WEBVTT - Surveillance: Central Bank Stimulus With Blanchflower 0:00:09.880 --> 0:00:13.840 Welcome to the Bloomberg Surveillance Podcast. I'm term Keene Jay Leye. 0:00:13.960 --> 0:00:16.960 We bring you insight from the best in economics, finance, 0:00:17.040 --> 0:00:23.520 investment and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.680 Bloomberg dot Com, and of course on the Bloomberg Let's 0:00:27.720 --> 0:00:30.160 turn now to the UK with Rupert Harrison, black Rock 0:00:30.240 --> 0:00:34.120 multi Asset Strategies portfolio manager, formerly of the Treasury as 0:00:34.159 --> 0:00:37.240 while working alongside the former Chance that George Osborne. Rupert, 0:00:37.280 --> 0:00:39.920 fantastic to have you with us on a program this morning, 0:00:40.120 --> 0:00:42.559 especially on a morning like this morning. Rupert, let's talk 0:00:42.560 --> 0:00:44.519 about the response from the Bank of England what may 0:00:44.560 --> 0:00:47.680 still come from Treasury a little bit later. I agree 0:00:47.800 --> 0:00:49.479 very strongly with what you've all been saying in the 0:00:49.520 --> 0:00:51.920 sense that I think this is a real demonstration of 0:00:51.960 --> 0:00:54.360 strength from the UK system. I think it shows us 0:00:54.440 --> 0:00:56.600 at maturity from the Bank of England, which is an 0:00:56.600 --> 0:01:00.920 institution that is I think comfortable in its independence, confident 0:01:01.000 --> 0:01:04.399 of its independent and therefore willing to be seen to 0:01:04.480 --> 0:01:07.080 act in a coordinated way with the Treasury. We saw 0:01:07.200 --> 0:01:10.280 some similar things in the past, the funding from lending 0:01:10.360 --> 0:01:13.480 for schemes set up in two douzen twelves. But I 0:01:13.480 --> 0:01:16.800 think it is a big advantage of having strong credible institutions. 0:01:16.840 --> 0:01:18.720 I think, as you say, it would be very difficult 0:01:18.720 --> 0:01:20.880 for the FED to do something similar. Indeed, we saw 0:01:21.360 --> 0:01:25.120 the FED deliberately separate its emergency fifty basis points cut 0:01:25.240 --> 0:01:28.520 from the G seven Finance ministers called I think largely 0:01:28.600 --> 0:01:32.240 due to wanting to avoid the perception of impositions on 0:01:32.280 --> 0:01:34.800 its independent So yes, I do think this is UKs 0:01:34.800 --> 0:01:39.800 stiticians demonstrating how you can loose confidence by coordination. RiPP 0:01:39.880 --> 0:01:42.080 Let's talk about how important it is to help SAMES 0:01:42.120 --> 0:01:44.240 in a moment like the moment we're in right now. 0:01:44.280 --> 0:01:46.039 It seems to be a big focus of the Bank 0:01:46.040 --> 0:01:48.200 of England. How do we get that focus to go 0:01:48.320 --> 0:01:50.520 beyond the UK in two places like Europe and into 0:01:50.560 --> 0:01:54.000 places like the United States. Well, look, I think that 0:01:53.920 --> 0:01:57.160 the policy community get it. I think that we will 0:01:57.200 --> 0:01:59.840 see further action in the budget in the UK to 0:02:00.040 --> 0:02:02.919 a you know, the these term funding schemes for banks 0:02:02.920 --> 0:02:05.880 with incentives to lend to SAMES there. They're similar to 0:02:05.960 --> 0:02:07.400 the kind of things we did in the UK in 0:02:07.480 --> 0:02:10.799 two thousand and twelve with funding for lending they're okay. Frankly, 0:02:10.880 --> 0:02:13.920 the banks can gain the targets, and this is not 0:02:14.000 --> 0:02:15.880 a way to guarantee that you're going to get cash 0:02:15.960 --> 0:02:19.760 to sames. You have to see finance ministries acting really 0:02:19.800 --> 0:02:22.600 to get cash to the simes in trouble on top 0:02:22.639 --> 0:02:25.119 of the band central bank actions. I think you will 0:02:25.160 --> 0:02:27.400 see that in Europe. I think it will be, you know, 0:02:27.760 --> 0:02:30.400 a combination of European wide and Frankie, you just have 0:02:30.520 --> 0:02:32.959 to going to have to wait and see national level actions. 0:02:33.480 --> 0:02:35.840 Um and I hope that we will see it in 0:02:35.840 --> 0:02:37.320 the US, but of course it's going to be a 0:02:37.400 --> 0:02:41.239 much more difficult mechanism to get agreement around that, even 0:02:41.240 --> 0:02:44.920 though the policy community I think now fully understand that 0:02:44.919 --> 0:02:47.160 that's what's needed. Let me ask you the same question 0:02:47.160 --> 0:02:49.640 I asked of our Stephanie Flanders earlier today. Did the 0:02:49.680 --> 0:02:53.440 reason we get that this action today? Was it because 0:02:53.600 --> 0:02:56.560 of Prime Minister Jansen? Was it was because we had 0:02:56.680 --> 0:02:59.720 essentially a pro Brexit vote? Was it because we have 0:02:59.760 --> 0:03:03.600 a new independence, are freethinking in the United Kingdom less 0:03:03.600 --> 0:03:07.880 attached to the European continent? No, I don't think so. 0:03:07.960 --> 0:03:10.280 I think this is because of the sort of historic 0:03:10.760 --> 0:03:13.920 patterns and working of the UK institutions. I think the 0:03:13.960 --> 0:03:16.000 Treasury in the Bank of England to have for a 0:03:16.040 --> 0:03:18.760 long time now worked well together, and I think that 0:03:18.800 --> 0:03:21.560 there is an understanding in the Treasury and the Bank 0:03:21.720 --> 0:03:23.799 that this is a time for this. You know, this 0:03:23.840 --> 0:03:25.919 is not a time for holding back. So I think 0:03:25.919 --> 0:03:29.560 you will see Chancellor Richie Sunac in the budget later today. 0:03:30.320 --> 0:03:32.760 You know, if anything, you know, doing too much, I 0:03:32.760 --> 0:03:34.840 think you will very much not want to be seen 0:03:34.840 --> 0:03:36.600 as kind of under delivering. I think it will be 0:03:36.640 --> 0:03:41.560 over delivered. Belt embraces, you know, resilience and you know, 0:03:42.000 --> 0:03:44.720 insurance against what might be become. I don't think that 0:03:45.080 --> 0:03:48.000 you know, particular to this government. I think it speaks 0:03:48.040 --> 0:03:50.760 more to a sort of historic strength of UK institutions. 0:03:50.800 --> 0:03:52.560 But of course it is very welcome to see the 0:03:52.680 --> 0:03:56.680 UK I think performing kind of well internationally compared to 0:03:56.720 --> 0:04:00.400 other countries. Going to your core, which is in staying. 0:04:00.720 --> 0:04:02.840 How does this give you conviction when it comes to 0:04:03.360 --> 0:04:05.640 putting on a trade? In other words, are you going 0:04:05.720 --> 0:04:09.120 to invest more in UK assets as a result of 0:04:09.160 --> 0:04:13.640 what the policymakers did. It's certainly at the margin makes 0:04:13.720 --> 0:04:16.279 us feel more comfortable that the UK is going to 0:04:16.360 --> 0:04:20.000 do everything possible to avoid permanent economic damage from this disruption. 0:04:20.680 --> 0:04:23.360 But frankly, you know, I think we've seen in market 0:04:23.360 --> 0:04:26.039 action over the last few days that while policy actions 0:04:26.040 --> 0:04:29.320 are welcome, you know, people of a market are very 0:04:29.440 --> 0:04:32.720 very aware that policymakers are our secondary at the moment 0:04:32.800 --> 0:04:35.680 to the sort of fundamentals of the spread of the virus, 0:04:35.760 --> 0:04:37.640 and you know, in a sense market to pay more 0:04:37.640 --> 0:04:41.040 attention to the to the negatives I when and how 0:04:41.120 --> 0:04:44.880 widely our restrictions on activity going to be. I think 0:04:44.880 --> 0:04:47.479 that it's it's about putting confidence in place so that 0:04:47.520 --> 0:04:50.039 if we do get to a peak situation where people 0:04:50.080 --> 0:04:52.640 can see beyond the peak of the virus, that's when 0:04:52.680 --> 0:04:56.159 people will take confidence from policy measures being in place 0:04:56.200 --> 0:04:59.120 to prevent permanent damage, and that's where will help see 0:04:59.120 --> 0:05:01.560 the kind of more rapid bounced back. Rupert Harrison, thank 0:05:01.600 --> 0:05:03.600 you so much with black Rock this morning, joining us 0:05:03.640 --> 0:05:17.839 after an historic moment for the Bank of England. Without 0:05:17.960 --> 0:05:20.560 question our interview of the day on this moment for 0:05:20.640 --> 0:05:23.279 central bankers, and with this and the honor of having 0:05:23.360 --> 0:05:26.760 David blanch Flower with us of Dartmouth College, of course, 0:05:26.800 --> 0:05:30.800 his public service to his very united Kingdom is public 0:05:30.839 --> 0:05:34.159 service and getting Cardiff back into the Premier League and 0:05:34.160 --> 0:05:36.720 then out again in the Premier League. We're thrilled to 0:05:36.800 --> 0:05:40.719 Professor blanch Flower could join us this morning. Uh, David, 0:05:40.839 --> 0:05:43.960 here we are. Quote. This is prudence with a purpose. 0:05:44.560 --> 0:05:47.680 It's resilience with a reason, and that reason is to 0:05:47.760 --> 0:05:50.760 fulfill the Bank of England's mission, namely to promote the 0:05:50.800 --> 0:05:54.000 good of the people of the United Kingdom by maintaining 0:05:54.080 --> 0:05:58.159 monetary and financial stability. By acting today, the Bank is 0:05:58.320 --> 0:06:02.440 ensuring that the strength of our financial system can be 0:06:02.520 --> 0:06:06.000 directed to where it's most needed in the months ahead. 0:06:06.600 --> 0:06:11.160 Mark Kearney, how do you do today? Very impressive. I 0:06:11.200 --> 0:06:13.680 was just listening to the press conference. I thought they 0:06:13.720 --> 0:06:17.640 did extremely well. Um the co ordination between the three 0:06:17.680 --> 0:06:20.880 banks the Mideast um coming on a day ahead of 0:06:20.880 --> 0:06:23.920 the UK budget, so it looked like, you know, the 0:06:24.000 --> 0:06:26.520 big boys are in charge. I thought, what was interesting 0:06:26.680 --> 0:06:29.760 reminded me of October seven, two thousand and eight. But 0:06:29.839 --> 0:06:32.520 I think Kari said it right then. The problem was 0:06:32.560 --> 0:06:37.480 the financial system causing a crisis, and he said, you know, 0:06:37.760 --> 0:06:39.800 the financial system here is going to try and come 0:06:39.839 --> 0:06:43.440 in and um support this this crisis. So I thought 0:06:43.440 --> 0:06:46.680 it was pretty impressive, the two that the governor and 0:06:46.720 --> 0:06:50.560 the new governor sitting there together. Um, I was really impressed. 0:06:50.600 --> 0:06:52.640 I mean the concern is do that what I mean? 0:06:52.680 --> 0:06:56.280 I remember in October seven six central banks cut. I 0:06:56.360 --> 0:06:58.479 was part of it. The big deal then was did 0:06:58.520 --> 0:07:01.080 they we knew things that the markets didn't know? And 0:07:01.080 --> 0:07:04.000 the question is is that true? Now? Are the more 0:07:04.080 --> 0:07:06.960 things they know that? That's the question I think on 0:07:07.000 --> 0:07:09.800 the table. Do you have a confidence with a medical 0:07:09.880 --> 0:07:14.200 crisis and an original ECB to begin with the ECB 0:07:14.440 --> 0:07:18.120 or frankly any other central bank and execute what the 0:07:18.200 --> 0:07:23.080 governor and the governor designate executed today. Well, obviously the 0:07:23.160 --> 0:07:27.640 big concern is that we're whatever is twelve years now 0:07:27.720 --> 0:07:31.000 past that crisis, and the room to maneuver for the 0:07:31.080 --> 0:07:34.840 central bank is somewhat limited. I mean, the Bank of 0:07:34.880 --> 0:07:37.200 England will cut from point seven five to point to 0:07:37.400 --> 0:07:40.920 five perhaps I thought they might go points is a 0:07:40.920 --> 0:07:43.920 big deal. What what can ECB does? I mean ECP 0:07:44.080 --> 0:07:48.000 is already negative. Christine the guard is obviously talking about 0:07:48.040 --> 0:07:51.960 this being a major problem. The room to maneuver is 0:07:52.000 --> 0:07:55.760 somewhat limited. Obviously, the coordination with fiscal policies that big 0:07:55.760 --> 0:07:58.200 to you. And the fact that this statement was made 0:07:58.200 --> 0:08:00.000 on the day when the bodies of the new Bodish 0:08:00.080 --> 0:08:02.800 Chancer that makes a statement for the budget suggests that 0:08:02.880 --> 0:08:05.480 these things are coordinated and that's going to be the 0:08:05.520 --> 0:08:09.280 problem down that, like could the ECB coordinate with other governments? 0:08:09.280 --> 0:08:11.080 What are the Germans going to say and do? What's 0:08:11.080 --> 0:08:13.480 going to happen at the at the o MC where 0:08:13.680 --> 0:08:17.400 it looks like a hundred basis points cuts already priced 0:08:17.440 --> 0:08:21.080 into the meeting next week, Danny, there's also a question 0:08:21.120 --> 0:08:23.560 of what's the roadmap here? And a lot of people 0:08:23.600 --> 0:08:26.000 are pointing to two thousand and eight, and since you 0:08:26.040 --> 0:08:29.800 have experience at the Bank of England when you were 0:08:29.800 --> 0:08:32.160 a part of their indust rates heading a Monetary policy 0:08:32.200 --> 0:08:34.800 committee as an external member from two thousand and six 0:08:34.840 --> 0:08:38.200 to two thousand nine through the crisis, is the two 0:08:38.240 --> 0:08:42.839 thousand and eight period the one we should be looking at? Well? 0:08:42.880 --> 0:08:45.560 It seems so. I mean, that's the only two cuts 0:08:45.559 --> 0:08:49.000 that I recall, Like this emergency meeting, which they very 0:08:49.040 --> 0:08:52.280 well did in secretum, there was the two meetings to 0:08:52.360 --> 0:08:54.199 fare in the Bank of England have had at the 0:08:54.280 --> 0:08:59.280 nine eleven which may may be comparable I mean the 0:08:59.320 --> 0:09:02.800 cut into a thousand and eight, the October cut. In 0:09:02.800 --> 0:09:05.360 a sense, what it signaled it was that it's more 0:09:05.400 --> 0:09:08.120 than anything. It's signaled that the central banks were on 0:09:08.160 --> 0:09:11.560 the case. It's much more to come. And I think 0:09:11.640 --> 0:09:13.880 that's what they were signaling today. I mean, they could 0:09:13.920 --> 0:09:17.720 have thrown more actively didn't do more que today they 0:09:17.760 --> 0:09:20.280 have they've sort of holding that back that they did 0:09:20.280 --> 0:09:24.160 all sorts of things about um but counter sectal buffer 0:09:24.200 --> 0:09:26.640 for the bank money for the same. So they certainly 0:09:26.679 --> 0:09:29.320 signaled there was more to come. But the issue is, 0:09:29.480 --> 0:09:33.080 well Tom was just saying what what what can they do? 0:09:33.160 --> 0:09:35.800 How much more can they do? And the concern is 0:09:35.880 --> 0:09:38.319 if this crisis, as Regard says today is comfortable to 0:09:38.360 --> 0:09:41.280 two thousand and eight that there are limits to what 0:09:41.400 --> 0:09:44.040 the policymakers can do. So, you know, I thought it 0:09:44.080 --> 0:09:46.280 was very impressive, good that they got in there, but 0:09:46.600 --> 0:09:49.840 down the road know how much they can do. Danny, 0:09:49.880 --> 0:09:52.840 are there any non traditional tools that we did not 0:09:53.040 --> 0:09:56.200 see deployed in two thousand and eight ways to sort 0:09:56.200 --> 0:09:59.840 of I think outside of the historical reference, it can 0:10:00.000 --> 0:10:03.559 the central banks to poy now well, yeah, absolutely, I 0:10:03.600 --> 0:10:06.199 mean I think Americ Rosen grinning the US right. He 0:10:06.280 --> 0:10:09.199 started to talk about the ability of the FED to 0:10:09.360 --> 0:10:12.160 broaden what it buys, not to just buy mbs and 0:10:13.720 --> 0:10:16.880 government backed securities, to broaden out what it buy. Is 0:10:16.960 --> 0:10:21.880 that's an obvious possibility that it works negative. Um, that's 0:10:21.880 --> 0:10:24.199 still on the table. But I think that I think 0:10:24.800 --> 0:10:28.920 for the listeners, I remember being brief saying central banks 0:10:28.960 --> 0:10:33.480 could buy anything, um and literally anything, So obviously I 0:10:33.520 --> 0:10:37.560 think that's on the table. Um. The possibility that QUI 0:10:37.679 --> 0:10:40.679 will broaden and extend, and as a said, it's thought 0:10:40.679 --> 0:10:43.480 about in the United States, that's the possibility of going 0:10:43.559 --> 0:10:47.200 negative exist. Now how negative, David, I've got to get 0:10:47.240 --> 0:10:49.600 squeeze us in a headline coming out of the United Kingdom, 0:10:49.640 --> 0:10:51.600 no doubt what. I'm the Chancellor as well. The United 0:10:51.640 --> 0:10:55.160 Kingdom sees this year's GDP growth one point one percent 0:10:55.440 --> 0:10:59.360 versus one point four very quickly, your professor. With that 0:10:59.480 --> 0:11:03.480 diminished g d P growth, do we also see diminished inflation? 0:11:03.600 --> 0:11:08.400 So we've got a combination a weaker growth and disinflation. Well, 0:11:08.600 --> 0:11:10.120 I think we do. But I think the mark that 0:11:10.200 --> 0:11:13.319 worries the markets will think that that at one point 0:11:13.360 --> 0:11:16.640 one percent is overly optimistic. Ian the scale of the 0:11:17.360 --> 0:11:20.160 scale of the shock that currently looks to be large, 0:11:20.600 --> 0:11:22.839 So I think that might well be very optimistic. And 0:11:23.160 --> 0:11:24.760 of course what the central Bank is going to have 0:11:24.800 --> 0:11:28.200 to do is just look through inflation, look at what's 0:11:28.240 --> 0:11:30.600 happening in the real economy, and that's what they've done today. 0:11:30.600 --> 0:11:33.319 So I think what happens to INFLA is broadly irrelevant. 0:11:33.520 --> 0:11:36.280 But it sounds totally optimistic on the part of the 0:11:36.679 --> 0:11:38.560 of the O b R and the government to think 0:11:38.640 --> 0:11:41.080 that output in the UK is going to grow this 0:11:41.160 --> 0:11:44.120 year too. Short of visit David blanche Flower of Dartmouth 0:11:44.160 --> 0:11:45.880 College here and of course has worked with the Bank 0:11:45.880 --> 0:11:57.760 of England. It is a fired up Nora Roubini with 0:11:57.840 --> 0:12:01.119 us today. His book of a Good Deck Togo was outstanding. 0:12:01.280 --> 0:12:03.640 There is there a book coming up here, you know, 0:12:03.800 --> 0:12:05.720 I'm thinking about the right thing in you want but 0:12:06.040 --> 0:12:08.360 he is going to be out next year. Okay, very good. 0:12:08.640 --> 0:12:11.880 There's there's a break slusive from Bloomberg surveillance. One of 0:12:11.920 --> 0:12:14.360 the great themes we've had here over the last number 0:12:14.400 --> 0:12:16.520 of weeks is a team that has just been dedicated 0:12:16.520 --> 0:12:19.480 in folks, really working seven days a week to get 0:12:19.480 --> 0:12:21.920 his voices and One of the voices was Jeffrey Curry 0:12:21.920 --> 0:12:25.160 of Goldman sex On Oil, who was out front of 0:12:25.200 --> 0:12:29.560 an oil war of Saudi UH and Russia and then 0:12:30.120 --> 0:12:33.520 was with us again today and with his microeconomics from Chicago, 0:12:33.679 --> 0:12:36.640 was just prodigious on these demand and supply shocks that 0:12:36.720 --> 0:12:40.920 we see. Let's discuss this now with Neral Rabini and 0:12:40.960 --> 0:12:43.800 the backdrop for me on this Neral is a visceral 0:12:43.880 --> 0:12:48.080 feeling of the old world of Saudi Arabia taking on Russia. 0:12:48.679 --> 0:12:52.480 What's your take on how anyone would take on Russia. 0:12:53.000 --> 0:12:56.480 Is it doable for Saudi Arabia to actually go after 0:12:56.960 --> 0:13:01.360 Mr Putin on oil? Well, so the Arabia going after Russia, 0:13:01.840 --> 0:13:04.560 but it's also going after the U S sail producers. 0:13:04.600 --> 0:13:07.240 Both of them are tried to sell the Arabia and 0:13:07.240 --> 0:13:11.360 I would say over time, uh, the shell gas producer 0:13:11.400 --> 0:13:14.440 maybe a bigger threat to sell the Arabia than put 0:13:14.440 --> 0:13:16.920 In and they all in Russia. The other thing in 0:13:16.960 --> 0:13:19.200 this game is that while in Russia you have to 0:13:19.200 --> 0:13:21.720 give credit to put In. That on the micro side 0:13:22.120 --> 0:13:26.520 is physically conservatives low budget deficit, low public debt, is 0:13:26.600 --> 0:13:29.800 low inflation, while the budget deficits Saudi Arabia right now 0:13:30.240 --> 0:13:33.120 is seven percent of GDP, so their break even physically 0:13:33.400 --> 0:13:36.360 it's more like eighty dollar barrel, while for Russias around 0:13:36.400 --> 0:13:39.880 fort So in this war, actually on the physical side, 0:13:40.120 --> 0:13:43.160 it's true that Saouldi have more reserves than they can 0:13:43.240 --> 0:13:46.160 run them down. But between the two, on the micropoint 0:13:46.160 --> 0:13:48.360 of view, Saudi are weaker. But of course they can 0:13:48.360 --> 0:13:51.280 play this game for a few months until the Russian 0:13:51.320 --> 0:13:53.120 is gonna come and say let's do a deal by 0:13:53.160 --> 0:13:56.000 both sides want to get rid of the shell gas 0:13:56.040 --> 0:13:58.560 producer in US, but the shell gus producing US once 0:13:58.600 --> 0:14:00.720 all goes to forty fifty, are going to be back. 0:14:00.720 --> 0:14:04.240 Even if they're back the margin. How does Germany buy 0:14:04.320 --> 0:14:09.439 from Saudi Arabia versus their long term relationship on hydrocarbons 0:14:09.440 --> 0:14:12.760 with Russia. Uh, well, you know, they have to diversify 0:14:12.920 --> 0:14:16.000 and they've decided to phase out essentially called so they're 0:14:16.040 --> 0:14:19.040 gonna do more renewable energy, but definitely they need still 0:14:19.040 --> 0:14:21.800 oil from the Middle East and they need GUS from Russia. 0:14:22.040 --> 0:14:25.520 So for Germany there's no other option absolutely So, So 0:14:25.560 --> 0:14:29.240 if we're lower oil for longer, what does that mean? 0:14:29.560 --> 0:14:31.920 You know, for the overall global GDP picture. Because you 0:14:32.040 --> 0:14:35.080 compare that, you weigh at against these you know, the 0:14:35.160 --> 0:14:38.920 issues presented by the coronavirus on the demand side is 0:14:38.920 --> 0:14:42.480 that pushes into a global recession. There's lower oil keep 0:14:42.560 --> 0:14:44.480 us from going into a global recession. How do you 0:14:44.480 --> 0:14:46.720 weigh those two? Well, if the price of oil falls 0:14:46.800 --> 0:14:50.800 because of a increasing supply, there is a price war 0:14:51.240 --> 0:14:54.440 as opposed to fall in demand. Because until now a 0:14:54.560 --> 0:14:57.720 week ago was a falling demand recession on global growth, 0:14:57.760 --> 0:15:00.760 prices were falling. That was a negative signal. But now 0:15:01.000 --> 0:15:03.040 all prices are falling because there's going to be a 0:15:03.160 --> 0:15:06.880 glass of supply from Russia and from Saudi Arabia. Then 0:15:07.160 --> 0:15:09.560 in that situation, actually I think that the impact on 0:15:09.600 --> 0:15:12.680 the global economy at the margin is positive because the 0:15:12.760 --> 0:15:16.680 marginal propensity to spend of all importers is greater than 0:15:16.720 --> 0:15:19.600 the marginal propensity to spend of the all exporters. So 0:15:19.600 --> 0:15:22.440 they all exports are gonna produce less, they're gonna do 0:15:22.520 --> 0:15:25.280 less capex, they're gonna fire some workers. But then the 0:15:25.440 --> 0:15:28.280 consumers of oil, even in country like the US where 0:15:28.280 --> 0:15:31.360 we're not any more net importer, the distributional and benefit 0:15:31.440 --> 0:15:34.360 goes to the consumer, and they hurting the producer let 0:15:34.400 --> 0:15:38.560 alone in countries like China, like India, like Japan, like Korea, 0:15:38.640 --> 0:15:41.080 like most of Europe that are net all importers. So 0:15:41.120 --> 0:15:44.240 at the margin, actually this is a war that is 0:15:44.280 --> 0:15:46.880 bad for the stock market because the stock market reflects 0:15:46.920 --> 0:15:50.120 the energy company's stocks. But for the real economy, actually 0:15:50.280 --> 0:15:53.600 collapsing all prices is a benefit at the margin. It's 0:15:53.600 --> 0:15:56.200 not going to prevent the recession because you have a coronavirus, 0:15:56.240 --> 0:15:59.280 but it's gonna make it less damaging at least for 0:15:59.360 --> 0:16:03.280 the consumers. So the strategic value here for Saudi Arabia 0:16:03.320 --> 0:16:05.720 and in Russia to kind of put pressure on the 0:16:05.840 --> 0:16:08.680 U S shale producers. That will happen. We've seen the 0:16:08.680 --> 0:16:11.360 balance sheets for these shales producers not good, so there's 0:16:11.360 --> 0:16:13.560 a lot of credit issues here. But as soon as oil, 0:16:13.640 --> 0:16:16.400 as you say, oil comes back to hour, Wall Street's 0:16:16.400 --> 0:16:17.960 gonna come right back to the shale patch and we're 0:16:17.960 --> 0:16:20.120 gonna have those guys start backed up in a year 0:16:20.200 --> 0:16:23.120 or two. I mean, so strategically the oils in the 0:16:23.200 --> 0:16:26.640 ground in the shale area. So I just you know, 0:16:26.680 --> 0:16:29.000 I just don't see the long term strategic value for 0:16:29.320 --> 0:16:31.200 what Saudi Arabia and Russia are trying to do it. 0:16:31.200 --> 0:16:32.920 Seems like the near term costs are just too much. 0:16:33.200 --> 0:16:35.760 Oh their cost But then if you can let many 0:16:35.800 --> 0:16:38.880 of these guys, especially the smaller ones going bankrupt, and 0:16:38.920 --> 0:16:41.280 many of them were over leveraged, it's going to take 0:16:41.320 --> 0:16:43.200 a couple of years until these people are gonna be 0:16:43.240 --> 0:16:46.280 able to start producing again. When you have consolidation in 0:16:46.320 --> 0:16:49.000 the shale, gus in all industries, so you have a 0:16:49.120 --> 0:16:52.320 short term loss of income, say for three four months, 0:16:52.480 --> 0:16:55.480 they get the truth by June, and then at that 0:16:55.560 --> 0:16:58.200 point many of these smaller guys are gonna be already bankrupt, 0:16:58.480 --> 0:17:00.760 and you have some reduction in product. It's not gonna 0:17:00.760 --> 0:17:03.040 be a used reduction production the United States, but you 0:17:03.080 --> 0:17:05.560 can cause enough damage that you buy yourself maybe another 0:17:05.560 --> 0:17:07.920 couple of years, but you're right. Over the medium long term, 0:17:08.080 --> 0:17:10.399 there is no way in which especially the Saudi is 0:17:10.760 --> 0:17:13.160 not along the Russians can essentially deal with the fact 0:17:13.160 --> 0:17:15.760 that we've shell gas and oil. The equilibrium all price 0:17:15.880 --> 0:17:19.400 without OPEC, it's closer to twenty, if not ten. Right, 0:17:19.440 --> 0:17:22.840 in a perfect competitive economy which there is no cartile equilibrium, 0:17:22.840 --> 0:17:25.240 all prices might be closer town. We're gonna have demand 0:17:25.280 --> 0:17:27.400 fall in the medium term because there's gonna be pick 0:17:27.480 --> 0:17:30.359 All dement and therefore all prices have to be lower. No, 0:17:30.560 --> 0:17:33.360 I got one minute left more than anybody I know. 0:17:33.960 --> 0:17:38.040 You know Milan, your Iranian Turkish. You ended up in 0:17:38.119 --> 0:17:44.640 Milan Synagogue Centrale told Jewish sense of Milan as well. 0:17:44.840 --> 0:17:49.000 What do you how do you synthesize a lockdown in 0:17:49.040 --> 0:17:52.240 your Milan? Well, it's terrible. I saw a video essentially 0:17:52.280 --> 0:17:56.679 of Saskala and Viemon zone totally empty, deserted, like a 0:17:56.720 --> 0:17:59.560 total desert. But I think the Italians are doing the 0:17:59.640 --> 0:18:02.960 right They're finally doing what China did, because in the 0:18:03.000 --> 0:18:06.080 US we are actually fudging it, pretending there's not spreading, 0:18:06.240 --> 0:18:08.560 and it's gonna get worse. In Italy. Now they're gonna 0:18:08.560 --> 0:18:11.280 realize they have to do what China did, total quarantine. 0:18:11.560 --> 0:18:14.280 You're gonna collapse the economy for a quarter. But if 0:18:14.280 --> 0:18:17.000 you can stop the contagion, then the economy is gonna 0:18:17.000 --> 0:18:19.679 recover with the monitor and physical stables. If instead you 0:18:19.760 --> 0:18:21.520 fudge that you can count down the road like the 0:18:21.600 --> 0:18:23.960 US is gonna explode in your face. So in the 0:18:24.040 --> 0:18:26.520 short time, economy is weaken ling less, but over time 0:18:26.520 --> 0:18:28.480 it's gonna weekend more so the Italians now are going 0:18:28.600 --> 0:18:31.920 China while we're still doing what Italy did a month ago. 0:18:32.000 --> 0:18:34.720 And that's a mistaken us being you. Thank you so much, 0:18:34.760 --> 0:18:37.440 of course, with New York University and his economic work 0:18:37.480 --> 0:18:44.159 worldwidetre look he pop futures minneus seventies six right now. 0:18:44.160 --> 0:18:47.080 It's a miracle. It's a miracle magic here. I don't 0:18:47.119 --> 0:18:50.480 take blame nor credit, and I've never trade. But when 0:18:50.640 --> 0:18:52.919 you blame my life, which did you blame? Are your 0:18:52.960 --> 0:18:55.359 dets a lot of snow buttter Nero being there on 0:18:55.440 --> 0:19:09.640 international you can ask you want to bring an handsome goal. 0:19:09.840 --> 0:19:11.399 I now he's very excited about jumping in, and I 0:19:11.400 --> 0:19:13.040 can see it. He said he wouldn't speak into the 0:19:13.119 --> 0:19:17.520 Bostri so his chief US Secretary strategist give money to John. 0:19:17.680 --> 0:19:20.360 Good morning, your thoughts your message for clients this morning? Well, 0:19:20.480 --> 0:19:22.720 I can I just jump in on the I mean, 0:19:22.760 --> 0:19:27.080 if you look at those of Americans who are you 0:19:27.080 --> 0:19:29.560 know on you know or you know, paycheck to paycheck, 0:19:29.880 --> 0:19:32.160 that guy is probably not going to be benefited all 0:19:32.200 --> 0:19:35.480 that much by by moving his tax returns by a month, 0:19:35.600 --> 0:19:37.480 and at least we got to find a program for 0:19:37.520 --> 0:19:39.920 those people. Do we're gonna do? We all agree apparel 0:19:40.000 --> 0:19:42.360 tax cuts just doesn't know. I think, more broadly, John, 0:19:42.400 --> 0:19:45.240 the discussion here is about whether some of these demands 0:19:45.280 --> 0:19:48.119 side initiatives on the stimulus side are going to be 0:19:48.320 --> 0:19:50.920 useless or limited in use. I don't I don't think. 0:19:50.960 --> 0:19:53.080 I don't think use. I don't think it's useless. They're 0:19:53.080 --> 0:19:57.040 gonna have an effect way after this crisis is gone. Um, 0:19:57.080 --> 0:20:00.600 But I think that these things, the narrower they are addressing, 0:20:00.960 --> 0:20:05.800 you know, displacement in the in the energy sector, leisure businesses, 0:20:06.000 --> 0:20:10.040 and displaced workers. And the benefit of being more targeted 0:20:10.119 --> 0:20:12.640 is it doesn't have to be expensive. It just has 0:20:12.680 --> 0:20:15.480 to be appropriate. Otherwise all you're gonna see is at 0:20:15.560 --> 0:20:17.600 least we'd say before is that this money is going 0:20:17.640 --> 0:20:20.960 to get saved and and it just it just doesn't 0:20:20.960 --> 0:20:22.800 have an impact. Well, I don't mind if it gets saved, 0:20:22.840 --> 0:20:24.480 and I don't mind if it gets used to pace debt. 0:20:24.520 --> 0:20:26.160 I don't expect them to go out to a restaurant. 0:20:26.160 --> 0:20:28.200 I don't expect them to get a flight. The worry 0:20:28.240 --> 0:20:29.920 we have right now is that people won't be able 0:20:29.920 --> 0:20:32.080 to make the mutgage repayments. People won't be able to 0:20:32.119 --> 0:20:33.960 make their loan repayments. And I think that I think 0:20:33.960 --> 0:20:36.120 the government has a really important role to play there. 0:20:36.320 --> 0:20:38.800 I mean, if small businesses need to make sure that 0:20:38.840 --> 0:20:41.479 they have lines of credit available to them so that 0:20:41.560 --> 0:20:44.280 if they have a hard time making payroll that the 0:20:44.320 --> 0:20:47.080 banks are going to lengths and the government can backstop that. 0:20:47.359 --> 0:20:49.280 Those kind of actions I think are critical. This is 0:20:49.320 --> 0:20:53.200 such a guy discussion, Mr Brandwich, would you please explain 0:20:53.240 --> 0:20:55.560 to the world that the number one headache right now, 0:20:55.600 --> 0:20:59.600 without question is children will be home from school. Now 0:20:59.680 --> 0:21:05.440 that totally upsets for millions of Americans, the apple cart 0:21:05.560 --> 0:21:08.560 and in so many different ways. I mean, not to me, 0:21:08.640 --> 0:21:10.919 that's far greater than anything else. Well, that is going 0:21:11.000 --> 0:21:12.840