WEBVTT - Surveillance: Fed Is Probably Already At Neutral, Darda Says 0:00:00.080 --> 0:00:12.960 Ye, Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane 0:00:13.480 --> 0:00:17.560 Jay Lee. We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.480 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:34.239 Bloomberg dot Com, and of course on the Bloomberg Mike 0:00:34.320 --> 0:00:37.040 Dada joining us. Mcamp On is chief economist and chief 0:00:37.120 --> 0:00:40.880 market Strategists. Can they Mike, Hi, John, thanks for having 0:00:40.880 --> 0:00:44.680 me on. They can and they probably will as long 0:00:44.840 --> 0:00:48.120 as those fed funds futures are still pricing in greater 0:00:48.159 --> 0:00:52.680 than a probability of a rate hike on Wednesday, and 0:00:52.840 --> 0:00:55.320 the last I saw on the Bloomberg terminal was about 0:00:55.320 --> 0:00:58.360 a two thirds probability in favor of hiking. But I 0:00:58.440 --> 0:01:01.360 think what's more important is the language in the directive 0:01:02.000 --> 0:01:05.320 on a go forward basis, So I think what financial 0:01:05.360 --> 0:01:08.279 markets are probably looking for is what some are calling 0:01:08.319 --> 0:01:10.880 a dubbish hike, meaning if they do raise rates in 0:01:10.920 --> 0:01:14.320 additional twenty five basis points. Really to move to a 0:01:14.360 --> 0:01:17.959 totally neutral directive on the language, we sort of skipped 0:01:17.959 --> 0:01:20.440 the decision and get straight to the summary of economic projections. 0:01:20.440 --> 0:01:23.280 As a typical with these matings, Mike and we look 0:01:23.319 --> 0:01:25.639 at the dispersion and the dots where the Federal Reserve 0:01:25.680 --> 0:01:29.320 officials think rates will be in there's a huge spread. 0:01:29.600 --> 0:01:31.520 They're all over the place. Do we expect them to 0:01:31.600 --> 0:01:34.560 coalesce on a lower rate comparedsive weather median dot is 0:01:34.720 --> 0:01:39.000 right now? I would certainly be shocked if the dot 0:01:39.080 --> 0:01:42.679 plot did not move down at least some because if 0:01:42.680 --> 0:01:45.600 we think about what the Fed was doing most of 0:01:45.600 --> 0:01:48.320 the year, they were basically setting markets up for what 0:01:48.400 --> 0:01:51.360 they were calling an overshoot of the neutral policy rate. 0:01:51.720 --> 0:01:54.160 And you know, the argument for that was due to 0:01:54.480 --> 0:01:59.080 quote unquote loose financial conditions. So clearly that's reversed with 0:01:59.120 --> 0:02:03.160 credit markets under strain and stock markets becoming much more volatile. 0:02:03.680 --> 0:02:07.400 And the Fed was also concerned about growth running above trend. 0:02:07.480 --> 0:02:09.760 But we're starting to see some stoppening in the in 0:02:09.800 --> 0:02:14.280 the data. So the justification for continuing to move rates 0:02:14.400 --> 0:02:18.200 up and overshoot a neutral policy rate, I think is 0:02:18.280 --> 0:02:22.600 totally evaporated. So just based on that, we really should 0:02:22.600 --> 0:02:25.760 see some moderation in those dots. Michael Darda, is this 0:02:25.880 --> 0:02:30.720 just a monetary politics and demographics and where nominal GDP 0:02:30.880 --> 0:02:34.440 or the terminal rate should be butter stuff against politics 0:02:34.440 --> 0:02:36.560 of more and more and more. I mean, are we 0:02:36.600 --> 0:02:39.399 trying to get the goals that we're goals of ten 0:02:39.440 --> 0:02:42.239 and twenty years ago that just shouldn't be goals now? 0:02:42.520 --> 0:02:48.480 Like five nominal GDP? Well, Tom, believe it or believe 0:02:48.520 --> 0:02:51.240 it or not, we actually do have um five and 0:02:51.240 --> 0:02:56.239 a half percent nominal GDP year over year. That yeah, 0:02:56.240 --> 0:02:58.880 the financial markets know that's not going to be sustainable, 0:02:58.880 --> 0:03:02.040 and the FED doesn't believe it's sustainable and wants it 0:03:02.120 --> 0:03:05.280 to slow. And so you know, now the dilemma is, 0:03:05.680 --> 0:03:07.920 you know, do you look at the forward looking financial 0:03:07.960 --> 0:03:10.760 market indicators which are telling you nominal growth is going 0:03:10.800 --> 0:03:13.120 to slow? The FED has done its job. It's probably 0:03:13.160 --> 0:03:16.760 already at neutral. Uh. If it keeps going at risks 0:03:16.760 --> 0:03:19.280 going beyond neutral, and then you know, we have fears 0:03:19.320 --> 0:03:21.800 of a downturn or you know, is the FED just 0:03:21.880 --> 0:03:25.399 going to be wedded to backward looking information and that's 0:03:25.400 --> 0:03:28.679 when you end up with a policy mistake. Add into that, 0:03:29.000 --> 0:03:32.040 you know, political pressure on the FED to stop tightening, 0:03:32.080 --> 0:03:35.200 and that makes their job more complicated. So that's that's 0:03:35.240 --> 0:03:39.200 an unfortunate element here. You know, we just saw Peter Navarro. 0:03:39.560 --> 0:03:42.760 You know, President Trump's trade advisor come out yesterday with 0:03:42.880 --> 0:03:45.600 his advice for the Fed. You know, he could do 0:03:45.720 --> 0:03:50.120 financial markets a big favor. Um perhaps looking perhaps looking 0:03:50.160 --> 0:03:53.800 for a new career track. But barring that, zipping it 0:03:53.800 --> 0:03:58.480 on the fighting words from Mike Dada that m Petter 0:03:58.560 --> 0:04:00.840 Navarro is not allowed in colon for them to pause. 0:04:00.920 --> 0:04:04.760 Stan Drucker Miller legendary investor double lines Jeff Gunnlack calling 0:04:05.120 --> 0:04:07.480 for the same thing. Mike, here's an interesting question. We 0:04:07.520 --> 0:04:10.600 started the program by asking, you can the Fed hike 0:04:10.800 --> 0:04:13.720 rates when the market is in a mess? Let's sort 0:04:13.760 --> 0:04:16.599 of engineer re engineer this a little bit take away 0:04:16.640 --> 0:04:19.760 the market. This economic data has come, i would say, 0:04:19.800 --> 0:04:23.040 exactly in line with what the Federal Reserve predicted at 0:04:23.080 --> 0:04:26.320 the last meeting and the meeting before the forecast for 0:04:26.400 --> 0:04:31.440 next year at two fifty for real GDP in two 0:04:31.960 --> 0:04:36.240 there and thereabouts for twenty I'm trying to understand how 0:04:36.279 --> 0:04:39.320 the Federal Reserve brings down their economic forecast when the 0:04:39.400 --> 0:04:43.039 data so far hasn't disappointed. It's come pretty much in 0:04:43.080 --> 0:04:47.400 line with what they expected. Right Well, there in lies 0:04:47.520 --> 0:04:49.560 the rubs. You know, if you remember back to two 0:04:49.640 --> 0:04:53.280 thousand fourteen to two thousand sixteen, we had a situation 0:04:53.320 --> 0:04:56.080 where there was a lot of volatility and financial markets, 0:04:56.160 --> 0:05:00.679 and initially, initially the macro data was quite strong, and 0:05:00.839 --> 0:05:03.960 you know, the Fed ultimately did move to the sidelines 0:05:04.000 --> 0:05:06.800 after just one rate rise in December of two thousand 0:05:06.800 --> 0:05:09.280 and fifteen. Came under a lot of criticism for that, 0:05:09.360 --> 0:05:11.359 But if we look back at the data now, the 0:05:11.400 --> 0:05:15.200 financial markets were out in front of a very significant 0:05:15.240 --> 0:05:18.719 economic slowdown. So if the FED wants to be forward looking, 0:05:18.720 --> 0:05:21.000 at has no choice but to look at the market. 0:05:21.400 --> 0:05:24.040 People don't like that, but that's too bad, Michael. You've 0:05:24.040 --> 0:05:28.280 written about this before in and every monetary person's mind 0:05:28.400 --> 0:05:31.640 is a failure of Japan. I don't know fifteen eighteen 0:05:31.720 --> 0:05:34.520 years ago, were they attempted to raise rates and they 0:05:34.520 --> 0:05:37.240 had to turn around and bring it back down. Does 0:05:37.279 --> 0:05:40.360 that actually play in the mind of fancy PhDs at 0:05:40.400 --> 0:05:44.800 the FED. Tom It should, because it's not just Japan. 0:05:44.839 --> 0:05:47.080 It happened in Sweden. You know, they got rates up 0:05:47.120 --> 0:05:49.760 to around two percent and then they went negative because 0:05:49.800 --> 0:05:53.840 they triggered a downturn. The ECB totally blew it in twleven. 0:05:54.000 --> 0:05:56.480 So I think the FED is the Fed's timing has 0:05:56.480 --> 0:05:58.599 certainly been better. You know, they've been able to to 0:05:58.720 --> 0:06:01.440 move rates up in a state sustained way now for 0:06:01.520 --> 0:06:05.200 about two years, and in macroeconomic conditions have have remained 0:06:05.200 --> 0:06:08.360 pretty buoyant. So so far, so good. But you get 0:06:08.360 --> 0:06:10.279 to a point where it's time to back off and 0:06:10.320 --> 0:06:13.440 you need to be forward looking, and that's where we are. Well. Arguably, 0:06:13.520 --> 0:06:15.440 Chairman Pound backed off a little bit. That was the 0:06:15.440 --> 0:06:17.520 perception of a lot of people at that speech here 0:06:17.520 --> 0:06:19.800 in New York, Mike. And what's interesting to me is 0:06:19.800 --> 0:06:22.560 that the rates market has already moved. So is the 0:06:22.600 --> 0:06:26.719 equity market waiting for confirmation from the Federal Reserve for 0:06:26.800 --> 0:06:29.320 what the rights market is already priceful. Is that what 0:06:29.320 --> 0:06:32.880 we're saying got again to tomorrow? I think so. I mean, 0:06:32.920 --> 0:06:35.560 it's interesting that you know, the rates market is does 0:06:35.560 --> 0:06:38.440 seem to be way ahead. Here. We were well along 0:06:38.440 --> 0:06:41.880 the way to pricing out all the rate hikes for 0:06:41.880 --> 0:06:43.960 for next year. So it looks like the only thing 0:06:44.040 --> 0:06:48.080 left in financial markets in terms of rate hiking probabilities 0:06:48.200 --> 0:06:50.760 is you know, for another twenty five basis point rise 0:06:50.880 --> 0:06:53.839 this Wednesday, and then the Fed goes on pause unless 0:06:53.880 --> 0:06:57.000 there's a big reversal. You know, we're focused on equity markets, 0:06:57.040 --> 0:07:01.360 but consider the fact that inflation expectations of dry pretty precipitously, 0:07:01.800 --> 0:07:04.640 credit spreads of widened on a year over year basis 0:07:04.680 --> 0:07:07.960 for three consecutive months. The FED has to take that 0:07:08.040 --> 0:07:25.360 into consideration. Mike Daughter was great to catch Helvity and 0:07:25.440 --> 0:07:27.720 John Fero to bring in our next steam guests. I 0:07:27.720 --> 0:07:30.440 brought up a two thousand eleven story from Bleacher Report, 0:07:30.840 --> 0:07:35.320 which is basically, are the New York Yankees like Manchester United? 0:07:35.400 --> 0:07:38.680 Are the Manchester United's like New York Yankees? And of 0:07:38.680 --> 0:07:41.360 course you come down in two thousand and eleven to 0:07:41.480 --> 0:07:47.520 megastar players Jeter A Rod, Jason Gimbe. Jose can say 0:07:47.720 --> 0:07:53.320 you even know who the Yankees, Eric Cantona, Roy Keane, 0:07:53.520 --> 0:07:57.400 k E, A n E, a guy named Beckham, and 0:07:57.440 --> 0:08:01.720 a guy named Rooney, the world's chain two. The world 0:08:01.760 --> 0:08:03.800 has definitely changed. We have got to bring in on 0:08:03.840 --> 0:08:06.320 a daylight today, on a morning like this morning. Jim 0:08:06.360 --> 0:08:09.800 O'Neil himself, the former chief of Goverman Sex Asset Management 0:08:09.800 --> 0:08:13.880 and the man who once engineered a takeover of Manchester 0:08:13.960 --> 0:08:17.960 United Football Club. Jim, good morning to you. Jose Marino 0:08:18.360 --> 0:08:23.160 is out, the manager has gone your thoughts good morning. 0:08:23.640 --> 0:08:26.800 Can I just say that it was rumored that I 0:08:26.840 --> 0:08:34.160 was doing that rather than definitive, but so well to say, 0:08:34.520 --> 0:08:39.560 you know, as problematic as he has been as United manager, 0:08:40.280 --> 0:08:43.760 I don't think just changing the manager to whoever it 0:08:43.840 --> 0:08:48.040 might be is going to solve our basic dilemmas, which 0:08:48.040 --> 0:08:52.200 are substantial. Um, I'd recommend. I know I can get 0:08:52.240 --> 0:08:54.000 it over that side of the pond. But for all 0:08:54.080 --> 0:08:58.160 your viewers, The Beat Sport had a fantastic program on 0:08:58.280 --> 0:09:00.839 last week about Too Good to Go Down, which was 0:09:00.880 --> 0:09:04.440 all about in nineteen seventy three seventy four Manchester Unity 0:09:04.480 --> 0:09:07.360 were relegated. It's five years after winning the European Cup 0:09:08.360 --> 0:09:10.040 and came straight back by the way, but it was 0:09:10.080 --> 0:09:13.960 one of my favorite periods of following United. So we 0:09:14.040 --> 0:09:17.600 have no divine right to permanent success. But it is 0:09:17.760 --> 0:09:25.200 this fantastic, wonderful sporting entity that is the hearts and 0:09:25.320 --> 0:09:30.440 minds of everybody that loves the sports of football. George Best, 0:09:30.640 --> 0:09:34.880 Dennis Lawd too names You didn't mention cantonar con Chelsis 0:09:35.600 --> 0:09:42.360 and mentioned George Jim. I would have loved it if 0:09:42.400 --> 0:09:44.800 Tom had named some of those players that you just snacked. 0:09:45.000 --> 0:09:48.720 I mentioned George Best on TV, Jim Neil, Is this 0:09:48.800 --> 0:09:54.760 because of the Americans? Is this story these guys? These 0:09:54.800 --> 0:09:58.000 guys are not interested in Manchester United as the football team. 0:09:58.360 --> 0:10:01.080 These guys are interested in Manches United as the grounds 0:10:01.720 --> 0:10:05.440 and what they now need to really take stock on that. 0:10:05.559 --> 0:10:09.640 If they are not very thorough in shifting the structure 0:10:09.640 --> 0:10:12.480 of the club and how they own it, they're going 0:10:12.559 --> 0:10:16.600 to damage not only the most important sporting thing I've 0:10:16.600 --> 0:10:20.679 ever been proud to be associated with permanently, but they 0:10:20.679 --> 0:10:24.320 will damage their own pockets. But hopefully this isn't the 0:10:24.320 --> 0:10:26.800 only decision that's being made. That they're going to have 0:10:26.920 --> 0:10:29.840 a big rethink about how to actually preside over the 0:10:29.840 --> 0:10:33.040 world's greater sporting institution. So what needs to be done, Jim, 0:10:33.040 --> 0:10:37.160 what would you do? They need to they need to 0:10:37.840 --> 0:10:40.560 know to be honest sort of, you know, I think 0:10:40.600 --> 0:10:42.760 you guys might not recently became chair of Chassam House 0:10:42.800 --> 0:10:44.440 and put in the context all of that. They need 0:10:44.480 --> 0:10:48.560 to discover. As many businesses do business business with purpose, 0:10:50.080 --> 0:10:55.640 Manchester United exists to thrill millions of human beings all 0:10:55.679 --> 0:10:58.400 over the world, not not just something that can generate 0:10:58.400 --> 0:11:01.839 advance in revenues. Jim, I'm a heck you you need 0:11:01.880 --> 0:11:05.160 to go away from this, Jim O'Neill. I look at 0:11:05.200 --> 0:11:08.679 it as an amateur and I see Manchester City going 0:11:08.720 --> 0:11:12.320 at double speed. They just seem to play blindingly. Best 0:11:12.760 --> 0:11:16.800 if the NHO and hockey the same transition occurred to 0:11:16.960 --> 0:11:19.880 all the teams, including Menu, do they need to catch 0:11:19.960 --> 0:11:21.920 up with the speed of the game That seems to 0:11:21.960 --> 0:11:26.280 be the new game? So any any United fan would 0:11:26.320 --> 0:11:28.880 say right now. What makes it particularly annoying is that 0:11:29.960 --> 0:11:33.040 the two most exciting teams within the country are Liverpool 0:11:33.080 --> 0:11:37.920 and Manchester United, who are of course archodles, particularly Liverpool. 0:11:38.640 --> 0:11:42.000 Uh And so you know we need to of course 0:11:42.000 --> 0:11:44.600 there needs to be a new culture the club from 0:11:44.679 --> 0:11:48.560 top to Boston needs to redefine and think about what 0:11:48.720 --> 0:11:52.439 is the purpose of Manchester United as a football institution 0:11:52.520 --> 0:11:56.360 and to get back to the romance, excitement of George 0:11:56.400 --> 0:11:58.320 Best and Eric Canton and all the rest of it. 0:11:58.520 --> 0:12:00.240 How do you do that with the new play years? 0:12:00.280 --> 0:12:02.720 Which young player out there before we go, Jim Monial, 0:12:02.760 --> 0:12:05.400 I know you have meetings this morning. Which young player 0:12:05.480 --> 0:12:10.000 worldwide does Manchester United need to be? We have we 0:12:10.080 --> 0:12:14.000 have one of the French World Cup winners who, uh 0:12:14.280 --> 0:12:17.760 if if sort of guided and brought into the philosophy 0:12:17.800 --> 0:12:23.200 and focus, you would imagine would feature in most teams midfields. Uh. 0:12:23.280 --> 0:12:26.720 You know, we have plenty of exciting talent. And you 0:12:26.760 --> 0:12:29.400 know United's history is all about actually every now and 0:12:29.679 --> 0:12:33.880 making sure homegrown youth comes through, you know, and amongst 0:12:33.920 --> 0:12:36.320 the many things that have been going wrong, United youth 0:12:36.360 --> 0:12:38.800 team is no longer that successful or important to the 0:12:38.800 --> 0:12:42.000 owners either. Well change, Jim, We've got to leave there. 0:12:42.040 --> 0:12:44.440 So Jim Monial, thank you so much to appreciate it. 0:12:44.480 --> 0:12:46.080 To catch up with him, of course for years with 0:12:46.120 --> 0:12:50.080 Goldman Sex and that is an impassioned Jim O'Neil. I 0:12:50.120 --> 0:12:53.240 believe I've never heard of that impassioned over dollar Again, 0:12:53.920 --> 0:13:10.080 I imagine he hasn't been. It may be a three 0:13:10.120 --> 0:13:13.080 dog night, but it is a four tweet morning for 0:13:13.120 --> 0:13:15.679 the President of the United States. He's looking and I'm 0:13:15.760 --> 0:13:18.079 I'm just gonna paraphrases tweets because they're too long. I 0:13:18.080 --> 0:13:20.640 don't a waste of time to get to our valued guest, 0:13:20.840 --> 0:13:23.199 the Mueller witch hunt. And then he goes on to 0:13:23.240 --> 0:13:26.520 speak of General Michael Flynn and then, as John Farrell 0:13:26.559 --> 0:13:29.839 mentioned the Wall Street Journal editorial, I hope the people 0:13:29.960 --> 0:13:33.400 over at the Federal read today's editorial. We still don't 0:13:33.440 --> 0:13:35.840 know what fifty pes means. I think it means billions. 0:13:35.840 --> 0:13:39.040 I'll go with John and that. And then just most recently, Facebook, 0:13:39.040 --> 0:13:41.920 Twitter and Google are so biased towards the Dems. It 0:13:42.080 --> 0:13:46.520 is ridiculous, et cetera. Terry hanges with us with evercres 0:13:46.559 --> 0:13:48.360 I s I who was forced to read each and 0:13:48.400 --> 0:13:52.560 every tweet? Terry? Is there a permanence to this? After Trump? 0:13:53.280 --> 0:13:56.120 Are we going to see presidents with a more original 0:13:56.559 --> 0:14:02.000 communication strategy as we see with this president? Yes? I 0:14:02.040 --> 0:14:05.240 think so. Once you know, to louse analog reaching the 0:14:05.280 --> 0:14:07.800 fourth wall, once you've drouched the fourth wall, you pretty 0:14:07.880 --> 0:14:11.080 much can't go back. I imagine that will be the case. 0:14:11.200 --> 0:14:13.520 You know. Peggy noon And made a very good point 0:14:13.520 --> 0:14:17.760 in the last Friday's the column in the Journal that, uh, 0:14:17.800 --> 0:14:21.080 the last two presidents have appealed to emotion rather than 0:14:21.600 --> 0:14:25.400 the strict policy parameters. And yeah, she's right about that. 0:14:25.480 --> 0:14:28.760 And then Twitter is one way to Is this a 0:14:28.840 --> 0:14:33.000 legislative system that will appeal to emotion? I mean there 0:14:33.040 --> 0:14:36.480 have been film figments of it, a little moments of it, 0:14:36.520 --> 0:14:39.400 I should say, I think a Sam Irvin during Watergate 0:14:39.440 --> 0:14:42.240 and others Howard Baker and you know, through through a 0:14:42.280 --> 0:14:45.680 all of our history. But is this a legislative branch 0:14:45.840 --> 0:14:50.520 able to use emotion constructively in our our clear and 0:14:50.640 --> 0:14:54.560 present grid. Luck? Well, sometimes it does, you know, And 0:14:54.720 --> 0:14:57.120 I've I've been part of a number of those, uh 0:14:57.320 --> 0:15:00.800 the post nine eleven with the Patriot Act, uh post 0:15:00.880 --> 0:15:04.280 end Roun World, Tom with Sarbanes Oxley. I mean, emotion 0:15:04.760 --> 0:15:09.080 and urgency plays a role in UH, in in in 0:15:09.200 --> 0:15:13.360 congressional success, congressional action all the time. I would expect 0:15:13.360 --> 0:15:17.080 that to continue regardless. I want to turn to something 0:15:17.200 --> 0:15:20.920 Terry you've led on, which is a constructive infrastructure debate. 0:15:21.440 --> 0:15:24.520 And folks, I mean this with no disrespect, but as 0:15:24.560 --> 0:15:27.640 I said, I think when I came back, it's always 0:15:27.680 --> 0:15:30.040 good to come back to the third world infrastructure of 0:15:30.040 --> 0:15:32.560 the United States of America. In this case, I was 0:15:32.600 --> 0:15:36.000 in London Heathrow Terminal five, you know, the fancy fancy 0:15:36.280 --> 0:15:41.120 and then Russels I got an oyster card, got it 0:15:41.280 --> 0:15:44.360 right here bringing that to the New York Subway with 0:15:45.080 --> 0:15:47.640 you know, we were getting from the terry. Seriously was 0:15:47.640 --> 0:15:50.480 getting from the Green over and you know, to be honest, 0:15:50.520 --> 0:15:53.040 I'm so dumb. They had to escort me through the 0:15:53.240 --> 0:15:57.600 Westminster Subway. What line was I on? The the district? 0:15:57.880 --> 0:15:59.840 And I finally got an Oyster card because we were 0:15:59.840 --> 0:16:02.440 going back and forth. Now you can usual credit card, 0:16:02.480 --> 0:16:08.680 the contactless chip on the tap. In a point, why 0:16:08.720 --> 0:16:11.240 can't we do this? I mean, forget about why can't 0:16:11.280 --> 0:16:14.880 you bring Eurostar to America? Why can't we just have 0:16:14.960 --> 0:16:20.640 a fifty ninth Street it's relatively smooth. Uh. There's a 0:16:20.640 --> 0:16:22.840 lot of reasons for that, and one of them is 0:16:23.160 --> 0:16:28.080 the state local uh emphasis generally speaking, you know, it 0:16:28.200 --> 0:16:31.040 was it took a long time, and it took a 0:16:31.040 --> 0:16:33.080 long time to build the interstate highways because there was 0:16:33.120 --> 0:16:37.560 an intrinsic bias towards uh, the state local projects, state 0:16:37.600 --> 0:16:40.440 and local money. That's the way things always worked. And 0:16:40.520 --> 0:16:45.200 of course members of Congress represents states and localities. So uh, 0:16:45.280 --> 0:16:48.480 it's uh yeah, there's there's an old thing down here 0:16:48.520 --> 0:16:52.400 that if you want to start achieving something, don't don't 0:16:52.440 --> 0:16:55.960 begin by rearranging the deck chairs and the Titanic and 0:16:56.560 --> 0:17:01.360 the So what you're proposing essentially is let's completely overhaul 0:17:01.440 --> 0:17:03.320 the way the money is doled out. I mean that 0:17:03.480 --> 0:17:07.200 is a that is a recipe for quick. Yeah, I 0:17:07.280 --> 0:17:10.000 am in folks, to be honest as Terry Haynes. Nos. 0:17:10.160 --> 0:17:12.560 You go back to the cn O Canal, the Chesapeake 0:17:12.560 --> 0:17:17.200 and Ohio Canal, I believe George Washington's time, and essentially, Terry, 0:17:17.240 --> 0:17:21.000 nothing's changed in our history. Right. Well, that's pretty much it. Yeah, 0:17:21.000 --> 0:17:23.480 I mean what you get is injections of federal money, 0:17:24.080 --> 0:17:27.840 but still state in local the state local money, you know, 0:17:27.880 --> 0:17:31.199 a match significantly contributed all the way from the CNO 0:17:31.280 --> 0:17:34.320 and the National Road of the early undred. Yeah, the 0:17:34.400 --> 0:17:37.600 U s US forty today, does the new Congress have 0:17:37.720 --> 0:17:42.880 a constraint from CBO is the fiscal deficit and the 0:17:43.000 --> 0:17:47.280 dynamics of our growing debt in deficit? Are they actually 0:17:47.359 --> 0:17:49.320 going to be part of the dialogue in the two 0:17:49.359 --> 0:17:52.360 thousand nineteen oh? I think so. And I think that's 0:17:52.400 --> 0:17:56.600 one reason why I've suggested that a lot of policy debates, 0:17:56.600 --> 0:17:59.560 and I've always used infrastructure as one of the main examples, 0:18:00.320 --> 0:18:04.280 end up in market sugar highs that really don't lead anywhere. Uh. 0:18:04.359 --> 0:18:07.040 What you have is the situation where Democrats want to 0:18:07.520 --> 0:18:09.840 want to spend a lot on infrastructure, but they want 0:18:09.840 --> 0:18:13.240 to roll back the tax the tax law in order 0:18:13.240 --> 0:18:16.240 to do it. Republicans won't stand for that either, will 0:18:16.320 --> 0:18:20.120 the President h Republicans might toy if they were given 0:18:20.160 --> 0:18:22.560 their heads. I think they wouldn't, but they would certainly 0:18:22.600 --> 0:18:25.919 toy with the idea of increasing the deficit marginally in 0:18:26.000 --> 0:18:29.639 order to pay for infrastructure. And the Democrats have have 0:18:29.800 --> 0:18:32.280 been four square about not wanting that to happen. So 0:18:32.320 --> 0:18:35.359 what you've got is is gridlock on the hell not 0:18:35.480 --> 0:18:40.040 gridlock on the priority terry. The market can sort of 0:18:40.040 --> 0:18:43.080 stomach the idea of a shutdown. We're going to have 0:18:43.119 --> 0:18:48.960 the debt scene and debate in a big way anytime soon. Yes, 0:18:49.119 --> 0:18:52.560 but I think let me get to that in one second. 0:18:52.920 --> 0:18:56.320 The shutdown I want to emphasize is at at most 0:18:56.840 --> 0:18:59.760 I don't think it's very likely I have likely to 0:18:59.760 --> 0:19:03.520 have today. But uh but even a shutdown would be 0:19:03.520 --> 0:19:07.119 a partial shutdown of only about federal funding. Now that 0:19:07.280 --> 0:19:09.880 is because the other sevent has already been decided upon, 0:19:10.480 --> 0:19:13.720 so uh so that this is gonna be not unimportant 0:19:13.760 --> 0:19:18.320 but but small. And number one number two on the 0:19:18.359 --> 0:19:21.280 debt dealing. Yes, but I think that the what you've 0:19:21.280 --> 0:19:25.520 seen over the last decade, certainly since near death experience, 0:19:26.160 --> 0:19:28.280 is a desire to want to make sure that their 0:19:28.359 --> 0:19:31.240 fiscal continuity, and part and parcel of that's going to 0:19:31.280 --> 0:19:33.800 be raising the debt ceiling. Now asked you know, the 0:19:33.400 --> 0:19:38.320 the the old adages will still apply. The progressive left 0:19:38.359 --> 0:19:41.280 and the conservative right won't like it, but the vast 0:19:41.320 --> 0:19:44.920 majority of Congress will still be Republican and Democratic centrists, 0:19:45.200 --> 0:19:48.359 and they will still continue to want to be able 0:19:48.400 --> 0:19:51.280 to raise, suspend, deal with the debt ceiling in a 0:19:51.320 --> 0:19:55.560 way that doesn't cause any kind of serious problem. Terry Haynes, 0:19:55.600 --> 0:19:59.840 thank you so much, greatly appreciate as signed. Just always 0:19:59.840 --> 0:20:16.440 in formative and joining us now Freya b. Mesh of 0:20:16.520 --> 0:20:20.520 Pantheon Macroeconomics, he's chief Asia economist, coming to us from 0:20:20.560 --> 0:20:22.840 the United Kingdom. Freyia, thank you so much for being here. 0:20:23.000 --> 0:20:26.560 I guess I'm trying to understand what people were exactly 0:20:26.560 --> 0:20:29.600 we're hoping he would announce, and how significant it is 0:20:29.640 --> 0:20:34.080 that he really did not outline any new policies. I 0:20:34.080 --> 0:20:36.880 guess people might have been hoping that he would announce 0:20:36.960 --> 0:20:39.919 some stimulus in the context of the much weaker numbers 0:20:39.960 --> 0:20:42.280 that we've had coming out of China recently, and the 0:20:42.359 --> 0:20:46.439 kind of growing the move of consensus towards the recognition 0:20:46.480 --> 0:20:50.359 that grows is is not picking up or perhaps some 0:20:50.359 --> 0:20:53.720 some kind of reforms that could get people UM more 0:20:53.920 --> 0:20:57.159 more excited on that side of things. But this speech 0:20:57.240 --> 0:21:00.720 was really always going to be about UM, the forty 0:21:00.800 --> 0:21:05.520 years of UM, of the opening up and and reform process, 0:21:05.560 --> 0:21:08.800 and really kind of extolling the virtues of that whole UM, 0:21:08.840 --> 0:21:12.320 that whole procedure and and and growth model. So it 0:21:12.320 --> 0:21:14.000 would have been a kind of an awkward time to 0:21:14.080 --> 0:21:17.879 be releasing a whole of stimulus measures. I think in reality, 0:21:18.040 --> 0:21:21.720 the likelihood of those stimulus measures has increased quite substantially, 0:21:22.040 --> 0:21:25.119 and that's because UM liquidity conditions over the course of 0:21:25.200 --> 0:21:28.320 Q four UM have have sort of sputtered out again 0:21:28.359 --> 0:21:31.640 in the tetle have not not loosened as the PBOC 0:21:31.760 --> 0:21:35.400 would have have UM liked UM. They have been trying 0:21:35.440 --> 0:21:38.119 to loosen policy I think since Q two and taking 0:21:38.160 --> 0:21:41.520 quite a marginal approach UM, but it hasn't really UM. 0:21:41.560 --> 0:21:43.600 It hasn't really worked so far. And the main reason 0:21:43.640 --> 0:21:46.800 for that is because households and firms are getting less 0:21:46.840 --> 0:21:50.000 confident about the the outlook for the economy UM and 0:21:50.040 --> 0:21:53.639 seemed to be transferring their money holdings into longer dated deposits, 0:21:53.640 --> 0:21:56.080 and that in China is very kind of UM banking 0:21:56.119 --> 0:21:58.960 centric economy is a very good indicator that growth really 0:21:59.040 --> 0:22:02.439 is going to be slow all the ways through the 0:22:02.480 --> 0:22:05.320 first half of next year and intercue three of of 0:22:05.320 --> 0:22:08.439 of of next year as well. So the likelihood that 0:22:08.480 --> 0:22:10.560 the p BOC is going to be able to continue 0:22:10.560 --> 0:22:14.040 with this marginal approach all through that long period of 0:22:14.080 --> 0:22:17.480 time UM is quite slim, I think. So we're really 0:22:17.520 --> 0:22:21.159 kind of tipping towards the People's Bank of China enacting 0:22:21.200 --> 0:22:24.680 a rate cut here. Could you speak to the connection 0:22:24.800 --> 0:22:28.320 if they're indeed is one between the restructuring of the 0:22:28.400 --> 0:22:32.840 shadow banking system in China and the companies that are 0:22:32.920 --> 0:22:36.960 most affected by that restructuring, and I'm thinking of small 0:22:37.440 --> 0:22:41.240 and mid sized companies specifically. Yeah, this is this is 0:22:41.240 --> 0:22:43.560 a major problem that they have, that that they have 0:22:43.720 --> 0:22:46.800 actually admitted now that they hadn't really anticipated just the 0:22:46.880 --> 0:22:50.240 extent to which their de risking program and the crackdown 0:22:50.240 --> 0:22:54.479 on shadow banking was going to impinge upon the funding 0:22:54.520 --> 0:22:57.639 of the types of funds that you've just been referring to, 0:22:57.680 --> 0:23:02.080 the small medium sized private arms UM in In Q three, 0:23:02.119 --> 0:23:04.359 there was the added kind of UM, the added to 0:23:04.520 --> 0:23:08.200 drag for those companies that UM the local government local 0:23:08.240 --> 0:23:10.600 government was just was just crowding out all of the 0:23:11.520 --> 0:23:15.640 bond issuance UM and and making it very difficult for 0:23:15.920 --> 0:23:19.680 corporations even to get funding through through the bond market. UM. 0:23:19.720 --> 0:23:21.919 In Q four that's loosened up a bit, so we're 0:23:21.960 --> 0:23:23.960 starting to see a bit more kind of loutioning for 0:23:24.480 --> 0:23:27.720 UM for credit conditions, UM for the for in the 0:23:27.760 --> 0:23:31.600 bond market, and also actually in terms of conventional bank borrowing, 0:23:31.800 --> 0:23:34.080 but not on the on the shadow banking side of 0:23:34.080 --> 0:23:36.680 things on which so many of these companies are are dependent. 0:23:37.040 --> 0:23:39.440 And the main problem that they're facing in terms of 0:23:40.080 --> 0:23:42.520 UM of GDP growth turning around is that that there 0:23:42.520 --> 0:23:45.600 has yet been a kind of modest UM improvement in 0:23:45.640 --> 0:23:49.240 credit conditions, but that hasn't translated into liquidity conditions. Because 0:23:49.280 --> 0:23:52.080 of what I was mentioning about UM, firms being very 0:23:52.160 --> 0:23:56.280 kind of UM trepidationous about the the the outlook UM 0:23:56.280 --> 0:23:58.399 and not really wanting to spend, so they've been moving 0:23:58.400 --> 0:24:03.560 their liquidity holdings into into the longer dated deposits, and 0:24:03.600 --> 0:24:05.600