WEBVTT - Dollar Dominance, Tariffs, and an Equity Rebound 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.520 us live on YouTube right now. 0:00:27.640 --> 0:00:30.840 A joy to have an extended conversation with Kenneth Grogoff 0:00:31.200 --> 0:00:34.680 of Harvard University. The scope and scale of his literature, 0:00:34.720 --> 0:00:40.040 from textbooks the classic Maurice Sobsfeld of Berkeley and International Economics, 0:00:40.120 --> 0:00:43.879 over to every effort Carmen Reinhardt and him changing the 0:00:43.960 --> 0:00:47.040 dialogue of America with this time is different. I love 0:00:47.080 --> 0:00:51.479 the subtitle Paul eight Centuries of Financial follow We've enjoyed 0:00:51.479 --> 0:00:54.880 them all. The bravest book I've ever seen in doing 0:00:54.920 --> 0:00:59.280 this act. The Curse of Cash was an exceptionally brave book, 0:00:59.320 --> 0:01:03.360 going ahead out against corruption, crypto and negative interest rates. 0:01:03.640 --> 0:01:05.679 And now we celebrate. And it is my book of 0:01:05.680 --> 0:01:10.080 the summer in economics, Our dollar, Your problem. It's a 0:01:10.120 --> 0:01:13.080 bright green cover, Ken, I probably Natasha picked out the 0:01:13.120 --> 0:01:17.319 green cover. Kenneth Rogoff joins us right now, Ken, what 0:01:17.440 --> 0:01:20.319 a well timed book to say the least is the 0:01:20.440 --> 0:01:22.360 US dollar resilient. 0:01:24.880 --> 0:01:30.960 Well, it's resilient, but maybe it might not be as 0:01:30.959 --> 0:01:32.399 dominant as at once was. 0:01:33.200 --> 0:01:36.200 I look ken at the scope and scale of your work, 0:01:36.240 --> 0:01:39.440 and everybody dovetails it in to your look at our 0:01:39.480 --> 0:01:42.360 fiscal space. We were just talking with way Leah Blackbrock 0:01:43.040 --> 0:01:48.559 about this exploding debt, these exploding deficits. As you bring 0:01:48.640 --> 0:01:52.240 out our dollar, your problem is it the same old 0:01:52.280 --> 0:01:55.400 story of angst and worry about the debt and deficit? 0:01:55.520 --> 0:01:59.200 But we move forward or are we at a tipping point? 0:02:01.800 --> 0:02:04.680 Well, I mean, the book is a sweeping history of 0:02:04.720 --> 0:02:07.160 the rise of the dollar after World War Two, all 0:02:07.200 --> 0:02:10.480 the competitors, how hard it is to live with crypto 0:02:10.760 --> 0:02:13.840 and many other things. And by the way, I hope 0:02:14.120 --> 0:02:17.560 I've made it entertaining enough that people will get through it. 0:02:18.200 --> 0:02:20.680 But certainly Dad is a big piece of it. If 0:02:20.680 --> 0:02:25.359 we think of the future, and Tom, you've had all 0:02:25.480 --> 0:02:29.400 kinds of people on the program. I remember you had 0:02:29.520 --> 0:02:33.680 Olivier Blanchard and Larry Summers and many others who were 0:02:34.040 --> 0:02:37.320 convinced that the interest rates were for a long time, 0:02:37.360 --> 0:02:40.440 we're just going to keep declining forever. So Dad is 0:02:40.440 --> 0:02:46.120 a free lunch that was Olivier's American Economic Association presidential 0:02:46.160 --> 0:02:49.080 address in twenty nineteen. It's a great piece of work, 0:02:49.560 --> 0:02:52.919 but I'm not sure it's a good prediction. I've been 0:02:53.000 --> 0:02:57.400 arguing for a very long time that they're real interest rates, 0:02:57.400 --> 0:02:59.880 something about the ten year rate, not the Fed funds rate, 0:03:01.120 --> 0:03:05.000 that real interest rates have some convergence to mean, reversion 0:03:05.040 --> 0:03:08.320 to mean, what do you know? And that's happened. That's 0:03:08.400 --> 0:03:11.480 what the panic about the debt is now. It always 0:03:11.600 --> 0:03:14.639 was going to happen. So I think people had their 0:03:14.680 --> 0:03:17.000 head in the sand to think that we were safe 0:03:17.000 --> 0:03:21.120 from that. Maybe AI will save us, but I don't 0:03:21.160 --> 0:03:24.080 think so. That's why the debt's filing up. Our interest 0:03:24.120 --> 0:03:28.160 bill has more than doubled, it's about to triple, and 0:03:28.280 --> 0:03:32.639 it's more than our defense budget now. So yes, that is, 0:03:32.720 --> 0:03:36.480 and that and the deficit. And by the way, I'm 0:03:36.560 --> 0:03:41.360 just amazed at how few people really understand deficit and 0:03:41.440 --> 0:03:45.040 debt aren't the same thing. I mean, I know most 0:03:45.080 --> 0:03:48.840 of your listeners do, but you'd be so surprised. You know, obviously, 0:03:48.960 --> 0:03:52.960 the deficits, how much you're spending, and the debts, what 0:03:53.040 --> 0:03:56.680 your credit card bill has gotten to. And I think 0:03:56.680 --> 0:04:00.880 the problem with the United States is not Trump, and 0:04:01.040 --> 0:04:04.040 it's not Biden. It's not the right, it's not the left. 0:04:04.080 --> 0:04:08.280 It's the American people right now just don't believe in 0:04:08.840 --> 0:04:12.280 any need for reigning things in and until we have 0:04:12.800 --> 0:04:16.040 I think another inflation crisis or some kind of crisis, 0:04:16.520 --> 0:04:18.760 I don't think anybody's going to be able to achieve that. 0:04:19.360 --> 0:04:23.400 Kenneth Rogoff for this and extended conversation Yale University Press 0:04:23.440 --> 0:04:26.480 called me up to DiCaprio is playing Rogueff in the 0:04:26.520 --> 0:04:29.839 movie coming out in twenty twenty seven. I need to 0:04:29.880 --> 0:04:34.400 sell the book, folks. It's wonderfully brief, but very deep, 0:04:35.000 --> 0:04:39.440 and it's wonderfully, wonderfully accessible. This is the book you 0:04:39.520 --> 0:04:43.200 throw at your brady college kid this summer and say 0:04:43.240 --> 0:04:46.720 shut up and read it. He opens and this goes 0:04:46.760 --> 0:04:48.920 back to Rochester, New York, when he and I used 0:04:48.960 --> 0:04:51.920 to go up to house the guitars years ago. He 0:04:52.120 --> 0:04:56.200 opens with the economist Grace Slick and Jefferson here played 0:04:56.520 --> 0:04:59.800 in Sarajebel. This book is accessible when you got Jefferson 0:04:59.800 --> 0:05:01.760 here Blaine in the first key pages. 0:05:01.800 --> 0:05:05.560 Paul Sweeney, Professor, I think most of our listeners, most 0:05:05.560 --> 0:05:08.520 of our viewers over the last several months have kind 0:05:08.520 --> 0:05:10.920 of brushed up on their knowledge of tariffs. Here we've 0:05:10.960 --> 0:05:13.520 all tried to figure out what it all means. How 0:05:13.560 --> 0:05:17.760 do you present the concept of tariffs to your students. 0:05:19.480 --> 0:05:23.760 Well, I mean, I think we when we teach tariffs, 0:05:23.760 --> 0:05:28.560 we're not necessily teaching crazy, wild tariffs going all over 0:05:28.600 --> 0:05:32.960 the place. We teach suppose country A, but it's a 0:05:33.000 --> 0:05:37.120 five percent tariff on and country B retaliates by putting 0:05:37.160 --> 0:05:40.400 a five percent tariff. And frankly, if that had been 0:05:40.680 --> 0:05:44.479 all along, what was going on. It's a tax. I 0:05:44.520 --> 0:05:47.600 don't agree with it. I don't think it's well conceived, 0:05:48.560 --> 0:05:50.760 but you know, it wouldn't be the end of the world. 0:05:51.200 --> 0:05:54.280 We can cut other taxes. What has been, you know, 0:05:54.480 --> 0:06:00.400 so destabilizing to markets was this idea tariff could be 0:06:00.480 --> 0:06:03.760 used to solve every problem. I just came back from 0:06:03.760 --> 0:06:06.080 the UK. I don't know if you followed this that 0:06:06.560 --> 0:06:12.200 Trump wanted the British to have more free speech as 0:06:12.279 --> 0:06:15.640 part of his condition for releasing tariffs and things like 0:06:15.680 --> 0:06:18.480 that all over the world. And you know, I think 0:06:18.640 --> 0:06:22.400 one of the things that's probably cheered markets up is 0:06:22.520 --> 0:06:25.560 the I think one of Trump's better qualities is he 0:06:25.760 --> 0:06:29.440 is a pragmatist, and when something doesn't work, he finds 0:06:29.440 --> 0:06:32.159 a way to back out. And I think everyone sees 0:06:32.240 --> 0:06:35.240 that's what's going on. He played some clips of him 0:06:35.320 --> 0:06:39.960 from a cutter recently, him using the word beautiful constantly. 0:06:40.720 --> 0:06:43.960 Tariffs were beautiful. It's going to be a beautiful thing. No, 0:06:44.279 --> 0:06:46.800 it's not. It was a disaster. It's probably the worst 0:06:46.880 --> 0:06:51.719 policy in my five decades as an economist. But you know, 0:06:51.800 --> 0:06:55.360 even though he won't admit that it was so dumb, 0:06:55.880 --> 0:06:59.360 he's retreated, which is smart, and so I think that's 0:06:59.400 --> 0:07:01.440 probably why the markets are cheered up. 0:07:02.080 --> 0:07:04.080 The markets are cheered up, a professor. We've seen the 0:07:04.400 --> 0:07:07.520 stock market RaSE, you know, most of the losses here 0:07:07.600 --> 0:07:10.360 were now flat for the year. But we haven't seen 0:07:10.360 --> 0:07:13.320 that in the dollar. The dollar's really taken a pound here, 0:07:14.120 --> 0:07:16.160 a pounding here. How do you feel about the US 0:07:16.240 --> 0:07:16.800 dollar here? 0:07:18.360 --> 0:07:20.640 Well, it's up a shade in the last few days. 0:07:20.800 --> 0:07:24.360 I think I think the dollar's way over valued. So 0:07:25.320 --> 0:07:29.400 not for the reasons the administration saying it's just very high. 0:07:29.680 --> 0:07:33.920 It's not high because the dollars a reserve currency, the 0:07:34.160 --> 0:07:37.720 mar A Lago plan, the dollar has been very low, 0:07:38.000 --> 0:07:40.760 and the dollar's been a reserve currency. You know, throughout 0:07:40.800 --> 0:07:45.200 this the dollar goes in roller coaster waves. It's on 0:07:45.280 --> 0:07:48.120 a super high. I would have to go back to 0:07:48.160 --> 0:07:51.400 two thousand and two and before that to nineteen eighty 0:07:51.440 --> 0:07:53.840 five to see anything like it. And what do I 0:07:54.080 --> 0:07:58.320 mean by high, I mean looking at the purchasing power 0:07:58.520 --> 0:08:02.200 of the dollars. So very simplistically, you know, think of 0:08:02.240 --> 0:08:06.480 yourself as a Japanese tourist in the United States or 0:08:06.520 --> 0:08:09.880 an American tourist in Japan. You're going to have very 0:08:09.920 --> 0:08:13.320 different experiences right now than you might have, you know, 0:08:13.400 --> 0:08:18.000 even ten years ago. So Japan's had almost no inflation. 0:08:18.520 --> 0:08:23.400 We've had buckets of inflation making prices high. And yet 0:08:23.600 --> 0:08:26.520 and yet the dollar's gone way up against the end, 0:08:27.040 --> 0:08:29.560 and the Euro has had a bit of inflation, but 0:08:29.800 --> 0:08:32.920 less than us. And again the dollar's gone up against zero. 0:08:33.559 --> 0:08:36.240 It's very hard to predict exchange rates. If I go 0:08:36.400 --> 0:08:40.240 back to my long career, more than forty years ago, 0:08:40.400 --> 0:08:44.720 my first really well known paper was about how hard 0:08:44.840 --> 0:08:50.560 it was to understand, much less predict exchange rates. However, 0:08:51.559 --> 0:08:54.960 over the years, an exception to that has become clear 0:08:55.480 --> 0:08:58.760 when something's way out of line. The end right now 0:08:58.840 --> 0:09:02.880 is really low, the dollars really high. Over a couple 0:09:02.880 --> 0:09:04.920 of years, it's going to come down. So I think, 0:09:05.040 --> 0:09:07.560 you know, Trump may take credit for it. I wrote 0:09:07.559 --> 0:09:10.000 a piece about this a year ago. I said, that 0:09:11.160 --> 0:09:14.120 doesn't matter whose president, gravity is going to bring the 0:09:14.160 --> 0:09:14.760 dollar down. 0:09:15.160 --> 0:09:18.760 Ken Rogoff with his folks who celebrate my economic book 0:09:18.760 --> 0:09:20.880 of the summer on YouTube, take a look, Break Green 0:09:20.920 --> 0:09:25.800 cover our dollar, Your problem, Kenneth Rogoff hugely accessible for 0:09:25.840 --> 0:09:28.160 those of you on Bloomberg Radio. It's just simple. It's 0:09:28.360 --> 0:09:32.000 very very readable, and I want to go to one 0:09:32.000 --> 0:09:34.000 of the chapters where there's a bit of heavy lifting. 0:09:34.120 --> 0:09:37.280 Ken Rogoff, you go back to values you started to 0:09:37.320 --> 0:09:41.040 staying in France. Who gave us the phrase exorbitant privilege? 0:09:41.080 --> 0:09:44.480 Berry Keon Green has written about it many other worthies 0:09:44.920 --> 0:09:48.600 is well, are we losing our exorbitant privilege? Are we 0:09:48.720 --> 0:09:52.520 losing the American advantage we've had for decades? 0:09:54.200 --> 0:09:57.200 Well, I think it peaked about a decade ago. By 0:09:57.360 --> 0:10:02.040 my reckoning. The footprint to the dollar, by some measures, 0:10:02.200 --> 0:10:05.280 has risen, but I think by really some key ones. 0:10:06.000 --> 0:10:09.520 In particular, the one I look at is how foreign 0:10:09.640 --> 0:10:14.520 central banks regulate their economies and their currencies against the dollar. 0:10:15.080 --> 0:10:19.280 I think it was in decline, and my book argues 0:10:20.040 --> 0:10:21.839 at the end of it. It's not the whole book, 0:10:21.880 --> 0:10:24.080 but my book argues at the end of it that 0:10:24.200 --> 0:10:27.640 in addition to the fact that China needs to break free, 0:10:27.760 --> 0:10:32.040 that's just happening, and Asia is half the dollar block, 0:10:32.440 --> 0:10:36.760 so that lowers our footprint. The fact the Europeans also 0:10:36.920 --> 0:10:40.840 hated and if they hadn't screwed up by bringing Greece 0:10:41.120 --> 0:10:46.559 into the European the eurosystem way prematurely, the euro might 0:10:46.600 --> 0:10:49.520 be doing better today. And that's all back on track. 0:10:50.080 --> 0:10:53.640 But I think the biggest problems are from within, which 0:10:53.800 --> 0:10:58.600 is that our deficits are out of control, and I 0:10:58.640 --> 0:11:01.480 don't think we're bringing them under control. And I also 0:11:01.640 --> 0:11:05.720 feel fatal reserve independence from both the left and the 0:11:05.840 --> 0:11:09.120 right is under assault. Tom, I want to go back. 0:11:09.120 --> 0:11:11.760 I'm so glad you noticed Grace slick by the way 0:11:14.280 --> 0:11:18.760 I bring it in early to show how much other 0:11:18.880 --> 0:11:23.280 countries love the United States and yet they hate the 0:11:23.400 --> 0:11:27.240 United States. And I'll mention you know I was seventeen 0:11:27.320 --> 0:11:29.320 years old. I think when that I was in a 0:11:29.360 --> 0:11:33.199 bar in Sarajevo people are singing to the Jefferson airplane 0:11:33.480 --> 0:11:37.120 and I was completely oblivious because I just was so 0:11:37.240 --> 0:11:40.880 close minded that my best someone who's become my best 0:11:40.920 --> 0:11:44.360 friend in chess, was actually giving chess lessons to Grace Slick. 0:11:46.200 --> 0:11:48.880 We should mention here that mister Rugoff inter Ut and 0:11:48.960 --> 0:11:52.160 we all knew this in Western New York was esteemed 0:11:52.360 --> 0:11:54.959 in the effort of chess and has kept at it 0:11:55.400 --> 0:12:00.319 for years and is well. His affiliation with one B. 0:12:00.480 --> 0:12:04.120 Fisher is noted from his childhood. Oh, let's do this, Paul. 0:12:04.240 --> 0:12:06.080 Let's jump in here with a couple more questions with 0:12:06.160 --> 0:12:08.520 Professor Rogoff. We're going to go to news on an 0:12:08.559 --> 0:12:11.720 incredibly busy day rebrief you on the markets, and we're 0:12:11.800 --> 0:12:14.600 thrilled to Ken Rogoff will join us on the state 0:12:14.679 --> 0:12:18.079 of America in another section here in a moment. 0:12:17.840 --> 0:12:20.480 Paul Sweeney, Professor, I think most of our listeners and 0:12:20.559 --> 0:12:23.480 yours grew up at a time where globalization was the 0:12:23.640 --> 0:12:25.400 backdrop for economically. 0:12:25.559 --> 0:12:26.719 Thank you for bringing this up. 0:12:26.880 --> 0:12:31.520 Where is globalization over? I can't think of a world 0:12:31.559 --> 0:12:35.360 where we're not just thinking on a global basis about 0:12:35.360 --> 0:12:37.680 global economics, global politics, global defense. 0:12:40.400 --> 0:12:43.280 Well, we're definitely in a different era than we were. 0:12:43.600 --> 0:12:48.000 I mean, it had been changing before Donald Trump. So actually, 0:12:48.120 --> 0:12:51.400 economists referred to the period up to the financial crisis 0:12:51.440 --> 0:12:53.640 two thousand and eight two thousand and nine as the 0:12:53.679 --> 0:12:57.480 period of hyper globalization. And then it really did slow 0:12:57.559 --> 0:13:01.000 down a lot. Trade growth, slowed down on other measures, 0:13:01.400 --> 0:13:06.559 and you sometimes maybe heard the expression slobalization. And now 0:13:06.720 --> 0:13:10.800 we're definitely in retreat, introducing the tariffs, the war, and 0:13:10.880 --> 0:13:17.640 the Ukraine, the great cyber Wall of China that's going up, 0:13:17.960 --> 0:13:21.679 and I think that has dramatic effects for the global economy, 0:13:21.840 --> 0:13:26.480 for interest rates, for inflation. It's a big thing. I 0:13:26.520 --> 0:13:30.160 had a paper Brookings just over a year ago of 0:13:30.240 --> 0:13:34.520 a couple of papers with some very talented young co 0:13:34.600 --> 0:13:41.480 authors Hassan Afruzi, Marina Hollick, and Pierrard. They joke that 0:13:41.600 --> 0:13:44.040 they don't think they're young, because the two of them 0:13:44.040 --> 0:13:46.280 are in the mid forties. But I think they're young. 0:13:46.920 --> 0:13:50.679 And Piers on Trump's consul of Economic Advisors now, by 0:13:50.720 --> 0:13:54.560 the way, and we argued that this period where it 0:13:54.600 --> 0:13:59.240 was easy sledding for the central banks because globalization made 0:13:59.240 --> 0:14:02.520 it easier to deliver good outcomes it's over and they're 0:14:02.520 --> 0:14:03.400 in a tougher period. 0:14:03.559 --> 0:14:04.760 Kind I want to get this in. I think it's 0:14:04.760 --> 0:14:07.199 too important as we wait for Michael Barr and then 0:14:07.280 --> 0:14:10.000 it's kind of throwing off from the great moments of 0:14:10.120 --> 0:14:13.760 my act. Was you and Joe Stiglitz together in Davos. 0:14:13.800 --> 0:14:15.600 I thought it was a miracle to get you two 0:14:16.040 --> 0:14:20.359 warring over the years in a collegial way. Joe Stiglitz, 0:14:20.520 --> 0:14:22.960 change the dialogue as you did with this time is 0:14:23.040 --> 0:14:28.520 different with our discontent over globalization, Ken Rogoff, what does 0:14:28.560 --> 0:14:30.960 our next globalization look like? 0:14:32.960 --> 0:14:34.880 I mean, I think we're going to go through a 0:14:35.000 --> 0:14:41.360 period where we're breaking up more. Donald Trump initiated it. 0:14:41.480 --> 0:14:44.640 The Chinese we're doing a lot. So I think we're 0:14:44.680 --> 0:14:47.040 in a period of retreat. I mean, it's very political. 0:14:47.200 --> 0:14:51.360 It's hard to know. I think it'll unfold slowly. The princident. 0:14:51.520 --> 0:14:54.840 Historic economic historian Harold James actually wrote a book, I 0:14:54.840 --> 0:14:59.800 think around twenty ten, noting that globalization goes in ways, 0:15:00.120 --> 0:15:03.400 goes off, that goes down just because it's booming. We've 0:15:03.400 --> 0:15:06.400 had periods what that's happened before, and this kind of 0:15:06.520 --> 0:15:11.520 populous discontent. He it's normal, and you got a retreat. 0:15:11.600 --> 0:15:14.160 I think the long term is more, but over the 0:15:14.240 --> 0:15:15.920 next couple decades maybe not. 0:15:16.040 --> 0:15:18.520 If we celebrate my book of the summer, our dollar 0:15:19.360 --> 0:15:22.840 your problem. And as you know, always with Ken Rogoff, 0:15:23.440 --> 0:15:27.240 there has to be a money chapter on our gross debt. 0:15:27.360 --> 0:15:30.160 The money chart is on page two sixty six, near 0:15:30.200 --> 0:15:32.640 the end of the book, and it is on the 0:15:32.800 --> 0:15:36.480 all in debt. He and Carmen Reinhardt codified this a 0:15:36.520 --> 0:15:41.040 decade ago, with this time as different. Ken, that chart 0:15:41.200 --> 0:15:46.480 is absolutely jaw dropping of our gross debt. I guess 0:15:46.480 --> 0:15:50.920 full faith and credit, corporate and hidden debts as well. 0:15:51.120 --> 0:15:53.840 Is the rest of the world concerned about our gross debt? 0:15:56.240 --> 0:16:02.160 Well, excuse me. The United States accounts for roughly half 0:16:02.280 --> 0:16:07.800 of all advanced country debt, we public debt, we account 0:16:07.880 --> 0:16:13.080 for more than half, perhaps of all corporate bonds. So 0:16:13.440 --> 0:16:16.760 we're big. And I think what's hitting the United States 0:16:16.840 --> 0:16:21.240 now more than the you know, gradual loss of exorbit 0:16:21.280 --> 0:16:24.600 and privilege. What's hitting us is the normalization of interest rates. 0:16:24.960 --> 0:16:28.479 If you're the world's biggest debtor, it hurts. 0:16:29.080 --> 0:16:31.400 I mean, I look Ken at the real yield. I say, 0:16:31.640 --> 0:16:33.600 Ken in a simplistic way, as we look in the 0:16:33.600 --> 0:16:36.840 Bloomberg terminal. I look at the ten year real yield 0:16:36.880 --> 0:16:40.760 as a keel absolutely, I got it. I got a 0:16:40.800 --> 0:16:44.600 C plus. He gives out He's like Steve roach a yield, 0:16:44.840 --> 0:16:48.040 he gives out no aser bees. I'm looking Ken rogoff in. 0:16:48.080 --> 0:16:51.400 A ten year you must be taking another class than mine. 0:16:51.680 --> 0:16:55.360 But anyway, I look at the ten year real yield 0:16:55.400 --> 0:16:59.880 two point one. Where is a rogue off normal ten 0:17:00.120 --> 0:17:00.960 year real yield? 0:17:03.000 --> 0:17:07.119 Well, it's very volatile. It'd probably think of one to 0:17:07.320 --> 0:17:11.280 five is where it'll settle after all of this. I 0:17:11.320 --> 0:17:13.919 mean it had gone to minus one. There is a 0:17:14.200 --> 0:17:18.800 slight trend, although it's a little bit hard to know 0:17:18.880 --> 0:17:22.879 if it's up or down. What was so like crazy 0:17:23.160 --> 0:17:26.600 after the financial crisis is the ten year that you're 0:17:26.640 --> 0:17:31.000 looking at the real inflation adjusted interest rate. It fell 0:17:31.119 --> 0:17:34.679 by more than three hundred basis points, even three hundred 0:17:34.720 --> 0:17:38.800 and fifty basis points. And that's when Larry Summers came 0:17:38.840 --> 0:17:42.480 out with secular stagnation. We're never going to grow again 0:17:42.560 --> 0:17:44.679 the interest rate. It's always going to be low. And 0:17:44.800 --> 0:17:48.880 all this stuff about data is a free lunch. Modern 0:17:48.960 --> 0:17:54.320 monetary theory, I argued way back when it was happening. 0:17:54.480 --> 0:17:58.160 That this is normal after a financial crisis. Don't think 0:17:58.200 --> 0:18:00.520 that this is going to last forever. Happened in the 0:18:00.560 --> 0:18:04.639 Great Depression, interest rates collapse, it happens in many countries 0:18:05.000 --> 0:18:07.960 in the in the aftermath of a financial crisis. So 0:18:08.600 --> 0:18:11.359 I mean a lot of what's going on. It's I 0:18:11.359 --> 0:18:16.280 think the most that chart you're looking at, it's only 0:18:16.359 --> 0:18:18.760 one way to capture the real interest rate. There others, 0:18:18.800 --> 0:18:21.719 But I think it's the most important variable in the 0:18:21.760 --> 0:18:25.040 world if you believe that it's going to stay on 0:18:25.080 --> 0:18:29.600 the higher side, as I do. You know, debt is 0:18:29.720 --> 0:18:33.040 very high, and it does gradually push up interest rates. 0:18:33.359 --> 0:18:40.680 The whole world, for better or for worse, is remilitarizing. Populism. Deglobalization, 0:18:40.880 --> 0:18:45.440 which we discussed earlier, also pushes up interest rates. All 0:18:45.520 --> 0:18:48.080 of these things. I think we could easily see the 0:18:48.119 --> 0:18:51.720 ten year at that now I'm talking about the nominal, 0:18:51.800 --> 0:18:55.000 which is now for four or something like that. We 0:18:55.080 --> 0:18:58.680 could see it at five, five, six within a couple 0:18:58.720 --> 0:19:02.159 of years. Given how things are going. There are some 0:19:02.359 --> 0:19:06.240 very smart people, young economists, who think, nope, this is 0:19:06.359 --> 0:19:10.320 a aberration. We're going to go back on that downward 0:19:10.400 --> 0:19:14.320 ride and debt is a free lunch after all. That 0:19:14.440 --> 0:19:17.440 is seems to me a very risky thing to bet 0:19:17.480 --> 0:19:18.040 the farm on. 0:19:18.240 --> 0:19:20.200 Well, that's I mean, professor, that's what a lot of 0:19:20.240 --> 0:19:22.080 folks will come into the studio and tell Tom and 0:19:22.160 --> 0:19:26.760 me that, Hey, as long as investors, both domestic and international, 0:19:26.800 --> 0:19:30.160 continue to show up and buy us treasure securities, there's 0:19:30.200 --> 0:19:32.639 nothing to worry about. How do you respond to that? 0:19:32.720 --> 0:19:33.520 But let's not. 0:19:33.600 --> 0:19:37.760 Confuse that with what interest rate they want. So, yes, 0:19:37.880 --> 0:19:42.040 the market's liquid, but the interest rate we're paying it's 0:19:42.080 --> 0:19:44.399 been rising, and I predict it's going to keep rising. 0:19:44.600 --> 0:19:48.600 We're not going to have an Argentina situation. We may 0:19:48.840 --> 0:19:51.920 commit Harry Carrie, you know, somehow and refuse to pay 0:19:51.960 --> 0:19:55.600 a debt. We can always inflate, we can use financial repression. 0:19:56.200 --> 0:20:01.200 My book discusses the stuff at length. An that prints 0:20:01.240 --> 0:20:06.080 its own money doesn't need to default, sorry about my coughing, 0:20:06.280 --> 0:20:08.760 doesn't need to the fault. But of course inflation is 0:20:08.800 --> 0:20:12.240 a form of default. We had an access ten percent 0:20:12.320 --> 0:20:16.159 inflation the last few years, maybe twelve, and that was 0:20:16.160 --> 0:20:19.479 a partial default on us dead in real terms. So 0:20:20.000 --> 0:20:22.520 I actually think we're going to get something like that 0:20:22.800 --> 0:20:27.080 or even a little bigger over the certainly the next 0:20:27.119 --> 0:20:29.399 five to seven years is what I say in my book. 0:20:29.880 --> 0:20:32.840 I maybe would pull it back to four years now 0:20:32.880 --> 0:20:36.120 that I've seen the opening salvos of the Trump administration. 0:20:36.359 --> 0:20:38.160 Ken, at the time, we've got left, I got eight 0:20:38.160 --> 0:20:40.600 ways to go here. You've been more than generous this morning, 0:20:40.680 --> 0:20:43.399 canceling all your classes, and they got you know, I 0:20:43.400 --> 0:20:45.840 want to talk about X ten and what Furman's doing 0:20:46.200 --> 0:20:48.080 up at Harvard. I want to talk about the state 0:20:48.119 --> 0:20:51.080 of western New York as a wasteland of a former 0:20:51.119 --> 0:20:54.640 industrial might. I got other things to talk about. Ken. 0:20:54.920 --> 0:20:59.199 When you look at American exceptionalism in the path of 0:20:59.200 --> 0:21:03.320 our decade, in the past forward, do you see a 0:21:03.440 --> 0:21:09.800 continued American exceptionalism after whatever the tenure is of President Trump. 0:21:12.000 --> 0:21:16.720 I think it was fading somewhat already in some dimensions, 0:21:16.720 --> 0:21:19.920 but peaking and others. I think we've hit the peak, 0:21:20.119 --> 0:21:23.680 and I think, you know, I don't. I'm not an investor, 0:21:24.200 --> 0:21:26.120 but I would say this is a moment to think 0:21:26.119 --> 0:21:31.440 about diversification more. I see Europe with its forced remilitarization, 0:21:31.720 --> 0:21:37.600 with its ketchup probably doing outperforming the United States. China 0:21:37.720 --> 0:21:39.880 not so much. But it's going to break away from 0:21:39.880 --> 0:21:44.520 the United States. Thank you for mentioning Western New York 0:21:44.520 --> 0:21:47.080 as a wasteland, because I actually talk a lot about 0:21:47.119 --> 0:21:50.080 our joint hometown of Rochester quite a bit in the book. 0:21:50.880 --> 0:21:58.240 But I see certainly the dollars staying on top, but 0:21:58.520 --> 0:22:01.400 less on top. You mentioned Barry Ikbread. I mean he 0:22:01.440 --> 0:22:04.359 wrote and many of us thought twenty years ago that 0:22:04.440 --> 0:22:07.720 we were headed to a more tripolar world. I think 0:22:07.760 --> 0:22:10.879 we're back on course to that. We'll lose some of 0:22:10.920 --> 0:22:15.239 our exceptionalism. It will hurt in national security too. There 0:22:15.280 --> 0:22:19.480 will be other pathways to do transactions. Our sanctions won't 0:22:19.480 --> 0:22:23.199 be as effective, our spying won't be as effective, and 0:22:23.400 --> 0:22:25.840 a number of other things. I think Americans are going 0:22:25.880 --> 0:22:27.840 to happen to adjust. But I think we're going to 0:22:27.880 --> 0:22:30.720 have a bit a crisis of some sort first, because 0:22:30.800 --> 0:22:33.840 no politician can rein it in until we do that. 0:22:33.920 --> 0:22:37.520 Have one ken I've failed. We didn't talk about bitcoin 0:22:37.560 --> 0:22:40.760 in your magisterial The Curse of Cash. You got to 0:22:40.800 --> 0:22:43.880 come back at some point here in twenty twenty five 0:22:43.920 --> 0:22:46.720 and give us an update on your classic book on 0:22:47.080 --> 0:22:50.960 what I'll call your cryptic book on Crypto. Kenneth rug 0:22:51.000 --> 0:22:54.639 Off my book of the summer in Economics, Our Dollar, 0:22:54.880 --> 0:22:56.880 Your Problem. For those of you in radio, I'll get 0:22:56.920 --> 0:23:00.600 it out on Twitter and on LinkedIn today. It is 0:23:00.640 --> 0:23:05.840 a celebration of his academics for decades and also a 0:23:07.000 --> 0:23:09.080 piercing look forward to our debt. 0:23:14.920 --> 0:23:18.480 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:23:18.560 --> 0:23:21.720 weekday afternoons from seven to ten am Eastern Listen on 0:23:21.800 --> 0:23:25.479 Applecarplay and Android Auto with the Bloomberg Business app, or 0:23:25.600 --> 0:23:27.120 watch us live on YouTube. 0:23:27.520 --> 0:23:30.399 There is no one, and I mean no one we 0:23:30.480 --> 0:23:35.520 speak to who viscerally understands the cadence the culture of China, 0:23:35.720 --> 0:23:40.040 like Wayley of Blackrock, acclaimed in mathematics and her childhood 0:23:40.080 --> 0:23:43.440 in China and in Southern Asia as well. We're thrilled 0:23:43.440 --> 0:23:47.360 to the chief global investment strategists for Blackrock could join 0:23:47.440 --> 0:23:49.720 us this morning. Let me cut to my sort of 0:23:49.800 --> 0:23:55.440 theoretical sixty thousand foot view. What is the Chinese timeline? 0:23:56.000 --> 0:23:59.480 You've lived it, your family has lived it. Don't give 0:23:59.480 --> 0:24:02.320 me this week. They're trying to get the labor they stuff. 0:24:02.760 --> 0:24:07.440 Do they just pause in delay in this trade war? Out? 0:24:07.520 --> 0:24:10.520 One year, three years, five years? 0:24:11.080 --> 0:24:14.800 Well, certainly timeline is longer than the mid term in 0:24:14.840 --> 0:24:17.960 the US and the four year cycle in the US, 0:24:18.000 --> 0:24:21.879 which is why I guess they have longer time on 0:24:21.920 --> 0:24:25.560 their side as they engage in the in the negotiation. 0:24:25.600 --> 0:24:29.080 But the bigger picture is that as we kind of 0:24:29.200 --> 0:24:33.720 go through this period of policy uncertainty and negotiation back 0:24:33.760 --> 0:24:38.240 and forth, it's basically pointless to try to predict what 0:24:38.280 --> 0:24:40.520 the next step of policy making is going to be. 0:24:42.640 --> 0:24:45.440 It has been very very hard, close to impossible. What 0:24:45.560 --> 0:24:49.239 is more rewarding is to try to appreciate what are 0:24:49.240 --> 0:24:52.400 the rules that cannot be broken, what are the immutable 0:24:52.520 --> 0:24:55.800