Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane Jay Ley.
Speaker 1: We bring you insight from the best in economics, finance, investment,
Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud,
Speaker 1: Bloomberg dot Com, and of course, on the Bloomberg Is.
Speaker 1: It's easy to say that Jared Bernstein was an advisor
Speaker 1: on economics and on politics to Vice President Biden, but
Speaker 1: far more importantly, he is one of the liberal economists,
Speaker 1: progressive economists in Washington that every conservative reads and studies.
Speaker 1: He's been doing it for decades Economic Policy Institute and
Speaker 1: now at the Center on Budget and Policy Priorities. Jared,
Speaker 1: we are thrilled you're with us today. What does the
Speaker 1: Biden mandate forward? What does Vice President Biden need to
Speaker 1: do to be not to those committed to MN but
Speaker 1: the marginal voters looking for the Biden message? What does
Speaker 1: he need to say? First of all, it's always great
Speaker 1: to start the day with the three of you. It's
Speaker 1: just fascinating to hear just sitting here in the green
Speaker 1: room listening to your to your wrap. Uh. The vice
Speaker 1: president is running for office that uh in the midst
Speaker 1: of really three crises a COVID crisis, health crisis that
Speaker 1: is an economic one, which of course stems from the
Speaker 1: health crisis, and now just an outpouring of racial violence, which,
Speaker 1: as I think I heard at least implicit in some
Speaker 1: of your comments, feels very justified for for a lot
Speaker 1: of people. And uh, this is the time, as you
Speaker 1: you just played some tape in saying to bring the
Speaker 1: nation together and to restore a competent federal sector, something
Speaker 1: we so sorely lack that can meet the kind of
Speaker 1: shocks that come out a global economy fast and furiously,
Speaker 1: whether it's a pandemic, or whether it's a massive inequality,
Speaker 1: or whether it's a kind of environmental degradation. We said,
Speaker 1: we need a competent, amply funded federal sector that has
Speaker 1: the capacity to protect the American people and give them
Speaker 1: the opportunity they need to just realize their potential out
Speaker 1: there in the economy. And I think broadly speaking, that's
Speaker 1: the agenda. Jared as a former chief economist to former
Speaker 1: Vice President Joe Biden, what is his solution? Is it
Speaker 1: a universal income? What does it mean to have a
Speaker 1: strong federal response, Given the fact that we have seen
Speaker 1: a strong federal response enhance unemployment benefits, a huge program
Speaker 1: to get checks out to Americans below a certain income level.
Speaker 1: What more would find them do well? First of all,
Speaker 1: let me just say the countercyclical response, which is what
Speaker 1: you're talking about there, is very key to what we're
Speaker 1: going through right now. But that's not a plan for
Speaker 1: the future. That's a cyclical response. What I think the
Speaker 1: next president is going to need to do is to
Speaker 1: resolve structural problems within the economy. Me So one of
Speaker 1: the problems there's no one solution because there's so many
Speaker 1: different types of problems. Obviously, people need access to affordable healthcare,
Speaker 1: and Biden has articulated a path towards the universal coverage.
Speaker 1: That's very important. Probably at the top of the list
Speaker 1: now is going to be jobs. I mean that wasn't
Speaker 1: necessarily at the top of the list when the unemployment
Speaker 1: rate was around three percent, but when it's we certainly
Speaker 1: have to talk about jobs. And there you have a
Speaker 1: very deep investment agenda, whether it's on the infrastructure side,
Speaker 1: whether it's on green technology and green jobs, or whether
Speaker 1: it's UH in the caring professions, critically important healthcare, childcare, UH,
Speaker 1: really establishing higher quality jobs for folks in the services. John,
Speaker 1: he had a long time in Washington to try and
Speaker 1: engineer those structural changes, eight years in the Obama administration
Speaker 1: as well. And I asked this diplomatically speaking, I don't
Speaker 1: want to get too political here, but there will be
Speaker 1: some people who say he had his chance. What do
Speaker 1: you say back to that, Uh, you have to recognize,
Speaker 1: I mean, we do have to get political here. We
Speaker 1: have to recognize that before Barack Obama was sworn in,
Speaker 1: there was literally a cabal of Republicans who were meeting
Speaker 1: to try to block every aspect of his agenda. Now,
Speaker 1: he still managed, with the help of the Vice President
Speaker 1: at the time, UH, to push back hard on the
Speaker 1: Great Procession, to establish a very important healthcare change that
Speaker 1: brought our uninsurance rates down by UH and UH and
Speaker 1: and a financial reform that I think has proved pretty durable.
Speaker 1: And that's with tremendous political blowback. Then of course, when
Speaker 1: the Tea Party got to town, they tried to shut
Speaker 1: it down even further. So he's going to need political cooperation.
Speaker 1: And that's one reason I'm sure that Democrats are very
Speaker 1: interested in trying to get a majority in the Senate.
Speaker 1: But even amidst the kind of opposition that he in
Speaker 1: Obama's face. You know, they actually got quite a bit done.
Speaker 1: Jado was great to catch out with you. You, of
Speaker 1: course are allowed to get political. I just try and
Speaker 1: avoid it wherever I can. I don't like it either,
Speaker 1: but in place thing that, Jared, thank you. We've had
Speaker 1: wonderful conversations today with economists Stephen King of HSBC joining us,
Speaker 1: the Lauria Paul Romer on technology here at New York University,
Speaker 1: and now the former president of the New York Federal
Speaker 1: Reserve System, William Dudley, and of course with a distinguished
Speaker 1: career at Golden Sachs before that, in his service with
Speaker 1: Tim Geitner of a bit ago, a crisis ago. I
Speaker 1: guess we could say Dr Dudley, thank you so much
Speaker 1: for joining us. UH Today, John and I were talking
Speaker 1: about inequality, and one of the raps of any FED
Speaker 1: is that it is monetary policy for the elite. Explain,
Speaker 1: trickle down Federal Reserve policy. How do they assist in
Speaker 1: a lesser inequality? Well, the his monetery policy tools are
Speaker 1: really about supporting economic activity and driving the economy to
Speaker 1: higher levels of employment. However, that can actually cause financial
Speaker 1: asset values to go up, and that could actually exacerbate inequality.
Speaker 1: So the FEDS choices not have a recovery have less inequality,
Speaker 1: or have a recovery with buoyant financial asset prices and
Speaker 1: more inequality. So the fence tools are just not suited
Speaker 1: to address the inequality problem. Bill, is it that binary
Speaker 1: or can we find a better balance? I think it
Speaker 1: is pretty much that binary. Obviously. You know, when we're
Speaker 1: in a crisis like this and the FEDS embarked on
Speaker 1: special facilities, uh, you know, the FED could try to
Speaker 1: you know, undertake facilities that fund of money more to
Speaker 1: households and small businesses. But again, the FED is that's
Speaker 1: difficult for the FED operationally. How does the FED actually
Speaker 1: get money to millions and millions of households and small businesses.
Speaker 1: That's difficult to do operationally. It's much easier to intervene
Speaker 1: in the capital markets, where the FED can rely on counterparties,
Speaker 1: primary dealers and others to essentially helped the fit by
Speaker 1: financial assets. Quite more difficult to land down and one
Speaker 1: by one millions into millions of different entities. So that again,
Speaker 1: that's a challenging thing for the FED. But I think
Speaker 1: it is a challenging thing. But there is a broad
Speaker 1: consensus that they should be keeping financial conditions loose to
Speaker 1: help this economy pick up and recover. You're here very
Speaker 1: little debate about that. I think whether debate really is
Speaker 1: about how far the Federal Reserve goes when it does that.
Speaker 1: You can intervene in credit markets, Okay, might be a
Speaker 1: debate there as well, but you can help, say, big
Speaker 1: companies issue debt to keep people on the payroll. But
Speaker 1: when you start to go into junk, you do run
Speaker 1: the risk of running the getting the accusation that you
Speaker 1: are helping those who made risky bets in this market,
Speaker 1: and the likelihood that that actually spills over to the
Speaker 1: broader economy is relatively small. But I guess what I'm
Speaker 1: trying to ask is, how do you know when you've
Speaker 1: done too much? Well? I think the FEDS focus has
Speaker 1: been basically making sure that financial markets work well so
Speaker 1: people can have access. You have access to the markets,
Speaker 1: and that's really the reason for the interventions, even their
Speaker 1: intervention into the high yeld debt market. It's not so
Speaker 1: much to ba allow individual borrowers, but to make sure
Speaker 1: that people actually can access that market and raise my
Speaker 1: yeld in and I think they've been quite successful in
Speaker 1: those efforts. But you raise an important point. People who
Speaker 1: have high yield debt outstanding a lot of that a
Speaker 1: lot of times that's happened by choice, and so for
Speaker 1: the Federal Reserve to intervene and support those asset prices
Speaker 1: are is basically creating a little bit of moral hazard
Speaker 1: in the sense that you're encouraging people to take on
Speaker 1: more debt. So let's talk about the moral hazard and
Speaker 1: broaden out the implications of this period of time. There
Speaker 1: have been some analysts who say the reason why the
Speaker 1: Federals are of really, I don't want to say had to,
Speaker 1: but in some ways had to step into the corporate
Speaker 1: debt market was because of the expansion of the shadow
Speaker 1: banking system. In some ways, they were bailing out the
Speaker 1: shadow banking sector rather than the banking sector, which was
Speaker 1: actually well capitalized. How important in your view is it
Speaker 1: to set regular to wor standards for the shadow banking
Speaker 1: sector that are sort of more similar to what we
Speaker 1: see on Wall Street. Following this, given the fact that
Speaker 1: perhaps this can be viewed as they're having the systemic
Speaker 1: import of Wall Street, of the past. I think you
Speaker 1: raised a very important point is something is systemic that's
Speaker 1: been going to require the Central Bank to invene in
Speaker 1: an unusual way in the middle of a crisis. It's systemic,
Speaker 1: then it needs to be regulated to some degree. And
Speaker 1: so we had a number of players in this last
Speaker 1: few months that had essentially been bailed out by the FED.
Speaker 1: People who edge funds that were invested in cash treasuries
Speaker 1: and short treasury futures said basically their their treasury purchases
Speaker 1: were helping those entities unwind that what turned out to
Speaker 1: be a bad trade. People become very leveraged and they're
Speaker 1: they're big enough to be systemic, and I think there
Speaker 1: needs to be some regulation to rehel that in What
Speaker 1: kind of regulation could the FED push and frankly push
Speaker 1: for from other government agencies that you think would be appropriate.
Speaker 1: From the hedge funds, from private equity, from some of
Speaker 1: the investment firms that have benefited from the Fed's programs
Speaker 1: and will probably continue to based on what they have
Speaker 1: pledged going forward. Well, one thing the FED could do
Speaker 1: is is basically say, look, well, you know you're lending
Speaker 1: to these hedge funds. You're doing requot with these hedge funds,
Speaker 1: there that be a limit on how much leverage you
Speaker 1: you give them. That be one Another thing would be
Speaker 1: money mutual funds. We have mutual funds that have overnight
Speaker 1: liquidity that are invested in very a liquid assets. You know,
Speaker 1: the the sec could change in you say, if you're
Speaker 1: a mutual fund invested in really liquid assets, you can't
Speaker 1: offer overnight liquid you have to offer monthly liquidity. And
Speaker 1: that would also reduce the risk of a fire sale
Speaker 1: of assets. What the FED really wants to avoid in
Speaker 1: these kind of episodes is where people have to dump
Speaker 1: lots of assets into the market and there's no buyers
Speaker 1: and that then historts markets uh significantly. What the one
Speaker 1: way to avoid that is to make sure that the
Speaker 1: people actually have access to liquidity. Other thing that they
Speaker 1: could do is basically say, look, you have to buy
Speaker 1: liquid insurance from the FED during peacetime, so it's available
Speaker 1: during wartime. So there's a number of things that I
Speaker 1: think are worth exploring because you know, we've you know,
Speaker 1: it's one thing, if you have a financial crisis every
Speaker 1: fifty years, if you start to have a financial crisis
Speaker 1: every ten years, then the Fed's actions are going to
Speaker 1: encourage people to take more risk in the future. Long
Speaker 1: ago and far away, Bill Dudley, you and the great
Speaker 1: Ed mcelvey wrote a chapter for me on our fiscal position,
Speaker 1: and you said off of Patrick O'Brien that there was
Speaker 1: not a moment to lose. One is our moment not
Speaker 1: to lose with nine trillion dollars of presumed balance sheet?
Speaker 1: When is that moment out in the distant future. Well,
Speaker 1: what's changed, obviously is that the level of interest rates
Speaker 1: has come down dramatically. So the although we've had this
Speaker 1: explosion in battle, debt death service cost has stayed a very,
Speaker 1: very very subdued. I mean, I think we've had were
Speaker 1: than a tripling of debt outstanding over the last ten
Speaker 1: years or so, yet the debt service cost that barely
Speaker 1: moved upwards. So I think, you know, what, what happens
Speaker 1: to interest rates are going to be critical in terms
Speaker 1: of when the federal debt debt bird becomes important. It's
Speaker 1: not going to be a problem in the next year
Speaker 1: or two, but looking out further down the road, I
Speaker 1: think there will be some consequences to having such a
Speaker 1: large increase in settle bit. But what are your thoughts
Speaker 1: on how much we're monetizing the triestory deficit at the moment. Well,
Speaker 1: we're not monetizing in the sense that the FED isn't
Speaker 1: actually buying, you know, primary issuance of treasury, but that
Speaker 1: we are monetizing in the sense that the FEDS intervening
Speaker 1: in the secondary market and expanding its balance quite shrapiling.
Speaker 1: I mean, the Fed's balance sheet now is up to
Speaker 1: seven trillion dollars. It's gone up by more than three
Speaker 1: trillion dollars just in the last three months. So the
Speaker 1: balance sheet is rising very, very rapidly. Uh. And you
Speaker 1: know that's you know, there's no limit to how big
Speaker 1: the FED balance sheet can get. But you have to
Speaker 1: understand that there are some risks there for the set.
Speaker 1: I mean, the SET is basically becoming taking on quite
Speaker 1: a bit of interest rate risk, right because most of
Speaker 1: its liabilities are reserves which are overnight, and a lot
Speaker 1: of its assets are longer duration assets. So the FED
Speaker 1: actually has an interest rate risk exposure that doesn't get
Speaker 1: talked about very much. But we'll have to get you
Speaker 1: back to talk about it once more. Built only that
Speaker 1: before my New York FED president on a situation of
Speaker 1: the treasury market and on the inequality coming around from
Speaker 1: the federals eves. Right now, Steven Shivaron joins us. He
Speaker 1: is with Federated Hermes and we're thrilled it could be
Speaker 1: with us because he's one of the few people I
Speaker 1: know and the allocation game that really talks to talk straight. Steve,
Speaker 1: how do I feel if I rebalanced out of Amazon,
Speaker 1: if I rebalanced out of Alphabet? Yeah, I think you
Speaker 1: feel pretty pretty loudy and and you know some of
Speaker 1: our thoughts on rebalancing that we've discussed over the years. Look,
Speaker 1: I think right now, you know, we've lived through an
Speaker 1: unprecedented period roughly of ten years where economic growth was
Speaker 1: low but widespread, and it allowed inflation and race to
Speaker 1: stay down, and so the gulf between winners and losers
Speaker 1: was relatively narrow. You could own everything and be okay.
Speaker 1: That's not the world we're in right now. Right now,
Speaker 1: the difference between winners and losers our companies doubling or dying.
Speaker 1: And in that environment, you really need to do your
Speaker 1: work and be active in the way that you invest.
Speaker 1: You need to invest professionally. And it's a case where
Speaker 1: when you see a winner, you hold your winner, Um,
Speaker 1: and I think it's a little bit of a different
Speaker 1: game now than it was pre crisis. Steve. That certainly
Speaker 1: has been true up until now. We see the big
Speaker 1: fang names absolutely dominating the returns that we have seen
Speaker 1: so far. But there's been a shift recently towards the cyclicals.
Speaker 1: Yesterday we saw an out performance in financials the Russell
Speaker 1: two thousand. The underperformance came from the NASDAC. How much
Speaker 1: steam do you think that this trade has? You know,
Speaker 1: it's a debate that we have internally. I think it
Speaker 1: has some steam, and I think what's going on is
Speaker 1: in a very messy way, we're observing the wisdom of crowds,
Speaker 1: and you see it when you see folks shoulder to
Speaker 1: shoulder on the beach and Ocean City, Maryland, or rushing
Speaker 1: into bars in Wisconsin where even and I know that
Speaker 1: there's a whole lot more than this to it, but
Speaker 1: even when you see the large groups gathering for protests,
Speaker 1: what we're finding. What we're doing is we're pushing the
Speaker 1: limits of how hard we can reopen in ways that
Speaker 1: experts would never approve of. But it's giving us information
Speaker 1: as to how aggressive we can reopen and the truth
Speaker 1: is that if as the economy reopens, it's reopening at
Speaker 1: six capacity instead of thirty for an example, that's a
Speaker 1: whole lot fewer companies that die, and that's a whole
Speaker 1: lot more people that are currently unemployed that get back
Speaker 1: to work. And so what I think the market is
Speaker 1: trying to understand is is how long does this social
Speaker 1: distance per victory? How severe is it the period after
Speaker 1: we opened but before we get back to full capacity.
Speaker 1: And because we're pushing it so hard and it is messy, um,
Speaker 1: I think we're starting to get the impression of the
Speaker 1: market is starting to sniff out. But the reopening could
Speaker 1: be more aggressive than we originally thought. I think that's
Speaker 1: what's primarily driving the market, and cyclicals benefit from that
Speaker 1: because they're gonna be where you price in that better
Speaker 1: economic activity. You know, Steve, we talk a lot on
Speaker 1: this program about the disconnect between the brutal unemployment data
Speaker 1: and economic figures that we've been getting out frankly from
Speaker 1: the world, and the markets that have seemed somewhat divorced
Speaker 1: from reality. But it really isn't markets as a whole.
Speaker 1: It has been the fang names, the big tech shares
Speaker 1: that have benefited the most from this environment. It has
Speaker 1: not been the cyclicals which have actually lagged behind and
Speaker 1: posted losses. Are we pricing in a V shaped recovery?
Speaker 1: Given the rotation into cyclicals? Yet? Are we still pricing
Speaker 1: in a V A swoosh uh square root sign. Whatever
Speaker 1: you want to say, I I don't think it matters. Um,
Speaker 1: I mean, I think it is a U shaped recovery.
Speaker 1: It's going to take us, in our estimation until the
Speaker 1: end of until GDP levels get back to where they
Speaker 1: were at the end of nineteen is an example. But
Speaker 1: if you look back at the history of markets, markets
Speaker 1: bottom in recessions. They don't bottom after. They don't bottom
Speaker 1: when things get better. They bottom when data goes from
Speaker 1: de curating at its fastest rate to a slightly less
Speaker 1: fast rate. And if this recession really is the first
Speaker 1: two quarters of this year, well then guess what only
Speaker 1: a month away from its end? And so I think
Speaker 1: what you have to remember is a market is a
Speaker 1: series of individuals trying to get ahead of each other,
Speaker 1: because if you get the winning trade on first, you
Speaker 1: make money when everyone else comes to that realization. And
Speaker 1: what happened here is when unemployment claims stopped driving at
Speaker 1: that higher rate the market bottomed. That that's actually typical.
Speaker 1: It's frustrating because it's illogical, but it's typical of how
Speaker 1: markets react in recession. I say, you've always grit to
Speaker 1: catch out when you might fantastic a half from your
Speaker 1: Steve Chevron, the a Federated Hermes portfolio manager, My best
Speaker 1: to you and the whole of the team. A little
Speaker 1: bit later, of course, Tom hopefully were here from the
Speaker 1: President of United States to go back to the fiscal debate.
Speaker 1: Senator Pat Toomey speaking to Fox Business this morning, saying
Speaker 1: that perhaps another relief bill won't be needed if we
Speaker 1: can reopen this economy. And this speaks to something that
Speaker 1: I know Muhammad al Ain is concerned about as well,
Speaker 1: that we win the war but don't secure the peace.
Speaker 1: And I just wonder if that's something we're hear a
Speaker 1: little bit more about in the months to come. Yeah,
Speaker 1: that's that's I'm I'm really glad you brought that up, John.
Speaker 1: That really shows just some of the disparities that we
Speaker 1: see in Washington. The backdrop for all of this, folks,
Speaker 1: is an extraordinary market. We talked to the technician christopheron
Speaker 1: earlier about the one way move on small caps, the
Speaker 1: one way move on equities. Someone of great extinction, Tobias
Speaker 1: Levkovich of City Group, has been watching carefully and he
Speaker 1: joins us now, Tobias, can you be a buyer of
Speaker 1: stocks on this beautiful Wednesday morning. It's a little bit
Speaker 1: more troublesome at these levels, and markets will come back
Speaker 1: pretty sharply on legitimate reasons, including um tremendous stimulus both
Speaker 1: from the Reserve as well as from the peas from
Speaker 1: the government through the Cares Act particularly, But we've also
Speaker 1: seen the reopening of the economy. We've starting we've seen
Speaker 1: better news on the healthcare front in terms of less hospitalizations,
Speaker 1: less depths, or more better treatments, hopes on vaccines. All
Speaker 1: that is fine, and what I call Fox move is
Speaker 1: kind of played in, which is institutional investors fear of
Speaker 1: missing are not out, but rather fear of meaningfully underperforming.
Speaker 1: So as markets go up, they have to participate, and
Speaker 1: everybody focuses on the techniclos as opposed to some of
Speaker 1: the fundmentals. For example, m how's the unemployment issue is
Speaker 1: going to play out over the next six nine months.
Speaker 1: It is going to be a more difficult economic period.
Speaker 1: If as you touched on something really important, we see
Speaker 1: a price move, and there's always a temptation to if
Speaker 1: I this neat fundamental narrative that fits it. Are you
Speaker 1: saying this is just very technical? It's a position squade's momentum,
Speaker 1: it's the fair are missing out, the fair a missing
Speaker 1: of underperforming, as you've put it as well. So look,
Speaker 1: I think again there are some true fundamental backdrops to it.
Speaker 1: I think probably the best arguments I have heard from
Speaker 1: investors is that companies are making structural change. They're learning
Speaker 1: how to work through, um, the pandemic induced to virtual
Speaker 1: reality that we're kind of enduring over two and a
Speaker 1: half months. Companies have really thought, sought out the efficiencies,
Speaker 1: and they're reacting to it. So they're going to be
Speaker 1: some structural changes that therefore provide better margin opportunity for
Speaker 1: the companies on the outside. I think the problem is
Speaker 1: that those structural efficiencies also mean those jobs don't come
Speaker 1: back as quickly and creates kind of a demand problem. Um. Look,
Speaker 1: we think the forty million numbers are too high in
Speaker 1: terms of the reported claims, simply because there's a number
Speaker 1: of duplication people who have signed up weren't sure if
Speaker 1: they if it kind of you know, correctly submitted another claim,
Speaker 1: and you're seeing you know, certain states coming on telling
Speaker 1: you they're duplicate. So maybe let's say the numbers thirty million,
Speaker 1: two million, and let's even say half of those people
Speaker 1: get back their jobs by YR end, that's still another
Speaker 1: sixteen million people who don't have their jobs. Um, and
Speaker 1: it's going to be problematic in terms of top line
Speaker 1: activity for corporations. There are certain industries that are enduring
Speaker 1: this extraordinarily well, and there's certain ones that are far
Speaker 1: more damaged. Because what's really happened is the pandemics has
Speaker 1: accelerated certain trends that were kind of already underway. So
Speaker 1: the demise of brick and mortar retail has you know,
Speaker 1: increased rapidly. The you know, the trend towards telemedicine has
Speaker 1: also increased the other way very you know significantly. So
Speaker 1: those are some of the things that are changing secularly.
Speaker 1: But again, I think companies have really learned how to
Speaker 1: work through this, and it is a it is a
Speaker 1: proper argument. The question is is the market move too much?
Speaker 1: Um And our sense from our panicky forum model which
Speaker 1: is now flashing you for you again, is suggesting almost
Speaker 1: probability that markets will be down in the subsequent of
Speaker 1: months as opposed to up. Debis look forward to getting
Speaker 1: you back on the program soon, Sabas Lefkovitch there of
Speaker 1: City joining us now. The President of the World Bank,
Speaker 1: David mel Passed, of course, definitive at bear Stearns for
Speaker 1: years in economics and assisting President Trump on his economics
Speaker 1: at Treasury, and now spearheading the effort at the World Bank.
Speaker 1: We spoke to him recently. We get an update from
Speaker 1: DVID David mel Pass today. David, there is a clarion
Speaker 1: call worldwide to spend money to put people to work.
Speaker 1: How will the World Bank affect that policy? Hi, Tom,
Speaker 1: Good morning, UH. Where the World Bank is adding resources
Speaker 1: where it can uh and also targeting the resources to
Speaker 1: where the most impact can be can be felt. Or
Speaker 1: some countries that means supporting core core businesses, either in
Speaker 1: the public sector or the private sector, ones that if
Speaker 1: they stopped operation it would be it would be giantly harmful.
Speaker 1: But in many countries, UH that the focus is also
Speaker 1: on getting cash to people, either through a social safety
Speaker 1: net or through UH, through in kind transfers. UH. We're
Speaker 1: dealing with countries that are often on the brink of
Speaker 1: extreme poverty for tens of millions of people. So that's
Speaker 1: the focus right now, quickly moving on both the health
Speaker 1: crisis and the alleviation of poverty, setting up systems that
Speaker 1: will work into the future. One of the interesting things
Speaker 1: that's happening is the differentiation of countries. What financial markets
Speaker 1: are doing is in effect looking at some and saying
Speaker 1: they're going to be able to move forward with the
Speaker 1: policies that they've got or that they will be able
Speaker 1: to put in place, and so it becomes a powerful
Speaker 1: positive force. Right What is the constraints you have? I mean,
Speaker 1: our Eric Martin writs encyclopedic on the World Bank, and
Speaker 1: he's looking at your credit rating and some of the
Speaker 1: financial ratios of the World Bank. But I want to know,
Speaker 1: David Malpass, what's the day to day constraint to deploying
Speaker 1: money to those very poor countries. Yes, well, um, we're
Speaker 1: in a better position because of a recent capital increase
Speaker 1: in both ib r D and i f C, two
Speaker 1: of the big parts of the bank, and a large
Speaker 1: replenishment of the of IDA that was done in December UH,
Speaker 1: and so by by by chance, by coincidence, by good fortune,
Speaker 1: the bank has resources, and so the constraint UH, we're
Speaker 1: we are planning to deploy a hundred and sixty billion
Speaker 1: dollars over the next fifteen months. That sounds small by
Speaker 1: by what's going on in developed countries, but if you
Speaker 1: think about the developing countries, these are large scale resources,
Speaker 1: very welcome by the countries, and so that the constraint.
Speaker 1: The challenge is to UH to not go over exposure
Speaker 1: limits for individual countries. Some countries are at their at
Speaker 1: their credit limits, let's think of it that way. But
Speaker 1: the bigger issue is what's in their program. They want
Speaker 1: to create confidence, and so what we're trying to do
Speaker 1: is have programs that show the world, show their own
Speaker 1: people that there's confidence in the recovery. On the other side,
Speaker 1: one of the most important things that we can do
Speaker 1: in that is transparency. We need transparency both on the
Speaker 1: health side, meaning what is the situation for COVID also
Speaker 1: on the debt side, what are the contracts that the
Speaker 1: governments are entering into. And that proves to be a
Speaker 1: major challenge that people all around the world are working
Speaker 1: on in order to make more transparency on the on
Speaker 1: the debt that's out there. President Amus, let's talk about that,
Speaker 1: because you understand how delicate this moment is for many
Speaker 1: of these economies and countries that you work with. What
Speaker 1: we need right now is grants and not loans, and
Speaker 1: what we need for a whole range of countries is
Speaker 1: debt relief. Can you talk to us about the scale
Speaker 1: of debt relief that you can help engineer in the
Speaker 1: coming months, the coming year. Yes, And with the regard
Speaker 1: to grant, your point is exactly right. And so as
Speaker 1: the World Bank looks at it, of this hundred sixty
Speaker 1: billion dollars, a big chunk, nearly a third UH is
Speaker 1: is grants, meaning not loans, but actually and no interest
Speaker 1: on it, no repayment UH. And so that becomes a
Speaker 1: very strong positive NetFlow for the countries we're also trying
Speaker 1: to have or the g twenty countries have agreed to
Speaker 1: a moratorium on repayments to their creditors. UM. What the
Speaker 1: biggest of that is China and it agreed to and
Speaker 1: recently UH within the last week President she confirmed that
Speaker 1: China will fully participate in the moratorium. So in in
Speaker 1: combination that provides a big new chunk of available fiscal
Speaker 1: space for the countries to we're talking about the seventy
Speaker 1: five poorest countries in the world. It creates space for
Speaker 1: them to spend on health, the health emergency itself. So
Speaker 1: that's important. And what we need now is the commercial
Speaker 1: creditors to also come in. That means the asset managers,
Speaker 1: the banks. We're dealing with the poorest countries in the world,
Speaker 1: and I think they need they need to find a
Speaker 1: way that they can also accept a moratorium on the
Speaker 1: repayment stream so that there's more resources available for the countries.
Speaker 1: Everybody's working together. It's uh, it's a sizeable amount of money,
Speaker 1: but there's still quite a few steps to take with
Speaker 1: regard to especially China and the commercial creditors to have
Speaker 1: them fully participate. Also the Gulf States. I should mention
Speaker 1: that the Persian Gulf States have quite a bit of
Speaker 1: debt outstanding in the poorest countries and there needs to
Speaker 1: be participation, full participation by them also in the debt moratorium.
Speaker 1: President mal Pass, you have a unique position having visibility
Speaker 1: around the world, and I want to talk about China's
Speaker 1: presence is probably the dominant lender to developing nations over
Speaker 1: the past five years. I believe the estimates say that
Speaker 1: about five billion dollars of loans that China has extended
Speaker 1: to some of these countries. Do you have any sense
Speaker 1: of what that nation's debt forgiveness plan might look like
Speaker 1: and how that will pressure some of these nations. It's
Speaker 1: very important to the recovery of the of the poorest
Speaker 1: countries and and others um that are President she included
Speaker 1: those remarks and it was very welcome in a speech
Speaker 1: that he gave. I guess it was two weeks ago
Speaker 1: where he said China would fully participate in You know,
Speaker 1: China is a member of the G twenty countries which
Speaker 1: endorsed this moratorium. So now we're at the point of
Speaker 1: implementation for China's official creditor agencies that's the China Development Bank,
Speaker 1: China x M Bank, these are official agencies of the
Speaker 1: Chinese government and they need to fully participate in the moratorium.
Speaker 1: And then the next level will be the commercial creditors.
Speaker 1: That's the banks in China for example, that have that
Speaker 1: have lent a lot. And it's not just China, it's
Speaker 1: they're one of many of the lenders that that are
Speaker 1: able to participate, and and that gives them. I think
Speaker 1: there's going to be a two way benefit. The poorest
Speaker 1: countries themselves are helped immensely by this, but then the
Speaker 1: the lender countries will be creating a better environment for
Speaker 1: the future. And so I think I'm hoping people will
Speaker 1: look to the longer run and see that if they
Speaker 1: participate now, they'll be there'll be a better environment in
Speaker 1: the future for for their markets, for their exports and
Speaker 1: things and so on. David, thank you for the hard work.
Speaker 1: It's been a while and look forward to catching up
Speaker 1: with you again soon. Hopefully we can continue this conversation
Speaker 1: the President of the world. Thank that. David Malpast, thanks
Speaker 1: for listening to the Bloomberg Surveillance podcast. Subscribe and listen
Speaker 1: to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform
Speaker 1: you prefer. I'm on Twitter at Tom Keane before the podcast.
Speaker 1: You can always catch us worldwide. I'm Bloomberg Radio.