Speaker 1: Who you put your trust in matters. Investors have put
Speaker 1: their trust in independent registered investment advisors to the tune
Speaker 1: of four trillion dollars. Why learn more and find your
Speaker 1: independent advisor dot com. Welcome to the Bloomberg Surveillance Podcast.
Speaker 1: I'm Tom Keane. Always with Michael McKee. Daily we bring
Speaker 1: you insight from the best in economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance on iTunes, SoundCloud, Bloomberg dot com,
Speaker 1: and of course, on the Bloomberg. Deutsche Bank chief executive
Speaker 1: officer John Cryan was talking Frankfurt today. He said Germany's
Speaker 1: largest bank is looking to shrinking size. He was asked
Speaker 1: about me to report that it considered merging with rival
Speaker 1: Commerce Bank. Now we're joined by Atlantic Equities Chris Wheeler. Chris,
Speaker 1: what a day to have you on the program. So
Speaker 1: we have so much banking news, from bonus to possible consolidation.
Speaker 1: This is the question that Tom Kings has been asking
Speaker 1: for two years, and I always pushed back. I said, no,
Speaker 1: they're not going to consolidate because no one wants a
Speaker 1: bigger bank. Certainly the regulators don't want It's am I wrong? No,
Speaker 1: I think partly I think, y, yeah, well that's the
Speaker 1: bottom line here is that clearly, you know, I don't
Speaker 1: think Deutschland comments Bank are going to merge. I think
Speaker 1: that's too big a deal, and I don't think the
Speaker 1: regulators will be comfortable for the whole host of the leason.
Speaker 1: It's not least competition issues allowed their dealing with the
Speaker 1: middle stamp, the German middle size companies. But I think
Speaker 1: the important thing here is, you know, this could be
Speaker 1: no smoke without fire, because deutsch still want to dispose
Speaker 1: of post Bank, the big retail banking business they have.
Speaker 1: They want to get lirid of it because they want
Speaker 1: to get rid of the levelage issues and the capital issues.
Speaker 1: And maybe, just maybe they're trying to think of a
Speaker 1: deal with comments Bank, who are more skewed towards the
Speaker 1: town of small business activity, where they get it off
Speaker 1: the balance sheet, maybe get fifty one off, do some
Speaker 1: kind of joint venture to support comment Outs, effectively in
Speaker 1: glowing a much bigger let out bank rather than obviously
Speaker 1: you know, I said a complete merger of the twenty.
Speaker 1: But this would be a very similar the big banks,
Speaker 1: the so called healthier banks such as the Italian ones,
Speaker 1: the bigger ones trying to help the smaller ones. Well, yes,
Speaker 1: I think so, but it's also tryed to execute the
Speaker 1: strategy that Deutsche has the really clear strategy. Actually Jane
Speaker 1: laid it out in eight Pril last year. John has
Speaker 1: followed it through UM in terms of improving considerably in
Speaker 1: their levelage lay show and as I said, they're capitally show,
Speaker 1: both of which will be helped considerably if Post Bank
Speaker 1: was off the balance sheet is part of their strategy,
Speaker 1: but it's a very low way. It's got very low
Speaker 1: the turns post Bank, so just selling it to somebody
Speaker 1: is not really an option. I p oing it. I
Speaker 1: think it's a tough call so that that they have
Speaker 1: really limited options. Chris, I want to look at the
Speaker 1: currents Bank and Deutscher Bank chart. I think a lot
Speaker 1: of our viewers don't realize the train wreck these two
Speaker 1: banks are, and for that mayut of the train wrecked
Speaker 1: German banking is. I don't for a minute believe this
Speaker 1: is ill time. It's the end of August am I correct,
Speaker 1: And you know this with your work at Leys over
Speaker 1: the years working within the bank. This is where you
Speaker 1: do your year ahead planning, is what this discussion really
Speaker 1: about is a total pipe dream of profitability that is
Speaker 1: just not going to be there. Well, I think that's
Speaker 1: a that's an important factor because we've seen, for example,
Speaker 1: certainly at Deutsche Bank, you know, laying out a strategy
Speaker 1: in Apol last year being levised when the CEO left
Speaker 1: and we had a new CEO coming in. But of
Speaker 1: course circumstances, as John keeps, the minding is has changed
Speaker 1: considerably since. So it isn't matter saying, my goodness, next
Speaker 1: year doesn't look a lot better than than the year
Speaker 1: within at the moment, what do we do it's less
Speaker 1: that and stop the share price going further down? Perfectly stated,
Speaker 1: what will be the shrinkage of Deutsche Bank, and for
Speaker 1: that matter, what will be the shrinkage of the Anglo
Speaker 1: Saxon banks if they have to deal with a great distortion,
Speaker 1: They have to deal with the negative interest rates in
Speaker 1: each nation, and they have to deal with major central
Speaker 1: bankers like Stanley Fishers saying they like negative rates. Jam
Speaker 1: Crying doesn't like negative rates, does he? Look? I don't
Speaker 1: think any banker likes negative lates. It causes great confusion.
Speaker 1: I've been talking to a number of US banks leasently
Speaker 1: smaller banks who are worried about negative interless leads. And
Speaker 1: we come back to the fact that in most cases
Speaker 1: people view the fact that in a negative into the
Speaker 1: slate scenario, the courtlet's end up financing the letail customers.
Speaker 1: And this is this is something which is not attractive
Speaker 1: because you don't really want one infinite one customer sub
Speaker 1: subsidizing another. But yeah, I mean this, this, this makes
Speaker 1: life incredibly difficult. And you know, the most important thing
Speaker 1: is the only thing you can control, Tom and we've
Speaker 1: talked about this endlessly is costs. And so you're back
Speaker 1: on the old band wagon of how much more costs
Speaker 1: we can take out the system. What Mr Wheelers said there, folks,
Speaker 1: is absolutely critical about the idea that corporate, big deposit
Speaker 1: people subsidize the little accounts because of the unequal application
Speaker 1: of negative rates. Here is stan Fisher yesterday in Washington.
Speaker 1: We've learned at the central banks which are implementing them,
Speaker 1: there are four or five of them basically think they're
Speaker 1: quite successful and or staying with that approach, possibly with
Speaker 1: the exception of Japan, although they're thinking it's through and
Speaker 1: they have said they'll come back to try and make
Speaker 1: negative rates work work better. Okay, so there's the vice
Speaker 1: chairman from forty thousand free, Chris wheel Er. You're looking
Speaker 1: at these banks at three thousand, two hundred feet and
Speaker 1: there's that dreaded cross wind at the Frankfurt airport. What
Speaker 1: does John Cryan do living in stand Fisher's world. Look,
Speaker 1: I think John's job, he's got such an enormous job,
Speaker 1: is to just keep having small winds, small victuals. It's
Speaker 1: a bit like you know, you can say Churchill at
Speaker 1: the Second World War. After that, Alam, you know, you
Speaker 1: just keep wanting to have more and more small victuals
Speaker 1: to feel like you're back in the you know, you're
Speaker 1: you're back actually in the light election. And I think
Speaker 1: that's what John is going to have to do, because
Speaker 1: the big picture still tells him he's got the most
Speaker 1: enormous job in terms of changing the platform, the cost spice.
Speaker 1: But still my tining a strong revenue flow investment bank. Francine,
Speaker 1: You and I are going to remember this day six
Speaker 1: months from now. This is just extraordinary how crying has said, Look,
Speaker 1: this is the reality. Yeah, you're absolutely right. And actually
Speaker 1: I wonder whether it has any influence, right, whether Central
Speaker 1: Banks actually listened to guys like that and say, well,
Speaker 1: maybe I need to change my thinking or tweak it
Speaker 1: a touch Edward Morris with US with City Group, of course,
Speaker 1: synthesizing macro and microeconomics downstream and upstream. Let's start right there,
Speaker 1: right now. It's the end of the summer driving season.
Speaker 1: Is that it's true now? Is it was when you
Speaker 1: began studying hydrocarbons decades ago? Well, actually the summer. Nobody
Speaker 1: would have expected when I started studying this that August
Speaker 1: would be the peak month oil demand. And that's because
Speaker 1: we we had the summer season in the northern hemisphere
Speaker 1: for driving. But now we have the summer electricity season
Speaker 1: in the middle because conditioning didn't exist, conditioning and populations
Speaker 1: have gotten bigger. So August is really the peak month
Speaker 1: more so than ever. Do you know what we have?
Speaker 1: I mean, I I know, we don't know what China
Speaker 1: has an oil does Edward was actually of an understanding
Speaker 1: of what is in the hydrocarbons of the United States. Well,
Speaker 1: I think that that that that question is an unfolding one.
Speaker 1: We know the US has a robust a coal base.
Speaker 1: Coal is becoming a stranded asset, so you know, we
Speaker 1: don't care as much about that as we used to
Speaker 1: when we know that the oil and gas reserves of
Speaker 1: the US are really much huger than people would have thought.
Speaker 1: I mean, who would have thought that if Pennsylvania were
Speaker 1: considered to be an independent country, it would be the
Speaker 1: third largest natural gas producing country in the world. I
Speaker 1: did not know that. That's why we love him and Fancy,
Speaker 1: that's why we love having worse here from Philadelphia to
Speaker 1: Pittsburgh a natural guest, Are you kidding me? Absolutely not.
Speaker 1: They were producing nothing ten years ago, and they're gonna
Speaker 1: they can even double that collection. I'm assuming Fancy niots
Speaker 1: lost in translation. It's absolutely remarkable that Pennsylvania is the
Speaker 1: third biggest net gas producer in the world. Jump in here, Fancy, yeah, Tom.
Speaker 1: And actually it goes back to the point though, that
Speaker 1: we know, or I guess, the global markets know very
Speaker 1: little about how much the US can produce because of
Speaker 1: these newsplayers, which is shale gas, and how much they
Speaker 1: can actually export longer term. What's that figure? Well, actually
Speaker 1: we don't know, and the number keeps growing, and I
Speaker 1: know there's uh, there are a lot of naysayers who
Speaker 1: think this is still a pyramid scheme. But um, the
Speaker 1: US is the largest natural gas producing country in the world,
Speaker 1: and it's growing. And the major constraint is a subject
Speaker 1: that Tom is going to be talking about with somebody
Speaker 1: maybe tomorrow, namely the infrastructure. It's the pipeline capacity, the
Speaker 1: big constraint for not getting more gas out of Pennsylvania
Speaker 1: bringing it to export terminals in the south and the southeast.
Speaker 1: There's pipeline, there's pipeline. Stephen Shark, where us to our
Speaker 1: really looking forward to talking to Mr Shark about that infrastructure.
Speaker 1: Fancying please? And when you look at the oil markets,
Speaker 1: right there's so much talk about OPEC doing something and
Speaker 1: I know it brings it away a little bit from
Speaker 1: from the US, But are you surprised at oil heading
Speaker 1: for the biggest monthly game since April just on talks
Speaker 1: and OPEC has disappointed month after month for the lost
Speaker 1: two years. I actually don't understand the hype about OPEC.
Speaker 1: I've written all over the place that don't think about
Speaker 1: OPEC as being a real entity any longer. OPEC is dead.
Speaker 1: It's not likely to be revived anytime soon. There's no
Speaker 1: cohesion on objectives. They're all over the place, and Saudi
Speaker 1: Arabia has decided it doesn't want to play the game
Speaker 1: it used to play. That game was we are the
Speaker 1: lowest cost producers in the world. Let's keep our oil
Speaker 1: in the ground because it's going to be worth more
Speaker 1: in the future. And more we keep in the ground,
Speaker 1: the bigger the delta, the distance between their production costs
Speaker 1: and the market price in the world. And then the
Speaker 1: big shift coming out of US shale in particular, is
Speaker 1: oil in the ground is worth a lot less than
Speaker 1: oil being produced. That's a big structural Let's go back
Speaker 1: to a basic structural question. Their production costs are a
Speaker 1: lot less than ours, right, yes they are. But we
Speaker 1: had we had Scott Sheffield from Pioneer saying all over
Speaker 1: the place over the last few weeks that production costs
Speaker 1: in the Permian Basin are equivalent to those in Saudi Arabia,
Speaker 1: and the Permian Basin now producing two million barrels a
Speaker 1: day could be producing five million a day and doing
Speaker 1: it for decades. So that Uh, that's a very different
Speaker 1: kind of environment than what OPEC was used to. OPEC
Speaker 1: used to think about having shut in capacity that could
Speaker 1: come back into the market. Uh. In a range of
Speaker 1: about a million dollars a day or even two million
Speaker 1: barrels a day if markets needed it and they could
Speaker 1: take it off. Now we have the US, which compares
Speaker 1: with a rack that may add two hundred thousand a
Speaker 1: day or ran that now that they're back up in
Speaker 1: the arculd add two thousand a day. The US, by
Speaker 1: completing drilled but uncompleted wells and increasing drilling could be
Speaker 1: back at increasing output a million dollars a day in
Speaker 1: the year. And is there something about opaque that we,
Speaker 1: you know, misunderstand or underestimate that they won't move. They
Speaker 1: won't freeze if Russia doesn't do the same. Well, they
Speaker 1: won't freeze unless all the other members of OPEC do
Speaker 1: the same. And there's no indication, uh that Libya will
Speaker 1: agree to a production freeze when they have a new
Speaker 1: governing structure and they're going to come back. There's no
Speaker 1: indication that Nigeria will really agree not to go back
Speaker 1: to where they were at the beginning of the year.
Speaker 1: What what should the policy be of the next president?
Speaker 1: Should they have no energy policy, just get out of
Speaker 1: the way and let American industry do it. You know,
Speaker 1: there there's a lot more to energy policy than just
Speaker 1: you know where we're going to export or import. Are
Speaker 1: we gonna encourage deduction at home or abroad? We have
Speaker 1: some serious challenges UH, globally and the energy sector. Those
Speaker 1: challenges relate to climate change as much as they do
Speaker 1: to getting energy properly costed. I think it's clearly in
Speaker 1: the US interest to have transparent global markets that work,
Speaker 1: free investment flow, free trade flow. I clearly think it's
Speaker 1: in the U s interest, as do the majority of Americans,
Speaker 1: to to worry about carbon levels globally and to think
Speaker 1: about what policies can be done to restrict them. But ed,
Speaker 1: you could argue that actually foreign policy, US foreign policy
Speaker 1: is a proxy for oil policy right worldwide. What does
Speaker 1: a Donald Trump presidency mean for these relationships with oil producers? Well,
Speaker 1: we don't really know. We know that uh. And this
Speaker 1: we have one big statement on energy policy from Donald
Speaker 1: Trump was a speech given in North Dakota several months ago.
Speaker 1: We have nothing new from that, but that was a
Speaker 1: very much UH American production oriented policy. It was let's
Speaker 1: get the Keystone Excel pipeline built, let's reduce constraints on production.
Speaker 1: He modified that to some degree in recent commentary where
Speaker 1: he said states and local government should have a say
Speaker 1: in shall exploitation. But we don't really know what his
Speaker 1: global policy is. I mean, within all this, in your
Speaker 1: core idea of oil prices rising up is we never
Speaker 1: get back to a hundred dollars of barrel? What did
Speaker 1: you think looking out of the Ritz Carlton windows in
Speaker 1: Dubai or the jere Moriah there, you know, you look
Speaker 1: down on the horse farms of of of the leadership
Speaker 1: of of Dubai. What did you think in a hundred
Speaker 1: dollars of barrel? Did you just know it would end? Uh? Well,
Speaker 1: I certainly thought it was not stable and I thought
Speaker 1: it was going to go down. What I thought when
Speaker 1: I looked down from those towers was here is a
Speaker 1: country that or an entity, uh, governing entity that was
Speaker 1: entirely dependent upon oil. Dubai futures. Dubai future is because
Speaker 1: Dubai was became a mark of crude, because Dubai production
Speaker 1: was meaningful. Now it scarcely exists, and the economy was diversified, uh,
Speaker 1: and it went beyond oil. There was the first time
Speaker 1: in the history of the oil business. If this happened
Speaker 1: with within the knowledge and I don't want to get
Speaker 1: into a very sensitive city group issues. Do you just
Speaker 1: assume Abu Dhabi owns most of Dubai? Are there is
Speaker 1: that a visible transaction or those sidecard deals when they
Speaker 1: have to bail out, When rich Abu Dhabi has to
Speaker 1: bail out poor Dubai, do we know who owns what?
Speaker 1: We actually don't know who who owns what. We don't
Speaker 1: know who subsidizes what. But clearly once the Dubai expansion
Speaker 1: got to where it was in two thousand and eight nine,
Speaker 1: they did have to get bailed out. There's been a
Speaker 1: revival in the Dubai economy. Part of that revival is
Speaker 1: from tourism that's independent of anything that happens Abu Dhabi.
Speaker 1: Part of that revival is luminum manufacturer. Part of that
Speaker 1: revival is really a housing pocket that's catered to the
Speaker 1: Middle East itself, to Arabs and other Arab countries that
Speaker 1: want to have another place that's a safe haven, a
Speaker 1: safe haven in their own region. Well, I think we've
Speaker 1: done a lot of the the usual discussion, and I
Speaker 1: want to rip up the script, and you're so competent.
Speaker 1: I know when I rip up the script, you're gonna
Speaker 1: kill it. The North Sea give us an update. Is
Speaker 1: it a depleted field that's fading out into the decades
Speaker 1: or can there be vibrancy in north Sea oil? Now?
Speaker 1: The likelihood is five years from now there'll be virtually
Speaker 1: no production out of the North Sea. It'll be dead.
Speaker 1: It'll be dead. Um. Yes, high prices gave it a
Speaker 1: little bit of a kick, but it's it's high cost
Speaker 1: and now the operators are struggling between the costs of
Speaker 1: keeping production going and the costs of demolishing UH, the
Speaker 1: infrastructure of the oil fields, costs of of getting out
Speaker 1: of the business. And when you look at the North Sea,
Speaker 1: how what's the break even cost? It seems like it's
Speaker 1: a lot more expensive than for U S shail gas producers.
Speaker 1: But then again, as you were saying, we don't know
Speaker 1: much about what's happening in the US UH, then now
Speaker 1: the cost is significantly higher. Um. There are no big
Speaker 1: fields to give leverage to a big investment. You can
Speaker 1: look at the new play that Statoil is doing. It's
Speaker 1: in the Arctic, not in UH, not in the North Sea.
Speaker 1: They get a new discovery, they're gonna be producing six
Speaker 1: and sixty barrels a day out of that that's worth
Speaker 1: an investment. An investment that's going to produce fifty barrels
Speaker 1: a day and a low price environment has a cost
Speaker 1: structure that's in the sixty dollar range. It's just not
Speaker 1: really going to be worth it. When you look at
Speaker 1: the cash flow of Norway, I'm speaking as an amateur.
Speaker 1: Their Sovereign Wealth Fund has been hugely successful. It's it's
Speaker 1: arguably the best run one in the world. Do you
Speaker 1: just assume wealth depletion for Norway in the coming decades, um,
Speaker 1: not really. Norway has a really significant amount of natural gas.
Speaker 1: They have more oil in their future. They're going to
Speaker 1: be uh maybe off their peak in oil, but they'll
Speaker 1: be at their peak and natural gas. So the revenue
Speaker 1: stream coming out of hydrocarbons for a country whose population
Speaker 1: is smaller than the city that we're sitting in. Um,
Speaker 1: you know this, this this is a cash cow that
Speaker 1: keeps giving giving the cash. They they pulled back on
Speaker 1: their Sovereign wealth um fund a little bit because they
Speaker 1: needed the cash in the last year and a half.
Speaker 1: But uh, that's what the Sovereign Wealth Fund is all about.
Speaker 1: It's uh, it's to provide that uh, that rainy day
Speaker 1: fund for the country and are are you worried about
Speaker 1: We talked about correlation between the markets, about the oil
Speaker 1: and the rest of the markets, but there's also real
Speaker 1: correlation like I've never seen it before between growth or
Speaker 1: lack of growth, and then a lot of countries trying
Speaker 1: to balance that your books, which is difficult if oil
Speaker 1: days at fifty UM. Yeah, there are a couple of
Speaker 1: difficulties confronting commodity producing countries. One is just the one
Speaker 1: crop economies who when they're in the hypercarbon business and
Speaker 1: have not taken steps like Dubai took to diversify the economy,
Speaker 1: are UM in trouble. Some of them, uh, like the
Speaker 1: Middle East countries are in a position where they can
Speaker 1: actually do that transformation. You have to worry about Nigeria, Venezuela,
Speaker 1: other kind of large uh, large countries without the cash flow,
Speaker 1: without the rainy day funds UH and the challenge in
Speaker 1: front of them. One final question, Every single conversation Francis
Speaker 1: Laqua and I have about fiscal spending goes back to infrastructure.
Speaker 1: What's the state of infrastructure in your oil industry? Is
Speaker 1: the pipelines we think of are they all rotting? I mean,
Speaker 1: is that a generalization. You can go what's the state
Speaker 1: of the pipes. It really depends on where you're looking.
Speaker 1: We have in the US both the best infrastructure and
Speaker 1: the worst infrastructure. We have pipes going through a big
Speaker 1: reservoir in uh In, Nebraska that were laid sixty years
Speaker 1: ago when the technology for pipes seamless, non leakable pipes
Speaker 1: was not available in the market. The pipes that are
Speaker 1: being laid now are are not likely to spring leaks
Speaker 1: anytime soon. Ed Moore's thank you so much. This is
Speaker 1: just always hugely valuable. Dr Morris is with City Group
Speaker 1: on oil and come. We didn't even get to other confrensing.
Speaker 1: We did not get to gold, we did not get
Speaker 1: to platinum, palladium, Edwards is a whole other life that
Speaker 1: we don't know. Who you put your trust in matters.
Speaker 1: Investors have put their trust in independent registered investment advisors
Speaker 1: to the tune of four trillion dollars. Why they see
Speaker 1: their role is to serve, not sell. That's why Charles
Speaker 1: Schwab is committed to the success of over seven thousand
Speaker 1: into pend and in financial advisors who passionately dedicate themselves
Speaker 1: to helping people achieve their financial goals, learn more and
Speaker 1: find your independent advisor dot com. He is truly one
Speaker 1: of the most interesting economist practicing today. Two says out
Speaker 1: of the Booth school barely does justice to the path
Speaker 1: of economics of one Austin Gulsby out of Milton Academy
Speaker 1: near Boston, and on through the pedigreed of a PhD
Speaker 1: in economics at the Massachusetts Institute of Technology. Austin Gulsby
Speaker 1: has been original. He is a former chairman of the
Speaker 1: President's Council of Economic Advisors and support of Secretary Clinton
Speaker 1: joins us down. Austin, did you study under Stanley Fisher
Speaker 1: at m I t job great? Thanks for my professor.
Speaker 1: He's a good he's a good friend of mine. You
Speaker 1: don't agree with him on more robust economy? Where is
Speaker 1: professor or Fisher wrong on a certain robustness that would
Speaker 1: allow rates to increase? I think it's not just Professor Fisher,
Speaker 1: it's a new it's a it's a whole group of
Speaker 1: people who look and they fear the rise of imminent inflation,
Speaker 1: and I just I don't think that's correct. And I
Speaker 1: think that, um, it's a it's a little unfair to
Speaker 1: say most of those people have been saying that same
Speaker 1: thing for the last six years, that we're about to
Speaker 1: have inflation in the economy is about to overheat, and
Speaker 1: it has proven not true thus far. Um. But I
Speaker 1: think we're in this environment where we're growing two to
Speaker 1: two and a half percent and we still that that's
Speaker 1: just not that strong. And if you look at what's
Speaker 1: happening in the rest of the world, it just makes
Speaker 1: me nervous that that we're taking for granted what we
Speaker 1: have in the below this at ten percent unemployment. Austin
Speaker 1: Gules being then Alan Krueger uh and now Jason Furman
Speaker 1: at the White House, what were you saying to the
Speaker 1: president at nine points six unemployment? I would I was
Speaker 1: saying something like, uh, you know, or that was that
Speaker 1: was a horrible, horrible time, as you remember, and we
Speaker 1: talked then about it. UM. The My overwhelming fear going
Speaker 1: through that it ended two thousand and eight polling in
Speaker 1: the beginning of two thousand and nine was we can't
Speaker 1: let this turn into a depression. Um. It has to.
Speaker 1: It has to remain just very bad. And I set
Speaker 1: this up, folks, because I get upset because Austin Gooley
Speaker 1: goes on the Colbert Report or whatever, and it's ha ha,
Speaker 1: you know, I get the humor part, But underneath this
Speaker 1: is a very serious economist. When you lean forward and
Speaker 1: advice Secretary Clinton, are you preparing her for a recession policy?
Speaker 1: Are you repairing her for stagnation slash Summer's policy, or
Speaker 1: you're preparing her for Mr Trump's four percent American economy.
Speaker 1: That is an interesting way to put it. I guess
Speaker 1: I would say my view is that in the in
Speaker 1: the immediate term, let's call it next one to two years,
Speaker 1: the US should get ready for you know, a bit
Speaker 1: of a bumpy ride in my view, a lot coming
Speaker 1: from the international headwinds, but that it's not gonna be
Speaker 1: that great, and that anybody who thinks we're about to
Speaker 1: either shoot off the off the top of the chart
Speaker 1: or overheat, that they're probably overstating. But anybody who thinks
Speaker 1: we're on the edge of collapse, um, that that's probably
Speaker 1: overstating too. Over the longer run, I guess, I mean,
Speaker 1: I don't associate myself with very much with the Trump's
Speaker 1: view point. I do think we got a long over
Speaker 1: the five year plus horizon. I think that there are
Speaker 1: a lot of both natural and well earned advantages that
Speaker 1: the US has not a pessimist, Austin, let me bring
Speaker 1: it from London, our Francine la Francene with Professor Gulby. Austin,
Speaker 1: you talk about a bumpy ride. Do you still think
Speaker 1: that there's a one in three chance of a recession
Speaker 1: before the end of If there was a one in
Speaker 1: three chance that my car would crash, let me tell
Speaker 1: you I would not be getting into that car. Well, Um,
Speaker 1: I think you can't rule out that there's at least
Speaker 1: chance of a recession, though I would. I mean if
Speaker 1: if we were thinking of it in car crashes. The
Speaker 1: two thousand seven to two thousand nine recession was like
Speaker 1: an epic, fatal risking car crash. And there's a difference
Speaker 1: between a normal recession and a recession like two thousand
Speaker 1: and eight. So when I when I say there's still
Speaker 1: at least twenty five percent chance of recession by the
Speaker 1: end of two thousand and seventeen, I'm thinking of normal recession,
Speaker 1: not two thousand and I think do low interest rates
Speaker 1: raise the risks of financial instability? And if yes, then
Speaker 1: is the prescription for that not to raise them? Um,
Speaker 1: this is a whole This is basically a religious dispute. Um.
Speaker 1: I'm inclined to think that they do raise the risks
Speaker 1: of some financial instability or call it of bubbles um
Speaker 1: when when rates are really low. But the correct question
Speaker 1: in economics, as I always say, the central question is
Speaker 1: compared to what, and the question here is compared to
Speaker 1: what and if the alternative is well, let's just raise
Speaker 1: the rates. Um. I personally, I think that the that
Speaker 1: the argument that we ought to raise the rates and
Speaker 1: potentially drive ourselves into recession so that we will have
Speaker 1: tools to fight the next recession, doesn't that misses one
Speaker 1: logical step to me? Right? What if you? I mean,
Speaker 1: there is a line of thought and people argue that
Speaker 1: we should raise rates because otherwise when inflation comes and
Speaker 1: I know you don't believe that inflation is around the corridor,
Speaker 1: but when the economy is that much stronger in you
Speaker 1: have to raise rates a whole of a lot quicker,
Speaker 1: which puts households in a difficult spot. That that is,
Speaker 1: that is kind of the most reasonable version of of
Speaker 1: the argument. On the other side, I would say, and
Speaker 1: I and I believe that if we if we sat
Speaker 1: down and talk to stand Fisher, that's that would be
Speaker 1: that would be his argument, so you can't rule that out.
Speaker 1: I would only say that if you don't think that
Speaker 1: we are on the cusp of overheating and getting a
Speaker 1: lot of inflation, and then the raising of rates right
Speaker 1: now im preemptively, UM, just raises the risk that we
Speaker 1: go into posession. And then you say, I guess I
Speaker 1: still look at it, of well, we know how to
Speaker 1: fight inflation, UM, And there's no evidence that inflation expectations
Speaker 1: are coming unhinged unless and until you start seeing that
Speaker 1: people are adjusting their inflation expectation in the way they
Speaker 1: did in the in the seventies, I just don't I
Speaker 1: guess I don't understand why we would risk driving into recession. Austin,
Speaker 1: You've been very good at bridging ale Gary Becker, this
Speaker 1: idea of hardcore DSG economics over the behavioral economics and
Speaker 1: the such. What I noticed that Jackson hole was economics
Speaker 1: in a vacuum, and the vacuum is the financial system,
Speaker 1: you know, more like the Luigi's and Gallis analysis, where
Speaker 1: we're doing a lot of moddel building and we're looking
Speaker 1: at a modern model building and dynamics and even an
Speaker 1: emotion as Olivier Blanchard says back to I S l
Speaker 1: ambermundal Fleming. I get all that, but we're not linking
Speaker 1: it into a banking world with the rate distortion that's
Speaker 1: being sponsored, the negative rate distortion it's being responsive. Don't
Speaker 1: economists have to pay attention to the bank ramifications? Yeah?
Speaker 1: They should. I think that's a great uh. I think
Speaker 1: that's a great point, you know, moving into a little
Speaker 1: into the research economics world. Shame on us as a
Speaker 1: profession for not having figured that out. You know, we
Speaker 1: hadn't had that figured out. We did not appreciate how
Speaker 1: important the financial side of the ledger was going to be.
Speaker 1: But now we had a horrible recession based on financial crisis.
Speaker 1: We do knew. We to the economists duty to figure
Speaker 1: out that the implications for the bank sector, and and
Speaker 1: it does. Look I'm not I'm not trying to be
Speaker 1: pie in the sky or oblivious. It does make me nervous.
Speaker 1: Um for sure, negative rates, possibility of financial bubbles, UH,
Speaker 1: deteriorating lending standard, big rise of debt, especially in internationals UH,
Speaker 1: other countries besides the US. All of those are our
Speaker 1: risk factors and they and they definitely make me nervous.
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