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Speaker 1: Global business news twenty four hours a day. If Bloomberg

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Speaker 1: this is a Bloomberg Business Flash and I'm Karen Moscown.

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Speaker 1: SASH c m E Group US dock index futures are lower,

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Speaker 1: shadowing a slide in oil, with the SNP five hundred

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Speaker 1: on track to halt district of five weekly gains that

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Speaker 1: wiped out all its twenty sixteen losses. We checked the

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Speaker 1: markets every fifteen minutes throughout the trading day on Bloomberg.

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Speaker 1: SNP E Many futures down fourteen points and now E

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Speaker 1: mini futures down a hundred twelve NAS documenty futures down

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Speaker 1: twenty six the decks in Germany's down one point six percent,

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Speaker 1: ten your treasury up six thirty seconds, the yield one

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Speaker 1: point eight five percent yield on the two year point

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Speaker 1: eight five percent. Nimex screwed oil down more than three

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Speaker 1: percent on a dollar twenty six thirty eight fIF to

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Speaker 1: a barrel cos gold is down to tenths per cent

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Speaker 1: or two dollars the euro at dollar eleven fifty seven

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Speaker 1: then one twelve point four six. That's a Bloomberg business flash.

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Speaker 1: Tom and Francine Karn, thank you so much, greatly appreciated.

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Speaker 1: Francine Lakwan, London. I'm Tom Keane in New York. I've

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Speaker 1: really been waiting for this, folks. Miles Kimball has one

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Speaker 1: of the most interesting paths to the University of Michigan

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Speaker 1: and economics out of Harvard, and then bring him Young

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Speaker 1: University and loquid linguistics, and then back to Harvard to

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Speaker 1: take his PhD in economics. And he joins us snuff

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Speaker 1: from Michigan. Are you were in the heart of the

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Speaker 1: debate on negative interest rates and their ability to stimulate

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Speaker 1: the economy. You and Scott Sumner have been leading the

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Speaker 1: charge saying the media is flat out wrong and the

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Speaker 1: consensus is wrong about the harmful effects or the silliness

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Speaker 1: of negative rates. Discuss oh and no lutely so. I mean,

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Speaker 1: first of all, the negative interest rates are just an

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Speaker 1: extension of positive interest rates. Really I mean, in other words,

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Speaker 1: if the Fed cuts interest rates, it has pretty much

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Speaker 1: the same kind of effect if if they go from

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Speaker 1: you know, zero to minus one percent, then if they

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Speaker 1: went from plus one percent to zero, and so most

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Speaker 1: of the mechanisms are the same, you know, and so

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Speaker 1: and and for most people. And you can sort of

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Speaker 1: see that if you think how they'd affect most people. Uh,

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Speaker 1: you know, unfortunately, most of us don't have the kind

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Speaker 1: of credit ratings that the US government has despite everything,

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Speaker 1: and so, uh, we're not going to get negative interest

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Speaker 1: rates at anytime soon in our borrowing. But if if

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Speaker 1: the government is getting minus one per cent, you know,

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Speaker 1: the rates you pay on auto loans and the pay

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Speaker 1: rates you pay on mortgages are going to go down,

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Speaker 1: and so more homes will be people will buy more cars.

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Speaker 1: I mean, the way in which it works is really

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Speaker 1: pretty straightforward. That you know, having negative interest rates for

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Speaker 1: the government means that the rest of us have unfortunately

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Speaker 1: not negative interest rates for our borrowing, but lower rates.

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Speaker 1: But miles in Switzerland's right, So I live in London,

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Speaker 1: We we follow negative rates. We look at the Swiss example. Uh,

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Speaker 1: interest rates actually means that mortgages went up in Switzerland

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Speaker 1: because banks are trying to make money somehow, right, So

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Speaker 1: there's a theory, but in practice the side effects of

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Speaker 1: negative rates could could be pretty tough. Well, that has

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Speaker 1: to do with the so far central banks have not

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Speaker 1: fully taken the plunge into negative interest rates. They're doing

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Speaker 1: it in a in a half half baked way quite honestly. Um,

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Speaker 1: what what you need to do to do to do

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Speaker 1: a real negative interest rate policy is to lower all

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Speaker 1: the interest rates that the government controls in including the

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Speaker 1: interest rate on paper currency. Unless you reduce the interest

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Speaker 1: rate on paper currency along with the other interest rates

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Speaker 1: like the the Fed funds rate, or the repo rate,

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Speaker 1: or the or the interest on reserves, you are going

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Speaker 1: to be squeezing banks. And so in order to avoid

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Speaker 1: that kind of effect, you really should bring down paper

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Speaker 1: currency interest rate. There's also other policy mistakes in how

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Speaker 1: negative interest rates has been implemented. In particular, I've advocated

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Speaker 1: that the interest on reserves formulas should be used so

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Speaker 1: that so that the central bank supports the private banks

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Speaker 1: in giving zero interest rates small scale depositors. And if

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Speaker 1: you do that, you're going to really help a lot

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Speaker 1: in terms of the profit squeeze. On on banks. So far,

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Speaker 1: they haven't done that in a fully systematic way. I

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Speaker 1: mean tiered. I mean it's you know, systems where you

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Speaker 1: exempt some of the reserves that banks have from the

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Speaker 1: negative interest rates helps, but I'd like to see that

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Speaker 1: more closely tied to to just making it so that

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Speaker 1: regular people pretty much get zero instead of negative rates

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Speaker 1: in there in their regular deposits. We'll come back and

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Speaker 1: talk about this, but I want to get this in

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Speaker 1: this Miles. I think this is so important. The distinction

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Speaker 1: you make is the mechanism or process of negative rates

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Speaker 1: so far, or is it that we need ever more

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Speaker 1: negative rates to have a click in and really work well.

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Speaker 1: As far as effectiveness, it's very simple. You know, you

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Speaker 1: have to judge the effectiveness of negative rates per basis

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Speaker 1: point or per percentage point. You know, there's no reason

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Speaker 1: to expect that cutting rates from zero to minus three

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Speaker 1: tens of a percent would have any bigger effect than

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Speaker 1: going from plus three tens of of percent for zero

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Speaker 1: to zero. And you wouldn't think that going from plus

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Speaker 1: three tenths of a percent to zero would have a

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Speaker 1: huge effect on the economy. It can be helpful in

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Speaker 1: stimulating it, but it's just not much. I mean, there's

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Speaker 1: no I mean, negative rates are powerful if you move

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Speaker 1: them a lot, but but there's no magic. They work

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Speaker 1: in the same way as as cutting rates in the

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Speaker 1: positive regions. So you know, normally in a recession we

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Speaker 1: cut rates by uh six d basis points or six

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Speaker 1: six percentage points and uh and it's that kind of move.

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Speaker 1: It's things like a four percentage points cut or a

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Speaker 1: six percentage point cut. That would be super powerful, that

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Speaker 1: would be very, very powerful. And there's no reason at

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Speaker 1: all interest rates can't be cut to minus four percent,

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Speaker 1: minus seven percent if absolutely necessary. So one thing I've

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Speaker 1: said is, you know, I don't care any country in

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Speaker 1: the world in its current situation if they went to

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Speaker 1: minus seven percent for two years, they would actually have

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Speaker 1: too much aggregate demands, the economy would be overstimulated. You're

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Speaker 1: not going to need to move down that much. But

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Speaker 1: you know, if it's the realization you can have as

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Speaker 1: big a dose of negative interest rates is necessary, that's

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Speaker 1: the key. But you can only do that if you

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Speaker 1: do it right. If you if you if you, if

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Speaker 1: you don't do the kinds of things I'm talking about

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Speaker 1: by dealing with the paper currency interest rate. You can't

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Speaker 1: write down that. Let's let's come back, Miles Kimbell's with

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Speaker 1: us the University of Michigan. It's been incendiary within academic

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Speaker 1: economics on this raging debate over negative interest rates. We'll

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Speaker 1: come back and talk to him about how the Fed

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Speaker 1: deals with this ancient debate of real g d P

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Speaker 1: versus g d P plus inflation. All of a sudden,

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Speaker 1: it seems to me the dialogue is becoming more Miles

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Speaker 1: Kimball like we're counting down to the opening Gale. Brought

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Speaker 1: to you by the Jeep Grand Jerichet, the most rewarded

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Speaker 1: as you be Ever, Jan Kerrake continues to raise the

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Speaker 1: bar with its luxurious interior, legendary poor by poor capability,

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Speaker 1: broadcasting live to New York Gloomberg eleventh, to Washington, d

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Speaker 1: C Bloomberg one, to Boston Bloomberg twelve, honors, to San

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Speaker 1: Francisco Bloomberg nine, sixteen, to the country suities at JAM

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Speaker 1: Channel one nineteen and around the globe the Bloomberg Radio

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Speaker 1: plus Apen Bloomberg dot Com. This is Bloomberg Surveillance, Good

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Speaker 1: Morning of Karen Moscow and along with Tom Keene and

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Speaker 1: Francine Lachu and the opening bell is brought to you

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Speaker 1: by s e I Imagine. When cognitive computing shapes the

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Speaker 1: experience you create for your investors. Ce SCS Global Operating

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Speaker 1: Platform can be your catalyst for business intelligence at s

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Speaker 1: c i S dot com slash imagine. Stocks are lower

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Speaker 1: at the open. The S and P five hundred is

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Speaker 1: down four tenths per cent or seven points to twenty eight.

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Speaker 1: The downtowns Industrial average down three tenths per cent or

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Speaker 1: fifty four points to seventeen thousand, four hundred forty three,

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Speaker 1: and then as to Act down half per cent or

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Speaker 1: twenty four points to forty seven forty four. The tenure

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Speaker 1: Treasury is of seven thirty seconds. The year at one

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Speaker 1: point eight five percent. Nimex screwed oil down three point

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Speaker 1: four percent or a dollar thirty five to thirty forty

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Speaker 1: three a barrel comex goal down to ten percent or

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Speaker 1: two dollars fifty cents. Tween announced the Euro is at

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Speaker 1: a dollar eleven fifty nine, the yen one twelve point

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Speaker 1: four seven. Tom and Francine Karen, thank you so much. Tom.

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Speaker 1: You know we talked about correlation in the markets. We

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Speaker 1: talked about correlations back in January and seemed that all

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Speaker 1: of the markets around the world were correlated towards oil.

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Speaker 1: Now they've changed their benchmark is dollar right. Stocks around

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Speaker 1: the world today dropping. This is as dollar extending games

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Speaker 1: for a fifth day. This is on the back of

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Speaker 1: what we heard from feed officials. But it's amazing how

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Speaker 1: these markets move in tandem and they latch onto something

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Speaker 1: and then they move correlated to that. Yeah. Well, part

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Speaker 1: of that is the blanket that's over everything. And this

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Speaker 1: has been a great theme folks this year, this idea

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Speaker 1: of lethargy and a lower term value in in in

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Speaker 1: francing for you to bring in Professor Kimball from Michigan.

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Speaker 1: I've noticed a shift just in the last few weeks

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Speaker 1: where if we're not talking about nominal GDP, we're faking

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Speaker 1: it and talking about real and inflation combined. But we

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Speaker 1: dare not talk about nominal GDP because that's not what

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Speaker 1: we do. That's a good setup for Miles Kimball. Yeah,

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Speaker 1: it is. How I know you've been a way out

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Speaker 1: front on this, especially on social media, nominal versus real GDP.

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Speaker 1: Let's welcome back Miles Kimball from the University of Michigan.

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Speaker 1: Miles when Tom Keane talks about nominal GDP versus real

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Speaker 1: The main difference, of course is that real values are

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Speaker 1: adjusted for inflation. Uh, nominal values are not. But this

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Speaker 1: is an important differentiation that we should be looking at more. Well. Yeah,

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Speaker 1: I mean I think that what what Sumner and other

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Speaker 1: folks have been talking about about nominal GDP targeting is helpful.

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Speaker 1: That that basically we should be looking at both inflation

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Speaker 1: and GDP, and there's there's no harm in combining them

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Speaker 1: and looking at nominal GDP to begether. But they're actually

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Speaker 1: you know, a lot of things we should be doing

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Speaker 1: differently with monetary policy. I mean, the biggest single thing

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Speaker 1: is empowering monetary policy again by being able to do

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Speaker 1: negative interest rates. But there are many other things we

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Speaker 1: should be doing differently with monetary policy, and one of

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Speaker 1: them is simply moving interest rates as much as necessary

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Speaker 1: to get the economy on track. If the economy is overheated,

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Speaker 1: we should raise interest rates the lot for a brief

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Speaker 1: time until we get on track. And if uh if

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Speaker 1: if interest if the economy needs more stimulus, we should

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Speaker 1: lower interest rates the lot until we get on track.

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Speaker 1: I mean, if you're about to run off the freeway.

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Speaker 1: You don't say, oh, I'm only going to turn the

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Speaker 1: steering wheel a little bit then and hope that gradually

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Speaker 1: get on track. No, you turn the steering wheel as

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Speaker 1: much as needed in order to in order to get

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Speaker 1: back in your lane. Yeah, that's true. But actually, when

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Speaker 1: you look at the reluctance of politicians to come up

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Speaker 1: with either fiscal policy or to pull their weight in

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Speaker 1: structural reforms around the world, than essential banks do too much,

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Speaker 1: it almost discourages you know, the car in front to

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Speaker 1: also move a little bit to the right, so that

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Speaker 1: you actually, I very much disagree with that bit of

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Speaker 1: conventional wisdom. I think you want to have a clean

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Speaker 1: separation that they that the central banks are in charge

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Speaker 1: of keeping the economy at the natural level of output.

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Speaker 1: And once you've done that, then the conversation becomes what

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Speaker 1: should we do about fiscal policy for the long run?

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Speaker 1: You know, uh, should we be uh building more roads

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Speaker 1: and bridges, should we be cutting taxes? Those are the

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Speaker 1: right kind of conversations that have in the long run

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Speaker 1: as well as structural reforms. But quite honestly, it's tough

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Speaker 1: to have a discussion about structural reform when monetary policy

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Speaker 1: is off target. It's by by taking care of the

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Speaker 1: things that monetary policy is supposed to take care of.

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Speaker 1: And that's not the job of fiscal policy. It's the

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Speaker 1: job of monetary policy to keep the economy at the

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Speaker 1: at the natural level of out I mean, fiscal policy

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Speaker 1: just can't do that job very well. And by the way,

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Speaker 1: we found out quite quite well in the last few years.

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Speaker 1: Fiscal policy is not up to the task monetary policy

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Speaker 1: would be. If you bring in negative interest rates, central

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Speaker 1: banks can and will do that job. Review how we

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Speaker 1: got here. Scott Sumner established a cottage industry at Beddeley University,

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Speaker 1: and George Mason working with this idea of we got

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Speaker 1: to go back to what we had. Miles Kimball, You're

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Speaker 1: in Michigan, long ago and far away. There was no

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Speaker 1: real g d P. We just ad nominal. We made

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Speaker 1: the switch because of high inflation. I get that, But

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Speaker 1: we don't have high inflation. Why are we struggling with

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Speaker 1: a nominal GDP analysis? Well, uh, I don't I think that.

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Speaker 1: It's uh, you know, it's just equivalent if you look

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Speaker 1: at real GDP and and inflation. I think the issue

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Speaker 1: is really that central banks have been you know, there's

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Speaker 1: the balance between looking at the data on inflation and

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Speaker 1: the data on GDP. I mean, you know, we want

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Speaker 1: to have stable inflation. But but the trouble is that

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Speaker 1: that it takes a long time for things that are

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Speaker 1: going on in the economy to fully show up in inflation.

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Speaker 1: So you have to look at all the data available.

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Speaker 1: I think if you you know, combine the real GDP

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Speaker 1: with the inflation to look at nominal GDP, that's actually

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Speaker 1: a very nice thing to be looking at. You know,

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Speaker 1: you graph that you get a really good sense of things.

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Speaker 1: So I think one of the great things about nominal

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Speaker 1: GDP is that that it's something that reveals what's going

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Speaker 1: on on quite well in a in a low tech way.

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Speaker 1: You know that it's quite transparent, easy to communicate. I'll

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Speaker 1: go with the idea that it's easy to communicate and

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Speaker 1: it's a very visible. Uh number. Is there any history?

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Speaker 1: And we got to know a big discussion yesterday with

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Speaker 1: Bullard about neo Fisherian theory and D S G E

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Speaker 1: and all that the new modern mathematics. But do we

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Speaker 1: need to go back to almost Samuelson one oh one

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Speaker 1: is that the Sumner Kimball scream, I, well, I mean,

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Speaker 1: I don't. I don't know that i'd say say that.

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Speaker 1: I mean I think that the you know, to be honest,

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Speaker 1: I think that there I think nominals do be looking

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Speaker 1: at nominal GDP is helpful. But but I think that

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Speaker 1: you bring in the tools of negative interest rate policy,

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Speaker 1: and even if central banks did things otherwise the way

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Speaker 1: they're used to, we would have a much better outsome

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Speaker 1: ghenomenal monetary policy. I think we can improve in various ways,

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Speaker 1: and I think, uh, we are in attract to improve

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Speaker 1: monetary policy. This is a big leap is bringing in

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Speaker 1: negative interest rate policy, and they're half a dozen other

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Speaker 1: things we should do to improve monetary policy. But I'm

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Speaker 1: actually quite optimistic, and I think that the debate abouhenominal

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Speaker 1: GDP is part of that improvement in monetary policy. I

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Speaker 1: think that that's pushing things forward. I'm not you know,

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Speaker 1: I wouldn't uh necessarily put it first among the half

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Speaker 1: dozen things that we need to be doing. Uh you know,

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Speaker 1: I get first among those half half dozen things is

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Speaker 1: really eliminating the zero lower bound, bringing in negative interest

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Speaker 1: rate policy. And I think, but I think in that

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Speaker 1: half dozen phenomenal GDP is helpful. Miles, thank you so much,

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Speaker 1: Miles Kimball with the University of Michigan. Spirited discussion and

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Speaker 1: we've already had a couple of emails in. I promise

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Speaker 1: will effort Mr Sumner here as we have spoken to

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Speaker 1: him from Bentley University a few times as well. The

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Speaker 1: down negative eighty six of VIX up a full one

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Speaker 1: point three five points sixteen point to nine. Our news

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Speaker 1: this morning brought you by Westchester Subaru. Visit Westchester Subaru

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Speaker 1: dot com with our news. Here's Michael Barr, Tom, thank

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Speaker 1: you very much. Belgian and French media report a second

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Speaker 1: suspect is believed involved in the Brussels subway attack. Authorities

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Speaker 1: have said that they believe the suspect was caught on

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Speaker 1: surveillance cameras in the Brussels metro and is alive. He

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Speaker 1: was on video with another man whom prosecutors identified as

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Speaker 1: a suicide bomber. Evidence is also mounting that the same

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Speaker 1: Islamic state cell that carried out the Brussels attack also

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Speaker 1: carried out the attacks in Paris. Officials in Malaysia and

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Speaker 1: Australia say two pieces of debris recently found in Mozambique

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Speaker 1: that most certainly belonged to the missing Malaysian Airline It's

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Speaker 1: flight three seventy. The search continues for the jetliner, which

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Speaker 1: vanished two years ago over the Southern Indian Ocean. Malaysia's

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Speaker 1: Transport Minister Liao Cheung Lai says the location of the

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Speaker 1: debris matches ocean drift pattern studied by searchers playing and

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Speaker 1: stoppingden ocean and this degree uh actually followed addicting pattern.

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Speaker 1: The US has charged several people accused of being hackers

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Speaker 1: linked to the Iranian government. According to an indictment and

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Speaker 1: sealed today in Manhattan, they allegedly launched a series of

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Speaker 1: cyber attacks on US financial institutions. Global News twenty four

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Speaker 1: hours a day, powered by our two journalists and more

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Speaker 1: than a hundred fifty news bureaus from around the world.

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Speaker 1: Now Michael Barr to Michael Barn, thank you so much.

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Speaker 1: A tenure Yale. It comes in now too full basis

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Speaker 1: points risk off field, the doubt negative. At Francie la

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