1 00:00:09,880 --> 00:00:13,800 Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley. 2 00:00:13,960 --> 00:00:17,560 Speaker 1: We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,480 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:27,200 Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Is. 5 00:00:27,240 --> 00:00:30,440 Speaker 1: It's easy to say that Jared Bernstein was an advisor 6 00:00:30,560 --> 00:00:34,920 Speaker 1: on economics and on politics to Vice President Biden, but 7 00:00:35,080 --> 00:00:38,680 Speaker 1: far more importantly, he is one of the liberal economists, 8 00:00:38,680 --> 00:00:44,040 Speaker 1: progressive economists in Washington that every conservative reads and studies. 9 00:00:44,080 --> 00:00:47,559 Speaker 1: He's been doing it for decades Economic Policy Institute and 10 00:00:47,560 --> 00:00:51,040 Speaker 1: now at the Center on Budget and Policy Priorities. Jared, 11 00:00:51,120 --> 00:00:54,160 Speaker 1: we are thrilled you're with us today. What does the 12 00:00:54,200 --> 00:00:58,800 Speaker 1: Biden mandate forward? What does Vice President Biden need to 13 00:00:58,920 --> 00:01:02,680 Speaker 1: do to be not to those committed to MN but 14 00:01:02,800 --> 00:01:06,720 Speaker 1: the marginal voters looking for the Biden message? What does 15 00:01:06,720 --> 00:01:09,120 Speaker 1: he need to say? First of all, it's always great 16 00:01:09,160 --> 00:01:11,080 Speaker 1: to start the day with the three of you. It's 17 00:01:11,160 --> 00:01:13,920 Speaker 1: just fascinating to hear just sitting here in the green 18 00:01:14,000 --> 00:01:18,479 Speaker 1: room listening to your to your wrap. Uh. The vice 19 00:01:18,480 --> 00:01:22,280 Speaker 1: president is running for office that uh in the midst 20 00:01:22,319 --> 00:01:26,440 Speaker 1: of really three crises a COVID crisis, health crisis that 21 00:01:26,560 --> 00:01:28,560 Speaker 1: is an economic one, which of course stems from the 22 00:01:28,560 --> 00:01:32,479 Speaker 1: health crisis, and now just an outpouring of racial violence, which, 23 00:01:32,600 --> 00:01:34,560 Speaker 1: as I think I heard at least implicit in some 24 00:01:34,640 --> 00:01:38,039 Speaker 1: of your comments, feels very justified for for a lot 25 00:01:38,080 --> 00:01:41,560 Speaker 1: of people. And uh, this is the time, as you 26 00:01:41,560 --> 00:01:43,520 Speaker 1: you just played some tape in saying to bring the 27 00:01:43,600 --> 00:01:48,000 Speaker 1: nation together and to restore a competent federal sector, something 28 00:01:48,080 --> 00:01:51,000 Speaker 1: we so sorely lack that can meet the kind of 29 00:01:51,080 --> 00:01:54,760 Speaker 1: shocks that come out a global economy fast and furiously, 30 00:01:54,800 --> 00:01:59,200 Speaker 1: whether it's a pandemic, or whether it's a massive inequality, 31 00:01:59,360 --> 00:02:02,120 Speaker 1: or whether it's a kind of environmental degradation. We said, 32 00:02:02,360 --> 00:02:07,000 Speaker 1: we need a competent, amply funded federal sector that has 33 00:02:07,040 --> 00:02:11,440 Speaker 1: the capacity to protect the American people and give them 34 00:02:11,440 --> 00:02:14,560 Speaker 1: the opportunity they need to just realize their potential out 35 00:02:14,560 --> 00:02:17,400 Speaker 1: there in the economy. And I think broadly speaking, that's 36 00:02:17,440 --> 00:02:21,640 Speaker 1: the agenda. Jared as a former chief economist to former 37 00:02:21,720 --> 00:02:25,000 Speaker 1: Vice President Joe Biden, what is his solution? Is it 38 00:02:25,080 --> 00:02:27,400 Speaker 1: a universal income? What does it mean to have a 39 00:02:27,440 --> 00:02:30,320 Speaker 1: strong federal response, Given the fact that we have seen 40 00:02:30,480 --> 00:02:34,560 Speaker 1: a strong federal response enhance unemployment benefits, a huge program 41 00:02:34,760 --> 00:02:38,600 Speaker 1: to get checks out to Americans below a certain income level. 42 00:02:38,960 --> 00:02:41,280 Speaker 1: What more would find them do well? First of all, 43 00:02:41,360 --> 00:02:43,920 Speaker 1: let me just say the countercyclical response, which is what 44 00:02:43,960 --> 00:02:47,839 Speaker 1: you're talking about there, is very key to what we're 45 00:02:47,840 --> 00:02:49,760 Speaker 1: going through right now. But that's not a plan for 46 00:02:49,800 --> 00:02:53,760 Speaker 1: the future. That's a cyclical response. What I think the 47 00:02:53,840 --> 00:02:57,400 Speaker 1: next president is going to need to do is to 48 00:02:57,560 --> 00:03:00,519 Speaker 1: resolve structural problems within the economy. Me So one of 49 00:03:00,560 --> 00:03:03,600 Speaker 1: the problems there's no one solution because there's so many 50 00:03:03,639 --> 00:03:07,680 Speaker 1: different types of problems. Obviously, people need access to affordable healthcare, 51 00:03:07,680 --> 00:03:11,799 Speaker 1: and Biden has articulated a path towards the universal coverage. 52 00:03:11,800 --> 00:03:14,840 Speaker 1: That's very important. Probably at the top of the list 53 00:03:14,919 --> 00:03:17,240 Speaker 1: now is going to be jobs. I mean that wasn't 54 00:03:17,240 --> 00:03:19,280 Speaker 1: necessarily at the top of the list when the unemployment 55 00:03:19,360 --> 00:03:22,400 Speaker 1: rate was around three percent, but when it's we certainly 56 00:03:22,400 --> 00:03:24,120 Speaker 1: have to talk about jobs. And there you have a 57 00:03:24,280 --> 00:03:28,919 Speaker 1: very deep investment agenda, whether it's on the infrastructure side, 58 00:03:28,919 --> 00:03:32,440 Speaker 1: whether it's on green technology and green jobs, or whether 59 00:03:32,520 --> 00:03:38,600 Speaker 1: it's UH in the caring professions, critically important healthcare, childcare, UH, 60 00:03:38,920 --> 00:03:43,200 Speaker 1: really establishing higher quality jobs for folks in the services. John, 61 00:03:43,240 --> 00:03:45,080 Speaker 1: he had a long time in Washington to try and 62 00:03:45,120 --> 00:03:48,320 Speaker 1: engineer those structural changes, eight years in the Obama administration 63 00:03:48,840 --> 00:03:51,240 Speaker 1: as well. And I asked this diplomatically speaking, I don't 64 00:03:51,240 --> 00:03:52,800 Speaker 1: want to get too political here, but there will be 65 00:03:52,800 --> 00:03:56,040 Speaker 1: some people who say he had his chance. What do 66 00:03:56,080 --> 00:03:58,800 Speaker 1: you say back to that, Uh, you have to recognize, 67 00:03:58,800 --> 00:04:00,480 Speaker 1: I mean, we do have to get political here. We 68 00:04:00,600 --> 00:04:04,520 Speaker 1: have to recognize that before Barack Obama was sworn in, 69 00:04:05,040 --> 00:04:08,280 Speaker 1: there was literally a cabal of Republicans who were meeting 70 00:04:08,520 --> 00:04:11,880 Speaker 1: to try to block every aspect of his agenda. Now, 71 00:04:11,920 --> 00:04:14,120 Speaker 1: he still managed, with the help of the Vice President 72 00:04:14,160 --> 00:04:16,839 Speaker 1: at the time, UH, to push back hard on the 73 00:04:16,839 --> 00:04:22,320 Speaker 1: Great Procession, to establish a very important healthcare change that 74 00:04:22,400 --> 00:04:27,279 Speaker 1: brought our uninsurance rates down by UH and UH and 75 00:04:27,279 --> 00:04:30,200 Speaker 1: and a financial reform that I think has proved pretty durable. 76 00:04:30,400 --> 00:04:33,480 Speaker 1: And that's with tremendous political blowback. Then of course, when 77 00:04:33,480 --> 00:04:35,799 Speaker 1: the Tea Party got to town, they tried to shut 78 00:04:35,800 --> 00:04:39,840 Speaker 1: it down even further. So he's going to need political cooperation. 79 00:04:39,920 --> 00:04:41,960 Speaker 1: And that's one reason I'm sure that Democrats are very 80 00:04:42,000 --> 00:04:44,560 Speaker 1: interested in trying to get a majority in the Senate. 81 00:04:44,880 --> 00:04:48,560 Speaker 1: But even amidst the kind of opposition that he in 82 00:04:48,560 --> 00:04:51,040 Speaker 1: Obama's face. You know, they actually got quite a bit done. 83 00:04:52,720 --> 00:04:54,479 Speaker 1: Jado was great to catch out with you. You, of 84 00:04:54,520 --> 00:04:56,279 Speaker 1: course are allowed to get political. I just try and 85 00:04:56,279 --> 00:04:59,560 Speaker 1: avoid it wherever I can. I don't like it either, 86 00:04:59,600 --> 00:05:05,840 Speaker 1: but in place thing that, Jared, thank you. We've had 87 00:05:05,839 --> 00:05:10,840 Speaker 1: wonderful conversations today with economists Stephen King of HSBC joining us, 88 00:05:11,160 --> 00:05:14,800 Speaker 1: the Lauria Paul Romer on technology here at New York University, 89 00:05:15,160 --> 00:05:17,880 Speaker 1: and now the former president of the New York Federal 90 00:05:17,880 --> 00:05:21,279 Speaker 1: Reserve System, William Dudley, and of course with a distinguished 91 00:05:21,279 --> 00:05:24,720 Speaker 1: career at Golden Sachs before that, in his service with 92 00:05:24,760 --> 00:05:28,560 Speaker 1: Tim Geitner of a bit ago, a crisis ago. I 93 00:05:28,560 --> 00:05:31,440 Speaker 1: guess we could say Dr Dudley, thank you so much 94 00:05:31,520 --> 00:05:34,800 Speaker 1: for joining us. UH Today, John and I were talking 95 00:05:34,920 --> 00:05:38,400 Speaker 1: about inequality, and one of the raps of any FED 96 00:05:39,120 --> 00:05:43,440 Speaker 1: is that it is monetary policy for the elite. Explain, 97 00:05:43,839 --> 00:05:48,479 Speaker 1: trickle down Federal Reserve policy. How do they assist in 98 00:05:48,560 --> 00:05:53,760 Speaker 1: a lesser inequality? Well, the his monetery policy tools are 99 00:05:53,800 --> 00:05:57,640 Speaker 1: really about supporting economic activity and driving the economy to 100 00:05:57,800 --> 00:06:03,120 Speaker 1: higher levels of employment. However, that can actually cause financial 101 00:06:03,120 --> 00:06:07,159 Speaker 1: asset values to go up, and that could actually exacerbate inequality. 102 00:06:07,200 --> 00:06:12,000 Speaker 1: So the FEDS choices not have a recovery have less inequality, 103 00:06:12,080 --> 00:06:15,760 Speaker 1: or have a recovery with buoyant financial asset prices and 104 00:06:15,800 --> 00:06:18,720 Speaker 1: more inequality. So the fence tools are just not suited 105 00:06:19,040 --> 00:06:23,880 Speaker 1: to address the inequality problem. Bill, is it that binary 106 00:06:24,279 --> 00:06:27,279 Speaker 1: or can we find a better balance? I think it 107 00:06:27,400 --> 00:06:31,400 Speaker 1: is pretty much that binary. Obviously. You know, when we're 108 00:06:31,400 --> 00:06:34,320 Speaker 1: in a crisis like this and the FEDS embarked on 109 00:06:34,520 --> 00:06:37,320 Speaker 1: special facilities, uh, you know, the FED could try to 110 00:06:37,800 --> 00:06:40,279 Speaker 1: you know, undertake facilities that fund of money more to 111 00:06:40,760 --> 00:06:44,159 Speaker 1: households and small businesses. But again, the FED is that's 112 00:06:44,160 --> 00:06:46,719 Speaker 1: difficult for the FED operationally. How does the FED actually 113 00:06:46,760 --> 00:06:50,400 Speaker 1: get money to millions and millions of households and small businesses. 114 00:06:50,800 --> 00:06:53,960 Speaker 1: That's difficult to do operationally. It's much easier to intervene 115 00:06:53,960 --> 00:06:58,360 Speaker 1: in the capital markets, where the FED can rely on counterparties, 116 00:06:58,440 --> 00:07:02,240 Speaker 1: primary dealers and others to essentially helped the fit by 117 00:07:02,480 --> 00:07:05,480 Speaker 1: financial assets. Quite more difficult to land down and one 118 00:07:05,520 --> 00:07:09,159 Speaker 1: by one millions into millions of different entities. So that again, 119 00:07:09,200 --> 00:07:12,600 Speaker 1: that's a challenging thing for the FED. But I think 120 00:07:12,640 --> 00:07:14,120 Speaker 1: it is a challenging thing. But there is a broad 121 00:07:14,160 --> 00:07:17,160 Speaker 1: consensus that they should be keeping financial conditions loose to 122 00:07:17,160 --> 00:07:19,880 Speaker 1: help this economy pick up and recover. You're here very 123 00:07:19,920 --> 00:07:22,280 Speaker 1: little debate about that. I think whether debate really is 124 00:07:22,280 --> 00:07:25,680 Speaker 1: about how far the Federal Reserve goes when it does that. 125 00:07:25,960 --> 00:07:28,440 Speaker 1: You can intervene in credit markets, Okay, might be a 126 00:07:28,440 --> 00:07:31,320 Speaker 1: debate there as well, but you can help, say, big 127 00:07:31,360 --> 00:07:34,240 Speaker 1: companies issue debt to keep people on the payroll. But 128 00:07:34,280 --> 00:07:37,080 Speaker 1: when you start to go into junk, you do run 129 00:07:37,120 --> 00:07:39,240 Speaker 1: the risk of running the getting the accusation that you 130 00:07:39,280 --> 00:07:42,080 Speaker 1: are helping those who made risky bets in this market, 131 00:07:42,600 --> 00:07:45,040 Speaker 1: and the likelihood that that actually spills over to the 132 00:07:45,080 --> 00:07:48,720 Speaker 1: broader economy is relatively small. But I guess what I'm 133 00:07:48,720 --> 00:07:50,280 Speaker 1: trying to ask is, how do you know when you've 134 00:07:50,280 --> 00:07:54,240 Speaker 1: done too much? Well? I think the FEDS focus has 135 00:07:54,240 --> 00:07:57,760 Speaker 1: been basically making sure that financial markets work well so 136 00:07:57,840 --> 00:08:01,000 Speaker 1: people can have access. You have access to the markets, 137 00:08:01,040 --> 00:08:04,120 Speaker 1: and that's really the reason for the interventions, even their 138 00:08:04,160 --> 00:08:06,880 Speaker 1: intervention into the high yeld debt market. It's not so 139 00:08:07,000 --> 00:08:10,440 Speaker 1: much to ba allow individual borrowers, but to make sure 140 00:08:10,520 --> 00:08:12,920 Speaker 1: that people actually can access that market and raise my 141 00:08:13,040 --> 00:08:15,440 Speaker 1: yeld in and I think they've been quite successful in 142 00:08:15,480 --> 00:08:18,720 Speaker 1: those efforts. But you raise an important point. People who 143 00:08:18,720 --> 00:08:21,240 Speaker 1: have high yield debt outstanding a lot of that a 144 00:08:21,240 --> 00:08:23,360 Speaker 1: lot of times that's happened by choice, and so for 145 00:08:23,440 --> 00:08:27,320 Speaker 1: the Federal Reserve to intervene and support those asset prices 146 00:08:27,520 --> 00:08:29,920 Speaker 1: are is basically creating a little bit of moral hazard 147 00:08:29,960 --> 00:08:31,760 Speaker 1: in the sense that you're encouraging people to take on 148 00:08:31,920 --> 00:08:36,440 Speaker 1: more debt. So let's talk about the moral hazard and 149 00:08:36,480 --> 00:08:39,560 Speaker 1: broaden out the implications of this period of time. There 150 00:08:39,559 --> 00:08:41,880 Speaker 1: have been some analysts who say the reason why the 151 00:08:41,880 --> 00:08:44,360 Speaker 1: Federals are of really, I don't want to say had to, 152 00:08:44,440 --> 00:08:46,280 Speaker 1: but in some ways had to step into the corporate 153 00:08:46,280 --> 00:08:48,800 Speaker 1: debt market was because of the expansion of the shadow 154 00:08:48,800 --> 00:08:51,680 Speaker 1: banking system. In some ways, they were bailing out the 155 00:08:51,720 --> 00:08:55,000 Speaker 1: shadow banking sector rather than the banking sector, which was 156 00:08:55,040 --> 00:08:58,520 Speaker 1: actually well capitalized. How important in your view is it 157 00:08:58,720 --> 00:09:01,960 Speaker 1: to set regular to wor standards for the shadow banking 158 00:09:02,000 --> 00:09:03,920 Speaker 1: sector that are sort of more similar to what we 159 00:09:03,960 --> 00:09:07,360 Speaker 1: see on Wall Street. Following this, given the fact that 160 00:09:07,640 --> 00:09:10,760 Speaker 1: perhaps this can be viewed as they're having the systemic 161 00:09:10,800 --> 00:09:14,360 Speaker 1: import of Wall Street, of the past. I think you 162 00:09:14,440 --> 00:09:17,440 Speaker 1: raised a very important point is something is systemic that's 163 00:09:17,440 --> 00:09:20,360 Speaker 1: been going to require the Central Bank to invene in 164 00:09:20,360 --> 00:09:23,760 Speaker 1: an unusual way in the middle of a crisis. It's systemic, 165 00:09:23,800 --> 00:09:26,280 Speaker 1: then it needs to be regulated to some degree. And 166 00:09:26,320 --> 00:09:28,960 Speaker 1: so we had a number of players in this last 167 00:09:29,040 --> 00:09:32,080 Speaker 1: few months that had essentially been bailed out by the FED. 168 00:09:32,160 --> 00:09:35,360 Speaker 1: People who edge funds that were invested in cash treasuries 169 00:09:35,360 --> 00:09:40,120 Speaker 1: and short treasury futures said basically their their treasury purchases 170 00:09:40,120 --> 00:09:43,720 Speaker 1: were helping those entities unwind that what turned out to 171 00:09:43,720 --> 00:09:47,160 Speaker 1: be a bad trade. People become very leveraged and they're 172 00:09:47,200 --> 00:09:49,199 Speaker 1: they're big enough to be systemic, and I think there 173 00:09:49,200 --> 00:09:53,440 Speaker 1: needs to be some regulation to rehel that in What 174 00:09:53,600 --> 00:09:57,240 Speaker 1: kind of regulation could the FED push and frankly push 175 00:09:57,280 --> 00:10:00,719 Speaker 1: for from other government agencies that you think would be appropriate. 176 00:10:01,080 --> 00:10:03,360 Speaker 1: From the hedge funds, from private equity, from some of 177 00:10:03,400 --> 00:10:06,520 Speaker 1: the investment firms that have benefited from the Fed's programs 178 00:10:06,520 --> 00:10:08,720 Speaker 1: and will probably continue to based on what they have 179 00:10:08,840 --> 00:10:12,440 Speaker 1: pledged going forward. Well, one thing the FED could do 180 00:10:12,559 --> 00:10:14,960 Speaker 1: is is basically say, look, well, you know you're lending 181 00:10:15,000 --> 00:10:17,240 Speaker 1: to these hedge funds. You're doing requot with these hedge funds, 182 00:10:17,280 --> 00:10:20,280 Speaker 1: there that be a limit on how much leverage you 183 00:10:20,080 --> 00:10:22,880 Speaker 1: you give them. That be one Another thing would be 184 00:10:22,960 --> 00:10:26,480 Speaker 1: money mutual funds. We have mutual funds that have overnight 185 00:10:26,520 --> 00:10:30,200 Speaker 1: liquidity that are invested in very a liquid assets. You know, 186 00:10:30,280 --> 00:10:32,839 Speaker 1: the the sec could change in you say, if you're 187 00:10:32,840 --> 00:10:36,160 Speaker 1: a mutual fund invested in really liquid assets, you can't 188 00:10:36,200 --> 00:10:39,040 Speaker 1: offer overnight liquid you have to offer monthly liquidity. And 189 00:10:39,040 --> 00:10:41,640 Speaker 1: that would also reduce the risk of a fire sale 190 00:10:41,640 --> 00:10:43,960 Speaker 1: of assets. What the FED really wants to avoid in 191 00:10:44,000 --> 00:10:47,920 Speaker 1: these kind of episodes is where people have to dump 192 00:10:48,040 --> 00:10:50,880 Speaker 1: lots of assets into the market and there's no buyers 193 00:10:51,120 --> 00:10:56,000 Speaker 1: and that then historts markets uh significantly. What the one 194 00:10:56,000 --> 00:10:57,920 Speaker 1: way to avoid that is to make sure that the 195 00:10:58,080 --> 00:11:00,480 Speaker 1: people actually have access to liquidity. Other thing that they 196 00:11:00,520 --> 00:11:02,559 Speaker 1: could do is basically say, look, you have to buy 197 00:11:02,600 --> 00:11:06,120 Speaker 1: liquid insurance from the FED during peacetime, so it's available 198 00:11:06,200 --> 00:11:08,520 Speaker 1: during wartime. So there's a number of things that I 199 00:11:08,520 --> 00:11:11,120 Speaker 1: think are worth exploring because you know, we've you know, 200 00:11:11,120 --> 00:11:12,880 Speaker 1: it's one thing, if you have a financial crisis every 201 00:11:12,880 --> 00:11:15,400 Speaker 1: fifty years, if you start to have a financial crisis 202 00:11:15,440 --> 00:11:18,880 Speaker 1: every ten years, then the Fed's actions are going to 203 00:11:19,000 --> 00:11:22,320 Speaker 1: encourage people to take more risk in the future. Long 204 00:11:22,360 --> 00:11:25,160 Speaker 1: ago and far away, Bill Dudley, you and the great 205 00:11:25,320 --> 00:11:29,800 Speaker 1: Ed mcelvey wrote a chapter for me on our fiscal position, 206 00:11:30,240 --> 00:11:33,839 Speaker 1: and you said off of Patrick O'Brien that there was 207 00:11:33,920 --> 00:11:37,439 Speaker 1: not a moment to lose. One is our moment not 208 00:11:37,559 --> 00:11:42,079 Speaker 1: to lose with nine trillion dollars of presumed balance sheet? 209 00:11:42,520 --> 00:11:46,800 Speaker 1: When is that moment out in the distant future. Well, 210 00:11:46,880 --> 00:11:50,040 Speaker 1: what's changed, obviously is that the level of interest rates 211 00:11:50,080 --> 00:11:53,320 Speaker 1: has come down dramatically. So the although we've had this 212 00:11:53,400 --> 00:11:57,600 Speaker 1: explosion in battle, debt death service cost has stayed a very, 213 00:11:57,840 --> 00:12:00,120 Speaker 1: very very subdued. I mean, I think we've had were 214 00:12:00,120 --> 00:12:02,640 Speaker 1: than a tripling of debt outstanding over the last ten 215 00:12:02,720 --> 00:12:05,880 Speaker 1: years or so, yet the debt service cost that barely 216 00:12:05,920 --> 00:12:08,720 Speaker 1: moved upwards. So I think, you know, what, what happens 217 00:12:08,720 --> 00:12:10,600 Speaker 1: to interest rates are going to be critical in terms 218 00:12:10,640 --> 00:12:14,559 Speaker 1: of when the federal debt debt bird becomes important. It's 219 00:12:14,559 --> 00:12:16,160 Speaker 1: not going to be a problem in the next year 220 00:12:16,280 --> 00:12:19,560 Speaker 1: or two, but looking out further down the road, I 221 00:12:19,559 --> 00:12:22,080 Speaker 1: think there will be some consequences to having such a 222 00:12:22,200 --> 00:12:26,160 Speaker 1: large increase in settle bit. But what are your thoughts 223 00:12:26,160 --> 00:12:30,840 Speaker 1: on how much we're monetizing the triestory deficit at the moment. Well, 224 00:12:30,840 --> 00:12:33,280 Speaker 1: we're not monetizing in the sense that the FED isn't 225 00:12:33,400 --> 00:12:36,400 Speaker 1: actually buying, you know, primary issuance of treasury, but that 226 00:12:36,520 --> 00:12:39,280 Speaker 1: we are monetizing in the sense that the FEDS intervening 227 00:12:39,280 --> 00:12:42,920 Speaker 1: in the secondary market and expanding its balance quite shrapiling. 228 00:12:42,920 --> 00:12:44,400 Speaker 1: I mean, the Fed's balance sheet now is up to 229 00:12:44,440 --> 00:12:47,720 Speaker 1: seven trillion dollars. It's gone up by more than three 230 00:12:47,760 --> 00:12:50,439 Speaker 1: trillion dollars just in the last three months. So the 231 00:12:50,480 --> 00:12:53,679 Speaker 1: balance sheet is rising very, very rapidly. Uh. And you 232 00:12:53,720 --> 00:12:55,840 Speaker 1: know that's you know, there's no limit to how big 233 00:12:55,840 --> 00:12:57,640 Speaker 1: the FED balance sheet can get. But you have to 234 00:12:57,720 --> 00:13:00,200 Speaker 1: understand that there are some risks there for the set. 235 00:13:00,200 --> 00:13:03,280 Speaker 1: I mean, the SET is basically becoming taking on quite 236 00:13:03,280 --> 00:13:05,760 Speaker 1: a bit of interest rate risk, right because most of 237 00:13:05,800 --> 00:13:08,920 Speaker 1: its liabilities are reserves which are overnight, and a lot 238 00:13:09,000 --> 00:13:11,839 Speaker 1: of its assets are longer duration assets. So the FED 239 00:13:11,960 --> 00:13:15,280 Speaker 1: actually has an interest rate risk exposure that doesn't get 240 00:13:15,280 --> 00:13:17,439 Speaker 1: talked about very much. But we'll have to get you 241 00:13:17,480 --> 00:13:19,640 Speaker 1: back to talk about it once more. Built only that 242 00:13:19,800 --> 00:13:22,559 Speaker 1: before my New York FED president on a situation of 243 00:13:22,640 --> 00:13:26,280 Speaker 1: the treasury market and on the inequality coming around from 244 00:13:26,320 --> 00:13:32,840 Speaker 1: the federals eves. Right now, Steven Shivaron joins us. He 245 00:13:32,960 --> 00:13:35,760 Speaker 1: is with Federated Hermes and we're thrilled it could be 246 00:13:35,800 --> 00:13:37,720 Speaker 1: with us because he's one of the few people I 247 00:13:37,760 --> 00:13:43,280 Speaker 1: know and the allocation game that really talks to talk straight. Steve, 248 00:13:43,400 --> 00:13:47,440 Speaker 1: how do I feel if I rebalanced out of Amazon, 249 00:13:47,960 --> 00:13:53,000 Speaker 1: if I rebalanced out of Alphabet? Yeah, I think you 250 00:13:53,080 --> 00:13:56,560 Speaker 1: feel pretty pretty loudy and and you know some of 251 00:13:56,600 --> 00:14:01,160 Speaker 1: our thoughts on rebalancing that we've discussed over the years. Look, 252 00:14:01,200 --> 00:14:04,400 Speaker 1: I think right now, you know, we've lived through an 253 00:14:04,440 --> 00:14:08,040 Speaker 1: unprecedented period roughly of ten years where economic growth was 254 00:14:08,760 --> 00:14:12,040 Speaker 1: low but widespread, and it allowed inflation and race to 255 00:14:12,080 --> 00:14:15,040 Speaker 1: stay down, and so the gulf between winners and losers 256 00:14:15,720 --> 00:14:20,200 Speaker 1: was relatively narrow. You could own everything and be okay. 257 00:14:20,240 --> 00:14:23,040 Speaker 1: That's not the world we're in right now. Right now, 258 00:14:23,160 --> 00:14:27,360 Speaker 1: the difference between winners and losers our companies doubling or dying. 259 00:14:27,520 --> 00:14:30,200 Speaker 1: And in that environment, you really need to do your 260 00:14:30,200 --> 00:14:32,280 Speaker 1: work and be active in the way that you invest. 261 00:14:32,360 --> 00:14:35,160 Speaker 1: You need to invest professionally. And it's a case where 262 00:14:35,480 --> 00:14:38,360 Speaker 1: when you see a winner, you hold your winner, Um, 263 00:14:38,680 --> 00:14:40,160 Speaker 1: and I think it's a little bit of a different 264 00:14:40,200 --> 00:14:43,920 Speaker 1: game now than it was pre crisis. Steve. That certainly 265 00:14:43,920 --> 00:14:45,960 Speaker 1: has been true up until now. We see the big 266 00:14:46,000 --> 00:14:49,600 Speaker 1: fang names absolutely dominating the returns that we have seen 267 00:14:49,640 --> 00:14:53,240 Speaker 1: so far. But there's been a shift recently towards the cyclicals. 268 00:14:53,320 --> 00:14:56,560 Speaker 1: Yesterday we saw an out performance in financials the Russell 269 00:14:56,640 --> 00:15:00,480 Speaker 1: two thousand. The underperformance came from the NASDAC. How much 270 00:15:00,960 --> 00:15:04,080 Speaker 1: steam do you think that this trade has? You know, 271 00:15:04,600 --> 00:15:07,400 Speaker 1: it's a debate that we have internally. I think it 272 00:15:07,480 --> 00:15:09,560 Speaker 1: has some steam, and I think what's going on is 273 00:15:09,640 --> 00:15:14,360 Speaker 1: in a very messy way, we're observing the wisdom of crowds, 274 00:15:14,640 --> 00:15:17,200 Speaker 1: and you see it when you see folks shoulder to 275 00:15:17,280 --> 00:15:19,960 Speaker 1: shoulder on the beach and Ocean City, Maryland, or rushing 276 00:15:20,000 --> 00:15:22,520 Speaker 1: into bars in Wisconsin where even and I know that 277 00:15:22,560 --> 00:15:24,720 Speaker 1: there's a whole lot more than this to it, but 278 00:15:24,800 --> 00:15:27,840 Speaker 1: even when you see the large groups gathering for protests, 279 00:15:27,880 --> 00:15:31,320 Speaker 1: what we're finding. What we're doing is we're pushing the 280 00:15:31,400 --> 00:15:34,560 Speaker 1: limits of how hard we can reopen in ways that 281 00:15:34,640 --> 00:15:38,560 Speaker 1: experts would never approve of. But it's giving us information 282 00:15:38,560 --> 00:15:40,880 Speaker 1: as to how aggressive we can reopen and the truth 283 00:15:41,000 --> 00:15:44,600 Speaker 1: is that if as the economy reopens, it's reopening at 284 00:15:44,640 --> 00:15:48,840 Speaker 1: six capacity instead of thirty for an example, that's a 285 00:15:48,880 --> 00:15:51,320 Speaker 1: whole lot fewer companies that die, and that's a whole 286 00:15:51,360 --> 00:15:54,600 Speaker 1: lot more people that are currently unemployed that get back 287 00:15:54,640 --> 00:15:56,360 Speaker 1: to work. And so what I think the market is 288 00:15:56,360 --> 00:15:59,320 Speaker 1: trying to understand is is how long does this social 289 00:15:59,360 --> 00:16:02,560 Speaker 1: distance per victory? How severe is it the period after 290 00:16:02,600 --> 00:16:05,760 Speaker 1: we opened but before we get back to full capacity. 291 00:16:05,920 --> 00:16:10,320 Speaker 1: And because we're pushing it so hard and it is messy, um, 292 00:16:10,360 --> 00:16:12,040 Speaker 1: I think we're starting to get the impression of the 293 00:16:12,040 --> 00:16:14,400 Speaker 1: market is starting to sniff out. But the reopening could 294 00:16:14,400 --> 00:16:16,640 Speaker 1: be more aggressive than we originally thought. I think that's 295 00:16:16,640 --> 00:16:20,720 Speaker 1: what's primarily driving the market, and cyclicals benefit from that 296 00:16:21,120 --> 00:16:23,280 Speaker 1: because they're gonna be where you price in that better 297 00:16:23,320 --> 00:16:27,080 Speaker 1: economic activity. You know, Steve, we talk a lot on 298 00:16:27,120 --> 00:16:30,960 Speaker 1: this program about the disconnect between the brutal unemployment data 299 00:16:31,000 --> 00:16:33,480 Speaker 1: and economic figures that we've been getting out frankly from 300 00:16:33,520 --> 00:16:36,720 Speaker 1: the world, and the markets that have seemed somewhat divorced 301 00:16:36,760 --> 00:16:39,440 Speaker 1: from reality. But it really isn't markets as a whole. 302 00:16:39,480 --> 00:16:42,320 Speaker 1: It has been the fang names, the big tech shares 303 00:16:42,360 --> 00:16:44,840 Speaker 1: that have benefited the most from this environment. It has 304 00:16:44,920 --> 00:16:47,400 Speaker 1: not been the cyclicals which have actually lagged behind and 305 00:16:47,440 --> 00:16:51,080 Speaker 1: posted losses. Are we pricing in a V shaped recovery? 306 00:16:51,160 --> 00:16:54,600 Speaker 1: Given the rotation into cyclicals? Yet? Are we still pricing 307 00:16:54,640 --> 00:16:58,160 Speaker 1: in a V A swoosh uh square root sign. Whatever 308 00:16:58,200 --> 00:17:01,600 Speaker 1: you want to say, I I don't think it matters. Um, 309 00:17:01,640 --> 00:17:03,400 Speaker 1: I mean, I think it is a U shaped recovery. 310 00:17:03,440 --> 00:17:06,040 Speaker 1: It's going to take us, in our estimation until the 311 00:17:06,119 --> 00:17:10,080 Speaker 1: end of until GDP levels get back to where they 312 00:17:10,080 --> 00:17:12,560 Speaker 1: were at the end of nineteen is an example. But 313 00:17:12,600 --> 00:17:14,960 Speaker 1: if you look back at the history of markets, markets 314 00:17:14,960 --> 00:17:18,200 Speaker 1: bottom in recessions. They don't bottom after. They don't bottom 315 00:17:18,200 --> 00:17:21,480 Speaker 1: when things get better. They bottom when data goes from 316 00:17:21,880 --> 00:17:24,440 Speaker 1: de curating at its fastest rate to a slightly less 317 00:17:24,440 --> 00:17:27,640 Speaker 1: fast rate. And if this recession really is the first 318 00:17:27,680 --> 00:17:31,480 Speaker 1: two quarters of this year, well then guess what only 319 00:17:31,480 --> 00:17:34,280 Speaker 1: a month away from its end? And so I think 320 00:17:34,320 --> 00:17:36,199 Speaker 1: what you have to remember is a market is a 321 00:17:36,240 --> 00:17:38,640 Speaker 1: series of individuals trying to get ahead of each other, 322 00:17:38,960 --> 00:17:40,960 Speaker 1: because if you get the winning trade on first, you 323 00:17:41,040 --> 00:17:44,000 Speaker 1: make money when everyone else comes to that realization. And 324 00:17:44,040 --> 00:17:47,440 Speaker 1: what happened here is when unemployment claims stopped driving at 325 00:17:47,440 --> 00:17:51,280 Speaker 1: that higher rate the market bottomed. That that's actually typical. 326 00:17:51,720 --> 00:17:55,880 Speaker 1: It's frustrating because it's illogical, but it's typical of how 327 00:17:55,920 --> 00:17:58,520 Speaker 1: markets react in recession. I say, you've always grit to 328 00:17:58,520 --> 00:18:00,199 Speaker 1: catch out when you might fantastic a half from your 329 00:18:00,200 --> 00:18:03,920 Speaker 1: Steve Chevron, the a Federated Hermes portfolio manager, My best 330 00:18:03,920 --> 00:18:09,200 Speaker 1: to you and the whole of the team. A little 331 00:18:09,200 --> 00:18:10,960 Speaker 1: bit later, of course, Tom hopefully were here from the 332 00:18:10,960 --> 00:18:13,400 Speaker 1: President of United States to go back to the fiscal debate. 333 00:18:13,440 --> 00:18:16,960 Speaker 1: Senator Pat Toomey speaking to Fox Business this morning, saying 334 00:18:17,040 --> 00:18:19,399 Speaker 1: that perhaps another relief bill won't be needed if we 335 00:18:19,440 --> 00:18:21,879 Speaker 1: can reopen this economy. And this speaks to something that 336 00:18:21,920 --> 00:18:24,120 Speaker 1: I know Muhammad al Ain is concerned about as well, 337 00:18:24,520 --> 00:18:26,520 Speaker 1: that we win the war but don't secure the peace. 338 00:18:26,920 --> 00:18:28,440 Speaker 1: And I just wonder if that's something we're hear a 339 00:18:28,440 --> 00:18:31,000 Speaker 1: little bit more about in the months to come. Yeah, 340 00:18:31,040 --> 00:18:33,359 Speaker 1: that's that's I'm I'm really glad you brought that up, John. 341 00:18:33,400 --> 00:18:36,560 Speaker 1: That really shows just some of the disparities that we 342 00:18:36,640 --> 00:18:40,080 Speaker 1: see in Washington. The backdrop for all of this, folks, 343 00:18:40,320 --> 00:18:44,000 Speaker 1: is an extraordinary market. We talked to the technician christopheron 344 00:18:44,119 --> 00:18:47,320 Speaker 1: earlier about the one way move on small caps, the 345 00:18:47,400 --> 00:18:51,160 Speaker 1: one way move on equities. Someone of great extinction, Tobias 346 00:18:51,280 --> 00:18:54,399 Speaker 1: Levkovich of City Group, has been watching carefully and he 347 00:18:54,520 --> 00:18:57,639 Speaker 1: joins us now, Tobias, can you be a buyer of 348 00:18:57,760 --> 00:19:00,959 Speaker 1: stocks on this beautiful Wednesday morning. It's a little bit 349 00:19:01,000 --> 00:19:03,400 Speaker 1: more troublesome at these levels, and markets will come back 350 00:19:03,440 --> 00:19:09,120 Speaker 1: pretty sharply on legitimate reasons, including um tremendous stimulus both 351 00:19:09,119 --> 00:19:12,359 Speaker 1: from the Reserve as well as from the peas from 352 00:19:12,359 --> 00:19:16,240 Speaker 1: the government through the Cares Act particularly, But we've also 353 00:19:16,320 --> 00:19:19,640 Speaker 1: seen the reopening of the economy. We've starting we've seen 354 00:19:20,280 --> 00:19:23,240 Speaker 1: better news on the healthcare front in terms of less hospitalizations, 355 00:19:23,320 --> 00:19:27,360 Speaker 1: less depths, or more better treatments, hopes on vaccines. All 356 00:19:27,359 --> 00:19:29,920 Speaker 1: that is fine, and what I call Fox move is 357 00:19:30,000 --> 00:19:33,760 Speaker 1: kind of played in, which is institutional investors fear of 358 00:19:33,840 --> 00:19:38,000 Speaker 1: missing are not out, but rather fear of meaningfully underperforming. 359 00:19:38,280 --> 00:19:40,760 Speaker 1: So as markets go up, they have to participate, and 360 00:19:40,800 --> 00:19:43,800 Speaker 1: everybody focuses on the techniclos as opposed to some of 361 00:19:43,800 --> 00:19:47,680 Speaker 1: the fundmentals. For example, m how's the unemployment issue is 362 00:19:47,760 --> 00:19:51,520 Speaker 1: going to play out over the next six nine months. 363 00:19:51,840 --> 00:19:54,200 Speaker 1: It is going to be a more difficult economic period. 364 00:19:54,560 --> 00:19:56,560 Speaker 1: If as you touched on something really important, we see 365 00:19:56,560 --> 00:19:59,840 Speaker 1: a price move, and there's always a temptation to if 366 00:19:59,840 --> 00:20:03,359 Speaker 1: I this neat fundamental narrative that fits it. Are you 367 00:20:03,400 --> 00:20:06,720 Speaker 1: saying this is just very technical? It's a position squade's momentum, 368 00:20:06,760 --> 00:20:08,960 Speaker 1: it's the fair are missing out, the fair a missing 369 00:20:09,119 --> 00:20:12,040 Speaker 1: of underperforming, as you've put it as well. So look, 370 00:20:12,080 --> 00:20:14,840 Speaker 1: I think again there are some true fundamental backdrops to it. 371 00:20:14,880 --> 00:20:17,000 Speaker 1: I think probably the best arguments I have heard from 372 00:20:17,040 --> 00:20:20,800 Speaker 1: investors is that companies are making structural change. They're learning 373 00:20:20,800 --> 00:20:24,400 Speaker 1: how to work through, um, the pandemic induced to virtual 374 00:20:24,480 --> 00:20:27,720 Speaker 1: reality that we're kind of enduring over two and a 375 00:20:27,760 --> 00:20:31,720 Speaker 1: half months. Companies have really thought, sought out the efficiencies, 376 00:20:32,080 --> 00:20:33,760 Speaker 1: and they're reacting to it. So they're going to be 377 00:20:33,800 --> 00:20:38,320 Speaker 1: some structural changes that therefore provide better margin opportunity for 378 00:20:38,359 --> 00:20:40,840 Speaker 1: the companies on the outside. I think the problem is 379 00:20:41,280 --> 00:20:45,280 Speaker 1: that those structural efficiencies also mean those jobs don't come 380 00:20:45,320 --> 00:20:49,840 Speaker 1: back as quickly and creates kind of a demand problem. Um. Look, 381 00:20:50,200 --> 00:20:53,199 Speaker 1: we think the forty million numbers are too high in 382 00:20:53,280 --> 00:20:56,120 Speaker 1: terms of the reported claims, simply because there's a number 383 00:20:56,160 --> 00:20:58,880 Speaker 1: of duplication people who have signed up weren't sure if 384 00:20:58,880 --> 00:21:03,000 Speaker 1: they if it kind of you know, correctly submitted another claim, 385 00:21:03,080 --> 00:21:05,120 Speaker 1: and you're seeing you know, certain states coming on telling 386 00:21:05,119 --> 00:21:07,520 Speaker 1: you they're duplicate. So maybe let's say the numbers thirty million, 387 00:21:07,840 --> 00:21:10,920 Speaker 1: two million, and let's even say half of those people 388 00:21:11,000 --> 00:21:13,919 Speaker 1: get back their jobs by YR end, that's still another 389 00:21:13,960 --> 00:21:16,919 Speaker 1: sixteen million people who don't have their jobs. Um, and 390 00:21:17,000 --> 00:21:19,680 Speaker 1: it's going to be problematic in terms of top line 391 00:21:20,000 --> 00:21:23,560 Speaker 1: activity for corporations. There are certain industries that are enduring 392 00:21:23,600 --> 00:21:26,520 Speaker 1: this extraordinarily well, and there's certain ones that are far 393 00:21:26,600 --> 00:21:30,040 Speaker 1: more damaged. Because what's really happened is the pandemics has 394 00:21:30,080 --> 00:21:34,240 Speaker 1: accelerated certain trends that were kind of already underway. So 395 00:21:34,680 --> 00:21:38,000 Speaker 1: the demise of brick and mortar retail has you know, 396 00:21:38,040 --> 00:21:42,600 Speaker 1: increased rapidly. The you know, the trend towards telemedicine has 397 00:21:42,680 --> 00:21:46,119 Speaker 1: also increased the other way very you know significantly. So 398 00:21:46,160 --> 00:21:48,600 Speaker 1: those are some of the things that are changing secularly. 399 00:21:48,800 --> 00:21:50,840 Speaker 1: But again, I think companies have really learned how to 400 00:21:50,880 --> 00:21:53,000 Speaker 1: work through this, and it is a it is a 401 00:21:53,000 --> 00:21:55,760 Speaker 1: proper argument. The question is is the market move too much? 402 00:21:56,440 --> 00:21:59,720 Speaker 1: Um And our sense from our panicky forum model which 403 00:21:59,760 --> 00:22:02,960 Speaker 1: is now flashing you for you again, is suggesting almost 404 00:22:03,760 --> 00:22:06,040 Speaker 1: probability that markets will be down in the subsequent of 405 00:22:06,160 --> 00:22:09,240 Speaker 1: months as opposed to up. Debis look forward to getting 406 00:22:09,240 --> 00:22:11,560 Speaker 1: you back on the program soon, Sabas Lefkovitch there of 407 00:22:11,640 --> 00:22:18,359 Speaker 1: City joining us now. The President of the World Bank, 408 00:22:18,480 --> 00:22:21,679 Speaker 1: David mel Passed, of course, definitive at bear Stearns for 409 00:22:21,800 --> 00:22:25,880 Speaker 1: years in economics and assisting President Trump on his economics 410 00:22:25,920 --> 00:22:29,960 Speaker 1: at Treasury, and now spearheading the effort at the World Bank. 411 00:22:30,000 --> 00:22:32,160 Speaker 1: We spoke to him recently. We get an update from 412 00:22:32,200 --> 00:22:36,159 Speaker 1: DVID David mel Pass today. David, there is a clarion 413 00:22:36,320 --> 00:22:42,159 Speaker 1: call worldwide to spend money to put people to work. 414 00:22:42,640 --> 00:22:47,560 Speaker 1: How will the World Bank affect that policy? Hi, Tom, 415 00:22:47,640 --> 00:22:51,719 Speaker 1: Good morning, UH. Where the World Bank is adding resources 416 00:22:51,800 --> 00:22:55,840 Speaker 1: where it can uh and also targeting the resources to 417 00:22:55,920 --> 00:23:00,199 Speaker 1: where the most impact can be can be felt. Or 418 00:23:00,280 --> 00:23:05,359 Speaker 1: some countries that means supporting core core businesses, either in 419 00:23:05,400 --> 00:23:09,080 Speaker 1: the public sector or the private sector, ones that if 420 00:23:09,080 --> 00:23:13,160 Speaker 1: they stopped operation it would be it would be giantly harmful. 421 00:23:13,440 --> 00:23:16,960 Speaker 1: But in many countries, UH that the focus is also 422 00:23:17,280 --> 00:23:21,200 Speaker 1: on getting cash to people, either through a social safety 423 00:23:21,240 --> 00:23:26,120 Speaker 1: net or through UH, through in kind transfers. UH. We're 424 00:23:26,119 --> 00:23:29,240 Speaker 1: dealing with countries that are often on the brink of 425 00:23:29,359 --> 00:23:33,359 Speaker 1: extreme poverty for tens of millions of people. So that's 426 00:23:33,400 --> 00:23:36,280 Speaker 1: the focus right now, quickly moving on both the health 427 00:23:36,320 --> 00:23:41,560 Speaker 1: crisis and the alleviation of poverty, setting up systems that 428 00:23:41,640 --> 00:23:45,080 Speaker 1: will work into the future. One of the interesting things 429 00:23:45,119 --> 00:23:49,840 Speaker 1: that's happening is the differentiation of countries. What financial markets 430 00:23:49,840 --> 00:23:53,240 Speaker 1: are doing is in effect looking at some and saying 431 00:23:53,600 --> 00:23:55,960 Speaker 1: they're going to be able to move forward with the 432 00:23:56,000 --> 00:23:58,440 Speaker 1: policies that they've got or that they will be able 433 00:23:58,480 --> 00:24:01,120 Speaker 1: to put in place, and so it becomes a powerful 434 00:24:01,200 --> 00:24:05,800 Speaker 1: positive force. Right What is the constraints you have? I mean, 435 00:24:05,840 --> 00:24:10,119 Speaker 1: our Eric Martin writs encyclopedic on the World Bank, and 436 00:24:10,160 --> 00:24:13,160 Speaker 1: he's looking at your credit rating and some of the 437 00:24:13,200 --> 00:24:16,600 Speaker 1: financial ratios of the World Bank. But I want to know, 438 00:24:16,760 --> 00:24:21,080 Speaker 1: David Malpass, what's the day to day constraint to deploying 439 00:24:21,160 --> 00:24:26,800 Speaker 1: money to those very poor countries. Yes, well, um, we're 440 00:24:26,880 --> 00:24:31,960 Speaker 1: in a better position because of a recent capital increase 441 00:24:32,000 --> 00:24:35,120 Speaker 1: in both ib r D and i f C, two 442 00:24:35,160 --> 00:24:37,919 Speaker 1: of the big parts of the bank, and a large 443 00:24:38,000 --> 00:24:42,280 Speaker 1: replenishment of the of IDA that was done in December UH, 444 00:24:42,320 --> 00:24:46,640 Speaker 1: and so by by by chance, by coincidence, by good fortune, 445 00:24:47,160 --> 00:24:52,520 Speaker 1: the bank has resources, and so the constraint UH, we're 446 00:24:52,760 --> 00:24:56,760 Speaker 1: we are planning to deploy a hundred and sixty billion 447 00:24:56,800 --> 00:25:00,880 Speaker 1: dollars over the next fifteen months. That sounds small by 448 00:25:00,880 --> 00:25:03,639 Speaker 1: by what's going on in developed countries, but if you 449 00:25:03,720 --> 00:25:08,040 Speaker 1: think about the developing countries, these are large scale resources, 450 00:25:08,160 --> 00:25:11,880 Speaker 1: very welcome by the countries, and so that the constraint. 451 00:25:11,960 --> 00:25:16,920 Speaker 1: The challenge is to UH to not go over exposure 452 00:25:16,960 --> 00:25:20,800 Speaker 1: limits for individual countries. Some countries are at their at 453 00:25:20,800 --> 00:25:23,840 Speaker 1: their credit limits, let's think of it that way. But 454 00:25:23,920 --> 00:25:27,280 Speaker 1: the bigger issue is what's in their program. They want 455 00:25:27,320 --> 00:25:30,720 Speaker 1: to create confidence, and so what we're trying to do 456 00:25:30,840 --> 00:25:34,040 Speaker 1: is have programs that show the world, show their own 457 00:25:34,080 --> 00:25:37,960 Speaker 1: people that there's confidence in the recovery. On the other side, 458 00:25:38,359 --> 00:25:40,639 Speaker 1: one of the most important things that we can do 459 00:25:40,720 --> 00:25:44,520 Speaker 1: in that is transparency. We need transparency both on the 460 00:25:44,520 --> 00:25:49,280 Speaker 1: health side, meaning what is the situation for COVID also 461 00:25:49,400 --> 00:25:52,280 Speaker 1: on the debt side, what are the contracts that the 462 00:25:52,359 --> 00:25:55,560 Speaker 1: governments are entering into. And that proves to be a 463 00:25:55,720 --> 00:25:59,760 Speaker 1: major challenge that people all around the world are working 464 00:25:59,800 --> 00:26:03,320 Speaker 1: on in order to make more transparency on the on 465 00:26:03,440 --> 00:26:06,600 Speaker 1: the debt that's out there. President Amus, let's talk about that, 466 00:26:06,640 --> 00:26:09,000 Speaker 1: because you understand how delicate this moment is for many 467 00:26:09,040 --> 00:26:11,280 Speaker 1: of these economies and countries that you work with. What 468 00:26:11,320 --> 00:26:14,199 Speaker 1: we need right now is grants and not loans, and 469 00:26:14,240 --> 00:26:16,159 Speaker 1: what we need for a whole range of countries is 470 00:26:16,200 --> 00:26:18,080 Speaker 1: debt relief. Can you talk to us about the scale 471 00:26:18,080 --> 00:26:20,280 Speaker 1: of debt relief that you can help engineer in the 472 00:26:20,280 --> 00:26:23,320 Speaker 1: coming months, the coming year. Yes, And with the regard 473 00:26:23,359 --> 00:26:26,960 Speaker 1: to grant, your point is exactly right. And so as 474 00:26:27,000 --> 00:26:30,800 Speaker 1: the World Bank looks at it, of this hundred sixty 475 00:26:30,800 --> 00:26:36,520 Speaker 1: billion dollars, a big chunk, nearly a third UH is 476 00:26:35,960 --> 00:26:40,720 Speaker 1: is grants, meaning not loans, but actually and no interest 477 00:26:40,760 --> 00:26:43,600 Speaker 1: on it, no repayment UH. And so that becomes a 478 00:26:43,760 --> 00:26:49,280 Speaker 1: very strong positive NetFlow for the countries we're also trying 479 00:26:49,320 --> 00:26:53,600 Speaker 1: to have or the g twenty countries have agreed to 480 00:26:53,720 --> 00:26:58,800 Speaker 1: a moratorium on repayments to their creditors. UM. What the 481 00:26:58,840 --> 00:27:02,199 Speaker 1: biggest of that is China and it agreed to and 482 00:27:02,400 --> 00:27:06,840 Speaker 1: recently UH within the last week President she confirmed that 483 00:27:06,960 --> 00:27:11,119 Speaker 1: China will fully participate in the moratorium. So in in 484 00:27:11,359 --> 00:27:16,640 Speaker 1: combination that provides a big new chunk of available fiscal 485 00:27:16,720 --> 00:27:20,080 Speaker 1: space for the countries to we're talking about the seventy 486 00:27:20,119 --> 00:27:23,480 Speaker 1: five poorest countries in the world. It creates space for 487 00:27:23,560 --> 00:27:27,679 Speaker 1: them to spend on health, the health emergency itself. So 488 00:27:27,800 --> 00:27:30,679 Speaker 1: that's important. And what we need now is the commercial 489 00:27:30,720 --> 00:27:35,439 Speaker 1: creditors to also come in. That means the asset managers, 490 00:27:35,480 --> 00:27:39,320 Speaker 1: the banks. We're dealing with the poorest countries in the world, 491 00:27:39,640 --> 00:27:42,240 Speaker 1: and I think they need they need to find a 492 00:27:42,280 --> 00:27:45,840 Speaker 1: way that they can also accept a moratorium on the 493 00:27:45,920 --> 00:27:50,480 Speaker 1: repayment stream so that there's more resources available for the countries. 494 00:27:50,880 --> 00:27:55,120 Speaker 1: Everybody's working together. It's uh, it's a sizeable amount of money, 495 00:27:55,200 --> 00:27:58,639 Speaker 1: but there's still quite a few steps to take with 496 00:27:58,840 --> 00:28:02,280 Speaker 1: regard to especially China and the commercial creditors to have 497 00:28:02,440 --> 00:28:06,000 Speaker 1: them fully participate. Also the Gulf States. I should mention 498 00:28:06,080 --> 00:28:09,399 Speaker 1: that the Persian Gulf States have quite a bit of 499 00:28:09,480 --> 00:28:13,199 Speaker 1: debt outstanding in the poorest countries and there needs to 500 00:28:13,240 --> 00:28:18,240 Speaker 1: be participation, full participation by them also in the debt moratorium. 501 00:28:18,520 --> 00:28:22,280 Speaker 1: President mal Pass, you have a unique position having visibility 502 00:28:22,320 --> 00:28:24,320 Speaker 1: around the world, and I want to talk about China's 503 00:28:24,359 --> 00:28:28,920 Speaker 1: presence is probably the dominant lender to developing nations over 504 00:28:28,960 --> 00:28:31,720 Speaker 1: the past five years. I believe the estimates say that 505 00:28:31,720 --> 00:28:35,439 Speaker 1: about five billion dollars of loans that China has extended 506 00:28:35,600 --> 00:28:38,040 Speaker 1: to some of these countries. Do you have any sense 507 00:28:38,360 --> 00:28:41,400 Speaker 1: of what that nation's debt forgiveness plan might look like 508 00:28:41,520 --> 00:28:44,760 Speaker 1: and how that will pressure some of these nations. It's 509 00:28:44,880 --> 00:28:48,360 Speaker 1: very important to the recovery of the of the poorest 510 00:28:48,400 --> 00:28:55,720 Speaker 1: countries and and others um that are President she included 511 00:28:55,800 --> 00:28:59,120 Speaker 1: those remarks and it was very welcome in a speech 512 00:28:59,160 --> 00:29:01,040 Speaker 1: that he gave. I guess it was two weeks ago 513 00:29:01,600 --> 00:29:04,040 Speaker 1: where he said China would fully participate in You know, 514 00:29:04,160 --> 00:29:08,040 Speaker 1: China is a member of the G twenty countries which 515 00:29:08,560 --> 00:29:12,240 Speaker 1: endorsed this moratorium. So now we're at the point of 516 00:29:12,680 --> 00:29:19,240 Speaker 1: implementation for China's official creditor agencies that's the China Development Bank, 517 00:29:19,520 --> 00:29:23,240 Speaker 1: China x M Bank, these are official agencies of the 518 00:29:23,320 --> 00:29:27,520 Speaker 1: Chinese government and they need to fully participate in the moratorium. 519 00:29:27,840 --> 00:29:31,360 Speaker 1: And then the next level will be the commercial creditors. 520 00:29:31,400 --> 00:29:34,680 Speaker 1: That's the banks in China for example, that have that 521 00:29:34,720 --> 00:29:37,440 Speaker 1: have lent a lot. And it's not just China, it's 522 00:29:37,560 --> 00:29:41,840 Speaker 1: they're one of many of the lenders that that are 523 00:29:41,920 --> 00:29:45,720 Speaker 1: able to participate, and and that gives them. I think 524 00:29:45,800 --> 00:29:48,040 Speaker 1: there's going to be a two way benefit. The poorest 525 00:29:48,080 --> 00:29:53,120 Speaker 1: countries themselves are helped immensely by this, but then the 526 00:29:52,560 --> 00:29:57,040 Speaker 1: the lender countries will be creating a better environment for 527 00:29:57,080 --> 00:30:00,240 Speaker 1: the future. And so I think I'm hoping people will 528 00:30:00,240 --> 00:30:02,480 Speaker 1: look to the longer run and see that if they 529 00:30:02,640 --> 00:30:06,680 Speaker 1: participate now, they'll be there'll be a better environment in 530 00:30:06,720 --> 00:30:10,800 Speaker 1: the future for for their markets, for their exports and 531 00:30:10,840 --> 00:30:13,680 Speaker 1: things and so on. David, thank you for the hard work. 532 00:30:13,800 --> 00:30:15,480 Speaker 1: It's been a while and look forward to catching up 533 00:30:15,480 --> 00:30:17,880 Speaker 1: with you again soon. Hopefully we can continue this conversation 534 00:30:18,000 --> 00:30:21,040 Speaker 1: the President of the world. Thank that. David Malpast, thanks 535 00:30:21,040 --> 00:30:25,280 Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen 536 00:30:25,520 --> 00:30:30,840 Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform 537 00:30:30,960 --> 00:30:35,240 Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast. 538 00:30:35,320 --> 00:30:38,800 Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.