WEBVTT - Conversations with the St. Louis Fed (Audio)

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<v Speaker 1>I'm here because it's the Homer Jones Memorial Lecture, the

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<v Speaker 1>big event for the St. Louis fed. Homer Jones is

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<v Speaker 1>noted for the way he took to a whole other

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<v Speaker 1>level the kind of research that was being done at

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<v Speaker 1>federalserve banks around the country. Carlos Kariga then in a

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<v Speaker 1>very important seat here as the director of research, and

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<v Speaker 1>I'm glad you had some time. It's a big day

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<v Speaker 1>for the bank. Where's this happy to be here. It's

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<v Speaker 1>a big day for the bank. And Homer George started

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<v Speaker 1>about sixty plays years ago what nowadays you know, became FRED,

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<v Speaker 1>our main data tool. Anybody can come to FRED and

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<v Speaker 1>look at their data. We have more than a hundred

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<v Speaker 1>thousand seats. And that started as an innovation thing back

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<v Speaker 1>in the nineteen sixties by Hommer Johnes. So it's great

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<v Speaker 1>to honor his memory. Okay, Well, one of your areas

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<v Speaker 1>of research is housing, the housing market, mortgage rates, how

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<v Speaker 1>it all feeds through the economy. And given what's going

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<v Speaker 1>on in the US housing market, I want to start

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<v Speaker 1>with that. Uh, particularly this this turn in the housing

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<v Speaker 1>market three on the thirty year fixed roughly up to

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<v Speaker 1>about seven percent. It feels like it happened in a

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<v Speaker 1>matter of weeks. It hit the market so hard. When

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<v Speaker 1>have mortgage rates done this in the past. Is this

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<v Speaker 1>almost unprecedented? Are we seen something like this? Well, we

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<v Speaker 1>had hybrid is raised in the past, you don't have

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<v Speaker 1>to go that far. In nearly two thousands and even

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<v Speaker 1>in the late nineties we had mortgage rates at digit level.

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<v Speaker 1>But such a rapid turn in a matter of you know,

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<v Speaker 1>two quarters, it's kind of unprecedented. We had, you know,

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<v Speaker 1>a sizeable increase in the early two thousand and five

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<v Speaker 1>or so, but it has been ratily dramatic. But we

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<v Speaker 1>also had a very rapid increasing inflation in the second

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<v Speaker 1>half of one so we have to be mindful about

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<v Speaker 1>how quick inflation escalated. And I think that's just, you know,

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<v Speaker 1>the appropriate reaction given how quick inflation moved. Sure well,

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<v Speaker 1>And one of the axioms in monetary theory people say

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<v Speaker 1>it over monetary policy has long and variable lags. There

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<v Speaker 1>was not much of a lag between the way progressive

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<v Speaker 1>rate hikes, particularly once the FED picked up the pace,

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<v Speaker 1>and what happened to mortgage rates. Uh As transmission of

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<v Speaker 1>monetary policy in some fundamental way changed, well, I mean,

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<v Speaker 1>this is kind of the same from the nineteen sixties

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<v Speaker 1>and nineteen seventies, and we all understand that the economy

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<v Speaker 1>is very different fifty years later. We have a much

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<v Speaker 1>more developed financial market and credit is a key player.

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<v Speaker 1>So it really transmit to create a sensitive sectors. But

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<v Speaker 1>non created sensitive sectors are also connected to create sensitive sectors.

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<v Speaker 1>And really stated a classical example, when we increase rates more,

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<v Speaker 1>you know, the coastal borrowing goes up, and that reduces

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<v Speaker 1>the demand for housing. The properties usually stay a bit

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<v Speaker 1>longer in the market, and there's a lot of purchases

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<v Speaker 1>that are tied to housing. People that buy a new house,

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<v Speaker 1>they often buy dotable goods and so on and so forth.

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<v Speaker 1>So that really connects the housing sector to the rest

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<v Speaker 1>of the economy. And and so the lacks that would

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<v Speaker 1>argue have been reduced dramatically, and housing is one of

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<v Speaker 1>the sectors that is more interconnected to the rest of

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<v Speaker 1>the economy, not only in terms of the value added,

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<v Speaker 1>but also in terms of employment. Employment growth in the

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<v Speaker 1>construction sector also leads employing growth in other sectors in

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<v Speaker 1>the economy. And that's what we see from looking at

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<v Speaker 1>deep without put table, and it's very different now than

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<v Speaker 1>it was, you know, about fifty years ago, so we

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<v Speaker 1>have to be mindful about that. So being mindful about

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<v Speaker 1>how it's changed, What does that mean for the economy,

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<v Speaker 1>What does it mean for UH monetary policy? And I

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<v Speaker 1>mean central banks broadley. This is just ant happening in

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<v Speaker 1>in the US with the FED, It's happening with other

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<v Speaker 1>central banks around the world. It's certainly not unique to

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<v Speaker 1>the US. And housing markets in essence are similar, but

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<v Speaker 1>financing markets for housing are very different across countries. We

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<v Speaker 1>have across the border Canada that has a very different

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<v Speaker 1>housing finance market, and we see that throughout Europe. So

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<v Speaker 1>that really changed the transmission mechan is, and that's a

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<v Speaker 1>key feature of how you know, financial markets are connected

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<v Speaker 1>with the real economy, and we have to be mindful

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<v Speaker 1>about how that change the transmission mechan is in terms

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<v Speaker 1>of the size but also in terms of the speed.

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<v Speaker 1>A lot of countries now are seeing their hormoners facing

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<v Speaker 1>sizeable research, whereas in this country the majority of hormoners

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<v Speaker 1>have fixed laans. So in some sense inflation is really

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<v Speaker 1>the fleeting the real value their aim, and so transmission

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<v Speaker 1>is going to be very very different, and we went

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<v Speaker 1>through a massive refinance emperiod in the last couple of years,

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<v Speaker 1>so there's a lot of you know, disposable income in

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<v Speaker 1>the part of the households. And what about mortgage debt

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<v Speaker 1>and what's difference now from the nineteen seventies, Well, the

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<v Speaker 1>shadow mortgage they're relative to disposable income in the nineties

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<v Speaker 1>seventies eighties was substantially lower than what we have right

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<v Speaker 1>now and now it's what before it was roughly about

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<v Speaker 1>fifty So that's just a big change in terms of

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<v Speaker 1>the volume and also in the composition. In the late

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<v Speaker 1>seventies early eighties, that was when the baby generation was

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<v Speaker 1>entered in the housing market, so we were expecting a

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<v Speaker 1>big increase in real estate prices. That didn't happen because

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<v Speaker 1>of the high inflation. Now we have those households and

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<v Speaker 1>the tailing of the life cycle and they're in a

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<v Speaker 1>very different position. And now we have the millenniums getting

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<v Speaker 1>into the market. Plus the COVID chock really changed a

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<v Speaker 1>whole lot of things. So how does that feed through

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<v Speaker 1>now when this central bank, the FED is racing rates

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<v Speaker 1>rapidly in bigger steps? Is there some risk there with

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<v Speaker 1>mortgage debt and debt holders, there's no immediate risk or

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<v Speaker 1>on mortgage debt like what we signed two thousand or seven,

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<v Speaker 1>what we would expect would be as low adjudgtment correction

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<v Speaker 1>in the housing market, price adjustment downward. We would see

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<v Speaker 1>we're already seeing in some areas inventory building up. But

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<v Speaker 1>we had inventory levels that were a normally low the

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<v Speaker 1>average historical value somewhere between six to eight months, and

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<v Speaker 1>we had inventory levels down to two months. So what

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<v Speaker 1>we would expect, just like what we see in vacancy,

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<v Speaker 1>is it's just an adjustment of correction to more normal levels. Now,

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<v Speaker 1>it could be the case that we're in a new

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<v Speaker 1>norm and may be a bit different from what we

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<v Speaker 1>see historically, but we're too far from those levels. So

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<v Speaker 1>another trend in the last few years has been private

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<v Speaker 1>investors buying up lots of a real estate and not

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<v Speaker 1>just multiple family dwellings but single family homes. Uh where

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<v Speaker 1>does that stand now? And what does that mean for

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<v Speaker 1>home affordability? Because there you can find individuals at oh

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<v Speaker 1>I couldn't buy the house for what two hundred fifty

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<v Speaker 1>seven thousand dollars that I thought I could. Now those

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<v Speaker 1>prices are over four hundred thousand because there's so much

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<v Speaker 1>demand from private investors. What we're gonna see now is

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<v Speaker 1>to what extends some of the trend that really started

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<v Speaker 1>to pick up in two thousand nine two thousand eleven,

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<v Speaker 1>in which you know, investors moved from equity about market

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<v Speaker 1>into real estate market could be reversed. These investors, they

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<v Speaker 1>provide a fair amount of liquidity across the U. S landscape,

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<v Speaker 1>not only in the big cities and vacation in areas,

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<v Speaker 1>but throughout looking for yields. And what we're finding is

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<v Speaker 1>that now it could be a perfect opportunity for them

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<v Speaker 1>to kind of cash out the capital games that they

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<v Speaker 1>have a crew pretty much in the last decade. If

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<v Speaker 1>you bought in two thousand and twelve and you have,

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<v Speaker 1>you know, had substantial cashuals coming out of certain properties

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<v Speaker 1>because you were listening them out, now may be a

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<v Speaker 1>good opportunity for you to kind of liquidate that investment

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<v Speaker 1>position and move to other markets. And that might be

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<v Speaker 1>a trend that we may see and that should help

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<v Speaker 1>to mitigate the affordability crisis. If you bought in two

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<v Speaker 1>thousand and twelve, you have plenty of it within the property.

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<v Speaker 1>So even if you see a market correction where prices

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<v Speaker 1>decline you used to on a pretty good territory, and

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<v Speaker 1>I would assume not not the hugest part of the

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<v Speaker 1>business landscape, but in terms of the profitability or how

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<v Speaker 1>strong they are fundamental, because there's a lot of concerns

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<v Speaker 1>now about debt that the companies are holding. Uh, it

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<v Speaker 1>seems that if they if they bought low and are

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<v Speaker 1>selling high, they're in a position now they should be

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<v Speaker 1>I would expect. So, I mean, I'm not concerned about

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<v Speaker 1>that positions at this point. As we were in two

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<v Speaker 1>thousand and five to two thou seven, that was more

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<v Speaker 1>of a concern. We had abundant supply coming to the

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<v Speaker 1>market at a period where you know, inventory was spilling

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<v Speaker 1>up and prices were decreasing and incomes were at risk.

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<v Speaker 1>Whatevery different situation with the current lebal market. We're still

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<v Speaker 1>a lot of mobility. Is a very strong leberal market,

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<v Speaker 1>one of the ones, the strongest one that we have

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<v Speaker 1>seen in the last three decades. So that concern coming

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<v Speaker 1>from the leberal market that ultimately funds those mortgage payments

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<v Speaker 1>does not seem to be there right now, at least

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<v Speaker 1>what we can see the near term and the households

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<v Speaker 1>have plenty of equity and pretty much everybody had to

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<v Speaker 1>refinance the refinance in the last couple of years to

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<v Speaker 1>putty a little mortgage rates. So final question, if Homer

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<v Speaker 1>Jones were here, and he would we're advising you on

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<v Speaker 1>your your next project when it comes to housing mortgages.

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<v Speaker 1>This area of the economy US globally is become so important.

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<v Speaker 1>What would he be advising you to look at? I mean,

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<v Speaker 1>that's an excellent question. I guess that the challenge going

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<v Speaker 1>forward is going to be internationalist billovers. How economy is

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<v Speaker 1>bouncing back from this COVID pandemic, plus the underlying structural

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<v Speaker 1>the changes are going on in the economy is going

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<v Speaker 1>to shape everything. We're seeing geo political changes and everything

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<v Speaker 1>kind of feeds into everything, and that's going to pose

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<v Speaker 1>interesting challenges. But we do know that, you know, the U.

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<v Speaker 1>S economy is one of the strongest one globally, and

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<v Speaker 1>we're seeing that with this frank of the dollar. When

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<v Speaker 1>things are uncertain, the dollar picks up a lot of

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<v Speaker 1>the strengths. I would say that we would still maintain

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<v Speaker 1>that position and and that's kind of good news for us.

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<v Speaker 1>All Right, Well, Karlov Karriga, thank you so much for

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<v Speaker 1>joining us today here at the Federatory Bank of St.

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<v Speaker 1>Louis on this very important Homer Jones Memorial Lecture day.

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<v Speaker 1>And plus they're always happy to have you equal all right,

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<v Speaker 1>Paula Matta, having a great time starting the day off

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<v Speaker 1>with a very interesting conversation, and the course will be

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<v Speaker 1>continuing throughout the day. I'm very happy to welcome to

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<v Speaker 1>Bloomberg rade you at the Federal Bank of St. Louis

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<v Speaker 1>on this very important day when they honor one of

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<v Speaker 1>the top economists in the country with the Homer Jones

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<v Speaker 1>Memorial Award and he gives a lecture. Sar prasade As

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<v Speaker 1>he said, professor of Cornell University, Senior Fellow of Brookings

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<v Speaker 1>and the author of another new book, The Future of Money,

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<v Speaker 1>How Digital transfer revolution is transforming currencies and finance. On

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<v Speaker 1>a busy day for you, Glad you could find the

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<v Speaker 1>time as well. It's a pleasure, Kathleen. So you've written papers,

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<v Speaker 1>two books about the dollar, its role in the world.

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<v Speaker 1>What drew you to cryptocurrencies and all the changes it's

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<v Speaker 1>it's doing and actually signaling, You know, I hang out

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<v Speaker 1>with central bankers a lot and a few years ago,

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<v Speaker 1>questions started arising about what the digital revolution might mean

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<v Speaker 1>for banking financing, particularly for central banks. So my plan

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<v Speaker 1>was to think about central bank digital currencies CBDCs and

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<v Speaker 1>what role they might play in in finance. But it

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<v Speaker 1>quickly became apparent to me that one needed to think

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<v Speaker 1>about basic developments taking place in financial markets as a

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<v Speaker 1>result of technology, which goes under the term fintech. Then

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<v Speaker 1>to think about cryptocurrencies and what they might mean for finance,

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<v Speaker 1>and then central bank digital currencies and what it might

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<v Speaker 1>all mean for the structure of financial markets and institutions,

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<v Speaker 1>central banking, and indeed the international monetary system, which is

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<v Speaker 1>why what was meant to be a slim little volume

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<v Speaker 1>turned into a five page tom I want to jump

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<v Speaker 1>into that, but I just have to ask you quickly.

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<v Speaker 1>Were you a little bit horror fight as you saw

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<v Speaker 1>bitcoin shooting up as high as a cart falling back down,

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<v Speaker 1>knowing that a lot of small investors who maybe have

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<v Speaker 1>invested much for getting swept along and maybe a not

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<v Speaker 1>so good way into this cryptocurrency world. You know, Kathleen,

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<v Speaker 1>one of the great joys in writing this book was

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<v Speaker 1>learning about the technology underlying bitcoin, and it's a phenomenal

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<v Speaker 1>technology if you think about what bitcoin is trying to accomplish,

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<v Speaker 1>being able to conduct transactions without using a trusted intermediary,

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<v Speaker 1>without even revealing a digital identity, actual identity, and just

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<v Speaker 1>using a digital identity, it's phenomenal. But bitcoin was meant

0:11:33.960 --> 0:11:36.000
<v Speaker 1>to be a medium of exchange. Instead it's become a

0:11:36.000 --> 0:11:39.520
<v Speaker 1>speculative financial asset, and as you've pointed out, many people

0:11:39.559 --> 0:11:42.360
<v Speaker 1>seem to have gotten taken in by the razzle dazzle

0:11:42.400 --> 0:11:45.600
<v Speaker 1>of the new technology, don't understand what risks they're taking on.

0:11:45.920 --> 0:11:48.640
<v Speaker 1>And if you're a wealthy investor willing to take a

0:11:48.720 --> 0:11:50.920
<v Speaker 1>roll of the dice, it's one thing. If you're an

0:11:50.960 --> 0:11:53.760
<v Speaker 1>unsophisticated investor putting a lot of your life savings on

0:11:53.800 --> 0:11:57.720
<v Speaker 1>the line, that is a buddying proposition. And certainly the

0:11:57.800 --> 0:12:02.120
<v Speaker 1>bitcoin price alatility has given us a lot to worry about. Well.

0:12:02.400 --> 0:12:06.720
<v Speaker 1>Central banks concerned about financial stability of decentralized payment systems

0:12:07.160 --> 0:12:10.360
<v Speaker 1>UH stable coins and how they can displace cash, you know,

0:12:10.440 --> 0:12:15.600
<v Speaker 1>traditional systems. At the same time, they're moving very slowly, carefully,

0:12:15.600 --> 0:12:18.960
<v Speaker 1>i might even say reluctantly to develop CBDC central bank

0:12:19.000 --> 0:12:23.000
<v Speaker 1>Digital coins. Yeah, I think all central banks rightly think

0:12:23.040 --> 0:12:25.920
<v Speaker 1>about the dangers of stepping in where the private sector

0:12:25.960 --> 0:12:28.920
<v Speaker 1>could provide services equally well. And there is clearly a

0:12:29.000 --> 0:12:33.319
<v Speaker 1>need for better payment systems, both domestically between consumers, between

0:12:33.320 --> 0:12:37.320
<v Speaker 1>consumers and businesses between businesses, and also the international level

0:12:37.360 --> 0:12:40.480
<v Speaker 1>where there are huge frictions in terms of payments. So

0:12:40.520 --> 0:12:44.120
<v Speaker 1>when you think about cryptocurrencies like stable coins, they're trying

0:12:44.160 --> 0:12:46.640
<v Speaker 1>to meet a real need. And of course, in many

0:12:46.679 --> 0:12:50.160
<v Speaker 1>developing countries and advanced economies around the world, the private

0:12:50.160 --> 0:12:52.959
<v Speaker 1>sector is doing a great job of providing low cost,

0:12:53.040 --> 0:12:56.000
<v Speaker 1>easy access digital payments. So the question is what is

0:12:56.000 --> 0:12:59.600
<v Speaker 1>the value proposition for a CBDC, And I think central

0:12:59.600 --> 0:13:02.360
<v Speaker 1>banks are rightly concerned that it could lead to some

0:13:02.480 --> 0:13:08.199
<v Speaker 1>risks of financial instability, disintermediation, the banking system, perhaps private

0:13:08.200 --> 0:13:11.400
<v Speaker 1>sector innovation in terms of payments being limited, so they're

0:13:11.400 --> 0:13:14.360
<v Speaker 1>treading very cautiously. But one thing that's clear is that

0:13:14.480 --> 0:13:17.960
<v Speaker 1>we definitely need better payment systems because after all, that's

0:13:17.960 --> 0:13:20.320
<v Speaker 1>the key lubricant of any market economy, and if it

0:13:20.320 --> 0:13:23.400
<v Speaker 1>doesn't work well and efficiently, there are things that could

0:13:23.400 --> 0:13:27.160
<v Speaker 1>be improved. So how big is the threat of these

0:13:27.160 --> 0:13:31.120
<v Speaker 1>digital payment systems to commercial banks. From the beginning, it's

0:13:31.160 --> 0:13:34.200
<v Speaker 1>been Oh, if people don't put their deposits in JP

0:13:34.320 --> 0:13:37.360
<v Speaker 1>Morgan and Bangup America and other places, that's going to

0:13:37.440 --> 0:13:41.240
<v Speaker 1>be a problem. So stable coins are an interesting element

0:13:41.280 --> 0:13:43.640
<v Speaker 1>of this discussion, and of course they could post a

0:13:43.720 --> 0:13:46.600
<v Speaker 1>threat to banks if they become seen as a deposit

0:13:46.640 --> 0:13:51.320
<v Speaker 1>taking institutions. Now, the interesting irony of stable coins, of course,

0:13:51.440 --> 0:13:55.079
<v Speaker 1>is that they completely wciate what Bitcoin was supposed to accomplish,

0:13:55.080 --> 0:13:58.239
<v Speaker 1>which is a departure from the dependence on fiard currencies.

0:13:58.559 --> 0:14:02.120
<v Speaker 1>Stable coins get their stable value precisely by being backed

0:14:02.200 --> 0:14:05.920
<v Speaker 1>up by stores of fiat currencies, but many stable coin

0:14:05.960 --> 0:14:09.600
<v Speaker 1>issuers do provide interstrates, and there is a concern that

0:14:09.640 --> 0:14:12.920
<v Speaker 1>if people see stable coins as being more functional in

0:14:13.000 --> 0:14:16.720
<v Speaker 1>terms of payment mechanisms and perhaps even offering higher interstrates

0:14:16.720 --> 0:14:19.840
<v Speaker 1>and bank deposits, then you could get a disintermediation of

0:14:19.880 --> 0:14:22.880
<v Speaker 1>the banking system. You could also have instability in the

0:14:22.880 --> 0:14:26.480
<v Speaker 1>financial system coming from stable coins themselves. That risk, I

0:14:26.520 --> 0:14:29.320
<v Speaker 1>think is somewhat mitigated by the fact that stable coins

0:14:29.360 --> 0:14:31.000
<v Speaker 1>need to be backed up one to one, so they

0:14:31.040 --> 0:14:34.280
<v Speaker 1>didn't affect narrow banks. It's not a huge threat but

0:14:34.400 --> 0:14:36.440
<v Speaker 1>there are other risks of the financial system we need

0:14:36.480 --> 0:14:38.720
<v Speaker 1>to worry about. You know, it's interesting because we look

0:14:38.760 --> 0:14:41.360
<v Speaker 1>at emerging markets, developing economies and all the advantages they

0:14:41.400 --> 0:14:46.000
<v Speaker 1>could get from these digital payment systems, stable coins, etcetera.

0:14:46.440 --> 0:14:48.440
<v Speaker 1>But you see some risks I don't know. I everybody

0:14:48.440 --> 0:14:52.360
<v Speaker 1>thinks about two emerging markets in this transition. You know,

0:14:52.520 --> 0:14:55.200
<v Speaker 1>a friction free international payments are a wonderful thing for

0:14:55.240 --> 0:14:58.880
<v Speaker 1>economic migrants send remittances back to their home countries for

0:14:58.960 --> 0:15:02.360
<v Speaker 1>small and mediumental prices, trying to access global pools of capital,

0:15:02.680 --> 0:15:07.480
<v Speaker 1>for investors looking for international portfolio diversification opportunities. But you

0:15:07.560 --> 0:15:09.880
<v Speaker 1>could have digital versions of the dollar of their in

0:15:10.000 --> 0:15:13.000
<v Speaker 1>min b being easily available in the future. You could

0:15:13.040 --> 0:15:16.560
<v Speaker 1>even have stable coins issued by major corporations UM such

0:15:16.600 --> 0:15:19.160
<v Speaker 1>as Amazon and perhaps one day Meta will provive with

0:15:19.240 --> 0:15:23.760
<v Speaker 1>stable coin project. These currencies, either private or official, might

0:15:23.840 --> 0:15:28.000
<v Speaker 1>be trusted more than the currencies issued by non credible

0:15:28.080 --> 0:15:32.080
<v Speaker 1>central banks UM in small open economies. So there is

0:15:32.120 --> 0:15:35.720
<v Speaker 1>an existential threat I think to some of these smaller currencies,

0:15:36.120 --> 0:15:39.680
<v Speaker 1>especially currencies and economies that are mismanaged or where the

0:15:39.720 --> 0:15:42.880
<v Speaker 1>central banks are not credible, so there's their currency could

0:15:42.920 --> 0:15:45.720
<v Speaker 1>get tanked. That's right, You could bear a real shakeout

0:15:45.720 --> 0:15:48.840
<v Speaker 1>because everybody in the country might decide that it's easier

0:15:48.840 --> 0:15:51.040
<v Speaker 1>to trust the currency issued by one of the major

0:15:51.080 --> 0:15:54.560
<v Speaker 1>economies or even one of the major corporations, because they

0:15:54.560 --> 0:15:57.760
<v Speaker 1>have deeper pockets and are more trustworthy than the domestic

0:15:57.800 --> 0:16:01.160
<v Speaker 1>central banks. So this could be a problem and dollar dominance,

0:16:01.280 --> 0:16:03.360
<v Speaker 1>I think maybe are some people are sort of hoping

0:16:03.440 --> 0:16:05.400
<v Speaker 1>that also push the dollar back a bit and their

0:16:05.440 --> 0:16:07.560
<v Speaker 1>currencies can rise, and that's going to happen. What do

0:16:07.600 --> 0:16:10.680
<v Speaker 1>you think that is the great hope that perhaps digital

0:16:11.400 --> 0:16:14.600
<v Speaker 1>technologies will provide a way to displace a dollar in

0:16:14.640 --> 0:16:17.840
<v Speaker 1>this medium of exchange or store of value function. Perhaps

0:16:18.000 --> 0:16:20.840
<v Speaker 1>if the digital uan were to be easily available, you

0:16:20.920 --> 0:16:24.200
<v Speaker 1>could see it getting a little more traction and international payments.

0:16:24.240 --> 0:16:26.080
<v Speaker 1>But the reality is that people are not going to

0:16:26.080 --> 0:16:28.800
<v Speaker 1>trust the currency just because it's available in digital form.

0:16:29.120 --> 0:16:32.120
<v Speaker 1>They care about what lies behind the currency, you know,

0:16:32.240 --> 0:16:35.720
<v Speaker 1>deep and liquid financial markets, but more importantly, what is

0:16:35.800 --> 0:16:39.680
<v Speaker 1>necessary to engender the trust of foreign investors and domestic investors.

0:16:40.000 --> 0:16:42.960
<v Speaker 1>There is an institutional system such as an independent central

0:16:43.000 --> 0:16:47.120
<v Speaker 1>bank and a system of checks and balances. All of

0:16:47.160 --> 0:16:50.200
<v Speaker 1>these are really important to inspire the trust of foreign investors.

0:16:50.560 --> 0:16:53.360
<v Speaker 1>I don't think there is any other economy um that

0:16:53.440 --> 0:16:56.720
<v Speaker 1>has the financial and economic might the US does and

0:16:56.920 --> 0:16:59.640
<v Speaker 1>is also backed up by an institutional framework of this sort.

0:17:00.000 --> 0:17:01.400
<v Speaker 1>So I don't think the dollar is going to be

0:17:01.400 --> 0:17:06.280
<v Speaker 1>significantly threatened anytime soon. Getting outside the crypto around for

0:17:06.280 --> 0:17:10.000
<v Speaker 1>a minute, Uh, strong dollar getting stronger all the time.

0:17:10.720 --> 0:17:13.600
<v Speaker 1>I am a World Bank meetings last week. It's a concern.

0:17:14.240 --> 0:17:17.879
<v Speaker 1>They say, go ahead, keep doing those rate hikes. But

0:17:19.080 --> 0:17:21.280
<v Speaker 1>what kind of risk do you see? What are your

0:17:21.320 --> 0:17:24.040
<v Speaker 1>concerns about this dollar that continues to strengthen. What it

0:17:24.080 --> 0:17:26.480
<v Speaker 1>means for the rest of the world. Well, it's a

0:17:26.520 --> 0:17:28.920
<v Speaker 1>sign of two things. One is that the US economy

0:17:28.960 --> 0:17:32.800
<v Speaker 1>has slightly better prospects, even though not great prospects, relative

0:17:32.880 --> 0:17:35.720
<v Speaker 1>to the rest of the world. And there is a

0:17:35.760 --> 0:17:37.960
<v Speaker 1>desire for safety. Right now. There is a great deal

0:17:38.000 --> 0:17:41.040
<v Speaker 1>of financial and economic termoil around the world, and people

0:17:41.080 --> 0:17:43.960
<v Speaker 1>still look to the U. S Dollar for safety. So

0:17:44.040 --> 0:17:47.000
<v Speaker 1>this is a bit of a paradox because a strong

0:17:47.080 --> 0:17:49.280
<v Speaker 1>dollar helps the U S a little bit of the

0:17:49.320 --> 0:17:52.240
<v Speaker 1>margin it makes important goes a little cheaper here, but

0:17:52.320 --> 0:17:55.200
<v Speaker 1>the positive effect is not that large. But for countries

0:17:55.240 --> 0:17:58.080
<v Speaker 1>around the world whose currency is are depreciating against a dollar,

0:17:58.440 --> 0:18:01.960
<v Speaker 1>it means more domestic in lationary pressures because lots of

0:18:02.000 --> 0:18:05.200
<v Speaker 1>international trade is still priced in dollars, so the prices

0:18:05.200 --> 0:18:08.119
<v Speaker 1>and domestic currencies of those goods go up. The cost

0:18:08.160 --> 0:18:12.040
<v Speaker 1>of financing debt um that is UH and servicing debt

0:18:12.280 --> 0:18:14.600
<v Speaker 1>that has been denominated in dollars is very high. So

0:18:14.680 --> 0:18:16.880
<v Speaker 1>for the rest of the world it's a huge negative.

0:18:17.119 --> 0:18:20.440
<v Speaker 1>So this asymmetry is a real problem for the world economy.

0:18:20.680 --> 0:18:22.760
<v Speaker 1>But right now there doesn't seem to be any easy

0:18:22.800 --> 0:18:24.640
<v Speaker 1>way out of it because the FED has to do

0:18:24.920 --> 0:18:26.960
<v Speaker 1>what it needs to do because otherwise we could get

0:18:27.080 --> 0:18:32.199
<v Speaker 1>higher rate hikes and even more economic pain down the road. Now, you,

0:18:32.480 --> 0:18:35.840
<v Speaker 1>as represent are giving the Homo Jones Memorial lecture today

0:18:35.920 --> 0:18:39.040
<v Speaker 1>quite an honor. Is there some point you're making in

0:18:39.240 --> 0:18:41.560
<v Speaker 1>that lecture You can't tell us exactly what you're saying

0:18:41.560 --> 0:18:44.680
<v Speaker 1>that that we would likely like to leave us with today.

0:18:45.600 --> 0:18:47.480
<v Speaker 1>I think it's going to be an interesting era of

0:18:47.600 --> 0:18:51.880
<v Speaker 1>competition in various forms of money um as we just discussed.

0:18:51.920 --> 0:18:54.200
<v Speaker 1>I think that is going to be competition between privately

0:18:54.200 --> 0:18:57.560
<v Speaker 1>issued moneies and central bank FIAT currencies in the medium

0:18:57.560 --> 0:19:00.320
<v Speaker 1>of exchange function even at the international and I can

0:19:00.320 --> 0:19:04.359
<v Speaker 1>see digital versions of some currencies beginning to, uh, you know,

0:19:04.760 --> 0:19:07.439
<v Speaker 1>at least compete with the dollar more effectively. So a

0:19:07.480 --> 0:19:10.440
<v Speaker 1>lot more interesting currency competition, and as an economist, I

0:19:10.480 --> 0:19:14.399
<v Speaker 1>think competition is a good thing, all right. Thank you

0:19:14.400 --> 0:19:17.240
<v Speaker 1>for joining us. Professor at Colonel University, senior fellow at

0:19:17.240 --> 0:19:20.640
<v Speaker 1>the Brookings Institute, and the author of a new book,

0:19:20.680 --> 0:19:23.960
<v Speaker 1>The Future of Money, How the Digital Revolution is transforming

0:19:24.040 --> 0:19:27.000
<v Speaker 1>Currencies and Finance. Thank you for joining us today here

0:19:27.040 --> 0:19:29.760
<v Speaker 1>at the St. Louis fed on Bloomberg Radio. It's been

0:19:29.800 --> 0:19:30.679
<v Speaker 1>my pleasure. Kathleen