WEBVTT - Former Fed Vice Chair Richard Clarida Talks bonds and retirement

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news to Clarida's with.

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<v Speaker 2>Us with PIMCO of Columbia University, always and always the

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<v Speaker 2>vice chairman and former vice chairman, I should say, the

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<v Speaker 2>Federal Reserve System. And I think you know we're going

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<v Speaker 2>to straddle here between Bloomberg money and everything else.

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<v Speaker 3>Yeah, And we got to start with what we saw

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<v Speaker 3>in the bond market this week because we had to

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<v Speaker 3>sell off in the thirty year yield this week reached

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<v Speaker 3>a nineteen year high five point twenty six percent. Rich Clarida,

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<v Speaker 3>does this sell off in the long line tell us

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<v Speaker 3>anything about the US economy and therefore how people's prospects

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<v Speaker 3>might change.

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<v Speaker 4>Well, there are a lot of reasons bond eels can

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<v Speaker 4>go up and down, not just the FED.

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<v Speaker 5>The FED is an important part of it.

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<v Speaker 4>What I would point to is that so far Kevin

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<v Speaker 4>Warsh has been shared really only six seven weeks, but

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<v Speaker 4>an important measure in the bond market, which is break

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<v Speaker 4>even inflation, so sort of traders expectation of inflation is

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<v Speaker 4>ad or below where it was at least out to

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<v Speaker 4>ten years when he became chairman. But certainly the reaction

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<v Speaker 4>during the press conference was probably not one that was welcome.

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<v Speaker 6>Right.

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<v Speaker 3>We know the first Trump administration cared a lot about

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<v Speaker 3>the stock market, and the second one seems to have

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<v Speaker 3>added the bond market to its list of things that

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<v Speaker 3>is watching. Which part of the bond market does this

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<v Speaker 3>administration care most about the thirty year yield?

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<v Speaker 1>The ten year yield?

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<v Speaker 5>Oh my goodness, I'm not sure.

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<v Speaker 4>I would defer, probably as Secretary bust and I do

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<v Speaker 4>think at one point he may have said that he's

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<v Speaker 4>focused more on the ten year yield than he is

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<v Speaker 4>on the Fed funds rate. Well, so much of the

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<v Speaker 4>economy people borrow along for car loans or mortgages or

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<v Speaker 4>corporate loans, and so that's probably what he had in mine.

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<v Speaker 2>Okay, So what we're going to do here, it's Bloomberg money.

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<v Speaker 2>We do personal finance, we do wealth management, we do retirement.

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<v Speaker 2>But we also have Richard Clarita where this is in

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<v Speaker 2>the heart of this debate over the chairman of the Fed.

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<v Speaker 2>So it's going to be a little bit sort of

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<v Speaker 2>like scarfou and Time doing Bloomberg surveillance, like more.

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<v Speaker 5>You protect the children mind or blurry the protect the

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<v Speaker 5>children at home valance?

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<v Speaker 2>Fine, Okay, so the former Vice Chairman with great respect,

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<v Speaker 2>I don't want to turn this into a history lesson,

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<v Speaker 2>but you have Wosh nominally of Stanford talking about the

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<v Speaker 2>Lucas critique and then going over what people don't know

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<v Speaker 2>is you're directly involved with this. Let's first listen to

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<v Speaker 2>Chairman Worsh on Wednesday.

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<v Speaker 6>Some version of the Lucas critique should remind us that

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<v Speaker 6>when we talk about measures of inflation or something else,

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<v Speaker 6>and we describe those measures as being consistent with our objectives,

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<v Speaker 6>we might make them such that they're not very good

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<v Speaker 6>measures or very good objectives.

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<v Speaker 2>The chairman, before we had the questions to Michael McKee.

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<v Speaker 5>Of Bloomberg, the world lit up.

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<v Speaker 2>An along with legit cred out of Lucas's Chicago was fiery.

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<v Speaker 2>The news conference was rich in philosophy, process and institutional aspirations,

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<v Speaker 2>but poor in operational guidance. The absence of Clarida like

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<v Speaker 2>analytical specificity appears to have spoken louder.

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<v Speaker 5>Than Worsh's words. So Lucas did what he did.

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<v Speaker 2>CGG, Clarida, Galli, and Gertner reinvented modern economics with something

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<v Speaker 2>called dynamic stochastic general equilibrium theory. We come out now,

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<v Speaker 2>And as Claudia sam says, we have a chairman who's

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<v Speaker 2>not sure what he's looking at an inflation How does

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<v Speaker 2>he get the burls Macon. Does he need to reaffirm

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<v Speaker 2>PCE is the inflation series?

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<v Speaker 4>Well, I think what he said at the press conference

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<v Speaker 4>is for now until next January at least that's going

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<v Speaker 4>to be correct. So the FED adopted that again in January.

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<v Speaker 4>He left open the possibility that the task forces could

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<v Speaker 4>recommend other measures. They could go to an average instead

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<v Speaker 4>of picking one INDUX, they could look at CPIPPI. There

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<v Speaker 4>are a lot of things they could do. But I

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<v Speaker 4>think Anna as usual raised is an important point is

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<v Speaker 4>that an inflation targeting central bank needs to be clear

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<v Speaker 4>about what it is is targeting.

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<v Speaker 5>It can and.

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<v Speaker 4>May evolve, and so I think that will be important

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<v Speaker 4>very importantly.

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<v Speaker 2>Then here if we need to get the system back

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<v Speaker 2>with a confidence about the.

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<v Speaker 5>FED, Yeah, how does he do that?

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<v Speaker 2>At Jackson Hole?

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<v Speaker 5>Does he have to reaffirm, as.

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<v Speaker 2>Somem says, that inflation is the appropriate measurement and not

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<v Speaker 2>a policy.

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<v Speaker 4>Well, I think Jackson hole may serve a couple purposes. Historically,

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<v Speaker 4>as we've seen, chairs have used Jackson hole as sort

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<v Speaker 4>of a sneak preview of coming attractions at the September, November,

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<v Speaker 4>and December meetings.

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<v Speaker 5>Chairman war Shennity may do that.

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<v Speaker 4>He's also interested in what he called some big question,

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<v Speaker 4>big picture questions that he sort of previewed at this meeting,

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<v Speaker 4>and he's also talking to the task forces. So I

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<v Speaker 4>think it's too early to tell what he'll do at

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<v Speaker 4>Jackson Hole, but he may do that as well.

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<v Speaker 3>I find it really interesting that he doesn't want to

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<v Speaker 3>tell the bond market a whole lot of things, and

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<v Speaker 3>he's kind of waiting to take his cue from the

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<v Speaker 3>bond market. From a lay person's one of you, it

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<v Speaker 3>feels very circular, right. The Central Bank sets a benchwork

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<v Speaker 3>indust rate, the bond market.

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<v Speaker 1>Takes its que from that.

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<v Speaker 3>What's the rationale for the FED to take its queue

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<v Speaker 3>from the bond market that's relying on the FED to

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<v Speaker 3>set policy.

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<v Speaker 1>Help me understand that.

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<v Speaker 4>So here's the way I would express it. The FED

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<v Speaker 4>is a very important part of ten year treasury yields.

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<v Speaker 4>It's not the only thing that drives yields. So I

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<v Speaker 4>think the chairman was important to emphasize that the FED

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<v Speaker 4>does want to step back and inter movements in bond yields.

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<v Speaker 4>It could be inflation, it could be global growth, Middle

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<v Speaker 4>East hostilities, but certainly the Chairman and the Fed understands

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<v Speaker 4>that an important part of tenier yields is the expected

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<v Speaker 4>path of the funds rate. And to Scarlett's point, and

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<v Speaker 4>I actually Ben bernanke gave it a speech on this,

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<v Speaker 4>as did I as Vice chair. It's called sometimes called

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<v Speaker 4>the hall of mirrors problem in central banking, which is

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<v Speaker 4>the central bank looks at the market, the market looks

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<v Speaker 4>at the central bank.

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<v Speaker 5>It could get circular.

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<v Speaker 2>Let's go back to your page. Galli and Gertler didn't

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<v Speaker 2>know this. Richard claareda channeling Alan Blinder. Having looked at

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<v Speaker 2>monetary policy from Joni Mitas both sides, now I can

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<v Speaker 2>testify that central banking in practice is as much an

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<v Speaker 2>art as a science. How does worsh get back to

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<v Speaker 2>science to Clariita silence versus some mom and pop philosophy

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<v Speaker 2>you learned at Stanford.

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<v Speaker 4>Oh well, I think Kevin Walsh and the committee understand that. Look,

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<v Speaker 4>Kevin came in, Chairman Warsh came in with an ambitious agenda,

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<v Speaker 4>and I think that they're going to both focus on

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<v Speaker 4>implementing that agenda as well as getting to where they

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<v Speaker 4>need to be on policy. I guess where I would

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<v Speaker 4>try to relate Clarita Galley Gertler to the current conversation

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<v Speaker 4>is perhaps specifically in the domain of forward guidance, and

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<v Speaker 4>so in the CGG model there's actually not a role

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<v Speaker 4>for forward guidance because the market understands the FED reaction

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<v Speaker 4>function and the FED understands the market. If you're not

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<v Speaker 4>going to do forward guidance, then it's incumbent for the

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<v Speaker 4>markets to have a broad understanding of how the central

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<v Speaker 4>bank will re act to data. If we had six

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<v Speaker 4>bad months in a row of inflation data, would they

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<v Speaker 4>hike and by hand much? They're not committing to that,

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<v Speaker 4>but they're saying if the data comes out this way, For.

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<v Speaker 2>Everybody on Bloombered Money and Scott I got goosebumps. This

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<v Speaker 2>is like the real deal. I mean, this is what

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<v Speaker 2>the adults in the room are arguing about right now.

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<v Speaker 3>Well, for people who are watching this and don't quite

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<v Speaker 3>know all the names that you and Rich are throwing

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<v Speaker 3>out there, I want to bring it back to the

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<v Speaker 3>real economy and to real people's concerns. Do you agree

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<v Speaker 3>with those people who say that we have a K

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<v Speaker 3>shaped economy where the higher income and asset owners are

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<v Speaker 3>doing well and everyone else is kind of struggling that

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<v Speaker 3>downward arm.

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<v Speaker 1>And if so, how do we solve for that?

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<v Speaker 4>Well, Yes, broadly we do and have had a K

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<v Speaker 4>shape economy for some time, but the K, the branches

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<v Speaker 4>of the K, have been diverging more widely in the

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<v Speaker 4>last six or seven years. The way I like to

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<v Speaker 4>think about Scarlett is roughly sixty percent of Americans live

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<v Speaker 4>in a house that's owner occupied housing, sometimes with their parents,

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<v Speaker 4>but it's owned about forty percent rent. That sixty percent

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<v Speaker 4>owned stocks, most of the other forty percent doesn't. So

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<v Speaker 4>we've been in an economy for some time, but especially

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<v Speaker 4>in the last six years when stocks have gone up,

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<v Speaker 4>house prices have gone up. So the top of that

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<v Speaker 4>K is doing pretty well. If you're in the other

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<v Speaker 4>part of the K, you don't own your house, you

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<v Speaker 4>don't know a lot of stocks, you're living paycheck to paycheck.

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<v Speaker 5>It's it's been a tough.

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<v Speaker 4>Six years, and so there's there's no doubt we're in

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<v Speaker 4>a case shay to.

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<v Speaker 1>The services costs just keep getting more expensive as well.

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<v Speaker 5>Lumbered.

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<v Speaker 3>Money is about how you invest and make your money,

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<v Speaker 3>but it's also about how you spend your money. So

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<v Speaker 3>Rich Clark, I want to ask you on this Friday,

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<v Speaker 3>what's your splurge?

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<v Speaker 1>First of all? And how do you save? What do

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<v Speaker 1>you save? Well?

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<v Speaker 5>I leave the saving to my wife. She's she's pretty

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<v Speaker 5>good at it.

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<v Speaker 4>My splurge is on My hobby is music, So I

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<v Speaker 4>buy guitars, I buy recording equipment.

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<v Speaker 5>Really, I als spend money. I'm recording my album. So yeah,

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<v Speaker 5>that's my splurge.

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<v Speaker 1>Didn't reach a recording album in twenty sixteen, I.

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<v Speaker 4>Did available Spotify, Apple Music stream for free on YouTube.

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<v Speaker 4>The new album's coming out later this year. Maybe we'll

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<v Speaker 4>do a rollout party on this show.

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<v Speaker 1>Oh it's a follow up. Yeah yeah, Well what's it called.

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<v Speaker 5>It's gonna be called Take two?

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<v Speaker 1>Take two? Okay? And what folk music?

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<v Speaker 3>Like?

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<v Speaker 1>What's your vibe?

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<v Speaker 5>Olk rock? Yeah?

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<v Speaker 4>Folk ross someone who listened to too many Beatles albums.

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<v Speaker 2>And I will editorialize as I've heard it. It is

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<v Speaker 2>not a vanity album. It is exquisite.

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<v Speaker 5>I was shocked.

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<v Speaker 4>Well, thank you really really quite thank you?

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<v Speaker 3>Quit and you're the solo star like I don't hear

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<v Speaker 3>a band name in there.

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<v Speaker 4>I write the songs and do the vocals, but I

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<v Speaker 4>work with professional studio musicians in London, LA and Nashville.

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<v Speaker 4>So all the music you hear is really good playing

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<v Speaker 4>and then I do some singing on it.

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<v Speaker 3>All right, Richard Clarts a new album coming out with

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<v Speaker 3>Day Well by.

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<v Speaker 5>December thirty first.

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<v Speaker 3>By December thirty first, Richard Claiter to thank you so much,

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<v Speaker 3>called Global Economic Advisor, the former Federal Reserve Vice chairman,

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<v Speaker 3>and of course Columbia University professor as well