.120 --> 0:11:00.600
<v Speaker 1>place to be if you're worried about it. Appreciation of

0:11:00.600 --> 0:11:03.040
<v Speaker 1>the US dollar and a fiscal trajectory of the United

0:11:03.040 --> 0:11:06.280
<v Speaker 1>States of America do you see a case for it there?

0:11:07.080 --> 0:11:11.800
<v Speaker 2>Not really, because actually when the FED was essentially rising

0:11:11.880 --> 0:11:15.080
<v Speaker 2>rates and inflation was higher, Bitcoin was falling, like in

0:11:15.120 --> 0:11:17.960
<v Speaker 2>twenty two, as there was the stock market correction, and

0:11:18.040 --> 0:11:20.920
<v Speaker 2>other stocks are going higher and the FED is easy

0:11:21.040 --> 0:11:24.320
<v Speaker 2>and inflation has fallen, Bitcoin is going higher again, So

0:11:24.679 --> 0:11:28.439
<v Speaker 2>historically has not been a hedge against inflation. Actually looks

0:11:28.480 --> 0:11:31.800
<v Speaker 2>like it's highly correlated. Positively, bit stocks a better relative

0:11:31.840 --> 0:11:34.760
<v Speaker 2>to the equity market, so it's not a traditional like

0:11:35.080 --> 0:11:38.160
<v Speaker 2>hedge like gold that is in periods of time or

0:11:38.160 --> 0:11:41.760
<v Speaker 2>inflation rising or the basement or worries about the dollarization.

0:11:41.960 --> 0:11:44.360
<v Speaker 2>So it's something to me looks like expectedly a said,

0:11:44.360 --> 0:11:47.360
<v Speaker 2>it is highly correlated with equity, so it's not a

0:11:47.559 --> 0:11:48.600
<v Speaker 2>hedge against inflation.

0:11:48.840 --> 0:11:52.720
<v Speaker 4>You say, sort of parallel tracks to memestocks and some

0:11:52.760 --> 0:11:54.960
<v Speaker 4>of the other euphoria that we've seen. At the same time,

0:11:55.600 --> 0:11:58.040
<v Speaker 4>there seems to be something more concrete behind this. You

0:11:58.120 --> 0:12:00.800
<v Speaker 4>mentioned gold, and we are seeing that real gold and

0:12:00.840 --> 0:12:03.600
<v Speaker 4>tandem because of what John is talking about, that store

0:12:03.640 --> 0:12:06.480
<v Speaker 4>of value outside of the US dollar to protect against

0:12:06.720 --> 0:12:09.920
<v Speaker 4>some sort of loss of fiscal dominance. Do you see

0:12:10.160 --> 0:12:15.160
<v Speaker 4>with a more institutionalized structure endorsed by a presidential administration,

0:12:15.840 --> 0:12:19.400
<v Speaker 4>there being a case for at least a crypto based

0:12:19.480 --> 0:12:24.079
<v Speaker 4>store of value that could offset some of the risks

0:12:24.440 --> 0:12:27.480
<v Speaker 4>of volatility in the dollar and the potential loss on

0:12:27.520 --> 0:12:29.880
<v Speaker 4>the margins of fiscal dominance down the road.

0:12:31.320 --> 0:12:34.440
<v Speaker 2>I'm not sure because if you're worried about inflation the

0:12:34.480 --> 0:12:37.240
<v Speaker 2>basement of fiat currency or even the dollarization, there are

0:12:37.240 --> 0:12:41.920
<v Speaker 2>plenty of other assets that provide a good head shorten treasuries, tapes,

0:12:42.640 --> 0:12:46.640
<v Speaker 2>oil out commodities, gold, precious metal. So it's not as

0:12:46.679 --> 0:12:50.000
<v Speaker 2>if there is not other alternatives. And as I pointed out,

0:12:50.080 --> 0:12:53.720
<v Speaker 2>in the last few years, when inflation was higher, actually

0:12:53.800 --> 0:12:56.959
<v Speaker 2>bitcoon was falling, and when inflection has fallen, bcone is

0:12:57.000 --> 0:12:59.840
<v Speaker 2>going higher, so it doesn't look like it's been actually

0:13:00.200 --> 0:13:04.520
<v Speaker 2>negatively correlated with inflation. So it is a spectul debaset

0:13:04.760 --> 0:13:07.240
<v Speaker 2>for some people is a store of value. But if

0:13:07.240 --> 0:13:10.040
<v Speaker 2>you want to hedge yourself against inflation, I think is

0:13:10.040 --> 0:13:12.480
<v Speaker 2>that a spectrum of variety of other assets that are

0:13:12.520 --> 0:13:17.640
<v Speaker 2>backed actually by real income or something store of value

0:13:17.800 --> 0:13:20.040
<v Speaker 2>that are a better hedge against some of the risks

0:13:20.040 --> 0:13:20.920
<v Speaker 2>that people worry about.

0:13:21.000 --> 0:13:23.280
<v Speaker 5>But given the change of tone in Washington, do you

0:13:23.320 --> 0:13:27.199
<v Speaker 5>think there could be retail adoption at any point.

0:13:27.360 --> 0:13:28.800
<v Speaker 3>Oh yeah, and.

0:13:28.760 --> 0:13:31.960
<v Speaker 2>There's already been retail adoption. But my word is actually

0:13:31.960 --> 0:13:34.600
<v Speaker 2>that the regulation on crypto might become looser like they

0:13:34.640 --> 0:13:37.640
<v Speaker 2>were before, and then you have another speculative run, You

0:13:37.640 --> 0:13:40.920
<v Speaker 2>have another sets of scams like FTXSPF and so on,

0:13:41.320 --> 0:13:43.520
<v Speaker 2>and then you get another bust. So the risk is

0:13:43.559 --> 0:13:46.200
<v Speaker 2>who are going to go towards a very little regulation.

0:13:46.360 --> 0:13:48.280
<v Speaker 2>You know, there are lots of players in this space

0:13:48.320 --> 0:13:51.600
<v Speaker 2>that are quite shady, and the lack of regulation actually

0:13:51.679 --> 0:13:54.360
<v Speaker 2>leads to a bigger bubble and a bigger bust.

0:13:54.400 --> 0:13:56.400
<v Speaker 1>On the line, none you a long time, Just want

0:13:56.440 --> 0:13:58.320
<v Speaker 1>to finish up with something positive. Looking out to twenty

0:13:58.360 --> 0:14:01.800
<v Speaker 1>twenty five. Favorite region line now, favorite economy, The place

0:14:01.800 --> 0:14:03.840
<v Speaker 1>you're most optimistic about for next year?

0:14:03.880 --> 0:14:04.320
<v Speaker 3>Which one?

0:14:05.040 --> 0:14:07.240
<v Speaker 2>It's a bit of consensus, but I think the United

0:14:07.240 --> 0:14:09.480
<v Speaker 2>States still is going to outperform weth in terms of

0:14:09.760 --> 0:14:11.520
<v Speaker 2>economic growth and equity markets.

0:14:11.600 --> 0:14:13.439
<v Speaker 1>Yes, it seems to be the one place to be here.

0:14:13.480 --> 0:14:15.440
<v Speaker 1>It repeated it don't we the United States. It keeps

0:14:15.440 --> 0:14:16.719
<v Speaker 1>coming back to America.

0:14:16.800 --> 0:14:19.640
<v Speaker 4>It feels like Tina. This is the Tina trade. There

0:14:19.680 --> 0:14:23.280
<v Speaker 4>is no alternative at a time or essentially, growth is

0:14:23.320 --> 0:14:26.880
<v Speaker 4>concentrated in the world's biggest economy, and maybe it's trickling out,

0:14:27.040 --> 0:14:30.080
<v Speaker 4>maybe it's not. But nonetheless you also have yield.

0:14:29.840 --> 0:14:32.520
<v Speaker 1>Here, no reel. It's good to say it, sir for

0:14:32.560 --> 0:14:34.680
<v Speaker 1>catching up with us. Thank you. Noria Rabini, that of

0:14:34.760 --> 0:14:36.200
<v Speaker 1>Rabeni Macro Associates,