WEBVTT - Surveillance: The Need For Transparency With Malpass 0:00:09.880 --> 0:00:13.040 Welcome to the Bloomberg Surveillance podcast and I'm Tom Keene. 0:00:13.480 --> 0:00:17.560 Daily we bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.840 Bloomberg dot Com, and of course on the Bloomberg. Joining 0:00:27.920 --> 0:00:29.920 us right now is David mal Pass. Here is Mr 0:00:29.960 --> 0:00:33.080 Trump's selection his World Bank president. He's come in under 0:00:33.120 --> 0:00:36.200 some controversy and then he has had to focus on 0:00:36.280 --> 0:00:40.800 this horrific virus. He is a physicist from Colorado College. David, 0:00:40.840 --> 0:00:42.920 I want you to look right now at the inertial 0:00:43.000 --> 0:00:46.480 force of this ugly pandemic. How is your world bank 0:00:46.640 --> 0:00:52.560 adapting to the momentum of this pandemic? Hi? Hi, Tom, 0:00:53.000 --> 0:00:56.880 and John and Lisa. So the adapt the world banks 0:00:56.960 --> 0:00:59.840 doing okay. People are able to work from home. We 0:01:00.080 --> 0:01:03.320 gotten a lot of programs out over a hundred programs 0:01:03.360 --> 0:01:08.160 that are directly at the health emergency. The problem is 0:01:08.280 --> 0:01:11.920 that developing countries are under immense pressure because of the 0:01:12.000 --> 0:01:16.320 global recession, that economic shutdown in the advanced countries, and 0:01:16.400 --> 0:01:20.759 the pandemic itself is still spreading through countries. Uh. And 0:01:20.840 --> 0:01:23.920 they also entered this problem with a lot of debt 0:01:24.040 --> 0:01:26.760 already on their books. So those are the problems that 0:01:26.800 --> 0:01:30.880 we're trying to address as we as the recession deepens, 0:01:30.920 --> 0:01:33.720 and then we hope find the other side and we 0:01:33.840 --> 0:01:37.200 come out of it. In your distinguished career at bear Sterns, 0:01:37.200 --> 0:01:40.080 and particularly David, as you build out that world best 0:01:40.200 --> 0:01:44.200 Latin American coverage at bear Sterns, there was a mechanism 0:01:44.319 --> 0:01:47.640 for challenges in the third world in the emerging markets. 0:01:48.080 --> 0:01:51.360 Are the mechanisms there right now or do we just 0:01:51.440 --> 0:01:54.120 have to go to a debt suspension? I mean, can 0:01:54.160 --> 0:01:56.240 we use the processes in the e M that we 0:01:56.320 --> 0:02:00.200 have available or is this a new territory. I think 0:02:00.240 --> 0:02:02.920 we have to look at new territory because the debt 0:02:03.000 --> 0:02:06.320 itself has changed. In the nineteen eighties, I was in 0:02:06.360 --> 0:02:09.520 the regular administration and there was a Latin debt crisis 0:02:09.600 --> 0:02:13.680 that had come from the petro dollar recycling. Remember, the 0:02:13.680 --> 0:02:17.400 oil prices had been high and so the banks could uh. 0:02:17.560 --> 0:02:20.720 The banks had a lot of deposits and they would 0:02:20.800 --> 0:02:24.200 lend those to the developing world, and the problem was 0:02:24.320 --> 0:02:27.080 they didn't get paid back when oil prices went low. 0:02:27.400 --> 0:02:32.359 So it was a bank crisis because they couldn't the 0:02:32.760 --> 0:02:36.760 bank deposits were a big portion of the capitalization of 0:02:36.800 --> 0:02:41.000 the banks or they were critical. Um, it was syndicated loans. 0:02:41.040 --> 0:02:44.800 So this is quite different. There's euro bonds involved. Uh. 0:02:44.880 --> 0:02:49.480 There so a lot more commercial creditors than in in 0:02:49.520 --> 0:02:54.040 the past. Uh. And also the nature of the debt China. 0:02:54.320 --> 0:02:57.480 China is a much bigger player in this. They weren't 0:02:57.680 --> 0:03:02.000 really a creditor in the nineteen eighties. So that those 0:03:02.040 --> 0:03:05.000 two changes mean you have to look at a different process. 0:03:05.639 --> 0:03:09.440 What we're doing is a suspension of debt payments. Now 0:03:09.880 --> 0:03:14.760 that that that's the official bilateral creditors, and we're encouraging 0:03:14.800 --> 0:03:20.120 the commercial creditors to stop taking payments from the poorest countries. Uh. 0:03:20.200 --> 0:03:23.760 That that's a response to the crisis. David, you do 0:03:23.800 --> 0:03:27.440 not represent the Trump administration, but you were certainly selected 0:03:27.440 --> 0:03:30.080 by the president to take over this important task at 0:03:30.120 --> 0:03:34.360 the World Bank. Great, he's going after other institutions, his 0:03:34.440 --> 0:03:38.320 own CDC, He's going after the World Health Organization for 0:03:38.360 --> 0:03:40.800 all I know, he's going to go after the World Bank. 0:03:41.120 --> 0:03:44.880 How should your institution respond to a president who is 0:03:45.000 --> 0:03:50.560 not an internationalist? One correction Toime, I wasn't selected by him. 0:03:50.600 --> 0:03:53.280 I was proposed by him to the World Community. I 0:03:53.360 --> 0:03:56.600 was happy to be elected noted that board by the 0:03:56.640 --> 0:04:00.200 Board and Governors of the World Bank unanimously. And it's 0:04:00.240 --> 0:04:03.280 been going well in terms of the changes that we're 0:04:03.320 --> 0:04:06.400 making at the World Bank that can help countries with growth, 0:04:06.680 --> 0:04:10.040 with better living standards, with all the things that were 0:04:10.080 --> 0:04:13.640 that we're trying to do, climate, education, health, uh and 0:04:13.880 --> 0:04:16.240 on down the line. Poverty is a big part of 0:04:16.279 --> 0:04:20.200 the problem. Um so if you if you boil it down, 0:04:20.360 --> 0:04:25.400 we want to have international cooperation among the various organizations, 0:04:25.440 --> 0:04:29.080 but the drive for growth has to come from individual countries. 0:04:29.400 --> 0:04:31.479 So that's what we're trying hard to do at the 0:04:31.480 --> 0:04:35.599 World Bank. Are we have country offices in almost all 0:04:35.600 --> 0:04:39.760 of the developing countries, and those offices work with the 0:04:39.800 --> 0:04:42.800 governments to find out what will work best for the 0:04:42.880 --> 0:04:45.960 countries and then we can help fund it with grants 0:04:46.360 --> 0:04:49.480 and loans. You know, the World Bank heavily is doing grants, 0:04:49.600 --> 0:04:52.960 which helps a lot with the net positive flow into 0:04:53.000 --> 0:04:56.120 the poorest countries. That's what we want others to do. 0:04:56.200 --> 0:04:58.719 You know, it's it's hard to say you're going to 0:04:58.800 --> 0:05:04.080 make a own to a country that's that's in extreme poverty. 0:05:04.160 --> 0:05:06.920 Because where they're going to get the resources to pay 0:05:06.920 --> 0:05:10.839 it back, So we try to shift the balance towards grants, David, 0:05:10.839 --> 0:05:13.360 that seems to be a theme throughout the world, certainly 0:05:13.360 --> 0:05:16.440 in Europe, the idea of grants not loans. We're also 0:05:16.480 --> 0:05:18.880 talking about debt reduction, and you have been on the 0:05:18.920 --> 0:05:21.120 record saying that you do think that there needs to 0:05:21.120 --> 0:05:23.960 be some debt reduction throughout the developing world. How big 0:05:24.000 --> 0:05:27.760 a haircut are you talking about. Well, we we need 0:05:27.800 --> 0:05:30.479 to do the analysis of countries and what their debt 0:05:30.560 --> 0:05:34.359 sustainability levels are, how much debt can they support, and 0:05:34.360 --> 0:05:37.800 then reduce the amounts of debt to that. But right now, 0:05:37.920 --> 0:05:41.760 the bigger, the immediate problem is the need for transparency. 0:05:42.120 --> 0:05:44.599 One thing that's going on in the market is debt 0:05:44.720 --> 0:05:49.120 rescheduling and restructuring where people don't know what the terms are, 0:05:49.760 --> 0:05:53.760 and that means other creditors are reluctant to participate. Uh, 0:05:53.800 --> 0:05:57.279 if there's if there's not knowledge of the terms. When 0:05:57.320 --> 0:06:01.320 I'm saying terms, for example, governments in the poorest countries 0:06:01.360 --> 0:06:05.200 are sometimes borrowing money and it's never disclosed how much 0:06:05.320 --> 0:06:08.320 they're supposed to pay. Then the government leaves and the 0:06:08.400 --> 0:06:10.839 people of the country are left with the burden of 0:06:10.880 --> 0:06:13.960 the debt. That's something that's a cycle, that a debt 0:06:14.000 --> 0:06:16.760 cycle that we have to get out of because the 0:06:16.839 --> 0:06:20.440 politicians or the leaders can benefit from the immediate loan, 0:06:20.800 --> 0:06:22.760 but then it's very hard for the people of the 0:06:22.800 --> 0:06:26.839 country to repay that. David in the news this weekend 0:06:26.920 --> 0:06:30.680 Listalize article in the Washington Post on Lebanon was heartbreaking. 0:06:31.120 --> 0:06:35.320 How can you affect assistance to a Lebanon It's being 0:06:35.440 --> 0:06:42.160 absolutely crushed right now. These are tough, tough challenges. Lebanon 0:06:42.200 --> 0:06:45.880 had taken deposits into its banking system and paid a 0:06:46.040 --> 0:06:49.359 very high interest rate. I think you know, I'll test 0:06:49.400 --> 0:06:52.560 your history, but remember the SNL crisis long ago in 0:06:52.600 --> 0:06:55.920 the US. You had this elevated interest rate that made 0:06:55.960 --> 0:06:59.320 it look good for depositors, but then when they began 0:06:59.360 --> 0:07:03.200 to withdraw, it created a banking crisis. Um, what we're 0:07:03.240 --> 0:07:07.360 doing in Lebanon is trying to support the social safety 0:07:07.360 --> 0:07:12.520 net that means actual cash to actual people, individual people, 0:07:12.960 --> 0:07:15.160 rather than trying to run it through the government in 0:07:15.160 --> 0:07:18.760 the banking system, which is so problematic now. David, don't 0:07:18.760 --> 0:07:22.760 test Tom's history. Will be here all day. He'll start, David, 0:07:22.800 --> 0:07:24.640 you know how this works. We'll be here for a 0:07:24.640 --> 0:07:27.480 long long time. You know as well as I do 0:07:27.520 --> 0:07:29.760 that everybody wants to receive a grant. Nobody wants to 0:07:29.800 --> 0:07:32.840 receive a loan. When you say there needs to be haircuts, 0:07:33.320 --> 0:07:38.400 who are you speaking to? That the the official bilateral 0:07:38.480 --> 0:07:43.480 creditors right now, and so that's uh, that's uh institutions 0:07:43.520 --> 0:07:47.320 in the US government institutions that are lending heavily. More 0:07:47.360 --> 0:07:50.920 than half of it now is China. Chinese institutions that 0:07:50.960 --> 0:07:55.160 have lent to these countries. Uh. They what they're doing 0:07:55.280 --> 0:07:59.080 right now is putting the debt payments at the end 0:07:59.120 --> 0:08:01.679 of the term. They're they're pushing it down the down 0:08:01.680 --> 0:08:04.960 the line rather than reducing it, so the net present 0:08:05.040 --> 0:08:08.680 value is being preserved. At some point, you have to 0:08:08.760 --> 0:08:11.760 reduce the net present value in order to create light 0:08:11.880 --> 0:08:14.200 at the end of the tunnel for the poorest countries. 0:08:14.560 --> 0:08:19.320 That's what we're that's what I've proposed. Also, the commercial creditors, 0:08:19.640 --> 0:08:23.280 the G twenties already asked them to do comparable treatment, 0:08:23.560 --> 0:08:27.840 meaning they would be reducing the net present value of 0:08:27.960 --> 0:08:31.320 the of the of their loans or of what's owed 0:08:31.320 --> 0:08:34.800 to them we're talking about, remember, the poorest countries. So 0:08:35.400 --> 0:08:38.880 given the pandemic, it doesn't make much sense for the 0:08:39.000 --> 0:08:42.880 wealthier countries and creditors to get back all of their 0:08:42.920 --> 0:08:46.040 money from the poorest countries and the people in those countries. 0:08:46.160 --> 0:08:47.920 We could just as well be talking about Europe, but 0:08:47.920 --> 0:08:50.880 we're talking about much much poorer countries. David, of course, 0:08:51.160 --> 0:08:52.760 and you have a lot of empathy for what they're 0:08:52.760 --> 0:08:55.160 going through right now, and I can sense that when 0:08:55.200 --> 0:08:58.320 you send this message to the Chinese Communist Party, how 0:08:58.360 --> 0:09:04.600 receptive are they? Yeah, They're They're receptive. President She has 0:09:04.600 --> 0:09:07.120 said he wants to fully participate and he wants all 0:09:07.200 --> 0:09:11.440 Chinese agencies to put fully participate in the suspension initiative. 0:09:12.080 --> 0:09:15.320 Then that gets into the details of what that means. 0:09:15.400 --> 0:09:18.199 So that's why what I've tried to do in the 0:09:18.280 --> 0:09:21.520 G seven meetings last Monday a week ago, and in 0:09:21.559 --> 0:09:25.840 the G twenty on Saturday, is be very specific about 0:09:25.880 --> 0:09:30.000 the need for the transparency. I'll give you one example. 0:09:30.360 --> 0:09:33.960 Central banks have been making deposits into other central banks 0:09:34.240 --> 0:09:38.280 and not not labeling it alone, so you make you know, 0:09:38.600 --> 0:09:40.800 I'll just put money in your bank account, but it's 0:09:40.840 --> 0:09:43.319 really still my money. But it's not alone to you 0:09:44.120 --> 0:09:48.000 that that needs to have more transparency on that practice, 0:09:48.320 --> 0:09:51.880 so that others when they're lending or giving grants to 0:09:51.920 --> 0:09:55.679 these countries know what the totality of the debt is. 0:09:56.000 --> 0:09:57.960 So a lot of the work that we're doing this 0:09:58.040 --> 0:10:00.559 month and next month, what the World Bank is, what 0:10:00.720 --> 0:10:04.080 I've had people doing is put on the websites all 0:10:04.120 --> 0:10:07.839 the information that we have and then invite more information. 0:10:08.000 --> 0:10:10.720 We can shine shine a lot of light on this 0:10:10.800 --> 0:10:16.160 and make progress. The reason it's so important is countries 0:10:16.240 --> 0:10:20.200 can then invite investment into their countries with the knowledge 0:10:20.320 --> 0:10:23.560 that it's that it's transparent, that the investor the new 0:10:23.600 --> 0:10:26.800 money coming in knows what it's getting. Devin mouth Pass 0:10:26.880 --> 0:10:29.440 fantastic to catch obvious, incredible inside and got to get 0:10:29.480 --> 0:10:31.360 you back on the program soon, Tavid mouth Pass there 0:10:31.400 --> 0:10:38.240 the World Bank President Casta nicol to now Intelligence Deputy 0:10:38.240 --> 0:10:40.800 director of research constant great to catch up and you 0:10:40.880 --> 0:10:43.120 just want me through that. Have we got an agreement 0:10:43.160 --> 0:10:46.320 on size and what does the discussion around strings attached 0:10:46.400 --> 0:10:50.520 sound like? Going into this evening, it seems that we 0:10:50.559 --> 0:10:53.280 have made some progress on the size of the actual 0:10:53.320 --> 0:10:56.800 recovery funds with these three nine billion in grants being 0:10:56.800 --> 0:11:00.480 proposed to by Chean Michel, the Council President. But as 0:11:00.520 --> 0:11:03.280 you just outlined, I think the question of kind of scrutiny, 0:11:03.360 --> 0:11:06.280 let's say, for you know, economic reforms on the ground, 0:11:06.600 --> 0:11:08.840 as well as the question of the rule of law 0:11:08.880 --> 0:11:11.640 when we're looking at the overall budget for Europe that 0:11:11.800 --> 0:11:13.840 is obviously still very much in the open and I 0:11:13.880 --> 0:11:15.720 think that's what we should be focusing on in the 0:11:15.840 --> 0:11:18.959 in the coming hours. Dr Nichol. There are there been 0:11:19.040 --> 0:11:22.479 changes since World War Two and how Europe does business, 0:11:22.480 --> 0:11:25.320 how Europe gets along. Is this one of those changes 0:11:25.679 --> 0:11:29.840 or is that asking too much? I think I think 0:11:29.880 --> 0:11:31.320 that's a good way of looking at it to be, 0:11:31.480 --> 0:11:35.400 to be honest, because this is politically transformative. What what 0:11:35.400 --> 0:11:38.000 what leaders are trying to couple together here. Let's make 0:11:38.000 --> 0:11:40.200 no mistake in terms of the overall size of the 0:11:40.200 --> 0:11:42.920 money that we're looking at, it probably won't be enough, 0:11:43.040 --> 0:11:45.240 So we'll be back to to to this point what 0:11:45.440 --> 0:11:47.439 in a couple of months, in a in a year 0:11:47.520 --> 0:11:50.400 or two from now. But I think the politically transformative 0:11:50.480 --> 0:11:53.120 moment is this idea of going to the to the 0:11:53.160 --> 0:11:57.080 market together as the European Union showing solidarity and also 0:11:57.120 --> 0:12:01.240 applying greater scrutiny for economic reform in those in those 0:12:01.240 --> 0:12:03.319 member states that are receiving the funds. So I think 0:12:03.320 --> 0:12:06.400 we shouldn't underestimate the political importance of what's going on 0:12:06.440 --> 0:12:08.080 here right now. That seems to be the argument from 0:12:08.080 --> 0:12:10.640 market participants as well, casting that it's not about size, 0:12:10.640 --> 0:12:13.000 it's about signal. And if this isn't enough, we've got 0:12:13.040 --> 0:12:16.200 a mechanism to come back and do it again. That's 0:12:16.200 --> 0:12:20.280 the takeaway. Overwhelmingly, that's the consensus. Custon. Do you believe 0:12:20.320 --> 0:12:22.480 that's the case. Is there any reason to believe that 0:12:22.480 --> 0:12:25.240 this is just a one off? No? No, I think 0:12:25.240 --> 0:12:29.480 that is the case, because you know, setting precedent in 0:12:29.520 --> 0:12:31.560 the in the process of European integration, if you look 0:12:31.600 --> 0:12:35.360 at it historically, UM, it has has always been very important. 0:12:35.720 --> 0:12:37.520 That of course, doesn't mean and I think that's the 0:12:37.559 --> 0:12:39.920 warning sign. That doesn't mean that the next round and 0:12:39.960 --> 0:12:42.240 the next steps that are still ahead of us will 0:12:42.280 --> 0:12:45.320 happen without conflict. Right So it doesn't mean that we're 0:12:45.320 --> 0:12:50.040 getting a deal today that basically sorts everything out going forward. Um. 0:12:50.080 --> 0:12:53.800 The closer we integrate, the more political conflict will play 0:12:53.800 --> 0:12:55.640 out on the European stage, and I think we're getting 0:12:55.640 --> 0:12:58.360 a first stage, the first taste of that already in 0:12:58.400 --> 0:13:02.599 these negotiations right now, of via concept tom politically transformative 0:13:02.640 --> 0:13:05.800 another way of saying, is it a Hamiltonian moment and 0:13:05.840 --> 0:13:08.280 the question of the frugal four and how they really 0:13:08.320 --> 0:13:11.920 feel towards the Southern states. Have there been any material 0:13:12.200 --> 0:13:16.160 concessions on the part of their attitude toward some of 0:13:16.200 --> 0:13:19.240 the southern states, and talking about Italy and Spain that 0:13:19.400 --> 0:13:24.560 are transformative in these negotiations, Carson, I think what is 0:13:24.559 --> 0:13:28.280 transformative here is the fact that even from the Bastian Cooks, 0:13:28.280 --> 0:13:30.600 the chancel of Austriy Mascult to the Prime Minister of 0:13:30.640 --> 0:13:34.920 the Netherlands, nobody has ever questioned the very idea of 0:13:34.920 --> 0:13:37.120 a recovery fund. That to me is the main, the 0:13:37.160 --> 0:13:40.320 main movement. We're fighting over, you know, five billion in 0:13:40.360 --> 0:13:43.920 Grandson in grants, we're fighting over the exact level of 0:13:43.920 --> 0:13:46.880 scrutiny and the government's mechanism to I'm sure that that's 0:13:46.880 --> 0:13:50.000 all good, that's that's all fine, But the very idea 0:13:50.080 --> 0:13:52.960 that in this exceptional situation the North of Europe that 0:13:53.080 --> 0:13:55.480 depends so heavily on the Single Market has to show 0:13:55.520 --> 0:13:58.560 solidarity with itself that had never really been questioned. And 0:13:58.600 --> 0:14:00.640 I think that to me is the is the change here, 0:14:01.120 --> 0:14:04.760 But Carson, this is important. Is Brussels changed by this 0:14:05.160 --> 0:14:08.880 or is another bare way until the next meeting. I 0:14:08.920 --> 0:14:12.640 think the most important thing that's changing is members states politics, 0:14:12.640 --> 0:14:14.880 domestic politics and the member states. And we've seen that 0:14:14.960 --> 0:14:17.960 over the last five to ten years everywhere across Europe. 0:14:17.960 --> 0:14:20.280 Were usually focused on the bad news, the rise of 0:14:20.320 --> 0:14:22.760 populism and so on and so forth, but you've also 0:14:22.800 --> 0:14:24.560 seen I mean, if you look at France, for instance, 0:14:24.560 --> 0:14:27.040 the emergence you know of of a staunchly pro European 0:14:27.120 --> 0:14:29.640 leader like like McCall, the change of heart that we've 0:14:29.640 --> 0:14:31.960 seen from Angela Machael in Germany on the last meters 0:14:31.960 --> 0:14:34.920 of her chansonship, that is, that is encouraging news. And 0:14:34.960 --> 0:14:37.080 so to me, the most important thing is what happened, 0:14:37.200 --> 0:14:39.640 is what's happening in the party systems of the most 0:14:39.680 --> 0:14:42.640 important member states, and they're indeed things have been happening. 0:14:42.680 --> 0:14:44.280 Cars and I hear you. The debate is about the 0:14:44.320 --> 0:14:46.800 size of this is not about the concept, and just 0:14:46.840 --> 0:14:48.880 by the very nature of the conversation right now. That 0:14:49.000 --> 0:14:51.960 is progress for the Europeans. On the final question though 0:14:51.960 --> 0:14:54.360 about the s evening, this has to be ratified at 0:14:54.400 --> 0:14:57.200 home for Prime Minister Rutter. How hard is he going 0:14:57.200 --> 0:14:59.640 to be this evening when it comes to strings attached 0:14:59.800 --> 0:15:02.720 to the grants they'll hand out. Yeah, I think that 0:15:02.800 --> 0:15:05.080 will be. That will be the key thing, of course, 0:15:05.120 --> 0:15:06.880 because he needs to be able to go home to 0:15:06.920 --> 0:15:09.520 the Netherlands and remember that we're going into an election 0:15:09.600 --> 0:15:13.760 year the marche Um and he's under massive pressure, of 0:15:13.760 --> 0:15:16.120 course from from the populist power right at home. So 0:15:16.160 --> 0:15:17.520 he needs to be able to go home and say 0:15:17.560 --> 0:15:19.560 we're not just putting money on the table, but we're 0:15:19.560 --> 0:15:22.600 actually gaining influence in the direction of better and more 0:15:22.640 --> 0:15:25.160 sustainable economic policies in the South. And if you can 0:15:25.200 --> 0:15:26.960 say that, then I think that's the pathway to would 0:15:26.960 --> 0:15:29.720 deal casta Nicol that's and no Intelligence Deputy Director of 0:15:29.880 --> 0:15:35.240 RESET first all that Dr Furman could join us, uh 0:15:35.320 --> 0:15:38.480 this morning. There's never been an Act ten, whether you 0:15:38.560 --> 0:15:42.400 do it virtual or in class, Jason this fall that 0:15:42.640 --> 0:15:46.760 has the magnitude of the changes we're seeing. How will 0:15:46.800 --> 0:15:50.960 we come out of these magnitude of changes, the magnitude 0:15:50.960 --> 0:15:57.800 of fiscal policy, the magnitude of monetary intrusion into our system. Well, 0:15:57.800 --> 0:15:59.600 first of all, will come out a lot better if 0:15:59.640 --> 0:16:03.200 we have a big magnitude. Then if we don't have 0:16:03.600 --> 0:16:07.720 a big magnitude, all the evidence of the last experience 0:16:07.800 --> 0:16:13.840 we had was going early, going big. You don't regret that, Um, 0:16:13.920 --> 0:16:16.760 you never regret that. I think a second thing, Tom, 0:16:16.840 --> 0:16:19.320 is we have to admit we're just uncertain. We don't 0:16:19.320 --> 0:16:21.920 know the path this virus is going to take. We 0:16:21.960 --> 0:16:25.000 don't know you know, what the pace of the recovery 0:16:25.080 --> 0:16:27.480 is going to be. It's very different in different states, 0:16:27.880 --> 0:16:30.520 and you need to build that uncertainty into your policy. 0:16:30.600 --> 0:16:35.600 Have it just automatically based on economic condition. We have 0:16:35.640 --> 0:16:39.720 a labor economics. Dr Furman did his move from furlough 0:16:40.080 --> 0:16:44.120 to I think layoff to now outright firings give us 0:16:44.160 --> 0:16:46.640 the tone you see in the American labor economy in 0:16:46.640 --> 0:16:52.120 the coming months. Will there be a wave of terminations, yeah, Tom, 0:16:52.120 --> 0:16:56.680 I think there's two downturns. One is the temporary layoff 0:16:56.760 --> 0:17:01.480 downturn that's like a natural disaster, and that's been getting 0:17:01.520 --> 0:17:05.680 better quickly. There's a second downturn, though, which is people 0:17:05.680 --> 0:17:09.320 who have been fired, people whose businesses have gone bankrupt. 0:17:09.880 --> 0:17:14.240 That downturn is getting worse a little bit every month. 0:17:14.720 --> 0:17:18.880 The fact that we're still seeing two million people claiming 0:17:18.960 --> 0:17:24.960 unemployment insurance, including the pandemic unemployment insurance, every week months 0:17:25.000 --> 0:17:29.639 after the shutdown, is very worrying about that second recession, 0:17:29.840 --> 0:17:32.560 which is sort of a normal recession and one that 0:17:32.640 --> 0:17:36.600 won't solve itself very quickly. Jason, Given the fact that 0:17:36.600 --> 0:17:38.680 we do not seem to be having the virus fully 0:17:38.720 --> 0:17:41.040 under control in the United States, given the fact that 0:17:41.080 --> 0:17:44.920 we've seen record numbers of cases over the past few weeks, 0:17:44.920 --> 0:17:48.720 how concerned are you about also an accelerating wave of bankruptcies, 0:17:48.760 --> 0:17:51.359 because some people are suggesting perhaps we've seen the peak 0:17:51.640 --> 0:17:56.720 when it comes to default. I'm worried about I mean, 0:17:56.760 --> 0:18:00.400 I mean, look, first of all, ultimately, bankruptcies are one 0:18:00.440 --> 0:18:03.720 of the functional things in the American economic system. We're 0:18:03.720 --> 0:18:06.680 better at bankruptcies and other countries we're better at having 0:18:06.720 --> 0:18:10.919 companies operate within it um that being had. If a 0:18:10.920 --> 0:18:13.560 lot of companies go bankrupt at once, if they don't 0:18:13.600 --> 0:18:17.800 have the financing to get through the bankruptcy and continue operating, 0:18:18.240 --> 0:18:21.000 that's what I'm really worried about and so want this. 0:18:21.520 --> 0:18:24.000 You know, for some companies, maybe the airlines should go 0:18:24.119 --> 0:18:26.720 through bankruptcy. That might be the right way to handle 0:18:27.280 --> 0:18:29.879 um their situation, but it would need to be done 0:18:30.359 --> 0:18:33.360 in an orderly and managed way. And yes, I think 0:18:33.359 --> 0:18:35.480 there's a lot more of them ahead of us, Jason, 0:18:35.520 --> 0:18:38.480 can you link the extension of the six hundred dollars 0:18:38.520 --> 0:18:42.280 of enhanced unemployment benefits with the corporate health of America? 0:18:42.359 --> 0:18:46.320 This idea that corporate profitability has been bolstered by those 0:18:46.440 --> 0:18:49.760 enhancement employment benefits? How much could that be threatened if 0:18:49.760 --> 0:18:55.880 there isn't an extension A lot. This is an amazing 0:18:56.520 --> 0:18:59.679 downturn where there's a huge hit to the U s 0:18:59.680 --> 0:19:04.000 eCOM ME, but consumer spending is right back where it 0:19:04.160 --> 0:19:08.560 was twelve months ago. Why is that? That's because disposable 0:19:08.600 --> 0:19:11.600 personal income is right back where it was, if not 0:19:11.680 --> 0:19:14.040 a little bit higher than it was twelve months ago. 0:19:14.640 --> 0:19:18.879 Why has income not fallen because of those unemployment insurance benefits? 0:19:18.920 --> 0:19:22.200 So um, this is a recession completely unlike the last 0:19:22.200 --> 0:19:25.960 one where you saw a huge decline UM in consumer spending. 0:19:26.080 --> 0:19:29.840 Here we've had the v shaped recovering consumer spending. It's 0:19:29.880 --> 0:19:33.160 been supported by the unemployment benefits um If they went 0:19:33.200 --> 0:19:34.919 away right now, it would be a big blow to 0:19:34.960 --> 0:19:38.400 the economent Jason, what's so interesting here is if it's 0:19:38.400 --> 0:19:41.760 a natural disaster, and if we can be optimistic that 0:19:41.840 --> 0:19:44.160 there will be a cure, there will be a better America, 0:19:44.200 --> 0:19:47.639 there'll be a better health, etcetera. What portion of the 0:19:47.760 --> 0:19:52.000 slowdown is strictly exogenous and drifts away or is any 0:19:52.040 --> 0:19:54.760 of it indogenous? And we really have to worry about 0:19:54.800 --> 0:19:59.840 an effect, a permanent effect on the American economy. I 0:20:00.000 --> 0:20:03.399 am worried that that natural disaster covers part of what 0:20:03.440 --> 0:20:07.560 we're seeing, But then you get the additional induced sort 0:20:07.560 --> 0:20:12.560 of normal recession that that causes. And you know, I 0:20:12.640 --> 0:20:15.520 have in my head a model where we get back 0:20:16.240 --> 0:20:19.800 about half of what we lost or two thirds of 0:20:19.840 --> 0:20:23.399 what we lost relatively quickly, and then the rest of 0:20:23.440 --> 0:20:27.520 it is a slog that takes years. So you know, 0:20:27.720 --> 0:20:29.800 just six digits. I don't want to pin you down here, 0:20:29.840 --> 0:20:32.160 but how much stimulus do we need in the next 0:20:32.160 --> 0:20:35.280 couple of weeks. We've got an operative number of one trillion, 0:20:35.640 --> 0:20:38.160 maybe one and a half trillion. We see a deficit 0:20:38.200 --> 0:20:40.280 out to four trillion. I mean, of those good numbers 0:20:40.320 --> 0:20:45.080 to you, are we low ball in the need? You know, 0:20:45.119 --> 0:20:48.760 if you did a well designed piece of legislation, I 0:20:48.840 --> 0:20:53.640 think about one point five trillion would be sufficient. If 0:20:53.640 --> 0:20:56.639 you throw in a bunch of nonsense which is likely 0:20:56.680 --> 0:21:01.320 to happen in Congress, and then you probably need brilliant 0:21:01.640 --> 0:21:05.400 Did you see how the professor from Harvard demigrates our politicians, 0:21:05.480 --> 0:21:08.200 calling it in a bunch of nonsense that doesn't happen 0:21:08.200 --> 0:21:10.439 in the United Kingdom. Well, he's not in government anymore, 0:21:10.440 --> 0:21:12.479 so it doesn't have to be as diplomatic, does he 0:21:12.520 --> 0:21:14.320 Isn't that the cheap guy to all this? Once you leave, 0:21:14.359 --> 0:21:19.720 Tommy can say, Jason, carry on. Just to be clear, 0:21:19.800 --> 0:21:21.119 by the way, I think the bulk of what's going 0:21:21.160 --> 0:21:25.520 to be in there is gonna be good. Some other stuff, 0:21:25.680 --> 0:21:27.359 don't wait, Jason, if we quote you will put that 0:21:27.400 --> 0:21:29.760 on the end. We promise, just to wrap things up, Jason, 0:21:29.800 --> 0:21:32.280 the experience of the last ten years, the nature of 0:21:32.359 --> 0:21:34.879 that particular crisis was so different to the nature of 0:21:34.920 --> 0:21:37.280 this one. Are there any lessons learned from a very 0:21:37.280 --> 0:21:40.680 shallow recovery in the previous ten years? For the recovery 0:21:40.680 --> 0:21:42.960 we were about to endure the one in front of us. Now, 0:21:44.680 --> 0:21:47.720 there were some things we could have done, stating local 0:21:47.760 --> 0:21:50.800 governments continued to cut back, it took about half a 0:21:50.840 --> 0:21:53.679 point of growth. Need to make sure they continue to 0:21:53.720 --> 0:21:58.679 be supported. Left time the stimulus ended prematurely. Need to 0:21:58.720 --> 0:22:03.280 continue it as long as it needed. But you know, 0:22:03.359 --> 0:22:05.520 I think there may be some sort of speed limit 0:22:05.560 --> 0:22:08.320 to how quickly people can reconnect to jobs, even if 0:22:08.320 --> 0:22:11.919 you have a lot of demand. And so, you know, 0:22:12.000 --> 0:22:16.840 we just need to be prepared for a lengthy recovery process, 0:22:17.040 --> 0:22:19.240 but do our best to speed it. One final question. 0:22:19.280 --> 0:22:21.480 You know the work of Jared Bernstein and others assisting 0:22:21.600 --> 0:22:25.240 Vice President Biden. His Vice President Biden called upon you 0:22:25.359 --> 0:22:30.520 for analysis of his new economic policy. I'm certainly in 0:22:30.560 --> 0:22:34.399 touch with people in the Biden camp, but um, you know, 0:22:34.520 --> 0:22:36.320 they think they have a lot of good ideas. You 0:22:36.359 --> 0:22:40.000 didn't tell him it was a bunch of nonsense. Uh, 0:22:40.160 --> 0:22:42.399 you know, like like everything, there are things I like, 0:22:42.600 --> 0:22:45.280 what I like, parts they don't like. Jason will let 0:22:45.320 --> 0:22:46.639 you go. It's always great to catch you with the 0:22:46.760 --> 0:22:52.000 Jayson firm and that of the Hobbit Kennedy School. Daniel lives. 0:22:52.280 --> 0:22:55.240 These would Wedbush Securities, and as you know, folks has 0:22:55.280 --> 0:22:58.160 been quite optimistic. You know, it's by the dip, Dan, 0:22:58.280 --> 0:23:00.800