1 00:00:10,280 --> 00:00:13,560 Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast. 2 00:00:13,600 --> 00:00:17,720 Speaker 1: I'm Tracy Alloway and I'm Joe. Joe. I'm thinking back 3 00:00:18,079 --> 00:00:22,360 Speaker 1: to the spring of the depths, of the COVID nineteen 4 00:00:22,360 --> 00:00:25,079 Speaker 1: pandemic and the big market sell off. I don't like 5 00:00:25,120 --> 00:00:27,360 Speaker 1: thinking that. I mean, it was a terrible time. It 6 00:00:27,440 --> 00:00:29,360 Speaker 1: was about why why are you? Why are you reminding 7 00:00:29,440 --> 00:00:32,000 Speaker 1: us of that? Well, I remember we spoke to one 8 00:00:32,080 --> 00:00:35,919 Speaker 1: particular guest in I think it was May of and 9 00:00:35,960 --> 00:00:38,680 Speaker 1: he came on and basically said that we're going to 10 00:00:38,840 --> 00:00:42,440 Speaker 1: see a bad economic recovery and we're going to see 11 00:00:42,560 --> 00:00:45,159 Speaker 1: inflation as a result of what was happening. And I 12 00:00:45,200 --> 00:00:48,120 Speaker 1: think at the time both you and I were a 13 00:00:48,159 --> 00:00:51,680 Speaker 1: little a little skeptical. You know, at that particular moment, 14 00:00:51,760 --> 00:00:54,600 Speaker 1: everyone was talking about deflation and the possibility of a 15 00:00:54,640 --> 00:00:58,160 Speaker 1: prolonged depression. Really, yeah, you're totally right. And then also 16 00:00:58,480 --> 00:01:03,320 Speaker 1: by like sort of late or even like summer, optimism 17 00:01:03,400 --> 00:01:05,520 Speaker 1: started to grow. Oh yeah, we're gonna have this. We're 18 00:01:05,520 --> 00:01:07,120 Speaker 1: gonna come out of this with the boom that we 19 00:01:07,200 --> 00:01:11,160 Speaker 1: got the policy just right, that we're going to have all. 20 00:01:11,319 --> 00:01:14,360 Speaker 1: You know, we avoided the mistakes of two thousand that's right, 21 00:01:14,400 --> 00:01:16,720 Speaker 1: that's right, and the stock market was surging, and I 22 00:01:16,720 --> 00:01:18,760 Speaker 1: think there was just a lot of optimism even outside 23 00:01:18,800 --> 00:01:20,640 Speaker 1: the stock market that like, we're going to be on 24 00:01:20,680 --> 00:01:24,680 Speaker 1: this new superior trajectory post pandemic. Yeah. And of course, 25 00:01:24,760 --> 00:01:28,480 Speaker 1: now fast forward about two years and uh, we're talking 26 00:01:28,520 --> 00:01:32,440 Speaker 1: about the pain of higher interest rates as the Federal 27 00:01:32,480 --> 00:01:35,040 Speaker 1: Reserve tries to tamp down on inflation that is that 28 00:01:35,240 --> 00:01:37,960 Speaker 1: it's highest. And I think four decades people are talking 29 00:01:37,959 --> 00:01:41,720 Speaker 1: about stress in the financial market, the potential for something 30 00:01:41,760 --> 00:01:45,319 Speaker 1: to break as these rate increases go through, and we're 31 00:01:45,360 --> 00:01:49,080 Speaker 1: already seeing some stuff internationally start to break. So I 32 00:01:49,120 --> 00:01:51,440 Speaker 1: think it's a perfect time to catch up with that 33 00:01:51,600 --> 00:01:56,720 Speaker 1: original guest who did get a lot right in May 34 00:01:56,720 --> 00:01:59,320 Speaker 1: when you know there was a lot of uncertainty. Yeah, 35 00:01:59,360 --> 00:02:02,560 Speaker 1: you know something you mentioned the fears of that something 36 00:02:02,640 --> 00:02:04,280 Speaker 1: is going to break, and I'm thinking, you know, our 37 00:02:04,520 --> 00:02:07,440 Speaker 1: regular guest John Turk has We's written about this and others, 38 00:02:07,680 --> 00:02:10,720 Speaker 1: this idea that what if, you know, the real economy, 39 00:02:10,800 --> 00:02:14,680 Speaker 1: employment is holding up okay, but the financial system starts 40 00:02:14,680 --> 00:02:18,000 Speaker 1: to creak and that something breaks in the financial system, 41 00:02:18,040 --> 00:02:20,680 Speaker 1: creating this real tension for central banks that still want 42 00:02:20,720 --> 00:02:23,520 Speaker 1: to fight inflation. It's a pretty confusing time, it is, 43 00:02:23,720 --> 00:02:27,160 Speaker 1: So why don't we bring in Neurial Rubini. Of course 44 00:02:27,160 --> 00:02:29,840 Speaker 1: we're gonna let him do a victory lap on the show, 45 00:02:29,880 --> 00:02:31,680 Speaker 1: but we also want to talk to him about the 46 00:02:31,760 --> 00:02:34,600 Speaker 1: risks that he's seeing now because he has a new 47 00:02:34,639 --> 00:02:37,919 Speaker 1: book out. It's uh, it's coming out on October eighteenth. 48 00:02:38,160 --> 00:02:41,639 Speaker 1: It's called Mega Threats tend dangerous trends that imperil our 49 00:02:41,680 --> 00:02:45,320 Speaker 1: future and how to survive them. So hopefully the perfect 50 00:02:45,360 --> 00:02:49,000 Speaker 1: person to be speaking to right now, Uh, Neurio Rubini, 51 00:02:49,040 --> 00:02:52,200 Speaker 1: thank you so much for joining us. Great thing with you. 52 00:02:52,760 --> 00:02:55,280 Speaker 1: That's a pleasure to do it again. So we should 53 00:02:55,320 --> 00:02:57,800 Speaker 1: we let you have that victory lap. So, you know, 54 00:02:58,160 --> 00:03:01,840 Speaker 1: how did what did you see in early that you 55 00:03:01,919 --> 00:03:07,280 Speaker 1: think other people, notably perhaps certain policymakers might have missed? 56 00:03:07,720 --> 00:03:10,760 Speaker 1: Well at that time, the entire talk was about the 57 00:03:10,880 --> 00:03:14,200 Speaker 1: risk of not just an economic contraction but also of 58 00:03:14,360 --> 00:03:18,200 Speaker 1: deflation because it was a shock to aggregate demand and 59 00:03:18,200 --> 00:03:22,239 Speaker 1: a credit crunch. The thing what I saw that other 60 00:03:22,280 --> 00:03:24,680 Speaker 1: people saw as well. You know, early on people like 61 00:03:25,320 --> 00:03:29,760 Speaker 1: Larry Summers, Mohammed Lay and others talk that the amount 62 00:03:29,760 --> 00:03:33,360 Speaker 1: of the stimulus monitor and fiscal will be excessive. Of 63 00:03:33,360 --> 00:03:35,920 Speaker 1: course we didn't do enough on the physical side in 64 00:03:35,960 --> 00:03:39,160 Speaker 1: two thousand and eight, but between the Trump and Biden 65 00:03:39,600 --> 00:03:42,680 Speaker 1: with about five three do dollars of physical stimuls that 66 00:03:42,880 --> 00:03:47,400 Speaker 1: is something like about d DP that was excessive. And 67 00:03:47,440 --> 00:03:51,160 Speaker 1: of course the fact that went back to zero credit easing, 68 00:03:51,280 --> 00:03:56,120 Speaker 1: quantity of easing back stopping money market, commercial paper, hill, 69 00:03:56,200 --> 00:04:00,520 Speaker 1: high grade banks, don't banks, corporate households, you name it, 70 00:04:00,560 --> 00:04:03,800 Speaker 1: everybody under the sun. I think the difference between me 71 00:04:03,920 --> 00:04:06,840 Speaker 1: and people like Larry was that they were stressing that 72 00:04:07,000 --> 00:04:11,760 Speaker 1: will be inflation because of a aggregate amendment shock, too 73 00:04:11,840 --> 00:04:15,440 Speaker 1: much stimulus, and I agreed on that that half of 74 00:04:15,480 --> 00:04:19,480 Speaker 1: the problem was bad policies to lose monetary, physical and 75 00:04:19,480 --> 00:04:23,960 Speaker 1: credit ezing. But from early on I also realized that 76 00:04:24,040 --> 00:04:28,000 Speaker 1: this will be a negative aggregate supply shock, the disruption 77 00:04:28,040 --> 00:04:31,520 Speaker 1: that came to global supply chains. They shutdown of economic 78 00:04:31,560 --> 00:04:36,480 Speaker 1: activity from services to initially manufacturing, the reduction in the 79 00:04:36,560 --> 00:04:39,520 Speaker 1: labor supply, and then we ended up with a great 80 00:04:39,560 --> 00:04:44,839 Speaker 1: resignation and those initial negative supply shock was amplified of 81 00:04:44,880 --> 00:04:48,320 Speaker 1: course this year by the Russian invasion of Ukraine. This 82 00:04:48,400 --> 00:04:52,200 Speaker 1: brutal invasion is led to a spike in oil and 83 00:04:52,800 --> 00:04:57,600 Speaker 1: natural gas prices, food fertilizer, industrial methods. That's another negative 84 00:04:57,600 --> 00:05:00,240 Speaker 1: supply shock. And the third one is the continue sation 85 00:05:00,279 --> 00:05:03,920 Speaker 1: of the zero tolerance policy of China towards COVID. That's 86 00:05:03,920 --> 00:05:07,720 Speaker 1: creating further bottlenecks. So most people were saying we're gonna 87 00:05:07,720 --> 00:05:12,080 Speaker 1: get inflation because of excessive overeating, because of the bad 88 00:05:12,160 --> 00:05:15,359 Speaker 1: policy and excessive stimulus. I think my contribution to that 89 00:05:15,400 --> 00:05:19,520 Speaker 1: discussion was to emphasize that the aggregate supply shops and 90 00:05:19,680 --> 00:05:22,680 Speaker 1: old enough in a grayer and I remember the two 91 00:05:22,800 --> 00:05:25,640 Speaker 1: all shocks of seventy three and seventy nine that led 92 00:05:25,680 --> 00:05:29,400 Speaker 1: not only to inflation but also to star inflation. So 93 00:05:29,440 --> 00:05:33,240 Speaker 1: most people were worried about inflation and overeating and excessive growth. 94 00:05:33,480 --> 00:05:36,960 Speaker 1: I started to worry about instead not only inflation but 95 00:05:37,080 --> 00:05:40,680 Speaker 1: also recession because of the negative supply shops. So that 96 00:05:40,720 --> 00:05:43,720 Speaker 1: was maybe the new twist that I gave to that debate. 97 00:05:44,320 --> 00:05:48,920 Speaker 1: So looking at the situation today in October two thousand 98 00:05:49,000 --> 00:05:53,000 Speaker 1: and twenty two, we still have obviously extremely elevated inflation, 99 00:05:53,400 --> 00:05:56,279 Speaker 1: really no signs that it's turning the corner yet at all. 100 00:05:56,600 --> 00:05:58,560 Speaker 1: Maybe a little bit if you look at headline of 101 00:05:58,760 --> 00:06:02,000 Speaker 1: the elevated inflation and today, how much would you at 102 00:06:02,040 --> 00:06:05,640 Speaker 1: this point attribute it to the persistence of these supply 103 00:06:05,720 --> 00:06:10,440 Speaker 1: shocks that you identify, including the ongoing war, versus still 104 00:06:10,520 --> 00:06:13,479 Speaker 1: paying the price in some way for what you characterize 105 00:06:13,600 --> 00:06:17,479 Speaker 1: as excessive fiscal and monetary policy, because I think it 106 00:06:17,520 --> 00:06:20,000 Speaker 1: matters when thinking about how much the FED is going 107 00:06:20,040 --> 00:06:23,520 Speaker 1: to have to tighten to get the inflation back to 108 00:06:23,560 --> 00:06:27,080 Speaker 1: its target. Well, it depends on the countries. I would 109 00:06:27,120 --> 00:06:30,400 Speaker 1: say the solharmonic answer is half and half. But of 110 00:06:30,440 --> 00:06:34,120 Speaker 1: course in Europe, given the exposure to ration energy, is 111 00:06:34,240 --> 00:06:37,599 Speaker 1: more that shock. In the U S where in ters 112 00:06:37,600 --> 00:06:41,239 Speaker 1: a monitor, fiscal and credit is in even worse than Europe, 113 00:06:41,680 --> 00:06:44,279 Speaker 1: and Europe did a lot. In the UK. In addition 114 00:06:44,320 --> 00:06:47,200 Speaker 1: to that, there was another negative supply sharks, self inflicted 115 00:06:47,640 --> 00:06:51,520 Speaker 1: those the Brexit decision that was staculation ary reduced the 116 00:06:51,560 --> 00:06:55,440 Speaker 1: growth and increased that cost of production. Same thing in China. 117 00:06:55,520 --> 00:06:58,080 Speaker 1: Some of it is self inflicted. So I would say 118 00:06:58,080 --> 00:06:59,920 Speaker 1: it depends on the country, but I would say is 119 00:07:00,080 --> 00:07:03,400 Speaker 1: combination of of both of them. You had serious negative 120 00:07:03,400 --> 00:07:06,840 Speaker 1: supply shops and you had really a policy steamus that 121 00:07:07,000 --> 00:07:11,000 Speaker 1: was by any standard massively excessive across the world in 122 00:07:11,080 --> 00:07:14,520 Speaker 1: all advanced economies. Now, in my book, what I point 123 00:07:14,560 --> 00:07:17,240 Speaker 1: out is that while in the short term that at 124 00:07:17,320 --> 00:07:22,480 Speaker 1: least three negative aggregate supply shops that are COVID initially Russia, 125 00:07:22,600 --> 00:07:26,280 Speaker 1: Ukraine and now the China policy, I identify in the 126 00:07:26,320 --> 00:07:30,160 Speaker 1: book wherever chapter about the great Coming Staculation, that there 127 00:07:30,200 --> 00:07:35,080 Speaker 1: are eleven medium term aggregate supply shops that are negative. 128 00:07:35,240 --> 00:07:37,920 Speaker 1: They're going to reduce potential growth and they're gonna increase 129 00:07:38,000 --> 00:07:40,440 Speaker 1: cost of production. And if then you have a loose 130 00:07:40,480 --> 00:07:44,120 Speaker 1: monitor and physical policy because I expected central banks gonna 131 00:07:44,160 --> 00:07:47,040 Speaker 1: blink for a reason I can discuss, then went up 132 00:07:47,120 --> 00:07:51,120 Speaker 1: like the seventies with inflation and stacculation and with a 133 00:07:51,240 --> 00:07:54,320 Speaker 1: dead crisis as well. So it's gonna be worse than 134 00:07:54,360 --> 00:07:57,320 Speaker 1: the seventies. So this is not just the short term phenomenon. 135 00:07:57,400 --> 00:08:00,960 Speaker 1: People say they global supply bottom next my end, after November, 136 00:08:01,000 --> 00:08:03,920 Speaker 1: when is gonna care about growth? I think there are 137 00:08:04,000 --> 00:08:08,480 Speaker 1: many other forces. Is a protectionism and the globalization, French 138 00:08:08,520 --> 00:08:11,840 Speaker 1: shoring and restoring of manufacturing from China to I causset 139 00:08:11,880 --> 00:08:17,000 Speaker 1: Europe in US, aging of population, restriction of migration, decoupling 140 00:08:17,040 --> 00:08:21,840 Speaker 1: between US and China. Geopolitical risk and depression that's gonna 141 00:08:22,080 --> 00:08:26,840 Speaker 1: fragment the couple valcanized and the globalize, the global economy, 142 00:08:27,120 --> 00:08:31,800 Speaker 1: the impact of global climate change, the impact of cyber warfare, 143 00:08:31,800 --> 00:08:35,679 Speaker 1: the impact of the current pandemics, the backlash against income 144 00:08:35,720 --> 00:08:39,760 Speaker 1: and wealth inequalities leading to policies pro labor your workers 145 00:08:39,760 --> 00:08:42,400 Speaker 1: and so on, and of course digularization of the dollar, 146 00:08:42,679 --> 00:08:45,280 Speaker 1: when eventually people are gonna get out of dollar assets 147 00:08:45,320 --> 00:08:47,800 Speaker 1: because of the financial sanction and so on. Those are 148 00:08:47,840 --> 00:08:50,840 Speaker 1: elevened forces that are medium termed have nothing to do 149 00:08:50,880 --> 00:08:54,080 Speaker 1: with COVID in Russia, Ukraine. They're gonna be reducing growth, 150 00:08:54,440 --> 00:08:58,040 Speaker 1: increased cost of production, and I think central banks will 151 00:08:58,080 --> 00:09:00,839 Speaker 1: have to blink like the first exact police what happened 152 00:09:00,840 --> 00:09:03,040 Speaker 1: in the the UK. If you're gonna have an economic crash, 153 00:09:03,280 --> 00:09:06,360 Speaker 1: you're gonna have a financial crash. As you increase interest rates, 154 00:09:06,480 --> 00:09:10,760 Speaker 1: you're gonna wimp out. Guaranteed. The Fed didd into thousand nineteen, 155 00:09:11,160 --> 00:09:13,120 Speaker 1: the BO he has done it. Now the e c 156 00:09:13,240 --> 00:09:14,679 Speaker 1: B is gonna have to do it. The Fed is 157 00:09:14,720 --> 00:09:17,840 Speaker 1: gonna do it. It's gonna happen for sure, and therefore 158 00:09:17,880 --> 00:09:21,000 Speaker 1: we're gonna have an engine of inflation expectation. I don't 159 00:09:21,000 --> 00:09:23,280 Speaker 1: believe sent to a bank what they say, we're gonna 160 00:09:23,320 --> 00:09:26,079 Speaker 1: do fight inflation at any cost, even if there is 161 00:09:26,120 --> 00:09:28,960 Speaker 1: a recession, even if there's a hard landing. First of all, 162 00:09:28,960 --> 00:09:31,240 Speaker 1: it's not going to be a short and shallow recession. 163 00:09:31,360 --> 00:09:33,560 Speaker 1: It's going to be ugly, and then you have financial 164 00:09:33,559 --> 00:09:37,040 Speaker 1: stresses and a financial debt crisis. At that point they're 165 00:09:37,040 --> 00:09:40,160 Speaker 1: gonna wimp out and went out actually worse than the 166 00:09:40,200 --> 00:09:44,480 Speaker 1: seventies because in the seventies where two straight treasury shocks 167 00:09:44,800 --> 00:09:47,920 Speaker 1: and with inflational recession, but that ratio where a hundred 168 00:09:47,960 --> 00:09:52,040 Speaker 1: percent of GDP for private and public. Second advanced economies 169 00:09:52,280 --> 00:09:56,360 Speaker 1: after the GFC where the dead crisis mortgage housing bank 170 00:09:56,480 --> 00:09:59,920 Speaker 1: that but we have deflation because it was a negative aggregate, 171 00:10:00,000 --> 00:10:02,400 Speaker 1: the man shop and a credit crunch, so we could 172 00:10:02,440 --> 00:10:05,680 Speaker 1: ease monitor and fiscal policies like we wanted. Today, we 173 00:10:05,720 --> 00:10:08,800 Speaker 1: have levels of debt to GDP of three hundred and 174 00:10:08,880 --> 00:10:12,240 Speaker 1: fifty pc of GDP globally, four d and twenty in 175 00:10:12,280 --> 00:10:15,640 Speaker 1: advanced economies private in public, and we have these massive 176 00:10:15,679 --> 00:10:18,920 Speaker 1: negative supply shops. So we're not gonna have only inflation. 177 00:10:19,200 --> 00:10:22,479 Speaker 1: We're not gonna have only stagflation. We'll have a stagflationary 178 00:10:22,600 --> 00:10:25,960 Speaker 1: debt prices the worst of the seventies and the worst 179 00:10:25,960 --> 00:10:29,440 Speaker 1: of the positive superior sterio. I gotta say, you're not 180 00:10:29,520 --> 00:10:32,400 Speaker 1: helping with my anxiety levels right now, I'm gonna go 181 00:10:32,400 --> 00:10:36,240 Speaker 1: to I'm moving my portfolio to cash. One second pasitive 182 00:10:36,240 --> 00:10:40,720 Speaker 1: positive podcast. She's gonna be wiped up by inflation. Pats 183 00:10:40,920 --> 00:10:44,560 Speaker 1: and I can discuss they can hidge your insinflation. All right, So, um, 184 00:10:44,600 --> 00:10:49,200 Speaker 1: this idea of a stag fla a great coming stagflation, 185 00:10:49,320 --> 00:10:52,240 Speaker 1: I mean, stagflation already seems like the nightmare scenario for 186 00:10:52,280 --> 00:10:55,600 Speaker 1: central banks if you have high prices and lower growth. 187 00:10:55,640 --> 00:10:58,640 Speaker 1: But if you tack onto that a debt crisis plus 188 00:10:58,640 --> 00:11:03,560 Speaker 1: stagflation just seems like incredibly difficult for any central pin 189 00:11:03,640 --> 00:11:08,480 Speaker 1: to navigate. What is the appropriate policy response, especially if 190 00:11:08,520 --> 00:11:12,040 Speaker 1: inflation is being driven by supply side bottlenecks as you 191 00:11:12,120 --> 00:11:16,800 Speaker 1: described well. Some people say, if inflation is driven by 192 00:11:17,040 --> 00:11:21,319 Speaker 1: negative supply shops, we shouldn't tighten too much because central 193 00:11:21,320 --> 00:11:24,760 Speaker 1: bank can affect aggregate the man, not aggregate supply. But 194 00:11:24,880 --> 00:11:27,680 Speaker 1: the reality is that like in the seventies, if you 195 00:11:27,760 --> 00:11:31,800 Speaker 1: don't fight inflation, you have a the anchoring of inflation expectation, 196 00:11:32,200 --> 00:11:34,480 Speaker 1: you have a wage price parallel, and then you end 197 00:11:34,559 --> 00:11:38,120 Speaker 1: up in a nightmare. So unfortunately, even if the negative 198 00:11:38,120 --> 00:11:40,880 Speaker 1: supply shop as opposed to aggreg the man you have 199 00:11:40,920 --> 00:11:43,720 Speaker 1: to tighten monetary policy to make sure that you don't 200 00:11:43,760 --> 00:11:47,560 Speaker 1: have an injine of inflation expectation. Otherwise you make the 201 00:11:47,600 --> 00:11:50,560 Speaker 1: same mistake it was done in the seventies. They reply 202 00:11:50,679 --> 00:11:54,000 Speaker 1: to these two negative supply shops with loose monetary policy 203 00:11:54,040 --> 00:11:57,000 Speaker 1: and loose fist health policy. You went up instaculation. So 204 00:11:57,040 --> 00:11:59,720 Speaker 1: the right response would be to fight it. But in 205 00:11:59,760 --> 00:12:04,000 Speaker 1: the seventies we had the nasty recession sev seventy five 206 00:12:04,280 --> 00:12:08,000 Speaker 1: and a double deepercession in eighteen eighty two when Walker 207 00:12:08,080 --> 00:12:10,959 Speaker 1: came to power, and it caused the double dee precession 208 00:12:11,320 --> 00:12:14,920 Speaker 1: to finally break the back of inflation expectations. And we're 209 00:12:14,920 --> 00:12:18,080 Speaker 1: at the beginning of the American carnage because a lot 210 00:12:18,160 --> 00:12:21,240 Speaker 1: of the industry went bass for good. But in the 211 00:12:21,280 --> 00:12:24,120 Speaker 1: seventies we did not have a dead crisis in US 212 00:12:24,240 --> 00:12:26,320 Speaker 1: or advanced The column is where the dead crisis of 213 00:12:26,320 --> 00:12:29,160 Speaker 1: course in Latin America because they borrowed like crazy in 214 00:12:29,200 --> 00:12:31,839 Speaker 1: the seventies, and when the FED were to twenty percent 215 00:12:31,920 --> 00:12:35,160 Speaker 1: interest rates, of course Brazil, Argentina, Mexico, they all the 216 00:12:35,200 --> 00:12:38,000 Speaker 1: faults and went bankrupt. So we had the stacturation, but 217 00:12:38,080 --> 00:12:41,840 Speaker 1: not a dead crisis. Today, the problem we're facing is 218 00:12:41,880 --> 00:12:45,559 Speaker 1: that if you fight inflation, not only you're gonna have recession. 219 00:12:46,120 --> 00:12:48,520 Speaker 1: And the idea they're gonna have a short and shallow 220 00:12:48,600 --> 00:12:53,480 Speaker 1: recession train vanilla garden variety is totally delusional. I mean 221 00:12:53,480 --> 00:12:57,520 Speaker 1: it's totally delusional because we have amounts of death like 222 00:12:57,559 --> 00:13:01,480 Speaker 1: we've never seen before. In previous rest actial like COVID GFC, 223 00:13:01,760 --> 00:13:04,720 Speaker 1: we could do monitoring physcal easy because you have deflation. 224 00:13:05,160 --> 00:13:08,559 Speaker 1: Now we're to tighten monitor and physical policy into a recession. 225 00:13:08,880 --> 00:13:12,880 Speaker 1: Inflation is global and everybody is tightening, and therefore, as 226 00:13:12,880 --> 00:13:15,640 Speaker 1: I pointed out, we get the worst of the seventies 227 00:13:15,760 --> 00:13:18,319 Speaker 1: and the worst of the GFC. It's gonna be long, 228 00:13:18,559 --> 00:13:24,880 Speaker 1: ugly protracted with financial stresses, financial stability, and that crisis. 229 00:13:24,920 --> 00:13:27,319 Speaker 1: That's what we're facing right now. So what would be 230 00:13:27,320 --> 00:13:32,280 Speaker 1: the optimal response? Try to avoid an injuring of inflation expectation. 231 00:13:32,559 --> 00:13:34,640 Speaker 1: But you have two problems. If you do the right thing, 232 00:13:35,040 --> 00:13:38,160 Speaker 1: One you have a recession to get nasty. Second, you 233 00:13:38,160 --> 00:13:41,840 Speaker 1: have a financial and that crisis like you're not seeing before, 234 00:13:42,280 --> 00:13:45,680 Speaker 1: and that's gonna lead central banks to wimp out. Because 235 00:13:45,720 --> 00:13:50,760 Speaker 1: between causing an economic crash is severe and a financial crash, 236 00:13:51,040 --> 00:13:55,600 Speaker 1: or blinking and whimping out and monetizing those deficits and 237 00:13:55,679 --> 00:14:00,680 Speaker 1: wiping out the real value of nominal long term fits UH, 238 00:14:00,800 --> 00:14:04,440 Speaker 1: nominal debt and blown duration, the part of list resistance 239 00:14:04,520 --> 00:14:07,960 Speaker 1: politically is gonna be to monetize it and therefore to 240 00:14:08,040 --> 00:14:11,200 Speaker 1: cause inflation and stat racial like the seventies. And the 241 00:14:11,240 --> 00:14:14,360 Speaker 1: first example is exactly the b O E face with 242 00:14:14,920 --> 00:14:18,160 Speaker 1: a financial shock. What they do They totally wimped out 243 00:14:18,440 --> 00:14:20,520 Speaker 1: and they go back to M M T. So that's 244 00:14:20,560 --> 00:14:23,200 Speaker 1: gonna happen across the board. So I don't believe central 245 00:14:23,240 --> 00:14:25,400 Speaker 1: banks when they say we're gonna fight in fresh at 246 00:14:25,400 --> 00:14:29,120 Speaker 1: any cost, because their delusion of either soft landing or 247 00:14:29,160 --> 00:14:32,480 Speaker 1: a hard landing it is short and shallow. Two courts 248 00:14:32,360 --> 00:14:34,840 Speaker 1: as a negative growth and then you return to growth 249 00:14:34,880 --> 00:14:37,600 Speaker 1: and easy, that's not gonna happen. It's gonna get ugly 250 00:14:37,640 --> 00:14:40,360 Speaker 1: the recession and you'll have a financial crisis. So how 251 00:14:40,360 --> 00:14:56,520 Speaker 1: can they do it they're not gonna do it. Talk 252 00:14:56,600 --> 00:15:00,920 Speaker 1: a little bit more about hiking rates and fighting inflation 253 00:15:01,080 --> 00:15:04,280 Speaker 1: in a period of high levels of private sector debt. 254 00:15:04,400 --> 00:15:06,600 Speaker 1: And I could see it going both ways, because on 255 00:15:06,640 --> 00:15:09,160 Speaker 1: the other one hand, I could imagine that in a 256 00:15:09,240 --> 00:15:15,320 Speaker 1: heavily indebted economy UH interest rate increases have a quick 257 00:15:15,320 --> 00:15:20,360 Speaker 1: transmission mechanism and that that significantly impedes private sector activity 258 00:15:20,400 --> 00:15:23,080 Speaker 1: and helps you fight inflation sooner. Or I could see 259 00:15:23,080 --> 00:15:25,920 Speaker 1: it the other way that high levels of private sector 260 00:15:25,960 --> 00:15:30,720 Speaker 1: debt created over sensitivity. Maybe the debt crisis scenario that 261 00:15:30,760 --> 00:15:34,320 Speaker 1: you're talking about walk through a specifically, how it unfolds 262 00:15:34,360 --> 00:15:38,120 Speaker 1: the intersection in the US of higher rates and high 263 00:15:38,240 --> 00:15:42,720 Speaker 1: levels of indebtedness UM. In short, that it becomes very ugly, 264 00:15:43,280 --> 00:15:47,320 Speaker 1: and it becomes very ugly because the indebtedness of the 265 00:15:47,400 --> 00:15:50,640 Speaker 1: private sector in the US was very high and rising 266 00:15:51,440 --> 00:15:55,360 Speaker 1: even after the GFC, because we had zero rates, quee 267 00:15:55,720 --> 00:15:58,360 Speaker 1: credit easing, and so on, and then we doubled down 268 00:15:58,360 --> 00:16:01,680 Speaker 1: on it UH during the COVID crisis. And of course 269 00:16:01,720 --> 00:16:05,240 Speaker 1: during the GFC was household debt and banks, but then 270 00:16:05,280 --> 00:16:08,120 Speaker 1: they build up in the next decade was of corporate 271 00:16:08,160 --> 00:16:13,240 Speaker 1: debt and of shadow banks, leverage loans, ce laws, high yield, 272 00:16:13,320 --> 00:16:16,560 Speaker 1: high grade, fallen aims of the new name it. And 273 00:16:16,680 --> 00:16:20,160 Speaker 1: while the death of the household sector is now reduced, 274 00:16:20,560 --> 00:16:23,680 Speaker 1: there are significant pockets of the household sector those who 275 00:16:23,680 --> 00:16:26,520 Speaker 1: have low income and low wealth and the borrowing. They're 276 00:16:26,560 --> 00:16:29,760 Speaker 1: gonna be under stress, especially as they get unemployed. So 277 00:16:30,000 --> 00:16:33,760 Speaker 1: the biggest stress is going to be corporates and shadow banks. 278 00:16:34,000 --> 00:16:37,240 Speaker 1: But eventually the official banks are linked to the shadow banks, 279 00:16:37,320 --> 00:16:39,520 Speaker 1: and the household sector is going to also get in trouble. 280 00:16:39,760 --> 00:16:42,200 Speaker 1: Those who have low income, they don't have much wealthy, 281 00:16:42,240 --> 00:16:44,520 Speaker 1: have a lot of debt, and their income is fragile 282 00:16:44,560 --> 00:16:47,720 Speaker 1: to a recession, so we'll have a dead crisis. So 283 00:16:48,040 --> 00:16:51,000 Speaker 1: what's happening in this situation is that if you don't 284 00:16:51,040 --> 00:16:55,240 Speaker 1: fight inflation. If you fight inflation, first of all, you 285 00:16:55,280 --> 00:16:57,120 Speaker 1: have to jack up interest rates to the point in 286 00:16:57,160 --> 00:17:00,040 Speaker 1: which there is a debt crisis, a recession, and and 287 00:17:00,120 --> 00:17:04,560 Speaker 1: interests are so high that the zombie housle, corporate banks, 288 00:17:04,840 --> 00:17:09,879 Speaker 1: shadow banks, government countries that are insolvent are gonna go bankrupt. 289 00:17:10,240 --> 00:17:12,880 Speaker 1: And they were built out twice during the GFC. During 290 00:17:12,920 --> 00:17:16,760 Speaker 1: COVID wed high that ratios, but we had low that 291 00:17:17,000 --> 00:17:19,919 Speaker 1: servicing racial because of zero rates on the short end, 292 00:17:19,960 --> 00:17:22,760 Speaker 1: on the long end, and all the other policy of easy. 293 00:17:22,880 --> 00:17:25,680 Speaker 1: Now he said into a session, where to raise rates 294 00:17:25,840 --> 00:17:29,240 Speaker 1: because there is inflation. So those who were swimming naked 295 00:17:29,359 --> 00:17:32,360 Speaker 1: as the tiger cid, you'll see where they were. Those 296 00:17:32,359 --> 00:17:34,600 Speaker 1: who had the emperor without clothes, you'll see where they are. 297 00:17:34,920 --> 00:17:38,280 Speaker 1: And the zombies are gonna recognize. The zombies are gonna default. 298 00:17:38,560 --> 00:17:40,119 Speaker 1: We're not gonna be able to build them out this 299 00:17:40,240 --> 00:17:42,600 Speaker 1: time around. We'll have to raise rates, and they're gonna 300 00:17:42,640 --> 00:17:45,920 Speaker 1: go bankrupt. Across the board. And I'm not saying everything 301 00:17:46,040 --> 00:17:49,000 Speaker 1: and everybody in every country, but the amounts of debt 302 00:17:49,640 --> 00:17:54,119 Speaker 1: private public across advanced economy and emerging market implies the 303 00:17:54,200 --> 00:17:59,159 Speaker 1: severe debt crisis. Now, interest rates for the public sector 304 00:17:59,160 --> 00:18:02,960 Speaker 1: are gonna rise. And in the UK with stupid fiscal policy, 305 00:18:03,280 --> 00:18:07,640 Speaker 1: those spreads widened in significant terms. But then the private 306 00:18:07,640 --> 00:18:11,280 Speaker 1: sector has spread over a riskless rates. Right, you have 307 00:18:11,400 --> 00:18:17,080 Speaker 1: spread over treasury mortgages. Hi held a great consumer loanlans on. 308 00:18:17,600 --> 00:18:21,399 Speaker 1: So if you are an insolvent agent, uh, it's not 309 00:18:21,520 --> 00:18:24,679 Speaker 1: gonna be just increasing long term interested on treasury. It's 310 00:18:24,680 --> 00:18:28,200 Speaker 1: gonna increase your cost of servicing your debt, but they spread. 311 00:18:28,240 --> 00:18:30,680 Speaker 1: Widening on your own private debt is going to cause 312 00:18:30,880 --> 00:18:35,120 Speaker 1: another's reason for the fault. And already highiled right now 313 00:18:35,280 --> 00:18:38,000 Speaker 1: is gone from three hundred to over six hundred. The 314 00:18:38,160 --> 00:18:41,320 Speaker 1: entire clo and leverage, your low market right now is 315 00:18:41,400 --> 00:18:44,240 Speaker 1: shut down, literally shut down. And this is only the 316 00:18:44,280 --> 00:18:47,480 Speaker 1: beginning of it of that stress on the private sector. 317 00:18:48,000 --> 00:18:52,280 Speaker 1: So we're gonna see significant financial distress in the corporate sector, 318 00:18:52,600 --> 00:18:56,119 Speaker 1: in the shadow banks, in parts of the household sector. 319 00:18:56,960 --> 00:18:59,600 Speaker 1: So I mean, you just laid out basically the stuff 320 00:18:59,640 --> 00:19:03,320 Speaker 1: that you think could break first as interest rates rise. 321 00:19:03,720 --> 00:19:06,480 Speaker 1: Where do you see other pockets of weakness? And I'm 322 00:19:06,520 --> 00:19:11,240 Speaker 1: thinking specifically about some of the international developments, the impact 323 00:19:11,400 --> 00:19:14,719 Speaker 1: of the stronger dollar. We've seen that way already on 324 00:19:14,760 --> 00:19:17,280 Speaker 1: a number of emerging markets. You have taken out dollar 325 00:19:17,359 --> 00:19:20,119 Speaker 1: denominated debt that's getting a lot more expensive as rates 326 00:19:20,119 --> 00:19:22,919 Speaker 1: go up and the dollar strengthened. At the same time, 327 00:19:23,520 --> 00:19:27,320 Speaker 1: talk to us about the sort of international repercussions here. Well, 328 00:19:27,359 --> 00:19:31,520 Speaker 1: the internationally percussions for emerging market is that many, not 329 00:19:31,600 --> 00:19:34,480 Speaker 1: all of them, of these emerging markets are in deep, 330 00:19:34,720 --> 00:19:37,320 Speaker 1: deep trouble. I don't want to lamp them together that 331 00:19:37,400 --> 00:19:41,680 Speaker 1: are better credits, worse credits, better solving work. Sovereigns to 332 00:19:41,800 --> 00:19:44,440 Speaker 1: you about forty countries, but I would say good two 333 00:19:44,480 --> 00:19:47,000 Speaker 1: thirds of them are in trouble and then travel for 334 00:19:47,040 --> 00:19:52,239 Speaker 1: several reasons. One, interests arising US in advanced economies, so 335 00:19:52,359 --> 00:19:56,119 Speaker 1: their interest rates and their spreads arising even more to 336 00:19:56,720 --> 00:20:00,280 Speaker 1: their currencies are weakening as the dollar is strengthening. And 337 00:20:00,359 --> 00:20:03,920 Speaker 1: unless you are a commodity exporter, mostly the guys in 338 00:20:03,960 --> 00:20:08,080 Speaker 1: the Gulf were making a fortune everybody else among emerging markets. 339 00:20:08,119 --> 00:20:12,520 Speaker 1: And to be, with your exception a commodity importer, especially 340 00:20:12,520 --> 00:20:15,159 Speaker 1: in Asia, but also in other parts of the world, 341 00:20:15,440 --> 00:20:17,359 Speaker 1: and therefore you have also in terms of trade shop, 342 00:20:17,720 --> 00:20:21,399 Speaker 1: so it's a it's a quadruple way. You have first 343 00:20:21,440 --> 00:20:24,639 Speaker 1: of all, the rays of interstates in advanced economy pushing 344 00:20:24,640 --> 00:20:27,520 Speaker 1: your interests higher. You have the weakending of your currency 345 00:20:27,720 --> 00:20:29,240 Speaker 1: and you have a lot of dollar that and the 346 00:20:29,280 --> 00:20:31,760 Speaker 1: real value goes higher. You have a negative terms of 347 00:20:31,760 --> 00:20:34,480 Speaker 1: trade shock and the slowdown of growth and the recession 348 00:20:34,600 --> 00:20:38,200 Speaker 1: US in Europe, in UK, in China. Effectively the be 349 00:20:38,280 --> 00:20:42,320 Speaker 1: a recession weekends your export markets in your own economic growth. 350 00:20:42,640 --> 00:20:46,640 Speaker 1: So it's the perfect storm for the weakest emerging markets, 351 00:20:46,840 --> 00:20:48,760 Speaker 1: and I would say a good two thirds of this 352 00:20:48,880 --> 00:20:52,639 Speaker 1: emerging market right now have these types of economic and 353 00:20:52,680 --> 00:20:55,679 Speaker 1: financial fragility. Now, if we're gonna have a recession in 354 00:20:55,720 --> 00:20:58,600 Speaker 1: the US, it's gonna be even worse in Europe in 355 00:20:58,640 --> 00:21:02,280 Speaker 1: my view, for several reasons. Reason number one, Europe is 356 00:21:02,320 --> 00:21:05,960 Speaker 1: more exposed to the Russian energy shock, and it's gonna 357 00:21:06,000 --> 00:21:08,760 Speaker 1: get worse this world and they'll be a total cutoff 358 00:21:08,760 --> 00:21:11,880 Speaker 1: and natural gas. Secondly, the dollar is strong and that 359 00:21:11,960 --> 00:21:16,119 Speaker 1: reduces inflation. The eurous week that increases inflation. Inflation is 360 00:21:16,119 --> 00:21:20,840 Speaker 1: already double gig in the Eurozone, let alone in the UK. Three, 361 00:21:21,240 --> 00:21:24,679 Speaker 1: Europe is exposed to export to China and China is 362 00:21:24,680 --> 00:21:29,000 Speaker 1: slowing down very, very, very sharply. And for within the Eurozone, 363 00:21:29,200 --> 00:21:32,119 Speaker 1: you have this fragmentation risks of the risk of a 364 00:21:32,160 --> 00:21:35,280 Speaker 1: widening of spreads of the periphery that this new tool 365 00:21:35,560 --> 00:21:39,040 Speaker 1: t p I. But if the new Italian government follows 366 00:21:39,119 --> 00:21:42,160 Speaker 1: policies that are on a collision course with Europe, they're 367 00:21:42,160 --> 00:21:45,560 Speaker 1: not gonna qualify for the bailout that the CP is 368 00:21:45,600 --> 00:21:49,720 Speaker 1: gonna make for those that have unwarranted widening of their spreads. 369 00:21:50,040 --> 00:21:53,639 Speaker 1: As as opposed to those that are warranted by poor 370 00:21:53,680 --> 00:21:56,679 Speaker 1: economic and physical policy. So things are going to be 371 00:21:56,760 --> 00:21:59,480 Speaker 1: even worse in Europe that they are in the US. 372 00:21:59,600 --> 00:22:02,040 Speaker 1: And the asket case, of course is the UK right 373 00:22:02,080 --> 00:22:05,359 Speaker 1: now that is pricing like literally like an emerging market. 374 00:22:05,880 --> 00:22:09,600 Speaker 1: Usually the fiscal stimulus in US, the dollar gets stronger, 375 00:22:09,920 --> 00:22:14,119 Speaker 1: interested rise only little in the UK that the pound 376 00:22:14,200 --> 00:22:17,560 Speaker 1: is collapsing and the interest rates are the roof, even 377 00:22:17,600 --> 00:22:20,160 Speaker 1: with the support of the b o E. So it's 378 00:22:20,200 --> 00:22:23,320 Speaker 1: really becoming an emerging market, is there? You know? The 379 00:22:23,320 --> 00:22:26,119 Speaker 1: way you describe things so much as already baked, in 380 00:22:26,280 --> 00:22:28,760 Speaker 1: particular with these trends that are in place with g 381 00:22:28,760 --> 00:22:32,119 Speaker 1: globalization and these shocks that we've seen, the all supply 382 00:22:32,200 --> 00:22:36,240 Speaker 1: chains and then the accumulated debts that we've seen in 383 00:22:36,240 --> 00:22:40,200 Speaker 1: public and private. At this point, are there better policy 384 00:22:40,280 --> 00:22:45,320 Speaker 1: paths than what you expect, UH leader policymakers to take? 385 00:22:45,320 --> 00:22:47,560 Speaker 1: I mean, could there is there? What? What what is 386 00:22:47,560 --> 00:22:50,840 Speaker 1: the wiggle rumor what is the what would what would 387 00:22:50,840 --> 00:22:54,040 Speaker 1: you do? What would you advise policymakers and say the 388 00:22:54,119 --> 00:22:57,280 Speaker 1: US and Europe to do well? You know, there's always 389 00:22:57,280 --> 00:23:01,800 Speaker 1: a difference between normatives statements about how the world should 390 00:23:01,800 --> 00:23:05,600 Speaker 1: be as opposed to positive statesmen about what is the 391 00:23:05,640 --> 00:23:08,600 Speaker 1: world that's gonna be and likely to. So I'm making 392 00:23:08,680 --> 00:23:11,920 Speaker 1: for now positive statesmen about the fact that we're gonna 393 00:23:11,920 --> 00:23:18,320 Speaker 1: have a nasty recession, nasty extractlation, and another severe financial crisis. 394 00:23:18,600 --> 00:23:21,080 Speaker 1: I think that's the baseline, and I think that the 395 00:23:21,119 --> 00:23:24,480 Speaker 1: policy trade off like during the GFC, is too late 396 00:23:24,600 --> 00:23:27,639 Speaker 1: right now, because if you fight inflation, you'll have a 397 00:23:27,640 --> 00:23:31,040 Speaker 1: recession and financial crisis. And if you don't fight inflation, 398 00:23:31,400 --> 00:23:34,760 Speaker 1: you're gonna have the answer inflation and you get inflation 399 00:23:34,800 --> 00:23:38,480 Speaker 1: extaclation and still a financial crisis. Because you can wipe 400 00:23:38,480 --> 00:23:43,960 Speaker 1: out with unexpected inflation the real value of nominal long 401 00:23:44,080 --> 00:23:47,720 Speaker 1: duration that e fix interest rates. But you can fool 402 00:23:48,280 --> 00:23:50,680 Speaker 1: all of the people some of the time, you can 403 00:23:50,760 --> 00:23:53,320 Speaker 1: fool some of the people all of the time. You 404 00:23:53,400 --> 00:23:55,720 Speaker 1: cannot fool all of the people all of the time. 405 00:23:56,040 --> 00:23:58,680 Speaker 1: And if we use the inflation tax to wipe out 406 00:23:59,040 --> 00:24:03,280 Speaker 1: private in public that is nominal long duration, it fixed 407 00:24:03,320 --> 00:24:06,400 Speaker 1: interest rates. That's gonna come to maturity, and then it's 408 00:24:06,400 --> 00:24:09,520 Speaker 1: gonna reprice either at very high interest rates if you 409 00:24:09,600 --> 00:24:12,120 Speaker 1: borrow a long term or if you borrow short term, 410 00:24:12,200 --> 00:24:14,800 Speaker 1: it's gonna price in the inflation. So you can for 411 00:24:14,840 --> 00:24:17,960 Speaker 1: a couple of years resolve at that problem private and 412 00:24:18,040 --> 00:24:21,639 Speaker 1: public with unexpected inflation, But then you're gonna cause a 413 00:24:21,680 --> 00:24:26,399 Speaker 1: bigger that crisis because once prices replies for inflation, and 414 00:24:26,440 --> 00:24:30,040 Speaker 1: the spreads real spreads a nominal spread, and the inflation 415 00:24:30,119 --> 00:24:33,240 Speaker 1: volative leads you to higher nominal interest rates, then you 416 00:24:33,280 --> 00:24:35,840 Speaker 1: have a bigger that problem down the line. So I 417 00:24:35,960 --> 00:24:39,280 Speaker 1: fear that right now we have three problems, a problem 418 00:24:39,280 --> 00:24:42,679 Speaker 1: of inflation, a problem of growth, and a problem of 419 00:24:42,720 --> 00:24:48,000 Speaker 1: financial stability with too much debt and collapsing asset bubbles, 420 00:24:48,080 --> 00:24:50,920 Speaker 1: and you cannot resolve them. I could tell you what 421 00:24:50,960 --> 00:24:54,040 Speaker 1: I would do in principle, but whatever you do is 422 00:24:54,040 --> 00:24:57,119 Speaker 1: not gonna avoid a crisis. At this point, the margin 423 00:24:57,359 --> 00:25:01,440 Speaker 1: for action is very, very lim. I would tell you 424 00:25:01,640 --> 00:25:04,760 Speaker 1: if I were you, I would avoid the seventies avoid 425 00:25:04,840 --> 00:25:09,480 Speaker 1: inflation by going real hard on fighting inflation and avoiding 426 00:25:09,800 --> 00:25:12,880 Speaker 1: at the anchoring of inflation expectation. But that's gonna lead 427 00:25:12,880 --> 00:25:15,840 Speaker 1: to a nasty recession and a financial crisis like we 428 00:25:15,880 --> 00:25:19,040 Speaker 1: didn't have in the seventies because we didn't have that problem, 429 00:25:19,080 --> 00:25:23,080 Speaker 1: and the recession in that seventies was a decade longer stagnation. 430 00:25:23,720 --> 00:25:26,080 Speaker 1: This time's gonna be worse because of the financial and 431 00:25:26,119 --> 00:25:30,440 Speaker 1: the dead problem. So unfortunately, at this point them if 432 00:25:30,440 --> 00:25:33,080 Speaker 1: you do them, if you don't, there is no easy 433 00:25:33,119 --> 00:25:51,600 Speaker 1: way out of this. So let me um, let me 434 00:25:51,640 --> 00:25:54,680 Speaker 1: ask you basically the same question, but from a different perspective. 435 00:25:54,840 --> 00:25:58,800 Speaker 1: What should investors do here? And this is something you know, 436 00:25:58,840 --> 00:26:01,000 Speaker 1: this is something I've been thinking about recently, And one 437 00:26:01,000 --> 00:26:03,200 Speaker 1: of our recent guests, Toby Ningle, came on the show. 438 00:26:03,240 --> 00:26:05,320 Speaker 1: He was talking about the moves and the guilt market, 439 00:26:05,760 --> 00:26:09,320 Speaker 1: basically saying you can't unburned toast. So once you have 440 00:26:09,440 --> 00:26:13,320 Speaker 1: this extreme volatility, once interest rates start to reset higher, 441 00:26:13,680 --> 00:26:16,160 Speaker 1: you can't kind of undo that and all of that 442 00:26:16,359 --> 00:26:20,639 Speaker 1: historic volatility, that anxiety for investors, it all weighs on 443 00:26:20,720 --> 00:26:23,639 Speaker 1: them for years to come, and you potentially get a 444 00:26:23,760 --> 00:26:28,120 Speaker 1: repricing of risk. In general, capital becomes more expensive, Asset 445 00:26:28,160 --> 00:26:31,760 Speaker 1: prices start to deteriorate, as you just mentioned. So what 446 00:26:31,960 --> 00:26:37,280 Speaker 1: can investors do here? Well, Usually investors have some variant 447 00:26:37,320 --> 00:26:43,000 Speaker 1: of a sixty formal for the portfolio sixty equity forty, 448 00:26:43,359 --> 00:26:48,040 Speaker 1: fixed income, long duration treasuries or seven thirty or even 449 00:26:48,119 --> 00:26:51,800 Speaker 1: rispirity labridge, water is a variant of the same, but 450 00:26:52,000 --> 00:26:54,719 Speaker 1: usually the price of bonds that prices of equities are 451 00:26:54,800 --> 00:26:59,600 Speaker 1: negatively correlated. In normal times, risk on equity the well 452 00:26:59,680 --> 00:27:02,440 Speaker 1: bond on the well, risk of bond, the well equited 453 00:27:02,440 --> 00:27:05,760 Speaker 1: on the well growth equity, the well bonds go up, 454 00:27:05,920 --> 00:27:10,240 Speaker 1: price falls, recession bonds fall, price goes up. Price of 455 00:27:10,280 --> 00:27:13,199 Speaker 1: equity faults. So you're not only hedged. And a sixty 456 00:27:13,240 --> 00:27:16,440 Speaker 1: four or seventy thirty portfolio has given you for the 457 00:27:16,520 --> 00:27:21,240 Speaker 1: last few decades positive returns, normally more so in good times, 458 00:27:21,520 --> 00:27:23,960 Speaker 1: less so in bad times, and always this here for 459 00:27:24,000 --> 00:27:26,600 Speaker 1: the first time in thirty years, you have lost money 460 00:27:27,000 --> 00:27:30,040 Speaker 1: on your equity side and on your fixed income because 461 00:27:30,040 --> 00:27:33,240 Speaker 1: sixty fourth is based on low inflation. But when inflation 462 00:27:33,320 --> 00:27:36,840 Speaker 1: is rising, two things happen. Long term interests go higher. 463 00:27:37,440 --> 00:27:42,600 Speaker 1: That hurts equity because the discounter factor for equity becomes higher, 464 00:27:43,160 --> 00:27:46,440 Speaker 1: and we're seeing the correction of equity and growth stocks 465 00:27:46,440 --> 00:27:50,000 Speaker 1: and text stops that are long duration hurt even more 466 00:27:50,200 --> 00:27:53,840 Speaker 1: because their long duration assets and more sensitive to interest rates. 467 00:27:53,880 --> 00:27:57,280 Speaker 1: But you lost on the MP, but this year you 468 00:27:57,280 --> 00:28:00,919 Speaker 1: have lost twenty or you on your own racial treasuries 469 00:28:01,119 --> 00:28:03,720 Speaker 1: because tand your treasuries have gone up from one and 470 00:28:03,800 --> 00:28:06,159 Speaker 1: a half to three and a half four, and that 471 00:28:06,280 --> 00:28:09,960 Speaker 1: increasing interest rates is the twenty five fall enter price. 472 00:28:10,359 --> 00:28:12,240 Speaker 1: So you lost money on equity, and you lost money 473 00:28:12,240 --> 00:28:14,920 Speaker 1: even on the safe asset. There was nowhere to hide. 474 00:28:15,240 --> 00:28:18,080 Speaker 1: And if you went into cash, you lost because of inflation. 475 00:28:18,480 --> 00:28:21,159 Speaker 1: So that's the problem when you have rising inflation. That 476 00:28:21,280 --> 00:28:25,000 Speaker 1: sixty four doesn't work. What's the solution is not cash 477 00:28:25,400 --> 00:28:28,840 Speaker 1: that's been given you zero nominal return wiped out by 478 00:28:28,920 --> 00:28:32,719 Speaker 1: ten percent inflation. You have to go into assets that 479 00:28:32,760 --> 00:28:37,000 Speaker 1: are hedged against inflation. One of them is tips the 480 00:28:37,119 --> 00:28:40,440 Speaker 1: reprice when inflation is higher. The second one is very 481 00:28:40,800 --> 00:28:45,080 Speaker 1: short duration treasuries because as interests go higher, the price 482 00:28:45,120 --> 00:28:47,400 Speaker 1: of them falls much less than the one of a 483 00:28:47,440 --> 00:28:50,320 Speaker 1: ten year or thirty year treasury. As interests are higher, 484 00:28:50,480 --> 00:28:55,560 Speaker 1: you get higher return even is expected inflation. That's one. Secondly, 485 00:28:55,960 --> 00:28:58,600 Speaker 1: you might want to go into gold. Gold has not 486 00:28:58,680 --> 00:29:01,720 Speaker 1: done very well in the last year. But once inflational 487 00:29:01,720 --> 00:29:05,120 Speaker 1: expectations become an injin when the central banks are gonna blink, 488 00:29:05,640 --> 00:29:08,240 Speaker 1: and until now central banks have played tough. That's why 489 00:29:08,280 --> 00:29:10,880 Speaker 1: gold has done poorly. Because the real rates were going higher, 490 00:29:11,200 --> 00:29:15,200 Speaker 1: then gold is gonna outperform like other precious metals, like 491 00:29:15,480 --> 00:29:18,800 Speaker 1: probably many commodities, but the commodities are gonna be hurt 492 00:29:19,000 --> 00:29:23,080 Speaker 1: by the recession, so gold is actually less cyclical. Three. 493 00:29:23,640 --> 00:29:27,880 Speaker 1: In the seventies, both equities and real estate did poorly, 494 00:29:28,280 --> 00:29:31,640 Speaker 1: but equity did much worse than real estate. The peer 495 00:29:31,720 --> 00:29:36,480 Speaker 1: ratio for SMP was down to eight. Because real estate 496 00:29:36,600 --> 00:29:39,440 Speaker 1: is in fixed supply, you can often replace the rent, 497 00:29:39,920 --> 00:29:43,600 Speaker 1: and it's a good hedge against inflation as long as 498 00:29:43,920 --> 00:29:47,720 Speaker 1: monetary policy is not very tight. Of course, ris deser 499 00:29:47,760 --> 00:29:50,640 Speaker 1: have done poorly because the Fed was hiking, but again, 500 00:29:50,680 --> 00:29:53,080 Speaker 1: when the Feds are gonna wimp out, I think that 501 00:29:53,600 --> 00:29:56,640 Speaker 1: real estate is gonna outperform equities because of the nature 502 00:29:56,840 --> 00:29:59,280 Speaker 1: of being a fixed supply kind of asset, at least 503 00:29:59,280 --> 00:30:02,040 Speaker 1: in the short run. The only caveat is that a 504 00:30:02,080 --> 00:30:04,960 Speaker 1: lot of real estate is going to be stranded because 505 00:30:05,000 --> 00:30:08,080 Speaker 1: of global climate change. Literally, there are maps that show 506 00:30:08,160 --> 00:30:10,400 Speaker 1: that half of the US in the next twenty years 507 00:30:10,360 --> 00:30:13,880 Speaker 1: is gonna be either underwater on the coastlines or too 508 00:30:13,880 --> 00:30:17,680 Speaker 1: hot or droughts or wildfires to be living in it. 509 00:30:18,160 --> 00:30:20,960 Speaker 1: And people have stupidly moved from New York to Miami 510 00:30:21,240 --> 00:30:25,200 Speaker 1: and from San Francisco to Austin. But Florida is gonna 511 00:30:25,200 --> 00:30:27,960 Speaker 1: be flooded and Texas gonna be too hard to survive there, 512 00:30:28,240 --> 00:30:31,080 Speaker 1: so there left to be a massive migration from south 513 00:30:31,120 --> 00:30:33,320 Speaker 1: and the coastline towards. The only part of the US 514 00:30:33,560 --> 00:30:36,920 Speaker 1: is going to survive climate change is the Midwest into 515 00:30:37,400 --> 00:30:40,680 Speaker 1: essentially Canada. So there big trillions of dollars of real 516 00:30:40,760 --> 00:30:45,040 Speaker 1: esti assets are gonna be damaged by essentially global climate change. 517 00:30:45,200 --> 00:30:46,680 Speaker 1: So if you have to worry about that, you have 518 00:30:46,720 --> 00:30:49,280 Speaker 1: to find the types of investment in the right parts 519 00:30:49,280 --> 00:30:52,120 Speaker 1: of the United States. So I would say combination short 520 00:30:52,200 --> 00:30:57,480 Speaker 1: term treasuries of tips and other inflation index bonds, gold, 521 00:30:57,640 --> 00:30:59,960 Speaker 1: and the right type of real estate is going to 522 00:31:00,120 --> 00:31:03,240 Speaker 1: be the future. And I'm actually working on a financial 523 00:31:03,280 --> 00:31:06,880 Speaker 1: product that is exactly creating first and index and then 524 00:31:06,920 --> 00:31:10,360 Speaker 1: anytf along the lines of edging the risk of inflation 525 00:31:10,680 --> 00:31:13,600 Speaker 1: in the basement of youth currency by having a combination 526 00:31:13,880 --> 00:31:17,200 Speaker 1: dynamically optimize of disassets. That's something I'm going to be 527 00:31:17,280 --> 00:31:19,800 Speaker 1: launching in the next month or so. Yeah, I remember 528 00:31:19,840 --> 00:31:22,320 Speaker 1: talking to you about it earlier in the year. This 529 00:31:22,400 --> 00:31:26,400 Speaker 1: idea of a sort of tokenized dollar that's more tied 530 00:31:26,440 --> 00:31:29,680 Speaker 1: to hard assets. Is that you know, this is also 531 00:31:29,720 --> 00:31:32,240 Speaker 1: something we've discussed many times on the podcast at this point, 532 00:31:32,320 --> 00:31:36,640 Speaker 1: the idea of the dollar losing its reserve currency status. 533 00:31:36,680 --> 00:31:39,280 Speaker 1: And one of the things about that is, you know, 534 00:31:39,320 --> 00:31:41,400 Speaker 1: people have been talking about it for a long time 535 00:31:42,040 --> 00:31:45,960 Speaker 1: and it hasn't yet happened. What, in your opinion makes 536 00:31:46,000 --> 00:31:49,280 Speaker 1: this time different several things. Of course, it's not gonna 537 00:31:49,280 --> 00:31:54,160 Speaker 1: happen overnight. The shine of reserve currency status takes text 538 00:31:54,240 --> 00:31:58,000 Speaker 1: many years. But there are at least two factors. One 539 00:31:58,120 --> 00:32:00,880 Speaker 1: is that the US is very large current account of 540 00:32:00,920 --> 00:32:04,520 Speaker 1: physical deficits. The physical deficits and other advanced economies, but 541 00:32:04,560 --> 00:32:07,520 Speaker 1: they tend to run current account surpluses or a balance 542 00:32:07,760 --> 00:32:10,960 Speaker 1: while we have a twin deficits, and historically every time 543 00:32:11,440 --> 00:32:13,800 Speaker 1: they had twin deficits and the dollar was too strong, 544 00:32:14,120 --> 00:32:16,120 Speaker 1: you have a cycle of dollar going up and then 545 00:32:16,160 --> 00:32:19,320 Speaker 1: has to go down in order to restore the excellal competiveness. 546 00:32:19,480 --> 00:32:22,920 Speaker 1: And the fall of the dollar can be thirty on 547 00:32:22,960 --> 00:32:26,000 Speaker 1: a weight at the basis. So that's gonna be something 548 00:32:26,040 --> 00:32:28,520 Speaker 1: that is going to happen, especially as the fat is 549 00:32:28,520 --> 00:32:31,160 Speaker 1: gonna wimp out, while other central banks will have to 550 00:32:31,160 --> 00:32:34,600 Speaker 1: start to tighten. Secondly, I think that the big revolution 551 00:32:34,720 --> 00:32:38,200 Speaker 1: right now is that a change regime change is that 552 00:32:38,320 --> 00:32:42,880 Speaker 1: we've weaponized the US dollar for national security and foreign 553 00:32:42,880 --> 00:32:45,480 Speaker 1: policy purposes, and they might be the right thing to do. 554 00:32:45,800 --> 00:32:49,240 Speaker 1: We have to punish our enemies, whether as Russia or Korea, 555 00:32:49,360 --> 00:32:53,200 Speaker 1: you run, or even China with trade and financial sanction 556 00:32:53,400 --> 00:32:56,479 Speaker 1: because there is a geopolitical rivalry is gonna get worse. 557 00:32:56,960 --> 00:32:59,880 Speaker 1: But they know right now, even the Chinese, that the 558 00:33:00,200 --> 00:33:03,200 Speaker 1: dollar can be seized like they were seised in color Korea, 559 00:33:03,520 --> 00:33:06,520 Speaker 1: in Iran and now in Russia. And not just the dollar, 560 00:33:06,880 --> 00:33:09,680 Speaker 1: also the yen, the europe, the pound, the Swiss frank. 561 00:33:10,360 --> 00:33:13,000 Speaker 1: So if you need another reserve currency, there is a 562 00:33:13,000 --> 00:33:17,000 Speaker 1: reserve currency or assets. There's no dollar, euro, yen, pound 563 00:33:17,280 --> 00:33:20,000 Speaker 1: and so on, or frank which one is the only 564 00:33:20,040 --> 00:33:23,000 Speaker 1: one out there that it's gonna be an alternative. They 565 00:33:23,040 --> 00:33:26,080 Speaker 1: cannot be seized by the US or Europe or Japan. 566 00:33:26,520 --> 00:33:29,160 Speaker 1: Is gold, but gold not in the volt in New York, 567 00:33:29,440 --> 00:33:31,720 Speaker 1: New York, fred or London, by gold in your own 568 00:33:31,800 --> 00:33:35,120 Speaker 1: vault or caves in Russia or China, wherever you have it. 569 00:33:36,000 --> 00:33:38,400 Speaker 1: I think that that's gonna be what's gonna lead to 570 00:33:38,440 --> 00:33:41,000 Speaker 1: a sharp fall of the budge of the dollar. The 571 00:33:41,160 --> 00:33:45,480 Speaker 1: strategic rival US have a plan to completely phase out 572 00:33:45,760 --> 00:33:49,040 Speaker 1: their exposure to dollar assets, and that's gonna be a 573 00:33:49,400 --> 00:33:52,040 Speaker 1: regime change for the long run as opposed to being 574 00:33:52,080 --> 00:33:54,800 Speaker 1: a short term factor. It's gonna happen. I really saw. 575 00:33:55,080 --> 00:33:57,840 Speaker 1: We might hear Urial make the case for bitcoin there, 576 00:33:57,840 --> 00:34:00,560 Speaker 1: but I have basically just one last question. And you 577 00:34:00,560 --> 00:34:05,240 Speaker 1: know bitcoin is another ship coin. No will break that 578 00:34:05,240 --> 00:34:07,280 Speaker 1: out of a separate story. But it's gonna be gold. 579 00:34:07,280 --> 00:34:08,799 Speaker 1: There's gonna be tips, It's not gonna be a bit 580 00:34:08,920 --> 00:34:12,880 Speaker 1: cocked frandly uh, last question for me. You know, investors 581 00:34:12,880 --> 00:34:14,920 Speaker 1: are very big on this idea of like when is 582 00:34:14,920 --> 00:34:16,600 Speaker 1: the FED gonna pivot? And the way you see it 583 00:34:16,680 --> 00:34:20,719 Speaker 1: is not pivot per se, but essentially tri uncle whimp out. 584 00:34:21,400 --> 00:34:23,600 Speaker 1: See what is that point? What would the will the 585 00:34:23,640 --> 00:34:27,360 Speaker 1: FED see either in real economic activity or financial market 586 00:34:27,400 --> 00:34:30,200 Speaker 1: conditions that you see would be the catalyst for the 587 00:34:30,200 --> 00:34:33,080 Speaker 1: Fed and maybe other central bankers to whimp out, in 588 00:34:33,120 --> 00:34:36,520 Speaker 1: your words, what will it take? Well, the Bank of 589 00:34:36,560 --> 00:34:39,400 Speaker 1: England already wimped out, and if you remember what happened 590 00:34:39,480 --> 00:34:42,960 Speaker 1: in eighteen nine, in December of eighteen, the FED went 591 00:34:43,000 --> 00:34:45,960 Speaker 1: from to twenty five to fifty. Then they said we're 592 00:34:45,960 --> 00:34:49,160 Speaker 1: gonna go to three percent, We're gonna continue qt What 593 00:34:49,280 --> 00:34:53,760 Speaker 1: happened during that quarter stock market collapsed by how you'll spread, 594 00:34:53,760 --> 00:34:57,040 Speaker 1: go from three hundred nine hundred, and the entire see 595 00:34:57,000 --> 00:34:59,959 Speaker 1: a low levels land market shuts down. Two weeks later, 596 00:35:00,320 --> 00:35:04,080 Speaker 1: January two or two thousand nineteen, J. Powell comes up 597 00:35:04,120 --> 00:35:06,600 Speaker 1: and says, I was kidding when we said we're gonna 598 00:35:06,600 --> 00:35:09,080 Speaker 1: go to three percent. I was kidding when I said 599 00:35:09,239 --> 00:35:12,120 Speaker 1: we're gonna continue qute. We're gonna stop raising grades, We're 600 00:35:12,120 --> 00:35:15,279 Speaker 1: gonna stop duty. And two months later, because there was 601 00:35:15,320 --> 00:35:18,200 Speaker 1: a slowdown of growth given the tension within US and 602 00:35:18,280 --> 00:35:21,320 Speaker 1: China on trade, and because there were some ripple problem 603 00:35:21,360 --> 00:35:23,520 Speaker 1: in the ripple market, what do they do? The caut 604 00:35:23,640 --> 00:35:25,960 Speaker 1: rates from two and a half to one seventy five 605 00:35:26,360 --> 00:35:28,839 Speaker 1: and they resumed two. It through the back door, through 606 00:35:28,840 --> 00:35:32,319 Speaker 1: the reserve rep operation. This was for a mile mile 607 00:35:32,440 --> 00:35:35,920 Speaker 1: financial shop and a group slow down. That's what they 608 00:35:35,920 --> 00:35:39,120 Speaker 1: totally wimped out. They totally blinked, even the FED, let 609 00:35:39,120 --> 00:35:41,560 Speaker 1: alone the BOE. So when they're gonna do it again, 610 00:35:41,960 --> 00:35:45,400 Speaker 1: when the recession is gonna start, and it's gonna get ugly, 611 00:35:45,880 --> 00:35:49,360 Speaker 1: and it's part of the recession. Inflation is not gonna 612 00:35:49,400 --> 00:35:52,439 Speaker 1: fall fast enough because we have the negative supply shop. 613 00:35:52,840 --> 00:35:54,920 Speaker 1: Remember when you have negating supply shop to get a 614 00:35:54,960 --> 00:35:58,800 Speaker 1: recession in high inflation. Therefore, we're not going to get 615 00:35:58,840 --> 00:36:01,480 Speaker 1: a fault in inflation. This rapid enough to go to 616 00:36:01,520 --> 00:36:04,959 Speaker 1: two percent. And we're already in financial stress right now. 617 00:36:05,320 --> 00:36:11,440 Speaker 1: Stock market down simp NASA more than MIMI. Stock collapse, 618 00:36:11,800 --> 00:36:17,360 Speaker 1: Stark collapse, crypto collapse, private equity collapse, Housing is collapsing. 619 00:36:17,719 --> 00:36:21,200 Speaker 1: See a lot markets shutdown, leverage, lot market shutdown. How 620 00:36:21,320 --> 00:36:25,040 Speaker 1: you spreads are already six hundred plus. Even high grade 621 00:36:25,480 --> 00:36:27,960 Speaker 1: is an interesting like you're nervousing in years and this 622 00:36:28,080 --> 00:36:31,120 Speaker 1: is just the beginning of that pain. Wait until it's 623 00:36:31,120 --> 00:36:33,520 Speaker 1: a real pain. And then you have even a major 624 00:36:33,560 --> 00:36:37,640 Speaker 1: financial institution. They may crack globally, not in the US 625 00:36:37,719 --> 00:36:40,840 Speaker 1: maybe now, but certain internationally there are a couple of 626 00:36:40,880 --> 00:36:43,680 Speaker 1: firms are huge and systemic. They can go under. You 627 00:36:43,760 --> 00:36:46,879 Speaker 1: have to have another limit effect. Then the FED will 628 00:36:46,920 --> 00:36:49,719 Speaker 1: have to wimp out. You'll have a severe recession and 629 00:36:49,760 --> 00:36:52,480 Speaker 1: you'll have a financial market shock. They're gonna wimp out 630 00:36:52,560 --> 00:36:56,520 Speaker 1: for sure. So, just to add to my anxiety levels, 631 00:36:56,560 --> 00:36:59,160 Speaker 1: which are already through the roof, I want to I 632 00:36:59,160 --> 00:37:02,000 Speaker 1: want to talk about the social consequences of this, because 633 00:37:02,040 --> 00:37:06,800 Speaker 1: it seems like an environment where inflation is high, growth 634 00:37:06,840 --> 00:37:09,600 Speaker 1: is slowing. You know, the FED is explicitly trying to 635 00:37:09,640 --> 00:37:15,240 Speaker 1: boost unemployment. It seems like that is probably the worst 636 00:37:15,360 --> 00:37:19,440 Speaker 1: environment for you know, your average person on the street. 637 00:37:19,719 --> 00:37:22,880 Speaker 1: And it almost seems like the FEDS, like the FEDS 638 00:37:22,920 --> 00:37:26,880 Speaker 1: goals here, they're almost anti American at this point, or 639 00:37:26,920 --> 00:37:30,960 Speaker 1: like anti the American dream right, like housing more expressive, 640 00:37:31,880 --> 00:37:35,640 Speaker 1: crushing demand, crushing labor force, Like what are going to 641 00:37:35,719 --> 00:37:39,360 Speaker 1: be the social consequences of central banks, you know, having 642 00:37:39,480 --> 00:37:42,040 Speaker 1: to do this in order to put a cap on 643 00:37:42,080 --> 00:37:45,279 Speaker 1: price increases, Um, they're going to be severe. You know, 644 00:37:45,400 --> 00:37:49,240 Speaker 1: we're already seeing, of course, the backlash against the free market, 645 00:37:49,680 --> 00:37:53,920 Speaker 1: backlash against trade and globalization, even a backlash against technology, 646 00:37:54,200 --> 00:37:57,719 Speaker 1: and backfish against you knows, fair policies. Because that it's 647 00:37:57,760 --> 00:38:01,520 Speaker 1: doing a massive, massive increase in income and wealth and equality. 648 00:38:01,920 --> 00:38:05,239 Speaker 1: There's leading to populism of the extreme right and or 649 00:38:05,320 --> 00:38:08,480 Speaker 1: of extreme left in many countries across the world, and 650 00:38:08,560 --> 00:38:12,480 Speaker 1: authoritarian regions becoming more popular across the board is a 651 00:38:12,480 --> 00:38:16,080 Speaker 1: repeat of the thirties. Literally, scary what's happening. And then 652 00:38:16,360 --> 00:38:18,959 Speaker 1: if on the top of it to fight inflation, now 653 00:38:19,120 --> 00:38:22,120 Speaker 1: you're gonna have very severe session and unemployment going to 654 00:38:22,200 --> 00:38:25,720 Speaker 1: six seven, eight percent or more. And then your assets 655 00:38:25,760 --> 00:38:27,920 Speaker 1: are collapsing, the value of your home, the value of 656 00:38:27,960 --> 00:38:30,279 Speaker 1: your stocks, and your debt service invasion going to go 657 00:38:30,360 --> 00:38:32,919 Speaker 1: to the roof. There will be a revolution. That's why 658 00:38:32,920 --> 00:38:36,040 Speaker 1: the fact cannot but monetize it because we're already having 659 00:38:36,080 --> 00:38:40,520 Speaker 1: a huge amount of social tension. There's already massive political polarization. 660 00:38:40,880 --> 00:38:44,200 Speaker 1: There already so many people are angry. Whether they're voting 661 00:38:44,280 --> 00:38:46,920 Speaker 1: for the right or the left, it doesn't matter. That 662 00:38:47,000 --> 00:38:49,000 Speaker 1: are those who are left behind, those who have been 663 00:38:49,040 --> 00:38:52,839 Speaker 1: screwed by globalization and the current sets of policies, those 664 00:38:52,880 --> 00:38:56,200 Speaker 1: who don't have jobs and skills and income and wealth. 665 00:38:56,680 --> 00:38:59,840 Speaker 1: You have, you know, one hundred thousand deaths of despair 666 00:39:00,440 --> 00:39:03,759 Speaker 1: every year in the US from opioids and other drug 667 00:39:03,840 --> 00:39:07,440 Speaker 1: over those you have two billion people that are addicted 668 00:39:07,480 --> 00:39:11,080 Speaker 1: to opioids. This is a massacre, literally a massacre. People 669 00:39:11,120 --> 00:39:16,680 Speaker 1: are helpless, hopeless, jobless, skill less, worthless, and they're desperate. 670 00:39:16,960 --> 00:39:20,120 Speaker 1: That's leading to that resentment and people either voting for 671 00:39:20,360 --> 00:39:24,280 Speaker 1: on one side, Trump or right wing conspiracy types, or 672 00:39:24,400 --> 00:39:27,440 Speaker 1: for very extreme left. These policies depending on whether you 673 00:39:27,480 --> 00:39:30,920 Speaker 1: are socially and religiously conservative as opposed to liberal, but 674 00:39:30,960 --> 00:39:34,520 Speaker 1: the economic policy are the same nativist nationalists against trade, 675 00:39:34,560 --> 00:39:37,719 Speaker 1: against migration, against free market, and so on. So it's 676 00:39:37,760 --> 00:39:40,080 Speaker 1: gonna get more ugly. It's gonna get more ugly because 677 00:39:40,080 --> 00:39:42,279 Speaker 1: we are ready at the breaking point. We could have 678 00:39:42,360 --> 00:39:45,000 Speaker 1: literally in the US, as we know, the entire books 679 00:39:45,000 --> 00:39:50,680 Speaker 1: written recently about the risk of civil war, violence, insurrection, secession. 680 00:39:51,000 --> 00:39:53,360 Speaker 1: This is what is the reason that US is facing, 681 00:39:53,400 --> 00:39:56,960 Speaker 1: let alone other countries, not maybe in the selection, but 682 00:39:57,000 --> 00:39:59,640 Speaker 1: two thousand and twenty four. So we're already in a 683 00:39:59,800 --> 00:40:03,839 Speaker 1: re of time bomb in terms of social and political pressures, 684 00:40:04,160 --> 00:40:07,160 Speaker 1: and in economic crisis, and a financial crisis and a 685 00:40:07,239 --> 00:40:10,520 Speaker 1: geo political crisis is going to make these things much worse, 686 00:40:10,800 --> 00:40:14,080 Speaker 1: much worse, alright, noriel Um, I think that's I can't 687 00:40:14,120 --> 00:40:15,920 Speaker 1: say it's a good place to leave it, but it 688 00:40:16,040 --> 00:40:18,080 Speaker 1: is definitely a place to leave it. We really appreciate 689 00:40:18,080 --> 00:40:20,840 Speaker 1: you coming back on all thoughts. Um As I mentioned before, 690 00:40:20,880 --> 00:40:24,280 Speaker 1: your insights, you know, broadly proved to turn out correct. 691 00:40:24,480 --> 00:40:26,040 Speaker 1: Um the last time we had you on the show. 692 00:40:26,760 --> 00:40:30,279 Speaker 1: The book Mega Threats Tend Dangerous Trends that imperil Our 693 00:40:30,320 --> 00:40:33,319 Speaker 1: Future and How to Survive Them is out on October eight. 694 00:40:33,800 --> 00:40:38,120 Speaker 1: Thanks so much, no real, thanks for great Thanks again, 695 00:40:38,680 --> 00:40:55,040 Speaker 1: Thank you, buddy. So Joe, I think I need therapy 696 00:40:55,280 --> 00:40:57,680 Speaker 1: after that conversation. And you know, last time we spoke 697 00:40:57,719 --> 00:41:00,520 Speaker 1: to Neurial, we had a lot of commentators who were 698 00:41:00,600 --> 00:41:02,759 Speaker 1: like shocked that we were so shocked by what he 699 00:41:02,800 --> 00:41:05,080 Speaker 1: was saying. But I gotta I'm trying to use humor 700 00:41:05,160 --> 00:41:08,799 Speaker 1: to diffuse the situation. Yeah, he sounds bearish, Yeah, you 701 00:41:08,840 --> 00:41:12,839 Speaker 1: think just a little. He said that it doesn't make 702 00:41:12,880 --> 00:41:16,640 Speaker 1: me want to buy the dip. No, but I do think, like, 703 00:41:17,320 --> 00:41:19,080 Speaker 1: you know, this is what we've been talking about for 704 00:41:19,120 --> 00:41:24,360 Speaker 1: a long time. The economic mix this time does seem different. 705 00:41:24,480 --> 00:41:27,799 Speaker 1: Like at a minimum, inflation is a constraint on the 706 00:41:27,840 --> 00:41:30,920 Speaker 1: central bank, and it's going to be much more difficult 707 00:41:30,960 --> 00:41:34,600 Speaker 1: for them to come in and stabilize financial markets, um 708 00:41:34,719 --> 00:41:37,560 Speaker 1: stimulate the economy if they need to, if they're having 709 00:41:37,600 --> 00:41:39,719 Speaker 1: to deal with that price constraint. You know something, I 710 00:41:39,840 --> 00:41:42,319 Speaker 1: keep thinking about how much this environment is sort of 711 00:41:42,560 --> 00:41:46,279 Speaker 1: the mirror image of the Great Financial Crisis. You know, 712 00:41:47,239 --> 00:41:49,160 Speaker 1: coming out of the the GFC, we had terrible growth. There's 713 00:41:49,200 --> 00:41:52,040 Speaker 1: big collapsed and deflation. Everyone was worried about we can't 714 00:41:52,080 --> 00:41:54,439 Speaker 1: hit the two percent target. And then years of sort 715 00:41:54,440 --> 00:41:57,400 Speaker 1: of basically a decade of moderate growth in the economy, 716 00:41:57,440 --> 00:42:00,160 Speaker 1: and this time we had the crisis conicide with a 717 00:42:00,200 --> 00:42:03,880 Speaker 1: stock market surge and a growth surge. So maybe it 718 00:42:04,040 --> 00:42:06,840 Speaker 1: is maybe the maybe the mirror image is the long, 719 00:42:07,120 --> 00:42:10,640 Speaker 1: ugly slog for current crisis. I don't know something to 720 00:42:10,640 --> 00:42:13,080 Speaker 1: look forward to, something to look for, so many episodes 721 00:42:13,160 --> 00:42:15,359 Speaker 1: to come. All right, shall we leave it there? Let's 722 00:42:15,440 --> 00:42:17,920 Speaker 1: leave it there? Okay, this has been another episode of 723 00:42:17,960 --> 00:42:20,520 Speaker 1: the All Thoughts podcast. I'm Tracy Alloway. You can follow 724 00:42:20,560 --> 00:42:23,080 Speaker 1: me on Twitter at Tracy Alloway and I'm Joe Why 725 00:42:23,120 --> 00:42:25,960 Speaker 1: Isn't All? You can follow me on Twitter at the Stalwart. 726 00:42:26,320 --> 00:42:29,480 Speaker 1: Follow our guest on Twitter, Neuriel Rubini. He's at Neuriel. 727 00:42:29,680 --> 00:42:33,560 Speaker 1: Follow our producer Carmen Rodriguez at Carmen armand, and check 728 00:42:33,600 --> 00:42:37,680 Speaker 1: out all of our podcasts Bloomberg under the handle at podcasts. 729 00:42:37,880 --> 00:43:01,360 Speaker 1: Thanks for listening to