WEBVTT - Surveillance: Monetary Policy with Goolsbee 0:00:09.880 --> 0:00:13.880 Welcome to the Bloomberg Surveillance Podcast. I'm m Keene jay Leie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.640 Bloomberg dot com, and of course, on the Bloomberg questions 0:00:27.640 --> 0:00:30.480 coming from Evercore I s I. I'll put the disclaimer 0:00:30.560 --> 0:00:33.239 up front. Michael Bloomberg, the fan of majority owner of 0:00:33.280 --> 0:00:36.040 Bloomberg ALP, the parent company of Bloomberg News, and the 0:00:36.159 --> 0:00:39.680 question from Evercore I scias follows. Number one, can Bloomberg 0:00:39.760 --> 0:00:42.720 right above the tach the attacks? Number two? Can anyone 0:00:42.800 --> 0:00:45.839 deliver a blow to Sanders? Three can either Clobhan or 0:00:45.840 --> 0:00:48.479 Buddha Usa debate stage yet again to bounce into polls? 0:00:48.479 --> 0:00:51.520 And four can bide and use it to bounce back 0:00:51.840 --> 0:00:53.680 in the run up to Super Tuesday? Lisa? Out of 0:00:53.680 --> 0:00:56.400 those four, what's number one for you? I mean it? Look, 0:00:56.440 --> 0:00:59.800 Michael Bloomberg, the founding, a majority partner of the majority 0:00:59.800 --> 0:01:02.080 owner of Bloomberg LP. This is gonna be his first debate, 0:01:02.080 --> 0:01:03.600 and I think a lot of people are really focused 0:01:03.600 --> 0:01:05.559 on him, given how quickly he's risen in the polls. 0:01:05.640 --> 0:01:08.759 That said, Bernie Sanders has really risen to the front, 0:01:08.959 --> 0:01:11.800 the fact that he has like become the front runner, 0:01:12.120 --> 0:01:14.840 after Pete Botaj had been it for a while, after 0:01:14.959 --> 0:01:17.360 Elizabeth Warren had been it for a while. Can he 0:01:17.440 --> 0:01:20.680 maintain that momentum and does he deliver the same sort 0:01:20.760 --> 0:01:22.520 of your with me or against me, whether you're a 0:01:22.520 --> 0:01:25.920 Democrat or not, leading to his supporters staying home if 0:01:25.920 --> 0:01:28.360 he does not get nominated as and Tom mut go 0:01:28.400 --> 0:01:30.880 as far as sand is this six in comparison with 0:01:30.920 --> 0:01:33.959 candidate Donald Trump and the Republican Party that Bernie Sanders 0:01:34.040 --> 0:01:37.040 is not the candidate the party might want or might 0:01:37.080 --> 0:01:39.560 not want, but it could be the candidate they are 0:01:39.680 --> 0:01:43.360 dealt with. I think they will go in the booth 0:01:43.440 --> 0:01:45.720 and choose. And that's what happens is that we saw 0:01:45.760 --> 0:01:49.640 that in New Hampshire with Avengerce Chuck Gabriel with a 0:01:49.720 --> 0:01:53.520 he's with capital Alpha from Minneapolis today but always focused 0:01:53.520 --> 0:01:56.400 on Washington. Is well, Chuck, what's going to be the 0:01:56.480 --> 0:01:59.480 prism of the Washington you know? So well? As they 0:01:59.480 --> 0:02:02.720 look at this debate in Nevada, how are Republicans and 0:02:02.800 --> 0:02:06.200 Democrats on the hill, the senators, the members of the House, 0:02:06.520 --> 0:02:12.160 how will they observe this debate. Well, thanks Tom. I 0:02:12.160 --> 0:02:15.080 think everybody be looking very very closely at Michael Bloomberg 0:02:15.080 --> 0:02:17.519 and to see how he can actually perform in an 0:02:17.600 --> 0:02:21.679 uncontrolled environment taking punches from you know, four or five 0:02:21.680 --> 0:02:25.760 other candidates that really resent his skipping the first four 0:02:25.800 --> 0:02:30.080 events and sort of just paying his way past past 0:02:30.080 --> 0:02:32.880 February and into Super Tuesday. So I think there'd be 0:02:32.919 --> 0:02:35.840 a big focus on that. But you know, while everyone 0:02:35.960 --> 0:02:39.000 is lamenting that Michael Bloomberg is so cuddly developed a 0:02:39.040 --> 0:02:42.560 conscience about billions and taking on Wall Street sort of 0:02:43.120 --> 0:02:46.760 in a peremptory way of looking forward to tomorrow to tonight, 0:02:47.639 --> 0:02:49.600 I think the bigger story, of course, is that Bernie 0:02:49.639 --> 0:02:53.119 Sanders is the one is the beneficiary of all of this. Uh. 0:02:53.120 --> 0:02:55.520 And I think there's a sort of a you know, 0:02:55.560 --> 0:02:58.840 that's the second dynamic that will really be in evidence 0:02:59.240 --> 0:03:03.320 behind the bloomberghsteria tonight, And that is the stop Bonie 0:03:03.880 --> 0:03:07.200 you have in the back of your wonderful research. Note 0:03:07.400 --> 0:03:10.679 the paragraph on the new Wall Street policies not only 0:03:10.680 --> 0:03:13.840 of mayor Bloomberg, what are the others as well? Can 0:03:13.919 --> 0:03:17.080 you win coast to coast on an anti Wall Street theme. 0:03:18.440 --> 0:03:20.720 I don't believe so for a minute. I really don't, 0:03:20.760 --> 0:03:23.400 you know, there there has been no hue and cry 0:03:23.919 --> 0:03:27.080 among the Democratic candidates outside of loose one, you know, 0:03:27.160 --> 0:03:30.079 who's really you know, uniquely burdened on this, having had 0:03:30.200 --> 0:03:33.959 led the Tarp Commission. There isn't in Congress. Uh. You know, 0:03:34.000 --> 0:03:36.800 we actually had a bipartisan bill to to you know, 0:03:36.880 --> 0:03:39.160 take back a little bit of the Dodd Frank just 0:03:39.240 --> 0:03:41.680 a couple of years ago. So you know, when you 0:03:41.720 --> 0:03:45.320 talk to Americans, they're not talking negatively about Wall Street 0:03:45.440 --> 0:03:49.360 exact the extent there really you know, incited to do 0:03:49.440 --> 0:03:54.200 so by these populoust sort of angry narratives. So I 0:03:54.400 --> 0:03:56.920 don't think so at all, and I think they're really 0:03:57.040 --> 0:03:59.680 you know, maybe that's good news that we won't have 0:03:59.720 --> 0:04:03.080 a lot of time to discuss whether Michael Bloomberg has 0:04:03.120 --> 0:04:06.120 made a financial transaction tax of ceiling rather the floor 0:04:06.240 --> 0:04:10.440 rather than a ceiling for long, because you know, after 0:04:11.960 --> 0:04:15.480 this Saturday's Nevada caucuses and then we go to a 0:04:15.560 --> 0:04:19.120 South Carolina the following Saturday, you only have basically chosen 0:04:19.120 --> 0:04:22.000 four percent of delegates. But then on Super Tuesday marked 0:04:22.000 --> 0:04:25.720 third Boom three Super Tuesday six the vote in March. 0:04:26.200 --> 0:04:29.160 It's happening very quickly, Chuck. So let's talk about electability. 0:04:29.360 --> 0:04:32.599 Michael Bloomberg. Mr Bloomberg actenly has the opposite problem that 0:04:32.640 --> 0:04:35.720 Senator Sanders had, at least in terms of perception. There 0:04:35.720 --> 0:04:37.920 are people who believe Mr Bloomberg would struggle to get 0:04:37.920 --> 0:04:40.880 the nomination ultimately, but ultimately he would do better in 0:04:40.920 --> 0:04:43.640 the general, the opposite applying to Senator Sanders in the 0:04:43.640 --> 0:04:46.160 minds of many. I'm just interested in the data, Chuck, 0:04:46.200 --> 0:04:48.039 that you're looking at the moment. I'm looking at a 0:04:48.040 --> 0:04:51.039 new pole from the Post and ABC that essentially still 0:04:51.080 --> 0:04:55.200 sees Senator Sanders is the most selectable cited by thirty 0:04:55.640 --> 0:04:59.279 at Democratic Leaners as best situated to beat Trump. What 0:04:59.400 --> 0:05:01.159 do you see the polls in the data that you 0:05:01.200 --> 0:05:05.240 look at, Chuck, Well, I do think that you know, 0:05:05.279 --> 0:05:09.320 Sanders has a very very loyal basis support and and 0:05:09.400 --> 0:05:11.560 you know there's not a single state where he doesn't have. 0:05:13.960 --> 0:05:16.240 One of the reasons the Democrats are in this situation 0:05:16.320 --> 0:05:19.640 is they changed the rules, they're their primary rules, to 0:05:19.720 --> 0:05:22.560 basically front load more of the primaries and create the 0:05:22.680 --> 0:05:27.240 fifteen percent proportional vote that you know, a candidate can't 0:05:27.240 --> 0:05:29.760 get any delegates unless they get at least fift in 0:05:29.760 --> 0:05:33.279 the congressional district or a state. So ironically, you know 0:05:33.279 --> 0:05:36.520 you're gonna have a very congested field. And I and 0:05:36.560 --> 0:05:39.279 I think that you know, I know what you're talking about. 0:05:39.320 --> 0:05:41.440 You're talking about what where will be in the end. 0:05:41.520 --> 0:05:44.719 But we'll get a very different look at Bloomberg at 0:05:44.760 --> 0:05:47.120 that time. And I think for I think, really what 0:05:47.120 --> 0:05:50.680 Bloomberg speaks to and those poles speak to is Democrats 0:05:50.760 --> 0:05:53.520 just want to defeat Donald Trump, and they sense that 0:05:53.560 --> 0:05:56.360 a centrist will do it, and they think another billionaire 0:05:56.400 --> 0:05:58.760 who will get in the ring with the president is 0:05:58.800 --> 0:06:00.800 the right way to go. But I don't think that's 0:06:00.800 --> 0:06:03.920 the majority of the party. Took just twenty twenty seconds here. 0:06:03.920 --> 0:06:06.880 I'm wondering, from your perspective, how close do you think 0:06:06.880 --> 0:06:10.359 we are to sort of honing in on the candidate. 0:06:12.520 --> 0:06:16.440 I think there's maybe a thirty chance that Lisa, that 0:06:16.520 --> 0:06:19.440 we will actually have a better chance that people uh 0:06:20.000 --> 0:06:23.080 suspect that we'll know who the Democratic nominee could be 0:06:23.080 --> 0:06:25.240 in it very well could be Sanders by the end 0:06:25.279 --> 0:06:28.160 of March early April, say mid April, with the New 0:06:28.240 --> 0:06:31.280 York Primary. I think that's I think that's absolutely true, 0:06:31.320 --> 0:06:33.800 and of course Wall Street will freak out a bit, 0:06:33.800 --> 0:06:36.279 but nothing spooks this market, So why not do it now? 0:06:36.480 --> 0:06:38.680 Chuck Cabriel, thank you so much. With Capital Alpha here 0:06:38.720 --> 0:06:43.440 as we moved to the debate. Right now we take 0:06:43.480 --> 0:06:46.760 over some time of Austin Gouldsby's he's at the April School, Chicago, 0:06:47.320 --> 0:06:50.320 former chairman of the President's Council Economic Advisor. We've been 0:06:50.320 --> 0:06:53.840 talking retail right now, Austin, I need to talk FED 0:06:53.920 --> 0:06:58.000 policy with you, and I want you to defend William Dudley, 0:06:58.279 --> 0:07:00.880 the former FED President of New York, who, in a 0:07:00.880 --> 0:07:05.680 Bloomberg opinion piece was heated that this isn't about the 0:07:05.720 --> 0:07:08.520 blunt instrument of a balance sheet, of the blunt instrument 0:07:08.560 --> 0:07:13.840 about monetary policy. That monetary policy still has an effect 0:07:13.920 --> 0:07:17.320 on the American economy. If they cut race once or 0:07:17.440 --> 0:07:23.840 daresay twice from here, what does that do to our listeners. Well, 0:07:24.200 --> 0:07:27.960 you've got a lot of listeners, so it probably does 0:07:28.040 --> 0:07:32.040 different things to different ones of them. Um, I have 0:07:32.640 --> 0:07:37.320 publicly said that I'm skeptical, not a look. I still 0:07:37.320 --> 0:07:42.000 think conventional monetary policy and cutting interest rates does matter 0:07:42.080 --> 0:07:45.640 for the economy. It's just that right now it matters 0:07:45.840 --> 0:07:50.400 less than it basically has ever mattered because several of 0:07:50.480 --> 0:07:54.880 the normal channels are not working. So when you cut 0:07:54.920 --> 0:08:00.920 interest rates, normally, one of the big channels is there's 0:08:00.960 --> 0:08:03.600 a pent up stock of people who say, want to 0:08:03.600 --> 0:08:07.080 refinance their homes. They've been waiting for rates to come down, 0:08:07.480 --> 0:08:10.880 and then when you cut the rates, you get a 0:08:10.920 --> 0:08:13.680 whole bunch of these people who have been sitting on 0:08:13.720 --> 0:08:17.240 the sidelines. And the same for business investment, and the 0:08:17.320 --> 0:08:21.240 same for consumer durables, uh, you know, buying autos and 0:08:21.280 --> 0:08:25.440 stuff like that. The problem is we've had the rates 0:08:25.520 --> 0:08:29.320 so low for so long that anybody who was waiting 0:08:29.720 --> 0:08:32.560 to buy a new car, to do a business investment, 0:08:32.600 --> 0:08:35.800 to refinance their home, they were waiting for rates to 0:08:35.840 --> 0:08:38.320 get low enough, they already did it. So there's not 0:08:38.480 --> 0:08:41.840 any of that pent up demand, um, and so that 0:08:41.960 --> 0:08:46.200 channel is less effective. And then the second is if 0:08:46.240 --> 0:08:48.840 we were let's say, the coronavirus got over here and 0:08:48.880 --> 0:08:51.320 people freaked out and stopped going to work, and we 0:08:51.600 --> 0:08:54.839 and we had a downturn like what they're facing in China. 0:08:55.480 --> 0:08:59.280 The normal FED move, as you know, is to cut 0:08:59.600 --> 0:09:03.520 rates four to five hundred basis points over a relatively 0:09:03.559 --> 0:09:06.440 short period of time. That's the kind of signature FED 0:09:06.600 --> 0:09:09.800 move to fight off a recession. You can't got the 0:09:09.960 --> 0:09:12.720 interest rate five o our basis points when it's already 0:09:12.840 --> 0:09:18.280 too low. So I am a huge fan of Bill 0:09:18.360 --> 0:09:21.960 Dudley's I was on the Economic Advisory Panel to the 0:09:22.000 --> 0:09:24.400 New York FED when he was the President of the 0:09:24.400 --> 0:09:27.200 New York FED, and I think there is a lot 0:09:27.280 --> 0:09:30.880 of wisdom in his piece. But the part of it 0:09:31.200 --> 0:09:34.679 in which he's kind of pleading to the world please 0:09:34.800 --> 0:09:40.079 still respect are the power of our monetary policy, I 0:09:40.120 --> 0:09:44.200 think it's that part is maybe overstated. So, professor, what 0:09:44.360 --> 0:09:47.760 tools do you think the FED should use should it 0:09:47.880 --> 0:09:50.600 need to act to stimulate our economy at some point 0:09:50.679 --> 0:09:54.600 in the future. Well, look, they should use the conventional 0:09:54.600 --> 0:09:59.280 monetary channel. It's just they got the shorter runway, so 0:09:59.320 --> 0:10:01.760 you're not gonna be landing a seven forty seven on it. 0:10:02.280 --> 0:10:05.000 You know, we're gonna we're gonna have to focus on 0:10:05.040 --> 0:10:09.120 the on the smaller planes. And I continue to think 0:10:09.160 --> 0:10:15.280 that the unconventional monetary policies like forward guidance, like QUI, 0:10:15.559 --> 0:10:20.439 like a series of things are modestly effective, but they 0:10:20.520 --> 0:10:25.880 should certainly be in the toolkit. Um. I think for 0:10:25.960 --> 0:10:30.160 the people who believe that those unconventional monetary policies and 0:10:30.200 --> 0:10:35.280 the balance sheet are super directive of the markets, are 0:10:35.320 --> 0:10:38.640 they're the thing that has led stocks to rise. You know, 0:10:40.000 --> 0:10:45.680 in I I would like to see what data they're 0:10:45.679 --> 0:10:47.840 looking at, because my read of the data is their 0:10:48.320 --> 0:10:51.480 their impact had There has been some impact, but it's 0:10:51.520 --> 0:10:54.560 been a modest impact if you if you actually start 0:10:54.600 --> 0:10:58.040 going and looking at the various assets. So as as 0:10:58.040 --> 0:11:00.320 we take a look at today's economy, you know, it 0:11:00.480 --> 0:11:03.160 has been clear for some time that it has been 0:11:03.240 --> 0:11:06.679 driven in very very large part by the consumer. How 0:11:06.720 --> 0:11:11.800 confident are you in the U S consumer today? I 0:11:11.880 --> 0:11:14.600 think you're right, has been driven by the consumer and 0:11:14.640 --> 0:11:17.640 the job market. That's the that's the that's the shining 0:11:17.720 --> 0:11:25.480 part of the economy. I'm still pretty confident on them. Um. Though. 0:11:25.520 --> 0:11:31.360 The only thing is anything that destroys consumer confidence puts 0:11:31.520 --> 0:11:34.760 our recovery at risk. That that part is clear. And 0:11:35.720 --> 0:11:41.079 I will say two things that historically can direct consumer 0:11:41.120 --> 0:11:47.880 confidence in fast order are a massive political dysfunction and 0:11:48.000 --> 0:11:51.840 meltdown in Washington. And did I say one or a 0:11:52.120 --> 0:11:56.400 I think I said a b uh, natural disasters or 0:11:56.679 --> 0:12:01.440 infectious disease for sure, if we got to ronavirus spreading 0:12:01.480 --> 0:12:05.320 in the US, I think it's hard to fathom that 0:12:05.320 --> 0:12:09.199 that would not freak out consumer confidence in a short basis, 0:12:09.200 --> 0:12:12.400 short of an epidemic becoming a pandemic. There's a trillion 0:12:12.400 --> 0:12:15.360 dollar deficit. Are you oblivious? I mean, come on, you 0:12:15.400 --> 0:12:17.920 have to sit there and explain CBO to presidents and 0:12:18.040 --> 0:12:20.880 that I'm looking at a one point three trillion dollar 0:12:21.000 --> 0:12:24.360 run rate to begin with of a plugged in GDP number. 0:12:24.400 --> 0:12:28.040 That's maybe it works, maybe it doesn't. Is Austin gools 0:12:28.000 --> 0:12:31.240 to me telling me that Senator Dirkson's a billion here, 0:12:31.280 --> 0:12:34.800 a billion there, a trillion here, a trillion there, doesn't matter, 0:12:36.200 --> 0:12:40.000 you know, it does matter. The part that's disturbing is 0:12:40.000 --> 0:12:42.640 not the one trillion. What is the part that's the 0:12:42.760 --> 0:12:47.720 disturbing is the one trillion in a boom? Uh, Because 0:12:48.120 --> 0:12:50.760 if then there weren't a boom, it's gonna be two 0:12:50.760 --> 0:12:53.600 trillion plus. Well, no way, this is important. I don't 0:12:53.600 --> 0:12:55.120 mean to interrupt you, but I'm gonna go out John 0:12:55.200 --> 0:12:58.520 Taylor on you and automatic stabilizers. If you modeled in 0:12:58.600 --> 0:13:01.520 an n b E R recent what would have one 0:13:01.600 --> 0:13:06.120 point three trillion dollar deficit become double it? Yeah, probably 0:13:06.160 --> 0:13:08.760 double it. You know, it depends on how deep the 0:13:08.800 --> 0:13:13.559 recession is. So we saw the the deficit exploded to 0:13:13.679 --> 0:13:17.160 record levels in the first one to two years of 0:13:17.160 --> 0:13:22.720 the Obama administration because it was the deepest resonn As 0:13:22.760 --> 0:13:25.520 the economy comes back, the deficit gets cut in half. 0:13:25.920 --> 0:13:29.680 What we have basically never had in the United States 0:13:30.040 --> 0:13:34.040 economic history is a circumstance where we're growing and the 0:13:34.160 --> 0:13:39.040 unemployment rate is below four, but the deficit is exploding. 0:13:39.760 --> 0:13:43.640 Uh So I think it easily could be above two 0:13:43.640 --> 0:13:47.320 trillion in the event of a recession. And my thing 0:13:47.360 --> 0:13:50.000 about deficits is it's not that it's going to be 0:13:50.080 --> 0:13:54.200 a fiscal grease style fiscal crisis that drives the US 0:13:54.240 --> 0:13:57.760 interst rate through the roof the problem of the debt 0:13:57.880 --> 0:14:00.760 and the deficits is not that a drive up the 0:14:00.800 --> 0:14:03.640 interest rate. It's that you have to pay back the money. 0:14:03.760 --> 0:14:08.280 And so ten twent thirty years from now, our kids 0:14:08.320 --> 0:14:11.920 are gonna becoming of age and need training. We're gonna 0:14:11.960 --> 0:14:16.360 want to fund social security and scientific research and every 0:14:16.400 --> 0:14:20.040 other thing that the government does, and we're going to 0:14:20.200 --> 0:14:22.800 just have a bigger and bigger share of our budget 0:14:23.760 --> 0:14:26.360 is being spent on interest on the debt that we're 0:14:26.400 --> 0:14:29.520 that we're doing right now. That's the that's the problem. 0:14:29.640 --> 0:14:32.280 That's the problem. What is if I'm a you know, 0:14:32.360 --> 0:14:36.560 a bull on deficits and national debt, what's my argument 0:14:36.560 --> 0:14:41.480 for saying it doesn't really matter? Well, it depends what 0:14:41.520 --> 0:14:47.720 the it is um. The the debt capacity let's call it, 0:14:48.160 --> 0:14:51.880 of the U. S Government is vastly an access of 0:14:52.000 --> 0:14:56.240 where the debt is now, So it doesn't matter for 0:14:56.440 --> 0:15:01.800 interest rates in the United States that we are doing this, 0:15:02.040 --> 0:15:06.200 and the there is as you know, I've been a 0:15:06.440 --> 0:15:10.960 public opponent and been blasted by the MMT people. There 0:15:11.120 --> 0:15:14.200 is one aspect that I have always said the m 0:15:14.280 --> 0:15:19.560 MT people are correct, which is, by by observed practice, 0:15:20.080 --> 0:15:23.920 you can spend trillions of dollars, You can increase the 0:15:24.000 --> 0:15:27.720 deficit by trillions of dollars without tanking the economy. We 0:15:27.800 --> 0:15:31.440 did it with the George W. Bush two trillion dollars 0:15:31.520 --> 0:15:35.440 tax cuts unpaid for, then a two trillion dollar war 0:15:35.600 --> 0:15:40.200 in Iraq, unpaid for, and then Trump another two trillion 0:15:40.240 --> 0:15:43.440 dollar tax cuts, unpaid for. Those things did not blow 0:15:43.560 --> 0:15:46.920 up the interest rate, They didn't blow up the economy. 0:15:46.920 --> 0:15:49.880 But we do have to pay back that money with interest. 0:15:49.960 --> 0:15:52.920 That's my that's my point, Austin, thank you so much, 0:15:53.000 --> 0:15:55.800 very generous of you. Professor Gouldsby is at the University 0:15:55.920 --> 0:16:05.040 of Chicago. Let us begin a three hour conversation with 0:16:05.080 --> 0:16:09.280 a gentleman from Yale University. Stephen Roach invented Morgan Stanley economics. 0:16:09.280 --> 0:16:12.240 He literally brought the digital age to print economics a 0:16:12.280 --> 0:16:15.840 million years ago. He is holding court giving up quality 0:16:15.960 --> 0:16:19.160 sees at Yale University. Steve has been too long, wonderful 0:16:19.200 --> 0:16:22.120 to have you one to talk to you, Tom and John. 0:16:22.320 --> 0:16:25.160 In your book The Next Asia, you have a great 0:16:26.240 --> 0:16:32.960 essay China's macro imperatives right now they have domestic imperatives. 0:16:33.000 --> 0:16:35.640 From where you sit, what is the to do list 0:16:35.880 --> 0:16:40.560 for Beijing? Number one, two and three is simply to 0:16:40.600 --> 0:16:44.119 control the virus. The economy will come later. The economy 0:16:44.200 --> 0:16:49.200 is strong, resilient, uh and changing, but it's being subjected 0:16:49.240 --> 0:16:54.200 to a a powerful shock and um it's all hands 0:16:54.240 --> 0:16:56.240 on deck to deal with that. And as I said, 0:16:56.840 --> 0:17:01.680 the economy will um uh later, I mean within this 0:17:01.800 --> 0:17:03.480 and Steve you've you know, I've seen you with the 0:17:03.520 --> 0:17:05.920 panda's out in western China and your cheng Do and 0:17:05.960 --> 0:17:08.400 all that. You know up the yangs River, you've got 0:17:09.280 --> 0:17:13.000 Wuhan where that big bend is. What's the thing? The 0:17:13.119 --> 0:17:16.280 media and for that matter, Global Wall Street get wrong 0:17:16.800 --> 0:17:21.159 about the resiliency of China to bounce back once they 0:17:21.200 --> 0:17:26.199 get through this virus. Well, you know, in the midst 0:17:26.240 --> 0:17:29.560 of a crisis, Tom, whether it's you know, in the 0:17:29.640 --> 0:17:33.960 depths of oh eight or in you know, other uh, 0:17:34.080 --> 0:17:37.600 seemingly catastrophic developments like the financial to the Asian financial 0:17:37.640 --> 0:17:43.159 crisis of it seems like the world or your favorite 0:17:43.200 --> 0:17:48.200 economy is imploding. But these things have a way of passing. 0:17:48.920 --> 0:17:53.280 Right now, you know, the uh, the evidence on infection 0:17:53.400 --> 0:17:57.679 rates and totality rates remains worrisome. There's some second derivatives 0:17:57.720 --> 0:18:00.680 that are looking a little bit better, but the situation 0:18:00.720 --> 0:18:06.560 that you just alluded to in Japan is now increasingly problematic. 0:18:06.560 --> 0:18:09.720 And I would just note here that Japan, the third 0:18:09.800 --> 0:18:13.720 largest economy in the world, is probably back in recession again. 0:18:13.760 --> 0:18:17.560 I mean, they had a horrible print on fourth quarter GDP. 0:18:17.760 --> 0:18:21.760 The trade data released this morning point to spillovers into 0:18:21.840 --> 0:18:25.080 the first quarter of this year. So you're looking at 0:18:25.119 --> 0:18:30.639 two consecutive quarters of of decline for a long recession 0:18:30.640 --> 0:18:34.280 prone Japanese economy who shot itself on the foot with 0:18:34.320 --> 0:18:40.040 another increase in their consumption tax. So you know, China 0:18:40.280 --> 0:18:45.320 is u it a standstill. All the daily trackers of CULP, 0:18:45.640 --> 0:18:53.720 consumption and traffic are flat uh post Lunar New Year, 0:18:53.720 --> 0:18:57.440 when they normally have bounced back dramatically, So that economy 0:18:57.560 --> 0:19:01.760 is printing a very low number of barely positives at 0:19:01.800 --> 0:19:05.480 all in the first quarter. The world economy is starting 0:19:05.520 --> 0:19:10.480 to feel like a transitory, hopefully temporary recession in the 0:19:10.520 --> 0:19:13.320 first half of this year. Professor, you did a fantastic 0:19:13.359 --> 0:19:15.880 interview with Barren's recently in the last couple of weeks, 0:19:15.880 --> 0:19:17.399 and I'd like to take the opportunity to point our 0:19:17.400 --> 0:19:19.640 audience to go and pick that up if they can. 0:19:20.000 --> 0:19:22.600 I'm just interested in exploring this further, Professor. Is not 0:19:22.640 --> 0:19:24.639 just Japan, of course, it's Germany as well. The economy 0:19:24.680 --> 0:19:27.600 stagnating there, just in terms of the dynamics that are 0:19:27.680 --> 0:19:30.360 shaking the global economy just a little bit relatively speaking. 0:19:30.880 --> 0:19:33.920 What is it you see that's transitory? What is temporary. 0:19:34.040 --> 0:19:35.560 Why will we come out of this the other side 0:19:35.560 --> 0:19:40.080 as the year grows older, in better shape. The virus 0:19:40.119 --> 0:19:43.840 we now call a COVID nineteen UM. You know, if 0:19:43.880 --> 0:19:47.360 you look at US stars trajectory, John, you know there 0:19:47.440 --> 0:19:51.600 was a one quarter hit and then a very sharp 0:19:51.680 --> 0:19:55.880 rebound over the next four quarters. This is not stars, 0:19:56.000 --> 0:19:59.840 but it's an infection rate is higher, but it's mortal. 0:20:00.080 --> 0:20:03.600 Your rate is lower. I think it will take longer 0:20:04.640 --> 0:20:07.880 to um get a grip on this, but I think 0:20:07.960 --> 0:20:13.159 that the trajectory is relevant and comfortable this time as well. 0:20:13.359 --> 0:20:18.040 Professor wrote unbalanced the codepends codependency of America and China, 0:20:18.760 --> 0:20:21.600 And I want to just put out a hypothetical that 0:20:21.760 --> 0:20:24.880 say it takes longer to get the coronavirus under control, 0:20:25.320 --> 0:20:28.120 this goes on for a longer period of time. Are 0:20:28.200 --> 0:20:33.280 people overleas sanguine about the US economy economy being immune 0:20:33.680 --> 0:20:35.719 to the impacts that we're seeing in China right now? 0:20:36.760 --> 0:20:38.280 Of course they are at least I mean, you know, 0:20:38.520 --> 0:20:42.520 the the U s economy is viewed as teflon like bulletproof. Uh, 0:20:42.720 --> 0:20:47.119 and there's seemingly nothing that could touch it. But you know, 0:20:47.200 --> 0:20:50.280 Greenspan had the best line of all. Actually, it was 0:20:50.320 --> 0:20:53.159 back in where he said the US is not an 0:20:53.200 --> 0:20:58.200 oasis and with the rest of the world China, Japan, 0:20:58.920 --> 0:21:02.680 John pointed out German, Many and um, France as well, 0:21:03.160 --> 0:21:07.960 Um on the skids here. Um, that's gonna come back 0:21:08.160 --> 0:21:11.239 to to bite us as well. And so our growth rate, 0:21:11.320 --> 0:21:14.880 which is not as weak as it is in other economies, 0:21:14.960 --> 0:21:18.320 were as far from strong. Uh. And you know we're 0:21:18.400 --> 0:21:23.040 we're cruising it too, which is not the biggest cushion 0:21:23.840 --> 0:21:27.320 to deal with another global shock, Professor, Roach, where do 0:21:27.400 --> 0:21:30.640 you expect to first see the effects of the slowdown 0:21:30.760 --> 0:21:37.720 in China, in Japan, in Germany manifest themselves in the US? Well, yeah, 0:21:37.760 --> 0:21:41.520 I think it'll come from our trade numbers. There's also 0:21:41.680 --> 0:21:47.760 already as we've seen from Apple clogging of China centric 0:21:47.800 --> 0:21:52.440 supply chains, which is going to stifle our ability to 0:21:52.760 --> 0:21:56.119 to buy our favorite electronic device. And there are other 0:21:56.200 --> 0:21:59.080 spellover effects as well. Steve, we've gotta go. But I 0:21:59.160 --> 0:22:01.760 got one key question which is just so critical to know. 0:22:01.840 --> 0:22:05.080 Our listeners want to hear your response to it. What 0:22:05.359 --> 0:22:09.520 is the cost of the accommodation of this central bank? 0:22:09.840 --> 0:22:13.359 I mean, the real FED funds target rate is back negative. 0:22:13.480 --> 0:22:16.200 You know, we're not down at stand Fisher Alter accommodation, 0:22:16.320 --> 0:22:18.960 but we're there are on our way there. I should say, 0:22:19.480 --> 0:22:24.840 what's the price of the free lunch we've got right now? Well, 0:22:25.040 --> 0:22:29.520 look it's a long, um long answer, Tom. But you know, 0:22:30.240 --> 0:22:36.560 free money UM enables financial instability, UH. It enables UM 0:22:37.240 --> 0:22:42.800 zombie like behavior of corporations who might otherwise be disciplined 0:22:42.880 --> 0:22:45.840 with a more meaningful cost to capital. And of course 0:22:46.320 --> 0:22:51.920 it facilitates the most reckless UH fiscal policy the United 0:22:51.960 --> 0:22:56.320 States has ever had. In an economic condition, the FED 0:22:56.560 --> 0:23:02.520 enables the Congress to keep printing a trillion dollar deaths 0:23:02.760 --> 0:23:04.760 as far as the eye can see. Steve Roachs, thank 0:23:04.760 --> 0:23:07.040 you so much with the university and update. There's been 0:23:07.080 --> 0:23:08.680 way too long. We got to get him in more 0:23:08.760 --> 0:23:13.760 of any regular because he's always busy, and he brings 0:23:13.800 --> 0:23:17.159 a holistic theme, almost a balance sheet them to economics. 0:23:17.200 --> 0:23:20.000 I've just enjoyed our exchanges on China and what happens 0:23:20.040 --> 0:23:27.280 with global trite. This is gonna be fun because SA 0:23:27.560 --> 0:23:31.199 and Society general, the great Derivatives House of paris Um 0:23:31.320 --> 0:23:34.120 always has a sophisticated note, and they've been pretty cautious 0:23:34.160 --> 0:23:36.800 on global GDP and U s GDP. Sophie Win with 0:23:36.880 --> 0:23:40.399 US do a multi asset and Sophie has the word 0:23:40.640 --> 0:23:43.600 in a report, John, what is it transitory? No? Not 0:23:44.119 --> 0:23:48.359 not even existential, No, not even zeitgeist g o L. 0:23:49.480 --> 0:23:53.439 We have a major house here talking gold, Sophie Win. 0:23:53.560 --> 0:23:55.720 How do you put gold in the mix here in 0:23:55.840 --> 0:24:00.840 your assets strategy? UM? Good morning. So from an essata 0:24:00.840 --> 0:24:03.920 allocation standpoint, UM, we think that at this point having 0:24:04.000 --> 0:24:07.280 a balance but firm makes sense. But having disport for 0:24:07.400 --> 0:24:11.680 protection through treasuries on gold UM makes sense. So gold 0:24:11.840 --> 0:24:15.560 is really one of the best prefer protection that you 0:24:15.640 --> 0:24:17.920 could have your as dellocation. Well, I don't want to 0:24:17.920 --> 0:24:19.720 go to the tent of a decimal point, but give 0:24:19.760 --> 0:24:25.080 me a percentage in gold right here at s We 0:24:25.200 --> 0:24:28.639 don't have a target on it, but I guess that 0:24:29.200 --> 0:24:33.480 when you look at how gold and US dollar have 0:24:33.880 --> 0:24:38.760 decorrelated UM in recent weeks, it really allows you to 0:24:38.960 --> 0:24:42.320 understand that barbo portfolio is at this point is really 0:24:43.080 --> 0:24:47.040 the trend for investors. So fear the risk medicating characteristics 0:24:47.080 --> 0:24:50.639 of say gold becoming more attractive relative to say treasuries. 0:24:53.160 --> 0:24:56.800 We like both, but it's clear that having gold at 0:24:56.880 --> 0:25:01.040 these points where from a relate to the basis if 0:25:01.080 --> 0:25:04.320 you look at gold versus copper and dealing with the 0:25:04.440 --> 0:25:09.080 tenor treasuries, it's clear that gold is really a way 0:25:09.119 --> 0:25:11.359