WEBVTT - Surveillance: Fed Policy With Dudley 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene. Along 0:00:09.240 --> 0:00:13.200 with Jonathan Ferrell and Lisa Brownwitz Jaily. We bring you 0:00:13.320 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.960 --> 0:00:23.840 Find Bloomberg Surveillance on Apple Podcast, Suncloud, Bloomberg dot com, 0:00:23.920 --> 0:00:30.680 and of course, on the Bloomberg terminal. William Dudley is 0:00:30.720 --> 0:00:33.120 a former Photo Reserve Bank President of New York and 0:00:33.200 --> 0:00:37.600 buried last week in the Newsflow was his exceptionally important 0:00:37.800 --> 0:00:42.159 essay for Bloomberg opinion on the banks and leverage. It 0:00:42.200 --> 0:00:45.239 harkens back to the summer of two thousand four is 0:00:45.280 --> 0:00:50.040 codified by Simon Johnson in his book Thirteen Bankers, when 0:00:50.080 --> 0:00:55.680 the SEC allowed the broker dealers to become more leveraged 0:00:55.960 --> 0:00:59.200 bill This is not like two thousand four, where you 0:00:59.280 --> 0:01:02.279 say these are banks that need to be free from 0:01:02.320 --> 0:01:07.759 regulatory restriction. Now it's completely different. Their balance sheets becoming 0:01:07.800 --> 0:01:11.080 more tight because the feed is buying treasury securities and 0:01:11.200 --> 0:01:13.800 agency mortgage backed securities, and that's boosting the amount of 0:01:13.800 --> 0:01:17.160 reserves in the banking system. The banks can't make any 0:01:17.240 --> 0:01:19.119 choice about whether they're they're going to hold the reserves 0:01:19.200 --> 0:01:22.120 or not collectively, so that as that amount of reserves 0:01:22.120 --> 0:01:24.720 and the systems goes up, the leverage ratios for these 0:01:24.720 --> 0:01:31.480 banks becomes more binding. How how was Jamie Diamond or 0:01:31.560 --> 0:01:36.280 other bankers, how are they restricted now? Well, the leverage 0:01:36.280 --> 0:01:39.200 creation show hasn't bound very tightly for many banks, but 0:01:39.319 --> 0:01:41.800 it will become more binding as we go forward, as 0:01:41.840 --> 0:01:44.440 we go from now to the summer, because reserves in 0:01:44.440 --> 0:01:47.160 the system are gonna go out pretty dramatically. What what 0:01:47.200 --> 0:01:49.160 will happen at you know, the big banks is they'll 0:01:49.200 --> 0:01:52.680 basically try to push deposits elsewhere. They basically won't want 0:01:52.720 --> 0:01:55.440 to take corporate deposits. They'll want the corporations to take 0:01:55.480 --> 0:01:59.080 their money elsewhere. That induces, you know, unnecessary frictions in 0:01:59.080 --> 0:02:01.240 the system for no net benefits. So it seems to 0:02:01.280 --> 0:02:03.680 me like it's pretty obvious that why don't you just 0:02:03.800 --> 0:02:06.320 make an adjustment for the leverage ratio to take into 0:02:06.320 --> 0:02:08.760 account the fact that the fit is driving the amount 0:02:08.760 --> 0:02:11.840 of reserves in the system, not the banks. How uncomfortable 0:02:11.960 --> 0:02:15.240 is it Bill to be arguing to reduce certain regulatory 0:02:15.320 --> 0:02:17.880 pressures on banks at the same time that we're dealing 0:02:17.880 --> 0:02:20.840 with the archagus fallout that JP Morgan says will probably 0:02:20.880 --> 0:02:24.800 cost banks ten billion dollars. Well, remember here, reserves at 0:02:24.840 --> 0:02:27.240 the Federal Reserve are not risky assets, so we're not 0:02:27.400 --> 0:02:31.400 talking about an exemption of that increases bank risk. And 0:02:31.440 --> 0:02:34.280 if we're really concerned about the idea of you know, 0:02:34.600 --> 0:02:37.560 exempting reserves and that giving the banks more room, we 0:02:37.560 --> 0:02:40.080 can offer we can just raise the leverage ratio requirement 0:02:40.120 --> 0:02:42.079 from say five percent to five and a half percent. 0:02:42.240 --> 0:02:45.040 On what's left that point is that reserves are not 0:02:45.160 --> 0:02:48.080 risky and banks can't control how many reserves they hold. 0:02:48.400 --> 0:02:51.680 That's determined by the fit. Although moving beyond just this 0:02:51.720 --> 0:02:55.280 particular point of regulation talking about the leverage ratio, you've 0:02:55.320 --> 0:02:58.800 talked before about concern about leverage building up in the 0:02:58.800 --> 0:03:02.720 shadow banking industry, about a lack of regulation in that 0:03:02.840 --> 0:03:06.200 particular area of financial markets. Do you still see this 0:03:06.240 --> 0:03:07.960 as a concern and do you see it as a 0:03:08.040 --> 0:03:11.600 pressing one or simply something to deal with perhaps later on. 0:03:12.800 --> 0:03:14.480 I think it's pretty pressing. I mean when you think 0:03:14.480 --> 0:03:17.679 about what happened last March a year ago. Uh, we've 0:03:17.680 --> 0:03:20.519 been basically the federal government had to rescue the money 0:03:20.560 --> 0:03:24.240 market mutual fund industry. Again, we had problems for mortgage 0:03:24.240 --> 0:03:26.200 reach space. We had problems in the corporate bond space, 0:03:26.240 --> 0:03:28.160 and we have just function in the US treasury market. 0:03:28.680 --> 0:03:31.840 So and then more recently we had the arctical issues. 0:03:31.880 --> 0:03:33.880 So it seems to be like the non bank financial 0:03:33.880 --> 0:03:35.880 sector is still right for a lot of issues that 0:03:35.920 --> 0:03:39.800 need to be dealt with sooner rather than later. Bill Dudley, 0:03:39.840 --> 0:03:42.320 I need to switch to the present FED discussion. We've 0:03:42.360 --> 0:03:45.520 been making jokes all this morning about transitory as well. 0:03:46.000 --> 0:03:48.800 You and I have talked before about the British pretense 0:03:48.920 --> 0:03:52.520 of short term, medium term, long term. Now we've got 0:03:52.520 --> 0:03:55.560 a transitory thing. As we move along the X axis 0:03:55.600 --> 0:03:59.320 in the timeline. Does any of this make theoretical sense? 0:03:59.560 --> 0:04:04.760 Or we just is kidding ourselves massaging the unknown. Well, 0:04:04.800 --> 0:04:07.360 the FED is being patient for some a couple of 0:04:07.440 --> 0:04:10.400 very obvious reasons. Number one, they're not really sure where 0:04:10.440 --> 0:04:13.400 full employment is. Number two, they're not sure how fast 0:04:13.440 --> 0:04:16.240 inflation will rise once they get to full employment, and 0:04:16.279 --> 0:04:18.840 so they're willing. And number three, they're worried about inflation 0:04:19.640 --> 0:04:22.719 expectations becoming unanchored to the downside because the FED hasn't 0:04:22.760 --> 0:04:25.360 been able to achieve is two percent inflation objective for 0:04:25.360 --> 0:04:28.800 a long time so that change in policy is well motivated. 0:04:29.120 --> 0:04:31.719 The risk is that the FED will be late before 0:04:31.800 --> 0:04:34.320 the FED basically try to tighten monetary policy to arrive 0:04:34.360 --> 0:04:36.719 at a two percent inflation rate, full employment in the 0:04:36.760 --> 0:04:39.640 neutral monetary policy all at the same time. Now, they're 0:04:39.680 --> 0:04:42.160 not even going to start to tighten monetary policy until 0:04:42.160 --> 0:04:44.800 they're at full employment, inflations at two percent, and they 0:04:44.800 --> 0:04:47.320 expect inflation to move higher. So the FED is gonna 0:04:47.320 --> 0:04:50.480 be much slower to tighten this regime than in prior regimes, 0:04:50.720 --> 0:04:52.880 and that does create some risks for the economy. But 0:04:52.960 --> 0:04:54.720 we say it's a risk that will be like, isn't 0:04:54.720 --> 0:04:57.560 it a commitment that they're going to be Like, well, 0:04:57.560 --> 0:04:59.880 the question is how late? Yes, I think they are 0:05:00.040 --> 0:05:01.840 that they are making commitment that they're gonna be, Like, 0:05:01.920 --> 0:05:03.719 the question is really how late? And then how high 0:05:03.720 --> 0:05:06.440 will they have to raise short term rates to basically 0:05:06.520 --> 0:05:09.920 keep inflation from continuing to accelerate? Now, the risk is 0:05:09.960 --> 0:05:12.680 I think that the risk is that recession will be 0:05:12.800 --> 0:05:16.200 uh more more likely at that point because the Fed's 0:05:16.200 --> 0:05:18.279 gonna have to move not to a neutral madreate policy, 0:05:18.320 --> 0:05:20.720 but to a tight madre policy. If they're following this 0:05:20.760 --> 0:05:23.360 new UH framework so bill, this is a huge issue. 0:05:23.600 --> 0:05:25.240 And I think the most important question we can ask 0:05:25.320 --> 0:05:27.520 right now FED officials, and we asked it if last 0:05:27.600 --> 0:05:29.880 check cloud on Friday, is how will they know if 0:05:29.880 --> 0:05:32.960 they're wrong on this transit tree issue? If you run 0:05:33.000 --> 0:05:35.279 the FMC back on the FMC bill, how would you 0:05:35.320 --> 0:05:38.320 not if you were wrong? Well, at the end of 0:05:38.320 --> 0:05:40.080 the day, I mean, I think they're gonna look at 0:05:40.080 --> 0:05:42.120 the bubble that we're going to see inflation this year 0:05:42.200 --> 0:05:45.239 is mostly due to base effects and some frictional costs. 0:05:45.240 --> 0:05:47.680 You sort of reopened the economy. They're gonna be really 0:05:47.680 --> 0:05:50.360 focusing more on the labor market. How many people are 0:05:50.400 --> 0:05:53.400 still unemployed compared to where we were in March of 0:05:53.480 --> 0:05:56.440 two thousand uh and twenty. Right now we have a 0:05:56.480 --> 0:05:58.839 shortfall of employment of about eight and a half nine 0:05:58.839 --> 0:06:02.000 million people, and Fed's gonna be tracking that very carefully. 0:06:02.360 --> 0:06:04.520 As does people get employed, then the Federals start to 0:06:04.800 --> 0:06:08.000 not focus on the transitory factors driving inflation. But really 0:06:08.400 --> 0:06:11.440 the one that they are most concerned about is what 0:06:11.279 --> 0:06:13.160 what point do you get to such a tight labor 0:06:13.200 --> 0:06:16.400 market that it generates wage pressures that drive up crisis, 0:06:16.760 --> 0:06:18.760 and FED officials have said that they have the tools 0:06:18.760 --> 0:06:22.360 to combat inflation that's higher than expected. Do they have 0:06:22.440 --> 0:06:25.680 the tools to deal with financial disruption after with this 0:06:25.760 --> 0:06:29.080 incredible surge in risk taking that has been on the 0:06:29.120 --> 0:06:31.680 heels of FED policy, What happens if that stopped in 0:06:31.720 --> 0:06:35.520 its tracks as a result of FED tightening policy. I 0:06:35.520 --> 0:06:37.920 think you're raising an important question that when the FED 0:06:38.000 --> 0:06:41.480 goes from very very friendly to unfriendly, financial markets are 0:06:41.480 --> 0:06:44.040 going to have an adjustment to make, and the adjustment 0:06:44.080 --> 0:06:46.880 could be quite severe after such a long period of 0:06:47.320 --> 0:06:51.120 low interest rates. Uh. I don't think the FED cares 0:06:51.160 --> 0:06:54.160 about the stock market level per se, but they do 0:06:54.240 --> 0:06:56.400 care if the stock market were to collapse, and that 0:06:56.480 --> 0:06:59.760 would potentially hurt the US economy. So the FED does 0:06:59.839 --> 0:07:02.240 care about financial conditions in terms of how they feed 0:07:02.279 --> 0:07:05.760 into the performance of the economy. But the FAN is 0:07:05.760 --> 0:07:07.360 not going to run to the rescue just because the 0:07:07.400 --> 0:07:11.040 stock market goes downtown. No. But it raises a question 0:07:11.080 --> 0:07:13.600 about whether if the if the FED is going to 0:07:13.720 --> 0:07:16.520 tighten in the near term because they see that things 0:07:16.560 --> 0:07:18.560 are getting a little bit ahead of their skis, or 0:07:18.600 --> 0:07:21.800 if they try to take actions to combat inflation, could 0:07:21.840 --> 0:07:24.320 the torpedo markets that are already at heavy levels. I mean, 0:07:24.320 --> 0:07:27.720 do you feel like your colleagues are actively considering that 0:07:27.880 --> 0:07:30.120 or is that sort of not as significant as just 0:07:30.120 --> 0:07:32.440 getting the market and the economy back up to speed. 0:07:33.080 --> 0:07:35.640 I think PA repeatedly has made it very clear that 0:07:35.680 --> 0:07:37.600 the FED is not going to be preemptive and they're 0:07:37.640 --> 0:07:40.600 not that concerned about financialstlis. What they're concerned about is 0:07:40.600 --> 0:07:42.760 getting that eight to nine million people back to work 0:07:42.760 --> 0:07:45.920 as soon as possible. That's the focus of policy right now. 0:07:46.160 --> 0:07:48.480 What that does do, though, creates a risk for markets 0:07:48.520 --> 0:07:51.240 when the FED has to shift gears and start worry 0:07:51.280 --> 0:07:56.680 about inflation. That's probably that's probably several years off. In 0:07:56.760 --> 0:08:01.920 our great debate here, do we still underestimate the wage 0:08:01.960 --> 0:08:06.640 inflation doesn't move because of the new technological impulses that 0:08:06.680 --> 0:08:11.480 we see in our economy, Well that could be a factor. 0:08:11.680 --> 0:08:16.160 I mean, we're running an experiment basically, and we're gonna 0:08:16.160 --> 0:08:18.680 see how it goes. And this experiment is, you know, 0:08:18.840 --> 0:08:21.440 has more uncertainty than usually because we've never had a 0:08:21.440 --> 0:08:25.720 recovery from a pandemic like this before, going back for 0:08:25.960 --> 0:08:28.920 more than a hundred years. So anybody who tells you 0:08:28.960 --> 0:08:30.680 that they know how the economist can perform over the 0:08:30.720 --> 0:08:33.480 next year or two. I think is not being truly 0:08:33.520 --> 0:08:37.400 honest with you, because we've never had an economic recovery 0:08:37.440 --> 0:08:41.480 like this one fuelled by massive mater and fiscal policy stimulus. 0:08:41.600 --> 0:08:43.040 So I think it's gonna be very hard to know 0:08:43.160 --> 0:08:45.199 for sure how fast this is all going to unfold 0:08:45.440 --> 0:08:48.800 before you go, Bill. An important question Mohammad al Arian 0:08:48.840 --> 0:08:52.000 asked on Blowing Bag Opinion this morning. Did the FETCH 0:08:52.000 --> 0:08:54.520 shift policy lines at the wrong time? Do you think 0:08:54.559 --> 0:08:57.160 they make this framework shift a little bit prematurely? I 0:08:57.200 --> 0:09:00.120 asked that because I wonder if they have known was 0:09:00.120 --> 0:09:02.040 about to happen on the fiscal side, whether they would 0:09:02.080 --> 0:09:05.120 have made this change. I think they would have made 0:09:05.120 --> 0:09:07.920 the change in any case, because they were really worried 0:09:07.920 --> 0:09:10.880 about inflation expectations becoming an anchored in the downside, and 0:09:11.000 --> 0:09:14.040 because they had such a poor record of forecasting what 0:09:14.320 --> 0:09:17.280 level of employment is full employment. So I think they 0:09:17.280 --> 0:09:19.520 would have made the shift no matter what. But I 0:09:19.520 --> 0:09:22.280 think Muhammad al Arian's pieces is a good one because 0:09:22.280 --> 0:09:23.800 I think he points out the fact that there are 0:09:23.840 --> 0:09:26.200 some risks to this new strategy. The FED could be 0:09:26.280 --> 0:09:27.959 late and if they fed is late, they'll have to 0:09:28.000 --> 0:09:30.440 slam on the brakes and now have consequences not just 0:09:30.480 --> 0:09:34.120 for the economy but also for fun financial market. Looking 0:09:34.120 --> 0:09:35.520 forward to catching up with you both on that issue 0:09:35.520 --> 0:09:37.200 a little bit later this week as well. Bill, Looking 0:09:37.240 --> 0:09:39.480 forward to that Bill Dudley, the former Federal Reserve Bank 0:09:39.520 --> 0:09:41.920 of New York President, on some of the issues right now. 0:09:47.880 --> 0:09:50.760 This is a conversation that we wanted to have for 0:09:50.840 --> 0:09:54.640 days with the passing of Robert Mundell. You've heard me 0:09:54.679 --> 0:09:57.440 say that Ken rog Offen others that the line the 0:09:57.559 --> 0:10:01.520 lineage of our international economics goes back to Chicago of 0:10:01.640 --> 0:10:05.080 long ago. And Jacob Frankel. We are thrilled that Dr 0:10:05.160 --> 0:10:07.800 Frankel could join us this morning. He is a course 0:10:07.840 --> 0:10:11.800 with a group of thirty. Chairman of the Board of Trustees, Jacob. 0:10:11.840 --> 0:10:15.400 We had a wonderful friday with Ken Rogar, Richard Clarida, 0:10:15.600 --> 0:10:21.800 and Angus Daton talking about the twentieth century international economics. 0:10:22.120 --> 0:10:25.120 When you were writing at Chicago, what did you learn 0:10:25.200 --> 0:10:31.040 from Mandela Colombia. Well, to begin with, when I came 0:10:31.080 --> 0:10:39.080 to Chicago in nine, Mandel was a superstar. We were 0:10:39.440 --> 0:10:43.760 students together. Rudy don't Bush, Michael Mussa, myself and some 0:10:43.920 --> 0:10:49.360 other people who well, all in a way hypnotized by 0:10:49.400 --> 0:10:53.079 the way in which he changed completely the way in 0:10:53.080 --> 0:10:57.520 which the economic profession looked at the economy. I would 0:10:57.559 --> 0:11:00.880 say that up to that point the world was viewed 0:11:00.920 --> 0:11:05.000 in the textbooks as a closed economy. Each country was 0:11:05.040 --> 0:11:09.320 a unit. Yes, it had some inter inter relationships with 0:11:09.400 --> 0:11:14.160 other countries through trade, but by and large it was 0:11:14.440 --> 0:11:19.400 a close unit ran by the policy makers of that unit. 0:11:19.880 --> 0:11:25.480 Caman deal and said, the only closed economy for real world, 0:11:26.200 --> 0:11:31.040 but each country within the world. And therefore, you know, 0:11:31.120 --> 0:11:34.920 in order to understand how the economy works, we need 0:11:34.960 --> 0:11:39.280 to develop a new approach, which is called open economy 0:11:39.600 --> 0:11:45.079 macro economics. It means that you cannot run monetary policy 0:11:45.520 --> 0:11:48.840 under the assumption that you are a close unit, because 0:11:49.320 --> 0:11:53.960 after all, exchange rates because of time, and I know 0:11:54.080 --> 0:11:55.959 Listen wants to get in here. I want to drive 0:11:56.040 --> 0:11:59.679 this forward to the modern age because you were your 0:11:59.679 --> 0:12:02.840 work with JP Morgan, with Mr Diamond and the team there, 0:12:03.160 --> 0:12:05.440 and your work with Group of thirty. You have been 0:12:06.000 --> 0:12:08.959 the architect of so much of our discussion of an 0:12:09.000 --> 0:12:12.520 open economy. Is Mr Diamond mentioned in his letter the 0:12:12.600 --> 0:12:19.640 other day, does America resist? Does America have a chance 0:12:19.760 --> 0:12:25.120 to lose our open economy advantage? It depends if it 0:12:25.280 --> 0:12:30.079 keeps the open economy perspective or if it closes itself. 0:12:30.400 --> 0:12:34.280 The only way a country can succeed, small or lounge 0:12:34.720 --> 0:12:38.599 in the intergrated world is by being open to benefit 0:12:39.040 --> 0:12:42.120 from the better things that other countries do and to 0:12:42.280 --> 0:12:45.520 and to benefit other countries by the things that we do. 0:12:45.800 --> 0:12:50.920 The principles of comparative advantage that we're coined still ages 0:12:50.960 --> 0:12:55.319 ago by David Ricardo Adam Smith, I'll still valid today, 0:12:55.360 --> 0:12:59.880 but even more so because capital markets are very inter real. 0:13:00.679 --> 0:13:07.600 Capital markets are moving by expectations, Expectations are being fed 0:13:07.640 --> 0:13:12.920 by announcements, and announcements are affecting the economy through the credibility. 0:13:12.960 --> 0:13:17.840 All of it together means that we cannot afford playing 0:13:17.880 --> 0:13:22.320 the game of isolationism, and anyone who will try to 0:13:22.360 --> 0:13:26.640 do it will be penalized by the markets. And I 0:13:26.679 --> 0:13:30.440 believe that by now there is greater understanding that when 0:13:30.480 --> 0:13:36.559 countries are trying to close themselves under the excuse of 0:13:36.600 --> 0:13:40.640 trying to protect its own citizens, so to speak, as 0:13:40.640 --> 0:13:43.800 a matter of fact, they helped their citizens because they 0:13:43.840 --> 0:13:47.760 don't allow the citizens to enjoy the benefits from the 0:13:47.800 --> 0:13:51.920 world knowledge and technology. Jacob. This used to be a 0:13:52.000 --> 0:13:55.679 common thought, a common belief, and increasingly it's become less so, 0:13:56.040 --> 0:13:59.120 and there's been more isolationism. I'm wondering how much pushback 0:13:59.160 --> 0:14:01.720 you're getting in from the members that you talk with 0:14:02.000 --> 0:14:04.280 among the group of thirty to this idea that perhaps 0:14:04.320 --> 0:14:07.960 globalization doesn't help everyone in the same kind of ways, 0:14:08.160 --> 0:14:10.240 and at certain things need to be done in a 0:14:10.280 --> 0:14:15.760 more domestic capacity, especially as we see these supply chain disruptions. Absolutely, 0:14:16.080 --> 0:14:18.800 but the main lesson is not to throw the baby 0:14:19.080 --> 0:14:23.720 with the water tub. Namely, if globalization is not perfect, 0:14:24.160 --> 0:14:28.600 don't make globalization a passee. On the contrary, ask yourself 0:14:28.720 --> 0:14:31.920 what's not working. What it was not working was that 0:14:32.000 --> 0:14:36.240 the benefits were not widely shelled. And this is basically 0:14:36.280 --> 0:14:40.240 the agenda for governments to make sure that the benefits 0:14:40.280 --> 0:14:45.120 are widely shelled. That's that's that's the essence of fiscal policy, 0:14:45.400 --> 0:14:48.880 of transfer of text policy. But it is not the 0:14:48.920 --> 0:14:52.640 case against opening the window. If you open the window, 0:14:52.800 --> 0:14:57.120 yes you may get some storms, so make yourself more robust. 0:14:57.200 --> 0:15:00.120 But if you close the window, you really miss the 0:15:00.200 --> 0:15:02.880 smell of roses from the garden. Are the benefits from 0:15:02.880 --> 0:15:06.560 globalization the same now as they were twenty thirty years ago, 0:15:06.760 --> 0:15:09.920 given how much pay has evened out, given how much 0:15:09.960 --> 0:15:12.480 wealth has gotten spread out around the world. We don't 0:15:12.520 --> 0:15:15.640 have the same China today as we did thirty years ago, 0:15:16.040 --> 0:15:19.800 driving prices down. Thirty years ago, we did not know 0:15:19.920 --> 0:15:22.560 that China will come, and here it came, and you 0:15:22.600 --> 0:15:25.640 could have said thirty years ago the globalization has already 0:15:25.680 --> 0:15:29.240 exhausted its benefits by the same talking today, when you 0:15:29.320 --> 0:15:32.600 look today at the we are, we have and we 0:15:32.680 --> 0:15:36.920 have experienced now the pandemics. We have experienced now the 0:15:36.960 --> 0:15:41.760 fact that pandemics did not recognize boulders, that knowledge is 0:15:42.120 --> 0:15:47.560 an international public good, that the vaccinations are to be shared, 0:15:47.760 --> 0:15:50.680 that the mechanisms need to be in place. So by 0:15:50.720 --> 0:15:55.360 and large, the manifestation of globalization will come from different 0:15:55.400 --> 0:15:59.000 places in the coming year or years, will be in 0:15:59.040 --> 0:16:03.240 the ferry, in the climate area, who needs to have 0:16:03.360 --> 0:16:07.560 the cooperation of God, all issues that do not recognize 0:16:08.680 --> 0:16:11.240 Jacob Franco. It is such an honor to have you 0:16:11.360 --> 0:16:15.080 on right now. Is Adam Posen of the Peterson Institute 0:16:15.560 --> 0:16:19.760 announced the death of John Williamson. I'll be honest, Jacob, 0:16:19.800 --> 0:16:22.800 I can't think of someone I'd better talk to at 0:16:22.800 --> 0:16:27.560 this moment than you. John Williamson was a micro economist 0:16:27.640 --> 0:16:33.000 who spend all of economics, including macroeconomics, and his founding 0:16:33.000 --> 0:16:38.680 in nineteen eighty nine of the phrase the Washington Consensus. Jacob, 0:16:38.840 --> 0:16:43.840 every bit of your work identifies what Williamson wrought. Do 0:16:43.920 --> 0:16:48.720 we have a Washington consensus today? In honor of John Williamson? 0:16:50.200 --> 0:16:53.800 Welcome begin with I really wanted to share other opposing 0:16:54.040 --> 0:17:00.400 sadness and sorrow and with the death of our trend, 0:17:00.520 --> 0:17:06.000 John Williamson, the Washington consensus was a concept that was 0:17:06.080 --> 0:17:09.800 developed about the notion that there was a consensus of 0:17:09.920 --> 0:17:13.240 what does it take to be a successful economy. And 0:17:13.280 --> 0:17:17.359 I believe that today we do not have the Washington consensus. 0:17:17.400 --> 0:17:21.000 And the reason is that, especially since the Great Financial 0:17:21.040 --> 0:17:25.880 Crisis of two thousand and seven eight nine, subsequently with 0:17:26.000 --> 0:17:32.080 the subsequent crisis, seems to be that policymakers in many 0:17:32.119 --> 0:17:36.480 places of the world have I would say, lost their compass. 0:17:36.520 --> 0:17:39.040 And if you lose your compass, you cannot have a 0:17:39.040 --> 0:17:42.720 consensus about a strategy. And I think that The challenge 0:17:42.760 --> 0:17:47.960 today is again to recognize what are the basic principles 0:17:48.000 --> 0:17:51.480 that our robust and what are the things that can 0:17:51.520 --> 0:17:55.960 be put pushed aside? And I think that consensus we 0:17:56.200 --> 0:17:59.240 I see. I still think that the issue of globalization, 0:17:59.720 --> 0:18:04.280 of openness, of making sure the globalization succeeds, of making 0:18:04.280 --> 0:18:07.399 sure that the benefits are shared, of making sure that 0:18:07.480 --> 0:18:11.960 the machinery is in place to bring about this sharing 0:18:12.240 --> 0:18:16.360 of the benefits. This has to be a strong fiscal system, 0:18:16.720 --> 0:18:23.320 a strong text system, and a very independent, when focused 0:18:23.520 --> 0:18:27.320 monetaried policy looking at the long term and not just 0:18:27.560 --> 0:18:34.119 about the show's working. About Mandeli, he was a false 0:18:34.200 --> 0:18:38.600 sited economies that could see behind the conor and del poll. 0:18:38.720 --> 0:18:42.240 He was so successful. And Mandel and Williams and Jacob Franco, 0:18:42.320 --> 0:18:43.840 we are so honored to have you with us, the 0:18:43.920 --> 0:18:53.480 former governor of the Bank of Israel. This is an 0:18:53.480 --> 0:18:57.480 exceptionally important interview. In the last for eight hours of surveillance, 0:18:57.480 --> 0:19:01.520 we've had terrific interviews on economics and now a must listen, 0:19:01.600 --> 0:19:05.200 must watch on China ching, which is a JP Morgan. 0:19:05.280 --> 0:19:09.680 She's vice chairman of Asia Pacific Banking for the firm 0:19:09.720 --> 0:19:13.520 and that barely describes her commitment to a dialogue between 0:19:13.520 --> 0:19:16.840 the Western world and China. We're thrilled that Jing Ulwar 0:19:16.920 --> 0:19:19.000 could join us. This want to Jing, I want to 0:19:19.000 --> 0:19:21.119 talk about Hong Kong. I want to talk about it 0:19:21.200 --> 0:19:25.600 forever changed, How Hong Kong? How much is Hong Kong change? 0:19:25.840 --> 0:19:28.200 And what does it look like for the JP Morgan 0:19:28.280 --> 0:19:32.480 Company in the coming years. Well, Hong Kong. I've been 0:19:32.480 --> 0:19:36.880 here for many years, and the Hong Kong financial markets 0:19:36.920 --> 0:19:40.719 are extremely buoyant, as you could see from you know, 0:19:40.800 --> 0:19:45.560 many activity in the I P O market, many of 0:19:45.600 --> 0:19:48.760 the innovative companies from China coming to the Hong Kong 0:19:48.760 --> 0:19:53.040 market to list. In terms of the recovery from the pandemic, 0:19:53.680 --> 0:19:57.640 Hong Kong actually has done pretty well if you think 0:19:57.680 --> 0:20:00.280 about it right. Hong Kong is a city of seven 0:20:00.320 --> 0:20:03.200 million people all together. I think they have been about 0:20:03.200 --> 0:20:08.199 eleven thousand cases of COVID since the pandemic began, And 0:20:08.280 --> 0:20:11.560 these days, I think a pandemic is definitely coming under control. 0:20:11.960 --> 0:20:16.920 Economic activity is actually returning to normal slowly but steadily. 0:20:17.520 --> 0:20:21.640 During with your influence, your experience, the breadth of your 0:20:21.720 --> 0:20:24.960 knowledge of the Pacific rim, do you look at Hong 0:20:25.040 --> 0:20:29.040 Kong that it will be changed for Western banking or 0:20:29.080 --> 0:20:33.880 will it be business as usual? Well, so far it's 0:20:33.920 --> 0:20:38.920 been business as usual. We're as busy as ever helping 0:20:38.960 --> 0:20:43.440 our clients among the corporates and also investors. And they 0:20:43.520 --> 0:20:47.240 remember China has a huge amount of likuti as well. 0:20:47.680 --> 0:20:51.880 Through the connect program between Shanghai and Hong Kong, shen 0:20:51.960 --> 0:20:54.879 Jen and Hong Kong. There's a lot of mainland money 0:20:55.080 --> 0:20:59.560 actually coming to Hong Kong to invest in world class companies. 0:21:00.320 --> 0:21:02.280 Can we talk about what's happening on the mainland right now? 0:21:02.320 --> 0:21:05.040 The equity market is really struggled over the last month 0:21:05.119 --> 0:21:08.480 or so. What's going on? Well, you know, the equity 0:21:08.520 --> 0:21:12.840 markets in China have performed differently from the US. The 0:21:12.920 --> 0:21:16.399 U S indusseries are near all time highs. The China 0:21:16.480 --> 0:21:20.320 market had done very well up until February of this year. 0:21:20.960 --> 0:21:23.600 I think this has to do with the liquidity situation 0:21:23.840 --> 0:21:27.480 in China. As you know, normally the Chinese equity market 0:21:27.480 --> 0:21:31.959 performance is very much um in synct with the credit cycle. 0:21:32.480 --> 0:21:36.159 Now that the mainland authorities are actually typing liquidity because 0:21:36.280 --> 0:21:40.560 economic recovery is firmly on track, they want to control 0:21:41.080 --> 0:21:44.960 the laborage ratio. They want to control the risk of overheating. 0:21:45.400 --> 0:21:50.080 So therefore, as they really raining raining in the credit 0:21:50.480 --> 0:21:54.960 uh growth, you're seeing some softening of the mainland markets. 0:21:55.200 --> 0:21:58.080 They had done very very well throughout two thousand and 0:21:58.119 --> 0:22:01.760 twenty and also into January February this year. I think 0:22:01.800 --> 0:22:05.159 this is taking a breather, not just reigning in credit. 0:22:05.200 --> 0:22:06.879 They're running in some of the big tech players. And 0:22:06.880 --> 0:22:08.720 I understand you can't do single names, so I do 0:22:08.760 --> 0:22:11.080 it for you, Ali Baba and Financial very much in 0:22:11.080 --> 0:22:12.720 the news at the moment ing and I think for 0:22:12.800 --> 0:22:15.200 people outside of the main land, outside of Hong Kong 0:22:15.280 --> 0:22:17.640 even I think they're struggling with what's happening with regulation 0:22:17.720 --> 0:22:19.640 on the ground around some big tech players. These were 0:22:19.640 --> 0:22:23.159 big themes that investors worldwide wanted to get some traction, 0:22:23.240 --> 0:22:27.000 some exposure to. What are you telling them now, Well, 0:22:27.040 --> 0:22:31.439 you know, despite the recent market volatility, we think the 0:22:31.480 --> 0:22:35.920 digital economy in China is still alive and well, especially 0:22:36.000 --> 0:22:39.360 since the pandemic. The digital way of life is definitely 0:22:39.359 --> 0:22:42.439 not turning back. If you look at e commerce, you 0:22:42.520 --> 0:22:46.600 look at the sharing economy, you look at payments, everything 0:22:46.760 --> 0:22:50.320 is growing in a very robust passion. So we believe 0:22:50.760 --> 0:22:54.200 the medium to a long term outlook for the large 0:22:54.240 --> 0:22:58.760 tech companies remains very robust. Although you've got to wonder 0:22:59.040 --> 0:23:01.600 which area people are going to invest in big tech. 0:23:01.640 --> 0:23:04.360 Do you find that some of your international investors are 0:23:04.400 --> 0:23:07.600 more hesitant to invest in Chinese big tech because of 0:23:07.640 --> 0:23:12.200 the regulatory oversight that does seem to be tightening. Actually, 0:23:12.440 --> 0:23:16.600 many international investors are looking at China as an asset class. 0:23:17.040 --> 0:23:21.359 They find themselves actually under exposed to China. If you 0:23:21.480 --> 0:23:25.080 think about the next ten years, the Chinese economy is 0:23:25.119 --> 0:23:28.080 going to surpass the US economy to become the largest 0:23:28.160 --> 0:23:31.120 in the world. However, if you look at the waiting 0:23:31.480 --> 0:23:36.080 of global funds in China, it remains very low. So 0:23:36.200 --> 0:23:40.000 we're actually looking at in the national institutions finding different 0:23:40.040 --> 0:23:45.040 ways to gain more exposure to China, both equities and 0:23:45.240 --> 0:23:48.800 fixed income securities. And on the fix income side, you know, 0:23:49.160 --> 0:23:51.720 I know, you guys talk about the tenure treasure yield 0:23:51.800 --> 0:23:54.760 all the time every day on your show. China is 0:23:55.119 --> 0:23:58.560 three point two percent on the tenure right now, so 0:23:58.680 --> 0:24:02.920 that's relatively a track tip for international funds really seeking 0:24:03.040 --> 0:24:07.200