1 00:00:06,340 --> 00:00:09,430 Speaker 1: Welcome to Kobe time, a podcast series on markets and 2 00:00:09,430 --> 00:00:12,980 Speaker 1: economies from devious group Research. I'm Taimur baig chief economist 3 00:00:12,990 --> 00:00:16,470 Speaker 1: welcoming you to our year ending 91st episode. 4 00:00:17,030 --> 00:00:20,759 Speaker 1: I first met Nouriel Roubini during the summer of 1998 5 00:00:20,770 --> 00:00:22,820 Speaker 1: in Washington D. C. Where he was serving at the 6 00:00:22,820 --> 00:00:26,670 Speaker 1: White House Council of Economic advisors. I remember vividly asking 7 00:00:26,670 --> 00:00:29,979 Speaker 1: Nouriel one day if he had any favorite stock picks 8 00:00:29,980 --> 00:00:32,720 Speaker 1: to which he replied, I don't know about individual stocks 9 00:00:32,720 --> 00:00:34,659 Speaker 1: but I know that the overall market will be up 10 00:00:34,659 --> 00:00:35,600 Speaker 1: in the long term. 11 00:00:35,830 --> 00:00:37,339 Speaker 1: I want to ask him the question at the end 12 00:00:37,340 --> 00:00:39,269 Speaker 1: of this podcast if he thinks the market will be 13 00:00:39,270 --> 00:00:41,640 Speaker 1: up in the long run again. But that's later. But 14 00:00:41,640 --> 00:00:44,510 Speaker 1: think about that if you had invested $10,000 after that 15 00:00:44,510 --> 00:00:47,170 Speaker 1: conversation with no real back in the summer of 98 16 00:00:47,180 --> 00:00:50,230 Speaker 1: you would have registered a cumulative return of over 400% 17 00:00:50,229 --> 00:00:54,700 Speaker 1: by today which is an annualized return of well over 10%. 18 00:00:54,710 --> 00:00:57,440 Speaker 1: Which I suppose would put that passive strategy to the 19 00:00:57,440 --> 00:01:00,860 Speaker 1: top decile of any investment league table. Great advice way 20 00:01:00,860 --> 00:01:03,250 Speaker 1: back then, even coming from dr Doom, 21 00:01:03,750 --> 00:01:07,750 Speaker 1: Nouriel Roubini is Ceo of Roubini macro Associates LLC global 22 00:01:07,750 --> 00:01:10,780 Speaker 1: macro consulting firm in new york city. He is also 23 00:01:10,780 --> 00:01:13,790 Speaker 1: chief economist for atlas Capital LP and co founder of 24 00:01:13,790 --> 00:01:15,179 Speaker 1: Rosa and Roubini Associates, 25 00:01:15,370 --> 00:01:17,810 Speaker 1: he served as a professor of economics at N. Y. U. 26 00:01:17,810 --> 00:01:21,760 Speaker 1: Stern School of Business from 1995 to 2021 has already 27 00:01:21,760 --> 00:01:24,220 Speaker 1: mentioned in the nineties late nineties. He worked at the 28 00:01:24,220 --> 00:01:27,110 Speaker 1: Council of Economic advisers and later at the U. S. 29 00:01:27,110 --> 00:01:30,080 Speaker 1: Treasury department and some of you may know that he 30 00:01:30,080 --> 00:01:34,060 Speaker 1: has recently released a book mega threats, 10 dangerous trends 31 00:01:34,069 --> 00:01:37,830 Speaker 1: that imperil our future and how to survive them. Nouriel Roubini. 32 00:01:37,840 --> 00:01:38,880 Speaker 1: Welcome to Covid time. 33 00:01:39,640 --> 00:01:42,929 Speaker 2: Great being with you today. Timer Pleasure. 34 00:01:43,030 --> 00:01:45,779 Speaker 1: Pleasure is all mine. Uh Well I look forward to 35 00:01:45,780 --> 00:01:48,080 Speaker 1: talking about some of the mega threats discussed at length 36 00:01:48,080 --> 00:01:50,580 Speaker 1: in your book and in a series of articles that 37 00:01:50,580 --> 00:01:53,000 Speaker 1: you have published and project syndicate through the course of 38 00:01:53,000 --> 00:01:56,080 Speaker 1: this year. But first on the near term outlook 39 00:01:56,700 --> 00:02:00,080 Speaker 1: this year has been characterized by a spike in inflation, 40 00:02:00,080 --> 00:02:04,110 Speaker 1: soaring interest rates war in europe and china's pandemic struggles. 41 00:02:04,120 --> 00:02:06,640 Speaker 1: And still we are ending the year with global growth. 42 00:02:06,650 --> 00:02:09,590 Speaker 1: Oh about 3%. And our friends and I M. F 43 00:02:09,600 --> 00:02:13,100 Speaker 1: are forecasting only a 50 basis point slowdown next year. 44 00:02:13,110 --> 00:02:15,600 Speaker 1: Your take on that near term Muriel? 45 00:02:17,520 --> 00:02:20,440 Speaker 2: Well, in the near term the biggest question is of 46 00:02:20,440 --> 00:02:23,910 Speaker 2: course is about growth and inflation 47 00:02:24,540 --> 00:02:28,490 Speaker 2: in advanced economies and also some key emerging markets. 48 00:02:29,000 --> 00:02:33,570 Speaker 2: My baseline for next year would be that there will 49 00:02:33,570 --> 00:02:37,500 Speaker 2: be a hard landing for the global economy. The IMF 50 00:02:37,500 --> 00:02:42,800 Speaker 2: is not predicting a global recession but at 2.5% that 51 00:02:42,810 --> 00:02:45,519 Speaker 2: the lowest growth we've had globally in a long time. 52 00:02:45,520 --> 00:02:51,010 Speaker 2: So they certainly predict economic slowdown. That is very very sharp. 53 00:02:51,020 --> 00:02:53,930 Speaker 2: Um if you look at the data, I would say 54 00:02:53,930 --> 00:02:56,350 Speaker 2: that the United Kingdom is already 55 00:02:56,490 --> 00:03:00,490 Speaker 2: in a recession and actually stack elation as inflation is 56 00:03:00,490 --> 00:03:06,179 Speaker 2: double digits. The eurozone is headed towards a recession with 57 00:03:06,180 --> 00:03:10,690 Speaker 2: the latest economic indicators suggesting a significant slowdown of economic 58 00:03:10,690 --> 00:03:14,730 Speaker 2: activity in the U. S. Is not yet into a 59 00:03:14,740 --> 00:03:20,590 Speaker 2: recession right now. But I do believe that we were 60 00:03:20,590 --> 00:03:24,959 Speaker 2: gonna see also recession in the United States uh in 61 00:03:24,960 --> 00:03:25,940 Speaker 2: us uh 62 00:03:26,160 --> 00:03:29,160 Speaker 2: History in the last 60 years we have never had 63 00:03:29,169 --> 00:03:34,680 Speaker 2: a situation where the inflation rate is above 5% and 64 00:03:34,680 --> 00:03:39,900 Speaker 2: right now headline is 7.7 and where the unemployment rate 65 00:03:39,900 --> 00:03:43,970 Speaker 2: is below 5% and it's currently 3.7 that when the 66 00:03:43,970 --> 00:03:49,230 Speaker 2: Fed then starts hiking rates to bring back inflation to target, 67 00:03:49,240 --> 00:03:52,050 Speaker 2: you never get a soft landing, you always get a 68 00:03:52,060 --> 00:03:52,920 Speaker 2: hard landing. 69 00:03:53,190 --> 00:03:55,920 Speaker 2: So the issues only whether it's gonna be a real 70 00:03:55,920 --> 00:04:00,290 Speaker 2: hard landing as opposed to a short and shallow recession. 71 00:04:00,300 --> 00:04:05,530 Speaker 2: China is in a sharp slowdown and well technically it's 72 00:04:05,530 --> 00:04:08,930 Speaker 2: not in a recession for china to grow this year, 73 00:04:08,940 --> 00:04:13,550 Speaker 2: barely 2 to 3% is the equivalent of a recession. 74 00:04:13,560 --> 00:04:15,690 Speaker 2: Uh I think that the 75 00:04:15,900 --> 00:04:18,960 Speaker 2: easing of the covid restrictions gonna have only a limited 76 00:04:18,960 --> 00:04:24,080 Speaker 2: impact on economic activity. Overall, I have to say stance 77 00:04:24,080 --> 00:04:25,289 Speaker 2: of this new 78 00:04:25,550 --> 00:04:29,810 Speaker 2: Regime is one of caring less about growth and about 79 00:04:29,820 --> 00:04:34,300 Speaker 2: political and geopolitical factors. We are still bashing the private 80 00:04:34,300 --> 00:04:37,570 Speaker 2: sector that is still overhang of debt. There's still too 81 00:04:37,570 --> 00:04:41,940 Speaker 2: much state capitalism. So I fear that China is going 82 00:04:41,940 --> 00:04:46,050 Speaker 2: to be stuck into a 23% growth range for the 83 00:04:46,050 --> 00:04:49,970 Speaker 2: next few years. That is a significant drug, not just 84 00:04:49,970 --> 00:04:53,469 Speaker 2: for China but also Greysia and for global growth. 85 00:04:53,710 --> 00:04:58,370 Speaker 2: And so my baseline is one in which advanced economies 86 00:04:58,380 --> 00:05:04,200 Speaker 2: enter an economic contraction, inflation peaks and starts to fall, 87 00:05:04,200 --> 00:05:08,770 Speaker 2: but it's not gonna fall fast enough towards the target 88 00:05:08,779 --> 00:05:12,660 Speaker 2: in part because there are still the lingering effects of 89 00:05:12,670 --> 00:05:15,820 Speaker 2: the negative supply shocks. They agree at the level 90 00:05:16,050 --> 00:05:20,670 Speaker 2: the lingering effects of covid, the lingering effects of the 91 00:05:20,680 --> 00:05:25,159 Speaker 2: Russian invasion of Ukraine on commodity prices and the zero 92 00:05:25,160 --> 00:05:27,770 Speaker 2: covid policy of china. It maybe it's going to be 93 00:05:27,770 --> 00:05:30,870 Speaker 2: phased out only gradually. And the impact on growth is 94 00:05:30,870 --> 00:05:33,700 Speaker 2: gonna be only modest given the rest of the stance 95 00:05:33,700 --> 00:05:34,320 Speaker 2: of 96 00:05:34,600 --> 00:05:38,490 Speaker 2: chinese overall economic policies. So it's a bit of a 97 00:05:38,490 --> 00:05:41,900 Speaker 2: hard landing for the global economy somehow more pessimistic than 98 00:05:41,900 --> 00:05:44,060 Speaker 2: the I. M. F. Baseline. Right? 99 00:05:44,060 --> 00:05:47,020 Speaker 1: And that's very clear and I really appreciate your china points. 100 00:05:47,020 --> 00:05:49,530 Speaker 1: I think the energy markets are sort of reflecting that 101 00:05:49,540 --> 00:05:52,540 Speaker 1: lukewarm response that you know, we're getting some news about 102 00:05:52,540 --> 00:05:54,690 Speaker 1: reopening but we're not seeing any rally in the energy 103 00:05:54,690 --> 00:05:57,330 Speaker 1: markets around china's demand picking up anytime soon 104 00:05:57,550 --> 00:06:01,240 Speaker 1: On the asset markets. And real. I mean 2022 is 105 00:06:01,240 --> 00:06:03,150 Speaker 1: going to be one of those very rare years where 106 00:06:03,150 --> 00:06:07,169 Speaker 1: both the fixed income and equity markets sold off substantially. 107 00:06:07,180 --> 00:06:10,549 Speaker 1: Um your view on asset markets around that hard landing 108 00:06:10,550 --> 00:06:12,130 Speaker 1: scenario for 2023? 109 00:06:13,690 --> 00:06:19,380 Speaker 2: Yes, as you point out this past year, equity prices fell, 110 00:06:19,380 --> 00:06:23,729 Speaker 2: but long duration treasury fell even more as the yield 111 00:06:23,730 --> 00:06:28,799 Speaker 2: went from below 1% towards flourish. Um So you have 112 00:06:28,800 --> 00:06:34,140 Speaker 2: the positive correlation between equity and bond prices. Historically, it's 113 00:06:34,140 --> 00:06:37,640 Speaker 2: the opposite, you know, it's a negative correlation risk Congress 114 00:06:37,640 --> 00:06:39,690 Speaker 2: cough growth and recession, 115 00:06:40,010 --> 00:06:43,310 Speaker 2: but that assumes that inflation is low and stable when 116 00:06:43,310 --> 00:06:48,620 Speaker 2: inflation is rising even gradually. The discount factor for equities 117 00:06:48,620 --> 00:06:52,180 Speaker 2: and dividends. Uh that is the long bond rate is 118 00:06:52,180 --> 00:06:56,060 Speaker 2: rising and that leaves a correction in equity prices 119 00:06:56,085 --> 00:07:01,265 Speaker 2: more so for long duration assets like growth and tech stocks, 120 00:07:01,275 --> 00:07:04,745 Speaker 2: but then a yield going up in price, the price 121 00:07:04,745 --> 00:07:07,245 Speaker 2: of the bond is falling and the yield went up 122 00:07:07,245 --> 00:07:09,805 Speaker 2: so much that the price of bonds fell more than 123 00:07:09,805 --> 00:07:14,475 Speaker 2: the price of, of equities in terms of the year ahead, 124 00:07:14,485 --> 00:07:20,045 Speaker 2: I'm still bearish about global equities because I expect the 125 00:07:20,045 --> 00:07:22,090 Speaker 2: hard landing for the global economy. 126 00:07:22,920 --> 00:07:26,840 Speaker 2: The markets have recently rallied. But in my view, this 127 00:07:26,840 --> 00:07:29,400 Speaker 2: is gonna be a bear market rally like the one 128 00:07:29,400 --> 00:07:31,880 Speaker 2: we saw in july and august. And the rally is 129 00:07:31,880 --> 00:07:38,070 Speaker 2: based predicated on some combination of inflation dropping sharp enough, 130 00:07:38,080 --> 00:07:43,090 Speaker 2: the softest landing of the world and then central banks 131 00:07:43,090 --> 00:07:47,150 Speaker 2: being able to cut rates from the middle of next 132 00:07:47,150 --> 00:07:49,140 Speaker 2: year on and so on. 133 00:07:49,360 --> 00:07:53,090 Speaker 2: I think the, that conventional wisdom is gonna prove incorrect, 134 00:07:53,100 --> 00:07:56,380 Speaker 2: inflation is gonna be more sticky growth is going to 135 00:07:56,380 --> 00:07:59,880 Speaker 2: be weaker than expected and how you get growth we 136 00:07:59,880 --> 00:08:03,070 Speaker 2: can expect of inflation higher if there is persistent of 137 00:08:03,070 --> 00:08:07,200 Speaker 2: negative aggregate supply shocks. So only in a real soft 138 00:08:07,200 --> 00:08:10,080 Speaker 2: landing scenario from current levels, 139 00:08:10,550 --> 00:08:14,050 Speaker 2: Stock prices should be going higher. Even if you had 140 00:08:14,050 --> 00:08:17,800 Speaker 2: a short and shallow recession, the market has to correct 141 00:08:17,800 --> 00:08:22,890 Speaker 2: downward another 10%. If it's a more severe recession it 142 00:08:22,890 --> 00:08:26,290 Speaker 2: can correct another 20% or more. So unless you have 143 00:08:26,290 --> 00:08:28,790 Speaker 2: a strong view that is going to be a real 144 00:08:28,790 --> 00:08:33,440 Speaker 2: soft landing. I think the downsides to us and global 145 00:08:33,440 --> 00:08:34,150 Speaker 2: equities 146 00:08:34,860 --> 00:08:38,910 Speaker 2: for fixed income, I think that the markets uh expect 147 00:08:38,910 --> 00:08:41,860 Speaker 2: that the inflation is gonna pick Central bank's gonna ease 148 00:08:41,860 --> 00:08:45,679 Speaker 2: and therefore uh the inversion of the yield curve is 149 00:08:45,679 --> 00:08:49,740 Speaker 2: suggesting that uh you know, first rates will be higher 150 00:08:49,740 --> 00:08:53,400 Speaker 2: but then they're gonna drop. And uh and in that 151 00:08:53,400 --> 00:08:57,189 Speaker 2: scenario probably long rates would fall as well next year 152 00:08:57,190 --> 00:09:02,640 Speaker 2: as you fight inflation successfully and then expected inflation remains anchored. 153 00:09:02,940 --> 00:09:06,800 Speaker 2: I'm more bearish. I'm of the view that the the 154 00:09:06,800 --> 00:09:11,040 Speaker 2: great moderation is over and the greater stack inflationary and 155 00:09:11,040 --> 00:09:15,540 Speaker 2: that instability is upon us. I think that inflation is 156 00:09:15,540 --> 00:09:18,870 Speaker 2: gonna remain high even if some of even if some 157 00:09:18,870 --> 00:09:23,380 Speaker 2: of the short term supply constraints are phased out because 158 00:09:23,380 --> 00:09:26,770 Speaker 2: as I describe in my book that at least 11 forces, 159 00:09:26,780 --> 00:09:31,030 Speaker 2: they're more medium long term that are speculation ery that 160 00:09:31,030 --> 00:09:32,850 Speaker 2: reduce potential growth, 161 00:09:33,070 --> 00:09:37,530 Speaker 2: the increased cost of production And therefore they caused calculation. 162 00:09:37,540 --> 00:09:40,220 Speaker 2: And the other view in the book is that while 163 00:09:40,220 --> 00:09:43,210 Speaker 2: central banks are talking hawkish now 164 00:09:43,880 --> 00:09:46,880 Speaker 2: saying we're going to fight inflation at any cost in 165 00:09:46,880 --> 00:09:50,240 Speaker 2: my view they will have to wimp out and blink. 166 00:09:50,250 --> 00:09:54,370 Speaker 2: Uh Not only because there is fiscal dominance meaning in 167 00:09:54,370 --> 00:09:57,979 Speaker 2: the game of chicken between fiscal and monetary authorities, the 168 00:09:57,980 --> 00:10:02,240 Speaker 2: monetary will have to blink when the fiscal policies to lose. 169 00:10:02,250 --> 00:10:06,390 Speaker 2: But there is a broader idea of a debt trap. 170 00:10:06,400 --> 00:10:09,429 Speaker 2: That's a concept developed by the B. I. S. Economies. 171 00:10:09,440 --> 00:10:13,250 Speaker 2: There's so much private and public debt in the system, 172 00:10:13,690 --> 00:10:16,230 Speaker 2: private and public debt has assured G. D. P. Has 173 00:10:16,230 --> 00:10:20,410 Speaker 2: gone from about 100% of GDP in the seventies to 174 00:10:20,410 --> 00:10:27,260 Speaker 2: 350 rising last year globally. 420 rising advanced economies that 175 00:10:27,260 --> 00:10:30,850 Speaker 2: if central banks fight inflation, not only they cause an 176 00:10:30,850 --> 00:10:33,520 Speaker 2: economic crash a severe recession 177 00:10:33,750 --> 00:10:36,630 Speaker 2: given the amounts of debt but there is also a 178 00:10:36,640 --> 00:10:42,680 Speaker 2: debt crush, crush in credit markets in bond markets and 179 00:10:42,679 --> 00:10:45,870 Speaker 2: faced with an economic and a financial crash central banks 180 00:10:45,870 --> 00:10:48,420 Speaker 2: will have to win power because there is this debt trap. 181 00:10:48,429 --> 00:10:49,099 Speaker 2: So 182 00:10:49,900 --> 00:10:54,010 Speaker 2: and also see forces that are long term inflationary. Not 183 00:10:54,010 --> 00:10:59,340 Speaker 2: only we have large fiscal deficits and debts today, but 184 00:10:59,340 --> 00:11:02,699 Speaker 2: I see that the pressure are gonna be to spend 185 00:11:02,700 --> 00:11:08,030 Speaker 2: much more with limited ability to raise taxes and if 186 00:11:08,030 --> 00:11:10,660 Speaker 2: you have larger structural budget deficits 187 00:11:10,830 --> 00:11:13,650 Speaker 2: either you finance them with bonds and that's going to 188 00:11:13,650 --> 00:11:17,140 Speaker 2: crowd out growth with higher real rates or eventually that's 189 00:11:17,140 --> 00:11:19,620 Speaker 2: demonetized and you know if you think about it where 190 00:11:19,620 --> 00:11:23,650 Speaker 2: in a geopolitical depression today, so we'll have to spend 191 00:11:23,650 --> 00:11:27,630 Speaker 2: more on security in europe against the Russian there, whether 192 00:11:27,630 --> 00:11:30,680 Speaker 2: you like it or not in Asia us, its allies 193 00:11:30,679 --> 00:11:33,330 Speaker 2: are going to spend more China's gonna spend more. There 194 00:11:33,330 --> 00:11:36,170 Speaker 2: is this cold war they may get holder and eventually 195 00:11:36,170 --> 00:11:39,270 Speaker 2: even end up into a hot war. So security spending 196 00:11:39,270 --> 00:11:40,200 Speaker 2: is going to be higher. 197 00:11:40,530 --> 00:11:44,150 Speaker 2: We'll have then spent so much more to deal with. 198 00:11:44,150 --> 00:11:47,040 Speaker 2: Climate change, will have to spend so much more to 199 00:11:47,040 --> 00:11:51,099 Speaker 2: deal with the next pandemic. Either to prevent it or 200 00:11:51,110 --> 00:11:54,420 Speaker 2: if you don't do it. Exanta will spend a fortune 201 00:11:54,420 --> 00:11:56,610 Speaker 2: like we did this time around to deal with the 202 00:11:56,610 --> 00:11:57,510 Speaker 2: effects of it. 203 00:11:58,040 --> 00:12:02,500 Speaker 2: We have also a i robotic automation machine learning that's 204 00:12:02,500 --> 00:12:07,980 Speaker 2: gonna lead gradually over time to structural technological unemployment will 205 00:12:07,980 --> 00:12:12,180 Speaker 2: have to support those left behind. Eventually even universal basic 206 00:12:12,179 --> 00:12:14,030 Speaker 2: income that's going to be expensive. 207 00:12:14,290 --> 00:12:18,030 Speaker 2: And finally there is so much income and wealth inequality, 208 00:12:18,040 --> 00:12:21,189 Speaker 2: so much social strife, so much of a backlash against 209 00:12:21,190 --> 00:12:24,870 Speaker 2: liberal democracy with populist parties that seem right and left 210 00:12:24,870 --> 00:12:27,530 Speaker 2: coming to power that either they come to power and 211 00:12:27,530 --> 00:12:29,970 Speaker 2: they become physically loose or to prove 212 00:12:29,980 --> 00:12:34,240 Speaker 2: random from coming to power establish the parties will have 213 00:12:34,240 --> 00:12:38,020 Speaker 2: to spend more to deal with these consequences. Transfer more 214 00:12:38,020 --> 00:12:43,050 Speaker 2: money to workers unemployed, partially employed left behind the minorities. 215 00:12:43,059 --> 00:12:45,670 Speaker 2: You name it. So we have a war 216 00:12:45,910 --> 00:12:50,380 Speaker 2: against security issues. We have a war against climate change. 217 00:12:50,390 --> 00:12:52,830 Speaker 2: We have a war against pandemic. We have a war 218 00:12:52,830 --> 00:12:55,730 Speaker 2: against the consequences of ai we have a war against 219 00:12:55,730 --> 00:13:00,280 Speaker 2: the income and wealth inequality. All that implies much more spending, 220 00:13:00,820 --> 00:13:05,600 Speaker 2: limited ability to raise taxes structurally higher deficits and eventually 221 00:13:05,600 --> 00:13:09,280 Speaker 2: they need to modernize them. You know, my friend Neil 222 00:13:09,280 --> 00:13:13,490 Speaker 2: Ferguson recently wrote a piece saying when there are wars 223 00:13:13,490 --> 00:13:16,460 Speaker 2: really hot wars, there are deficits and eventually you get 224 00:13:16,460 --> 00:13:19,740 Speaker 2: inflation because you monetize them. It's not only called the 225 00:13:19,740 --> 00:13:22,070 Speaker 2: not wars there are these other wars we're gonna be 226 00:13:22,070 --> 00:13:25,430 Speaker 2: fighting and they'll be all expensive. They're gonna all lead 227 00:13:25,429 --> 00:13:28,660 Speaker 2: to deficits and eventually monetization in inflation. 228 00:13:29,179 --> 00:13:29,969 Speaker 2: Right? 229 00:13:29,980 --> 00:13:31,900 Speaker 1: So no. Well I was gonna say let's talk about 230 00:13:31,900 --> 00:13:35,300 Speaker 1: your book but I think you have preempted it very nicely. 231 00:13:35,300 --> 00:13:38,610 Speaker 1: I just want to share with the listeners one coat 232 00:13:38,610 --> 00:13:43,690 Speaker 1: from john Thornhill of F. T. He wrote. And I quote, 233 00:13:43,700 --> 00:13:46,960 Speaker 1: readers of a nervous disposition may want to file this 234 00:13:46,960 --> 00:13:49,679 Speaker 1: book in the bin before they turn the page, those 235 00:13:49,679 --> 00:13:52,219 Speaker 1: brace for an ice bath of pessimism may profit from 236 00:13:52,220 --> 00:13:52,520 Speaker 1: its gloom 237 00:13:52,530 --> 00:13:55,210 Speaker 1: insights about the state of the world rubens warnings may 238 00:13:55,210 --> 00:13:59,250 Speaker 1: be alarmingly scary, but they're also disturbingly plausible. And I 239 00:13:59,250 --> 00:14:00,840 Speaker 1: think you know, you just did a very very nice 240 00:14:00,840 --> 00:14:04,079 Speaker 1: summary of the key issues that you mentioned your book. 241 00:14:04,090 --> 00:14:06,290 Speaker 1: I want to talk about them in greater detail, but 242 00:14:06,300 --> 00:14:07,689 Speaker 1: I just want to stay with the short term just 243 00:14:07,690 --> 00:14:09,870 Speaker 1: a little longer if I may to follow ups to 244 00:14:09,870 --> 00:14:13,140 Speaker 1: your prognosis in the short term one is in the stagflation. 245 00:14:13,140 --> 00:14:15,000 Speaker 1: I think in your book you use this phrase sticky 246 00:14:15,000 --> 00:14:15,870 Speaker 1: stagflation 247 00:14:16,320 --> 00:14:19,620 Speaker 1: material in the last few months around the global economic 248 00:14:19,620 --> 00:14:22,080 Speaker 1: slowdown we have seen a substantial decline in energy and 249 00:14:22,080 --> 00:14:26,220 Speaker 1: food prices. We will probably see rent prices begin to 250 00:14:26,220 --> 00:14:28,990 Speaker 1: come down as high interest rates start denting the real 251 00:14:28,990 --> 00:14:31,970 Speaker 1: estate market. So wouldn't you say at least in the 252 00:14:31,970 --> 00:14:38,000 Speaker 1: near term this expected trajectory of inflation falling is also plausible. 253 00:14:38,010 --> 00:14:42,390 Speaker 2: Yeah, no inflation may have picked 254 00:14:42,650 --> 00:14:47,440 Speaker 2: in advanced economies and also in emerging markets where inflation 255 00:14:47,440 --> 00:14:50,220 Speaker 2: was high in double digits. The issue is not whether 256 00:14:50,220 --> 00:14:53,330 Speaker 2: it's a speak, but whether it's gonna fall 257 00:14:53,540 --> 00:14:58,320 Speaker 2: Sharp enough and fast enough towards the 2% targets in 258 00:14:58,320 --> 00:15:02,540 Speaker 2: advanced economies, my view is gonna be more sticky in 259 00:15:02,540 --> 00:15:05,380 Speaker 2: part because the wage inflation is gonna be more sticky 260 00:15:05,390 --> 00:15:09,690 Speaker 2: in part because some of the short term aggregate negative 261 00:15:09,690 --> 00:15:13,480 Speaker 2: supply shocks are gonna remain with us. I consider the 262 00:15:13,480 --> 00:15:15,530 Speaker 2: fall in commodity prices 263 00:15:15,545 --> 00:15:20,075 Speaker 2: as driven not by a significant increase in their supply, 264 00:15:20,085 --> 00:15:23,955 Speaker 2: but rather by expectation of lower demand. Given that the 265 00:15:23,955 --> 00:15:27,185 Speaker 2: baseline is one of a something of a hard landing 266 00:15:27,195 --> 00:15:30,175 Speaker 2: in the global economy. So those are a reflection of 267 00:15:30,175 --> 00:15:35,425 Speaker 2: the weaker demand, not of easier supply condition and as 268 00:15:35,425 --> 00:15:37,535 Speaker 2: I point out in the book, 269 00:15:38,360 --> 00:15:41,690 Speaker 2: There are at least 11 forces that are medium long term, 270 00:15:41,690 --> 00:15:46,240 Speaker 2: but they're all materializing even today that are speculation, very 271 00:15:46,240 --> 00:15:50,420 Speaker 2: reduced growth, increased cost of production. We have the beginning 272 00:15:50,420 --> 00:15:54,990 Speaker 2: of the globalization and protectionism and talk about, you know, 273 00:15:54,990 --> 00:15:59,310 Speaker 2: secure trade rather than free trade. We have a re 274 00:15:59,310 --> 00:16:01,060 Speaker 2: shoring of manufacturing from Lok 275 00:16:01,070 --> 00:16:05,270 Speaker 2: because china to higher cost europe or US or even 276 00:16:05,270 --> 00:16:07,979 Speaker 2: french shoring and even friends sharing is not going to 277 00:16:07,980 --> 00:16:12,220 Speaker 2: be totally cheap but cheaper certainly than reassuring. We have 278 00:16:12,230 --> 00:16:15,760 Speaker 2: aging of populations both in advanced economies and some key 279 00:16:15,760 --> 00:16:21,900 Speaker 2: emerging markets like china like south Korea like Russia young 280 00:16:21,900 --> 00:16:26,870 Speaker 2: people produce and they tend to save elder people don't 281 00:16:26,870 --> 00:16:31,040 Speaker 2: produce and tend to spend and the safe that's inflationary 282 00:16:31,200 --> 00:16:34,660 Speaker 2: in the past, the migration from south to north from 283 00:16:34,660 --> 00:16:37,840 Speaker 2: poor to rich kept a lead on wage growth in 284 00:16:37,840 --> 00:16:41,610 Speaker 2: advanced economies but now restrictions. The migration are becoming quite 285 00:16:41,610 --> 00:16:42,500 Speaker 2: draconian 286 00:16:42,750 --> 00:16:47,010 Speaker 2: in europe UK eurozone and europe. But even in the 287 00:16:47,010 --> 00:16:50,310 Speaker 2: United States, you know, the migration policies of biden are 288 00:16:50,310 --> 00:16:54,840 Speaker 2: not really different from those of say donald trump. We 289 00:16:54,840 --> 00:16:58,800 Speaker 2: have this decoupling between us and china is becoming increasing 290 00:16:58,800 --> 00:17:02,500 Speaker 2: by the day trading goods and services, movement of capital 291 00:17:02,500 --> 00:17:08,220 Speaker 2: FBI labor technology. That information that that circulation erI we 292 00:17:08,220 --> 00:17:10,639 Speaker 2: have the impacts of global climate change 293 00:17:11,280 --> 00:17:15,090 Speaker 2: even before the Russian invasion of Ukraine. Food prices were 294 00:17:15,090 --> 00:17:20,580 Speaker 2: rising sharply because there's desertification lack of water last summer 295 00:17:20,580 --> 00:17:24,350 Speaker 2: with droughts from Pakistan to India to western europe sub 296 00:17:24,350 --> 00:17:27,750 Speaker 2: Saharan africa. Most of the US in the west central 297 00:17:27,750 --> 00:17:32,580 Speaker 2: America that's that's circulation eri. And on energy 298 00:17:32,730 --> 00:17:36,859 Speaker 2: uh we're bashing right beso a big oil producer of 299 00:17:36,859 --> 00:17:42,190 Speaker 2: fossil fuels there under investing into new capacity as they should. 300 00:17:42,200 --> 00:17:45,850 Speaker 2: But we're not ramping up the production of renewable fast enough. 301 00:17:45,859 --> 00:17:50,040 Speaker 2: So there is a structural supply lack given even normal demands. 302 00:17:50,050 --> 00:17:51,920 Speaker 2: That's inflationary. That's why 303 00:17:52,100 --> 00:17:55,679 Speaker 2: uh Brent was already at 100 even before the Russian 304 00:17:55,680 --> 00:17:58,489 Speaker 2: invasion of Ukraine. And the fall right now in energy 305 00:17:58,490 --> 00:18:02,160 Speaker 2: prices driven by expectation of a recession. We have this 306 00:18:02,160 --> 00:18:04,340 Speaker 2: broader geopolitical depression 307 00:18:04,600 --> 00:18:08,060 Speaker 2: is not just Russia, Ukraine is the U. S. And 308 00:18:08,060 --> 00:18:12,830 Speaker 2: Israel against Iran is US. Uh And China over Taiwan 309 00:18:12,840 --> 00:18:15,550 Speaker 2: is the noises that north Korea does and so on 310 00:18:15,550 --> 00:18:20,370 Speaker 2: and so on. That's gonna lead to decoupling fragmentation, balkanization 311 00:18:20,380 --> 00:18:24,290 Speaker 2: divisions of the global uh economy and 312 00:18:24,530 --> 00:18:28,690 Speaker 2: global supply chains. We have cyber warfare. This exploration eri 313 00:18:28,700 --> 00:18:31,980 Speaker 2: we have this backlash against a liberal democracy because of 314 00:18:31,980 --> 00:18:35,900 Speaker 2: inequality is leading to fiscal policy. Pro labor, pro union 315 00:18:35,910 --> 00:18:39,840 Speaker 2: for unemployed produce left behind. And finally the U. S. 316 00:18:39,840 --> 00:18:43,050 Speaker 2: And its allies are weaponizing the U. S. Dollar as 317 00:18:43,050 --> 00:18:44,450 Speaker 2: a tool of foreign policy 318 00:18:44,800 --> 00:18:48,220 Speaker 2: that may eventually to a weakening of the dollar is 319 00:18:48,220 --> 00:18:51,670 Speaker 2: gonna be inflationary for the U. S. Uh As I say, 320 00:18:51,680 --> 00:18:55,830 Speaker 2: the strategic rivals of US diversify away from dollar assets 321 00:18:55,840 --> 00:18:59,330 Speaker 2: plus you need the for the global trading system to 322 00:18:59,330 --> 00:19:02,350 Speaker 2: work properly. And officially you need something that's like an 323 00:19:02,359 --> 00:19:05,030 Speaker 2: oil in the system and they're all in the system 324 00:19:05,030 --> 00:19:07,710 Speaker 2: that Greece is the system is the US dollar. If 325 00:19:07,710 --> 00:19:10,710 Speaker 2: you throw some in the wheels of the global trading 326 00:19:10,710 --> 00:19:13,270 Speaker 2: system by having all these weapons 327 00:19:13,590 --> 00:19:18,560 Speaker 2: US dollar eventually, that creates a greater cost of transactions globally, 328 00:19:18,560 --> 00:19:23,659 Speaker 2: whether trading goods and services, capital, labor, technology, data information 329 00:19:23,670 --> 00:19:27,700 Speaker 2: and that it's also stuck inflationary. So all these forces, 330 00:19:27,710 --> 00:19:30,100 Speaker 2: some of them are slow motion, but they are all 331 00:19:30,100 --> 00:19:33,720 Speaker 2: actually happening right now and they're all reducing potential good 332 00:19:33,720 --> 00:19:36,200 Speaker 2: and increasing cost of production. And I think those are 333 00:19:36,200 --> 00:19:39,189 Speaker 2: forces are going to make the inflation rate more sticky 334 00:19:39,190 --> 00:19:41,760 Speaker 2: than the consensus predicts right now. 335 00:19:42,350 --> 00:19:45,000 Speaker 1: So real when we look at, say, the five cross 336 00:19:45,000 --> 00:19:49,700 Speaker 1: five metric for inflation expectations or the steepness of the 337 00:19:49,710 --> 00:19:52,520 Speaker 1: inverted yield curve that we have. So for you, a 338 00:19:52,530 --> 00:19:55,659 Speaker 1: rally in long duration assets next year would be not 339 00:19:55,660 --> 00:19:58,090 Speaker 1: necessarily a signal for holding onto them for a long time. 340 00:19:58,090 --> 00:20:00,940 Speaker 1: You would actually take profit and be ready for long 341 00:20:00,940 --> 00:20:03,590 Speaker 1: duration to sell off again past 2023. 342 00:20:04,720 --> 00:20:09,210 Speaker 2: Yes, you know, of course the measures of expected inflation 343 00:20:09,220 --> 00:20:13,440 Speaker 2: are not the anchor because so far the sabian other 344 00:20:13,440 --> 00:20:17,090 Speaker 2: central banks are credible in saying we're gonna fight inflation 345 00:20:17,100 --> 00:20:18,220 Speaker 2: at any cost. 346 00:20:18,410 --> 00:20:21,810 Speaker 2: I don't think that's credible, given my analysis of the 347 00:20:21,810 --> 00:20:25,530 Speaker 2: supply factors of the debt trapped in the longer term, 348 00:20:25,540 --> 00:20:29,060 Speaker 2: how to say debt and deficits trends. And I'm not, 349 00:20:29,060 --> 00:20:33,640 Speaker 2: by the way expecting in advanced economies hyperinflation. I'm not 350 00:20:33,640 --> 00:20:36,710 Speaker 2: even expecting double digit inflation like the 351 00:20:36,970 --> 00:20:42,510 Speaker 2: 1970s. I'm assuming that over time because of all these pressures, 352 00:20:42,520 --> 00:20:46,640 Speaker 2: the average inflation rates say in advanced economies from a 353 00:20:46,640 --> 00:20:51,570 Speaker 2: target of two could be actual 56. Now it doesn't 354 00:20:51,570 --> 00:20:52,570 Speaker 2: sound like a lot 355 00:20:52,590 --> 00:20:56,510 Speaker 2: But if average inflation were to be 6% then long 356 00:20:56,510 --> 00:21:00,080 Speaker 2: rates have to capture expected inflation of six plus some 357 00:21:00,080 --> 00:21:02,740 Speaker 2: real rates and that real rates are gonna be higher 358 00:21:02,740 --> 00:21:06,960 Speaker 2: because once inflation is high and volatile the inflation risk 359 00:21:06,960 --> 00:21:10,150 Speaker 2: cream have to be higher. So you get six for 360 00:21:10,150 --> 00:21:12,929 Speaker 2: expected inflation plus another 2% real. 361 00:21:13,109 --> 00:21:17,109 Speaker 2: You get 10 year Treasury 8% and then mortgage there 362 00:21:17,109 --> 00:21:20,010 Speaker 2: is gonna be spread over that. There'll be double digits 363 00:21:20,010 --> 00:21:22,240 Speaker 2: and then high grade and high yield that's gonna be 364 00:21:22,250 --> 00:21:26,160 Speaker 2: spread of that will be double digits in nominal terms 365 00:21:26,160 --> 00:21:29,810 Speaker 2: and they're gonna be significantly higher in real terms. Considering 366 00:21:29,810 --> 00:21:33,500 Speaker 2: also the amount of debt in the system private and public. 367 00:21:33,660 --> 00:21:37,540 Speaker 2: So so you know Tiny Treasury went from less than 368 00:21:37,540 --> 00:21:41,280 Speaker 2: 1 to 3.73 point eight depending on the day. But 369 00:21:41,290 --> 00:21:44,320 Speaker 2: if they have to go say eventually to 8% from 370 00:21:44,320 --> 00:21:49,429 Speaker 2: 3.8 to 8% of another 40% plus losses depending on 371 00:21:49,430 --> 00:21:53,300 Speaker 2: the duration of the those bonds. That's a huge further 372 00:21:53,300 --> 00:21:56,990 Speaker 2: loss for fixed income. So it's only if they are 373 00:21:57,000 --> 00:21:59,370 Speaker 2: able to fight inflation successfully 374 00:21:59,540 --> 00:22:02,570 Speaker 2: And push it down to 2% inflation expectation. I mean 375 00:22:02,580 --> 00:22:07,420 Speaker 2: anchored and then you get the persistent rally in long 376 00:22:07,420 --> 00:22:12,630 Speaker 2: duration Treasury assets. Um but that's not my baseline. 377 00:22:12,640 --> 00:22:16,350 Speaker 1: Sure to follow up on the debt issue. So one 378 00:22:16,350 --> 00:22:20,879 Speaker 1: is to your point that we might see higher bond 379 00:22:20,880 --> 00:22:24,889 Speaker 1: yields around this higher inflation narrative and which probably would 380 00:22:24,890 --> 00:22:25,450 Speaker 1: sort of force 381 00:22:25,460 --> 00:22:28,320 Speaker 1: fed to not cut a lot. But if there is 382 00:22:28,320 --> 00:22:30,179 Speaker 1: a deep recession around the high cost of interest rates 383 00:22:30,180 --> 00:22:32,950 Speaker 1: and so on. The financial repression dynamic that we saw 384 00:22:32,950 --> 00:22:35,010 Speaker 1: in many countries in the past that forcing sort of 385 00:22:35,010 --> 00:22:37,730 Speaker 1: a negative real rate to be in the system. And 386 00:22:37,740 --> 00:22:41,540 Speaker 1: from a debt equation perspective that sustainability equation perspective negative 387 00:22:41,540 --> 00:22:44,250 Speaker 1: real rates of course you know create room for sustainability 388 00:22:44,250 --> 00:22:46,460 Speaker 1: of death. So that's one question that you know, what's 389 00:22:46,460 --> 00:22:48,540 Speaker 1: your view on the fact that negative real interest rate 390 00:22:48,550 --> 00:22:51,380 Speaker 1: itself could be a support for the 391 00:22:51,390 --> 00:22:53,909 Speaker 1: mountain of debt that we have. And the second real 392 00:22:53,920 --> 00:22:55,900 Speaker 1: at least in the case of the U. S. Private 393 00:22:55,900 --> 00:22:58,010 Speaker 1: sector balance is of course much stronger today than they 394 00:22:58,010 --> 00:23:00,790 Speaker 1: were during the eight recession, which of course, you know 395 00:23:00,790 --> 00:23:04,050 Speaker 1: you are famous for calling. Um but today it's really 396 00:23:04,050 --> 00:23:06,840 Speaker 1: the public sector and haven't we seen that example in 397 00:23:06,840 --> 00:23:08,899 Speaker 1: the case of Japan that the public sector can borrow 398 00:23:08,900 --> 00:23:11,200 Speaker 1: a lot but if it is in its own currency, 399 00:23:11,210 --> 00:23:14,020 Speaker 1: it has a privilege where the central bank and supported 400 00:23:14,020 --> 00:23:15,820 Speaker 1: the issue ends. And it can just, you know, go 401 00:23:15,820 --> 00:23:17,310 Speaker 1: on for a very, very long time. 402 00:23:19,090 --> 00:23:22,980 Speaker 2: Well on the first question, my view is exactly that 403 00:23:22,980 --> 00:23:26,350 Speaker 2: because there is a debt trap, you have to any 404 00:23:26,359 --> 00:23:31,070 Speaker 2: unable to raise taxes or cut government spending or do 405 00:23:31,070 --> 00:23:34,600 Speaker 2: adjustment enough in the private side to reduce those debt 406 00:23:34,600 --> 00:23:38,670 Speaker 2: and deficits that then you need about of unexpected inflation 407 00:23:38,680 --> 00:23:42,520 Speaker 2: and about unexpected inflation will reduce the real value of 408 00:23:42,520 --> 00:23:46,959 Speaker 2: long duration fixed interest rates of dollar assets, but also 409 00:23:46,960 --> 00:23:49,050 Speaker 2: other ones. Uh 410 00:23:49,260 --> 00:23:53,260 Speaker 2: But but that's essentially reduces only by little that that 411 00:23:53,270 --> 00:23:56,889 Speaker 2: burden for only a couple of years unless you have 412 00:23:56,890 --> 00:24:01,109 Speaker 2: really high inflation hyperinflation, you cannot wipe out debts. So 413 00:24:01,109 --> 00:24:02,899 Speaker 2: you you kick the can down the road, you reduce 414 00:24:02,900 --> 00:24:05,790 Speaker 2: some real debts this way. But as soon as then 415 00:24:05,800 --> 00:24:10,200 Speaker 2: that happens expected inflation becomes higher. So nominal yields go 416 00:24:10,200 --> 00:24:10,800 Speaker 2: higher 417 00:24:11,000 --> 00:24:13,740 Speaker 2: and real rates go higher because you have the inflation 418 00:24:13,740 --> 00:24:17,220 Speaker 2: risk premium. So then you still get the debt crisis 419 00:24:17,220 --> 00:24:20,550 Speaker 2: because especially in the private sector, those nominal and real 420 00:24:20,550 --> 00:24:24,300 Speaker 2: spreads relative to Treasury become much higher. You know, you 421 00:24:24,300 --> 00:24:26,750 Speaker 2: can fool all of the people some of the time. 422 00:24:27,090 --> 00:24:29,300 Speaker 2: Uh some of the people all the time, you cannot 423 00:24:29,300 --> 00:24:31,660 Speaker 2: fool all of the people all the time. And given 424 00:24:31,660 --> 00:24:35,859 Speaker 2: that that burden 6% inflation doesn't do it for you. 425 00:24:35,869 --> 00:24:39,389 Speaker 2: You had only about unexpected inflation for a couple of years. 426 00:24:39,400 --> 00:24:42,370 Speaker 2: Then you end up into actually a worse scenario because 427 00:24:42,369 --> 00:24:45,520 Speaker 2: nominal and real rates become much higher and you don't 428 00:24:45,520 --> 00:24:48,180 Speaker 2: avoid the debt crisis in the private sector 429 00:24:48,400 --> 00:24:52,020 Speaker 2: uh in the public sector. You have to distinguish between countries, 430 00:24:52,020 --> 00:24:55,090 Speaker 2: you know us is still you know the major reserve 431 00:24:55,090 --> 00:24:58,830 Speaker 2: currency extraordinarily privileged. It's gonna be maybe the last one 432 00:24:58,830 --> 00:25:01,440 Speaker 2: to fall. But we saw what happens. You have reckless 433 00:25:01,440 --> 00:25:03,430 Speaker 2: fiscal policy in a country like 434 00:25:03,440 --> 00:25:06,900 Speaker 2: the U. K. And many others in europe are are 435 00:25:06,900 --> 00:25:12,100 Speaker 2: also fragile from a data sustainability point of view. But 436 00:25:12,100 --> 00:25:14,810 Speaker 2: the point is yes we may need long term and 437 00:25:14,810 --> 00:25:18,470 Speaker 2: higher inflation to deal with the debt problem. We cannot 438 00:25:18,920 --> 00:25:23,300 Speaker 2: we cannot resolve otherwise. So that that would be my 439 00:25:23,300 --> 00:25:27,369 Speaker 2: view on why actually you're not resolving that problem to 440 00:25:27,400 --> 00:25:30,720 Speaker 2: higher inflation. Actually make it worse. You're just postponing and 441 00:25:30,720 --> 00:25:33,300 Speaker 2: you make it worse, what was the second part of 442 00:25:33,300 --> 00:25:34,240 Speaker 2: your question? I forgot 443 00:25:34,240 --> 00:25:36,899 Speaker 1: that if the debt isn't largely issued by the public 444 00:25:36,900 --> 00:25:38,710 Speaker 1: sector as opposed to the private sector, which is the 445 00:25:38,710 --> 00:25:40,389 Speaker 1: case in the debt build up in the U. S. 446 00:25:40,400 --> 00:25:43,250 Speaker 1: Is that less of a risky dynamic? 447 00:25:44,050 --> 00:25:46,889 Speaker 2: Well, you know, first of all my view is that 448 00:25:46,900 --> 00:25:50,830 Speaker 2: uh in the private sector the balance sheets are not 449 00:25:50,840 --> 00:25:55,010 Speaker 2: that strong, you know during the GFC of course was 450 00:25:55,010 --> 00:25:59,320 Speaker 2: a problem with household debt mortgages and bank debt. 451 00:25:59,840 --> 00:26:04,260 Speaker 2: But even before the covid crisis, the Fed and other 452 00:26:04,260 --> 00:26:08,219 Speaker 2: central banks were issuing financial stability report worrying about the 453 00:26:08,220 --> 00:26:13,190 Speaker 2: build up of corporate debt. You know high yield fallen 454 00:26:13,190 --> 00:26:16,990 Speaker 2: angels leverage loans, C. L. O. S. Private debt, you 455 00:26:16,990 --> 00:26:21,420 Speaker 2: name it. And the shadow banks that financed the build 456 00:26:21,420 --> 00:26:23,680 Speaker 2: up of these types of corporate debt 457 00:26:24,240 --> 00:26:29,530 Speaker 2: and and even some uh public sector were more fragile, 458 00:26:29,530 --> 00:26:32,220 Speaker 2: some of them borrowing their own currency, some of them 459 00:26:32,220 --> 00:26:35,670 Speaker 2: borrow in foreign currency. But even in the household sector 460 00:26:35,670 --> 00:26:37,740 Speaker 2: there are a whole bunch of zombies, you know us 461 00:26:37,740 --> 00:26:41,689 Speaker 2: half of the bottom of the distribution of income for 462 00:26:41,690 --> 00:26:42,000 Speaker 2: the house 463 00:26:42,020 --> 00:26:45,700 Speaker 2: sites are people that are going from paycheck to paycheck. 464 00:26:45,770 --> 00:26:48,110 Speaker 2: Their assets are falling in value because of the stock 465 00:26:48,109 --> 00:26:51,840 Speaker 2: market and of housing. While the debt servicing ratios are 466 00:26:51,840 --> 00:26:54,700 Speaker 2: rising because you have higher interest rates on the short 467 00:26:54,700 --> 00:26:56,770 Speaker 2: and the long end of the year curve. So you 468 00:26:56,770 --> 00:26:58,550 Speaker 2: know we have tons of zombies 469 00:26:58,710 --> 00:27:04,219 Speaker 2: before this Covid crisis, household corporate some banks shadow banks, 470 00:27:04,230 --> 00:27:08,750 Speaker 2: government entire countries and we build them out during the GFC. 471 00:27:08,750 --> 00:27:12,200 Speaker 2: We build them out against during Covid because at that 472 00:27:12,200 --> 00:27:16,880 Speaker 2: time with the low inflation if not deflation, negative aggregate 473 00:27:16,880 --> 00:27:19,399 Speaker 2: demand shocks a credit crunch. So we could do it. 474 00:27:19,560 --> 00:27:22,419 Speaker 2: The difference today is that inflation is rising so we 475 00:27:22,420 --> 00:27:26,300 Speaker 2: have to raise interest rates into a recession and therefore 476 00:27:26,310 --> 00:27:29,990 Speaker 2: the zombies are gonna not be able to survive. More 477 00:27:29,990 --> 00:27:33,490 Speaker 2: of them are maybe corporate. More of them are shadow banks, 478 00:27:33,500 --> 00:27:38,680 Speaker 2: some governments are also seriously fragile. Those who could borrow 479 00:27:38,680 --> 00:27:41,080 Speaker 2: in the wrong currency could deal with it through a 480 00:27:41,080 --> 00:27:44,490 Speaker 2: bout of inflation but that inflation eventually is actually more 481 00:27:44,490 --> 00:27:45,840 Speaker 2: damaging than not. 482 00:27:46,040 --> 00:27:50,060 Speaker 2: Um and and there is a vicious cycle in w 483 00:27:50,060 --> 00:27:53,440 Speaker 2: between private sector and public sector and the country and 484 00:27:53,440 --> 00:27:56,470 Speaker 2: so on. So I think that that's why I predict 485 00:27:56,470 --> 00:27:59,360 Speaker 2: the model of of that crisis that ratio went from 486 00:27:59,420 --> 00:28:05,420 Speaker 2: 100 to 350% of GDP globally. 420 in advanced economies, 487 00:28:05,420 --> 00:28:05,930 Speaker 2: 300 488 00:28:05,950 --> 00:28:09,880 Speaker 2: 30 in china and there are enough parts of each 489 00:28:09,880 --> 00:28:12,729 Speaker 2: one of the pieces of the private and public sector 490 00:28:12,730 --> 00:28:17,100 Speaker 2: that fragile that eventually you're gonna see a variety of 491 00:28:17,109 --> 00:28:20,100 Speaker 2: debt crisis and you know an inflation tax is still 492 00:28:20,100 --> 00:28:24,680 Speaker 2: attacks a capital levy on creditors and savers to transfer 493 00:28:24,680 --> 00:28:25,860 Speaker 2: income and well too 494 00:28:26,060 --> 00:28:29,659 Speaker 2: doctors and borrowers. So it is a form of default, 495 00:28:29,670 --> 00:28:33,700 Speaker 2: actually more sneaky and less democratic form of default than 496 00:28:33,710 --> 00:28:36,530 Speaker 2: doing a form of default or doing a legislation to 497 00:28:36,530 --> 00:28:37,730 Speaker 2: deal with that problem. 498 00:28:38,500 --> 00:28:40,400 Speaker 1: And really I want to sort of shift the conversation 499 00:28:40,400 --> 00:28:43,140 Speaker 1: a little toward your view on sort of potential growth 500 00:28:43,140 --> 00:28:46,580 Speaker 1: in the G. Three universe. So you, in your book, 501 00:28:46,580 --> 00:28:49,900 Speaker 1: you point out, you know demographics being a potential dragon growth, 502 00:28:49,900 --> 00:28:53,610 Speaker 1: the debt overhang being a potential dragon growth. Um Sometimes 503 00:28:53,610 --> 00:28:56,490 Speaker 1: you no one hears from policymakers that invest 504 00:28:56,570 --> 00:29:00,160 Speaker 1: and and policies on climate change is the future engine 505 00:29:00,160 --> 00:29:03,120 Speaker 1: of growth that we will have like a marshall plan 506 00:29:03,120 --> 00:29:06,890 Speaker 1: or the Manhattan project of all time to, you know, 507 00:29:06,890 --> 00:29:09,400 Speaker 1: bring us new ideas and investments and flows and so 508 00:29:09,400 --> 00:29:11,190 Speaker 1: on and that we are not running out of growth 509 00:29:11,190 --> 00:29:14,640 Speaker 1: engines for the west. Do you share that view? 510 00:29:15,860 --> 00:29:20,300 Speaker 2: No, I don't share it. One on climate change, there 511 00:29:20,300 --> 00:29:24,450 Speaker 2: is more talk than action. Lots of greenwashing growths of 512 00:29:24,450 --> 00:29:28,590 Speaker 2: green wishing lots of BsG investments that are just talk 513 00:29:28,600 --> 00:29:33,240 Speaker 2: rather than substance. There's also lots of green inflation because 514 00:29:33,240 --> 00:29:35,930 Speaker 2: many of the green metals to do like the vehicle's 515 00:29:35,930 --> 00:29:38,600 Speaker 2: batteries and you name it, use a lot of energy 516 00:29:38,610 --> 00:29:43,700 Speaker 2: that is expensive fossil fuel today, cobalt, lithium and, and 517 00:29:43,700 --> 00:29:44,450 Speaker 2: you name it, 518 00:29:44,730 --> 00:29:49,500 Speaker 2: that's the first observation to it's true that we may 519 00:29:49,500 --> 00:29:52,910 Speaker 2: need to do many more investments to deal with climate change, 520 00:29:53,080 --> 00:29:56,200 Speaker 2: But it's like saying uh, it's like a war, I 521 00:29:56,200 --> 00:29:59,850 Speaker 2: suppose there's a war, your capital stock is destroyed, then 522 00:29:59,850 --> 00:30:01,430 Speaker 2: you can have a spurt of growth because you have 523 00:30:01,430 --> 00:30:04,190 Speaker 2: to rebuild it but you're poorer because a lot of 524 00:30:04,190 --> 00:30:07,810 Speaker 2: your capital stock became either destroyed or obsolete. Same thing 525 00:30:07,810 --> 00:30:10,860 Speaker 2: happened in the 70s with the two old shops, right? 526 00:30:10,860 --> 00:30:15,190 Speaker 2: We had to replace the energy intensive capital with different capital. 527 00:30:15,200 --> 00:30:18,080 Speaker 2: There was a spirit of capital investment but we were 528 00:30:18,080 --> 00:30:21,270 Speaker 2: poorer because we had stranded assets and now the stranded 529 00:30:21,270 --> 00:30:25,310 Speaker 2: assets are not going to be only in the energy sector. 530 00:30:25,320 --> 00:30:28,180 Speaker 2: There are also lots of stranded assets say in real 531 00:30:28,180 --> 00:30:31,590 Speaker 2: estate as lots of real estate is gonna become flooded 532 00:30:31,590 --> 00:30:36,490 Speaker 2: or too hard to live or damage hurricanes, typhoons, wildfire 533 00:30:36,490 --> 00:30:37,310 Speaker 2: and you name it 534 00:30:37,460 --> 00:30:41,280 Speaker 2: so yes. And then a lot of the capital stock 535 00:30:41,290 --> 00:30:45,250 Speaker 2: because uh, is, is how to say greenhouse gas emission 536 00:30:45,250 --> 00:30:49,170 Speaker 2: intensive will also have to be replaced. So first of all, 537 00:30:49,170 --> 00:30:51,590 Speaker 2: are we going to do all those investments is happening 538 00:30:51,590 --> 00:30:54,910 Speaker 2: too slowly even if we make it is to substitute 539 00:30:54,910 --> 00:30:58,910 Speaker 2: a lot of strength that capital, private and public real 540 00:30:58,910 --> 00:31:04,340 Speaker 2: estate energy industrial, you name it. And therefore we still 541 00:31:04,340 --> 00:31:05,300 Speaker 2: are worse off 542 00:31:05,550 --> 00:31:09,560 Speaker 2: because we have this we've destroyed effectively a good chunk 543 00:31:09,560 --> 00:31:11,970 Speaker 2: of of the capital stock or made it obsolete. 544 00:31:13,250 --> 00:31:17,260 Speaker 1: Okay, so related to that issue is the role of technology. 545 00:31:17,260 --> 00:31:19,880 Speaker 1: So one is that, you know, technology itself can probably 546 00:31:19,880 --> 00:31:23,450 Speaker 1: address some of the climate change related challenges. And more importantly, 547 00:31:23,460 --> 00:31:26,330 Speaker 1: technology can help us become more productive in the future 548 00:31:26,330 --> 00:31:31,280 Speaker 1: even as aging areas, productivity or technology can address some 549 00:31:31,280 --> 00:31:33,170 Speaker 1: of the very naughty problems we have around the world 550 00:31:33,170 --> 00:31:36,790 Speaker 1: right now. Um, can take innovation save the day and 551 00:31:36,790 --> 00:31:37,970 Speaker 1: push up potential growth. 552 00:31:39,220 --> 00:31:44,610 Speaker 2: Yes, they can definitely. Technology for the last few decades 553 00:31:44,610 --> 00:31:47,200 Speaker 2: or 100 and 50 years has been the driver of 554 00:31:47,200 --> 00:31:52,060 Speaker 2: increasing economic pie economic growth and you name it. And, and, 555 00:31:52,070 --> 00:31:55,210 Speaker 2: and even in my description of a more utopian future, 556 00:31:55,210 --> 00:32:00,570 Speaker 2: the starting point, these massive technological innovations. But you know, 557 00:32:00,570 --> 00:32:03,820 Speaker 2: there are many caveats you have to do about technology 558 00:32:04,360 --> 00:32:07,570 Speaker 2: cabin number one, there is all this innovation. We're not 559 00:32:07,570 --> 00:32:11,860 Speaker 2: seeing it yet in the aggregate productivity numbers, it's a puzzle. 560 00:32:11,870 --> 00:32:15,440 Speaker 2: Maybe it takes a delay, maybe it's not really something else. 561 00:32:15,440 --> 00:32:18,540 Speaker 2: But we're not yet seeing it secondly, 562 00:32:19,290 --> 00:32:23,940 Speaker 2: innovation in ai machine learning, robotics, automation gonna lead to 563 00:32:23,950 --> 00:32:29,959 Speaker 2: permanent technological unemployment. It's not just routine jobs. Even cognitive 564 00:32:29,960 --> 00:32:33,590 Speaker 2: jobs that are white collar can be sliced into various tasks, 565 00:32:33,590 --> 00:32:37,730 Speaker 2: can be automated and now look at chatter Gpt. You know, 566 00:32:37,730 --> 00:32:39,390 Speaker 2: stuff that is more creative. 567 00:32:39,740 --> 00:32:42,930 Speaker 2: Somebody wrote actually asking a question a critique of my 568 00:32:42,930 --> 00:32:47,300 Speaker 2: book and charging me three gpt gave a very good 569 00:32:47,310 --> 00:32:48,800 Speaker 2: analysis of why my book. 570 00:32:48,810 --> 00:32:50,570 Speaker 1: I have to check it out 571 00:32:50,580 --> 00:32:53,290 Speaker 2: at the PhD level. So you know, that's what the 572 00:32:53,300 --> 00:32:55,400 Speaker 2: creative stuff like painting, music 573 00:32:55,420 --> 00:32:59,510 Speaker 2: arts can be done. So even creative jobs eventually, you know, 574 00:32:59,520 --> 00:33:03,740 Speaker 2: braving extreme views that our species sapiens is gonna become 575 00:33:03,760 --> 00:33:07,800 Speaker 2: obsolete once the machine become super intelligence. Unless we merge 576 00:33:07,800 --> 00:33:13,770 Speaker 2: with the machine and become super intelligent ourselves. Additionally, technology innovation, 577 00:33:13,770 --> 00:33:18,170 Speaker 2: especially in A. I. And robotics, automation is capital intensive 578 00:33:18,180 --> 00:33:22,200 Speaker 2: skill bias and labor saving. So if you own the 579 00:33:22,200 --> 00:33:24,630 Speaker 2: machines or the capital gains the machine, 580 00:33:24,820 --> 00:33:27,790 Speaker 2: you do well. If you're in the top 10% distribution 581 00:33:27,790 --> 00:33:31,670 Speaker 2: of skill education, human capital like ourselves and many of 582 00:33:31,670 --> 00:33:35,500 Speaker 2: our viewers and listeners probably for a while, technology is 583 00:33:35,500 --> 00:33:37,720 Speaker 2: gonna make you more productive if you are a white 584 00:33:37,720 --> 00:33:41,710 Speaker 2: collar or blue collar, low value added, medium value added, 585 00:33:41,720 --> 00:33:44,880 Speaker 2: your job and your income will be increasing threat 586 00:33:45,130 --> 00:33:48,200 Speaker 2: and not just menial jobs. As I said, even cognitive 587 00:33:48,210 --> 00:33:51,570 Speaker 2: and creative jobs, you know now chat gpt can even 588 00:33:51,570 --> 00:33:56,660 Speaker 2: become a computer programmer and code. So even the software 589 00:33:56,670 --> 00:34:01,520 Speaker 2: engineers and computer programs eventually may become paradoxically obsolete in 590 00:34:01,520 --> 00:34:05,290 Speaker 2: this extreme case. Um the other dimensions of 591 00:34:06,100 --> 00:34:09,950 Speaker 2: technology they have to consider is that one, there's a 592 00:34:09,950 --> 00:34:14,420 Speaker 2: dark side of technology. Usually technology innovation occur because governments 593 00:34:14,420 --> 00:34:17,930 Speaker 2: want to build a bigger and more deadly weapons to 594 00:34:17,930 --> 00:34:19,890 Speaker 2: win wars against their rivals. 595 00:34:20,140 --> 00:34:22,719 Speaker 2: You know, we had massive technological innovation in the first 596 00:34:22,719 --> 00:34:26,719 Speaker 2: industrial revolution. First stage of globalization. We still had World 597 00:34:26,719 --> 00:34:29,210 Speaker 2: War One. And then in the twenties and thirties we 598 00:34:29,210 --> 00:34:32,640 Speaker 2: build the weapons that allow us to fight a nasty 599 00:34:32,650 --> 00:34:34,800 Speaker 2: World War Two. And the end of World War Two 600 00:34:34,800 --> 00:34:39,600 Speaker 2: was using nuclear weapons that were developed initially to bomb 601 00:34:39,610 --> 00:34:41,830 Speaker 2: uh Cosima Nagasaki only 602 00:34:41,840 --> 00:34:45,870 Speaker 2: eventually you got the commercial spillover effects in terms of, 603 00:34:45,870 --> 00:34:48,360 Speaker 2: you know, nuclear energy and you name it. And right 604 00:34:48,360 --> 00:34:51,720 Speaker 2: now there's a new race and who's gonna dominate ai 605 00:34:51,730 --> 00:34:56,670 Speaker 2: machine learning, robotic automation, quantum computing between us and china. 606 00:34:56,680 --> 00:34:58,450 Speaker 2: And it's not just the race on who's gonna be 607 00:34:58,460 --> 00:35:01,080 Speaker 2: dominating the industry of the future, who is going to 608 00:35:01,080 --> 00:35:03,520 Speaker 2: be also the demonic military and sick 609 00:35:03,530 --> 00:35:07,569 Speaker 2: security superpower of this century. As you know, drones, weapons 610 00:35:07,570 --> 00:35:11,580 Speaker 2: system are all becoming more automated, more economies you have 611 00:35:11,580 --> 00:35:14,800 Speaker 2: robot soldiers than you name it. And cyber warfare and 612 00:35:14,800 --> 00:35:18,760 Speaker 2: also some other stuff of that sort. So maybe these weapons, 613 00:35:18,760 --> 00:35:22,620 Speaker 2: our technological asked to build weapons, asked to fight even 614 00:35:22,620 --> 00:35:25,220 Speaker 2: more deadly worse than than the past 615 00:35:25,540 --> 00:35:29,069 Speaker 2: And final thing people say as the economic pie becomes bigger, 616 00:35:29,080 --> 00:35:31,960 Speaker 2: we can afford UBI. I write some people are gonna 617 00:35:31,960 --> 00:35:34,810 Speaker 2: be left behind and then we have A U. B. I. 618 00:35:34,810 --> 00:35:36,940 Speaker 2: And everybody can be better off 619 00:35:38,760 --> 00:35:43,840 Speaker 2: universal basic income or universal provision of basic public services 620 00:35:43,850 --> 00:35:46,150 Speaker 2: and so on. So you tax the winners and you 621 00:35:46,150 --> 00:35:50,480 Speaker 2: transfer money or services for free today to those left behind. 622 00:35:50,489 --> 00:35:53,720 Speaker 2: But most people want the dignity of work. That's why 623 00:35:53,719 --> 00:35:55,600 Speaker 2: in the U. S. Many people say I don't want 624 00:35:55,600 --> 00:35:57,920 Speaker 2: a welfare check, I want the real job. So the 625 00:35:57,920 --> 00:36:00,049 Speaker 2: idea of living your life where you're not a productive 626 00:36:00,050 --> 00:36:02,630 Speaker 2: member of society and you receive, 627 00:36:02,860 --> 00:36:06,590 Speaker 2: you know a check is a pretty actually dystopian future 628 00:36:06,600 --> 00:36:10,180 Speaker 2: in the US. We already have these deaths of despair 629 00:36:10,190 --> 00:36:13,529 Speaker 2: that angus Deaton and anne case I've described. A vast 630 00:36:13,530 --> 00:36:17,900 Speaker 2: underclass is mostly white of people that are skinless, hopeless, 631 00:36:17,910 --> 00:36:21,880 Speaker 2: helpless jobless income lessons on what did they do all 632 00:36:21,880 --> 00:36:22,570 Speaker 2: day long. 633 00:36:22,739 --> 00:36:26,380 Speaker 2: Uh they play video games and live in virtual reality. 634 00:36:26,390 --> 00:36:31,210 Speaker 2: Many of them are addicted to opioids. About two million people, 5% 635 00:36:31,210 --> 00:36:34,670 Speaker 2: of them die of those overdoses every year, 100,000 is 636 00:36:34,670 --> 00:36:38,989 Speaker 2: a massacre and they cannot even reproduce themselves. They're in 637 00:36:38,989 --> 00:36:41,669 Speaker 2: cells and celebrate involuntary celebrates 638 00:36:41,690 --> 00:36:44,780 Speaker 2: because given the state's social and otherwise they don't even 639 00:36:44,780 --> 00:36:47,480 Speaker 2: have made so a world of U. B. I. Is 640 00:36:47,480 --> 00:36:50,720 Speaker 2: a world that effectively which a large part of society 641 00:36:50,730 --> 00:36:55,260 Speaker 2: is unproductive and eventually becomes obsolete, doesn't even produce itself. 642 00:36:55,270 --> 00:36:58,900 Speaker 2: So it's it's actually pretty dystopian future is not exactly 643 00:36:58,900 --> 00:37:00,630 Speaker 2: a utopian. And frankly speaking, 644 00:37:01,110 --> 00:37:07,009 Speaker 1: it's not, gosh, you've depressed me real? Okay. I feared 645 00:37:07,010 --> 00:37:07,360 Speaker 1: that 646 00:37:07,370 --> 00:37:10,610 Speaker 2: might happen to you and I, but most people I 647 00:37:10,620 --> 00:37:13,420 Speaker 1: know exactly. You know, I've been playing with both dolly 648 00:37:13,420 --> 00:37:15,490 Speaker 1: as well as chad gpd. It is pretty extraordinary the 649 00:37:15,489 --> 00:37:16,410 Speaker 1: scope of these things. 650 00:37:16,590 --> 00:37:21,600 Speaker 1: Um just a little changed track. Um you have spent 651 00:37:21,600 --> 00:37:24,830 Speaker 1: many years, you know advising and working for various organizations 652 00:37:24,830 --> 00:37:28,230 Speaker 1: including the I. M. F. I myself worked there. So, 653 00:37:28,239 --> 00:37:31,990 Speaker 1: you know, challenges like balance of payments, crisis, climate change, trade, friction, 654 00:37:31,989 --> 00:37:33,830 Speaker 1: global security, food security, we have 655 00:37:33,840 --> 00:37:36,750 Speaker 1: the World Food Program and the United Nations and the W. T. O. 656 00:37:36,750 --> 00:37:39,650 Speaker 1: And I. M. F. World Bank. So you take no 657 00:37:39,650 --> 00:37:42,270 Speaker 1: comfort from the fact that we have numerous multilateral institutions 658 00:37:42,270 --> 00:37:42,500 Speaker 1: with 659 00:37:42,510 --> 00:37:47,170 Speaker 2: our that those institutions have limited power. And in the 660 00:37:47,170 --> 00:37:51,830 Speaker 2: world of geopolitical conflict is very hard to achieve uh 661 00:37:51,840 --> 00:37:54,779 Speaker 2: to say the provision of those global public goods. And 662 00:37:54,780 --> 00:37:58,420 Speaker 2: I'll just give you one example about climate change. We 663 00:37:58,420 --> 00:38:00,359 Speaker 2: know what needs to be done why it's not done. 664 00:38:00,600 --> 00:38:04,719 Speaker 2: There are constraints about domestic and international, domestically take the 665 00:38:04,719 --> 00:38:07,690 Speaker 2: us half of the country doesn't believe in human use 666 00:38:07,690 --> 00:38:10,660 Speaker 2: the climate change when the Republicans are in power, nothing 667 00:38:10,660 --> 00:38:14,750 Speaker 2: is done. Secondly, there is an intergenerational conflict between young 668 00:38:14,750 --> 00:38:16,720 Speaker 2: and old old are not gonna be around, the young 669 00:38:16,719 --> 00:38:19,040 Speaker 2: is gonna be around for another 80 years. 670 00:38:19,050 --> 00:38:22,140 Speaker 2: The young don't vote the old vote and anyhow, nobody 671 00:38:22,140 --> 00:38:24,589 Speaker 2: wants to do the sacrifices in the short man to 672 00:38:24,590 --> 00:38:27,589 Speaker 2: achieve the benefits of the long run because we discount 673 00:38:27,590 --> 00:38:30,149 Speaker 2: the future. Even the younger are they willing to give 674 00:38:30,150 --> 00:38:33,270 Speaker 2: up lots of stuff and to reduce their carbon footprint? 675 00:38:33,280 --> 00:38:37,710 Speaker 2: Not not totally obvious internationally, you have a free rider problem. 676 00:38:37,719 --> 00:38:40,390 Speaker 2: The country does every cut is a mission to zero 677 00:38:40,430 --> 00:38:43,970 Speaker 2: really costly. Nobody else does it, then it doesn't get 678 00:38:43,969 --> 00:38:47,440 Speaker 2: any benefit and coordinating 200 countries to do it is 679 00:38:47,440 --> 00:38:48,630 Speaker 2: mission impossible. 680 00:38:48,870 --> 00:38:52,529 Speaker 2: There were a conflict within advanced economies and emerging markets, 681 00:38:52,540 --> 00:38:56,680 Speaker 2: advanced economies tell China, India and others cattle emissions next 682 00:38:56,680 --> 00:38:57,600 Speaker 2: 20 years 683 00:38:57,960 --> 00:39:00,700 Speaker 2: And China and India say you created this problem for 684 00:39:00,700 --> 00:39:05,710 Speaker 2: the last 200 years. The stock of emissions, 90% of 685 00:39:05,710 --> 00:39:09,220 Speaker 2: it historically, the cumulative comes from advanced economies. It's true 686 00:39:09,219 --> 00:39:12,660 Speaker 2: that the new flow is coming increasingly from emerging markets. 687 00:39:12,670 --> 00:39:15,359 Speaker 2: But the M says you want me to stay poor 688 00:39:15,370 --> 00:39:18,810 Speaker 2: or middle income when you're high income and me not growing, 689 00:39:18,810 --> 00:39:21,310 Speaker 2: no way I'm gonna raise my emission for another 20 690 00:39:21,310 --> 00:39:24,870 Speaker 2: years before I start cutting them unless you bribe me 691 00:39:25,030 --> 00:39:27,900 Speaker 2: but unquote the bribes necessary are in the order of 692 00:39:27,900 --> 00:39:31,380 Speaker 2: a trillion dollars per year. What was chosen and decided 693 00:39:31,380 --> 00:39:35,460 Speaker 2: Sharma chic or Glasgow spare change, 50 billion an O. E. 694 00:39:35,460 --> 00:39:37,310 Speaker 2: M is going to do the right thing for that 695 00:39:37,310 --> 00:39:41,000 Speaker 2: spare change. And finally in the world of geopolitical conflicts, 696 00:39:41,000 --> 00:39:43,759 Speaker 2: I said U. S. And china don't agree on even 697 00:39:43,760 --> 00:39:44,800 Speaker 2: how to deal with 698 00:39:44,920 --> 00:39:50,590 Speaker 2: pandemics or global security or trade or financial issues and 699 00:39:50,600 --> 00:39:52,610 Speaker 2: and so on. They have a very hard time to 700 00:39:52,610 --> 00:39:55,900 Speaker 2: agree even on on climate change with these fights between 701 00:39:55,900 --> 00:40:00,060 Speaker 2: poor countries and advanced economies usually to provide global public goods. 702 00:40:00,060 --> 00:40:02,959 Speaker 2: You need a global hegemon, right? This is a view 703 00:40:02,960 --> 00:40:07,790 Speaker 2: of the demonic stability. 19th center was the pax Britannica 704 00:40:07,800 --> 00:40:11,890 Speaker 2: with the UK empire. Rich empire in the 20th century 705 00:40:11,890 --> 00:40:13,379 Speaker 2: was the pax Americana 706 00:40:13,550 --> 00:40:16,109 Speaker 2: when you have a global hegemon that a human can 707 00:40:16,110 --> 00:40:20,730 Speaker 2: internalize those things externalities and provide those global public goods. 708 00:40:20,739 --> 00:40:25,150 Speaker 2: But in the world of great powers, china, us europe India, 709 00:40:25,150 --> 00:40:27,980 Speaker 2: you name it, we cannot agree and nobody wants to 710 00:40:27,980 --> 00:40:30,500 Speaker 2: provide those global public goods to end up with a 711 00:40:30,500 --> 00:40:31,520 Speaker 2: bad equilibrium. 712 00:40:31,710 --> 00:40:34,520 Speaker 2: So we need those institutions of global governance. We even 713 00:40:34,530 --> 00:40:38,400 Speaker 2: need a global government, but frankly they do the right 714 00:40:38,400 --> 00:40:40,920 Speaker 2: thing are great respect for I. M. F. And all 715 00:40:40,920 --> 00:40:44,790 Speaker 2: those institutions, but you know, they're constraint, they're constrained because 716 00:40:44,800 --> 00:40:48,120 Speaker 2: their political masters are fighting with each other frankly. 717 00:40:48,130 --> 00:40:52,530 Speaker 1: Absolutely, that's sobering and very apt, 718 00:40:52,890 --> 00:40:56,000 Speaker 1: No real 24 years ago, you gave me a fantastic 719 00:40:56,000 --> 00:40:58,580 Speaker 1: piece of investment advice and you know, as I said 720 00:40:58,580 --> 00:41:00,410 Speaker 1: at the beginning, you know investing in S&P 500, a 721 00:41:00,410 --> 00:41:04,950 Speaker 1: passive investment strategy paid off handsomely. Uh if a summer 722 00:41:04,950 --> 00:41:07,760 Speaker 1: intern came to you today and ask you to put $10,000, 723 00:41:07,760 --> 00:41:09,380 Speaker 1: what would you tell them for the next decade? 724 00:41:10,710 --> 00:41:14,040 Speaker 2: Well, for the next week is more complicated because in 725 00:41:14,040 --> 00:41:17,710 Speaker 2: the long run, usually stocks do better than other asset 726 00:41:17,710 --> 00:41:21,080 Speaker 2: classes or a variety of other risk assets. Uh if 727 00:41:21,080 --> 00:41:22,860 Speaker 2: you can hold on for the long term. 728 00:41:23,300 --> 00:41:26,259 Speaker 2: Um but there are periods of time, like in the 729 00:41:26,270 --> 00:41:31,839 Speaker 2: 70s when you had massive circulation where equities fell by 50% 730 00:41:31,850 --> 00:41:35,540 Speaker 2: state law for a decade. In the 1982, the price 731 00:41:35,540 --> 00:41:38,710 Speaker 2: to earning ratio of S&P 500 was only eight. Today 732 00:41:38,710 --> 00:41:41,420 Speaker 2: is twice as much or even more so depending on 733 00:41:41,420 --> 00:41:42,170 Speaker 2: your measuring 734 00:41:42,390 --> 00:41:45,210 Speaker 2: if I'm right, the next decade is going to be 735 00:41:45,210 --> 00:41:50,570 Speaker 2: a decade of lower growth of inflation, of speculation, then 736 00:41:50,570 --> 00:41:54,080 Speaker 2: you could have a bear market in global equity doesn't 737 00:41:54,080 --> 00:41:56,560 Speaker 2: last just a year when there is a recession that 738 00:41:56,560 --> 00:42:00,470 Speaker 2: could be more protracted, especially in a world of more 739 00:42:00,480 --> 00:42:04,700 Speaker 2: geopolitical risk and political risk and various source of that sort. 740 00:42:04,710 --> 00:42:08,770 Speaker 2: So I would say and equity returns have been so high. 741 00:42:08,780 --> 00:42:11,940 Speaker 2: Np ratio so high, then maybe you get them below 742 00:42:12,190 --> 00:42:15,379 Speaker 2: historical values for a long period of time. So only 743 00:42:15,380 --> 00:42:17,890 Speaker 2: if you believe in the recession is the only cyclical 744 00:42:17,900 --> 00:42:20,400 Speaker 2: that you get then a rebound and long term you 745 00:42:20,400 --> 00:42:23,240 Speaker 2: want to be in equities. If if the type of 746 00:42:23,239 --> 00:42:27,080 Speaker 2: tail risk, I'm worrying about the mega threats materialized then 747 00:42:27,090 --> 00:42:30,569 Speaker 2: then you could have at least a decade of subpar 748 00:42:30,570 --> 00:42:33,210 Speaker 2: returns if not close to zero negative. 749 00:42:34,630 --> 00:42:37,940 Speaker 1: That's a really, really, you know, sobering note to end 750 00:42:37,940 --> 00:42:40,500 Speaker 1: this discussion. But I I really appreciate you coming on 751 00:42:40,500 --> 00:42:42,940 Speaker 1: the show and talk about and I think that you know, 752 00:42:42,950 --> 00:42:46,390 Speaker 1: listeners should read your book to go deeper into it 753 00:42:46,390 --> 00:42:49,100 Speaker 1: because it is not just a pithy observations about the 754 00:42:49,100 --> 00:42:51,239 Speaker 1: past and the future, but you're in your book, you 755 00:42:51,239 --> 00:42:54,710 Speaker 1: go very much deep into the each of the mega 756 00:42:54,710 --> 00:42:57,989 Speaker 1: threads that you're talking about. So Nouriel Roubini, thank you 757 00:42:57,989 --> 00:42:59,860 Speaker 1: very much for your time and insights. 758 00:42:59,870 --> 00:43:03,460 Speaker 2: Thanks for being with me today. A great pleasure. 759 00:43:03,930 --> 00:43:06,890 Speaker 1: Thank you Muriel thanks to our listeners to Kobe time 760 00:43:06,890 --> 00:43:09,650 Speaker 1: was produced by Kendall bridge from Spy studios, Stacey Sharma 761 00:43:09,650 --> 00:43:13,319 Speaker 1: and violently provided additional production assistance. Kobe time is for 762 00:43:13,320 --> 00:43:16,819 Speaker 1: information only and does not represent any trade recommendations. All 763 00:43:16,820 --> 00:43:19,710 Speaker 1: 91 episodes of the podcast are available on Youtube and 764 00:43:19,710 --> 00:43:23,300 Speaker 1: all major podcast platforms including apple google and Spotify. As 765 00:43:23,300 --> 00:43:25,650 Speaker 1: for our research publications webinars and live streams, you can 766 00:43:25,650 --> 00:43:29,390 Speaker 1: find them all by googling. Devious research library. Have a 767 00:43:29,390 --> 00:43:30,080 Speaker 1: great day