WEBVTT - Surveillance: Fed's Virus Response With Warsh 0:00:09.880 --> 0:00:13.880 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keene Jay Leie. 0:00:13.960 --> 0:00:17.560 We bring you insight from the best in economics, finance, investment, 0:00:18.000 --> 0:00:23.520 and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, 0:00:23.600 --> 0:00:27.200 Bloomberg dot Com, and of course on the Bloomberg Well 0:00:27.240 --> 0:00:29.360 we all know him now. Kevin Walls joins us now, 0:00:29.360 --> 0:00:31.840 the former FED governor. Kevin always great to catch up 0:00:31.880 --> 0:00:33.400 with you, sir. I just want to go back to 0:00:33.440 --> 0:00:36.040 February and start there if we can. The FED can't 0:00:36.040 --> 0:00:38.400 wait to respond to the coronavirus that was you in 0:00:38.440 --> 0:00:41.440 the Wall Street Journal in late February. I think pretty 0:00:41.520 --> 0:00:43.720 much every single one of us on this program agreed 0:00:43.760 --> 0:00:46.760 with you. Now the conversation has switched almost one eight. 0:00:47.040 --> 0:00:49.720 Has the FED stepped in too far? Has the FED 0:00:50.240 --> 0:00:53.080 done too much? Kevin? How do you respond to that now? Yeah, 0:00:53.120 --> 0:00:55.280 it's a it's a great question. Good to be Tom 0:00:55.520 --> 0:00:58.360 with you and Jonathan. Um So, I'd say a few 0:00:58.400 --> 0:01:01.880 things first, when the regime changed in February this year, 0:01:02.400 --> 0:01:05.600 that's the job of the central Bank to be super aggressive. 0:01:05.720 --> 0:01:08.760 And the earlier you can be aggressive, frankly, the less 0:01:08.840 --> 0:01:11.840 you have to do later. Uh, so they moved not 0:01:11.959 --> 0:01:14.760 with the speed I would have liked, but in historically speaking, 0:01:14.800 --> 0:01:17.720 pretty quickly. When you look at where they are now, 0:01:17.920 --> 0:01:22.440 they seem to be moving with overwhelming force. They seem 0:01:22.560 --> 0:01:26.560 to be incredibly aggressive, even as risk assets are at 0:01:26.840 --> 0:01:31.840 incredible highs. I wish that same aggressiveness were being felt 0:01:31.920 --> 0:01:34.760 in the policies they were putting on Main Street. In 0:01:34.840 --> 0:01:39.160 main Street, their policies seem to be late, delayed, cumbersome, 0:01:39.319 --> 0:01:43.160 and frankly not terribly affective. So that chasm between the 0:01:43.200 --> 0:01:46.440 aggressiveness to push up risk assets and push down bond 0:01:46.440 --> 0:01:49.640 spreads doesn't seem to be matched on Main Street. Do 0:01:49.640 --> 0:01:51.680 you think the focus on one of the other right 0:01:51.680 --> 0:01:56.440 now is leading to market malfunctioning? They say that every 0:01:56.440 --> 0:01:59.680 single point objective is about market functioning. I just wonder 0:01:59.720 --> 0:02:04.840 whether effort now impairing market functioning. Kevin, it's a listen. 0:02:04.920 --> 0:02:07.120 It's hard for me to say with a straight face 0:02:07.280 --> 0:02:11.399 that markets aren't functioning well and that rationale for policy 0:02:11.440 --> 0:02:16.480 action was astute sixty or eighty days ago. It's really 0:02:16.520 --> 0:02:19.960 hard for me to say that the aggressive policies, the 0:02:20.080 --> 0:02:23.600 doubling of the FED balance sheet, entering bond markets that 0:02:23.680 --> 0:02:27.280 we never flawed about entering in the last crisis, that 0:02:27.320 --> 0:02:30.480 we're doing that because markets aren't functioning now that that 0:02:30.480 --> 0:02:33.919 that explanation isn't great. And my own judgment is monetary 0:02:33.960 --> 0:02:37.080 policy matters at least as much for the reasons is 0:02:37.280 --> 0:02:40.200 it gives as the decisions it makes. So I think 0:02:40.240 --> 0:02:43.000 that that rationale is certainly in need of some updating. 0:02:43.360 --> 0:02:46.200 And if I look at what's happening in markets, with 0:02:46.280 --> 0:02:50.679 the FED having this kind of massive imprimature on financial markets, 0:02:51.240 --> 0:02:55.040 it's easy to see how they're moving around financial assets. 0:02:55.080 --> 0:02:57.560 But what ultimately matters, Jonathan, is what you said at 0:02:57.560 --> 0:03:00.760 the beginning is what about the real economy? And again 0:03:00.800 --> 0:03:03.519 it doesn't appear to me as though much of this 0:03:03.600 --> 0:03:06.200 is trickling down to the real economy in a meaningful 0:03:06.240 --> 0:03:08.520 way from the Federal Reserve. Well, Kevin, is that the 0:03:08.520 --> 0:03:11.320 Fed's job. I mean, the main street lending program is 0:03:11.520 --> 0:03:13.760 very new for the FED because they're gonna be taking 0:03:13.760 --> 0:03:17.800 on credit risk and becoming responsible for deciding who to 0:03:17.880 --> 0:03:21.200 lend to, how to lend them, when to cry force 0:03:21.280 --> 0:03:24.359 some companies into bankruptcy. Should the FED even be doing 0:03:24.360 --> 0:03:27.799 this or does the responsibility lie elsewhere? So the responsibility 0:03:27.840 --> 0:03:30.120 really lies in the Congress to come up with what 0:03:30.240 --> 0:03:32.320 can be done on the real side of the economy. 0:03:32.680 --> 0:03:36.600 They outsourced that responsibility to the Treasury Secretary and the 0:03:36.640 --> 0:03:40.440 Exchange Stabilization Fund, and then the Treasury took much of 0:03:40.480 --> 0:03:43.520 their authority and devoted it to the Federal Reserve. To 0:03:43.680 --> 0:03:47.160 stand up this main street credit facility, Jonathan was kind 0:03:47.200 --> 0:03:49.280 at the beginning to talk about a Wall Street out ed. 0:03:49.360 --> 0:03:52.240 I wrote, I wrote about this main street credit facility 0:03:52.320 --> 0:03:54.800 with a much worse name than than they gave it 0:03:55.240 --> 0:03:59.160 about three months ago. And what my principle there was 0:03:59.320 --> 0:04:03.520 is something they frankly haven't adopted, which is, UH, provide 0:04:04.120 --> 0:04:08.520 ample and immediate liquidity to all solvent comers on Main 0:04:08.640 --> 0:04:12.880 Street with immediate effect against good collateral. But that's not 0:04:13.000 --> 0:04:15.520 the way the main Street credit facility works, at least 0:04:15.520 --> 0:04:19.360 as they've iterated it now several times. I think you're right. 0:04:19.520 --> 0:04:21.960 Least it's not the Fed's job to be deciding on 0:04:22.040 --> 0:04:24.120 every loan. But the good news is they happen to 0:04:24.160 --> 0:04:28.280 regulate five thousand banks. It is their job. And so again, 0:04:28.320 --> 0:04:30.280 if I were to have designed that facility, as I 0:04:30.320 --> 0:04:34.680 wrote about eighty days ago, the FED would have regulated 0:04:34.720 --> 0:04:38.719 the banking institutions who would have provided loans to their 0:04:38.800 --> 0:04:43.839 typical clients against good collateral based on their solvency before 0:04:43.880 --> 0:04:46.640 the crisis. And the only job the FED would have 0:04:46.720 --> 0:04:49.560 would be to ensure that the banks would have done 0:04:49.560 --> 0:04:52.600 proper underwriting. If they would have underwritten a loan to 0:04:53.040 --> 0:04:57.359 widget Manufacturer and Toledo on February first, and they follow 0:04:57.400 --> 0:05:00.719 those same underwriting standards, then that's a good loan. Any 0:05:00.839 --> 0:05:03.920 losses that might be had, and surely they might, those 0:05:04.000 --> 0:05:06.839 losses would be offset by the money that the Treasury 0:05:06.880 --> 0:05:10.560 Department had granted the Federal Reserve. I prefer that kind 0:05:10.560 --> 0:05:13.800 of amun and ample liquidity to this kind of picking 0:05:13.839 --> 0:05:17.880 and choosing. And to see the aggressiveness again in in 0:05:18.000 --> 0:05:21.479 financial markets and the lack of aggressiveness, the slowness of 0:05:21.560 --> 0:05:24.839 response in main street, it makes me actually quite concerned 0:05:24.839 --> 0:05:27.960 about the real economy. Well, let's talk about what is 0:05:28.000 --> 0:05:31.279 going to happen in the future, Uh not, perhaps just 0:05:31.360 --> 0:05:32.919 taking a look at what they should have done. You 0:05:32.960 --> 0:05:35.360 wrote a recent op ed in the Wall Street Turnle 0:05:35.360 --> 0:05:38.479 that if policymakers get next steps wrong, will look a 0:05:38.480 --> 0:05:41.039 lot like two thousand and eight in terms of the 0:05:41.200 --> 0:05:45.320 sanguine feeling right now turning into catastrophe later in the year. 0:05:45.680 --> 0:05:49.080 Do you see policymakers on that path right now? So, 0:05:49.480 --> 0:05:53.119 you know, we should begin with what Chairman Pal's word 0:05:53.240 --> 0:05:56.719 is of the moment uncertainty. We have to have epistemic 0:05:56.839 --> 0:06:01.480 humility about what we know, an epistemic humility about the 0:06:01.560 --> 0:06:04.680 efficacy of these policy tools. You know, I feel a 0:06:04.680 --> 0:06:08.080 lot better, Lisa about the state of playing the risks 0:06:08.080 --> 0:06:10.760 over the second half of the year if we had 0:06:10.839 --> 0:06:14.039 used the decade before this crisis putting our own house 0:06:14.080 --> 0:06:17.159 in order. Chairman Pale said how it would have been 0:06:17.240 --> 0:06:21.280 better if Congress had been more fiscally responsible in the 0:06:21.320 --> 0:06:24.480 decade between these crises, so it would have plenty of 0:06:24.560 --> 0:06:28.960 flexibility and plenty of credibility to provide massive increases in debt. 0:06:29.440 --> 0:06:31.200 I think the same is true of the Federal Reserve. 0:06:31.800 --> 0:06:35.520 Had the uncertainty principle, which they talked about frequently now 0:06:35.680 --> 0:06:40.200 been what they talked about between, the Fed would have 0:06:40.200 --> 0:06:43.760 come into this process with a lot more traditional ammunition. 0:06:44.160 --> 0:06:47.000 It wouldn't be having to reach into all these new 0:06:47.080 --> 0:06:50.320 markets with uncertain effects. So as I look at the 0:06:50.360 --> 0:06:52.360 second half of the year, LEAs. So what I'd say 0:06:52.520 --> 0:06:56.960 is a W looks a lot like a V until 0:06:57.000 --> 0:06:59.280 it turns out to be a W, and Rene of 0:06:59.320 --> 0:07:02.159 us really the contour of this economy. I guess what 0:07:02.200 --> 0:07:05.040 i'd say as a final word on this, you were 0:07:05.080 --> 0:07:08.880 to take an Olympic swimmer and a novice swimmer like me, 0:07:08.920 --> 0:07:11.160 and you locked us down at the bottom of the pool, 0:07:11.760 --> 0:07:13.960 and then you finally unlocked us. Well, we'd both be 0:07:14.040 --> 0:07:16.600 racing up to the service at some point, but that 0:07:16.640 --> 0:07:20.200 wouldn't really help us understand who was the Olympics swimmer 0:07:20.200 --> 0:07:22.080 who was ready to go do a hundred laps and 0:07:22.120 --> 0:07:23.720 who was the guy just trying to get his head 0:07:23.720 --> 0:07:26.760 above water. Kevin, I've got this image of you in 0:07:26.960 --> 0:07:30.560 Stanford's water polo team just getting it done out there 0:07:30.640 --> 0:07:33.640 against Pepper Dyne. I can just see it coming. Kevin, 0:07:34.000 --> 0:07:37.760 you are identified more than any economic official and policy 0:07:37.800 --> 0:07:41.840 official with Republican politics and of course the storied family 0:07:42.200 --> 0:07:44.440 you married into. I don't know if you grew up 0:07:44.480 --> 0:07:47.400 on third base, but you're decided to living on third base. 0:07:47.840 --> 0:07:51.480 From your view and with the honesty you've had for decades, 0:07:52.040 --> 0:07:56.160 are we moving ourselves towards an ever more gilded age. 0:07:56.520 --> 0:07:59.760 Is the price of all this funny money and policy 0:08:00.200 --> 0:08:03.520 than in two thousand twenty five or two thousand thirty, 0:08:03.560 --> 0:08:06.840 we are going to be ever more unequal. Well, Tom, 0:08:06.840 --> 0:08:10.000 I should first disabuse you of your visual not least 0:08:10.000 --> 0:08:11.920 of me on the water polo team, I can hardly 0:08:11.960 --> 0:08:14.720 swim and uh and I grew up in a regular 0:08:14.760 --> 0:08:18.360 family and upstate New York and have parents that are 0:08:18.360 --> 0:08:21.440 probably so excited to be watching you on TV right now. 0:08:22.040 --> 0:08:24.320 But in terms of the substance of the question, which 0:08:24.400 --> 0:08:27.440 is really where at this moment of consequence we really 0:08:27.440 --> 0:08:31.320 should be focused, I would say because we've had an 0:08:31.320 --> 0:08:35.200 aggressive central bank, not least in times of crisis where 0:08:35.240 --> 0:08:38.679 we need a central bank to be an emergency authority, 0:08:38.960 --> 0:08:42.600 but in ordinary times treating that like it is an emergency, 0:08:42.679 --> 0:08:45.360 like we've had an emergency every day since the darkest 0:08:45.400 --> 0:08:48.680 days of two thousand and eight. These kinds of aggressive 0:08:48.720 --> 0:08:53.880 policies do lead to misallocations of capital, do lead to 0:08:53.960 --> 0:08:57.680 financial assets that trade better than real assets, and there's 0:08:57.679 --> 0:09:00.960 a certain unfairness to that. So that's this is no 0:09:01.200 --> 0:09:04.400 time to be trying to have a full philosophical discussion 0:09:04.400 --> 0:09:07.600 inside the four walls of the FED. But the idea 0:09:07.679 --> 0:09:10.520 that they should have been fine tuning between two thousand 0:09:10.600 --> 0:09:13.400 ten and two thousand twenty, instead of thinking ahead towards 0:09:13.480 --> 0:09:16.760 what are the risks? You end up with policies now 0:09:16.800 --> 0:09:20.440 that I'm afraid do tend to take the income inequality 0:09:20.440 --> 0:09:23.959 and more important, balance sheet inequality, and we make it 0:09:24.200 --> 0:09:27.200 somewhat unfair. Half of our fellow Americans have not been 0:09:27.240 --> 0:09:29.680 able to benefit because they don't have equity in a 0:09:29.679 --> 0:09:32.720 four one K planner, in stocks, they don't have equity 0:09:32.760 --> 0:09:34.959 in their house. So as they look at the run 0:09:35.040 --> 0:09:37.960 up in these markets, they ask themselves the question, what's 0:09:37.960 --> 0:09:40.440 in it for me? And that's why again the Feds 0:09:40.480 --> 0:09:43.440 focusing on the real economy and we'll let financial markets 0:09:43.480 --> 0:09:46.120 take care of themselves. Kevin, I'll get told off with 0:09:46.160 --> 0:09:48.679 squeezing one more question, and but I've got to that's 0:09:48.720 --> 0:09:51.560 the comment on monesty policy. What about FISCO. I'm making 0:09:51.600 --> 0:09:53.520 sure the house was in order that you touched on that. 0:09:54.080 --> 0:09:56.319 It's that another way of saying that tax cut a 0:09:56.360 --> 0:09:58.880 couple of years back was a mistake. So what I'd 0:09:58.880 --> 0:10:04.760 say is fiscal policy has a certainly important role to play. 0:10:04.800 --> 0:10:07.360 But Jonathan, too much of the discussion is how big 0:10:07.400 --> 0:10:11.160 should the next stimulus bill. Frankly, the size of these 0:10:11.200 --> 0:10:14.400 stimulus packages mean a lot less are a lot less 0:10:14.440 --> 0:10:16.960 important than the design of them. So when I think 0:10:17.000 --> 0:10:21.479 about tax policies then and tax policies today, tax policy 0:10:21.600 --> 0:10:24.720 and fiscal policy more more broadly needs to be designed 0:10:24.720 --> 0:10:29.400 to encourage investment back in the services sector of the economy, 0:10:29.440 --> 0:10:31.720 back in the real side of the economy, instead of 0:10:31.720 --> 0:10:36.040 financial flows chasing the S and P at these historic levels. So, 0:10:36.080 --> 0:10:38.880 as I think about the next stimulus bill, which they 0:10:38.920 --> 0:10:41.960 say will be somewhere between the fourth July recess in August, 0:10:42.559 --> 0:10:47.400 my encouragement, my my uh overlying counsel I would say 0:10:47.400 --> 0:10:49.920 to the authors of that is make sure that there's 0:10:49.960 --> 0:10:53.000 incentives for real people to re engage back in the 0:10:53.040 --> 0:10:57.120 workforce because they've been displaced, and real investment find its 0:10:57.120 --> 0:11:00.439 way into real property, plant and equipment. Again, I shouldn't 0:11:00.440 --> 0:11:02.680 say this in front of a new show where so 0:11:02.720 --> 0:11:06.080 many of your your listeners are investors. We get the 0:11:06.080 --> 0:11:08.200 real economy to do the right thing, and I don't 0:11:08.200 --> 0:11:10.559 worry about I don't really worry about the S and P. 0:11:10.840 --> 0:11:12.080 Kevin had a fad in the mount and I'll get 0:11:12.120 --> 0:11:14.920 a straight answer to that question, but I appreciate your response. Nevertheless, 0:11:15.000 --> 0:11:17.600 Kevin always tried to catch up this, Kevin Walsh, the 0:11:17.640 --> 0:11:24.480 former Federals of Government. Let me say right now, this 0:11:24.679 --> 0:11:27.800 is my book of the summer, There's no question about it. Yes, 0:11:27.840 --> 0:11:30.160 I mentioned Rock and Roger, and the other day is 0:11:30.200 --> 0:11:33.600 book on community, the third Pillar. But Richard hass has 0:11:33.640 --> 0:11:38.160 written a jewel called the World. A brief introduction Ambassador 0:11:38.200 --> 0:11:41.200 has thank you for jumping back on with us again today. 0:11:41.440 --> 0:11:45.280 You end your book on Order and Disorder. Where are 0:11:45.320 --> 0:11:48.320 we right now? Good morning Tom. Unfortunately most of the 0:11:48.840 --> 0:11:52.120 arrows are pointing in the direction of greater disorder. That 0:11:52.320 --> 0:11:55.640 was already true before the pandemic, and what the pandemic 0:11:55.679 --> 0:12:00.400 has done is essentially accelerated the pace of history. So 0:12:00.480 --> 0:12:04.400 whether it's US Chinese relations deteriorating, or the increase and 0:12:04.480 --> 0:12:07.679 poverty around the world, an increased the number of refugees. 0:12:07.760 --> 0:12:10.040 You could go on and on and on, but so far, 0:12:10.080 --> 0:12:12.760 at least, this is a cloud without a silver lining. Richard, 0:12:12.760 --> 0:12:14.600 if we can talk about some of the immediate friction 0:12:14.640 --> 0:12:16.080 in the last couple of days, I think a lot 0:12:16.080 --> 0:12:18.480 of people are trying to work out what it all means, 0:12:18.480 --> 0:12:21.520 particularly market participants that might be willing to disregard this. 0:12:21.600 --> 0:12:23.720 Can you just talk about the significance of what has 0:12:23.720 --> 0:12:27.040 happened between Injured and China in the last forty hours. Yeah, 0:12:27.280 --> 0:12:31.320 these are the world's two most populous countries. They've had 0:12:32.360 --> 0:12:36.840 essentially undemarcaded border, the line of actual control now forever. 0:12:37.320 --> 0:12:39.920 They fought a war over this what sixty years ago, 0:12:40.640 --> 0:12:43.840 and you've got two armies cheat by jow and I 0:12:43.880 --> 0:12:47.080 don't think either government necessarily wanted to have it come 0:12:47.120 --> 0:12:50.280 to blows. But any time you have large groups of 0:12:50.360 --> 0:12:54.720 soldiers over contested areas, there's that at risk. Both countries 0:12:54.760 --> 0:12:57.240 now are increasingly nationalists, and we're seeing this as a 0:12:57.280 --> 0:13:01.920 trend where whether it's to tracked because of problems with 0:13:02.000 --> 0:13:05.840 the coronavirus or its economic aftershocks. So this was something 0:13:05.880 --> 0:13:07.760 that that could have happened, it just did. I think 0:13:07.800 --> 0:13:11.040 the real question now is whether both countries, essentially the 0:13:11.040 --> 0:13:15.480 government step in and calm things down. Won't You won't 0:13:15.480 --> 0:13:17.880 have any solution, but the question is simply whether you 0:13:17.920 --> 0:13:20.800 have some kind of mutual pulled back. Do you sense 0:13:20.840 --> 0:13:22.920 that de escalation is the path forward? At this point, 0:13:24.000 --> 0:13:26.280 I think it's more likely than not from what I 0:13:26.280 --> 0:13:28.559 can see. What was so interesting about the finding was 0:13:28.600 --> 0:13:32.360 how almost pardon the world, almost primitive with clubs and this, 0:13:32.559 --> 0:13:34.320 I mean there was a kind of hand to hand 0:13:34.360 --> 0:13:37.480 combat we haven't seen since times, almost like the Korean War. 0:13:38.360 --> 0:13:41.320 So this was really really localized. So Yeah, if I 0:13:41.360 --> 0:13:44.040 were a betting man, I would bet that that there's 0:13:44.040 --> 0:13:48.200 a pullback you don't see anything like a full scale war. 0:13:48.440 --> 0:13:50.360 That would be my bet. Well, Richard, the hand to 0:13:50.400 --> 0:13:52.600 hand combat you're talking about, perhaps is why some people 0:13:52.600 --> 0:13:54.240 are shrugging it off, saying, well, at least it's not 0:13:54.280 --> 0:13:56.600 a nuclear threat, right, But over a North and South 0:13:56.640 --> 0:13:59.520 Korea you have the prospects of some sort of altercation 0:13:59.600 --> 0:14:03.240 picking up after the bombing in North Korea of South 0:14:03.320 --> 0:14:08.439 Korean uh, diplomatic diplomatic entity. I'm just wondering if there 0:14:08.480 --> 0:14:11.480 is a broader takeaway for all of these percolations of 0:14:11.520 --> 0:14:14.319 geopolitical tensions that are happening. Now. You said we're fast 0:14:14.360 --> 0:14:18.640 forwarding history. Is there some broader takeaway about leadership in 0:14:18.679 --> 0:14:22.000 the modern world? One I dis alluded to the leadership 0:14:22.080 --> 0:14:25.280 is pressed and is looking for wagged the dog kind 0:14:25.280 --> 0:14:27.760 of safety valves. Do you have a possibility is to 0:14:28.160 --> 0:14:31.200 look at the United States. We've got COVID, we've got 0:14:31.200 --> 0:14:34.480 the protests, we've got the economic problems, and it's quite 0:14:34.520 --> 0:14:36.800 possible that countries around the world are looking to take 0:14:36.800 --> 0:14:39.840 advantage of a divided and distracted the United States. So 0:14:39.920 --> 0:14:43.080 North Korea, you know, you might see this is an 0:14:43.080 --> 0:14:45.960 opportunity to pressure to the South to relieve sanctions. The 0:14:46.040 --> 0:14:49.440 US North Korean talks have gone nowhere. North Korea wants 0:14:49.480 --> 0:14:53.720 economic relief. The US South Korean relationship is bad because 0:14:53.720 --> 0:14:56.440 the US has been hammering them. So it's quite possible 0:14:56.520 --> 0:14:58.960 the North Koreans decided to put pressure on the South 0:14:58.960 --> 0:15:00.840 to see if they couldn't cut separate deal. You know, 0:15:00.960 --> 0:15:03.240 Richard hass I know, you know, And this is the 0:15:03.360 --> 0:15:06.640 legacy of the Right brothers and how they planted the 0:15:06.720 --> 0:15:10.720 Department of Physics at Oberlin College. And I know you 0:15:10.800 --> 0:15:15.120 want to physics at Oberlin straight A's you know, the 0:15:15.240 --> 0:15:20.160 poet and physics ambassador. Yeah, physics for poets, you know, 0:15:20.800 --> 0:15:24.440 is an Oberlin physics giant. That there's a vacuum out there, 0:15:24.480 --> 0:15:27.560 in the vacuum out there's President Trump in his foreign 0:15:27.640 --> 0:15:32.360 policy what happens after one term Trump or two term 0:15:32.360 --> 0:15:37.040 Trump when we try to close that vacuum of foreign policy. 0:15:37.400 --> 0:15:39.480 I think there is a vacuum. There has been a 0:15:39.520 --> 0:15:42.560 pattern of serial withdrawal from the world, a combination of 0:15:42.760 --> 0:15:47.160 isolationism and unilateralism on the part of the United States. 0:15:48.080 --> 0:15:49.920 At the moment, the vacuum is not so much being 0:15:49.920 --> 0:15:52.720 filled as as it's being allowed to fester. So you 0:15:52.720 --> 0:15:55.280 don't see China is not in a position to fill it. 0:15:55.400 --> 0:15:57.520 The Europeans would like to, but they lacked the power 0:15:58.200 --> 0:16:01.080 US more likely things just getting year. So for people 0:16:01.280 --> 0:16:03.840 from a business point of view, the United States doing 0:16:03.920 --> 0:16:06.200 less is uh. You know, we've been, in some ways 0:16:06.240 --> 0:16:11.360 the general contractor of global order for for generations now. 0:16:11.720 --> 0:16:13.640 I think there's also, though a big difference between a 0:16:13.680 --> 0:16:18.240 one and a three term Trump presidency. Two terms American 0:16:18.280 --> 0:16:21.680 alliances might not survive, or if they survive it, they 0:16:21.720 --> 0:16:26.240 would be fairly empty. Uh. A one term Trump presidency, 0:16:26.280 --> 0:16:28.200 I think a president buy it and we'll try to 0:16:28.240 --> 0:16:31.480 restore things. The problem is he will inherit if he 0:16:31.600 --> 0:16:34.720 is elected a country that really wants to face inward 0:16:34.760 --> 0:16:37.640 to deal with our domestic challenges, and he will inherit 0:16:37.680 --> 0:16:41.240 one of the most daunting, demanding in boxes any president 0:16:41.280 --> 0:16:44.360 has inherited, and that combination means that it won't be 0:16:44.400 --> 0:16:47.280 easy for anyone, no matter what his intentions are, to 0:16:47.920 --> 0:16:50.720 turn things around. It'll be difficult. Richard has always great 0:16:50.720 --> 0:16:52.920 to get your thoughts and perspective and your insight on 0:16:52.920 --> 0:16:54.720 this program. Thanks for jointing us today. The Counsel and 0:16:54.800 --> 0:16:57.680 Form Relations president and author of The New York's Times 0:16:57.760 --> 0:17:04.680 best seller The World a brief introduction and remorse a 0:17:04.840 --> 0:17:08.000 city group definitive and commodities in oil, and let me 0:17:08.000 --> 0:17:11.120 ask a direct question. Give us an update on the war, 0:17:11.320 --> 0:17:17.280 the microeconomic oil war between Saudi Arabia and Russia. Well, 0:17:17.280 --> 0:17:19.080 that war is kind of over for a while. There's 0:17:19.080 --> 0:17:22.919 a truce that's been imposed, partly by Donald Trump, partly 0:17:22.960 --> 0:17:26.240 by the follies that were associated with their actions in 0:17:26.359 --> 0:17:29.920 March um. So they're coming back to reality. Each country 0:17:30.000 --> 0:17:33.639 is seeing a tremendous drop in capital spending uh, and 0:17:33.760 --> 0:17:36.760 they're they're they're tightening their belt for another day. I 0:17:36.800 --> 0:17:39.520 don't think we're going to see the levels of production 0:17:39.600 --> 0:17:42.399 that we saw from either of these countries again until 0:17:42.440 --> 0:17:45.159 the middle of the next of this coming decade, and 0:17:45.320 --> 0:17:47.280 I want to talk about the price of oil, which 0:17:47.320 --> 0:17:49.600 has been so hard to get right for a lot 0:17:49.640 --> 0:17:51.840 of this year. It went from its demand story to 0:17:51.880 --> 0:17:54.360 a supply story with all the cuts, and now perhaps 0:17:54.720 --> 0:17:58.440 back to a demand story. As Beijing closes its schools 0:17:58.680 --> 0:18:02.000 and we see a pickup in virus cases in places 0:18:02.040 --> 0:18:04.639 like Florida and Texas and the United States, what do 0:18:04.720 --> 0:18:07.160 you see going forward in terms of demand that could 0:18:07.160 --> 0:18:10.920 potentially send oil prices well below where they are currently 0:18:10.960 --> 0:18:14.920 at three seven dollars traded on the IMAX. Well when 0:18:14.920 --> 0:18:16.840 we look at the dynamics between the supply and the 0:18:16.880 --> 0:18:23.840 demand side. Now actions taken voluntarily involuntarily in the United States, Canada, 0:18:24.640 --> 0:18:27.480 all of the OPEC countries and UH and the NANOPAC 0:18:27.480 --> 0:18:30.399 countries associated with them, those supply actions are going to 0:18:30.520 --> 0:18:34.000 dominate no matter what happens. We're moving from a period 0:18:34.000 --> 0:18:38.719 of record inventory accumulations and builds to what is going 0:18:38.760 --> 0:18:41.119 to be a period of very strong, if not record 0:18:41.160 --> 0:18:44.640 inventory draws. The cuts are not being seen yet. We're 0:18:44.680 --> 0:18:48.159 still seeing inventories growing in the United States. The API 0:18:48.280 --> 0:18:50.720 data yesterday had a growth in inventories. I bet it 0:18:50.720 --> 0:18:52.760 will be a bigger number today with the I A. 0:18:53.280 --> 0:18:56.080 And that's because of the armada of tankers that were 0:18:56.119 --> 0:18:59.520 sent out by Saudi Arabia and others of these countries 0:18:59.640 --> 0:19:03.200 in Arch April UH and in the beginning of May. 0:19:03.280 --> 0:19:07.160 So we're seeing, you know, cuts that are real. Those 0:19:07.200 --> 0:19:10.760 cuts are taking four or five million barrels a day 0:19:10.760 --> 0:19:13.919 out of the market um and UH. And the demand 0:19:13.960 --> 0:19:16.240 increases of there. I mean, even with the second wave 0:19:16.320 --> 0:19:19.600 hitting China, the underlying the demand factors are just not 0:19:19.640 --> 0:19:23.000 as strong as this WI factors. Edward Morse. With the 0:19:23.080 --> 0:19:27.639 many equilibria of the supply and demands of oil, where's 0:19:27.680 --> 0:19:31.560 the optimum price right now? I have no idea where 0:19:31.560 --> 0:19:36.320 a barrel should be. What's the should of oil right now? Try? 0:19:37.119 --> 0:19:39.960 Yeah'll try to be brief. It really relates to the 0:19:39.960 --> 0:19:43.920 cost structure of the world, the cost curve for oil uh. 0:19:43.960 --> 0:19:45.719 And if we look at the data that have come in, 0:19:46.080 --> 0:19:49.159 costs is still going down. So we're we're in a 0:19:50.480 --> 0:19:53.280 environment if this were a market that we're working the 0:19:53.280 --> 0:19:56.720 way the market should be working. UH. And that's where 0:19:56.720 --> 0:19:59.760 we expected to eat to eventually get to. But there 0:19:59.760 --> 0:20:02.119 are out of blocks of lumpy inventory in the middle 0:20:02.400 --> 0:20:05.320 to try to sort that one out. At most City, 0:20:05.600 --> 0:20:08.520 the head of Global Commodity Research, it always tried to 0:20:08.520 --> 0:20:15.360 catch up with you to get your perspective set right now, 0:20:15.440 --> 0:20:18.439 Juliet Coronado joins us. She's out of the University of 0:20:18.520 --> 0:20:21.679 Richard Clarida. That would be our Banish Champagne, Illinois, and 0:20:21.720 --> 0:20:25.960 of course out of Texas in Austin as well. Dr Coronado, 0:20:26.080 --> 0:20:34.080 are you forecasting this economy is a natural disaster recovery 0:20:34.480 --> 0:20:36.919 or are you trying to treat it as a normal 0:20:37.080 --> 0:20:40.439 recessive recovery. UM, let me say it's a bit of 0:20:40.440 --> 0:20:43.159 a hybrid of both. And in fact, one of the 0:20:43.240 --> 0:20:47.200 problems with the natural disaster analogy is that the natural 0:20:47.240 --> 0:20:52.040 disaster is still with us. UH and I am in Texas. 0:20:52.119 --> 0:20:54.800 I'm sheltering in Texas right now, Tom and we're seeing 0:20:54.960 --> 0:20:59.960 escalating cases of COVID and we're opening up and yet 0:21:00.160 --> 0:21:03.120 we're going to live with this disease. So as businesses, 0:21:03.320 --> 0:21:06.960 as consumers, we have to make our decisions knowing that 0:21:07.000 --> 0:21:10.479 there is this deadly disease swirling around out there. So 0:21:10.520 --> 0:21:14.159 that makes it very difficult to go back to normal, 0:21:14.240 --> 0:21:16.480 and that makes it quite different from a hurricane This 0:21:16.600 --> 0:21:19.600 is not something that's going away. It is something that 0:21:19.720 --> 0:21:22.760 resurges when we open up, and then we all have 0:21:22.880 --> 0:21:26.520 to make these risk management decisions. Businesses have to make them, 0:21:26.680 --> 0:21:29.040 consumers have to make them. And that's what's going to 0:21:29.160 --> 0:21:31.560 make us very difficult to get back to normal. That's 0:21:31.600 --> 0:21:34.640 gonna mean some businesses are still going to go out 0:21:34.640 --> 0:21:38.600 of business despite the fiscal support because they just won't 0:21:38.640 --> 0:21:43.119 be viable at fifty capacity or seventy capacity. So I 0:21:43.119 --> 0:21:45.600 think there's a lot of frictions that lie ahead of us. 0:21:46.520 --> 0:21:49.400 What is your glide path then? For the unemployment rate, 0:21:49.440 --> 0:21:53.800 We've seen a horrific number. Now we have a recovery tomorrow, folks, 0:21:54.119 --> 0:21:57.680 we get the jobless claim statistic again, give us those 0:21:57.680 --> 0:22:01.600 glide pass In terms of the U three unemployment rate 0:22:01.720 --> 0:22:04.240 into the end of the year, what's it looked like. Well, 0:22:04.280 --> 0:22:07.600 the U three is probably even itself one of the 0:22:07.720 --> 0:22:11.320 more problematic measures of unemployment because we know we've lost 0:22:11.359 --> 0:22:14.320 a tremendous amount of people that have dropped out of 0:22:14.359 --> 0:22:17.200 looking for work right now because things were shut down. 0:22:17.480 --> 0:22:19.480 We don't know how many of them will come back 0:22:19.600 --> 0:22:22.879 or when um And what we're seeing is a tremendous 0:22:22.920 --> 0:22:25.720 amount of churn. That's what CLAIMS is telling us. We've 0:22:25.760 --> 0:22:29.280