WEBVTT - Dollar for Your Thoughts 0:00:02.880 --> 0:00:06.200 Welcome to Bloomberg Opinion. I'm Vonnie Quinn. This week, I 0:00:06.200 --> 0:00:09.640 think the emerging markets Pride Dan Moss on how emerging 0:00:09.680 --> 0:00:13.440 markets X Britain no joke are coping with f X turmoil. 0:00:13.760 --> 0:00:16.360 We'll also speak with Justin Fox on just who needs 0:00:16.400 --> 0:00:19.400 to start participating in the US labor force to help 0:00:19.440 --> 0:00:23.000 the fed out. First though, to the crisis starting in Britain. 0:00:23.160 --> 0:00:27.080 Sterling and guilt's plummeted after new Chancellor Quasi Quarter unveiled 0:00:27.080 --> 0:00:30.240 a mini budget, the markets rejected. The Bank of England 0:00:30.280 --> 0:00:33.880 boked too, but hasn't pledged any emergency activity. I asked 0:00:33.880 --> 0:00:37.880 Bnoomberg Economics chief economist Tom Orlick to join, so Tom, 0:00:37.960 --> 0:00:40.720 you can call it alarm shock, markets taking fight. These 0:00:40.720 --> 0:00:43.000 are all headlines I've seen this week to describe the 0:00:43.000 --> 0:00:44.960 reaction to the new Chancellor of the Exchequer in Britain 0:00:44.960 --> 0:00:47.600 announcing forty five billion pounds of tax cuts along with 0:00:47.640 --> 0:00:50.680 the wave of borrowing. What happens next? It seems like 0:00:50.720 --> 0:00:54.120 markets had no idea how to handle this, So I 0:00:54.120 --> 0:00:56.880 think the challenge here is that the new Chancellor of 0:00:56.880 --> 0:01:00.880 the Exchequer in the UK, quality quass Hole, announced an 0:01:01.000 --> 0:01:07.160 unsustainable basical package. He's announced very substantial tax cuts but 0:01:07.360 --> 0:01:11.440 no offset from a drop in public spending. Now the 0:01:11.480 --> 0:01:15.800 market see of the UK is now on an unsustainable trajectory, 0:01:15.920 --> 0:01:19.959 and that's why we're seeing this extremely unusual combination of 0:01:20.000 --> 0:01:23.440 a sharp rise in borrowing costs for the UK government 0:01:23.600 --> 0:01:28.240 even as the pound fells off. Um what happens next, Well, 0:01:28.520 --> 0:01:32.560 there's a kind of potential emergency solution. The Bank of 0:01:32.600 --> 0:01:36.880 England could step in with an outsize hike in interest rates. 0:01:36.959 --> 0:01:39.760 That would restore a bit of stability to the pound, 0:01:40.040 --> 0:01:42.680 but it would come at a serious cost. The UK 0:01:42.800 --> 0:01:47.400 economy very sensitive to interest rates. A big hike, for example, 0:01:47.680 --> 0:01:50.960 would hammer the housing market. To get a fundamental solution, 0:01:51.240 --> 0:01:53.560 we really need to look at the origin of the problem. 0:01:53.720 --> 0:01:57.000 Until the British Treasury comes out with a credible plan 0:01:57.400 --> 0:02:00.800 for ensuring debt sustainability, it's tough to see this problem 0:02:00.800 --> 0:02:04.160 going away now. Guardon did talk about coming out with 0:02:04.280 --> 0:02:07.280 something in November that you know, he promises will calm 0:02:07.360 --> 0:02:09.920 the market, some kind of a strategy to put debt 0:02:10.000 --> 0:02:13.399 on a downward path. But what Robert could he possibly 0:02:13.440 --> 0:02:16.160 pull out of the Treasury's hat? So I didn't think 0:02:16.200 --> 0:02:19.840 there is an easy solution from here, Vonnie. Yes, we 0:02:19.919 --> 0:02:22.360 could have hikes from the Bank of England, which would 0:02:22.400 --> 0:02:26.560 stabilize the currency, but add additional burdens for an already 0:02:26.680 --> 0:02:31.120 very fragile economy. On the fiscal side, the most straightforward 0:02:31.280 --> 0:02:36.360 solution to this is for Quatang to either reverse course 0:02:36.600 --> 0:02:40.239 on some of the tax cuts or make an unpopular 0:02:40.320 --> 0:02:45.120 commitment to cut public spending now. Either or some combination 0:02:45.200 --> 0:02:48.400 of both of those could reassure the markets that the 0:02:48.480 --> 0:02:52.200 fiscal trajectory for the UK is now more sustainable, but 0:02:52.360 --> 0:02:55.880 neither of them would be politically popular. Why would it 0:02:55.919 --> 0:02:58.640 not be sustainable? How our traders so convinced that Britain 0:02:58.680 --> 0:03:01.240 can't enact some kind of are gonna ask type piscal 0:03:01.440 --> 0:03:04.040 policy over the next couple of years. I think Karwen 0:03:04.160 --> 0:03:07.399 is a little bit picking and choosing with the indicators 0:03:07.480 --> 0:03:10.600 which he points to to support his argument there. I 0:03:10.639 --> 0:03:13.160 think if we take a look at the move in 0:03:13.320 --> 0:03:16.200 UK borrowing costs, if we look at the move in 0:03:16.240 --> 0:03:20.080 the pound, clearly the markets are now questioning if the 0:03:20.200 --> 0:03:24.120 UK is on a sustainable trajectory now, how can you 0:03:24.160 --> 0:03:26.680 sort of square the circle? How can you convince the 0:03:26.720 --> 0:03:31.080 markets that the finances are actually going to be sustainable. Well, 0:03:31.200 --> 0:03:34.440 there's really sort of three variables which Quartung has to 0:03:34.440 --> 0:03:36.200 play with, and he will probably have to play with 0:03:36.240 --> 0:03:40.120 all of them. There's tax they just committed to massive 0:03:40.200 --> 0:03:42.560 tax cuts. Maybe they're going to have to roll back 0:03:42.640 --> 0:03:46.800 some of that commitment. There's spending. The fundamental issue here 0:03:46.840 --> 0:03:49.440 is that the commitment to tax cuts wasn't matched by 0:03:49.440 --> 0:03:52.400 a commitment to spending cut spending cuts at this point 0:03:52.400 --> 0:03:55.960 when so much of the UK is suffering and struggling 0:03:56.000 --> 0:04:02.120 to make basically massive energy costs exactly not really politically palatable. 0:04:02.600 --> 0:04:05.160 And the last piece of it is the idea that 0:04:05.280 --> 0:04:08.840 growth is going to solve all these problems. That old idea, 0:04:08.960 --> 0:04:12.960 going back to Ronald Reagan and his economist Laugher, that 0:04:13.000 --> 0:04:16.760 if you cut taxes, you drive growth higher, and you 0:04:16.880 --> 0:04:20.200 end up with more money coming into the government's coffers, 0:04:20.200 --> 0:04:22.480 not because you're taxing more, just because the economy is 0:04:22.560 --> 0:04:25.159 growing more quickly. So I think Qua Tong and the 0:04:25.200 --> 0:04:28.480 Treasury will also be trying to make the case that yeah, 0:04:28.560 --> 0:04:30.680 if you look at the tax numbers and the spending numbers, 0:04:30.920 --> 0:04:33.320 doesn't quite add up, but don't worry we're going to 0:04:33.400 --> 0:04:36.359 deliver on growth. Well, and remind me, doesn't Britain and 0:04:36.400 --> 0:04:39.479 the new administration also have to negotiate some trade deals, 0:04:40.320 --> 0:04:43.000 so that's not done right, So it's not like the 0:04:43.040 --> 0:04:46.960 pike can grow until that's done. So the US and 0:04:47.120 --> 0:04:51.599 China declared trade or on each other under the Trump administration. 0:04:52.000 --> 0:04:55.640 The UK went one better and declared trait or on 0:04:55.720 --> 0:05:00.719 itself by exiting the European Union, um the biggest sort 0:05:00.720 --> 0:05:04.840 of single trading block in the world. Now, the brexity 0:05:05.040 --> 0:05:08.400 is that, don't worry rexting the European Union, but that's 0:05:08.440 --> 0:05:11.599 going to give us freedom to negotiate trade deals with 0:05:11.640 --> 0:05:14.640 all the different other countries around the world. And if 0:05:14.640 --> 0:05:16.520 we add all of that, art's going to more than 0:05:16.640 --> 0:05:20.320 offset the cost of exiting the European Union. Well, I'm 0:05:20.360 --> 0:05:23.240 a brit I wish them luck on delivering on that agenda. 0:05:23.480 --> 0:05:26.560 So far it seems a bit harder than they anticipated. 0:05:27.120 --> 0:05:30.359 So this all is turning very sour. And you have 0:05:30.400 --> 0:05:32.880 the Bank of England desperately trying to hold on to 0:05:33.000 --> 0:05:35.840 its credibility because it can't lose credibility, along with the 0:05:35.880 --> 0:05:39.679 Treasury and the whole country. A commendators from Larry Summers 0:05:39.720 --> 0:05:43.440 to strategists like Manstermun talking about literally the words emerging 0:05:43.520 --> 0:05:46.200 market now when they talk about Britain which would have 0:05:46.200 --> 0:05:49.000 seemed far effected a week or two ago, how far 0:05:49.040 --> 0:05:53.200 affetched is it now? Or what kind of performative activity 0:05:53.240 --> 0:05:56.000 are we going to need from somebody in authority in 0:05:56.080 --> 0:05:59.680 order to restore some kind of confidence in Britain. So 0:06:00.040 --> 0:06:02.680 I think the fundamental problem here is that the new 0:06:02.760 --> 0:06:05.880 Chancellor of the Exchequer stood up and almost in his 0:06:05.960 --> 0:06:09.800 first statement convinced the market that he didn't care about 0:06:09.880 --> 0:06:14.359 fiscal sustainability, and of course that has triggered enormous costs 0:06:14.360 --> 0:06:17.800 with the rise in borrowing costs for the UK government 0:06:18.040 --> 0:06:21.520 and the plunge in the pound. Fundamentally, what is required 0:06:21.800 --> 0:06:25.120 to write this ship is for the same Chancellor to 0:06:25.240 --> 0:06:28.479 stand up and convince the market that actually, yes, he 0:06:28.600 --> 0:06:31.480 does care deeply about growth, he does want to deliver 0:06:31.760 --> 0:06:35.599 on an ambitious growth agenda, but he also understands and 0:06:35.640 --> 0:06:39.160 will credibly commit to delivering on fiscal sustainability as well. 0:06:39.720 --> 0:06:42.680 It doesn't look very good for the Trust administration, does it, Tom. 0:06:42.880 --> 0:06:44.320 I don't think this is going to go down in 0:06:44.480 --> 0:06:48.000 history as the most auspicious staff for any new administration 0:06:48.080 --> 0:06:51.320 every body. Let's put it like that, Bloomberg Economics chief 0:06:51.320 --> 0:06:54.320 economist Tom or Like. As the FED prepares for the 0:06:54.360 --> 0:06:57.000 unemployment rate to go up as part of its campaign 0:06:57.000 --> 0:07:00.400 detained inflation, part of the Fed's hope is that perforce 0:07:00.480 --> 0:07:04.000 participation rises. In other words, that people previously not even 0:07:04.040 --> 0:07:07.040 looking will become part of the labor force again. That 0:07:07.040 --> 0:07:09.480 would push the unemployment rate higher, for sure, but it 0:07:09.480 --> 0:07:12.720 wouldn't push people currently in jobs out of jobs, so 0:07:12.840 --> 0:07:15.840 less painful pain perhaps, to put it in contact, labor 0:07:15.840 --> 0:07:19.480 force participation was at or above sixty three before the pandemic. 0:07:19.760 --> 0:07:22.240 It's slow to sixty as the pandemic hits. It's now 0:07:22.280 --> 0:07:25.560 back up to sixty two point four. Bloomberg opinion columnist 0:07:25.680 --> 0:07:28.680 Justin Fox has been looking at various cohorts and finding 0:07:28.760 --> 0:07:32.360 some data that might surprise. So Justin, there's a belief 0:07:32.400 --> 0:07:34.520 out there that through the pandemic, people fifty five and 0:07:34.640 --> 0:07:37.320 over left the workforce and droves, and that that was 0:07:37.360 --> 0:07:40.240 exacerbating a trend already fifteen years in the making. But 0:07:40.320 --> 0:07:43.640 it turns out that that premise is actually false. Tell 0:07:43.720 --> 0:07:47.880 us more it's partly just that I'm fifty eight years old, 0:07:48.000 --> 0:07:50.880 and when I look at these reports about oh, fifty 0:07:50.880 --> 0:07:53.600 five and older labor force participation fell a lot during 0:07:53.600 --> 0:07:55.920 the pandemic and is still actually kind of falling, while 0:07:56.040 --> 0:07:58.640 most other groups have gone back. And then I look 0:07:58.640 --> 0:08:00.760 at people my own age that I know, but also 0:08:00.800 --> 0:08:03.240 just look at the statistics for the fifty five to 0:08:03.320 --> 0:08:05.960 fifty nine age group. It's actually up over the course 0:08:05.960 --> 0:08:08.480 of the pandemic, and so that just caused me to 0:08:08.520 --> 0:08:12.720 start looking a little more into it. And basically, people 0:08:12.720 --> 0:08:15.520 in their late fifties are actually slightly higher labor force 0:08:15.560 --> 0:08:18.640 participation than before the pandemic. Those in their early sixties 0:08:18.640 --> 0:08:21.360 it's a little lower, But for the people above sixty five, 0:08:21.400 --> 0:08:24.920 there's been a real drop. That drop has been smaller 0:08:24.960 --> 0:08:28.640 in percentage terms than the one point seven percentage point 0:08:28.760 --> 0:08:32.559 drop in overall fifty five and older labor force participation, 0:08:32.600 --> 0:08:35.800 which just seems weird. So people in their early seventies 0:08:35.800 --> 0:08:38.960 have seen a smaller labor force participation drop than the 0:08:39.000 --> 0:08:41.640 overall fifty five and older. And what it is is 0:08:41.720 --> 0:08:45.520 this thing that the economists called composition effects. It's just 0:08:45.640 --> 0:08:48.400 that within the fifty five and older age group. The 0:08:48.440 --> 0:08:51.680 age distribution is changing. What it is is there's the 0:08:51.679 --> 0:08:54.800 baby Boomers, and well I'm one of them too, but 0:08:54.920 --> 0:08:57.760 just barely. And the baby Boomers are simply a bunch 0:08:57.760 --> 0:09:01.360 of years where birth rates were higher than before or after. 0:09:02.120 --> 0:09:05.640 And so the oldest of the Baby Boomers are turning 0:09:05.679 --> 0:09:08.160 fifty eight this year. So when you look at the 0:09:08.280 --> 0:09:11.240 overall fifty five and older age group, it's starting to 0:09:11.280 --> 0:09:14.600 be filled at the young end by members of Generation X, 0:09:14.640 --> 0:09:17.280 and there aren't as many of them now in general 0:09:17.679 --> 0:09:20.600 after about age forty. The older you get, the less 0:09:20.600 --> 0:09:22.880 likely you are to be in the labor force. So 0:09:22.920 --> 0:09:25.720 as that happens if you have a big group of 0:09:25.760 --> 0:09:29.760 people now aging into their sixties and seventies and the 0:09:29.920 --> 0:09:33.559 smaller group of people aging into their late fifties, that 0:09:33.679 --> 0:09:37.439 just sort of automatically is going to cause participation rates 0:09:37.440 --> 0:09:41.240 to decline, even if participation rates of every age group 0:09:41.280 --> 0:09:43.960 within there is not declining at all. So you have 0:09:44.000 --> 0:09:45.480 to be very careful when you look at the data 0:09:45.760 --> 0:09:47.640 before you pull assumptions out of it and say, oh, 0:09:47.760 --> 0:09:50.040 everyone over fifty five just decided that life should be 0:09:50.080 --> 0:09:52.000 different to upter COVID. It's not like that at all. 0:09:52.240 --> 0:09:56.160 Early on, early retirement was this phrase for it, and 0:09:56.200 --> 0:09:59.600 when you looked at it, retirement wasn't up for people 0:09:59.679 --> 0:10:02.520 under sixty five. It was up for people over sixty five. 0:10:02.520 --> 0:10:05.840 And maybe they were retiring earlier than they had planned to, 0:10:05.920 --> 0:10:08.280 because there definitely was a leap for people in their 0:10:08.400 --> 0:10:11.000 late sixties and early seventies. Aren't that many of them working, 0:10:11.040 --> 0:10:13.199 but the numbers have been going up for a long time. 0:10:13.880 --> 0:10:17.200 So yeah, it's just there's definitely been a drop, but 0:10:17.280 --> 0:10:21.080 it's concentrated among people over sixty five years old. You know, 0:10:21.160 --> 0:10:24.120 A it's kind of understandable. COVID is really dangerous if 0:10:24.120 --> 0:10:27.120 you're over sixty five and so not exactly wanting to 0:10:27.160 --> 0:10:29.920 go into the office, or I mean, right before the pandemic, 0:10:29.960 --> 0:10:33.640 McDonald's was starting to recruit senior citizens to come work there. 0:10:33.640 --> 0:10:38.439 And it's like, maybe not a great idea, Yeah, exactly. 0:10:38.640 --> 0:10:41.600 So it's not that there hasn't been any decline. And 0:10:41.600 --> 0:10:44.280 and I actually, after writing this piece, I've did an 0:10:44.280 --> 0:10:49.320 age adjusted version and basically, half of the decline in 0:10:49.679 --> 0:10:53.400 fifty five and older labor force participation is an actual decline, 0:10:53.720 --> 0:10:57.959 and half is this statistical composition effect you did find 0:10:58.160 --> 0:11:01.800 that there are two groups for whom participation has defined substantially, 0:11:01.800 --> 0:11:04.480 and they may not be the ones that we would assume. Right. 0:11:04.520 --> 0:11:07.679 There are two groups under age sixty who have seen 0:11:08.160 --> 0:11:11.920 labor force participation decline from before the pandemic, and it's 0:11:12.120 --> 0:11:15.160 people in their early twenties and in their late thirties. 0:11:15.200 --> 0:11:17.439 So the early twenties you could maybe see so the 0:11:17.480 --> 0:11:19.640 pandemic is not exactly a time to go looking. It's 0:11:19.760 --> 0:11:22.120 very difficult interview. You don't even know where you really wanted. 0:11:22.200 --> 0:11:23.960 You don't know what businesses are going to be around 0:11:24.080 --> 0:11:27.480 after the pandemic, right, And a lot of people also delayed, 0:11:27.880 --> 0:11:30.440 took a gap year, so they're still in college now 0:11:30.440 --> 0:11:32.720 when they wouldn't have been otherwise at age twenty three 0:11:32.800 --> 0:11:35.839 or whatever. One other factor that I didn't write about, 0:11:35.920 --> 0:11:39.240 but the economist Adam Ozomac pointed out to me on Twitter, 0:11:39.320 --> 0:11:41.240 is that there's a bunch of twenty two year olds 0:11:41.240 --> 0:11:44.800 who got a bunch of money from various pandemic relief programs, 0:11:44.800 --> 0:11:46.760 and if they were still living at home, they probably 0:11:46.800 --> 0:11:49.400 still have all that money. So there's just less of 0:11:49.440 --> 0:11:52.040 an absolute need to get out on the job market. 0:11:52.080 --> 0:11:54.600 But the late thirties is a little more surprising. Yeah, 0:11:54.679 --> 0:11:57.440 I mean, it does seem like it would have something 0:11:57.480 --> 0:12:00.480 to do with childcare, because people in their late thirties 0:12:00.520 --> 0:12:02.760 are pretty much the most likely group now in the 0:12:02.840 --> 0:12:06.520 US to have small children. But what's interesting is, and 0:12:06.559 --> 0:12:11.160 this is true overall, women are now above their pre 0:12:11.280 --> 0:12:13.840 pandemic levels, both in that late thirties age group and 0:12:13.880 --> 0:12:17.000 for the entire prime working age. So while participation for 0:12:17.080 --> 0:12:21.640 women is up, male labor force participation overall continues to decline. Now, 0:12:21.640 --> 0:12:24.280 we've known for some time the participation for prime age men, 0:12:24.440 --> 0:12:29.080 so fifty four has been seeing an accelerating decline recap 0:12:29.160 --> 0:12:32.040 for us Why, Yeah, for men, I mean, some of 0:12:32.080 --> 0:12:35.080 it is stuff like people just staying in school longer, 0:12:35.240 --> 0:12:38.960 more people going to college, and some percentage of it 0:12:39.080 --> 0:12:43.840 is men taking on more responsibilities at home. But clearly 0:12:43.880 --> 0:12:46.319 most of it is a larger group of men than 0:12:46.400 --> 0:12:50.839 women who are just completely disconnected from work. And we're 0:12:50.840 --> 0:12:54.000 seeing that playoffs in polls and in elections. And yeah, 0:12:54.040 --> 0:12:56.360 I mean, and that's been a phenomenon. You know, there's 0:12:56.400 --> 0:12:58.920 a lot of talk about it over the past decade, 0:12:59.200 --> 0:13:01.760 and I imagine we will start talking about it again 0:13:01.800 --> 0:13:04.080 because it will continue to be, you know, and one 0:13:04.400 --> 0:13:06.880 clear reason for it is because men are much more 0:13:06.920 --> 0:13:09.960 likely to have criminal records, be ex convicts, and it's 0:13:10.000 --> 0:13:12.560 just been really hard for people to come out of 0:13:12.559 --> 0:13:16.120 prison and get into the workforce. So that's clearly part 0:13:16.120 --> 0:13:18.360 of it. But there are also just other issues with 0:13:18.440 --> 0:13:21.120 the kind of jobs that have been created and what 0:13:21.440 --> 0:13:24.400 men feel comfortable doing and are willing to do, and 0:13:24.440 --> 0:13:27.800 in general, men are struggling in school in a way 0:13:27.800 --> 0:13:30.880 that women aren't. One encouraging thing is it's clear, at 0:13:30.920 --> 0:13:33.440 least right now, the job market has been very good 0:13:33.480 --> 0:13:36.920 for non college graduates, so maybe that will help justin 0:13:37.200 --> 0:13:39.200 I guess the bottom line is we should rethink our 0:13:39.200 --> 0:13:42.760 assumptions about older workers. They're there and they're working, yeah, 0:13:42.880 --> 0:13:45.840 and to write and I guess what it is is, 0:13:45.880 --> 0:13:50.000 I just don't think there's a huge number of older 0:13:50.000 --> 0:13:53.839 workers who can be brought back into the workforce. There 0:13:53.840 --> 0:13:56.880 definitely are some, and you're and you're seeing the numbers 0:13:56.960 --> 0:13:59.920 keep inching up, but definitely people sixty five and older, 0:14:00.600 --> 0:14:02.880 you know, they keep getting older every year and and 0:14:02.880 --> 0:14:05.280 and it's reasonable that more of them would want to 0:14:05.280 --> 0:14:07.640 be out of the workforce. The oldest baby boomers are 0:14:07.640 --> 0:14:11.440 turning seventy five now, so you know they should probably. 0:14:11.640 --> 0:14:14.120 You know, obviously some people can keep working forever, but 0:14:14.679 --> 0:14:16.720 a lot of people don't want to and have saved 0:14:16.800 --> 0:14:18.840 up enough money that they don't have to. So I 0:14:18.840 --> 0:14:21.320 guess what it is is, if we're looking for sort 0:14:21.320 --> 0:14:24.920 of quick things that can increase labor force participation, we 0:14:25.040 --> 0:14:27.680 should probably spend more time thinking about what's going on 0:14:27.720 --> 0:14:29.920 with people in their early twenties and late thirties and 0:14:30.120 --> 0:14:34.240 trying to fix whatever hurdles there are. Bloomberg Opinions justin 0:14:34.320 --> 0:14:38.080 Fox we continue now with our review of currency turmoil. 0:14:38.160 --> 0:14:41.760 This week, I spoke with Bloomberg Opinions Dan Moss. So, Dan, 0:14:41.880 --> 0:14:44.280 if you look at w crs on the Bloomberg year today, 0:14:44.320 --> 0:14:47.040 it's really quite a site to see. All the majors, 0:14:47.160 --> 0:14:49.240 with maybe the exception of the Brazilian real and the 0:14:49.360 --> 0:14:51.920 pay so are down versus the dollar, and most of 0:14:51.960 --> 0:14:56.360 those by double digits. Turmoil unleashed in currency markets seems 0:14:56.360 --> 0:14:58.200 to be getting worse by the week. Are we in 0:14:58.320 --> 0:15:02.040 full blown f X crisis mold globally? No, I wouldn't 0:15:02.080 --> 0:15:06.400 say it is an ex crisis globally. What we are 0:15:06.600 --> 0:15:12.680 seeing though significant reverberation of US dollar strength, magnified in 0:15:12.800 --> 0:15:17.440 specific instances by local idiosyncrasies. You know, there's been a 0:15:17.480 --> 0:15:21.200 lot of attention volume on the agonist of the British 0:15:21.240 --> 0:15:25.200 pound in the past few days, justifiably, so you can't 0:15:25.360 --> 0:15:29.880 really talk about that without mentioning Japan's adventures in the 0:15:29.960 --> 0:15:35.320 currency market. Thursday evening at global time, Japan intervened to 0:15:36.000 --> 0:15:39.920 buy ying. They've had plenty of interventions selling it. They 0:15:40.240 --> 0:15:44.760 bought at this time. That's the first time since Epochal 0:15:44.920 --> 0:15:48.800 year for currencies China. Almost every day in our China 0:15:49.000 --> 0:15:51.440 is rolling out some sort of tweet towards rules and 0:15:51.520 --> 0:15:55.120 regulations to cushion the decline in the U are and 0:15:55.360 --> 0:15:58.440 I'm not stopping the depreciation. Were at some point to 0:15:59.000 --> 0:16:01.800 within obviously and presentage point to per dollar right now, 0:16:02.320 --> 0:16:05.440 and it's just continuing down even with the intervention. There 0:16:05.440 --> 0:16:09.040 are sound reasons for that. China's economy is not in 0:16:09.120 --> 0:16:12.720 a great state. We're used to in past decades during 0:16:12.840 --> 0:16:16.880 times of global economic softness, China kind of riding to 0:16:16.920 --> 0:16:21.480 the rescue. That's not happening anymore. The PBOC is never 0:16:21.640 --> 0:16:24.440 far from what's going on in Chinese markets to have 0:16:24.520 --> 0:16:28.400 a daily fixing. They limit fluctuations. They're not trying to 0:16:28.560 --> 0:16:32.200 stand against market forces. They are trying to mitigate some 0:16:32.360 --> 0:16:35.680 of the more extreme manifestations of that. You look at 0:16:35.680 --> 0:16:41.280 overnight volatility. So many pairs are seeing such activity, reverberation 0:16:41.480 --> 0:16:46.480 from the strong goaler are increasingly making themselves held in 0:16:46.840 --> 0:16:51.720 developed economies. What's unnerving about the situation the UK right 0:16:51.800 --> 0:16:57.240 now is British authorities find themselves managing a reputational crisis. 0:16:57.360 --> 0:17:00.400 Now it's one thing that inflation manage. That you've got 0:17:00.480 --> 0:17:03.840 slow growth, you can stimulate a bit, but we're now 0:17:04.160 --> 0:17:08.919 busy for the UK government is now busy distancing itself 0:17:08.960 --> 0:17:11.679 from this e M tag no less a person than 0:17:11.720 --> 0:17:16.680 a former US Treasury secretary. It's really quite incredible monthmore 0:17:16.880 --> 0:17:19.600 un Larry Somers, as you mentioned, so many people talking 0:17:19.640 --> 0:17:23.919 about Britain as an emerging market. But let's move to 0:17:24.000 --> 0:17:27.240 the emerging markets because obviously it's one thing for developed markets, 0:17:27.280 --> 0:17:30.480 as you say, with developed capital markets, but how do 0:17:30.680 --> 0:17:33.879 em and frontier economy survive. We've seen places like Pankistan 0:17:33.920 --> 0:17:37.200 and Turmoil, We've seen default. What happens in Hungary, where 0:17:37.200 --> 0:17:42.280 the foreign is down, Lira in Turkey down, Argentina. I 0:17:42.280 --> 0:17:46.639 think the emerging markets prey. Look, we've had this narrative 0:17:46.840 --> 0:17:49.440 off and on for the better part of two decades, 0:17:49.640 --> 0:17:53.439 which is all about emerging markets decoupling from the dollar 0:17:53.800 --> 0:17:57.760 finding their own strength. But the episodes that we've seen 0:17:57.880 --> 0:18:01.159 of late sort of put a line to that. There's 0:18:01.200 --> 0:18:04.199 not a lot an emerging market but the exception of 0:18:04.280 --> 0:18:08.600 China can really do about this other than don't kick 0:18:08.720 --> 0:18:14.160 own goals. Dollar strength is such that any country that's 0:18:14.240 --> 0:18:18.320 perceived to be winging it or engaging in indulgences is 0:18:18.320 --> 0:18:21.359 going to get picked off, right or wrong. That is 0:18:21.359 --> 0:18:25.720 the way the UK fiscal package was perceived a day 0:18:25.760 --> 0:18:29.119 after the Japanese intervention. Look, it's king dollar, and the 0:18:29.200 --> 0:18:32.520 question is what does king dollar do with the Kingdom 0:18:32.600 --> 0:18:36.280 don How much can export oriented economies benefit from currency 0:18:36.320 --> 0:18:39.200 weakness in order to show a domestic activity, let's say, 0:18:39.320 --> 0:18:42.159 even as their external deadloads get heavier. I mean there 0:18:42.280 --> 0:18:45.800 is a point beyond which even export oriented economies can't 0:18:45.800 --> 0:18:49.480 take this anymore. Right, Well, in theory, it's great for 0:18:49.520 --> 0:18:53.119 an export dependent economy. However, it's got to be the 0:18:53.240 --> 0:18:57.560 demand for the stuff. Now we saw an update to 0:18:57.880 --> 0:19:00.639 O E c D Global growth for CUFF. That was 0:19:00.680 --> 0:19:04.399 a very significant cup. Where I'm sitting in Southeast Asia, 0:19:04.680 --> 0:19:08.439 China has been both a big source of export and 0:19:08.680 --> 0:19:11.880 import tom and we're just not seeing that because China's 0:19:11.880 --> 0:19:15.120 economy is in retreat. So what do you do? It's 0:19:15.160 --> 0:19:17.640 a really tough one. Are we going to see more 0:19:17.760 --> 0:19:21.480 defaults and more pressure on organizations such as the International 0:19:21.480 --> 0:19:25.520 Monetary Fund? So let's go back twenty five years in 0:19:25.640 --> 0:19:29.560 Southeast Asia where I'm now sitting. The IRONF was the 0:19:29.600 --> 0:19:34.000 first port of core. But don't underestimate the ill will 0:19:34.359 --> 0:19:40.000 fostered by the very, very harsh conditionality that the IMF imposed. 0:19:40.160 --> 0:19:44.240 And in many instances the IMF was, if not caused, 0:19:44.240 --> 0:19:50.600 then certainly midwife to significant political dislocations. Now you can say, hey, 0:19:50.720 --> 0:19:54.119 it brought true democracy to South Korea, the first opposition 0:19:54.200 --> 0:19:59.760 Canada was elected. It brought a complete reorganization of governance 0:20:00.000 --> 0:20:04.080 in Indonesia. Malaysia rolled the dice on capital controls and 0:20:04.200 --> 0:20:06.359 kind of got away with it in the short term, 0:20:06.359 --> 0:20:09.480 that at the price of significant reputational risk and a 0:20:09.520 --> 0:20:13.320 long term split within the ruling party. So the Ironmas 0:20:13.480 --> 0:20:15.639 has to be there, but the countries have to be 0:20:15.720 --> 0:20:19.959 willing to go to it, and certainly emerging markets in 0:20:20.000 --> 0:20:23.920 this region know that it ain't a free lunch. Bloomberg 0:20:23.920 --> 0:20:26.439 Opinions don Mass to return to the story of the 0:20:26.480 --> 0:20:29.040 week now, and that is turmoil and FX markets across 0:20:29.040 --> 0:20:33.479 the globe. Bloomberg Opinions Andrea pop Book joins so Andrea 0:20:33.520 --> 0:20:36.679 Bloomberg Opinions. Done Mass told us that emerging markets can 0:20:36.720 --> 0:20:39.360 do really very little in the eye of dollar strength. 0:20:39.480 --> 0:20:42.560 His advice actually was to pray, and he was only 0:20:42.720 --> 0:20:45.080 a little bit being tongue in cheek. Where are the 0:20:45.160 --> 0:20:48.879 dangers most obvious right now? Yeah, Look, I don't think 0:20:49.040 --> 0:20:52.520 it's only emerging markets that can do very little. If 0:20:52.560 --> 0:20:56.720 you look around, there is very little that anyone, including 0:20:56.920 --> 0:21:01.400 China and Japan, can do. In the last week, we 0:21:01.480 --> 0:21:06.400 saw Japan come in and intervene to prop up the yen, 0:21:06.920 --> 0:21:11.119 and while that did have an immediate reaction, I guess 0:21:11.280 --> 0:21:13.840 if you look at the level of the yen right now, 0:21:14.160 --> 0:21:18.840 it is not much below where the Ministry of Finance 0:21:18.920 --> 0:21:22.920 and the Bank of Japan came in last week. And 0:21:23.000 --> 0:21:26.600 also we have got a Chinese yuan falling to a 0:21:26.720 --> 0:21:32.000 record alone, and again it seems that China is perhaps 0:21:32.200 --> 0:21:36.400 less determined to go in there and stem that slide. 0:21:36.920 --> 0:21:40.760 And the reason is, if we step back, this is 0:21:41.200 --> 0:21:47.080 the green bag pretty much steam rolling every single currency 0:21:47.400 --> 0:21:51.320 around the world. And look, it is a very classic 0:21:51.440 --> 0:21:57.160 example of interest rate differentials playing out. We know that 0:21:57.359 --> 0:22:01.920 the FED is determined to keep going with interest rate 0:22:02.080 --> 0:22:07.399 increases to bring down this runaway inflation. And as long 0:22:07.600 --> 0:22:12.240 as that keeps going on, you will continue to see 0:22:12.520 --> 0:22:16.040 the dollar strengthen. And I think you know, in very 0:22:16.080 --> 0:22:21.600 simple terms, what we are seeing is higher US rates, 0:22:21.960 --> 0:22:27.440 capital outflows out of emerging markets, especially China. And yes, 0:22:27.520 --> 0:22:32.040 it's not just the emerging markets, it is everywhere exactly. 0:22:32.080 --> 0:22:35.280 And you mentioned China's you and the on shore has 0:22:35.320 --> 0:22:38.560 weakened two above seven twenty two versus the US dollar. Now, 0:22:38.560 --> 0:22:42.320 obviously it's different in the basket of currencies. But China, 0:22:42.440 --> 0:22:44.920 even if it's been offloading US government debt for some time, 0:22:44.920 --> 0:22:48.520 it still holds mountains of US How does China navigate 0:22:48.560 --> 0:22:51.800 these waters? Yeah, and look it looks at the moment 0:22:52.040 --> 0:22:55.920 it is easing its grip. It is, for want of 0:22:55.960 --> 0:22:59.040 a better word, becoming more comfortable. I don't think it's that, 0:22:59.320 --> 0:23:03.879 but I think it realizes that it cannot stand in 0:23:03.960 --> 0:23:07.280 the way of this higher US rate. And so keep 0:23:07.320 --> 0:23:11.760 in mind, China has its own issues with the fact 0:23:11.760 --> 0:23:15.400 that it's clinging to this COVID zero policy. It has 0:23:15.440 --> 0:23:19.119 the property market worlds, So you are not likely going 0:23:19.240 --> 0:23:23.760