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Speaker 1: Who you put your trust in matters. Investors have put

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Speaker 1: their trust in independent registered investment advisors to the tune

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Speaker 1: of four trillion dollars. Why learn more and find your

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Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.

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Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring

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Speaker 1: you insight from the best in economics, finance, investment, and

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Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com,

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Speaker 1: and of course, on the Bloomberg. Deutsche Bank chief executive

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Speaker 1: officer John Cryan was talking Frankfurt today. He said Germany's

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Speaker 1: largest bank is looking to shrinking size. He was asked

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Speaker 1: about me to report that it considered merging with rival

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Speaker 1: Commerce Bank. Now we're joined by Atlantic Equities Chris Wheeler. Chris,

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Speaker 1: what a day to have you on the program. So

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Speaker 1: we have so much banking news, from bonus to possible consolidation.

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Speaker 1: This is the question that Tom Kings has been asking

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Speaker 1: for two years, and I always pushed back. I said, no,

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Speaker 1: they're not going to consolidate because no one wants a

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Speaker 1: bigger bank. Certainly the regulators don't want It's am I wrong? No,

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Speaker 1: I think partly I think, y, yeah, well that's the

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Speaker 1: bottom line here is that clearly, you know, I don't

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Speaker 1: think Deutschland comments Bank are going to merge. I think

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Speaker 1: that's too big a deal, and I don't think the

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Speaker 1: regulators will be comfortable for the whole host of the leason.

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Speaker 1: It's not least competition issues allowed their dealing with the

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Speaker 1: middle stamp, the German middle size companies. But I think

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Speaker 1: the important thing here is, you know, this could be

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Speaker 1: no smoke without fire, because deutsch still want to dispose

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Speaker 1: of post Bank, the big retail banking business they have.

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Speaker 1: They want to get lirid of it because they want

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Speaker 1: to get rid of the levelage issues and the capital issues.

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Speaker 1: And maybe, just maybe they're trying to think of a

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Speaker 1: deal with comments Bank, who are more skewed towards the

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Speaker 1: town of small business activity, where they get it off

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Speaker 1: the balance sheet, maybe get fifty one off, do some

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Speaker 1: kind of joint venture to support comment Outs, effectively in

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Speaker 1: glowing a much bigger let out bank rather than obviously

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Speaker 1: you know, I said a complete merger of the twenty.

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Speaker 1: But this would be a very similar the big banks,

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Speaker 1: the so called healthier banks such as the Italian ones,

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Speaker 1: the bigger ones trying to help the smaller ones. Well, yes,

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Speaker 1: I think so, but it's also tryed to execute the

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Speaker 1: strategy that Deutsche has the really clear strategy. Actually Jane

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Speaker 1: laid it out in eight Pril last year. John has

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Speaker 1: followed it through UM in terms of improving considerably in

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Speaker 1: their levelage lay show and as I said, they're capitally show,

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Speaker 1: both of which will be helped considerably if Post Bank

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Speaker 1: was off the balance sheet is part of their strategy,

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Speaker 1: but it's a very low way. It's got very low

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Speaker 1: the turns post Bank, so just selling it to somebody

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Speaker 1: is not really an option. I p oing it. I

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Speaker 1: think it's a tough call so that that they have

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Speaker 1: really limited options. Chris, I want to look at the

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Speaker 1: currents Bank and Deutscher Bank chart. I think a lot

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Speaker 1: of our viewers don't realize the train wreck these two

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Speaker 1: banks are, and for that mayut of the train wrecked

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Speaker 1: German banking is. I don't for a minute believe this

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Speaker 1: is ill time. It's the end of August am I correct,

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Speaker 1: And you know this with your work at Leys over

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Speaker 1: the years working within the bank. This is where you

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Speaker 1: do your year ahead planning, is what this discussion really

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Speaker 1: about is a total pipe dream of profitability that is

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Speaker 1: just not going to be there. Well, I think that's

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Speaker 1: a that's an important factor because we've seen, for example,

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Speaker 1: certainly at Deutsche Bank, you know, laying out a strategy

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Speaker 1: in Apol last year being levised when the CEO left

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Speaker 1: and we had a new CEO coming in. But of

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Speaker 1: course circumstances, as John keeps, the minding is has changed

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Speaker 1: considerably since. So it isn't matter saying, my goodness, next

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Speaker 1: year doesn't look a lot better than than the year

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Speaker 1: within at the moment, what do we do it's less

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Speaker 1: that and stop the share price going further down? Perfectly stated,

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Speaker 1: what will be the shrinkage of Deutsche Bank, and for

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Speaker 1: that matter, what will be the shrinkage of the Anglo

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Speaker 1: Saxon banks if they have to deal with a great distortion,

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Speaker 1: They have to deal with the negative interest rates in

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Speaker 1: each nation, and they have to deal with major central

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Speaker 1: bankers like Stanley Fishers saying they like negative rates. Jam

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Speaker 1: Crying doesn't like negative rates, does he? Look? I don't

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Speaker 1: think any banker likes negative lates. It causes great confusion.

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Speaker 1: I've been talking to a number of US banks leasently

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Speaker 1: smaller banks who are worried about negative interless leads. And

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Speaker 1: we come back to the fact that in most cases

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Speaker 1: people view the fact that in a negative into the

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Speaker 1: slate scenario, the courtlet's end up financing the letail customers.

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Speaker 1: And this is this is something which is not attractive

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Speaker 1: because you don't really want one infinite one customer sub

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Speaker 1: subsidizing another. But yeah, I mean this, this, this makes

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Speaker 1: life incredibly difficult. And you know, the most important thing

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Speaker 1: is the only thing you can control, Tom and we've

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Speaker 1: talked about this endlessly is costs. And so you're back

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Speaker 1: on the old band wagon of how much more costs

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Speaker 1: we can take out the system. What Mr Wheelers said there, folks,

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Speaker 1: is absolutely critical about the idea that corporate, big deposit

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Speaker 1: people subsidize the little accounts because of the unequal application

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Speaker 1: of negative rates. Here is stan Fisher yesterday in Washington.

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Speaker 1: We've learned at the central banks which are implementing them,

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Speaker 1: there are four or five of them basically think they're

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Speaker 1: quite successful and or staying with that approach, possibly with

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Speaker 1: the exception of Japan, although they're thinking it's through and

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Speaker 1: they have said they'll come back to try and make

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Speaker 1: negative rates work work better. Okay, so there's the vice

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Speaker 1: chairman from forty thousand free, Chris wheel Er. You're looking

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Speaker 1: at these banks at three thousand, two hundred feet and

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Speaker 1: there's that dreaded cross wind at the Frankfurt airport. What

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Speaker 1: does John Cryan do living in stand Fisher's world. Look,

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Speaker 1: I think John's job, he's got such an enormous job,

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Speaker 1: is to just keep having small winds, small victuals. It's

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Speaker 1: a bit like you know, you can say Churchill at

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Speaker 1: the Second World War. After that, Alam, you know, you

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Speaker 1: just keep wanting to have more and more small victuals

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Speaker 1: to feel like you're back in the you know, you're

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Speaker 1: you're back actually in the light election. And I think

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Speaker 1: that's what John is going to have to do, because

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Speaker 1: the big picture still tells him he's got the most

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Speaker 1: enormous job in terms of changing the platform, the cost spice.

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Speaker 1: But still my tining a strong revenue flow investment bank. Francine,

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Speaker 1: You and I are going to remember this day six

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Speaker 1: months from now. This is just extraordinary how crying has said, Look,

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Speaker 1: this is the reality. Yeah, you're absolutely right. And actually

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Speaker 1: I wonder whether it has any influence, right, whether Central

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Speaker 1: Banks actually listened to guys like that and say, well,

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Speaker 1: maybe I need to change my thinking or tweak it

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Speaker 1: a touch Edward Morris with US with City Group, of course,

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Speaker 1: synthesizing macro and microeconomics downstream and upstream. Let's start right there,

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Speaker 1: right now. It's the end of the summer driving season.

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Speaker 1: Is that it's true now? Is it was when you

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Speaker 1: began studying hydrocarbons decades ago? Well, actually the summer. Nobody

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Speaker 1: would have expected when I started studying this that August

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Speaker 1: would be the peak month oil demand. And that's because

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Speaker 1: we we had the summer season in the northern hemisphere

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Speaker 1: for driving. But now we have the summer electricity season

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Speaker 1: in the middle because conditioning didn't exist, conditioning and populations

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Speaker 1: have gotten bigger. So August is really the peak month

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Speaker 1: more so than ever. Do you know what we have?

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Speaker 1: I mean, I I know, we don't know what China

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Speaker 1: has an oil does Edward was actually of an understanding

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Speaker 1: of what is in the hydrocarbons of the United States. Well,

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Speaker 1: I think that that that that question is an unfolding one.

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Speaker 1: We know the US has a robust a coal base.

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Speaker 1: Coal is becoming a stranded asset, so you know, we

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Speaker 1: don't care as much about that as we used to

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Speaker 1: when we know that the oil and gas reserves of

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Speaker 1: the US are really much huger than people would have thought.

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Speaker 1: I mean, who would have thought that if Pennsylvania were

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Speaker 1: considered to be an independent country, it would be the

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Speaker 1: third largest natural gas producing country in the world. I

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Speaker 1: did not know that. That's why we love him and Fancy,

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Speaker 1: that's why we love having worse here from Philadelphia to

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Speaker 1: Pittsburgh a natural guest, Are you kidding me? Absolutely not.

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Speaker 1: They were producing nothing ten years ago, and they're gonna

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Speaker 1: they can even double that collection. I'm assuming Fancy niots

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Speaker 1: lost in translation. It's absolutely remarkable that Pennsylvania is the

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Speaker 1: third biggest net gas producer in the world. Jump in here, Fancy, yeah, Tom.

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Speaker 1: And actually it goes back to the point though, that

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Speaker 1: we know, or I guess, the global markets know very

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Speaker 1: little about how much the US can produce because of

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Speaker 1: these newsplayers, which is shale gas, and how much they

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Speaker 1: can actually export longer term. What's that figure? Well, actually

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Speaker 1: we don't know, and the number keeps growing, and I

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Speaker 1: know there's uh, there are a lot of naysayers who

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Speaker 1: think this is still a pyramid scheme. But um, the

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Speaker 1: US is the largest natural gas producing country in the world,

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Speaker 1: and it's growing. And the major constraint is a subject

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Speaker 1: that Tom is going to be talking about with somebody

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Speaker 1: maybe tomorrow, namely the infrastructure. It's the pipeline capacity, the

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Speaker 1: big constraint for not getting more gas out of Pennsylvania

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Speaker 1: bringing it to export terminals in the south and the southeast.

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Speaker 1: There's pipeline, there's pipeline. Stephen Shark, where us to our

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Speaker 1: really looking forward to talking to Mr Shark about that infrastructure.

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Speaker 1: Fancying please? And when you look at the oil markets,

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Speaker 1: right there's so much talk about OPEC doing something and

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Speaker 1: I know it brings it away a little bit from

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Speaker 1: from the US, But are you surprised at oil heading

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Speaker 1: for the biggest monthly game since April just on talks

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Speaker 1: and OPEC has disappointed month after month for the lost

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Speaker 1: two years. I actually don't understand the hype about OPEC.

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Speaker 1: I've written all over the place that don't think about

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Speaker 1: OPEC as being a real entity any longer. OPEC is dead.

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Speaker 1: It's not likely to be revived anytime soon. There's no

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Speaker 1: cohesion on objectives. They're all over the place, and Saudi

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Speaker 1: Arabia has decided it doesn't want to play the game

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Speaker 1: it used to play. That game was we are the

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Speaker 1: lowest cost producers in the world. Let's keep our oil

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Speaker 1: in the ground because it's going to be worth more

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Speaker 1: in the future. And more we keep in the ground,

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Speaker 1: the bigger the delta, the distance between their production costs

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Speaker 1: and the market price in the world. And then the

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Speaker 1: big shift coming out of US shale in particular, is

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Speaker 1: oil in the ground is worth a lot less than

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Speaker 1: oil being produced. That's a big structural Let's go back

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Speaker 1: to a basic structural question. Their production costs are a

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Speaker 1: lot less than ours, right, yes they are. But we

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Speaker 1: had we had Scott Sheffield from Pioneer saying all over

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Speaker 1: the place over the last few weeks that production costs

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Speaker 1: in the Permian Basin are equivalent to those in Saudi Arabia,

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Speaker 1: and the Permian Basin now producing two million barrels a

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Speaker 1: day could be producing five million a day and doing

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Speaker 1: it for decades. So that Uh, that's a very different

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Speaker 1: kind of environment than what OPEC was used to. OPEC

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Speaker 1: used to think about having shut in capacity that could

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Speaker 1: come back into the market. Uh. In a range of

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Speaker 1: about a million dollars a day or even two million

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Speaker 1: barrels a day if markets needed it and they could

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Speaker 1: take it off. Now we have the US, which compares

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Speaker 1: with a rack that may add two hundred thousand a

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Speaker 1: day or ran that now that they're back up in

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Speaker 1: the arculd add two thousand a day. The US, by

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Speaker 1: completing drilled but uncompleted wells and increasing drilling could be

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Speaker 1: back at increasing output a million dollars a day in

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Speaker 1: the year. And is there something about opaque that we,

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Speaker 1: you know, misunderstand or underestimate that they won't move. They

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Speaker 1: won't freeze if Russia doesn't do the same. Well, they

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Speaker 1: won't freeze unless all the other members of OPEC do

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Speaker 1: the same. And there's no indication, uh that Libya will

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Speaker 1: agree to a production freeze when they have a new

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Speaker 1: governing structure and they're going to come back. There's no

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Speaker 1: indication that Nigeria will really agree not to go back

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Speaker 1: to where they were at the beginning of the year.

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Speaker 1: What what should the policy be of the next president?

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Speaker 1: Should they have no energy policy, just get out of

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Speaker 1: the way and let American industry do it. You know,

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Speaker 1: there there's a lot more to energy policy than just

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Speaker 1: you know where we're going to export or import. Are

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Speaker 1: we gonna encourage deduction at home or abroad? We have

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Speaker 1: some serious challenges UH, globally and the energy sector. Those

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Speaker 1: challenges relate to climate change as much as they do

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Speaker 1: to getting energy properly costed. I think it's clearly in

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Speaker 1: the US interest to have transparent global markets that work,

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Speaker 1: free investment flow, free trade flow. I clearly think it's

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Speaker 1: in the U s interest, as do the majority of Americans,

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Speaker 1: to to worry about carbon levels globally and to think

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Speaker 1: about what policies can be done to restrict them. But ed,

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Speaker 1: you could argue that actually foreign policy, US foreign policy

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Speaker 1: is a proxy for oil policy right worldwide. What does

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Speaker 1: a Donald Trump presidency mean for these relationships with oil producers? Well,

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Speaker 1: we don't really know. We know that uh. And this

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Speaker 1: we have one big statement on energy policy from Donald

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Speaker 1: Trump was a speech given in North Dakota several months ago.

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Speaker 1: We have nothing new from that, but that was a

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Speaker 1: very much UH American production oriented policy. It was let's

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Speaker 1: get the Keystone Excel pipeline built, let's reduce constraints on production.

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Speaker 1: He modified that to some degree in recent commentary where

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Speaker 1: he said states and local government should have a say

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Speaker 1: in shall exploitation. But we don't really know what his

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Speaker 1: global policy is. I mean, within all this, in your

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Speaker 1: core idea of oil prices rising up is we never

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Speaker 1: get back to a hundred dollars of barrel? What did

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Speaker 1: you think looking out of the Ritz Carlton windows in

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Speaker 1: Dubai or the jere Moriah there, you know, you look

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Speaker 1: down on the horse farms of of of the leadership

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Speaker 1: of of Dubai. What did you think in a hundred

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Speaker 1: dollars of barrel? Did you just know it would end? Uh? Well,

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Speaker 1: I certainly thought it was not stable and I thought

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Speaker 1: it was going to go down. What I thought when

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Speaker 1: I looked down from those towers was here is a

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Speaker 1: country that or an entity, uh, governing entity that was

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Speaker 1: entirely dependent upon oil. Dubai futures. Dubai future is because

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Speaker 1: Dubai was became a mark of crude, because Dubai production

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Speaker 1: was meaningful. Now it scarcely exists, and the economy was diversified, uh,

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Speaker 1: and it went beyond oil. There was the first time

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Speaker 1: in the history of the oil business. If this happened

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Speaker 1: with within the knowledge and I don't want to get

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Speaker 1: into a very sensitive city group issues. Do you just

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Speaker 1: assume Abu Dhabi owns most of Dubai? Are there is

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Speaker 1: that a visible transaction or those sidecard deals when they

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Speaker 1: have to bail out, When rich Abu Dhabi has to

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Speaker 1: bail out poor Dubai, do we know who owns what?

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Speaker 1: We actually don't know who who owns what. We don't

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Speaker 1: know who subsidizes what. But clearly once the Dubai expansion

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Speaker 1: got to where it was in two thousand and eight nine,

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Speaker 1: they did have to get bailed out. There's been a

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Speaker 1: revival in the Dubai economy. Part of that revival is

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Speaker 1: from tourism that's independent of anything that happens Abu Dhabi.

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Speaker 1: Part of that revival is luminum manufacturer. Part of that

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Speaker 1: revival is really a housing pocket that's catered to the

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Speaker 1: Middle East itself, to Arabs and other Arab countries that

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Speaker 1: want to have another place that's a safe haven, a

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Speaker 1: safe haven in their own region. Well, I think we've

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Speaker 1: done a lot of the the usual discussion, and I

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Speaker 1: want to rip up the script, and you're so competent.

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Speaker 1: I know when I rip up the script, you're gonna

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Speaker 1: kill it. The North Sea give us an update. Is

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Speaker 1: it a depleted field that's fading out into the decades

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Speaker 1: or can there be vibrancy in north Sea oil? Now?

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Speaker 1: The likelihood is five years from now there'll be virtually

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Speaker 1: no production out of the North Sea. It'll be dead.

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Speaker 1: It'll be dead. Um. Yes, high prices gave it a

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Speaker 1: little bit of a kick, but it's it's high cost

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Speaker 1: and now the operators are struggling between the costs of

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Speaker 1: keeping production going and the costs of demolishing UH, the

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Speaker 1: infrastructure of the oil fields, costs of of getting out

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Speaker 1: of the business. And when you look at the North Sea,

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Speaker 1: how what's the break even cost? It seems like it's

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Speaker 1: a lot more expensive than for U S shail gas producers.

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Speaker 1: But then again, as you were saying, we don't know

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Speaker 1: much about what's happening in the US UH, then now

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Speaker 1: the cost is significantly higher. Um. There are no big

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Speaker 1: fields to give leverage to a big investment. You can

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Speaker 1: look at the new play that Statoil is doing. It's

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Speaker 1: in the Arctic, not in UH, not in the North Sea.

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Speaker 1: They get a new discovery, they're gonna be producing six

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Speaker 1: and sixty barrels a day out of that that's worth

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Speaker 1: an investment. An investment that's going to produce fifty barrels

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Speaker 1: a day and a low price environment has a cost

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Speaker 1: structure that's in the sixty dollar range. It's just not

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Speaker 1: really going to be worth it. When you look at

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Speaker 1: the cash flow of Norway, I'm speaking as an amateur.

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Speaker 1: Their Sovereign Wealth Fund has been hugely successful. It's it's

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Speaker 1: arguably the best run one in the world. Do you

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Speaker 1: just assume wealth depletion for Norway in the coming decades, um,

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Speaker 1: not really. Norway has a really significant amount of natural gas.

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Speaker 1: They have more oil in their future. They're going to

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Speaker 1: be uh maybe off their peak in oil, but they'll

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Speaker 1: be at their peak and natural gas. So the revenue

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Speaker 1: stream coming out of hydrocarbons for a country whose population

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Speaker 1: is smaller than the city that we're sitting in. Um,

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Speaker 1: you know this, this this is a cash cow that

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Speaker 1: keeps giving giving the cash. They they pulled back on

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Speaker 1: their Sovereign wealth um fund a little bit because they

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Speaker 1: needed the cash in the last year and a half.

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Speaker 1: But uh, that's what the Sovereign Wealth Fund is all about.

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Speaker 1: It's uh, it's to provide that uh, that rainy day

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Speaker 1: fund for the country and are are you worried about

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Speaker 1: We talked about correlation between the markets, about the oil

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Speaker 1: and the rest of the markets, but there's also real

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Speaker 1: correlation like I've never seen it before between growth or

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Speaker 1: lack of growth, and then a lot of countries trying

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Speaker 1: to balance that your books, which is difficult if oil

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Speaker 1: days at fifty UM. Yeah, there are a couple of

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Speaker 1: difficulties confronting commodity producing countries. One is just the one

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Speaker 1: crop economies who when they're in the hypercarbon business and

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Speaker 1: have not taken steps like Dubai took to diversify the economy,

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Speaker 1: are UM in trouble. Some of them, uh, like the

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Speaker 1: Middle East countries are in a position where they can

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Speaker 1: actually do that transformation. You have to worry about Nigeria, Venezuela,

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Speaker 1: other kind of large uh, large countries without the cash flow,

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Speaker 1: without the rainy day funds UH and the challenge in

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Speaker 1: front of them. One final question, Every single conversation Francis

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Speaker 1: Laqua and I have about fiscal spending goes back to infrastructure.

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Speaker 1: What's the state of infrastructure in your oil industry? Is

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Speaker 1: the pipelines we think of are they all rotting? I mean,

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Speaker 1: is that a generalization. You can go what's the state

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Speaker 1: of the pipes. It really depends on where you're looking.

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Speaker 1: We have in the US both the best infrastructure and

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Speaker 1: the worst infrastructure. We have pipes going through a big

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Speaker 1: reservoir in uh In, Nebraska that were laid sixty years

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Speaker 1: ago when the technology for pipes seamless, non leakable pipes

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Speaker 1: was not available in the market. The pipes that are

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Speaker 1: being laid now are are not likely to spring leaks

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Speaker 1: anytime soon. Ed Moore's thank you so much. This is

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Speaker 1: just always hugely valuable. Dr Morris is with City Group

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Speaker 1: on oil and come. We didn't even get to other confrensing.

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Speaker 1: We did not get to gold, we did not get

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Speaker 1: to platinum, palladium, Edwards is a whole other life that

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Speaker 1: we don't know. Who you put your trust in matters.

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Speaker 1: Investors have put their trust in independent registered investment advisors

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Speaker 1: to the tune of four trillion dollars. Why they see

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Speaker 1: their role is to serve, not sell. That's why Charles

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00:19:56,880 --> 00:19:59,560
Speaker 1: Schwab is committed to the success of over seven thousand

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00:19:59,640 --> 00:20:03,720
Speaker 1: into pend and in financial advisors who passionately dedicate themselves

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00:20:04,000 --> 00:20:07,879
Speaker 1: to helping people achieve their financial goals, learn more and

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00:20:08,040 --> 00:20:16,360
Speaker 1: find your independent advisor dot com. He is truly one

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Speaker 1: of the most interesting economist practicing today. Two says out

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Speaker 1: of the Booth school barely does justice to the path

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Speaker 1: of economics of one Austin Gulsby out of Milton Academy

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Speaker 1: near Boston, and on through the pedigreed of a PhD

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Speaker 1: in economics at the Massachusetts Institute of Technology. Austin Gulsby

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Speaker 1: has been original. He is a former chairman of the

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Speaker 1: President's Council of Economic Advisors and support of Secretary Clinton

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Speaker 1: joins us down. Austin, did you study under Stanley Fisher

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Speaker 1: at m I t job great? Thanks for my professor.

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Speaker 1: He's a good he's a good friend of mine. You

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Speaker 1: don't agree with him on more robust economy? Where is

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Speaker 1: professor or Fisher wrong on a certain robustness that would

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Speaker 1: allow rates to increase? I think it's not just Professor Fisher,

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Speaker 1: it's a new it's a it's a whole group of

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Speaker 1: people who look and they fear the rise of imminent inflation,

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Speaker 1: and I just I don't think that's correct. And I

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Speaker 1: think that, um, it's a it's a little unfair to

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Speaker 1: say most of those people have been saying that same

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Speaker 1: thing for the last six years, that we're about to

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Speaker 1: have inflation in the economy is about to overheat, and

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Speaker 1: it has proven not true thus far. Um. But I

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Speaker 1: think we're in this environment where we're growing two to

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Speaker 1: two and a half percent and we still that that's

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Speaker 1: just not that strong. And if you look at what's

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Speaker 1: happening in the rest of the world, it just makes

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Speaker 1: me nervous that that we're taking for granted what we

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Speaker 1: have in the below this at ten percent unemployment. Austin

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Speaker 1: Gules being then Alan Krueger uh and now Jason Furman

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Speaker 1: at the White House, what were you saying to the

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Speaker 1: president at nine points six unemployment? I would I was

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Speaker 1: saying something like, uh, you know, or that was that

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Speaker 1: was a horrible, horrible time, as you remember, and we

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Speaker 1: talked then about it. UM. The My overwhelming fear going

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Speaker 1: through that it ended two thousand and eight polling in

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Speaker 1: the beginning of two thousand and nine was we can't

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Speaker 1: let this turn into a depression. Um. It has to.

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Speaker 1: It has to remain just very bad. And I set

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Speaker 1: this up, folks, because I get upset because Austin Gooley

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Speaker 1: goes on the Colbert Report or whatever, and it's ha ha,

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Speaker 1: you know, I get the humor part, But underneath this

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Speaker 1: is a very serious economist. When you lean forward and

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Speaker 1: advice Secretary Clinton, are you preparing her for a recession policy?

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Speaker 1: Are you repairing her for stagnation slash Summer's policy, or

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Speaker 1: you're preparing her for Mr Trump's four percent American economy.

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Speaker 1: That is an interesting way to put it. I guess

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Speaker 1: I would say my view is that in the in

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Speaker 1: the immediate term, let's call it next one to two years,

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Speaker 1: the US should get ready for you know, a bit

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Speaker 1: of a bumpy ride in my view, a lot coming

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Speaker 1: from the international headwinds, but that it's not gonna be

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Speaker 1: that great, and that anybody who thinks we're about to

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Speaker 1: either shoot off the off the top of the chart

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Speaker 1: or overheat, that they're probably overstating. But anybody who thinks

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Speaker 1: we're on the edge of collapse, um, that that's probably

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Speaker 1: overstating too. Over the longer run, I guess, I mean,

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Speaker 1: I don't associate myself with very much with the Trump's

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Speaker 1: view point. I do think we got a long over

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Speaker 1: the five year plus horizon. I think that there are

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Speaker 1: a lot of both natural and well earned advantages that

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Speaker 1: the US has not a pessimist, Austin, let me bring

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Speaker 1: it from London, our Francine la Francene with Professor Gulby. Austin,

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Speaker 1: you talk about a bumpy ride. Do you still think

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Speaker 1: that there's a one in three chance of a recession

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Speaker 1: before the end of If there was a one in

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Speaker 1: three chance that my car would crash, let me tell

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Speaker 1: you I would not be getting into that car. Well, Um,

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Speaker 1: I think you can't rule out that there's at least

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Speaker 1: chance of a recession, though I would. I mean if

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Speaker 1: if we were thinking of it in car crashes. The

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Speaker 1: two thousand seven to two thousand nine recession was like

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Speaker 1: an epic, fatal risking car crash. And there's a difference

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Speaker 1: between a normal recession and a recession like two thousand

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Speaker 1: and eight. So when I when I say there's still

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Speaker 1: at least twenty five percent chance of recession by the

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Speaker 1: end of two thousand and seventeen, I'm thinking of normal recession,

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00:25:06,920 --> 00:25:10,919
Speaker 1: not two thousand and I think do low interest rates

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Speaker 1: raise the risks of financial instability? And if yes, then

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Speaker 1: is the prescription for that not to raise them? Um,

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00:25:21,000 --> 00:25:26,200
Speaker 1: this is a whole This is basically a religious dispute. Um.

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Speaker 1: I'm inclined to think that they do raise the risks

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Speaker 1: of some financial instability or call it of bubbles um

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Speaker 1: when when rates are really low. But the correct question

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Speaker 1: in economics, as I always say, the central question is

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00:25:41,880 --> 00:25:47,520
Speaker 1: compared to what, and the question here is compared to

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00:25:47,600 --> 00:25:50,040
Speaker 1: what and if the alternative is well, let's just raise

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00:25:50,119 --> 00:25:56,359
Speaker 1: the rates. Um. I personally, I think that the that

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Speaker 1: the argument that we ought to raise the rates and

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Speaker 1: potentially drive ourselves into recession so that we will have

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Speaker 1: tools to fight the next recession, doesn't that misses one

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00:26:09,640 --> 00:26:13,120
Speaker 1: logical step to me? Right? What if you? I mean,

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Speaker 1: there is a line of thought and people argue that

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Speaker 1: we should raise rates because otherwise when inflation comes and

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Speaker 1: I know you don't believe that inflation is around the corridor,

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Speaker 1: but when the economy is that much stronger in you

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Speaker 1: have to raise rates a whole of a lot quicker,

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Speaker 1: which puts households in a difficult spot. That that is,

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00:26:33,680 --> 00:26:37,879
Speaker 1: that is kind of the most reasonable version of of

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00:26:38,000 --> 00:26:39,960
Speaker 1: the argument. On the other side, I would say, and

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Speaker 1: I and I believe that if we if we sat

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Speaker 1: down and talk to stand Fisher, that's that would be

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00:26:45,840 --> 00:26:50,040
Speaker 1: that would be his argument, so you can't rule that out.

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Speaker 1: I would only say that if you don't think that

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Speaker 1: we are on the cusp of overheating and getting a

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Speaker 1: lot of inflation, and then the raising of rates right

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Speaker 1: now im preemptively, UM, just raises the risk that we

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00:27:07,600 --> 00:27:10,760
Speaker 1: go into posession. And then you say, I guess I

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00:27:10,800 --> 00:27:13,119
Speaker 1: still look at it, of well, we know how to

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Speaker 1: fight inflation, UM, And there's no evidence that inflation expectations

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00:27:20,400 --> 00:27:25,159
Speaker 1: are coming unhinged unless and until you start seeing that

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00:27:25,200 --> 00:27:29,439
Speaker 1: people are adjusting their inflation expectation in the way they

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00:27:29,480 --> 00:27:33,320
Speaker 1: did in the in the seventies, I just don't I

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00:27:33,359 --> 00:27:38,280
Speaker 1: guess I don't understand why we would risk driving into recession. Austin,

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00:27:38,320 --> 00:27:41,480
Speaker 1: You've been very good at bridging ale Gary Becker, this

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00:27:41,720 --> 00:27:46,679
Speaker 1: idea of hardcore DSG economics over the behavioral economics and

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00:27:46,720 --> 00:27:50,960
Speaker 1: the such. What I noticed that Jackson hole was economics

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00:27:51,040 --> 00:27:55,199
Speaker 1: in a vacuum, and the vacuum is the financial system,

479
00:27:55,240 --> 00:27:58,560
Speaker 1: you know, more like the Luigi's and Gallis analysis, where

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00:27:58,920 --> 00:28:01,480
Speaker 1: we're doing a lot of moddel building and we're looking

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00:28:01,520 --> 00:28:04,760
Speaker 1: at a modern model building and dynamics and even an

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00:28:04,760 --> 00:28:07,920
Speaker 1: emotion as Olivier Blanchard says back to I S l

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00:28:07,960 --> 00:28:11,640
Speaker 1: ambermundal Fleming. I get all that, but we're not linking

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00:28:11,760 --> 00:28:16,560
Speaker 1: it into a banking world with the rate distortion that's

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00:28:16,600 --> 00:28:21,639
Speaker 1: being sponsored, the negative rate distortion it's being responsive. Don't

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00:28:21,760 --> 00:28:27,240
Speaker 1: economists have to pay attention to the bank ramifications? Yeah?

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00:28:27,280 --> 00:28:29,800
Speaker 1: They should. I think that's a great uh. I think

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00:28:29,800 --> 00:28:32,920
Speaker 1: that's a great point, you know, moving into a little

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00:28:32,960 --> 00:28:37,960
Speaker 1: into the research economics world. Shame on us as a

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00:28:38,000 --> 00:28:41,800
Speaker 1: profession for not having figured that out. You know, we

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00:28:41,840 --> 00:28:44,800
Speaker 1: hadn't had that figured out. We did not appreciate how

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00:28:44,840 --> 00:28:47,440
Speaker 1: important the financial side of the ledger was going to be.

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Speaker 1: But now we had a horrible recession based on financial crisis.

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Speaker 1: We do knew. We to the economists duty to figure

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00:28:55,640 --> 00:28:59,080
Speaker 1: out that the implications for the bank sector, and and

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00:28:59,200 --> 00:29:02,600
Speaker 1: it does. Look I'm not I'm not trying to be

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00:29:03,280 --> 00:29:07,240
Speaker 1: pie in the sky or oblivious. It does make me nervous.

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Speaker 1: Um for sure, negative rates, possibility of financial bubbles, UH,

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00:29:15,720 --> 00:29:21,680
Speaker 1: deteriorating lending standard, big rise of debt, especially in internationals UH,

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00:29:22,120 --> 00:29:26,280
Speaker 1: other countries besides the US. All of those are our

501
00:29:26,360 --> 00:29:29,280
Speaker 1: risk factors and they and they definitely make me nervous.

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Speaker 1: Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and

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00:29:35,360 --> 00:29:40,760
Speaker 1: listen to interviews on iTunes, SoundCloud, or whichever podcast platform

504
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505
00:29:45,000 --> 00:29:48,600
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00:29:48,680 --> 00:29:58,880
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