Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene, along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jailely, we bring you
Speaker 1: insight from the best and economics, finance, investment, and international relations.
Speaker 1: Find Bloomberg Surveillance on Apple podcast, Suncloud, Bloomberg dot com,
Speaker 1: and of course on the Bloomberg terminal. He is extraordinary man.
Speaker 1: He would say that Edward Himan invented market economics with
Speaker 1: honor and grace to Alan Greenspan as well. Evercors I
Speaker 1: s I chairman, and we're thrilled that Adeiman could brief
Speaker 1: us here into August, into Q three and into Q
Speaker 1: four of this tumultuous two thousand twenty one. And I
Speaker 1: want to cut to the chase. You've seen this out
Speaker 1: of your engineering at M. I t an ear of
Speaker 1: pricing power, It can't happen. Another ear of pricing power,
Speaker 1: it can't happen. And this time around you say there
Speaker 1: is pricing power, and corporations can to adapt to the
Speaker 1: new inflation. How do they do it? So when we
Speaker 1: UH survey retailers in particular, they tell us that pricing
Speaker 1: power is the most Ever. We also UH survey manufacturing
Speaker 1: companies that they say the same thing and so cost
Speaker 1: her up. But independent of that, liber cost her up also.
Speaker 1: But in an independent of that, uh, companies are able
Speaker 1: to pass it along. Uh because I guess because the
Speaker 1: economy is good, people are getting pay increases. Uh. But
Speaker 1: it also is important because it allows earnings to go up.
Speaker 1: And earnings are in a second quarter that were explosive,
Speaker 1: but I guess more important they'll be a strongly the
Speaker 1: third quarter as well. What do you see for Q four,
Speaker 1: I mean the idea year of inventing market economics into
Speaker 1: market analysis. Many would say, you did that chart paragraph, chart, paragraph?
Speaker 1: What are the chart say now about the fourth quarter?
Speaker 1: So in terms of economic growth, we have it slowing
Speaker 1: down to about six from roughly ten percent in the
Speaker 1: second and third quarters. Uh. And but because I'm really
Speaker 1: focused on the stock market, uh, I think earnings will
Speaker 1: increase again. We have earnings in the second quarter to
Speaker 1: twenty which is probably twenty dollars ahead of the constensus,
Speaker 1: and then maybe thirty and maybe two forty in the
Speaker 1: third and fourth quarters. And that was the pe you know,
Speaker 1: something like nineteen times with Bonnils, you know, below two percent,
Speaker 1: and the dead ballance sheet increasing ADDI, uh, every single month.
Speaker 1: As you mentioned high prices, you alluded to what you thought,
Speaker 1: but I just want to get you to emphasize it's
Speaker 1: just a little bit more higher prices in the foundation
Speaker 1: for higher prices that virtuous cycle that seems to be
Speaker 1: taking place at the moment. Is that a virtuous cycle
Speaker 1: you think overwhelms the Federal Reserve? Or is this the
Speaker 1: right kind of price growth? Um? Well, I think inflation
Speaker 1: is going to be more than expected. Uh. You know,
Speaker 1: we do a lot of work on rents and they
Speaker 1: are surging, and that's of the core CP. I Uh,
Speaker 1: the core PC, and so real is gonna be running
Speaker 1: around six. You can do the math on what that does. Uh.
Speaker 1: And then wages have been going up, and like we
Speaker 1: discussed a second ago, priceting power is going up. So
Speaker 1: inflation is likely to to run ahead of expectations. But
Speaker 1: I think it'll settle out around and say twenty three,
Speaker 1: so it won't get out of hand, but it's gonna
Speaker 1: be higher than that it has been in the past.
Speaker 1: And how does that shape your view some what the
Speaker 1: Federal Reserve is going to do in that kind of environment.
Speaker 1: Three cleep below where we are right now, but that
Speaker 1: high rate to change if you think that's gonna stick.
Speaker 1: I just wanted how to shape your views of money
Speaker 1: to you policy. Well, you know, I hate to stay
Speaker 1: the obvious with a thrill of discovery. But you know
Speaker 1: they're gonna they're gonna move, and they're already indicated they're
Speaker 1: gonna move. Uh. So they'll start the taper. It'll tak
Speaker 1: you about a year uh to you know, get down
Speaker 1: to zero, and then they'll start to raise rates. Uh.
Speaker 1: And neither of those are tightening, they're just you know,
Speaker 1: less generative. And then if they keep raising rates, which
Speaker 1: will be down the road but a bit, they'll finally
Speaker 1: get a tightening position. So I feel I think the
Speaker 1: faith right now is probably behind what I see. But
Speaker 1: you know, they're they're they're moving, and so they'll keep moving.
Speaker 1: And uh, whether they start to taper in December or January, uh,
Speaker 1: which is for the discuss and at the moment, doesn't
Speaker 1: make a big difference. I think in the big picture,
Speaker 1: do you see a taper tantrum or has that already happened? Uh?
Speaker 1: You know they Bernanke gave us a good way to
Speaker 1: avoid it, you know. Uh, he's told you what can happen.
Speaker 1: And so they've been very careful and uh trying to
Speaker 1: avoid a taper tantrum, and I think they've been largely successful.
Speaker 1: Um now everybody is on the same page that they'll
Speaker 1: uh you know, discuss it, uh inn upcoming meetings, the
Speaker 1: Lee story in the journal today and uh and then
Speaker 1: probably by January they'll start to uh cut the balance
Speaker 1: sheet expansion by ten billions will be then you get
Speaker 1: to zero in twelve months. The hallmark of what you
Speaker 1: invented is your granularity. Folks, we used to weigh with
Speaker 1: bated breath. Ed would sleep in and we'd be lucky
Speaker 1: if we got the report by ten am, and there'll
Speaker 1: be this big, ugly black marker on it where Hyman
Speaker 1: would say, shut up and listen to this. This is C. J. Lawrence.
Speaker 1: And then onto I s I and now ever core
Speaker 1: I s I. How does your granularity, your study of
Speaker 1: American business respond to business people that say they can't
Speaker 1: find workers? Do you just say to yourself, Ed, raise
Speaker 1: a damn wage? I mean, how do you respond to that? Well?
Speaker 1: Pretty pretty pretty much. We'll see if there's uh an
Speaker 1: increasing wages, increasing workers when the enhanced benefits roll off
Speaker 1: in September. Uh. But you know, I agree with the
Speaker 1: way you implied. Uh, and that's what I see is
Speaker 1: t happening. Companies will simply raise pain and for what
Speaker 1: I can tell, uh, you know, at an hour wage, Uh,
Speaker 1: if you do two or three dollars, you could get
Speaker 1: a significant change and a number of people applying. You know,
Speaker 1: that seems to be enough. And so I think that
Speaker 1: you're gonna see, you know, pretty big popping wages. Uh.
Speaker 1: Could be transitory as well, but you'll see a pretty
Speaker 1: big popping wagers. And but it's also moving up to
Speaker 1: change he set work. Black Rock is giving an eight
Speaker 1: percent across the board pay increase and uh, you know
Speaker 1: for bankers or up to a hundred thousands an hour, Yessuh.
Speaker 1: And so you know it's not just workers and im
Speaker 1: is it Jerome Powell continuing his services to the Federal
Speaker 1: Reserve system in America? We'll find out it's not. It's
Speaker 1: not a it's not a done deal in my opinion. Uh.
Speaker 1: But I'm sure you know Bideness considering the options and
Speaker 1: considering whether or not he needs to work on it,
Speaker 1: you have having a broader uh footprint. I mean, Joe,
Speaker 1: I could see. I don't think it makes a difference
Speaker 1: if he's replaced. Um first that replaces it will probably be,
Speaker 1: you know, a little bit more beveraged than he is.
Speaker 1: And I think he's he's done. If anything, he's too delish.
Speaker 1: But you know, I think John, what we've got to
Speaker 1: come to the conclusion is Chairman Himan would look awfully
Speaker 1: good at the eucles. Oh, there we go. I don't
Speaker 1: think it wants to respond to the don't don't listen
Speaker 1: to that guy. I'm not going to go there and
Speaker 1: don't worry beyond this though for you, for the chairman
Speaker 1: for the f O m C looking down to Washington
Speaker 1: at the moment, I think it's so difficult for a
Speaker 1: lot of people just getting the direction right. Earlier this
Speaker 1: year was somewhat straightforward. You knew that Washington d C
Speaker 1: would be a tail wind for your GDP forecasts. Everyone
Speaker 1: was revising GDP revisions higher. It was a positive growth shark.
Speaker 1: Can you look down to d C now and characterize
Speaker 1: things for us just on the fiscal side, the range
Speaker 1: a outcomes and how white they offer you is you
Speaker 1: try and generate a decent outlook with some confidence. So first, uh,
Speaker 1: let's not leave the monetary apart behind because it's still
Speaker 1: I think a huge tail wind, and monetary policy leads
Speaker 1: by one and two years. But on the fiscal side, uh,
Speaker 1: you know, my team in Washington, uh comes to about
Speaker 1: two trillion dollars when the dust all settles. Uh. And
Speaker 1: it's not the three or a half traying that they're
Speaker 1: looking for, but it's not one trier either, and so
Speaker 1: I think you'll get uh, you know, more stimulus. Now
Speaker 1: that's over say a decade, so it's a couple of
Speaker 1: hundred billion a year. I say a couple hundred billions
Speaker 1: changed that till they'll win the world's changed. There was
Speaker 1: a time when a couple of hundred billions was something big.
Speaker 1: And now and I think under a trillion, you're a
Speaker 1: fiscal hulk. Chairman, ed Hyman. It's gonna catch up. If
Speaker 1: a call and it's going to see you. Thank you
Speaker 1: so much that you want to guess right now, our
Speaker 1: great honor, to get some clarity on where we are
Speaker 1: in this pandemic. We do this with Peter Hotez, who
Speaker 1: has become nationally known many media appearances, speaking in English
Speaker 1: and also as a pinata for the anti vaccination Crow
Speaker 1: were thrilled that Dr Hotels could join us. Yes, from
Speaker 1: Baylor College of Medicine, but far more you need to know.
Speaker 1: He is co director of Parasites Without Borders with an
Speaker 1: incredible focus on the children of this world. He's Texas
Speaker 1: Children's Hospital and dowed share in tropical pediatrics. Peter Hotez,
Speaker 1: you deal seven in children. What is the risk to
Speaker 1: our children of the delta variant? Tom? I think what's
Speaker 1: happening is it's not that this virus is selectively targeting children.
Speaker 1: I think what's happening is this is so highly transmissible.
Speaker 1: It's twice as transmissible as the previous lineage, earliest lineages
Speaker 1: that we had. So pretty much anyone who has not
Speaker 1: been vaccinated or previously infected and recoverty is getting swept
Speaker 1: up in this along with kids, and particularly in areas
Speaker 1: where they haven't vaccinated. Well, you know, people forget that
Speaker 1: you're not getting vaccinated only to keep yourself out of
Speaker 1: the hospital your loved ones, but also if enough people
Speaker 1: get vaccinated in the community, then it slows or halts transmission,
Speaker 1: so the kids who are not eligible to get vaccinated
Speaker 1: are protected. And that's what's happening in the Northeast, but
Speaker 1: unfortunately it's not happening down here in the South, where
Speaker 1: the vaccination rates are just so abysmal. Peter, how sick
Speaker 1: do children get? Is that part of it? The unvaccinated
Speaker 1: would say, it's one big So what is it? So what? Yeah?
Speaker 1: And so what you know of the misinformation to the
Speaker 1: disinformation out there is, you know, they quote death rates
Speaker 1: and they only point to older Americans or those with
Speaker 1: provound underlying disabilities. That that are those who get not
Speaker 1: even disabilities, but co morbid conditions who lose their life.
Speaker 1: And the problem is we have a lot of young adults, adolescents,
Speaker 1: and even kids who are one getting sit very sick,
Speaker 1: requiring hospitalization. Now we're starting to see UH intensive care
Speaker 1: pediatric intensive care units for adolescens and some of the
Speaker 1: younger kids start to fill up. And and we don't
Speaker 1: know the full extent of long COVID this this more
Speaker 1: long term UH condition where which includes neurologic injury, and
Speaker 1: we don't know how long lasting that is. So it's
Speaker 1: all hands on deck to try to keep the kids
Speaker 1: from getting infected. Should schools be fully reopened? Look, I
Speaker 1: think it really depends on where the transmission is. And
Speaker 1: by the way, you know, whether I think it, whether
Speaker 1: I think they should be fully opened or not, doesn't
Speaker 1: really matter. That ship has sailed and pretty much and
Speaker 1: pretty much in person classes for a lot of the country.
Speaker 1: I think the key is trying to get the adults
Speaker 1: and adolescents fully vaccinated. But you know, like if you
Speaker 1: look in Louisiana, Mississippi, fifteen six of the adolescents are
Speaker 1: vaccinated who are eligible, maybe thirty of the young adults.
Speaker 1: It's ridiculous. So that and you have a lot of
Speaker 1: some of the red state governors refusing any mask mandates,
Speaker 1: and you have the delta variant. You know, I say, well,
Speaker 1: you know what could possibly go wrong? Right? I mean,
Speaker 1: so it's we're I think we're asking for trouble the
Speaker 1: way we're managing this. We've got to jack up vaccination
Speaker 1: rates in the South that we're going to do well
Speaker 1: in the school year. So let's talk about the mask mandates.
Speaker 1: I go home to the home state of California, and
Speaker 1: it's l a county that is mandating masks indoors and
Speaker 1: outdoors for vaccinated, fully vaccinated individuals. Should that be a requirement? Yeah,
Speaker 1: I mean, certainly for indoors as deltics elerates, and and
Speaker 1: the reason and certainly for unvaccinated individuals who are at
Speaker 1: high risk, but even the vaccinated ones and and it
Speaker 1: takes a little bit of time to explain, but we
Speaker 1: think what's happening based on some preliminary studies out of
Speaker 1: China and Guangdom province that this virus is multiplying at
Speaker 1: much higher rates in the nose and mouth a thousand
Speaker 1: times more, so you're shedding a lot more virus. So
Speaker 1: even if you're vaccinated and you get asymptomatic infection, in
Speaker 1: the past, with previous lineages, the vaccine was really good
Speaker 1: at not only stopping symptomatic illness, but even asymptomatic transmission.
Speaker 1: What's less clear now is with this delta variant. Certainly
Speaker 1: the first parameters holding that it keeps you from getting
Speaker 1: seriously ill or even uh symptomatic illness at very high rates,
Speaker 1: so that's great, But people who are vaccinated may still
Speaker 1: be shedding a fair bit of virus if they gave
Speaker 1: us asymptomatic infection. And that's the reason for for remasking.
Speaker 1: Even if you're vaccinated. The CDC has not come out
Speaker 1: with that recommendation. But that's where possibly things good ahead. Peter.
Speaker 1: Six months ago you had the courage to publish an
Speaker 1: article linking Soviet theory with American anti science. You said
Speaker 1: anti science kills. Elaborate on that. Now was six months
Speaker 1: more knowledge of this pandemic. Well, we just have to
Speaker 1: look at the numbers, tom right. I mean, there's the
Speaker 1: reason why six hundred thousand or more Americans have lost
Speaker 1: our lives from COVID nineteen is partly due to the
Speaker 1: stars to coronavirus, but in my opinion and equal measure
Speaker 1: was due to defiance, defiance olver masks and social distancing,
Speaker 1: not defiance over vaccines. And it's all a consequence of
Speaker 1: a massive what I call disinformation empire um, which you know,
Speaker 1: we heard a little bit about it last week and
Speaker 1: this week from the White House around Facebook. But you know,
Speaker 1: I point out that's that's it's you know, this is
Speaker 1: so much more than Facebook. This is you know, this
Speaker 1: anti science aggression coming out of US members of Congress,
Speaker 1: out of the sum of the conservative cable news networks.
Speaker 1: We're seeing it now. It's been well reported another Russian
Speaker 1: government is trying to destabilize our democracy through what's called
Speaker 1: weaponized health communication using anti science as a wedge issue.
Speaker 1: And then we have the non governmental organizations in at
Speaker 1: least a dozen of them identified by the Center for
Speaker 1: Contering Digital Hate. It's amazing we have to have an
Speaker 1: organization called the Center for Conquering Digital Hate that s
Speaker 1: m sixty million followers. So this is a well oiled
Speaker 1: machine or empire. And and I make the point is, look,
Speaker 1: you know we make US government puts a lot of
Speaker 1: effort into putting an infrastructure to come back global terrorism,
Speaker 1: to combat nuclear proliferation, to combat um cyber attacks. But
Speaker 1: you know what, this anti science thing is killing more
Speaker 1: Americans and all those others combined, and we need to
Speaker 1: recognize that in so far the Biden administration is just
Speaker 1: kind of skirting around the edges, you know, throwing a
Speaker 1: few darts at Facebook. This, This won't do it. We'll
Speaker 1: continue this conversation. Dr Hotez, thank you so much for
Speaker 1: briefing us this morning with the Baylor College and that
Speaker 1: School of Tropical Medicine. Peter oh Tis, let's head to
Speaker 1: Tokyo and start the conversation by talking about the Olympics
Speaker 1: and then ton we can move on from there Okay,
Speaker 1: John Making, my management chief global strategist, joins us. Right now, John,
Speaker 1: can you talk to me about the degree of excitement
Speaker 1: in the city you're in right now? Well, to be honest,
Speaker 1: the mood is pretty grumpy here because of the lockdown
Speaker 1: and all the trouble that's been affiliated with the Olympics,
Speaker 1: the two and throwing from various edicts that have been
Speaker 1: put out. But essentially a good number of people are
Speaker 1: quite happy it's happening, and of course the athletes are
Speaker 1: very happy it's happening. And thank goodness that Japan was
Speaker 1: able to uh have the Olympics here. I don't think
Speaker 1: anyone else really could have done it, to be honest,
Speaker 1: at this stage, um, so it will be quite safe
Speaker 1: and secure. All the Olympics activities are happening in a
Speaker 1: bubble here, and a lot of people will be happy
Speaker 1: when it's over. To be honest, here, and I think
Speaker 1: you might be one of them. I've got to site
Speaker 1: tell that John Foud doesn't sound thrilled about what's about
Speaker 1: type place in his city, and that is the mood here,
Speaker 1: to be honest. Uh, if you're watching on TV, it's fun, um,
Speaker 1: but there is a sense of of skepticism about the
Speaker 1: whole thing. Here has been a sort of a burden
Speaker 1: for Japan and it's caused a lot of bad feelings
Speaker 1: to a nation. John Vale, were symbolism is everything. Is
Speaker 1: the Emperor engaged with the Olympics. Is the Prime Minister
Speaker 1: engaged with the Olympics. Yes, they are. They will be
Speaker 1: at the opening ceremonies, although a lot of people have
Speaker 1: dropped out, to be honest, like former Prime Minister All
Speaker 1: they dropped out, and I think that there's only about
Speaker 1: close to two hundred people from Japan who will be
Speaker 1: attending the opening ceremony, so it's very pared down. I
Speaker 1: think there's about six hundred or seven hundred foreigners who
Speaker 1: will be at it, so very pared That's amazing, John Farrell,
Speaker 1: I'm so are your entourage just two people? That's incredible.
Speaker 1: We couldn't go to the Olympics this year. I'm afraid
Speaker 1: till we couldn't make it. Do you want to talk
Speaker 1: about markets, John's we do that right now. Let's take
Speaker 1: a bit hard away from something that's clearly upset. This
Speaker 1: is no good security. Tom Equity features up twenty on
Speaker 1: the SMP We're advancing a half of one percent, John,
Speaker 1: it just feels really difficult to push back against this market.
Speaker 1: Even with the bond market doing what it's done this week,
Speaker 1: equities were still doing okay. The drawdown was what two
Speaker 1: three four percentage points on the SMP. What is the
Speaker 1: bear case now through this year? Well, I guess you
Speaker 1: had to look at what Tom was saying earlier. There
Speaker 1: might be a surprise out of the third It seems
Speaker 1: like there are some very uh hawkish members who might
Speaker 1: descend at the next meeting. Um. There's also the question
Speaker 1: about who's going to be chairman going forward, and that's
Speaker 1: much more important than when the FED starts tapering. And
Speaker 1: of course Powell has the job if he wants to.
Speaker 1: But if he wants it, I think, but I think
Speaker 1: there's a chance that he might say, well, I've I've
Speaker 1: done enough and retired before things get any harrier. So
Speaker 1: that could cause them uncertainty. But it certainly doesn't seem
Speaker 1: like it's gonna be earnings, doesn't. I mean, because I'm
Speaker 1: glad I'm not an analyst in the States. I mean,
Speaker 1: it's just embarrassing how how how much these companies are
Speaker 1: overshooting analysts estimates, isn't it? John? The backdrop, of course
Speaker 1: of all of this is a ten year at one
Speaker 1: nine and it was Nico Lami and PIMCO last hour
Speaker 1: saying half of it is some of the positioning and
Speaker 1: the technicals, but some of it really is fundamental, is
Speaker 1: slowing down concerns about the delta. What do you think, Well,
Speaker 1: I think it is a combination of a lot of things.
Speaker 1: I think there's a lot of foreign buying too, maybe
Speaker 1: especially from Japan. The data showed a lot of buying
Speaker 1: by Japanese banks, and I believe it was in June,
Speaker 1: and so there's certainly a lot of different factors going on.
Speaker 1: And people are really believed the Fed when they say
Speaker 1: that the CPI is going to be coming down. There's
Speaker 1: a boatload of money out there that needs some place
Speaker 1: to to be, and so they like to They like
Speaker 1: to be in treasuries. They were almost regardless of the price.
Speaker 1: It seems it's certainly better than European yields in Japanese yields.
Speaker 1: Jon Vale, in the Western world, you're one of the
Speaker 1: great japan watchers. When you hear the word Japanification, the
Speaker 1: Japanification of Europe, the Japanification of the United States, is
Speaker 1: that a genuine concept for you. I go back and
Speaker 1: forth on that, to be honest a little bit. Uh. Japanification, Um,
Speaker 1: certainly in terms of the economy is not happening to
Speaker 1: the US economy. I mean, the Japan's economy has been
Speaker 1: quite dull for quite some time. The U. S economy
Speaker 1: is bounced back strongly and inflation is back strong. Uh.
Speaker 1: You know, Japan has been suffering from deflation or no inflation,
Speaker 1: as I called for for decades now, and that's not
Speaker 1: happening in the States. So there's some aspects that certainly
Speaker 1: can happen. Certainly, the debt burden that's going up in
Speaker 1: in the States is a former Japanification. And perhaps some
Speaker 1: of the the the attitudes about how society works is
Speaker 1: moving a little bit more Japan's way, a little bit
Speaker 1: more of the polite of version of society is opposed
Speaker 1: to the aggressive side. So there are aspects. Um. Certainly,
Speaker 1: Japan has led the way in terms of monterary policy
Speaker 1: and started QUEI started negative rights, all these things. So uh,
Speaker 1: certainly Japan has some examples to uh to show the
Speaker 1: rest of the world, for better for worse. Sometimes I'm
Speaker 1: stuck down there, stuck down there for a long time.
Speaker 1: John is gonna catch up. Good luck for the following month,
Speaker 1: John fail then Nick as a management chief global strategist.
Speaker 1: Right now a really important conversation and an appropriate conversation
Speaker 1: for summer long ago and far away. Carl Brunner and
Speaker 1: Alan Meltzer set up summer conferences. I will be direct.
Speaker 1: They invented the economic summer conferences, and the truths of
Speaker 1: that has been the shadow Open Market Committee of which
Speaker 1: Mickey Levy has been a member for near forty years.
Speaker 1: He of Bank of America now at Barrenberg Capital Markets
Speaker 1: is their chief economists. We are thrilled that Dr Levy
Speaker 1: could join us this morning. Mickey. There has to be
Speaker 1: a fear, a singular fear of the many shadows of
Speaker 1: our debt and our deficit. Except life seems great. How
Speaker 1: is that? It's it's really quite striking how the public,
Speaker 1: the financial media, and financial markets seem to be ignoring
Speaker 1: the dramatic increases in the debt and not really questioning
Speaker 1: what its consequences are. Particularly Tom, it's not just the
Speaker 1: piling up of the debt, but but it's also what
Speaker 1: are we deficit spending for? Are we allocating resources in
Speaker 1: a way that's adding to UM, you know, productive capacity
Speaker 1: and UM, you know, I think let's let's be get
Speaker 1: down to basics. One way or another, we in future
Speaker 1: generations are going to pay for it. Um. We used
Speaker 1: to think it was all going to generate higher inflation
Speaker 1: and higher interest rates. It hasn't. That doesn't mean it's good.
Speaker 1: Once again, it gets the point, how are you allocating
Speaker 1: national resources? And um, you know it's going to lead
Speaker 1: to to slower growth in the long run. What would
Speaker 1: call Bruner and Allen Meltzer say about the two America's
Speaker 1: we've we've been dealt not only off the financial crisis
Speaker 1: of two thousand and eight, of which you are in
Speaker 1: the cross airs, but also this natural disaster we have.
Speaker 1: What would Brunner and Meltzer say would be a prescription
Speaker 1: across all of economics to get us out of this mess? Okay,
Speaker 1: One thing they would say is coming out of the
Speaker 1: current situation, the pandemic. Um. The economic situation is completely
Speaker 1: the opposite of coming out of the financial crisis. Um.
Speaker 1: It was the proper role of the government to provide
Speaker 1: income support during the pandemic, but now you don't need
Speaker 1: any more fiscal stimulus. You've already rebounded back, and you
Speaker 1: need to um move back to normal, both in monetary
Speaker 1: policy and fiscal policy. On fiscal policy, they would completely
Speaker 1: agree with the notion that you need to allocate more
Speaker 1: resources to infrastructure that is that is really needed, but
Speaker 1: but not more to stimulating the economy, which is not needed. Mackey,
Speaker 1: you want us to focus on the dead pole, So
Speaker 1: let's do that right now. Why is it a mess
Speaker 1: to you? What is messy about it? Well? I I
Speaker 1: wish our policy leaders were actually um debating the issues
Speaker 1: in a rational way. All we hear about is the
Speaker 1: number a trillion dollars for the infrastructure package. Also, the
Speaker 1: infrastructure package, please note, is called the American Jobs Act.
Speaker 1: It should be called the Infrastructure Act with an emphasis
Speaker 1: on infrastructure rather than creating jobs. Um. There is little
Speaker 1: discussion at all about how the resources are going to
Speaker 1: be allocated, who's going to administer the projects, what projects
Speaker 1: are needed. That is, we should really be thinking strategically
Speaker 1: about how to upgrade and improve our infrastructure. Also, as
Speaker 1: you've noted, the Infrastructure initiative, the American Jobs Act is
Speaker 1: being tied politically to the American Famili's Plan Act which
Speaker 1: involves a couple of trillion dollars in various income support programs,
Speaker 1: and holding that hostage to more fiscal stimulus is just
Speaker 1: not constructive. And so we need to disentang the legislation
Speaker 1: and have our policymakers address what is really needed at
Speaker 1: this time. We do not need more fiscal stimulus to
Speaker 1: create stronger economic growth. Where are That's that's the old battle.
Speaker 1: So I'm making your issue that is not the additional
Speaker 1: dollar of debt. It's what that additional dollar debt of
Speaker 1: debt is being useful. Is that affect how of your position? Oh?
Speaker 1: I think it's a combination. I mean, you know, whenever
Speaker 1: you have the government debt to GDP rising above a
Speaker 1: hundred um, you should be concerned. You should be also
Speaker 1: be concerned when the Secretary of the Treasury says, oh um,
Speaker 1: the FETE is keeping great to zero, so now is
Speaker 1: the time to spend more. That's not wise strategic thinking.
Speaker 1: So I'm concerned about the rise in the debt per se,
Speaker 1: but I'm also very concerned about how what we're deaf
Speaker 1: is spending for and does that quote unquote paved the
Speaker 1: road for increasing productive capacity in the long run, because
Speaker 1: it's the continued increase in growth in the future that
Speaker 1: allows us to UH finance or debt the debt service
Speaker 1: and also raise standards of living. Why isn't all the
Speaker 1: spending leading to inflation? Well, it will, I mean the risks, Uh,
Speaker 1: the risks are inflation is going to go up. So
Speaker 1: let me put in a nutshell. Inflation has already risen
Speaker 1: significantly higher than the FED has had earlier predicted it would. Um. Certainly, UM.
Speaker 1: Some portion of the rise in inflation is temporary, as
Speaker 1: these supplied constraints and and and supply bottlenecks dissipate. However,
Speaker 1: you do see an excel. You have seen an acceleration
Speaker 1: of aggregate demand. Okay, Now the critical issue is after
Speaker 1: this initial spurt in economic growth fall as the economy reopens.
Speaker 1: Following that, if all of the monetary and fiscal stimulus
Speaker 1: and the pipeline, which is unprecedented, if it actually if
Speaker 1: those policies actually stimulate stronger aggregate demand as they are
Speaker 1: supposed to, then you're gonna end out with excess demand.
Speaker 1: And if those policies fail to work, um, then you're
Speaker 1: gonna have the economy go back to where it was.
Speaker 1: And most of the inflation will prove to be temporary.
Speaker 1: You know. The critical point is the risks are for
Speaker 1: inflation to rise. And there's no question but that the
Speaker 1: higher inflation hurts lower income people than most. And and
Speaker 1: what the Fed is doing is is it's really accentuating
Speaker 1: income and wealth inequality, stimulating the economy because of the time.
Speaker 1: I want to get you in trouble with Barenburg in Germany.
Speaker 1: Tell me about the new Bundesbank from where you sit
Speaker 1: and after watching Le Guard yesterday and the revolution of
Speaker 1: the e c B, is this a new Bundesbank compared
Speaker 1: to a decade ago? Of course it is. UM, It's
Speaker 1: it's uh. You know, the the e c B. You
Speaker 1: know when it when it was founded, was you know,
Speaker 1: was you know, the Bundesbank was in the driver's seat
Speaker 1: and UM it held to its old precept of stable
Speaker 1: money and stable price levels. And and now the e
Speaker 1: c B is UM it's in an awkward situation, but
Speaker 1: it's all about UM, you know, financial stability and continuing
Speaker 1: to ease and continuing to have its eye out on
Speaker 1: the weak links in in the European Union. UM that
Speaker 1: means continuing with its qui and negative rates and so yes,
Speaker 1: and of course under under Leguard they've expanded the scope
Speaker 1: of the objectives of the ECB to include um, you know,
Speaker 1: climate change, some some credit and distributional issues. So so yes,
Speaker 1: it's it's it's it's a different policy making body than
Speaker 1: than it used to be. Mickey, it's gonna catch up
Speaker 1: just to flight for the heritage of Baronberg. That with
Speaker 1: Mickey Lafey and Hulgus Smathing on the other side of
Speaker 1: the Atlantic, Mickey Laby that of Barenberg. This is the
Speaker 1: Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays
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Speaker 1: Tom Keene and this is Bloomberg