Speaker 1: Ye, Welcome to the Bloomberg Surveillance podcast and I'm Tom Keane.
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Speaker 1: for the conversation right now for us, as we spoke
Speaker 1: with Kenneth Rogoff this morning of Harvard University on an
Speaker 1: important Group of thirty study of digital currencies, we're gonna
Speaker 1: touch on that quickly here with Roger and Roger of
Speaker 1: Chicago Group of thirty working group co chair, former Indian
Speaker 1: governor RBI, governor of their central bank as well. Robert,
Speaker 1: wonderful to have you with us today. What is the
Speaker 1: distinction of your study? What does this drive forward about
Speaker 1: how technology is changing money? This is the digital currencies
Speaker 1: are revolution right for the first time in three years,
Speaker 1: we can replace cash with something digital. Now we've already
Speaker 1: replaced bank accounts. We we have digital bank accounts. But
Speaker 1: but think of everything going digital and what possibilities that
Speaker 1: that creates, but also what what challenges if for example,
Speaker 1: the government issues this digital currency, the amount of data
Speaker 1: it's going to collect, the amount of privacy it's going
Speaker 1: to violate, and what what concerns that that raises? Those
Speaker 1: are what what are made possible by these new technologies cryptocurrencies, government,
Speaker 1: digital currencies. Um, that's what that's what we were this
Speaker 1: report is about. When we talk about digital currencies, it's
Speaker 1: one aspect to talk about technology and just creating a
Speaker 1: digital form of what we already have. It's another to
Speaker 1: say we're debasing the existing currencies that's come up with
Speaker 1: the alternative that could preserve its value in tandem with gold.
Speaker 1: Which side are you on as the most plausible for
Speaker 1: the future of digital currencies. Well, it's the first. I
Speaker 1: think This idea of a private cryptocurrency which is forever
Speaker 1: going to maintain its value is is interesting, but you know,
Speaker 1: credible central banks have done that with fiat currencies. So
Speaker 1: really the the issue is once we convert that cash,
Speaker 1: the stuff that you have in your wallets into something digital,
Speaker 1: what new possibilities arise and what what new challenges? How
Speaker 1: do we contain all the concerns that emerge from that,
Speaker 1: And that's really what this is about. Dr Rogers, I
Speaker 1: must bring this up for the first time ever, folks
Speaker 1: in all my years, I have taken a book of
Speaker 1: the summer of a year ago and made it a
Speaker 1: book of the summer of the following summer. I've never
Speaker 1: done that before, and I do that with Rogin Rogins
Speaker 1: the third pillar, which is a primal scream for unity
Speaker 1: in America, community and other societies. I want to talk
Speaker 1: about how the third pillar matters Rago and I want
Speaker 1: to talk about what you've observed over the last three
Speaker 1: months or so and how we need to get away
Speaker 1: from our culture wars back to community absolutely. I mean,
Speaker 1: actually take the example of fighting the coronavirus right the
Speaker 1: the countries that have been very successful at it, South Korea,
Speaker 1: Germany typically have had a combination of a centralized approach
Speaker 1: setting broad parameters, you know, getting the funding, but also
Speaker 1: a decentralized approach where each region figures out what its
Speaker 1: issues are, how it deals with it specifically, and how
Speaker 1: it brings its resources to bear. And so my sense
Speaker 1: is this is there is a broader example here that,
Speaker 1: in fact, the way we're going to move ahead in
Speaker 1: our diverse countries without upsetting each fact and is to
Speaker 1: have a coherent, capable central government of course, but also
Speaker 1: decentralized processes. If we look at the fault lines of
Speaker 1: the market right now, Dr Roger, and I'm seeing yields,
Speaker 1: Command Fox. I'm not even gonna do the data chuck here,
Speaker 1: just to say time is the market telling the FED
Speaker 1: what to do? Can the market drive us two towards
Speaker 1: negative interest rates? I think the FED is resistant, and
Speaker 1: my sense is ultimately moving us negative. It will be
Speaker 1: the FED which will move us. I don't think it's
Speaker 1: the market, however, to some extent, I think it's the
Speaker 1: real activity on the ground which is moving the FED.
Speaker 1: And the real activity is driven by this huge unknown
Speaker 1: as as you well know, the coronavirus and how we
Speaker 1: deal with it. I mean, everybody is very sanguine about
Speaker 1: a vaccine coming soon. Of course that's going to take time,
Speaker 1: and it's going to take time to roll out, So
Speaker 1: so there are tremendous uncertainties. The FED is is going
Speaker 1: to be as supportive as possible. I don't think that
Speaker 1: support right now extends to going seriously negative. How concerning
Speaker 1: is it to you that the FEDS policies are propping
Speaker 1: up people who own stocks, typically the wealthier individuals, and
Speaker 1: not necessarily giving that much back to main street and
Speaker 1: this is just by function of the FEDS design. How
Speaker 1: concerning is that at a time we don't have a
Speaker 1: fiscal plan yet in Washington. Well, you do obviously need
Speaker 1: a fiscal plan, but I think the support, certainly for
Speaker 1: Main Street is is structured there. Whether whether firms can
Speaker 1: take it is an issue. There is an additional issue,
Speaker 1: which is at what point does the FED allow the
Speaker 1: market to start resolving firms? In other words, you know,
Speaker 1: if this continues for some time, there will be a
Speaker 1: number of unviable firms. At what point does the FEDS say,
Speaker 1: We're not going to support as much as we can,
Speaker 1: We're going to withdraw some of that support so that
Speaker 1: the unviable firms can be put out of of their misery,
Speaker 1: which will actually create space for the remaining firms and
Speaker 1: make them healthier. So that issue has to be tackled eventually.
Speaker 1: I don't think now is the time, but the FED
Speaker 1: will have to start thinking about that the longer the
Speaker 1: pandemic sort of lass Professor Rugan, thank you so much
Speaker 1: with the Booth Schools Chicago and of course UH Group
Speaker 1: of thirty working group co chairman of an important essay
Speaker 1: with Ken Rogolf on digital currencies, Rob and Roger. Michelle
Speaker 1: Meyers had a wonderful career Rather Bank of American Securities.
Speaker 1: How to the US economics now, Michelle, John and Lis
Speaker 1: have got some fancy pants question for you. I got
Speaker 1: a basic question that came off of David Gura of
Speaker 1: NBC News yesterday at the Paul Press Conference, which was
Speaker 1: a separation of America into two societies. There the halves,
Speaker 1: the new hals, which are going through this pandemic service sector.
Speaker 1: There at home, everything's fine, let's buy the beach house.
Speaker 1: There's a whole nother America flat on its back. And
Speaker 1: the Chairman took de bait. He answered the question, tell
Speaker 1: us about this separation right now in America? Yeah, Hey, Tom,
Speaker 1: and I think it was a great question that David asked,
Speaker 1: and I'm glad to see that FED Chairpowell did respond
Speaker 1: to it. And it's something that I think is really
Speaker 1: important to the FED or Reserve, the fact that we've
Speaker 1: seen this widening income inequality. It comes up in nearly
Speaker 1: every speech that Chair Powell has given um and even
Speaker 1: before COVID hit it was critical to their FED listens
Speaker 1: events this idea that we want to get a broader recovery.
Speaker 1: We want to have income creation widely spread. We want
Speaker 1: to control for the wealth inequality. And so why do
Speaker 1: we Why is that so important? From a macro perspective,
Speaker 1: it's important because when you have UM, you know, income
Speaker 1: inequality of wealth inequality, you're not getting as strong of
Speaker 1: an aggregate spend as you can have. Right. If so
Speaker 1: much of the money is concentrating a small share of
Speaker 1: the population, that population can possibly spend it all. Right,
Speaker 1: So when you have the lower income population, which tends
Speaker 1: to be more budget constrained INTEND it's spend what they earned.
Speaker 1: It filters into the economy more and multiplies and it's
Speaker 1: a lot more favorable UM. And this crisis has just
Speaker 1: proportionately hit the lower income population, particularly those that are
Speaker 1: working in leisure and hospitality UM. That sector lost almost
Speaker 1: half of their jobs were cut UM as a result
Speaker 1: of of COVID. Now it's been coming back. The bounce
Speaker 1: in the last two months has been favorable, but there's
Speaker 1: still a lot millions of workers in that population that
Speaker 1: are out of work and looking. Michelle, you done a
Speaker 1: tremendous job over the last couple of months with the
Speaker 1: team describing what this recovery will look like a fall
Speaker 1: off the cliff, a bounce off the trampoline, and a
Speaker 1: climb up the rope. The long time is started. Can
Speaker 1: you explain to our audience what you think that will
Speaker 1: look like. So that's exactly right now. The hard work comes,
Speaker 1: and I think it's going to be a lot more wobbly,
Speaker 1: maybe fits and starts. So you make some progress to
Speaker 1: climb up the rope, you hit a stumbling block, you
Speaker 1: pause for a bit, maybe part of the maybe they
Speaker 1: comely falls back slightly. I don't think we're going to
Speaker 1: fall off again. I don't think it's a W shaped trajectory.
Speaker 1: It's not going to be a downturn again unless there's
Speaker 1: something much more significant that happens in terms of you know,
Speaker 1: the path of COVID. But but but from here on,
Speaker 1: I think it's absolutely critical to pay attention to how
Speaker 1: consumer behavior evolves in the face of COVID risks, and
Speaker 1: how the stimulus evolves, both monetary and fiscal. And right
Speaker 1: now we're in a critical point when thinking about fiscal
Speaker 1: policy and how targeted uh the stimulus may or may
Speaker 1: not be in terms of reaching that population that has
Speaker 1: a higher tendency to spend that money on the monitor
Speaker 1: policy side of things, that feeds going nowhere fast. Tom Kane,
Speaker 1: there is an elephant sitting on the front end of
Speaker 1: the yield curve and it's called the Federal Reserve and
Speaker 1: a two year yield breaking down it is and this
Speaker 1: is fascinating. I mean, I don't know what else to say,
Speaker 1: but you know, I go back to Hunt Brothers Silver.
Speaker 1: I mean, there's a point where the market starts telling
Speaker 1: institutions what to do. Michelle mauer Meyer. Is there enough
Speaker 1: power out there for markets to tell the Fed what
Speaker 1: to do? Well? You know, it's a it's a a
Speaker 1: key question because in a way, markets clearly do influence
Speaker 1: monetary policy, because monetary policy and the Federal Reserve will
Speaker 1: react to financial conditions because that's the transmission of policy.
Speaker 1: You know, think about everything that that is trying to
Speaker 1: do in terms of their policies, and you know, the
Speaker 1: commitment to low interest rates, um, their support for the
Speaker 1: flow of credit, the way they observe that, and see
Speaker 1: if their success is to determine how financial conditions evolve
Speaker 1: and how markets evolve, so markets can push beneficials to
Speaker 1: some extent, because it's kind of that that that that
Speaker 1: calibration in a way Tomkine looking at that front end
Speaker 1: breaking down zero point one two. I think Lisa mentioned
Speaker 1: this earlier on the program, the five year space on
Speaker 1: the treasury curve, the belly, Lisa, this is getting interesting
Speaker 1: low for longer is something we're told repeatedly. This market
Speaker 1: is listening, is taking the policy right and pushing it
Speaker 1: out along the curve into the belly. And how is
Speaker 1: that going to help employment? And I think this is
Speaker 1: one of the big questions right now, especially with the
Speaker 1: Federal Reserve doing everything they can and gridlock in Washington.
Speaker 1: John Shell, a bank for Ecto Security. I'm gonna read
Speaker 1: you some numbers, folks about what was as we bring
Speaker 1: in David Kelly of JP Morgan and David Kelly knows
Speaker 1: these numbers, and he knows why I'm going to them.
Speaker 1: The animal spirit line of nominal GDP long ago and
Speaker 1: far away four a better number four point one back
Speaker 1: to four percent, three point nine percent, then it was
Speaker 1: terrible negative three point four percent, and the new statistic,
Speaker 1: David Kelly negative thirty four point three percent nominal GDP
Speaker 1: that is unsustainable. What gets us out of this besides
Speaker 1: the cure of the virus. David, is there a policy
Speaker 1: prescription that can lessen this pain? Well, yes, you can
Speaker 1: lessen to pain by by doing two things. One, you've
Speaker 1: got to make sure you don't have more layoffs the
Speaker 1: state and local governments. If you look at the aftermath
Speaker 1: of the Great Financial Crisis, we had five years of
Speaker 1: job losses at state and local governments because they couldn't
Speaker 1: balance the books without laying off workers given the state
Speaker 1: of the economy. So you need some if you're going
Speaker 1: to spend federal money, spend federal money by giving it
Speaker 1: to state and local government so they don't have to
Speaker 1: lay off workers who can work during a pandemic. The second,
Speaker 1: you've got to get this unemployment. The six hundred dollars right.
Speaker 1: Six hundred dollars is too much because for a lot
Speaker 1: of low wage workers it actually makes it uh. You know,
Speaker 1: they're losing money by working. But zero is the wrong number. Two,
Speaker 1: So I think a settlement on something like three hundred
Speaker 1: dollars which will give people just enough of incentive get
Speaker 1: to get back to work while still avoiding widespread poverty.
Speaker 1: Those are two things the government could do right now
Speaker 1: to try and alleviate the situation. But you're completely right.
Speaker 1: The number one thing you've got to do is you've
Speaker 1: got to control the virus. I remember many years ago
Speaker 1: Mickey Candres said it's the economy stupid. Well, now it's
Speaker 1: the virus stupid. You've got to control this virus if
Speaker 1: you want a full reopening. So we're going to get
Speaker 1: a bounce in GDP in the in the third quarter,
Speaker 1: but this is this is not a v shape recovery.
Speaker 1: This is a v interrupted and it's being interrupted by
Speaker 1: the growth this pandemic. We've got to get that under control. David,
Speaker 1: When are we going to actually see the true pain
Speaker 1: of the unemployment figures that we're getting right now in consumption,
Speaker 1: in sort of the bleed through to default, in some
Speaker 1: of the economic pain that's been forestalled by the enhanced
Speaker 1: unemployment benefits and some other fiscal measures. Well, of course
Speaker 1: we don't get another package, we'll see it pretty quickly.
Speaker 1: But I think we will continue to see over the
Speaker 1: second half of this year, we're going to see more
Speaker 1: traditional recessionary indications of you know, more bankruptcies. Companies are
Speaker 1: sort of held in there because the p p P
Speaker 1: are going to unfortunately go bankrupt um. So we're going
Speaker 1: to see a lot of that. Uh, you know, hopefully
Speaker 1: you can have a phase reopening the economy and some
Speaker 1: more federal money to try and and alleviate things. But unfortunately,
Speaker 1: you know, policy is not really designed to protect the
Speaker 1: the the equity of small business owners here, and I
Speaker 1: think that's to me, that's one of the biggest tragedies here.
Speaker 1: The people who put a lifetime into building a small
Speaker 1: business and they're just gonna get wiped out by this thing,
Speaker 1: and that the government really isn't finding a way to
Speaker 1: help them. So there's a lot of pain to come.
Speaker 1: We will get we'll get a vaccine. I think we'll
Speaker 1: get multiple vaccine. So at some stage when we all
Speaker 1: pull together and decide is a nation that we're going
Speaker 1: to rid ourselves of this virus with the help of
Speaker 1: a vaccine, then we'll get back to normal. But we
Speaker 1: do have to wait for that day. But I think
Speaker 1: we all fully understand the reaction function of the Federal Reserve.
Speaker 1: What I don't quite understand right now is the reaction
Speaker 1: function of investors. How do you think investors respond next
Speaker 1: week if we get a negative payrolls print, Well, you
Speaker 1: may say you'll probably see some set off in the
Speaker 1: equity markets because that that won't necessarily encourage There's not
Speaker 1: not much more than that that, you know, I think
Speaker 1: Congress is gonna do. So if we got that print,
Speaker 1: that would be that'd be right. But but on that print,
Speaker 1: if you go back five weeks ago and look at
Speaker 1: the unemployment claims to the survey week UM in June,
Speaker 1: and then you're compared with with the survey week for July,
Speaker 1: we still got to about a two million million person
Speaker 1: reduction and continuing claim. So I still think we might, um,
Speaker 1: you know, get a small positive on pay rolls for
Speaker 1: the month of July and then a negative one for August.
Speaker 1: But the broad picture is I don't think that. I
Speaker 1: don't think the labor mark is going to get much worse,
Speaker 1: but it's not going to get much better. I think
Speaker 1: we'll still have over ten percent unemployment as we go
Speaker 1: into devid Kelly Gring to catch up with these, Sir,
Speaker 1: Jeff Morgan as in Management chief Global Strategist, Let's bring
Speaker 1: in Aaronson to arra Jan Shewy and y U Stern
Speaker 1: School of Business professor Aaron Gread to catch up with you, sir,
Speaker 1: didn't I think change in the last twenty four hours
Speaker 1: any change whatsoever? Was that all just a spectacle? Um?
Speaker 1: I think the tone of the hearing was very different
Speaker 1: from any of the past UM hearings that we've had
Speaker 1: about big tech. UM. Certainly a little more aggressive, a
Speaker 1: little more negative, but also from Congress's point of view,
Speaker 1: much more informed. This wasn't about, like you, how do
Speaker 1: you earn money from your advertising? Many of the members
Speaker 1: of Congress sort of probe deep into specific issues relating
Speaker 1: to market power, relating to predatory pricing. That made me
Speaker 1: feel that they were far better informed than in any
Speaker 1: hearing that has occurred in the past. UM. Now, you know,
Speaker 1: there were lots of misconceptions as well, but UM, you know, overall,
Speaker 1: I think it's a turning point for big tech regulation
Speaker 1: and we've entered a new phase. Professor, you came out
Speaker 1: of the Rochester Graduate School of Combine, so you've seen
Speaker 1: personally the collapse of a traditional economy up in Western
Speaker 1: New York. Whether it's Buffalo, Rochester, you could say that
Speaker 1: about anywhere else in the country. Your book cover is
Speaker 1: maybe the most courageous I've seen the end of employment
Speaker 1: in the rise of crowd based capitalism. How bad is
Speaker 1: the end of employment. That's what these politicians were really
Speaker 1: talking about, wasn't it. Well, the end of employment is
Speaker 1: different from the end of work. UM. I think part
Speaker 1: of the point that I'm making here is that a
Speaker 1: lot of work that occurs in the future will not
Speaker 1: come packaged as these full time jobs that we got
Speaker 1: used to in the twentieth century. UM, but we'll have
Speaker 1: a much greater fraction of entrepreneurship. And in many ways,
Speaker 1: the story that the platforms told yesterday UM was one
Speaker 1: of UM, like, you know, we are in an economy
Speaker 1: where you've got millions of sellers on Amazon, You've got
Speaker 1: tens of millions of small businesses being supported by advertising
Speaker 1: on Google. You know, if you move away from the
Speaker 1: big four, Um, there are millions of hosts on A,
Speaker 1: B and B. There are millions of restaurants delivering to
Speaker 1: uberis and door dash, and so this platform based economy
Speaker 1: is going to pervade UM, like you know, our future
Speaker 1: of work and UM. You know, one of the things
Speaker 1: that were striking to me about yesterday's test the money
Speaker 1: was this misconception that somehow platforms harms small business. And
Speaker 1: so while we've seen these sort of local geo geographic
Speaker 1: economies imployed. Um, it isn't immediately clear to me that
Speaker 1: small business has been disproportionately hurt by the platforms. In
Speaker 1: many ways, I think that they're actually shifting a lot
Speaker 1: of economic activity away from sort of larger to mid
Speaker 1: sized players and towards millions of small businesses. This is
Speaker 1: a very important point. Of course. One line of questioning
Speaker 1: yesterday was the idea that these platforms that do give
Speaker 1: voice to smaller businesses are rigged, that they're basically in
Speaker 1: favor of certain companies, namely the platforms themselves and their
Speaker 1: own proprietary band brands. And thinking about Amazon, what do
Speaker 1: you say to that? Well, Um, I think that was
Speaker 1: a central theme that came out of the hearing yesterday.
Speaker 1: And you know, more broadly, it has to do with them.
Speaker 1: You know, what are the limits that we need to
Speaker 1: place on channel or marketplace power. Um. I don't think
Speaker 1: a convincing case was made that the platforms are somehow
Speaker 1: overtly or explicitly favoring you know, their own products. Um.
Speaker 1: You know, Amazon is certainly Um, you know, Amazon is
Speaker 1: following in a sort of a long, a long tradition
Speaker 1: of other retailers and creating store brands. I think a
Speaker 1: lot of the what what what happens in the next
Speaker 1: few months of looking at are they somehow disadvantaging small
Speaker 1: businesses by looking at a product and then copying it.
Speaker 1: Um is the Apple iOS somehow slowing down the performance
Speaker 1: of competing apps while speeding up their own, you know,
Speaker 1: because I think broadly. You know, Tim Cook said that
Speaker 1: um it was really hard to sell software before the
Speaker 1: app store came along. You needed to sort of get
Speaker 1: it shrink wrapped and into a retailer. Now you have
Speaker 1: millions of tiny app developers who have access to the
Speaker 1: you know, the App Store, the Google Place Store, and
Speaker 1: so prima facia, it's hard to make a case that
Speaker 1: these things are bad for small business and bad for competition.
Speaker 1: And the devil is going to be in the details
Speaker 1: of have they sort of taken specific actions to like
Speaker 1: you know, to crush diaples dot com, to um like
Speaker 1: you know, um to suppress particular small businesses And to
Speaker 1: your point Jeff Bezos yesterday coming out and saying, unlike
Speaker 1: industries that are winner take all, there's room and retail
Speaker 1: for many winners. I'm wondering a Rooin we're gonna be
Speaker 1: getting earnings from Apple, Amazon, and alphabet after the bell today.
Speaker 1: Are you looking for some sort of self regulatory measures
Speaker 1: that will crimp their profitability to get ahead of any
Speaker 1: potential regulation from Washington? Absolutely? Um. I think a lot
Speaker 1: of the purpose of hearings like this is to create
Speaker 1: a credible text, a credible threat of regulation if the
Speaker 1: platforms don't do something themselves. Um. But because you know,
Speaker 1: if you think about what society has done, we have
Speaker 1: given these platforms a tremendous amount of power um government
Speaker 1: like power um with censorship, with the I D systems,
Speaker 1: with the copyright and intellectual property. Facebook is backing its
Speaker 1: own currency surveillance, and so we can't sort of suddenly
Speaker 1: say now, hey, I mean, like you know, we're unhappy
Speaker 1: with the status coode um, and we're going to come
Speaker 1: in with a big stick and make you change your behavior,
Speaker 1: because that's I mean, like you know, no nation state
Speaker 1: government actually has the power to do that, and the
Speaker 1: real solution is going to be self regulatory. But I
Speaker 1: think the platforms are being nudged in the right direction
Speaker 1: to make changes by the specter of like you know,
Speaker 1: big government regulation. And to me, the best solution for
Speaker 1: society is for the platforms to take matters into their
Speaker 1: own hands and say, well, here are the changes we're
Speaker 1: going to make it of the limits we're gonna place
Speaker 1: on the power that our marketplace creator has in developing
Speaker 1: in being a supplier. You know, the limits we're gonna
Speaker 1: place on predatory pricing. Here are the limits we're gonna
Speaker 1: place on privacy. And and so because they are better
Speaker 1: informed that in any government entity about like, you know,
Speaker 1: what's possible, um their closest to the action. And so
Speaker 1: I think that's the future. We're going to see them
Speaker 1: fold in the next two or three years. Around. Were
Speaker 1: lucky time you on the show today. We appreciate your time.
Speaker 1: Thank you, sir. I run send a round, John n
Speaker 1: y u st and School a Business. Thanks for listening
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