1 00:00:05,720 --> 00:00:12,960 Speaker 1: Yeah, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene 2 00:00:13,480 --> 00:00:17,560 Speaker 1: Jay Ley. We bring you insight from the best in economics, finance, investment, 3 00:00:18,000 --> 00:00:23,520 Speaker 1: and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 4 00:00:23,600 --> 00:00:28,120 Speaker 1: Bloomberg dot Com, and of course on the Bloomberg. Yeah. 5 00:00:34,760 --> 00:00:36,880 Speaker 1: John Riding dropping by the studio here in New York 6 00:00:36,960 --> 00:00:41,200 Speaker 1: RDQ in Economics, chief economist and founding partner. So, John, 7 00:00:41,200 --> 00:00:43,920 Speaker 1: that hasn't happened yet. It's the assumption of many, many 8 00:00:43,920 --> 00:00:47,160 Speaker 1: individuals that follow the politics much closer than you and I. 9 00:00:47,159 --> 00:00:49,959 Speaker 1: I'm just trying to understand what would happen if that 10 00:00:50,000 --> 00:00:53,880 Speaker 1: headline crossed the Bloomberg. How would the market respond to 11 00:00:53,960 --> 00:00:58,400 Speaker 1: that scenario. I don't think there's necessarily much that's gonna 12 00:00:58,960 --> 00:01:00,680 Speaker 1: it's going to have to respond on too at this point, 13 00:01:00,680 --> 00:01:03,160 Speaker 1: because that doesn't immediately start building the wall, doesn't do 14 00:01:03,280 --> 00:01:06,399 Speaker 1: anything other than this will eventually get kicked to the 15 00:01:06,440 --> 00:01:09,800 Speaker 1: Supreme Court, and I think there will be you know, 16 00:01:09,840 --> 00:01:12,360 Speaker 1: however long that takes to play out, this may become 17 00:01:12,720 --> 00:01:16,000 Speaker 1: a mechanism by which both sides get a win. Because 18 00:01:16,000 --> 00:01:18,520 Speaker 1: if he is declared, if the President declares the national 19 00:01:18,560 --> 00:01:20,920 Speaker 1: state of emergency. He can do it, then there's no 20 00:01:21,000 --> 00:01:26,200 Speaker 1: need to keep the government closed. So presumably, uh, that 21 00:01:26,240 --> 00:01:29,840 Speaker 1: would then pave the way to passing some kind of 22 00:01:29,880 --> 00:01:33,559 Speaker 1: budget agreements getting the departments reopened. But by the same token, 23 00:01:33,600 --> 00:01:36,680 Speaker 1: the wall's not going to be begun to be built 24 00:01:36,720 --> 00:01:39,600 Speaker 1: because there has there will have to be a test. Well, 25 00:01:39,640 --> 00:01:42,480 Speaker 1: it's the Congress's job to determine the budget, so the 26 00:01:42,560 --> 00:01:46,160 Speaker 1: president's diverting funds. Can he legally do it? He says 27 00:01:46,200 --> 00:01:48,920 Speaker 1: he can, Congress says he can't. The Supreme Court has 28 00:01:48,960 --> 00:01:52,000 Speaker 1: to decide. Were used to volatility in Washington, d C. 29 00:01:52,160 --> 00:01:55,080 Speaker 1: We're used to gridlock in the nation's capital. Is this 30 00:01:55,160 --> 00:01:57,880 Speaker 1: different at all to what we've experienced in previous administrations 31 00:01:57,920 --> 00:02:00,680 Speaker 1: for market participants where they look at this any differently 32 00:02:00,920 --> 00:02:03,800 Speaker 1: to these situations we've seen in years gone by, No, 33 00:02:04,160 --> 00:02:07,920 Speaker 1: and government shutdowns have never been a really big thing 34 00:02:08,040 --> 00:02:11,040 Speaker 1: for the market. The question is what is the policy 35 00:02:11,440 --> 00:02:14,320 Speaker 1: that needs to be resolved that drove the government to 36 00:02:14,480 --> 00:02:16,200 Speaker 1: a shut down. In the past, it might have been 37 00:02:16,480 --> 00:02:21,240 Speaker 1: a fiscal cliff relating to tax increases. Um this is 38 00:02:22,040 --> 00:02:26,880 Speaker 1: in a sense a much smaller economic issue, So you know, 39 00:02:27,080 --> 00:02:31,040 Speaker 1: you know, I I think that Uh, after a while, 40 00:02:31,400 --> 00:02:34,080 Speaker 1: maybe there's acumic damage. People maybe talk about a tenth 41 00:02:34,160 --> 00:02:38,640 Speaker 1: to prevent sent off GDP. We're not talking huge numbers. 42 00:02:38,680 --> 00:02:43,760 Speaker 1: It's much more about executive privilege and politics, I think, 43 00:02:43,800 --> 00:02:47,720 Speaker 1: than it is about economics. We have had economic growth. 44 00:02:48,320 --> 00:02:51,840 Speaker 1: You predicted this, You've always been an optimist in the 45 00:02:51,840 --> 00:02:56,360 Speaker 1: American experiment. Are we having these tensions because all the 46 00:02:56,440 --> 00:03:02,320 Speaker 1: growth went to too few people? Well, look, just we 47 00:03:02,480 --> 00:03:07,640 Speaker 1: cannot deny that distributional considerations are now very important politically. 48 00:03:08,320 --> 00:03:12,400 Speaker 1: Um and that has been a theme in economics and 49 00:03:12,520 --> 00:03:15,320 Speaker 1: a theme in politics. But I think but the question 50 00:03:15,919 --> 00:03:20,280 Speaker 1: in the debts of the financial crisis and the Great Recession, 51 00:03:20,280 --> 00:03:23,960 Speaker 1: if someone said, well, the economy is going to enjoy 52 00:03:24,120 --> 00:03:27,920 Speaker 1: the longest expansion in US economic history coming out of this, 53 00:03:28,440 --> 00:03:33,000 Speaker 1: we would have taken growth over where we were. So, 54 00:03:33,600 --> 00:03:37,600 Speaker 1: you know, the economy has delivered the lowest unemployment rate 55 00:03:37,680 --> 00:03:41,280 Speaker 1: now in fifty years. More people are coming back to 56 00:03:41,320 --> 00:03:44,640 Speaker 1: the labor for US. Inflation is relatively low. You know, 57 00:03:44,720 --> 00:03:49,520 Speaker 1: those compare the situation to Europe, and the US is 58 00:03:49,560 --> 00:03:53,800 Speaker 1: in a far, far stronger place despite all of the 59 00:03:53,880 --> 00:03:57,560 Speaker 1: dysfunctionality inside of the Beltway. And John I would totally 60 00:03:57,600 --> 00:03:59,560 Speaker 1: agree with that as well. Looking at the economic data 61 00:03:59,560 --> 00:04:01,160 Speaker 1: at the moment, there's been a big worry about what 62 00:04:01,200 --> 00:04:03,080 Speaker 1: would happen with the global slow down and how it 63 00:04:03,080 --> 00:04:06,320 Speaker 1: would spill over into the U S economy. Initial jobless claims, 64 00:04:06,320 --> 00:04:09,720 Speaker 1: that's a real time indicator of this economy still really 65 00:04:09,840 --> 00:04:13,400 Speaker 1: really low, multi decade lows at the moment. John, any 66 00:04:13,440 --> 00:04:16,800 Speaker 1: sign of weakness anywhere that you're concerned about at the moment, well, 67 00:04:16,960 --> 00:04:21,159 Speaker 1: there is weakness in areas like housing, for example, and 68 00:04:21,240 --> 00:04:23,720 Speaker 1: that's one area where the government shut down may exacerbate 69 00:04:23,760 --> 00:04:26,960 Speaker 1: the weakness because of the role of the government in 70 00:04:27,880 --> 00:04:32,000 Speaker 1: guaranteeing mortgages and so there maybe you know mortgage applications 71 00:04:32,040 --> 00:04:35,479 Speaker 1: that get delayed and some disruption there. But the point 72 00:04:35,560 --> 00:04:38,159 Speaker 1: is an economy at full employment can't keep crying on 73 00:04:38,200 --> 00:04:44,000 Speaker 1: all fronts. It's mathematically impossible. So interest rates are the 74 00:04:44,160 --> 00:04:48,560 Speaker 1: mechanism that reallocates resources within the economy. So the Fed 75 00:04:49,080 --> 00:04:54,120 Speaker 1: until recently has been on a path of steadily raising 76 00:04:54,160 --> 00:04:56,840 Speaker 1: interest rates. When you raise interest rich, you're supposed to 77 00:04:56,920 --> 00:05:00,240 Speaker 1: tighten financial conditions. When you type financial conditions, some hearts 78 00:05:00,279 --> 00:05:02,719 Speaker 1: the economy are supposed to slow. There should be no 79 00:05:02,920 --> 00:05:05,479 Speaker 1: surprises here, but John, for the first few years at 80 00:05:05,480 --> 00:05:09,920 Speaker 1: the tightening cycle, financial conditions actually loosened exactly. Gold prices 81 00:05:09,920 --> 00:05:12,880 Speaker 1: are hired. And when the Fed first started raising interest rates, 82 00:05:12,920 --> 00:05:16,080 Speaker 1: the dollar really hasn't done very much. The equity markets 83 00:05:16,120 --> 00:05:20,039 Speaker 1: a lot higher. And again, people between where we were 84 00:05:20,440 --> 00:05:22,880 Speaker 1: early October and where we got to wunt Christmas Eve, 85 00:05:22,960 --> 00:05:25,960 Speaker 1: the drop in the equity market to a level that 86 00:05:26,040 --> 00:05:28,640 Speaker 1: none of us would have imagined going back ten years ago, 87 00:05:28,760 --> 00:05:32,359 Speaker 1: that the economy could have gotten to in this timeframe. 88 00:05:32,440 --> 00:05:34,040 Speaker 1: So here's the good news. The committee at the Federal 89 00:05:34,040 --> 00:05:37,120 Speaker 1: Reserve seemed to be on the same page. Patients wait 90 00:05:37,120 --> 00:05:39,360 Speaker 1: and see, and I think the inflation data gives them 91 00:05:39,360 --> 00:05:42,560 Speaker 1: the capacity to do that. Inflation expectations have come in CPR. 92 00:05:42,640 --> 00:05:44,960 Speaker 1: We get a little bit later, there is an urgency 93 00:05:45,000 --> 00:05:47,480 Speaker 1: to raise interest rates. There is some space to be patient. 94 00:05:47,760 --> 00:05:51,800 Speaker 1: The confusion is around the chairman, and the chairman continues 95 00:05:51,839 --> 00:05:54,560 Speaker 1: to confuse and bewilder everyone in this market. I'm speaking 96 00:05:54,560 --> 00:05:56,480 Speaker 1: for a lot of people I know. I'll speak for myself. 97 00:05:56,520 --> 00:05:59,160 Speaker 1: It's confusing me. In October said rates are a long 98 00:05:59,200 --> 00:06:02,480 Speaker 1: way from neutral. In November, he said he emphasized the 99 00:06:02,640 --> 00:06:05,320 Speaker 1: estimate the range of estimates for the neutral rate. He 100 00:06:05,360 --> 00:06:07,920 Speaker 1: walked it back December, he talked about the balance sheet 101 00:06:07,960 --> 00:06:10,440 Speaker 1: runoff on autopilot, followed it up a couple of weeks 102 00:06:10,520 --> 00:06:13,840 Speaker 1: later by pledging flexibility and patients, and then he speaks 103 00:06:13,920 --> 00:06:16,159 Speaker 1: yesterday and says the balance sheet is going to be 104 00:06:16,200 --> 00:06:20,160 Speaker 1: substantially smaller. John, Why is the chairman seemingly all over 105 00:06:20,200 --> 00:06:24,400 Speaker 1: the place? Um? So, you know, you got on a 106 00:06:24,440 --> 00:06:27,520 Speaker 1: bicycle for the first time, takes a little time before 107 00:06:27,560 --> 00:06:30,320 Speaker 1: you can take the training wheels off. Um. I think 108 00:06:30,320 --> 00:06:35,200 Speaker 1: that if you look through what he has said, and 109 00:06:35,400 --> 00:06:40,719 Speaker 1: you take out the early October fireside chat with Judy 110 00:06:40,760 --> 00:06:44,640 Speaker 1: Woodruff and that that long way from neutral. I think 111 00:06:44,720 --> 00:06:47,680 Speaker 1: he was trying to correct the impression for when the 112 00:06:47,720 --> 00:06:50,880 Speaker 1: FED took away some language in the FED in in 113 00:06:50,920 --> 00:06:53,799 Speaker 1: the statement that said, well is the FED no longer accommodative? 114 00:06:54,120 --> 00:06:56,160 Speaker 1: Do they see themselves at neutral? And no, No, we're 115 00:06:56,160 --> 00:06:59,640 Speaker 1: a long way from neutral. I think the message that 116 00:06:59,680 --> 00:07:01,520 Speaker 1: he's on it conveys the following. I think he did 117 00:07:01,560 --> 00:07:04,320 Speaker 1: a reasonably good job in his last two appearances doing it. 118 00:07:05,000 --> 00:07:07,000 Speaker 1: We had a view the economy is going to grow 119 00:07:07,000 --> 00:07:10,360 Speaker 1: fairly stronger this year. Markets have created a range of 120 00:07:10,400 --> 00:07:14,760 Speaker 1: uncertainty around that view. You said it right, inflations reasonably low. 121 00:07:15,000 --> 00:07:17,800 Speaker 1: So now the Fed can afford to be patient. So 122 00:07:17,880 --> 00:07:20,720 Speaker 1: they they're gonna say, we've race rates quite a bit. 123 00:07:20,840 --> 00:07:24,440 Speaker 1: We're gonna sit aside and see which scenario when folds. 124 00:07:24,760 --> 00:07:27,480 Speaker 1: Do you know that I've become a girl magnet here 125 00:07:27,520 --> 00:07:30,200 Speaker 1: at Bloomberg because I have a Preston North End, Jersey 126 00:07:30,560 --> 00:07:33,960 Speaker 1: over my chair women combined, they just stare at it 127 00:07:34,040 --> 00:07:38,600 Speaker 1: in awe, Preston North. Then what happened with is it? Doncaster? 128 00:07:38,680 --> 00:07:42,240 Speaker 1: How do you pronounce it? Doncaster? Doncaster? What? How do 129 00:07:42,320 --> 00:07:45,000 Speaker 1: you lose to a team like that? I mean yet 130 00:07:45,120 --> 00:07:50,640 Speaker 1: the post I get that, But how did this happen? Injuries? Injuries? 131 00:07:53,200 --> 00:07:55,240 Speaker 1: I did not. I just want to point this out 132 00:07:55,320 --> 00:07:57,160 Speaker 1: to the listeners out there who were tired of hearing 133 00:07:57,200 --> 00:08:02,080 Speaker 1: about my hometown love of Preston North Then no, um, 134 00:08:02,560 --> 00:08:06,720 Speaker 1: but explain, can you explain to our listeners what you're 135 00:08:06,720 --> 00:08:11,520 Speaker 1: talking about? Talking about? Cup? The f A cup is 136 00:08:11,560 --> 00:08:13,760 Speaker 1: different than Premier Lely against where the little guy can 137 00:08:13,760 --> 00:08:15,880 Speaker 1: beat the big guy. Right, yeah, So what happens does 138 00:08:15,880 --> 00:08:18,960 Speaker 1: it take the story for what happens this weekend in 139 00:08:19,000 --> 00:08:21,240 Speaker 1: the f A Cup. I'm not sure who plays? Isn't 140 00:08:21,240 --> 00:08:23,280 Speaker 1: it the league? The league games are back this weekend? Right, 141 00:08:23,560 --> 00:08:25,440 Speaker 1: so the f A Cup round are done, tomp So 142 00:08:25,480 --> 00:08:29,960 Speaker 1: the league games restart this weekend as far as I know. Okay, 143 00:08:30,280 --> 00:08:33,120 Speaker 1: so like they're back to like the normal TV football. Yes, 144 00:08:33,160 --> 00:08:36,920 Speaker 1: so tomorrow, Preston, I think play Swansea. Is that right? 145 00:08:37,559 --> 00:08:41,839 Speaker 1: We played back in the league tomorrow. Of course, Doncaster 146 00:08:41,920 --> 00:08:47,280 Speaker 1: Rovers was the little team of the knocked out the 147 00:08:47,280 --> 00:08:51,880 Speaker 1: bigger t can I just explain some of our listeners 148 00:08:51,640 --> 00:08:53,800 Speaker 1: here and this is like, this is like good. UK. 149 00:08:54,000 --> 00:08:56,760 Speaker 1: F A Cup is a is a football cup that 150 00:08:56,760 --> 00:08:59,959 Speaker 1: goes back to the eighteen hundreds which pretty much any 151 00:09:00,040 --> 00:09:03,240 Speaker 1: football team in the UK can participate in. It's cool, 152 00:09:03,400 --> 00:09:05,920 Speaker 1: It's very cool. So like minor league baseball could play 153 00:09:05,960 --> 00:09:08,760 Speaker 1: the major leagues and basically if the minor league team 154 00:09:08,800 --> 00:09:11,920 Speaker 1: got far enough, they could the Yankees and got to here. 155 00:09:12,160 --> 00:09:14,360 Speaker 1: There we go. See I pulled it back to America. 156 00:09:14,480 --> 00:09:19,720 Speaker 1: Rich congratulations, John Ridy, Thank you, John Ridy, thank you 157 00:09:19,800 --> 00:09:22,200 Speaker 1: so much, but thank you for the Preston Northern Jersey. 158 00:09:22,240 --> 00:09:25,360 Speaker 1: I just it just sits there on in Montreal Canadians 159 00:09:25,400 --> 00:09:42,600 Speaker 1: Jersey and closes this is a joy. We have Peter 160 00:09:42,679 --> 00:09:46,120 Speaker 1: Hooper on a Friday with Deutsche Bank. He's gonna publish 161 00:09:46,160 --> 00:09:48,240 Speaker 1: this weekend. He's got a team of people towards En 162 00:09:48,320 --> 00:09:52,560 Speaker 1: Slock and the others, Matthew Lozetti killing it with smart research, 163 00:09:52,960 --> 00:09:56,000 Speaker 1: young losing. What's it like, Peter Hooper to bring someone 164 00:09:56,080 --> 00:10:02,440 Speaker 1: like Matthew Lozetti on. I mean it keeps you young, right? Uh? True, joy, 165 00:10:02,559 --> 00:10:05,160 Speaker 1: I mean I would have retired years ago if it 166 00:10:05,240 --> 00:10:08,160 Speaker 1: wasn't for people like uh, Matt and Torson to be 167 00:10:08,200 --> 00:10:13,160 Speaker 1: working with wonderful guys, really right, fantastic research. They do, 168 00:10:13,240 --> 00:10:15,680 Speaker 1: detailed research. And again to the x y Z chart, 169 00:10:15,720 --> 00:10:18,400 Speaker 1: you've gotten your new research note, which is way advanced stuff. 170 00:10:18,400 --> 00:10:21,240 Speaker 1: And we don't do x y z charts Peter Hooper 171 00:10:21,280 --> 00:10:23,760 Speaker 1: on radio, it doesn't work. Wait, charts don't work on 172 00:10:23,800 --> 00:10:27,640 Speaker 1: a radio period. But but Peter Hooper, again, it comes 173 00:10:27,679 --> 00:10:32,240 Speaker 1: down to model building and our confidence in what we're doing. 174 00:10:32,360 --> 00:10:35,439 Speaker 1: Let's start with the Phillips curve theory. Uh in in 175 00:10:35,480 --> 00:10:39,000 Speaker 1: all out of out of your Princeton, your Michigan as well. 176 00:10:39,040 --> 00:10:43,679 Speaker 1: Are we still using the Phillips curve within our analysis? Absolutely, 177 00:10:44,360 --> 00:10:48,200 Speaker 1: it's it's it's Central still. Um. You know people are 178 00:10:48,200 --> 00:10:53,120 Speaker 1: claiming it's dead. Uh. The fact that inflation has failed 179 00:10:53,160 --> 00:10:57,560 Speaker 1: to respond to an unemployment rate which is approaching a 180 00:10:57,640 --> 00:11:01,240 Speaker 1: percentage point, has been approaching a percentage point low neighru 181 00:11:01,000 --> 00:11:04,880 Speaker 1: but below full employment, very tight labor market in the past, 182 00:11:05,440 --> 00:11:09,240 Speaker 1: more distant past, this generated a lot of inflation. We've 183 00:11:09,280 --> 00:11:11,520 Speaker 1: been there for a number of months now, um, and 184 00:11:11,600 --> 00:11:15,960 Speaker 1: it hasn't not really a budge yet. So things are changing. 185 00:11:16,000 --> 00:11:18,200 Speaker 1: The reasons for the reasons why I think we're changing, 186 00:11:18,480 --> 00:11:21,040 Speaker 1: but there are also reasons why they haven't changed permanently. 187 00:11:21,200 --> 00:11:24,320 Speaker 1: And this will spring back to life eventually. Okay. I 188 00:11:24,320 --> 00:11:25,959 Speaker 1: want to take this on two things. I knew what 189 00:11:26,280 --> 00:11:28,440 Speaker 1: Dr Hooper's answer would be, folks, and it sets us 190 00:11:28,480 --> 00:11:30,880 Speaker 1: up for an inflation discussion. And then I want to 191 00:11:30,880 --> 00:11:33,920 Speaker 1: go to the broader American landscape, Peter. If I look 192 00:11:33,960 --> 00:11:39,360 Speaker 1: at service sector inflation and goods inflation, the answer is 193 00:11:39,360 --> 00:11:43,600 Speaker 1: service sector has been remarkably flat positive a normal number 194 00:11:43,600 --> 00:11:46,680 Speaker 1: that all our listeners know. We've had goods deflation, but 195 00:11:46,720 --> 00:11:50,800 Speaker 1: then a goods inflation pick up out of deflation. Can 196 00:11:50,880 --> 00:11:55,440 Speaker 1: we sustain stability and goods prices or in an age 197 00:11:55,440 --> 00:12:00,840 Speaker 1: of oversupply to goods prices roll over again. Well, you know, 198 00:12:01,400 --> 00:12:03,800 Speaker 1: one of the factors that I think was sort of 199 00:12:04,000 --> 00:12:10,720 Speaker 1: compressing inflation over several decades was was globalization, Um, increasing 200 00:12:10,720 --> 00:12:14,600 Speaker 1: supply change, a lot of competition from abroad, huge increase 201 00:12:14,640 --> 00:12:18,760 Speaker 1: in labor into the world, production in China, etcetera. That's 202 00:12:18,840 --> 00:12:22,080 Speaker 1: that's changing now. I mean, I think I think you are. 203 00:12:22,320 --> 00:12:28,760 Speaker 1: You are seeing effects of trade restriction, etcetera, potential tariffy impacts. Uh. 204 00:12:29,240 --> 00:12:34,160 Speaker 1: The the international compression on inflation beginning to shift and 205 00:12:34,240 --> 00:12:36,920 Speaker 1: in a direction that means that prices eventually will be 206 00:12:37,000 --> 00:12:41,040 Speaker 1: rising more in the good sector. Um. The dollar has 207 00:12:41,440 --> 00:12:43,839 Speaker 1: strengthened on average over the last year, and that that's 208 00:12:44,000 --> 00:12:48,079 Speaker 1: compressed import prices. But that won't go on and definitely 209 00:12:48,760 --> 00:12:51,360 Speaker 1: the dollar will fall again at some point. Uh, And 210 00:12:51,440 --> 00:12:54,840 Speaker 1: you will see eventually good inflation is going to come 211 00:12:54,840 --> 00:12:59,640 Speaker 1: back more sustainably in the positive territory. And I beg 212 00:12:59,679 --> 00:13:01,480 Speaker 1: the differ a little bit. I think the underlying train 213 00:13:01,559 --> 00:13:06,160 Speaker 1: and services inflation is word healthcare, etcetera. Even rental inflation. 214 00:13:06,240 --> 00:13:10,920 Speaker 1: We've got some positives there today. Um so so I 215 00:13:10,400 --> 00:13:13,240 Speaker 1: I do think that we are going to be moving 216 00:13:13,640 --> 00:13:17,440 Speaker 1: at least modestly above the fed's goal of two not 217 00:13:17,600 --> 00:13:21,120 Speaker 1: enough to cause major problems, but there are risks on 218 00:13:21,160 --> 00:13:25,240 Speaker 1: that side. Peter Hoover, can you or Vice Chairman Claire Hiss, 219 00:13:25,240 --> 00:13:28,680 Speaker 1: a front rate macro economist D. S. G and all that, 220 00:13:29,559 --> 00:13:34,559 Speaker 1: can you advise Chairman Powell in a gilded age if 221 00:13:34,600 --> 00:13:37,240 Speaker 1: we have the inequality we have an income and wealth, 222 00:13:37,800 --> 00:13:42,960 Speaker 1: if we have the apparent beneficial effects of technology so 223 00:13:43,040 --> 00:13:47,880 Speaker 1: different for rich and poor. Can we use your knowledge 224 00:13:48,120 --> 00:13:50,440 Speaker 1: in a gilded age? Or do we make it up 225 00:13:50,480 --> 00:13:54,560 Speaker 1: as we go? Well, you're you're you're talking about an 226 00:13:54,600 --> 00:13:57,400 Speaker 1: area that the FED unfortunately really does not have much 227 00:13:57,520 --> 00:14:00,760 Speaker 1: control over it. If you can deal with the macro economy, 228 00:14:00,840 --> 00:14:05,200 Speaker 1: it cannot deal so much with the distribution effects. That's 229 00:14:05,200 --> 00:14:08,320 Speaker 1: more in the realm of physical policy. That's uh, you know, 230 00:14:08,679 --> 00:14:13,160 Speaker 1: tax and in transfer and and certainly a lot more 231 00:14:13,240 --> 00:14:17,200 Speaker 1: is needed in terms of compensating those who lose jobs 232 00:14:17,280 --> 00:14:20,560 Speaker 1: because of trade or technology, and there's a lot of 233 00:14:20,600 --> 00:14:23,520 Speaker 1: that going on. We need more retraining, we need no more, 234 00:14:23,960 --> 00:14:27,400 Speaker 1: you know, uh. To increase the flexibility of the US 235 00:14:27,520 --> 00:14:32,520 Speaker 1: labor force to deal with these challenges is a major 236 00:14:33,080 --> 00:14:36,400 Speaker 1: should be a high priority. We need we need a 237 00:14:36,400 --> 00:14:39,080 Speaker 1: better functioning government in Washington to get some of this 238 00:14:39,240 --> 00:14:42,720 Speaker 1: done as well. What is the state of the American consumer? 239 00:14:42,760 --> 00:14:45,760 Speaker 1: I guess I'm going over to touristen Slux area here 240 00:14:46,200 --> 00:14:48,080 Speaker 1: give us an update on the Deutsche Bank feel on 241 00:14:48,120 --> 00:14:53,520 Speaker 1: the American consumer, consumers consumers of the engine of growth here. Uh, 242 00:14:53,560 --> 00:14:56,400 Speaker 1: I mean in in in the presence of all this 243 00:14:56,480 --> 00:14:59,800 Speaker 1: doom and gloom about slow down globally. And there's impressively 244 00:14:59,800 --> 00:15:05,000 Speaker 1: we numbers on manufacturings are manufacturing around the world of 245 00:15:05,480 --> 00:15:09,240 Speaker 1: late Uh, the U S consumer is really still the 246 00:15:09,280 --> 00:15:13,240 Speaker 1: engine of growth. The strong labor market, strong income growth, 247 00:15:14,480 --> 00:15:17,200 Speaker 1: even with the recent correction in the stock market. Household 248 00:15:17,240 --> 00:15:19,160 Speaker 1: balance sheets are very strong. There's been a lot of 249 00:15:19,200 --> 00:15:26,720 Speaker 1: deleveraging there. Uh and and uh we we we. Assuming 250 00:15:26,760 --> 00:15:29,840 Speaker 1: we get the numbers before too long, I think you'll 251 00:15:29,880 --> 00:15:32,880 Speaker 1: see the consumers are continuing to do reasonably well. One 252 00:15:32,960 --> 00:15:36,720 Speaker 1: final question, Dr Hooper, what should the Fed do January? 253 00:15:37,240 --> 00:15:39,800 Speaker 1: I know we were data dependent. We've got a lot 254 00:15:39,800 --> 00:15:43,040 Speaker 1: of data to go to get to January. It's easy 255 00:15:43,080 --> 00:15:48,520 Speaker 1: to pause. Or should they shake things up with some drama. Well, 256 00:15:48,880 --> 00:15:51,080 Speaker 1: what they should do and what they will do has 257 00:15:51,160 --> 00:15:53,880 Speaker 1: been very clear in the speeches we got yesterday from 258 00:15:53,920 --> 00:15:56,680 Speaker 1: the chair and vice chair. They're they're they're in wait 259 00:15:56,720 --> 00:16:00,160 Speaker 1: and see mode. A lot of uncertainty going on around here, 260 00:16:00,440 --> 00:16:03,280 Speaker 1: a lot of risks that need to be resolved one 261 00:16:03,320 --> 00:16:06,000 Speaker 1: way or another. I don't see them doing anything for 262 00:16:06,080 --> 00:16:08,400 Speaker 1: quite a while. Peter Hooper, thank you so much with 263 00:16:08,440 --> 00:16:10,840 Speaker 1: Deutsche Bank. Wonderful to have you for such an extended 264 00:16:10,880 --> 00:16:13,880 Speaker 1: time this morning. Can't say enough about the Deutsche Bank 265 00:16:13,960 --> 00:16:17,600 Speaker 1: research through the year from Matthew Lozettie, Torsten Slack, Brendan 266 00:16:17,640 --> 00:16:19,280 Speaker 1: Maran and the rest of their Brenton Ryan and the 267 00:16:19,280 --> 00:16:37,120 Speaker 1: rest of their team as well. If the New York 268 00:16:37,160 --> 00:16:40,560 Speaker 1: stock has changed. Mary Barra, and she is with our 269 00:16:40,680 --> 00:16:45,800 Speaker 1: David Weston on Bloomberg Television and Radio. We now welcome 270 00:16:45,880 --> 00:16:48,600 Speaker 1: Mary Barra. She is the chairman, the CEO and president 271 00:16:48,720 --> 00:16:52,840 Speaker 1: of General Motors. Welcome to Bloomberg, Mary, So we've just 272 00:16:52,880 --> 00:16:57,760 Speaker 1: heard the news about General Motors, both respected and I 273 00:16:57,800 --> 00:17:00,600 Speaker 1: think surprising the upside. What happened, well, I think this 274 00:17:00,680 --> 00:17:02,480 Speaker 1: is a result of what we've been working on since 275 00:17:02,520 --> 00:17:06,200 Speaker 1: the time frame, you know, really working to transform the business, 276 00:17:06,280 --> 00:17:08,720 Speaker 1: both the core business and also the investments were making 277 00:17:08,880 --> 00:17:11,720 Speaker 1: in the e V a V and connectivity and we 278 00:17:11,800 --> 00:17:15,000 Speaker 1: see all that coming tom coming to fruition. We still 279 00:17:15,040 --> 00:17:16,680 Speaker 1: have more work to do. That's why we made the 280 00:17:16,680 --> 00:17:20,480 Speaker 1: difficult announcement we did last at the end of last year. 281 00:17:20,720 --> 00:17:23,359 Speaker 1: But we are focused on this transformation, make sure General 282 00:17:23,359 --> 00:17:26,480 Speaker 1: Motors is strong and really demonstrating that even in a 283 00:17:26,520 --> 00:17:30,120 Speaker 1: cyclical business, we can continue continue to deliver results. It's 284 00:17:30,119 --> 00:17:32,399 Speaker 1: cyclical and all sorts requiring a lot of investment. Right now, 285 00:17:32,440 --> 00:17:34,840 Speaker 1: as you go through the transformation to electric vehicles to 286 00:17:34,960 --> 00:17:37,919 Speaker 1: also autonomous vehicles, will you be able to maintain the 287 00:17:37,960 --> 00:17:39,840 Speaker 1: situation where you can get the money you need to 288 00:17:39,880 --> 00:17:42,680 Speaker 1: invest by saving money elsewhere because you're earnings for share 289 00:17:42,720 --> 00:17:45,639 Speaker 1: are up actually despite all the investment. Well absolutely, and 290 00:17:45,680 --> 00:17:48,000 Speaker 1: we are investing. And one of the things that we 291 00:17:48,080 --> 00:17:51,040 Speaker 1: did in this transformation is we're remixing our our global 292 00:17:51,040 --> 00:17:54,320 Speaker 1: product development. We've indicated that over the next few years 293 00:17:54,359 --> 00:17:56,720 Speaker 1: we will double the amount of that is spenting EVY 294 00:17:56,720 --> 00:17:59,440 Speaker 1: and a by but that's not added to that's transitioning 295 00:17:59,480 --> 00:18:02,399 Speaker 1: to and we've actually found a lot of synergies and 296 00:18:02,480 --> 00:18:05,440 Speaker 1: not only how we engineer, but also from a capital perspective, 297 00:18:05,600 --> 00:18:08,280 Speaker 1: you know, we've made a lot of investments in crossovers, 298 00:18:08,320 --> 00:18:10,959 Speaker 1: full size trucks, our global family of vehicles, and so 299 00:18:11,240 --> 00:18:13,159 Speaker 1: that's going to pay off, and that's investment that we 300 00:18:13,200 --> 00:18:15,280 Speaker 1: can continue to leverage as we go forward. So that's 301 00:18:15,320 --> 00:18:17,919 Speaker 1: what's allowing us over the near term to take the 302 00:18:18,880 --> 00:18:21,160 Speaker 1: billion and a half out of our capital spot. So, 303 00:18:21,160 --> 00:18:23,080 Speaker 1: so talk about electric vehials for a while. And as 304 00:18:23,080 --> 00:18:25,439 Speaker 1: I understand, you're gonna have I think it's twenty twenties 305 00:18:25,480 --> 00:18:31,360 Speaker 1: three miles by twenties twenty Is that got it right? Uh? Cadillac, 306 00:18:31,400 --> 00:18:33,640 Speaker 1: now we know it's gonna be your lead Why well, 307 00:18:33,960 --> 00:18:36,439 Speaker 1: Cadillac is our technology brand. And when we look at 308 00:18:36,440 --> 00:18:38,679 Speaker 1: the technology in addition to ev that we're going to 309 00:18:38,680 --> 00:18:41,640 Speaker 1: put on this vehicle, it's appropriate that Cadillac is our 310 00:18:41,880 --> 00:18:43,840 Speaker 1: is our lead brand. And then you know, we'll we'll 311 00:18:43,880 --> 00:18:46,600 Speaker 1: fill out the portfolio that makes sense and be customer driven. 312 00:18:46,840 --> 00:18:49,919 Speaker 1: But it also is a very important part of rebuilding 313 00:18:49,960 --> 00:18:53,919 Speaker 1: Catillac and demonstrating that Catillac is a true luxury brand 314 00:18:54,480 --> 00:18:57,600 Speaker 1: again delighting customers with the technology and the and the 315 00:18:57,640 --> 00:19:00,400 Speaker 1: electric experience. How does this fit with what you're doing 316 00:19:00,400 --> 00:19:02,280 Speaker 1: a cruise Because when we've talked to Dan Ammon, he 317 00:19:02,320 --> 00:19:05,240 Speaker 1: said that by twenty and nineteen. This year, you will 318 00:19:05,280 --> 00:19:08,080 Speaker 1: have some commercialized versions of autonomy. Le how does that 319 00:19:08,119 --> 00:19:11,000 Speaker 1: fit with, for example, a Cadillac electric vehicle. Well, first 320 00:19:11,000 --> 00:19:14,560 Speaker 1: of all, um, we believe that all avies, all autonomous 321 00:19:14,640 --> 00:19:17,920 Speaker 1: vehicles should be electric vehicles, and so that's a leveraging 322 00:19:17,960 --> 00:19:20,800 Speaker 1: of the technology and the platform as well. We are 323 00:19:20,840 --> 00:19:23,960 Speaker 1: working on the rate of iteration that we're demonstrating and 324 00:19:24,480 --> 00:19:26,959 Speaker 1: we just posted a really cool video yesterday, so if 325 00:19:26,960 --> 00:19:29,399 Speaker 1: you haven't seen it, for Cruise and demonstrating how we 326 00:19:29,440 --> 00:19:32,639 Speaker 1: continue to learn UH new operations in the very dense 327 00:19:32,680 --> 00:19:35,639 Speaker 1: and urban environment of San Francisco. So we will be 328 00:19:35,680 --> 00:19:37,879 Speaker 1: gated by safety and I think we've demonstrated in the 329 00:19:37,920 --> 00:19:40,040 Speaker 1: past that we will make decisions to make sure our 330 00:19:40,119 --> 00:19:43,320 Speaker 1: vehicles are safe, as we demonstrated with super Cruise. But 331 00:19:43,480 --> 00:19:45,960 Speaker 1: based on that rate of iteration, we're going as fast 332 00:19:46,000 --> 00:19:48,480 Speaker 1: as we can and we believe that we can take 333 00:19:48,480 --> 00:19:53,680 Speaker 1: the driver out and right or a constrained environment and 334 00:19:53,880 --> 00:19:57,880 Speaker 1: UH and and demonstrate our electric vehicle capability and anytime. 335 00:19:57,880 --> 00:19:59,920 Speaker 1: Besides announcing that Cadillac is going to be your lead 336 00:20:00,000 --> 00:20:02,800 Speaker 1: in electraveals, you also have announced a new architecture which 337 00:20:02,800 --> 00:20:05,679 Speaker 1: would be for China and Brazil and Mexico's I understand it, 338 00:20:05,760 --> 00:20:07,400 Speaker 1: not the United States tell us about that. Why you're 339 00:20:07,400 --> 00:20:11,000 Speaker 1: doing it? Well, if you look at really being customer driven, 340 00:20:11,040 --> 00:20:14,840 Speaker 1: the customers in those markets, they want the latest technology 341 00:20:15,000 --> 00:20:18,359 Speaker 1: and they want UH performance from safety, from connectivity, and 342 00:20:18,400 --> 00:20:21,119 Speaker 1: so we step back and often those markets are served 343 00:20:21,119 --> 00:20:23,600 Speaker 1: by older architectures. So we looked and said, with the 344 00:20:23,920 --> 00:20:27,119 Speaker 1: scale and the significant share we have in China, the 345 00:20:27,160 --> 00:20:29,400 Speaker 1: strength that we have in South America and other markets 346 00:20:29,440 --> 00:20:33,800 Speaker 1: like Mexico, let's do a dedicated UH new architecture where 347 00:20:33,840 --> 00:20:36,800 Speaker 1: we can really deliver something special to the customer. And 348 00:20:36,840 --> 00:20:39,639 Speaker 1: so are the feedback we've gotten again will be sharing 349 00:20:39,680 --> 00:20:41,800 Speaker 1: some of those vehicles today or an early glimpse of 350 00:20:41,800 --> 00:20:43,879 Speaker 1: those vehicles. I think it's can be very significant, and 351 00:20:43,920 --> 00:20:47,679 Speaker 1: we start that rollout UH later this year in China 352 00:20:47,720 --> 00:20:49,720 Speaker 1: and then it will flow to South America, Mexico into 353 00:20:49,720 --> 00:20:53,199 Speaker 1: over forty countries. As I said, this announcement is a 354 00:20:53,200 --> 00:20:55,360 Speaker 1: bit of a surprise because it comes against a back 355 00:20:55,440 --> 00:21:00,000 Speaker 1: job of some softness, at least perceived in the automobile marketplay. 356 00:21:00,359 --> 00:21:02,880 Speaker 1: We've had some announcements for some competitors about cutting back. 357 00:21:03,400 --> 00:21:07,359 Speaker 1: We've had some announcements about some soft sales. How much 358 00:21:07,400 --> 00:21:10,399 Speaker 1: of your projection in which is robust, how much of 359 00:21:10,440 --> 00:21:12,320 Speaker 1: that is the overall size of the market and where 360 00:21:12,320 --> 00:21:14,119 Speaker 1: the market is, and how much it is you taking 361 00:21:14,160 --> 00:21:17,280 Speaker 1: market share and doing better well. I think again in 362 00:21:17,320 --> 00:21:19,840 Speaker 1: the key markets, whether you look at China, the United States, 363 00:21:19,840 --> 00:21:22,080 Speaker 1: South America, we think we're very well positioned. In the 364 00:21:22,160 --> 00:21:23,960 Speaker 1: United States, we're going to have we we think the 365 00:21:24,480 --> 00:21:26,560 Speaker 1: market will be in the low sevent teams. We have 366 00:21:26,840 --> 00:21:29,159 Speaker 1: the full year of our new light duty trucks. We 367 00:21:29,240 --> 00:21:32,520 Speaker 1: have the Catillac XT four, we have the Chevrolet Blazer. 368 00:21:32,880 --> 00:21:34,280 Speaker 1: Second half of the year, we're going to have our 369 00:21:34,320 --> 00:21:37,240 Speaker 1: heavy duties. So we have an exceptionally strong product cames 370 00:21:37,240 --> 00:21:39,399 Speaker 1: building on our crossovers in our full size trucks in 371 00:21:39,400 --> 00:21:42,760 Speaker 1: North America. In China, we have twenty new or or 372 00:21:43,000 --> 00:21:45,520 Speaker 1: brand new or refreshed models that will be rolling out 373 00:21:45,600 --> 00:21:47,520 Speaker 1: this year, and we think the market will be about 374 00:21:47,520 --> 00:21:50,280 Speaker 1: the same. There's I think, you know, positive news coming 375 00:21:50,280 --> 00:21:53,359 Speaker 1: out of the trade talks. There's talk in China about 376 00:21:53,680 --> 00:21:56,640 Speaker 1: stimulus from a durable durbal goods perspective, so we see 377 00:21:56,640 --> 00:21:59,600 Speaker 1: an opportunity there. And then South America we're starting to 378 00:21:59,640 --> 00:22:02,480 Speaker 1: see recovery and in South America's where we have a 379 00:22:02,600 --> 00:22:05,239 Speaker 1: very strong Chevallee franchise. So when you look at our 380 00:22:05,320 --> 00:22:09,120 Speaker 1: key markets, we think we're well positioned not only with 381 00:22:09,160 --> 00:22:10,639 Speaker 1: where we think the market is going to be, but 382 00:22:10,680 --> 00:22:13,280 Speaker 1: also the strength of our product portfolio. You mentioned trade 383 00:22:13,680 --> 00:22:16,119 Speaker 1: way back in Q two second quarter, you had to 384 00:22:16,119 --> 00:22:19,320 Speaker 1: take down some projections based on concerns about tariffs. As 385 00:22:19,359 --> 00:22:23,000 Speaker 1: I recall, as you look into are your projections based 386 00:22:23,040 --> 00:22:26,200 Speaker 1: on status quo, on things getting better, on things getting worse? 387 00:22:26,240 --> 00:22:27,719 Speaker 1: What are your projecting In order to come up with 388 00:22:27,880 --> 00:22:29,880 Speaker 1: what your forecast is, we really looked at what we think, 389 00:22:29,920 --> 00:22:32,640 Speaker 1: you know, the current macro environment um and what we're 390 00:22:32,640 --> 00:22:35,480 Speaker 1: seeing and what you know, what outside analysts are are 391 00:22:35,520 --> 00:22:37,959 Speaker 1: looking at from a from a macro perspective, and then 392 00:22:38,000 --> 00:22:40,879 Speaker 1: looking and laying on where General Motors is position and 393 00:22:40,920 --> 00:22:43,280 Speaker 1: that is all built into the guidance that we provided. 394 00:22:44,080 --> 00:22:45,720 Speaker 1: So you've had quite a year. This is your investor 395 00:22:45,800 --> 00:22:47,240 Speaker 1: day if you go all the way back three and 396 00:22:47,320 --> 00:22:49,280 Speaker 1: six five days ago, there's been a lot that's happened. 397 00:22:49,320 --> 00:22:51,760 Speaker 1: I mean certainly with Cruise, with investments from soft Bank 398 00:22:51,960 --> 00:22:54,560 Speaker 1: as well as from Honda, You've made some management changes 399 00:22:54,560 --> 00:22:56,680 Speaker 1: where you took Dan Ammond from President GM, moved him 400 00:22:56,680 --> 00:23:00,480 Speaker 1: over to Cruise, brought up Mark Royce. All so announced, 401 00:23:00,480 --> 00:23:02,720 Speaker 1: as you said, a very fundamental restructuring which will be 402 00:23:02,720 --> 00:23:05,920 Speaker 1: difficult to implement. Is that the strategy and from now 403 00:23:05,960 --> 00:23:08,080 Speaker 1: on is it execution or is there more to be 404 00:23:08,160 --> 00:23:10,760 Speaker 1: done on the strategy. It's both. We have to remain 405 00:23:10,800 --> 00:23:13,239 Speaker 1: agile because some of them are the transformation that we're 406 00:23:13,280 --> 00:23:15,640 Speaker 1: talking about with Evies and Avies. You know, it's it's 407 00:23:15,680 --> 00:23:18,400 Speaker 1: not like anyone knows exactly how that's going to play out. 408 00:23:18,440 --> 00:23:20,520 Speaker 1: So we have to remain agile. We have to be quick, 409 00:23:20,760 --> 00:23:23,080 Speaker 1: we have to be leaned. So we've got to do both. 410 00:23:23,080 --> 00:23:25,399 Speaker 1: We've got to execute exceptionally well, but we have to 411 00:23:25,400 --> 00:23:28,240 Speaker 1: stay agile to to take twists and turns that are 412 00:23:28,280 --> 00:23:30,600 Speaker 1: going to happen in cease opportunities. So we're respect to 413 00:23:30,600 --> 00:23:32,359 Speaker 1: electric hdeals. We hear about it a lot, but if 414 00:23:32,359 --> 00:23:34,600 Speaker 1: you actually look at how many people are acquiring evis, 415 00:23:34,680 --> 00:23:37,120 Speaker 1: it's not that high. It's not that higher percentage. When 416 00:23:37,200 --> 00:23:39,000 Speaker 1: is it coming? I mean, when are we there? Well? 417 00:23:39,440 --> 00:23:41,800 Speaker 1: I believe the customers exceptionally rational. So if you look 418 00:23:41,840 --> 00:23:44,080 Speaker 1: at China, you know this will be because of some 419 00:23:44,119 --> 00:23:46,520 Speaker 1: of the regulatory environment you'll see. I think it grow 420 00:23:46,680 --> 00:23:49,080 Speaker 1: more quickly there. But one of the things we're focused 421 00:23:49,119 --> 00:23:52,600 Speaker 1: on is if we can have a desirable, profitable, appropriate 422 00:23:52,720 --> 00:23:55,439 Speaker 1: range ANXI from a range perspective, so we don't have 423 00:23:55,560 --> 00:23:57,760 Speaker 1: range anxiety, we think we can start to create the 424 00:23:57,800 --> 00:24:00,240 Speaker 1: man So for us, we're not only working on the 425 00:24:00,280 --> 00:24:03,199 Speaker 1: electric vehicle technology itself and the learning all the learnings 426 00:24:03,200 --> 00:24:05,840 Speaker 1: from VOLT, the cheval Vault and the Chevallet Voult, but 427 00:24:05,920 --> 00:24:08,760 Speaker 1: we're also working on the infrastructure. We made an announcement 428 00:24:08,760 --> 00:24:10,760 Speaker 1: that will allow us to have the largest uh you know, 429 00:24:10,960 --> 00:24:14,679 Speaker 1: charging infrastructure available to our customers. So it's if you 430 00:24:14,720 --> 00:24:18,159 Speaker 1: can continue to solve customer perceived or real pain points 431 00:24:18,160 --> 00:24:20,520 Speaker 1: with e V, we think that's really going to allow 432 00:24:20,640 --> 00:24:23,320 Speaker 1: the growth to occur. If you look at the industry overall, 433 00:24:23,520 --> 00:24:26,200 Speaker 1: would we be where we are today with electric vehicles 434 00:24:26,240 --> 00:24:28,879 Speaker 1: if Tesla had never existed? The Tesla really spur this 435 00:24:29,040 --> 00:24:31,640 Speaker 1: or was it going to happen anyway? You know? Um, 436 00:24:32,080 --> 00:24:34,760 Speaker 1: I think when I look at EV's we've been in 437 00:24:34,840 --> 00:24:37,199 Speaker 1: e V since e V one and you know, in 438 00:24:37,240 --> 00:24:41,160 Speaker 1: the Chevallet Vault and really driving uh because we knew 439 00:24:41,200 --> 00:24:43,880 Speaker 1: that technology was important. So I think there's been many 440 00:24:43,960 --> 00:24:47,960 Speaker 1: important players that have helped from an electric vehicle, and 441 00:24:48,000 --> 00:24:49,800 Speaker 1: I think you know, there's even more coming now. So 442 00:24:49,840 --> 00:24:52,840 Speaker 1: that's why we have to be quick. What's the biggest 443 00:24:52,920 --> 00:24:56,040 Speaker 1: risk you see to your predictions for two nineteen as 444 00:24:56,080 --> 00:24:57,879 Speaker 1: you look forward? What is the thing that worries you 445 00:24:58,000 --> 00:25:00,760 Speaker 1: if anything? Well, again, I said, our guidance is based 446 00:25:00,800 --> 00:25:03,480 Speaker 1: on kind of the look of the current Macrock indum state, 447 00:25:03,520 --> 00:25:05,840 Speaker 1: which is not it's not like it's it's a complete glass, 448 00:25:06,200 --> 00:25:09,359 Speaker 1: you know, full or glass completely empty, but looking at 449 00:25:09,400 --> 00:25:12,040 Speaker 1: that so something dramatically changes. If there's a you know, 450 00:25:12,080 --> 00:25:14,679 Speaker 1: a very sudden shift, then we'll have to reevaluate. But 451 00:25:14,720 --> 00:25:17,600 Speaker 1: I'm also confident on our in our team and how 452 00:25:17,600 --> 00:25:21,040 Speaker 1: we're able to seize opportunities and to really mitigate an 453 00:25:21,040 --> 00:25:24,159 Speaker 1: offset some of the things we based in eighteen and 454 00:25:24,160 --> 00:25:26,800 Speaker 1: what we've been able to demonstrate. Okay, Mary bar Chairman 455 00:25:26,840 --> 00:25:28,639 Speaker 1: and CEO of General Motors, thank you so much for 456 00:25:28,680 --> 00:25:32,199 Speaker 1: being here. David Weston with this UH this morning from 457 00:25:32,200 --> 00:25:33,960 Speaker 1: the floor of the New York Stock Exchange with the 458 00:25:34,040 --> 00:25:50,480 Speaker 1: chairman and CEO of General Motors, Mary burt. I am 459 00:25:50,600 --> 00:25:54,320 Speaker 1: one who does not do a lot of look back books. 460 00:25:54,680 --> 00:25:58,159 Speaker 1: They look back in their history and all that. But 461 00:25:58,240 --> 00:26:02,000 Speaker 1: every once in a while there's a enormous exception. That 462 00:26:02,160 --> 00:26:06,879 Speaker 1: is true of the two pages of the FED in 463 00:26:07,080 --> 00:26:11,160 Speaker 1: Lehman Brothers. Because it's not done by some crackpot. Lehman 464 00:26:11,280 --> 00:26:14,479 Speaker 1: was wrong, the FED was wrong. Everybody's wrong, wrong, wrong, wrong, 465 00:26:14,960 --> 00:26:17,280 Speaker 1: And you go, yeah, but what do they know? Unfortunately 466 00:26:17,280 --> 00:26:21,119 Speaker 1: it's Lawrence Ball the Johns Hopkins University. He's a first 467 00:26:21,119 --> 00:26:25,520 Speaker 1: class economist. Gregg Manque among others up at Harvard raves 468 00:26:25,640 --> 00:26:30,199 Speaker 1: about the FED in Lehman Brothers. Lawrence Ball, good morning. 469 00:26:30,359 --> 00:26:34,920 Speaker 1: I found your two pages chilling and riveting. I want 470 00:26:34,920 --> 00:26:37,720 Speaker 1: to cut right to the key chapter, which is that 471 00:26:37,960 --> 00:26:43,560 Speaker 1: Lehman wasn't insolvent. How do you know that? Well, thank 472 00:26:43,640 --> 00:26:46,600 Speaker 1: you for having me on your show. Uh. The way 473 00:26:46,600 --> 00:26:50,679 Speaker 1: we know Lehman's financial condition is there's actually a tremendous 474 00:26:50,800 --> 00:26:57,440 Speaker 1: amount of evidence gathered primarily by investigations by the Bankruptcy 475 00:26:57,480 --> 00:27:01,600 Speaker 1: Examiner for the Bankruptcy Court and also Congression Commission, which 476 00:27:01,680 --> 00:27:04,640 Speaker 1: had subpoena power and got a lot of documents about 477 00:27:04,680 --> 00:27:11,080 Speaker 1: Lehman's finances and real time and essentially Lehman had stated 478 00:27:11,200 --> 00:27:16,040 Speaker 1: um in its financial statements what it's what its assets 479 00:27:16,080 --> 00:27:18,639 Speaker 1: were worth, and what its equity was. But we also 480 00:27:18,760 --> 00:27:23,679 Speaker 1: have in real time estimates by other financial institutions or 481 00:27:23,680 --> 00:27:27,160 Speaker 1: how much they overvalued their assets, and we can combine 482 00:27:27,200 --> 00:27:30,679 Speaker 1: those to get us sense of how do you respond 483 00:27:30,760 --> 00:27:32,720 Speaker 1: to someone who says, Okay, you're having a cup with 484 00:27:33,000 --> 00:27:36,719 Speaker 1: a cup of coffee with Chairman Bernankey and someone collegial 485 00:27:36,840 --> 00:27:40,639 Speaker 1: says that's great, Professor Ball, but hindsight, how do you 486 00:27:40,680 --> 00:27:46,119 Speaker 1: respond to that criticism of the great tenure look back? Well, 487 00:27:46,160 --> 00:27:48,240 Speaker 1: I think I can answer that question on two levels. 488 00:27:48,280 --> 00:27:52,400 Speaker 1: I think, um it is a little unfair with hindsight 489 00:27:52,520 --> 00:27:54,800 Speaker 1: to say they should have done everything perfectly and measured 490 00:27:54,840 --> 00:27:58,480 Speaker 1: everything perfectly at the time. Where I have more problem 491 00:27:58,480 --> 00:28:02,040 Speaker 1: in a way with FED officials uh is not the 492 00:28:02,080 --> 00:28:05,480 Speaker 1: fact that what they did then was not ideal. It's 493 00:28:05,480 --> 00:28:08,800 Speaker 1: what they've said over the last ten years. They've dug 494 00:28:08,800 --> 00:28:12,760 Speaker 1: in their heels um with a story saying that they 495 00:28:12,800 --> 00:28:16,320 Speaker 1: didn't make any mistake, that there were legal impediments that 496 00:28:16,359 --> 00:28:19,800 Speaker 1: made it impossible to rescue Lehman brothers, whereas we know 497 00:28:19,920 --> 00:28:24,160 Speaker 1: with hindsight that that was not true. Professor Ball. There 498 00:28:24,160 --> 00:28:27,520 Speaker 1: are quotes that come from a variety of emails. I 499 00:28:27,600 --> 00:28:29,560 Speaker 1: know that you have written about it, but I just 500 00:28:29,600 --> 00:28:32,840 Speaker 1: want to offer a flavor of some of them, where 501 00:28:33,000 --> 00:28:38,920 Speaker 1: a former Secretary the Treasury, Paulson told people, quote, I 502 00:28:39,000 --> 00:28:43,280 Speaker 1: can't do it again. I can't be Mr bailout. In addition, 503 00:28:44,440 --> 00:28:47,800 Speaker 1: Secretary Paulson's chief of staff put the point as you 504 00:28:47,920 --> 00:28:51,440 Speaker 1: described it bluntly. There was an email to Paulson's press 505 00:28:51,480 --> 00:28:55,760 Speaker 1: secretary quote, I just can't stomach us bailing out Lehman 506 00:28:56,200 --> 00:29:00,920 Speaker 1: will look horrible in the press. Don't you think is 507 00:29:01,000 --> 00:29:07,320 Speaker 1: this the right way to go about thinking about these crises? Well, 508 00:29:07,360 --> 00:29:10,440 Speaker 1: I think that is the right interpretation, that it was 509 00:29:10,440 --> 00:29:15,600 Speaker 1: a political decision made primarily by Treasury Secretary Paulson. I mean, 510 00:29:15,720 --> 00:29:18,760 Speaker 1: certainly is not how the decision should have been made. 511 00:29:19,240 --> 00:29:22,400 Speaker 1: That a decision should have been made by the Federal 512 00:29:22,440 --> 00:29:27,120 Speaker 1: Reserve based on the costs Lehman bankruptcy was likely to 513 00:29:27,120 --> 00:29:30,440 Speaker 1: do the to the economy. And it's very, very unfortunate 514 00:29:30,520 --> 00:29:34,760 Speaker 1: that political pressure, um is what drove the decision, because 515 00:29:34,800 --> 00:29:39,400 Speaker 1: didn't Lehman brothers have collateral that would have served as 516 00:29:39,440 --> 00:29:43,160 Speaker 1: the backstop for a loan from the Federal Reserve. Absolutely. 517 00:29:43,200 --> 00:29:45,479 Speaker 1: That's really the central point of my book is that 518 00:29:46,240 --> 00:29:48,800 Speaker 1: feede officials say there was no way we could legally 519 00:29:49,120 --> 00:29:53,920 Speaker 1: lend the money because alone legally requires collaterally, they didn't 520 00:29:53,960 --> 00:29:58,360 Speaker 1: have collateral, And to make a rather long story short, uh, 521 00:29:58,400 --> 00:30:01,280 Speaker 1: there's detailed evidence that they did have plenty of collaterals. 522 00:30:01,360 --> 00:30:05,760 Speaker 1: So it's at the collateral story is really just an 523 00:30:05,760 --> 00:30:09,000 Speaker 1: excuse for what was actually a political decision. Lawrence Baul 524 00:30:09,080 --> 00:30:12,040 Speaker 1: joining us to Johns Hopkins University, the Fed, and Lehman 525 00:30:12,080 --> 00:30:16,400 Speaker 1: Brothers setting the record straight on a financial disaster. Professor 526 00:30:16,480 --> 00:30:19,240 Speaker 1: ball I interviewed John Charles roth Schave to lose with 527 00:30:19,360 --> 00:30:22,080 Speaker 1: his wonderful monograph I'm gonna say, eight nine years ago, 528 00:30:22,560 --> 00:30:25,600 Speaker 1: why are there so many banking crises? And he came 529 00:30:25,640 --> 00:30:28,920 Speaker 1: back within a lot of Mathewinist folks to it's all 530 00:30:28,960 --> 00:30:34,880 Speaker 1: about politics. What was the political calculus that good economists 531 00:30:34,880 --> 00:30:39,280 Speaker 1: and treasury officials faced? What was the politics where they 532 00:30:39,280 --> 00:30:43,120 Speaker 1: were wrapped around? I think the politics are really based 533 00:30:43,160 --> 00:30:47,120 Speaker 1: on a misunderstanding that there's the term bailouts, which is 534 00:30:47,160 --> 00:30:50,800 Speaker 1: a very unpopular term, and people have the impression that 535 00:30:51,760 --> 00:30:54,720 Speaker 1: what happened with a I g and bear Stearns, And 536 00:30:54,840 --> 00:30:58,320 Speaker 1: what could have happened with Lehman was the government giving 537 00:30:58,320 --> 00:31:02,000 Speaker 1: away taxpayer money. A lot of people resent the idea 538 00:31:02,000 --> 00:31:05,080 Speaker 1: of giving away taxpayer money to Wall Street executives who 539 00:31:05,160 --> 00:31:09,920 Speaker 1: get in trouble. That the reality is that these aren't giveaways. 540 00:31:09,960 --> 00:31:13,240 Speaker 1: We're talking about short term loans that are very likely 541 00:31:13,280 --> 00:31:16,280 Speaker 1: to be paid back, that have good collateral. So so 542 00:31:16,360 --> 00:31:20,040 Speaker 1: really the economics of it is that these this kind 543 00:31:20,080 --> 00:31:22,480 Speaker 1: of assistance by the Federal Reserve does not really have 544 00:31:22,640 --> 00:31:25,920 Speaker 1: costs to the taxpayer, and it has a tremendous benefit 545 00:31:26,360 --> 00:31:32,120 Speaker 1: in dampening financial crises. So but unfortunately politically that that 546 00:31:32,160 --> 00:31:35,640 Speaker 1: message doesn't get through. Has that message gotten through the 547 00:31:35,760 --> 00:31:39,880 Speaker 1: current lawmakers in the sense that Dodd Frank places restrictions 548 00:31:39,920 --> 00:31:45,000 Speaker 1: on Federal Reserve lending. Yes, I'm afraid that because of 549 00:31:45,040 --> 00:31:50,040 Speaker 1: the unpopularity of bailouts, uh, the Dodd Frank Act adds 550 00:31:50,120 --> 00:31:55,040 Speaker 1: new restrictions um restricting what the Fed can do in 551 00:31:55,200 --> 00:31:59,960 Speaker 1: lending money. So, actually, if an exact replica of the 552 00:32:00,080 --> 00:32:04,320 Speaker 1: Lehman crisis were to happen today, it arguably would actually 553 00:32:04,360 --> 00:32:08,200 Speaker 1: be illegal for the FED to rescue the new Lehman 554 00:32:08,360 --> 00:32:11,760 Speaker 1: because of the new legal restrictions and whereas they could 555 00:32:11,760 --> 00:32:15,040 Speaker 1: have done it legally during uh, the actual crisis, and 556 00:32:15,240 --> 00:32:17,400 Speaker 1: that's a big step in the wrong direction. I think, 557 00:32:17,720 --> 00:32:20,080 Speaker 1: tying the Fed's hands in a crisis, you know the 558 00:32:20,120 --> 00:32:22,840 Speaker 1: ballet here in academics, as we go back to Badget 559 00:32:22,840 --> 00:32:25,560 Speaker 1: and lender of last resort, I mean Allen Meltzer, the 560 00:32:25,640 --> 00:32:28,680 Speaker 1: lady Allen Meltzer, Carnegie Mellon went on and on about 561 00:32:28,720 --> 00:32:31,080 Speaker 1: this within the history of the FED, the lender of 562 00:32:31,160 --> 00:32:36,360 Speaker 1: last resort just fail here in the crucible of crisis. Yes, 563 00:32:36,400 --> 00:32:39,320 Speaker 1: I think it's really as simple as that that there 564 00:32:39,440 --> 00:32:43,400 Speaker 1: was essentially version of a bank run on Lehman Brothers 565 00:32:43,640 --> 00:32:47,120 Speaker 1: and going back to Badget in the nineteenth century, the 566 00:32:47,160 --> 00:32:51,080 Speaker 1: central purpose of a central bank is to provide liquidity, 567 00:32:51,160 --> 00:32:55,320 Speaker 1: provide cash during a run like that and prevent um 568 00:32:55,480 --> 00:33:01,480 Speaker 1: an unnecessary calamity um. And unfortunately that just didn't do that. Again, 569 00:33:01,560 --> 00:33:06,560 Speaker 1: I think for political reasons and again the bankruptcy. They've 570 00:33:06,560 --> 00:33:08,880 Speaker 1: tried to give explanations for why they couldn't do it, 571 00:33:08,920 --> 00:33:11,480 Speaker 1: but those just don't hold water. This has been wonderful, 572 00:33:11,520 --> 00:33:20,280 Speaker 1: Lawrence Paul, thank you so much. Thanks for listening to 573 00:33:20,360 --> 00:33:24,880 Speaker 1: the Bloomberg surveillance podcast. Subscribe and listen to interviews on 574 00:33:24,920 --> 00:33:30,760 Speaker 1: Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm 575 00:33:30,800 --> 00:33:34,120 Speaker 1: on Twitter at Tom Keane before the podcast. You can 576 00:33:34,160 --> 00:33:37,360 Speaker 1: always catch us worldwide. I'm Bloomberg Radio