1 00:00:13,240 --> 00:00:16,720 Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast. 2 00:00:16,760 --> 00:00:21,919 Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't all Joe? Do 3 00:00:22,000 --> 00:00:26,320 Speaker 1: you remember you wrote something? I'm guessing it was a 4 00:00:26,400 --> 00:00:29,480 Speaker 1: year or two ago, but you basically wrote about how 5 00:00:29,680 --> 00:00:34,320 Speaker 1: finance was sort of ground zero for deglobalization and a 6 00:00:34,400 --> 00:00:38,320 Speaker 1: trade war. Do you remember that. I don't remember the 7 00:00:38,360 --> 00:00:41,279 Speaker 1: specific thing per se that you're talking about, but I 8 00:00:41,320 --> 00:00:45,120 Speaker 1: feel like this has been a reoccurring theme for us 9 00:00:45,240 --> 00:00:48,360 Speaker 1: and a couple of things I've written and you've written 10 00:00:48,400 --> 00:00:52,800 Speaker 1: for a while now, thinking about like just this idea 11 00:00:52,880 --> 00:00:56,680 Speaker 1: that if the world is going to deglobalize, and arguably 12 00:00:56,760 --> 00:01:00,440 Speaker 1: it is an arguably President Trump, that's part of his mission, 13 00:01:01,080 --> 00:01:06,840 Speaker 1: that finance might be really where you see it emerged first, right, 14 00:01:07,040 --> 00:01:09,680 Speaker 1: Because I think what tends to happen when people talk 15 00:01:09,840 --> 00:01:13,440 Speaker 1: about trade tensions or a trade war is people start 16 00:01:13,480 --> 00:01:18,160 Speaker 1: thinking about tangible goods, you know, like semiconductors and chips 17 00:01:18,280 --> 00:01:21,280 Speaker 1: and I don't know all sorts of commodities, but people 18 00:01:21,400 --> 00:01:24,360 Speaker 1: rarely actually stop and think that, well, all that global 19 00:01:24,400 --> 00:01:29,560 Speaker 1: trade is something that is being financed by someone, and 20 00:01:29,600 --> 00:01:34,319 Speaker 1: the financiers in this case are financial institutions or large banks, 21 00:01:34,319 --> 00:01:36,000 Speaker 1: and so it would make a lot of sense if 22 00:01:36,040 --> 00:01:39,880 Speaker 1: they also get hit by the trade tensions. Absolutely, And 23 00:01:39,920 --> 00:01:42,480 Speaker 1: if you look at the history of finance, and I 24 00:01:42,480 --> 00:01:45,480 Speaker 1: remember this is something we talked about years ago on 25 00:01:45,520 --> 00:01:49,840 Speaker 1: the podcast I think we're talking to Emmanuel Derman. If 26 00:01:49,880 --> 00:01:53,240 Speaker 1: you look at the history of finance, so much of 27 00:01:53,280 --> 00:01:57,800 Speaker 1: it corresponds to globalization and even the sort of explosion 28 00:01:58,120 --> 00:02:03,160 Speaker 1: of derivatives and other measures designed to hedge risk. A 29 00:02:03,200 --> 00:02:05,760 Speaker 1: lot of it is designed to sort of mitigate the 30 00:02:05,840 --> 00:02:10,320 Speaker 1: risk of trading across to different countries with different currencies 31 00:02:10,360 --> 00:02:13,360 Speaker 1: and so forth. So you really you can't talk about 32 00:02:13,400 --> 00:02:17,400 Speaker 1: globalization without talking about all these instruments that have been 33 00:02:17,400 --> 00:02:20,680 Speaker 1: built up by Wall Street banks. Very true, and you 34 00:02:20,720 --> 00:02:24,160 Speaker 1: mentioned currencies just then. And the interesting thing is that 35 00:02:24,240 --> 00:02:27,480 Speaker 1: even though we're talking about global trade and cross border 36 00:02:27,560 --> 00:02:31,720 Speaker 1: financial transactions, of course the vast majority of these are 37 00:02:31,760 --> 00:02:35,360 Speaker 1: still denominated in the U. S. Dollars. So you have 38 00:02:35,520 --> 00:02:41,680 Speaker 1: this weird sort of space where things are happening between countries, 39 00:02:41,800 --> 00:02:46,160 Speaker 1: between all these different entities, companies and banks, but many 40 00:02:46,200 --> 00:02:49,920 Speaker 1: of the transactions are dollar denominated. And of course what 41 00:02:50,040 --> 00:02:53,640 Speaker 1: we've seen recently has been about of US dollar strength, 42 00:02:53,800 --> 00:02:56,720 Speaker 1: and the speculation has been that that has added to 43 00:02:56,919 --> 00:02:59,760 Speaker 1: the pain of the trade war, at least up until 44 00:02:59,760 --> 00:03:03,400 Speaker 1: rec on link. Yeah, there's a lot of different substories 45 00:03:03,440 --> 00:03:06,040 Speaker 1: going on right now with the trade war with actions 46 00:03:06,080 --> 00:03:09,680 Speaker 1: taken by the Trump administration. One of them that hasn't 47 00:03:09,720 --> 00:03:12,920 Speaker 1: got a ton of attention is whether any of this 48 00:03:13,280 --> 00:03:17,240 Speaker 1: is going to eventually contribute to the undollarization of the 49 00:03:17,280 --> 00:03:20,280 Speaker 1: global economy, because people have been predicting that for a 50 00:03:20,320 --> 00:03:26,200 Speaker 1: long time that maybe somehow global different trading partners might 51 00:03:26,280 --> 00:03:29,840 Speaker 1: find an opportunity to come off the dollar, but nothing 52 00:03:29,919 --> 00:03:32,560 Speaker 1: really has even come close to emerging that would actually 53 00:03:32,960 --> 00:03:36,280 Speaker 1: replace the dollar. The Euro has flaws, the Chinese, you 54 00:03:36,440 --> 00:03:38,880 Speaker 1: n for obvious reasons, is not in a position to 55 00:03:39,280 --> 00:03:42,960 Speaker 1: really replace it. But with the various actions that the 56 00:03:43,000 --> 00:03:47,960 Speaker 1: Trump administration has taken, obviously people wondering if there will 57 00:03:47,960 --> 00:03:50,600 Speaker 1: be a renewed effort on part of various actors to 58 00:03:50,960 --> 00:03:53,880 Speaker 1: get out of the dollar system, so to speak. Right, 59 00:03:54,000 --> 00:03:56,600 Speaker 1: and even if there isn't a push to replace the 60 00:03:56,680 --> 00:03:59,839 Speaker 1: dollar in some way, you can imagine that there will 61 00:03:59,880 --> 00:04:02,800 Speaker 1: be renewed focus on the potential for a currency war, 62 00:04:02,960 --> 00:04:07,040 Speaker 1: right devaluations to sort of increase your competitiveness when it 63 00:04:07,040 --> 00:04:09,680 Speaker 1: comes to trade, so that seems to be the minimum. Anyway. 64 00:04:10,400 --> 00:04:14,920 Speaker 1: The reason this intro is slightly disjointed is because we 65 00:04:14,960 --> 00:04:18,119 Speaker 1: have a guest on today who not only can talk 66 00:04:18,160 --> 00:04:22,640 Speaker 1: about everything from trade to cross border flows to currency regimes, 67 00:04:22,640 --> 00:04:28,000 Speaker 1: but pretty much anything else cryptocurrency, financial stability, big tech, 68 00:04:28,760 --> 00:04:34,479 Speaker 1: credit markets, overheating, you name it, he can talk about it. Yeah, exactly. 69 00:04:34,520 --> 00:04:37,560 Speaker 1: So like we have this really unwieldy intro touching on 70 00:04:37,640 --> 00:04:42,440 Speaker 1: all these things because our guest is so unusual and 71 00:04:42,560 --> 00:04:47,000 Speaker 1: unique in his ability to pull together and cover all 72 00:04:47,040 --> 00:04:49,880 Speaker 1: these uh, all these different strands of what's going on 73 00:04:50,040 --> 00:04:53,320 Speaker 1: in world financial markets, in the economy. Exactly. We're going 74 00:04:53,360 --> 00:04:54,960 Speaker 1: to see if we can narrow it down a bit, 75 00:04:55,040 --> 00:04:58,960 Speaker 1: but without further ado. Our guest for today is hyun 76 00:04:59,120 --> 00:05:03,040 Speaker 1: Sung Shin. He is economic advisor and head of research 77 00:05:03,200 --> 00:05:07,400 Speaker 1: for the Bank for International Settlements and uh, if you 78 00:05:07,440 --> 00:05:10,400 Speaker 1: haven't been following his research already, I highly encourage you 79 00:05:10,440 --> 00:05:12,760 Speaker 1: to do so. Ken, it's so nice to have you 80 00:05:12,800 --> 00:05:16,200 Speaker 1: on the show. But Tracy, hello, Joe, it's good to 81 00:05:16,240 --> 00:05:22,120 Speaker 1: be here. Hello. So apologies again for that unwieldy intro, 82 00:05:22,480 --> 00:05:25,600 Speaker 1: but I think it does speak to the breadth of 83 00:05:25,640 --> 00:05:28,560 Speaker 1: your research, which is really wide and varied. Could you 84 00:05:28,600 --> 00:05:31,159 Speaker 1: maybe just to begin with give us a sort of 85 00:05:31,200 --> 00:05:34,440 Speaker 1: rundown of what your mandate actually is at the b 86 00:05:34,560 --> 00:05:37,920 Speaker 1: I S. Yeah, I mean the b I S, as 87 00:05:37,960 --> 00:05:41,800 Speaker 1: you know, is the oldest international financial institution we were 88 00:05:41,839 --> 00:05:48,320 Speaker 1: set up in It's a body to foster the cooperation 89 00:05:48,360 --> 00:05:52,760 Speaker 1: among central banks. We have around sixty member central banks 90 00:05:53,600 --> 00:05:57,440 Speaker 1: and I'll task us to um IS to focus those discussions, 91 00:05:57,480 --> 00:06:01,760 Speaker 1: help to facilitate cooperation among the central banks, both for 92 00:06:01,839 --> 00:06:06,520 Speaker 1: monetary policy and for financial stability. We also host many 93 00:06:06,560 --> 00:06:11,800 Speaker 1: of the international regulatory committees that that oversee some of 94 00:06:11,839 --> 00:06:15,360 Speaker 1: the discussions, like the Basel Committee and the Financial Stability Board. 95 00:06:16,000 --> 00:06:18,479 Speaker 1: It tell us about your role there because you the 96 00:06:18,520 --> 00:06:20,640 Speaker 1: b I S puts out quite a bit of research. 97 00:06:20,960 --> 00:06:23,680 Speaker 1: You put out quite a bit of research. What is 98 00:06:23,720 --> 00:06:27,440 Speaker 1: the sort of overarching goal of what you're pursuing with 99 00:06:27,480 --> 00:06:30,360 Speaker 1: the things you've been working on. You know, we're here 100 00:06:30,400 --> 00:06:33,640 Speaker 1: to serve central banks and how they conduct monetary policy 101 00:06:33,680 --> 00:06:36,880 Speaker 1: and also how they can serve as a guidians of 102 00:06:36,960 --> 00:06:39,599 Speaker 1: financial stability, and so you know this is this is 103 00:06:39,600 --> 00:06:42,359 Speaker 1: a very broad remit. As you can imagine so we 104 00:06:42,440 --> 00:06:44,960 Speaker 1: have to be you know, pretty broad in our approach. 105 00:06:45,040 --> 00:06:46,839 Speaker 1: You know, it's very kind of you too to be 106 00:06:46,880 --> 00:06:48,600 Speaker 1: so complimentary, but I think this is you know, we 107 00:06:48,680 --> 00:06:51,640 Speaker 1: regard this as being part of our job. And I 108 00:06:51,640 --> 00:06:55,480 Speaker 1: think you you give a very good introduction to where 109 00:06:55,480 --> 00:06:58,360 Speaker 1: we find ourselves in the in the global economy right now. 110 00:06:58,720 --> 00:07:01,760 Speaker 1: And we had a very strong thousand seventeen in global growth. 111 00:07:01,839 --> 00:07:05,240 Speaker 1: But since the middle of last year, we you know, 112 00:07:05,279 --> 00:07:08,280 Speaker 1: we had this slowdown which at first seemed like just 113 00:07:08,360 --> 00:07:11,120 Speaker 1: a reversion to the mean, but you know, it turned 114 00:07:11,160 --> 00:07:14,320 Speaker 1: into something a little bit more, something a little bit deeper, 115 00:07:14,640 --> 00:07:17,560 Speaker 1: where we saw the manufacturing and trade you know, contract 116 00:07:18,480 --> 00:07:23,680 Speaker 1: even as employment, you know, remains strong. Um and consumption 117 00:07:23,920 --> 00:07:29,440 Speaker 1: was was pretty strong, underpinned by the strong services sector. 118 00:07:29,640 --> 00:07:32,520 Speaker 1: And what we try and do is to try and 119 00:07:34,040 --> 00:07:37,040 Speaker 1: join the dots, and the dots actually could be in 120 00:07:37,200 --> 00:07:41,560 Speaker 1: somewhat unfamiliar places in terms of the standard way that 121 00:07:41,600 --> 00:07:45,400 Speaker 1: we classify, the way that we subdivide the different areas 122 00:07:45,400 --> 00:07:51,240 Speaker 1: of economics, and and I think trade, manufacturing, global growth 123 00:07:51,720 --> 00:07:56,040 Speaker 1: all turns out to be quite closely related to financial forces. 124 00:07:57,040 --> 00:08:00,400 Speaker 1: And I think here is where the where the currency 125 00:08:00,400 --> 00:08:02,840 Speaker 1: dimension comes in because it's it does seem from the 126 00:08:02,880 --> 00:08:07,840 Speaker 1: accumulated evidence that the that the broad dollar index has 127 00:08:07,880 --> 00:08:10,840 Speaker 1: something of the character of a of a barometer of 128 00:08:10,920 --> 00:08:15,640 Speaker 1: global risk appetite. Mhm. Right, So, in some of your 129 00:08:15,680 --> 00:08:19,560 Speaker 1: research before, you've actually published this really great chart that 130 00:08:19,640 --> 00:08:24,120 Speaker 1: basically shows when the dollar strengthens, trade kind of drops 131 00:08:24,160 --> 00:08:27,680 Speaker 1: and vice versa. Basically there's an inverse relationship between the 132 00:08:27,680 --> 00:08:30,920 Speaker 1: green back and global trade. Can you walk us through 133 00:08:30,960 --> 00:08:34,679 Speaker 1: exactly what's happening there and why does the dollar matter 134 00:08:34,800 --> 00:08:37,880 Speaker 1: so much when it comes to this particular issue. But 135 00:08:37,960 --> 00:08:40,360 Speaker 1: those of your listeners who are not perhaps familiar with 136 00:08:40,360 --> 00:08:43,199 Speaker 1: this chart, I would just point them to the speech 137 00:08:43,320 --> 00:08:48,280 Speaker 1: I gave in Berlin at the German Federal Minister of Finance. 138 00:08:48,440 --> 00:08:52,360 Speaker 1: This was in the middle of May. And you know, 139 00:08:52,400 --> 00:08:56,760 Speaker 1: if we chart the ratio of global exports to global GDP, 140 00:08:57,640 --> 00:09:00,079 Speaker 1: that displays a very interesting pattern. And that ratio is 141 00:09:00,120 --> 00:09:03,120 Speaker 1: a very interesting ratio because you know, trade is measured 142 00:09:03,120 --> 00:09:07,079 Speaker 1: on a growth basis, in that you know, whenever shipments 143 00:09:07,520 --> 00:09:09,839 Speaker 1: across the border, you can just tally it all up 144 00:09:10,360 --> 00:09:12,400 Speaker 1: and it's measured in gross terms, and that you don't 145 00:09:12,760 --> 00:09:16,200 Speaker 1: take into account the fact that some of the inputs 146 00:09:16,240 --> 00:09:21,760 Speaker 1: into the exports were actually themselves imported. Whereas GDP is 147 00:09:21,920 --> 00:09:24,960 Speaker 1: a value added measure. It's you know, it measures what 148 00:09:25,080 --> 00:09:28,040 Speaker 1: is the total value of the goods produced as measured 149 00:09:28,040 --> 00:09:30,800 Speaker 1: by the final output. Right, So if you take that 150 00:09:30,960 --> 00:09:35,520 Speaker 1: ratio which is gross exports to GDP and you know, 151 00:09:35,559 --> 00:09:38,960 Speaker 1: we can sum it up to the global level, what 152 00:09:39,040 --> 00:09:41,880 Speaker 1: it gives you is the degree of double counting that 153 00:09:41,960 --> 00:09:44,840 Speaker 1: happens when we measure gross exports, and that you know, 154 00:09:44,880 --> 00:09:49,560 Speaker 1: if the same component is used for you know, as 155 00:09:49,600 --> 00:09:53,240 Speaker 1: an input into another intermediate good, and then that intermediate 156 00:09:53,240 --> 00:09:57,079 Speaker 1: good is exported into another country, which then gets processed 157 00:09:57,080 --> 00:10:01,160 Speaker 1: into a further intermediate good which is than exported. The 158 00:10:01,240 --> 00:10:05,560 Speaker 1: more times a particular component crosses the border, the larger 159 00:10:05,640 --> 00:10:09,800 Speaker 1: will be the disparity between you know, grows exports and GDP. 160 00:10:10,280 --> 00:10:13,120 Speaker 1: So you know, that ratio does fluctuate a lot, and 161 00:10:13,400 --> 00:10:18,040 Speaker 1: it's a useful proxy for the activity of global value chains. 162 00:10:18,080 --> 00:10:23,960 Speaker 1: So manufacturing has been the driver of global trade growth 163 00:10:24,120 --> 00:10:28,480 Speaker 1: in the last few decades, and within the manufacturing trade, 164 00:10:28,520 --> 00:10:31,040 Speaker 1: it's been the growth of the global value chains. It's 165 00:10:30,800 --> 00:10:34,160 Speaker 1: a it's a supply chains that have been very, very important, 166 00:10:34,480 --> 00:10:37,439 Speaker 1: and no country has been more important in this development 167 00:10:37,720 --> 00:10:40,360 Speaker 1: than China. In fact, China has emerged. If you look 168 00:10:40,400 --> 00:10:42,080 Speaker 1: at one of the charts in the in the in 169 00:10:42,120 --> 00:10:44,840 Speaker 1: the brilliant speech that I mentioned, that's a very striking 170 00:10:44,920 --> 00:10:49,480 Speaker 1: chart shows China going from somewhat of a small node 171 00:10:49,520 --> 00:10:51,840 Speaker 1: in the year two thousand before they entered the w 172 00:10:51,920 --> 00:10:56,120 Speaker 1: t O to really the the connecting lynchpin in the 173 00:10:56,120 --> 00:11:00,560 Speaker 1: global trading system. Now, what do you need to sustain 174 00:11:01,080 --> 00:11:03,840 Speaker 1: very elaborate global value chains like that. Well, for this 175 00:11:04,000 --> 00:11:07,439 Speaker 1: to actually work, what you need is all the intermediate 176 00:11:07,480 --> 00:11:12,960 Speaker 1: goods to be financed while they're in the intermediate good stage. 177 00:11:12,960 --> 00:11:14,520 Speaker 1: So if you look at the just think about a 178 00:11:14,520 --> 00:11:18,400 Speaker 1: corporate balance sheet when you have lots of intermediate goods 179 00:11:18,440 --> 00:11:21,079 Speaker 1: that are whizzing back and forth, I mean they all 180 00:11:21,160 --> 00:11:25,080 Speaker 1: be appearing either as inventories or they will be appearing 181 00:11:25,160 --> 00:11:27,960 Speaker 1: as accounts receivable. You know, if if that good has 182 00:11:28,000 --> 00:11:30,880 Speaker 1: crossed the boundary of the firm, and these are assets 183 00:11:30,920 --> 00:11:33,080 Speaker 1: of the firm which need to be financed somehow, and 184 00:11:33,120 --> 00:11:37,920 Speaker 1: typically they have been financed either through the firm's internal resources. 185 00:11:37,960 --> 00:11:40,200 Speaker 1: But what we know very well from other studies is 186 00:11:40,240 --> 00:11:43,240 Speaker 1: that the global banking system has been a very important 187 00:11:44,240 --> 00:11:48,640 Speaker 1: source of funding for the the short term assets that 188 00:11:48,640 --> 00:11:51,760 Speaker 1: that underpin the global value chain. And the other thing 189 00:11:51,760 --> 00:11:54,200 Speaker 1: that we know from the other studies, some of it, 190 00:11:54,520 --> 00:11:59,040 Speaker 1: you know you've already mentioned, is that financial conditions in 191 00:11:59,200 --> 00:12:03,800 Speaker 1: dollars and and the dollar exchange rate itself is very 192 00:12:03,840 --> 00:12:07,560 Speaker 1: closely correlated, and that when the dollar is strong, um 193 00:12:07,559 --> 00:12:10,559 Speaker 1: this is when dollar credit tends to be somewhat tight 194 00:12:11,000 --> 00:12:15,640 Speaker 1: and the funding conditions go up. The in particular cross 195 00:12:15,679 --> 00:12:19,439 Speaker 1: border element seems to be very sensitive. So if you 196 00:12:19,520 --> 00:12:22,120 Speaker 1: put two and two together and we combine it with 197 00:12:22,240 --> 00:12:26,160 Speaker 1: the prevalence of dollar invoicing, what we have is the 198 00:12:26,200 --> 00:12:30,439 Speaker 1: combination of the following fact that you need short term 199 00:12:30,440 --> 00:12:33,800 Speaker 1: assets to be financed in order to support global value chains. 200 00:12:34,600 --> 00:12:38,319 Speaker 1: You need the dollar financing to be rather free in 201 00:12:38,480 --> 00:12:42,599 Speaker 1: order for the dollar financing to support those short term assets, 202 00:12:42,720 --> 00:12:45,040 Speaker 1: and that means that you tend to see an expansion 203 00:12:45,080 --> 00:12:48,719 Speaker 1: of trade when the dollar financing conditions are more accommodative, 204 00:12:48,760 --> 00:12:52,760 Speaker 1: and that's when the dollar is weak. This ratio of 205 00:12:53,600 --> 00:12:58,800 Speaker 1: the global exports to global GDP tends to move in 206 00:12:58,840 --> 00:13:01,840 Speaker 1: the opposite direction uh to the strength of the dollar. 207 00:13:02,280 --> 00:13:06,240 Speaker 1: What one could reasonably conjecture about the events of two 208 00:13:06,320 --> 00:13:10,680 Speaker 1: thousand eighteen into the early part of two thousand nineteen, 209 00:13:10,840 --> 00:13:13,800 Speaker 1: is that this was indeed the period when you know, 210 00:13:13,840 --> 00:13:17,880 Speaker 1: we saw the dollar strengthened, and two thousand seventeen was 211 00:13:17,920 --> 00:13:21,000 Speaker 1: a was a year when the dollar was actually quite weak. 212 00:13:21,400 --> 00:13:24,560 Speaker 1: This was a period in spite of the fair increase 213 00:13:24,640 --> 00:13:28,720 Speaker 1: in its policy rate, we saw very accommodated financial conditions. Now, 214 00:13:29,280 --> 00:13:31,520 Speaker 1: it's I think important just to point out here that 215 00:13:31,760 --> 00:13:35,400 Speaker 1: the dollar is an endogenous variable. It's a financial market price. 216 00:13:35,520 --> 00:13:39,040 Speaker 1: So there isn't any particular causal story as to why 217 00:13:40,040 --> 00:13:42,640 Speaker 1: the dollar is strong and why you might actually get 218 00:13:42,679 --> 00:13:45,719 Speaker 1: these things going from the dollar to these other real variables. 219 00:13:45,760 --> 00:13:48,760 Speaker 1: But if you want a barometer, if you want a 220 00:13:49,600 --> 00:13:52,679 Speaker 1: concurrent indicator of what's going on, you cannot do much 221 00:13:52,720 --> 00:13:55,080 Speaker 1: better than to look at the value of the of 222 00:13:55,080 --> 00:13:58,559 Speaker 1: the broad dollar index. I mean that that was fantastic, 223 00:13:58,760 --> 00:14:01,320 Speaker 1: and that was just sort of a rate explanation of 224 00:14:01,480 --> 00:14:04,560 Speaker 1: what's going on. Actually pulled up your chart that you're 225 00:14:04,559 --> 00:14:08,240 Speaker 1: referring to while you were explaining it. And what's really 226 00:14:08,280 --> 00:14:13,280 Speaker 1: striking is, again we talk about deglobalization and the age 227 00:14:13,280 --> 00:14:15,920 Speaker 1: of Trump. But as you pointed out in your speech 228 00:14:15,960 --> 00:14:20,000 Speaker 1: and as the Church shows this ratio of world goods 229 00:14:20,040 --> 00:14:23,680 Speaker 1: exports to GDP has really been falling ever since two 230 00:14:23,680 --> 00:14:27,480 Speaker 1: thousand eleven. And in fact, if you even bigger picture, 231 00:14:27,520 --> 00:14:30,280 Speaker 1: what you see from your chart is that from two 232 00:14:30,320 --> 00:14:32,840 Speaker 1: thousand and one until about the start of the Great 233 00:14:32,880 --> 00:14:36,320 Speaker 1: Financial Crisis, trade as a percentage of GDP had been 234 00:14:36,360 --> 00:14:39,880 Speaker 1: going up. And that was also a period of significant 235 00:14:39,880 --> 00:14:42,760 Speaker 1: dollar weakness and a lot of angst about oh, is 236 00:14:42,800 --> 00:14:45,400 Speaker 1: there something the twin deficits and is the Euro get 237 00:14:45,400 --> 00:14:47,840 Speaker 1: to replace the dollar and all that stuff, And then 238 00:14:48,640 --> 00:14:51,800 Speaker 1: after the Great Financial Crisis you see a brief jump 239 00:14:51,920 --> 00:14:56,040 Speaker 1: in a world trade that ratio, but then it's declining. So, 240 00:14:56,080 --> 00:14:58,760 Speaker 1: as you point out, the dollar itself is not the 241 00:14:58,920 --> 00:15:03,800 Speaker 1: causal variable, say it's a concurrent, it's endogenous. What is 242 00:15:03,880 --> 00:15:10,200 Speaker 1: the story then that explains some of this deglobalization trend 243 00:15:10,680 --> 00:15:15,600 Speaker 1: since the early aftermath of the Great Financial Crisis, or 244 00:15:15,640 --> 00:15:21,240 Speaker 1: what might be some of the explanatory factors. Yes, Joe, 245 00:15:21,280 --> 00:15:23,280 Speaker 1: I think that's so. That's a very good observation. And 246 00:15:24,520 --> 00:15:27,880 Speaker 1: you know, for the for your listeners, the charts only 247 00:15:27,920 --> 00:15:30,320 Speaker 1: plotted from the year two thousand. If you extend that 248 00:15:30,440 --> 00:15:32,800 Speaker 1: back further, of course, you know there was a golden 249 00:15:32,840 --> 00:15:38,640 Speaker 1: age of globalization when trade to GDP rose tremendously over 250 00:15:38,680 --> 00:15:41,360 Speaker 1: a very very long time. So I think that's probably 251 00:15:41,680 --> 00:15:43,760 Speaker 1: you know, the over the longer horizon if we go 252 00:15:43,840 --> 00:15:47,920 Speaker 1: back to the seventies, eighties, and nineties, and the golden 253 00:15:47,920 --> 00:15:50,480 Speaker 1: age of globalization was the was the late eighties and 254 00:15:50,560 --> 00:15:53,520 Speaker 1: the nineteen nineties, that's probably much more to do with 255 00:15:53,920 --> 00:15:57,760 Speaker 1: liberalization to you know, these longer range forces. But the 256 00:15:58,040 --> 00:16:01,440 Speaker 1: but the period from two thousands three up to the crisis, 257 00:16:02,360 --> 00:16:06,120 Speaker 1: that's probably better understood, as you say, in terms of 258 00:16:06,320 --> 00:16:09,400 Speaker 1: what was happening to the dollar, but in particular what 259 00:16:09,440 --> 00:16:12,360 Speaker 1: was happening to the banking sector and the ease with 260 00:16:12,440 --> 00:16:15,840 Speaker 1: which you know, you could get credit from the banks. 261 00:16:15,960 --> 00:16:18,200 Speaker 1: And you know, we we now know the full story 262 00:16:18,720 --> 00:16:21,000 Speaker 1: with the benefit of hindsight. That was a very very 263 00:16:21,040 --> 00:16:25,240 Speaker 1: special period. And what we've seen since the crisis is 264 00:16:25,280 --> 00:16:29,320 Speaker 1: the banking sector hasn't really been hasn't really recovered its 265 00:16:29,320 --> 00:16:32,160 Speaker 1: mojo if you like, they have been better capitalized. We 266 00:16:32,240 --> 00:16:35,200 Speaker 1: are now well over the crisis. But what's happened is 267 00:16:35,720 --> 00:16:39,680 Speaker 1: the environment, you know, financial environment in terms of the 268 00:16:39,720 --> 00:16:42,120 Speaker 1: slope of the yield curve, in terms of their interest 269 00:16:42,160 --> 00:16:46,360 Speaker 1: margins of the banks. That has been very far from 270 00:16:47,160 --> 00:16:51,120 Speaker 1: the story before the crisis, which was really very much 271 00:16:51,160 --> 00:16:54,760 Speaker 1: more conducive to the increase in leverage. The child itself 272 00:16:54,920 --> 00:16:57,360 Speaker 1: is is a very striking one because, as you say, 273 00:16:58,040 --> 00:17:03,760 Speaker 1: this ratio of exports to global GDP never really went 274 00:17:03,800 --> 00:17:06,720 Speaker 1: back to the pre crisis peak. It's been on this 275 00:17:06,920 --> 00:17:10,399 Speaker 1: downward trend since two thousand and eleven, with only a 276 00:17:10,440 --> 00:17:13,359 Speaker 1: brief respite in two thousand seventeen, which uh, you know, 277 00:17:13,800 --> 00:17:15,359 Speaker 1: turned out to be a little bit of a blit 278 00:17:15,640 --> 00:17:19,680 Speaker 1: um in in retrospect because this was particular period when 279 00:17:20,080 --> 00:17:38,480 Speaker 1: financial conditions were were looser. Tracy. You know, one other 280 00:17:38,520 --> 00:17:41,720 Speaker 1: thing that occurs to me looking at this chart of 281 00:17:42,000 --> 00:17:45,840 Speaker 1: global trade relative to g d P, it looks a 282 00:17:45,880 --> 00:17:48,320 Speaker 1: lot like a chart that you would get if you 283 00:17:48,760 --> 00:17:54,639 Speaker 1: plotted emerging market stock prices relative to developed market equities, 284 00:17:54,680 --> 00:17:57,480 Speaker 1: because that's one of those things where e ms did 285 00:17:57,480 --> 00:18:00,919 Speaker 1: great pre crisis, and then they massively outperformed in the 286 00:18:00,920 --> 00:18:03,600 Speaker 1: immediate aftermath of the crisis, but then they've just been 287 00:18:03,640 --> 00:18:08,040 Speaker 1: totally mediocre ever since then. So kind of a clue 288 00:18:08,080 --> 00:18:12,480 Speaker 1: perhaps too what drives em equities, right, and that sort 289 00:18:12,520 --> 00:18:15,160 Speaker 1: of gets back to that cross border dynamic. But um 290 00:18:15,240 --> 00:18:18,320 Speaker 1: here and I wanted to concentrate on on one thing, 291 00:18:18,359 --> 00:18:22,960 Speaker 1: which is I guess it's sort of expected that banks 292 00:18:23,200 --> 00:18:29,320 Speaker 1: play an outsized role in transmitting um financial conditions or 293 00:18:29,480 --> 00:18:32,159 Speaker 1: monetary policy to the rest of the world or the 294 00:18:32,200 --> 00:18:36,200 Speaker 1: real world, if you will. And I'm just wondering, given 295 00:18:36,240 --> 00:18:40,760 Speaker 1: that monetary policy has been so easy host two thousand eight, 296 00:18:40,880 --> 00:18:44,639 Speaker 1: and yet we've seen cross border lending sort of contract 297 00:18:45,000 --> 00:18:49,640 Speaker 1: or global trade contract by your measurement, does that mean 298 00:18:49,640 --> 00:18:54,639 Speaker 1: that the bank's transmission mechanism is effectively broken? Is banking 299 00:18:54,680 --> 00:18:57,760 Speaker 1: not doing what it's supposed to be doing. Asked to 300 00:18:57,760 --> 00:19:01,240 Speaker 1: whether financial conditions have been have been loose or tight, 301 00:19:01,320 --> 00:19:05,480 Speaker 1: I think it's it's very much. It has been very 302 00:19:05,520 --> 00:19:08,080 Speaker 1: accommodative in the sense that long term interest rates have 303 00:19:08,160 --> 00:19:12,040 Speaker 1: been low. This has been very conducive to the issuance 304 00:19:12,119 --> 00:19:16,800 Speaker 1: of fixed income instruments, especially corporate bonds. If we look 305 00:19:16,800 --> 00:19:21,840 Speaker 1: at the composition of of the increase in debt, it's 306 00:19:21,880 --> 00:19:24,840 Speaker 1: far less the liabilities of intermediary It's it's far less 307 00:19:24,840 --> 00:19:27,280 Speaker 1: bank lending that's been at the center of the story. 308 00:19:27,320 --> 00:19:31,479 Speaker 1: It's much more the issuance of long term instruments, long 309 00:19:31,600 --> 00:19:36,560 Speaker 1: term capital market instruments like corporate bonds. If you look 310 00:19:36,560 --> 00:19:39,520 Speaker 1: at one of the charts that in the in the speech, 311 00:19:39,520 --> 00:19:43,920 Speaker 1: what we see is that even as bank lending denominated 312 00:19:43,920 --> 00:19:47,400 Speaker 1: in dollars has really been quite weak since the crisis, 313 00:19:48,080 --> 00:19:51,119 Speaker 1: dollar denominated issuance of corporate bonds has been has been 314 00:19:51,200 --> 00:19:55,919 Speaker 1: very strong. Now for the purpose of supporting trade. The 315 00:19:55,920 --> 00:19:58,639 Speaker 1: problem is that, you know, trade relies very much on 316 00:19:58,680 --> 00:20:02,639 Speaker 1: the short term funding coming primarily from the banks, and 317 00:20:02,720 --> 00:20:05,680 Speaker 1: you know, as well as the firm's own own equity. 318 00:20:05,760 --> 00:20:09,600 Speaker 1: So you know, for a while, when balance sheets were 319 00:20:09,720 --> 00:20:13,879 Speaker 1: quite strong in the corporate sector, the weak bank lending 320 00:20:13,920 --> 00:20:17,960 Speaker 1: probably wasn't such a big break on on trade and 321 00:20:18,000 --> 00:20:21,119 Speaker 1: global value chain activity. But what we've seen is that 322 00:20:21,240 --> 00:20:26,600 Speaker 1: over time, especially in the emerging markets, especially firms in China, 323 00:20:27,440 --> 00:20:30,160 Speaker 1: there has been a lot of long term dead isssudants 324 00:20:30,240 --> 00:20:35,160 Speaker 1: by the non financial corporates. And so when you are 325 00:20:35,240 --> 00:20:39,000 Speaker 1: starting with already quite a leverage balance sheet and you 326 00:20:39,119 --> 00:20:42,520 Speaker 1: see conditions tightening, that is a very different story from 327 00:20:42,520 --> 00:20:45,760 Speaker 1: when you start with a pretty strong balance sheet and 328 00:20:45,840 --> 00:20:48,679 Speaker 1: you have a lot more internal resources that you can deploy, 329 00:20:48,920 --> 00:20:52,720 Speaker 1: and the banking sector really isn't anywhere there to give 330 00:20:52,760 --> 00:20:55,919 Speaker 1: you that support. So it's it's really the combination of 331 00:20:56,040 --> 00:21:02,040 Speaker 1: the banking sector still repairing, still somewhat to subdued because 332 00:21:02,080 --> 00:21:05,760 Speaker 1: of the of the very special yield cut conditions since 333 00:21:05,800 --> 00:21:09,560 Speaker 1: the crisis, together with the cumulated debts that have happened 334 00:21:09,600 --> 00:21:11,960 Speaker 1: since the crisis. And so what you've seen is that 335 00:21:12,160 --> 00:21:14,760 Speaker 1: you know, these things are coming to a head more recently. 336 00:21:14,960 --> 00:21:17,480 Speaker 1: I think that's the way that I would say. So 337 00:21:17,800 --> 00:21:21,119 Speaker 1: if you go back to the pre crisis era, obviously 338 00:21:21,280 --> 00:21:24,959 Speaker 1: we saw rapid expansion in global trade, which, as you 339 00:21:25,000 --> 00:21:29,159 Speaker 1: point out, was a period of easy lending and banks 340 00:21:29,160 --> 00:21:32,320 Speaker 1: being quite willing to finance things, but of course we 341 00:21:32,359 --> 00:21:36,640 Speaker 1: all know how that ended with a gigantic financial crisis 342 00:21:36,880 --> 00:21:40,679 Speaker 1: economic collapse. Is there a way to get back to 343 00:21:41,960 --> 00:21:46,760 Speaker 1: the pre crisis era from a trade perspective, in a 344 00:21:46,800 --> 00:21:49,960 Speaker 1: more sustainable manner, so we can actually see that line 345 00:21:50,000 --> 00:21:53,320 Speaker 1: turn up again for a while, but it not inevitably 346 00:21:53,640 --> 00:21:58,320 Speaker 1: lead towards disaster. What all this raises is the intriguing 347 00:21:58,400 --> 00:22:01,520 Speaker 1: possibility that you know, although we we like to make 348 00:22:01,560 --> 00:22:05,840 Speaker 1: this very sharp distinction between the real economy and the 349 00:22:05,920 --> 00:22:10,679 Speaker 1: financial markets, and then you know, think about excess is 350 00:22:10,680 --> 00:22:13,080 Speaker 1: only happening in the financial markets. Well, you know, there 351 00:22:13,359 --> 00:22:18,720 Speaker 1: there is a sense where some very very extended global 352 00:22:18,800 --> 00:22:22,760 Speaker 1: value chain structures may only be sustainable with really really 353 00:22:22,840 --> 00:22:26,720 Speaker 1: extraordinarily lose financial conditions. And so so if you like, 354 00:22:27,040 --> 00:22:30,320 Speaker 1: you know, there could be you know, bubble like features 355 00:22:30,400 --> 00:22:34,160 Speaker 1: of real activity as well if it's really very heavily extended. 356 00:22:34,280 --> 00:22:36,959 Speaker 1: And so we should think about you know, um, one 357 00:22:37,000 --> 00:22:39,080 Speaker 1: of the things that we emphasize here at the b 358 00:22:39,160 --> 00:22:44,280 Speaker 1: I S is long term sustainability. So what is sustainable 359 00:22:44,480 --> 00:22:48,679 Speaker 1: in the long term? What kind of economic activities are 360 00:22:48,720 --> 00:22:53,320 Speaker 1: resilient to to sharks, and and what can policymakers do 361 00:22:53,440 --> 00:22:55,840 Speaker 1: to bring these things about? So, I mean, those are 362 00:22:55,840 --> 00:22:58,600 Speaker 1: the things that we tend to focus on. We try 363 00:22:58,600 --> 00:23:01,600 Speaker 1: to have a longer term perspective on these things. And 364 00:23:01,359 --> 00:23:04,919 Speaker 1: and within that broad framework, you know, you could argue 365 00:23:05,080 --> 00:23:08,920 Speaker 1: that just pushing on the acceleator, just trying to extend 366 00:23:09,000 --> 00:23:12,080 Speaker 1: the global value chains further. You know, that may be 367 00:23:12,200 --> 00:23:16,159 Speaker 1: okay to boost the real quantities you know, in the 368 00:23:16,160 --> 00:23:19,280 Speaker 1: process of lengthening, but then you are setting yourself up 369 00:23:19,359 --> 00:23:24,120 Speaker 1: for a more you know, a sharp pullback when when 370 00:23:24,160 --> 00:23:28,120 Speaker 1: conditions tighten. Well, I wanted to sort of press on 371 00:23:28,160 --> 00:23:31,520 Speaker 1: this point because you mentioned that, you know, host two 372 00:23:31,520 --> 00:23:34,280 Speaker 1: thousand eight, a lot of this global financing is coming 373 00:23:34,280 --> 00:23:38,320 Speaker 1: in the form of bonds being issued by corporates rather 374 00:23:38,400 --> 00:23:41,680 Speaker 1: than your typical bank loans. But the thing that those 375 00:23:41,680 --> 00:23:45,080 Speaker 1: two things often have in common is their currency, so 376 00:23:45,200 --> 00:23:49,040 Speaker 1: all dollar denominated. And this gets back to Joe's emerging 377 00:23:49,040 --> 00:23:53,199 Speaker 1: market point as well. I'm just wondering how vulnerable do 378 00:23:53,240 --> 00:23:57,240 Speaker 1: you think the world economy is to a dollar liquidity 379 00:23:57,280 --> 00:24:00,560 Speaker 1: squeeze at this point. On that question, I think we 380 00:24:00,600 --> 00:24:05,040 Speaker 1: have to distinguish between the kinds of acute episodes that 381 00:24:05,080 --> 00:24:08,520 Speaker 1: we saw in the run up to the two eight crisis, 382 00:24:08,960 --> 00:24:12,679 Speaker 1: which have to do with very rapidly leveraging, very rapid 383 00:24:12,760 --> 00:24:17,880 Speaker 1: contraction of wholesale funding by banks and bank like intermediaries. 384 00:24:18,240 --> 00:24:20,960 Speaker 1: I mean, that was a very very sharp pullback, and 385 00:24:21,600 --> 00:24:24,199 Speaker 1: that was a very acute episode. I don't think we 386 00:24:24,320 --> 00:24:27,360 Speaker 1: have the same kind of vulnerabilities in the banking set 387 00:24:27,359 --> 00:24:29,440 Speaker 1: are right now. I mean, if anything, the banks have 388 00:24:29,560 --> 00:24:33,600 Speaker 1: been quite subdued as we have just talked about. But 389 00:24:34,040 --> 00:24:36,480 Speaker 1: in fact, the you know, the vulnerabilities, you know, they're 390 00:24:36,480 --> 00:24:39,439 Speaker 1: more you know, longer term, you feel like I mean 391 00:24:39,480 --> 00:24:43,240 Speaker 1: they have to do with the debts of non intermediate 392 00:24:43,320 --> 00:24:45,919 Speaker 1: non banks. You know, they're more chronic, if you like, 393 00:24:46,080 --> 00:24:49,399 Speaker 1: I mean they rather than acute. In in some countries, 394 00:24:49,840 --> 00:24:52,879 Speaker 1: especially those countries that didn't experience the worst of the 395 00:24:52,960 --> 00:24:57,040 Speaker 1: global financial crisis, the household debt has continued to rise. 396 00:24:57,520 --> 00:25:02,280 Speaker 1: House prices are now very high, Corporate debt is high 397 00:25:02,359 --> 00:25:06,720 Speaker 1: pretty much across the board, both advanced and emerging economies, 398 00:25:06,720 --> 00:25:10,439 Speaker 1: and so you know, those forces can act as a 399 00:25:10,480 --> 00:25:16,399 Speaker 1: break on potential stimulants towards really really economic activity. I mean, 400 00:25:16,400 --> 00:25:19,320 Speaker 1: there's a there's a limit to how much that households 401 00:25:19,359 --> 00:25:23,119 Speaker 1: would take on. You know, there may be you know, 402 00:25:23,200 --> 00:25:28,119 Speaker 1: limited room for further monetary policy tools to stimulate growth, 403 00:25:28,119 --> 00:25:30,520 Speaker 1: for example. So one of the things that we we 404 00:25:30,600 --> 00:25:33,600 Speaker 1: have been saying here this year is that, you know, 405 00:25:33,640 --> 00:25:37,080 Speaker 1: we need to have a more balanced mix of policy. 406 00:25:37,600 --> 00:25:41,640 Speaker 1: So rather than simply relying on just one engine monetary policy, 407 00:25:42,320 --> 00:25:44,399 Speaker 1: we have to think of this as a as a 408 00:25:44,480 --> 00:25:48,480 Speaker 1: jumper jet with with four engines. Right, So it's monetree policy. 409 00:25:49,119 --> 00:25:53,040 Speaker 1: But not only that, we have fiscal policy, macropodential frameworks, 410 00:25:53,840 --> 00:25:56,960 Speaker 1: and not last, but not least, you know, structural reforms 411 00:25:57,000 --> 00:26:00,720 Speaker 1: I mean, and structural reforms doesn't mean just cutting jobs 412 00:26:00,840 --> 00:26:03,320 Speaker 1: and the reducing work is protection. I think it's it's 413 00:26:03,320 --> 00:26:07,760 Speaker 1: more to do with finding ways to you know, reinvigorate 414 00:26:07,880 --> 00:26:11,880 Speaker 1: growth through very key you know, investments in key sectors. 415 00:26:12,640 --> 00:26:16,560 Speaker 1: And this of course is linked to the infrastructure investment 416 00:26:16,600 --> 00:26:19,000 Speaker 1: angle as well. So you know, things are certainly not 417 00:26:19,240 --> 00:26:24,080 Speaker 1: as precarious as they were in two thousand seven, but certainly, 418 00:26:24,119 --> 00:26:27,199 Speaker 1: you know, we haven't really seen uh, you know, the 419 00:26:27,240 --> 00:26:30,680 Speaker 1: return to vigorous growth that we would really ideally would 420 00:26:30,680 --> 00:26:34,639 Speaker 1: like to have seen by now. It's I think, you know, 421 00:26:34,680 --> 00:26:36,960 Speaker 1: to do our jobs better, we have to take a 422 00:26:36,960 --> 00:26:39,600 Speaker 1: step back and try and get the right diagnosis for this. 423 00:26:39,720 --> 00:26:42,520 Speaker 1: And and I think this is where these longer term 424 00:26:42,600 --> 00:26:47,240 Speaker 1: studies like you know, the trade to GDP, you know, 425 00:26:47,240 --> 00:26:49,800 Speaker 1: how the financial system is evolving. I think these are 426 00:26:50,520 --> 00:26:53,719 Speaker 1: longer term developments really important as kind of you know, 427 00:26:54,320 --> 00:26:59,120 Speaker 1: as the as the backdrop for our policy discussions. When 428 00:26:59,119 --> 00:27:02,159 Speaker 1: you talk about grow prudential tools as being one of 429 00:27:02,200 --> 00:27:06,400 Speaker 1: the engines to restimulate growth, what are you referring to specifically, 430 00:27:07,480 --> 00:27:11,800 Speaker 1: So you know, macroprudential frameworks have to do with ways 431 00:27:11,840 --> 00:27:17,199 Speaker 1: of complementing monetary policy so that the financial system is resilient, 432 00:27:17,680 --> 00:27:19,800 Speaker 1: that it can be that it can function in a 433 00:27:19,880 --> 00:27:22,879 Speaker 1: way that helps us to you know, route the benefits 434 00:27:22,880 --> 00:27:28,960 Speaker 1: of cheap financing conditions more broadly, but target the you know, 435 00:27:29,000 --> 00:27:32,600 Speaker 1: target those measures to those sectors or to those areas 436 00:27:32,640 --> 00:27:35,879 Speaker 1: where you know you'd expect the vulnerabilities to be to 437 00:27:35,960 --> 00:27:40,080 Speaker 1: be highest. So you know, if you're worried about FFX debt, 438 00:27:40,520 --> 00:27:45,000 Speaker 1: then regulations that are targeted to those sectors, you know, 439 00:27:45,040 --> 00:27:48,200 Speaker 1: maybe appropriate. If you're if you're worried about mortgages, you 440 00:27:48,240 --> 00:27:50,760 Speaker 1: know that maybe one other area. So it's not going 441 00:27:50,800 --> 00:27:52,639 Speaker 1: to be a magic bullet in the sense that you know, 442 00:27:52,680 --> 00:27:55,760 Speaker 1: this is not going to be you know, watertight, and 443 00:27:55,840 --> 00:27:58,879 Speaker 1: that it's going to be immune to circumvention and so on. 444 00:27:59,760 --> 00:28:04,240 Speaker 1: But nevertheless, you may be able to deal with you know, 445 00:28:04,280 --> 00:28:10,520 Speaker 1: emerging financial vulnerabilities without having to resort to monetary policy, 446 00:28:10,560 --> 00:28:13,080 Speaker 1: which will have a much broader impact. And so, you know, 447 00:28:13,119 --> 00:28:16,000 Speaker 1: together with fiscal policy. It's it's just one of the 448 00:28:16,200 --> 00:28:21,240 Speaker 1: various many tools that policy makers should be using. Right 449 00:28:21,359 --> 00:28:24,359 Speaker 1: So if you've spot risks building up in the system, 450 00:28:24,560 --> 00:28:27,800 Speaker 1: then the better tool to deal with those might not 451 00:28:27,920 --> 00:28:30,520 Speaker 1: be a sort of change in the benchmark policy rate 452 00:28:30,520 --> 00:28:32,800 Speaker 1: because that affects a bunch of things at the same time. 453 00:28:32,880 --> 00:28:37,200 Speaker 1: But maybe some sort of macro prudential limitation that would 454 00:28:37,240 --> 00:28:41,520 Speaker 1: target that specific area. So on that note, UM, I 455 00:28:41,560 --> 00:28:45,640 Speaker 1: gotta ask, do you think that policymakers have made enough 456 00:28:45,840 --> 00:28:48,680 Speaker 1: use of macro prudential tools in the years since the 457 00:28:48,720 --> 00:28:53,480 Speaker 1: financial crisis? And also have they done enough with macro 458 00:28:53,560 --> 00:28:57,360 Speaker 1: prudential tools specifically when it comes to the US and 459 00:28:57,440 --> 00:29:00,520 Speaker 1: its credit market. I mean, the answer to your question 460 00:29:00,640 --> 00:29:03,160 Speaker 1: is yes. I mean, there has been quite an extensive 461 00:29:03,640 --> 00:29:07,840 Speaker 1: move towards both putting on the books these policies to 462 00:29:07,880 --> 00:29:10,400 Speaker 1: be you know, to be wheeled out whenever necessary. But 463 00:29:10,400 --> 00:29:13,880 Speaker 1: the emerging markets have really you know led the way 464 00:29:13,960 --> 00:29:18,840 Speaker 1: they've shown advanced economies how these additional tools can be used. 465 00:29:18,880 --> 00:29:21,760 Speaker 1: And you know, in a way for the emerging markets, 466 00:29:21,760 --> 00:29:25,600 Speaker 1: there is nothing new under the sun with macroprudential instruments. 467 00:29:25,600 --> 00:29:27,800 Speaker 1: I mean, they are an apart and parcel of the 468 00:29:27,800 --> 00:29:31,240 Speaker 1: policy mix. You know, it now has this new shiny label, 469 00:29:31,360 --> 00:29:35,080 Speaker 1: but it's really old wine in new bottles. You know. 470 00:29:35,120 --> 00:29:38,120 Speaker 1: I think for the US, the use of the stress 471 00:29:38,160 --> 00:29:40,160 Speaker 1: tessel the banks. Um, you know that that's been a 472 00:29:40,240 --> 00:29:44,240 Speaker 1: very important tool. You know, the US having gone through 473 00:29:44,400 --> 00:29:46,640 Speaker 1: the very sharp crisis in two thousand and eight, two 474 00:29:46,640 --> 00:29:50,080 Speaker 1: thousand nine, it's one of those countries which, um, you know, 475 00:29:50,120 --> 00:29:52,960 Speaker 1: if you look at all the aggregate measures, looks you know, 476 00:29:53,040 --> 00:29:58,360 Speaker 1: probably in in UH in reasonably good shape because it's 477 00:29:58,560 --> 00:30:01,240 Speaker 1: the leverage of the banking sector is household debt is 478 00:30:01,240 --> 00:30:04,040 Speaker 1: pretty low, you know, the the you know, the corporate 479 00:30:04,040 --> 00:30:08,280 Speaker 1: sector like anywhere you has seen you know, great area 480 00:30:08,280 --> 00:30:10,320 Speaker 1: stitions of corporate debt. There is the there is a 481 00:30:10,400 --> 00:30:14,400 Speaker 1: leverage loan discussion, but on the whole, the US doesn't 482 00:30:14,440 --> 00:30:17,480 Speaker 1: seem you know, that badly placed, nor the you know, 483 00:30:17,480 --> 00:30:19,360 Speaker 1: nor the ur area. I think, if anything, the ural 484 00:30:19,480 --> 00:30:22,800 Speaker 1: area is UM is one of those areas what apart 485 00:30:22,880 --> 00:30:25,840 Speaker 1: from the very high sovereign debt levels it in terms 486 00:30:25,840 --> 00:30:28,480 Speaker 1: of household debt it is on the low side as well. 487 00:30:28,600 --> 00:30:31,800 Speaker 1: So I think we are in terms of the lessons 488 00:30:31,840 --> 00:30:34,360 Speaker 1: from two thousand and eight, UM, I think we you know, 489 00:30:34,400 --> 00:30:36,400 Speaker 1: we should never be complacent about this, but I don't 490 00:30:36,440 --> 00:30:39,920 Speaker 1: think we are in you nearly in as bad a 491 00:30:40,040 --> 00:30:42,400 Speaker 1: state as in two thousand and six, two thousand seven. 492 00:30:42,560 --> 00:30:45,120 Speaker 1: But having said all that, you know, we we know 493 00:30:45,280 --> 00:30:49,080 Speaker 1: that you know, these things never happen in exactly the 494 00:30:49,120 --> 00:30:51,440 Speaker 1: same way. And so I think this is where, you know, 495 00:30:51,480 --> 00:30:53,480 Speaker 1: clear thinking is needed. And I think this is where 496 00:30:53,920 --> 00:30:55,720 Speaker 1: you know, we need to sit around and be you know, 497 00:30:55,800 --> 00:31:00,360 Speaker 1: imaginative and just use our imagination as to what, uh, 498 00:31:00,400 --> 00:31:02,760 Speaker 1: you know, what might happen, and then just test those 499 00:31:02,960 --> 00:31:05,840 Speaker 1: conjectures uh and say you know, well, you know that's 500 00:31:05,880 --> 00:31:08,120 Speaker 1: a good story, but through the numbers, uh, you know, 501 00:31:08,160 --> 00:31:10,920 Speaker 1: actually actually back up your story. And so this is 502 00:31:10,960 --> 00:31:13,760 Speaker 1: what we do, uh pretty much has our day jobs here. 503 00:31:14,200 --> 00:31:17,080 Speaker 1: We um, we take these scenarios and we put them 504 00:31:17,080 --> 00:31:19,240 Speaker 1: through their paces, and I think this is the way 505 00:31:19,240 --> 00:31:21,640 Speaker 1: that we try and um, you know, come to a 506 00:31:22,080 --> 00:31:26,960 Speaker 1: more balanced few. So looking to the here and now, 507 00:31:27,000 --> 00:31:30,640 Speaker 1: and you talked about how in seventeen it looked like 508 00:31:30,720 --> 00:31:34,880 Speaker 1: the global economy was looking fairly robust. Then it started 509 00:31:34,920 --> 00:31:37,640 Speaker 1: slipping in early eighteen. It looked like it might just 510 00:31:37,680 --> 00:31:40,400 Speaker 1: be a sort of reversion to the mean, but then 511 00:31:40,680 --> 00:31:42,880 Speaker 1: it got a little deeper. It went a little longer 512 00:31:42,920 --> 00:31:48,680 Speaker 1: than just something temporary encyclical. Wide perception is now the 513 00:31:48,680 --> 00:31:52,280 Speaker 1: global economy is not doing that great, and we've recently 514 00:31:52,400 --> 00:31:56,240 Speaker 1: seen the federal reserve take a more dovish stance, pretty 515 00:31:56,280 --> 00:31:59,280 Speaker 1: much signaling the clear end of the raid hiking cycle 516 00:31:59,640 --> 00:32:02,320 Speaker 1: and the likely commencement of a rate cutting cycle or 517 00:32:02,320 --> 00:32:05,360 Speaker 1: at least some rate cuts. So in your view, sort 518 00:32:05,360 --> 00:32:08,440 Speaker 1: of what is the story of the last two years 519 00:32:08,440 --> 00:32:11,760 Speaker 1: and right now, like what explains why this downturn was 520 00:32:11,800 --> 00:32:16,640 Speaker 1: perhaps a little more deep than people expected. And is 521 00:32:16,720 --> 00:32:19,680 Speaker 1: this the start of a meaningful turn where the shift 522 00:32:19,720 --> 00:32:24,560 Speaker 1: and FED policy might reinvigorate the global economy or our 523 00:32:24,640 --> 00:32:27,840 Speaker 1: central bankers really just sort of trying to squeeze water 524 00:32:27,920 --> 00:32:31,160 Speaker 1: from a stone here with further easing from the ECB 525 00:32:31,320 --> 00:32:33,520 Speaker 1: and the FED, where you know, maybe you give a 526 00:32:33,520 --> 00:32:35,920 Speaker 1: little bit of a pop to financial markets, but at 527 00:32:35,920 --> 00:32:39,280 Speaker 1: this point we're just leaning way too heavily on one 528 00:32:39,280 --> 00:32:43,400 Speaker 1: of the four engines to do anything meaningful. Yeah, Joe, 529 00:32:43,480 --> 00:32:45,160 Speaker 1: that's a very good question. I wish I knew the 530 00:32:45,440 --> 00:32:48,400 Speaker 1: full answer to that, but I think, you know, if 531 00:32:48,440 --> 00:32:51,200 Speaker 1: we just look back over the last couple of years, uh, 532 00:32:51,240 --> 00:32:53,480 Speaker 1: In the two thousand seventeen was a very interesting year 533 00:32:53,520 --> 00:32:56,600 Speaker 1: because this was a year when on all accounts, the 534 00:32:56,680 --> 00:33:00,000 Speaker 1: FED was on its steady course in normalizing monetary policy. 535 00:33:00,040 --> 00:33:03,360 Speaker 1: See and yet the dollar is weak and financial conditions 536 00:33:03,360 --> 00:33:05,240 Speaker 1: were loosen, so there was no you know, one for 537 00:33:05,320 --> 00:33:09,280 Speaker 1: one relationship with the first monetary stance. I think that's, uh, 538 00:33:09,640 --> 00:33:14,000 Speaker 1: that's worth thinking about because that's also very useful in 539 00:33:14,080 --> 00:33:18,960 Speaker 1: thinking about why the first half of two thousand nineteen 540 00:33:19,720 --> 00:33:22,520 Speaker 1: has been pretty challenging, even though you know, over the 541 00:33:22,600 --> 00:33:24,800 Speaker 1: end of the year the Fed went on a more 542 00:33:24,880 --> 00:33:28,520 Speaker 1: patient you know, I went on a pause. Now. It's 543 00:33:28,600 --> 00:33:33,320 Speaker 1: it's true that the dollar has weakened, and you know 544 00:33:33,360 --> 00:33:36,560 Speaker 1: the biggest beneficiaries of that weakening have actually been emerging 545 00:33:36,600 --> 00:33:39,800 Speaker 1: market currency. So you know, if that trend were to continue, 546 00:33:40,600 --> 00:33:44,080 Speaker 1: and we think that the previous relationships are going to 547 00:33:44,160 --> 00:33:47,640 Speaker 1: reassert themselves, and you know, that should be a course 548 00:33:47,720 --> 00:33:52,440 Speaker 1: for some comfort. Now having said that, at every turn, uh, 549 00:33:53,040 --> 00:33:55,600 Speaker 1: you know, we are starting with a different stock, right, 550 00:33:55,680 --> 00:33:57,959 Speaker 1: so you know, stocks do change over time, and so 551 00:33:58,200 --> 00:34:01,160 Speaker 1: the same kind of push that would that would actually 552 00:34:01,160 --> 00:34:04,360 Speaker 1: push a small car may not have the same impact 553 00:34:04,480 --> 00:34:07,040 Speaker 1: you know, when when when it's fully laden and it's 554 00:34:07,040 --> 00:34:09,319 Speaker 1: a larger car. And so you know, I don't think 555 00:34:09,360 --> 00:34:13,640 Speaker 1: we can really say for sure, but as a you know, 556 00:34:13,719 --> 00:34:17,719 Speaker 1: as a market observer, as an economic commentator, who who 557 00:34:17,719 --> 00:34:20,360 Speaker 1: cares about the twists and turns of the global economy. 558 00:34:21,080 --> 00:34:23,560 Speaker 1: I think, you know, we could do far worse than 559 00:34:23,840 --> 00:34:26,920 Speaker 1: than track. You know how the dollar shifts visa via 560 00:34:26,920 --> 00:34:30,120 Speaker 1: the emerging market currencies, So so let's see how that 561 00:34:30,160 --> 00:34:36,000 Speaker 1: plays out. Well, it's been amazing having you on the program. 562 00:34:36,000 --> 00:34:38,160 Speaker 1: Thank you so much. I think we managed to hit 563 00:34:38,960 --> 00:34:41,680 Speaker 1: basically a lot of big topics in the short amount 564 00:34:41,680 --> 00:34:45,200 Speaker 1: of time. So thanks again, excellent, excellent, Thank you so much. 565 00:34:45,280 --> 00:35:01,359 Speaker 1: That was great. So Joe, I really and avoid that conversation. 566 00:35:01,560 --> 00:35:04,600 Speaker 1: And again, if I haven't said it already, Um Huan's 567 00:35:04,640 --> 00:35:08,600 Speaker 1: research work is really great and definitely worth reading. And 568 00:35:08,680 --> 00:35:11,080 Speaker 1: I think at this point he must have a library. 569 00:35:11,120 --> 00:35:13,400 Speaker 1: I mean I remember papers of his going back to 570 00:35:13,480 --> 00:35:16,200 Speaker 1: like two thousand eight, so he has this huge body 571 00:35:16,200 --> 00:35:19,120 Speaker 1: of work. I gotta say, it's pretty difficult to narrow 572 00:35:19,120 --> 00:35:22,800 Speaker 1: it down to a thirty minute podcast, but hey, we tried. 573 00:35:23,480 --> 00:35:25,600 Speaker 1: Can I just say there were two things that really 574 00:35:25,880 --> 00:35:30,239 Speaker 1: jumped out at me Um about that conversation. So one 575 00:35:30,360 --> 00:35:33,200 Speaker 1: is I really enjoy the sort of way he was 576 00:35:33,239 --> 00:35:37,080 Speaker 1: able to blend these sort of big theoretical insights with 577 00:35:37,600 --> 00:35:42,080 Speaker 1: very tangible real world consequences. So all these ideas about 578 00:35:42,080 --> 00:35:46,520 Speaker 1: the relationship between financing conditions and the state of global 579 00:35:46,560 --> 00:35:48,960 Speaker 1: trade and the state of the economy, and then being 580 00:35:49,000 --> 00:35:51,120 Speaker 1: able to actually put sort of meat on the bone, 581 00:35:51,160 --> 00:35:53,160 Speaker 1: so to speak, and to show how it plays out 582 00:35:53,160 --> 00:35:55,480 Speaker 1: in the actual data. I think it was really cool. 583 00:35:55,719 --> 00:35:58,719 Speaker 1: And also I was just really impressed by the sort 584 00:35:58,760 --> 00:36:03,200 Speaker 1: of clarity of the conversation, because I always find the 585 00:36:03,239 --> 00:36:06,000 Speaker 1: b I S work to be kind of intimidating. I 586 00:36:06,000 --> 00:36:08,120 Speaker 1: don't know if I should admit that, but I click 587 00:36:08,200 --> 00:36:10,279 Speaker 1: on their papers that I read them, and it's the 588 00:36:10,400 --> 00:36:13,200 Speaker 1: sort of austere gray and I'm like, oh God, this 589 00:36:13,280 --> 00:36:15,279 Speaker 1: is going to be above my head and I'm not 590 00:36:15,280 --> 00:36:17,480 Speaker 1: going to be able to understand it, and it's going 591 00:36:17,520 --> 00:36:19,920 Speaker 1: to use all this stuff that I don't know about. 592 00:36:20,080 --> 00:36:23,240 Speaker 1: But I just found it to be an incredibly clear 593 00:36:23,400 --> 00:36:27,839 Speaker 1: and simple to understand conversation. So I really appreciated that. Well, 594 00:36:27,880 --> 00:36:29,880 Speaker 1: I don't think you're alone in finding the b I 595 00:36:30,040 --> 00:36:33,280 Speaker 1: s intimidating. And I'm going to admit that my dad, 596 00:36:33,360 --> 00:36:38,359 Speaker 1: who's my sort of benchmark for mainstream America, definitely thinks 597 00:36:38,480 --> 00:36:41,680 Speaker 1: the Bank for International Settlements is some sort of like 598 00:36:41,840 --> 00:36:47,480 Speaker 1: shadowy cabal that controls the world economy. And global business. 599 00:36:47,520 --> 00:36:50,319 Speaker 1: So um, there is that conspiracy theory out there. But 600 00:36:51,160 --> 00:36:54,040 Speaker 1: on a serious note, h there was one thing that 601 00:36:54,040 --> 00:36:57,160 Speaker 1: that came through to me in that conversation, and it's 602 00:36:57,239 --> 00:37:00,520 Speaker 1: the notion of the Federal Reserve as the sort of 603 00:37:00,640 --> 00:37:04,680 Speaker 1: world's central bank. And I don't think like you know, 604 00:37:04,840 --> 00:37:08,200 Speaker 1: that narrative or that question pops up every once in 605 00:37:08,200 --> 00:37:11,600 Speaker 1: a while, but not nearly as much as as it should, 606 00:37:11,920 --> 00:37:16,960 Speaker 1: especially given the attention on trade at the moment. Yeah, absolutely, 607 00:37:17,000 --> 00:37:21,480 Speaker 1: and especially and of course at the June press conference, 608 00:37:21,640 --> 00:37:26,440 Speaker 1: FED Sherman Powell making very clear how much world events 609 00:37:26,560 --> 00:37:30,640 Speaker 1: and world conditions were influencing the FEDS thinking right now, 610 00:37:30,719 --> 00:37:33,680 Speaker 1: So any notion that the FED can just oh, just 611 00:37:33,760 --> 00:37:37,680 Speaker 1: look at the data within US borders clearly not a 612 00:37:37,760 --> 00:37:42,080 Speaker 1: realistic thing to do in t right, But also vice versa, 613 00:37:42,120 --> 00:37:45,480 Speaker 1: because there's this weird chicken and egg situation where yes, 614 00:37:45,560 --> 00:37:48,520 Speaker 1: the US can be impacted by external events and the 615 00:37:48,560 --> 00:37:51,600 Speaker 1: rest of the world, but then by reacting to external events, 616 00:37:51,640 --> 00:37:56,080 Speaker 1: the FED ends up influencing them as well. And again 617 00:37:56,120 --> 00:37:59,680 Speaker 1: it's so weird that people don't talk about it more. 618 00:37:59,760 --> 00:38:02,440 Speaker 1: And we have this debate again sort of like on 619 00:38:02,520 --> 00:38:07,319 Speaker 1: the fringes about whether or not the FED has a 620 00:38:07,320 --> 00:38:11,160 Speaker 1: another mandate in the form of um worrying about how 621 00:38:11,200 --> 00:38:14,960 Speaker 1: it's monetary policy actually impacts say, emerging market economies or 622 00:38:15,040 --> 00:38:18,000 Speaker 1: other parts of the world. Well, and also to that point, 623 00:38:18,000 --> 00:38:20,440 Speaker 1: I really liked his last point. I think it was 624 00:38:20,480 --> 00:38:24,239 Speaker 1: one of his last points about even there the sort 625 00:38:24,280 --> 00:38:30,120 Speaker 1: of undirect relationship between FED policy and financial conditions as 626 00:38:30,239 --> 00:38:33,920 Speaker 1: exemplified by seventeen, in which it looked like the FED 627 00:38:34,200 --> 00:38:36,440 Speaker 1: or the FED was in fact on a very steady 628 00:38:36,640 --> 00:38:40,680 Speaker 1: series of hikes to move rates higher all the while 629 00:38:40,840 --> 00:38:42,680 Speaker 1: it was a year of a week dollar and loosening 630 00:38:42,719 --> 00:38:46,000 Speaker 1: financial conditions. So even the relationship between what the FED 631 00:38:46,080 --> 00:38:49,560 Speaker 1: does and what the ultimate outcome on financial conditions is 632 00:38:50,200 --> 00:38:55,920 Speaker 1: is itself sort of very unlinear relationship. Yeah, basically, it's 633 00:38:55,920 --> 00:38:59,719 Speaker 1: all very complicated. That's my conclusion. It's all very complicated. 634 00:39:00,160 --> 00:39:03,320 Speaker 1: That's my conclusion to all Right, this has been another 635 00:39:03,400 --> 00:39:06,799 Speaker 1: episode of the All Thoughts podcast. I'm Tracy Alloway. You 636 00:39:06,800 --> 00:39:10,319 Speaker 1: can follow me on Twitter at Tracy Alloway, and I'm 637 00:39:10,440 --> 00:39:12,920 Speaker 1: Joe Why Isn't All? You can follow me on Twitter 638 00:39:13,080 --> 00:39:16,480 Speaker 1: at the Stalwart, and you should follow our guest on Twitter, 639 00:39:16,600 --> 00:39:20,400 Speaker 1: Hun Song Shin. He's at Hyun Soong Shin, and be 640 00:39:20,480 --> 00:39:23,919 Speaker 1: sure to follow our producer on Twitter, Laura Carlson. She's 641 00:39:24,040 --> 00:39:27,960 Speaker 1: at Laura M. Carlson. Follow the Bloomberg head of podcast 642 00:39:28,000 --> 00:39:32,200 Speaker 1: Francesca Levie at Francesca Today, and check out the home 643 00:39:32,400 --> 00:39:37,239 Speaker 1: of Bloomberg Podcasts on Twitter at the handle at podcasts. 644 00:39:37,640 --> 00:39:38,440 Speaker 1: Thanks for listening.