WEBVTT - Kopi Time E081 - Prof Robert Dekle on recession risks and inflation 0:00:06.530 --> 0:00:09.730 Hello. You're listening to Kobe time, a podcast series on 0:00:09.730 --> 0:00:12.610 markets and economies from DBS group research. I'm Taimur baig 0:00:12.610 --> 0:00:16.210 chief economist welcome to our a first episode. 0:00:16.750 --> 0:00:19.720 So I have just come back from a full month 0:00:19.720 --> 0:00:23.029 of travel through the US europe and UK. And if 0:00:23.030 --> 0:00:26.220 there was one common topic I discussed with family, friends 0:00:26.220 --> 0:00:29.790 and colleagues during the trip, surprise surprise it was inflation 0:00:29.800 --> 0:00:32.500 but it was not just inflation, it was also things 0:00:32.500 --> 0:00:36.029 that stem from it from interest rate increases to recession risks, 0:00:36.040 --> 0:00:39.589 housing market, currency market volatility and of course the war 0:00:39.590 --> 0:00:40.360 in Ukraine. 0:00:40.620 --> 0:00:43.330 So I think it's appropriate to resume our series after 0:00:43.330 --> 0:00:47.280 my month of being away with a dive in global macro. 0:00:47.290 --> 0:00:50.000 I'm very pleased for that to have with us robert 0:00:50.000 --> 0:00:54.760 deco professor of economics at the University of southern California roberts. 0:00:54.770 --> 0:00:56.690 Specializations range from international 0:00:56.705 --> 0:01:00.715 finance to open economy and development as well as economies 0:01:00.715 --> 0:01:04.375 of Japan and East asia. In addition to academia robert 0:01:04.375 --> 0:01:07.285 has worked at the International monetary fund and was a 0:01:07.295 --> 0:01:10.955 visiting scholar at the Federal Reserve Board of Governors. Professor 0:01:10.955 --> 0:01:12.705 robert Michael, welcome to Kobe time. 0:01:12.805 --> 0:01:16.554 Thank you. Thank you. It's a real real pleasure and 0:01:16.565 --> 0:01:18.605 it's great to meet up with you again. 0:01:18.694 --> 0:01:21.165 I know it's been a long long time robert and 0:01:21.165 --> 0:01:23.215 I hope next time we meet it will be in person. 0:01:23.255 --> 0:01:24.604 Great 0:01:24.940 --> 0:01:29.160 robert. Normally we start our macro discussions with the U. S. 0:01:29.160 --> 0:01:30.580 And you were based in L. A. So we have 0:01:30.580 --> 0:01:32.179 to talk a lot about the U. S. But I 0:01:32.180 --> 0:01:34.860 would like to turn things around a bit and start 0:01:34.860 --> 0:01:38.210 with a key area of your interest, Japan. So sitting 0:01:38.209 --> 0:01:41.390 here in Singapore from the market side of the business, 0:01:41.390 --> 0:01:45.039 we have been struck by the extraordinary magnitude of depreciation 0:01:45.190 --> 0:01:48.220 we've seen this year. And as you well know that 0:01:48.230 --> 0:01:51.820 many financial markets participants have been basically calling the yield 0:01:51.820 --> 0:01:54.870 curve control of the bank of Japan unsustainable. But they're 0:01:54.870 --> 0:01:58.510 holding fast. So let's start with your perspective on Japan, 0:01:58.660 --> 0:02:07.040 mm hmm. Um I think they're quite disconnected from in 0:02:07.040 --> 0:02:11.010 terms of monetary policy from the United States and, and europe. 0:02:11.020 --> 0:02:14.230 And I think the reason for that is that 0:02:14.660 --> 0:02:19.700 Their view is that the domestic economies still still weak. 0:02:19.710 --> 0:02:26.780 Uh the wage increases have not have not, wages haven't 0:02:26.780 --> 0:02:34.800 risen that much. They're like 1.5, or so. And so 0:02:34.800 --> 0:02:37.930 the domestic economy is weak and they need to continue 0:02:37.940 --> 0:02:39.490 their 0:02:39.980 --> 0:02:45.980 Loose monetary policies to get the domestic economy to recover 0:02:45.980 --> 0:02:51.130 some more. And the inflation rates are there. Uh you know, 0:02:51.130 --> 0:02:55.240 it's not like 0.5 as it was like a couple 0:02:55.240 --> 0:02:58.820 of years ago, but it's still just a tad above two. 0:02:58.830 --> 0:03:03.430 So it's not, it's not, it's a bit above there. 0:03:04.200 --> 0:03:07.850 Their targets at the official target is a little bit 0:03:07.850 --> 0:03:11.500 of love to I guess. So it's sort of around 0:03:11.500 --> 0:03:15.500 that level now and uh so it hasn't exceeded it 0:03:15.500 --> 0:03:16.110 by 0:03:16.880 --> 0:03:22.640 any kind of margin. So I think the authorities feel 0:03:22.650 --> 0:03:29.640 that the they're loose monetary policies is still justified, justified 0:03:29.639 --> 0:03:35.130 at this point. The only concern there is the weekend, 0:03:35.140 --> 0:03:38.950 it hasn't been this week since the early nineties and 0:03:38.960 --> 0:03:43.050 that has resulted in given the high dollar based commodity 0:03:43.050 --> 0:03:44.690 prices and oil prices and 0:03:44.970 --> 0:03:47.770 of the input prices. That means that those prices are 0:03:47.770 --> 0:03:48.800 coming in even 0:03:49.420 --> 0:03:53.940 higher because of the weaker, weaker yen into Japan, which 0:03:53.940 --> 0:03:57.980 is um causing they import a lot of their foodstuffs, 0:03:57.980 --> 0:04:02.510 for example, food and energy. And that's causing some problems 0:04:02.510 --> 0:04:06.580 for households which their budgets are stressed quite a bit 0:04:06.590 --> 0:04:10.190 because of the high food prices and in terms of production, 0:04:10.190 --> 0:04:13.950 the high energy prices. So, so that's a concern. But 0:04:13.950 --> 0:04:15.160 there's um 0:04:15.810 --> 0:04:20.240 there hasn't been intervention and I don't think the exchange 0:04:20.240 --> 0:04:26.219 rate intervention has been taken taken very seriously. So um yeah, 0:04:26.230 --> 0:04:27.800 I think the 0:04:28.610 --> 0:04:31.700 of course if as if they have to start raising 0:04:31.700 --> 0:04:35.260 their short term interest rates, they can't maintain their 10 0:04:35.260 --> 0:04:38.760 year rate at 100.5% so that's going to have to go. 0:04:38.770 --> 0:04:45.350 So it's gonna whether they're um they're they're announcement of 0:04:45.350 --> 0:04:49.440 holding interest rates to interest rates constant would be, or 0:04:49.440 --> 0:04:52.020 at least the 10 year rate constant. It's gonna depend 0:04:52.020 --> 0:04:54.610 on what they're gonna do to the short rates, but 0:04:54.620 --> 0:04:56.270 they didn't, they haven't raised it and 0:04:56.800 --> 0:04:59.750 But I think it all depends on the inflation rate 0:04:59.750 --> 0:05:02.960 as it starts creeping up towards 3%, even if the 0:05:02.960 --> 0:05:08.200 domestic economy doesn't improve that that much. I think they're 0:05:08.200 --> 0:05:09.690 gonna have to start raising it 0:05:12.529 --> 0:05:13.099 and 0:05:13.110 --> 0:05:16.980 in terms of the sustainability of the yield curve control. 0:05:16.990 --> 0:05:20.229 Do you see any physical limits or it is really 0:05:20.230 --> 0:05:22.969 going to be a bit of an intellectual exercise for 0:05:22.970 --> 0:05:24.700 the good of the economy? They'll give up. It will 0:05:24.700 --> 0:05:25.890 not be something that 0:05:25.940 --> 0:05:27.969 I think they would have to give up if they 0:05:27.970 --> 0:05:30.200 start raising their short rates. Yeah, absolutely. 0:05:30.600 --> 0:05:31.280 No, 0:05:31.279 --> 0:05:34.350 I am just talking in terms of the quantitative, you 0:05:34.350 --> 0:05:34.890 know, 0:05:34.900 --> 0:05:36.539 magnitude. 0:05:36.550 --> 0:05:39.880 Well, they, so it's 0.5, so they can say, Okay, 0:05:39.880 --> 0:05:46.679 we'll make it 2%, 3% 0:05:47.450 --> 0:05:52.099 I don't, you know, it was all done to um 0:05:52.110 --> 0:05:56.430 so there's two, there's two things. One is uh it's, 0:05:56.440 --> 0:05:59.120 was to stimulate the economy kind of keep the long 0:05:59.120 --> 0:06:02.680 rates low. And the other thing is to have that 0:06:02.690 --> 0:06:05.810 have a certain gap between the short rates and the 0:06:05.810 --> 0:06:09.650 long rates to maintain the profitability of the banking system, 0:06:10.220 --> 0:06:13.260 right? Because they banks make money on the yoke and 0:06:13.260 --> 0:06:16.750 they're an important part of the japanese stock market and 0:06:16.760 --> 0:06:21.430 uh and the economy. So in that sense, I can, 0:06:21.440 --> 0:06:24.549 you know, they could kind of bump bump both up 0:06:25.130 --> 0:06:29.070 at a certain point. But um so that's, so that's 0:06:29.070 --> 0:06:32.640 certainly possible, but it's not as crucial as when they 0:06:32.640 --> 0:06:36.469 were suffering from near deflation, but that all this kind 0:06:36.470 --> 0:06:40.450 of came uh, you know, board because of that. So, right, 0:06:40.450 --> 0:06:42.280 they finally got what they wanted. But they got a 0:06:42.279 --> 0:06:44.380 bit too much of it. It seems like very quickly. 0:06:44.390 --> 0:06:47.070 I'm not so sure if it's too much yet. That's 0:06:47.070 --> 0:06:49.740 the surprise of the whole thing that it's a little 0:06:49.740 --> 0:06:53.290 bit of, it's the mystery continues because as the rest 0:06:53.290 --> 0:06:54.580 of the world europe, 0:06:54.900 --> 0:06:59.440 The US have inflation rates approaching 9% still just a 0:06:59.450 --> 0:07:03.550 little above two there. So, you know, it's still still 0:07:03.550 --> 0:07:05.229 a mystery there. 0:07:05.230 --> 0:07:09.370 Right. So in terms of that mystery, is it because 0:07:09.380 --> 0:07:13.460 that unlike the european or the US economy's 0:07:13.470 --> 0:07:14.750 Japan's 0:07:14.760 --> 0:07:18.590 fiscal supporter on the pandemic was not commensurately large, is it? 0:07:18.590 --> 0:07:22.930 Because they have chronically large output gap and therefore producers 0:07:22.930 --> 0:07:24.780 still have no power to raise crisis. 0:07:26.110 --> 0:07:31.400 Mm hmm. I think it's both the, as you, as 0:07:31.400 --> 0:07:34.600 you point out that the fiscal response was, was nothing 0:07:34.600 --> 0:07:38.300 like that in the US given their budget, budgetary situation 0:07:38.310 --> 0:07:42.100 is quite dire. You know, the the debt GDP ratio 0:07:42.100 --> 0:07:44.560 is much higher. So they don't have the fiscal space 0:07:44.560 --> 0:07:48.250 to didn't have the fiscal space to do that. And 0:07:48.250 --> 0:07:50.140 also the the 0:07:50.910 --> 0:07:55.790 yeah, the kind of general, um, but I got output 0:07:55.790 --> 0:08:00.850 gap and the recessed state of the economy going to um, 0:08:00.860 --> 0:08:02.640 you know, 0:08:03.890 --> 0:08:08.040 aging of the population and lack of productivity growth, TfB growth. 0:08:08.040 --> 0:08:09.100 Things like that. Yeah. 0:08:10.160 --> 0:08:13.040 Um, so to that point that, 0:08:13.040 --> 0:08:14.160 you know, t. 0:08:14.160 --> 0:08:18.710 F. P growth and aging and structural decline in economic growth, 0:08:18.720 --> 0:08:21.780 you have been, you know, writing about and following Japan 0:08:21.790 --> 0:08:25.110 through this entire phase, you know, struggles to get out 0:08:25.110 --> 0:08:27.580 of the nineties crisis through various policies to the 0:08:27.810 --> 0:08:32.120 arts and the tents, um, what are the broader lessons robert? 0:08:32.130 --> 0:08:34.660 I mean, sitting in Singapore, I see, you know, Singapore 0:08:34.660 --> 0:08:38.350 has an asian dynamic and as it sort of hits 0:08:38.350 --> 0:08:41.489 toward the frontier production, almost certainly, you know, structurally 0:08:41.500 --> 0:08:42.800 europe 0:08:42.800 --> 0:08:46.540 has the same issue, perhaps even us. So what are your, 0:08:46.550 --> 0:08:47.500 I 0:08:47.510 --> 0:08:51.689 don't know what lessons positive lessons Japan the rest of 0:08:51.690 --> 0:08:53.400 the world could learn from it. I think the 0:08:53.559 --> 0:08:55.920 the only lesson is that don't let your economy age 0:08:55.920 --> 0:09:00.839 some age so drastically. Uh, and that's hard to do 0:09:00.840 --> 0:09:06.079 with just pro NATO list policies that they like some 0:09:06.080 --> 0:09:11.120 european countries, Japan tried with, uh, certainly the abe administration 0:09:11.120 --> 0:09:11.970 with 0:09:12.500 --> 0:09:19.959 giving, um, essentially very inexpensive childcare and and subsidies for 0:09:19.970 --> 0:09:23.590 raising the number of Children. But that hasn't really work 0:09:23.600 --> 0:09:28.120 that much. And I think what what hurts the country is, 0:09:28.130 --> 0:09:33.160 is really the lack of lack of immigration and um, 0:09:33.170 --> 0:09:37.540 I think, I think Japan has a lot to learn from, 0:09:37.550 --> 0:09:41.770 from Singapore, I think to uh 0:09:42.000 --> 0:09:44.770 sort of bring in talent, try to bring in talent 0:09:44.770 --> 0:09:47.740 from all over the world at at various levels like 0:09:47.750 --> 0:09:53.160 um physical labor and also intellectual labor, but they haven't, 0:09:53.170 --> 0:09:59.420 they haven't done that. Um, although abe has tried and 0:10:00.000 --> 0:10:05.520 I think that's probably the biggest reason why they're suffering 0:10:05.520 --> 0:10:09.150 from an aging population that's more drastic than 0:10:09.970 --> 0:10:11.969 other countries and 0:10:12.790 --> 0:10:15.130 I think um 0:10:15.940 --> 0:10:19.110 so I mean, what do you do when you have 0:10:19.120 --> 0:10:22.870 a population is aging is Japan, I mean you have high, 0:10:22.880 --> 0:10:26.170 you have high debt, I think the policies that they 0:10:26.170 --> 0:10:29.489 took our sort of appropriate, you're not gonna have a 0:10:29.490 --> 0:10:32.330 lot of risk capital prices going up in a situation 0:10:32.330 --> 0:10:36.670 like that, so, but you have deflation and debt 0:10:37.220 --> 0:10:41.550 sort of, the JGB prices have been going up, so 0:10:41.559 --> 0:10:44.579 holding bonds have been a good asset choice and holding 0:10:44.580 --> 0:10:48.400 money has been a good asset choice. So um that's 0:10:48.410 --> 0:10:52.100 um so that's why the bonds found a ready market 0:10:52.110 --> 0:10:55.740 in Japan their debt. So I think, I think they've 0:10:55.740 --> 0:10:59.370 done about as given, given the aging of the population 0:10:59.370 --> 0:11:04.530 they've done about as um well as they could. Again, 0:11:04.530 --> 0:11:05.120 there's 0:11:05.380 --> 0:11:09.040 things like innovation policies and all that, but it's uh 0:11:09.050 --> 0:11:12.570 those things are always very hard to see. Um although 0:11:12.570 --> 0:11:15.130 this new um 0:11:15.950 --> 0:11:22.100 Kishida, the Prime Minister is um trying to um promote 0:11:22.100 --> 0:11:25.630 more innovation by bringing back sort of more of the 0:11:25.630 --> 0:11:29.990 Japan inc approach where you, you subsidize industries and things 0:11:29.990 --> 0:11:32.150 like that and that may bear fruit, but I'm, 0:11:32.910 --> 0:11:35.840 you know, that that era seems to have passed in 0:11:35.840 --> 0:11:39.950 the global economy. So, so, so I think, yeah, the 0:11:39.960 --> 0:11:42.829 only lesson is that try not to get your economy 0:11:42.830 --> 0:11:45.880 aging and be be more open to the international economy 0:11:45.880 --> 0:11:46.890 bring people in 0:11:47.420 --> 0:11:48.790 and 0:11:49.760 --> 0:11:54.140 but they, and I think europe is going that way 0:11:54.140 --> 0:11:57.350 and Singapore has as well. And of course the United 0:11:57.350 --> 0:12:02.280 States has always been very open to mobility of human capital. 0:12:02.280 --> 0:12:04.570 And I think that's where it's been, it's been very 0:12:04.570 --> 0:12:10.240 hard for Japan to adapt. And they're kind of at 0:12:10.240 --> 0:12:11.089 their current 0:12:11.420 --> 0:12:14.330 current difficulties there robert, 0:12:14.330 --> 0:12:17.010 you sort of talked about one of the consequences of 0:12:17.020 --> 0:12:20.510 aging as debt and deflation. I don't know if you 0:12:20.510 --> 0:12:24.189 read this book, Charles good heart and Britain wrote this 0:12:24.190 --> 0:12:27.569 book a couple of years ago called the Great demographic reversal. 0:12:27.580 --> 0:12:29.989 And they have a sort of a provocative thesis which 0:12:29.990 --> 0:12:33.099 is we should not look at Japan and take away 0:12:33.100 --> 0:12:36.740 that aging and deflation come hand in hand? Japan's deflation 0:12:36.740 --> 0:12:38.300 is more related to 0:12:38.610 --> 0:12:41.900 recent market liberalization over the last two decades as well 0:12:41.900 --> 0:12:44.990 as you know china's exporting of you know, low prices 0:12:45.000 --> 0:12:48.719 to the tradable sector. And their point is that as U. S. 0:12:48.720 --> 0:12:52.420 And europe and other countries age, they will actually see 0:12:52.429 --> 0:12:55.690 inflationary impact because labor force shrinks and which demand will 0:12:55.690 --> 0:12:56.700 actually pick up. 0:12:56.900 --> 0:12:57.500 Um you 0:12:57.500 --> 0:12:58.569 know, I 0:12:58.580 --> 0:13:00.699 mean, I have always been in your camp because even 0:13:00.700 --> 0:13:03.710 in the I. M. F. When we wrote papers on demographic, 0:13:03.710 --> 0:13:08.740 the stylist fact common with aging was dissipation of price pressure. 0:13:08.750 --> 0:13:11.579 So what do you think of this pushback that it 0:13:11.580 --> 0:13:13.059 may actually be the other way around. 0:13:13.070 --> 0:13:15.650 So so they're arguing that wages are going to be 0:13:15.650 --> 0:13:18.679 increasing with with 0:13:18.690 --> 0:13:19.709 shrinking of the labor force, 0:13:19.710 --> 0:13:22.520 a shortage of shortage of the working age population 0:13:22.800 --> 0:13:26.900 and that yeah, I mean those um 0:13:27.910 --> 0:13:31.880 I think what's the Japanese lesson is that it's indeed true. 0:13:31.890 --> 0:13:41.030 The working age population has has has gone down, but again, 0:13:41.030 --> 0:13:47.190 that's been augmented by by imports from china and um 0:13:47.200 --> 0:13:49.970 china and the rest of the world. What what what's 0:13:49.970 --> 0:13:52.870 heard is that the demand for japanese products has 0:13:53.370 --> 0:13:57.050 has gone down like globally, right? Because of the competition 0:13:57.050 --> 0:14:01.069 in Korea and china and other Southeast asian countries and 0:14:01.070 --> 0:14:04.260 domestic still a large domestic economy, but 0:14:04.550 --> 0:14:10.040 the demand for um Japanese consumption goods such as um 0:14:10.050 --> 0:14:14.059 cars and also since it's the population, so aging, there's 0:14:14.070 --> 0:14:17.490 very little new household formation, so when you buy a house, 0:14:17.500 --> 0:14:20.570 there's all the stuff that goes into them and build 0:14:20.570 --> 0:14:25.100 a house material, but that demands just collapsed. So home 0:14:25.100 --> 0:14:30.280 electronics and materials to build housing, furniture, clothing 0:14:30.560 --> 0:14:34.470 because you're not working, people aren't working as much those. 0:14:34.480 --> 0:14:40.250 So domestic consumption demand um is growing miserably has been 0:14:40.250 --> 0:14:43.980 growing miserably and and that's contributed to the lack of 0:14:43.980 --> 0:14:49.140 domestic market growth and low investment because companies can't find 0:14:49.140 --> 0:14:53.810 markets for their products and so therefore low, low GDP 0:14:53.810 --> 0:14:56.450 and and deflation as a consequence. 0:14:56.880 --> 0:15:01.190 Um So yes, I I know Charles's arguments, I've heard 0:15:01.190 --> 0:15:04.840 other people comment on his book and it doesn't seem 0:15:04.840 --> 0:15:05.460 to be, 0:15:06.030 --> 0:15:14.020 had received a very widespread um widespread positive or widespread 0:15:14.020 --> 0:15:18.020 agreement and and I don't particularly agree agree with. I 0:15:18.020 --> 0:15:21.170 mean I think they need to argue that the which 0:15:21.170 --> 0:15:25.970 which they are charges arguing that the globalization, internationalization has ended. 0:15:25.980 --> 0:15:29.530 So that deflationary forces there and then all you have 0:15:29.530 --> 0:15:33.270 is this kind of high wages right? 0:15:33.610 --> 0:15:37.310 That's gonna cause that's gonna cause inflation. But 0:15:37.860 --> 0:15:40.700 you know it like I think the counter argument has been, 0:15:40.700 --> 0:15:44.120 well you're gonna still have globalized India is coming. Huh? 0:15:45.620 --> 0:15:49.550 The south south asian economies are coming on board and 0:15:49.550 --> 0:15:52.340 certainly Philippines and South East Asia have a young demographic. 0:15:52.340 --> 0:15:55.370 They're producing a lot. So that's that's going to continue. 0:15:55.380 --> 0:15:57.770 And that the 0:15:58.390 --> 0:16:03.460 um it's the and the robots are gonna robots are 0:16:03.460 --> 0:16:05.850 gonna come in and replace the labor anyway. So you 0:16:05.850 --> 0:16:10.100 may not need to need that much demand any of immigration. 0:16:10.110 --> 0:16:14.380 So it's a it's um it's it's an interesting it's 0:16:14.380 --> 0:16:16.630 an interesting hypothesis. Um 0:16:17.350 --> 0:16:21.380 But I'm not I'm not too I'm not too sure 0:16:21.380 --> 0:16:22.980 if it's gonna be right. Yeah. 0:16:23.510 --> 0:16:26.350 Very good. Now that's that's a very 0:16:26.360 --> 0:16:27.100 you know 0:16:27.110 --> 0:16:30.940 nuanced response. I appreciate that robert. All right, so let's 0:16:30.940 --> 0:16:35.240 cross the pacific back to your short. Um So during 0:16:35.240 --> 0:16:37.120 my visit to the U. S. Last month I heard 0:16:37.130 --> 0:16:40.040 nothing but stories of you know, soaring gas prices and 0:16:40.040 --> 0:16:44.740 soaring cost of hiring labor. So let's get a sense 0:16:44.750 --> 0:16:47.350 of your take on the inflation situation. 0:16:47.360 --> 0:16:49.460 Yeah. So 0:16:52.350 --> 0:16:56.400 when people are forecasting right? It's like 8 8.5 9 0:16:56.400 --> 0:16:56.800 and 0:16:57.430 --> 0:17:02.490 um you know people have been forecasting a turn into 0:17:02.500 --> 0:17:05.169 lower inflation for the last three or three months or 0:17:05.170 --> 0:17:06.600 so and it hasn't happened yet. 0:17:07.200 --> 0:17:12.409 Um But if oil prices are declining somewhat and 0:17:12.930 --> 0:17:17.830 so I think simply by what people are saying what 0:17:17.830 --> 0:17:20.930 the I don't know the technical term of it but 0:17:20.940 --> 0:17:24.780 the since the level last year was was high, you 0:17:24.780 --> 0:17:27.810 know the growth, relatively speaking the growth, 0:17:28.600 --> 0:17:30.540 I was not going to raise the inflation as much. 0:17:30.540 --> 0:17:33.750 So that's gonna kind of mechanically bring it down. Um 0:17:34.350 --> 0:17:39.350 But kind of more more broadly thinking about the thinking 0:17:39.350 --> 0:17:42.290 about the economics. Um It's 0:17:42.810 --> 0:17:51.240 clearly this uh administration and um the central bank was 0:17:51.250 --> 0:17:54.930 it was very much very much behind the curve. And 0:17:54.930 --> 0:17:57.810 they're not even I mean the raising rates at a 0:17:57.820 --> 0:18:03.679 fairly rapid rapid clip but because of concerns about the 0:18:03.680 --> 0:18:06.510 financial markets and I think also about the labor markets 0:18:06.510 --> 0:18:09.540 they it's not the real rates are still 0:18:11.010 --> 0:18:17.679 quite negative. Yeah you have like 6% negative real real 0:18:17.680 --> 0:18:22.350 interest rates. So you can take overall, you know people 0:18:22.350 --> 0:18:26.920 think positive real interest rates are um less stimulative than 0:18:26.920 --> 0:18:29.070 negative real interest rates and you kind of still have 0:18:29.070 --> 0:18:30.710 negative real interest rates. So 0:18:30.920 --> 0:18:35.320 the stimulus today is it's less than before but it's 0:18:35.330 --> 0:18:39.070 it's still stimulate it's still a stimulative situation given the 0:18:39.080 --> 0:18:44.820 expected given the actual inflation. Right? So and and I 0:18:44.820 --> 0:18:47.660 can't really imagine this 0:18:48.660 --> 0:18:54.439 Central bank being like the Volcker central bank and you 0:18:54.440 --> 0:18:57.550 know and also we don't have a history of the 0:18:57.550 --> 0:19:01.320 entire seventies of having high inflation where Volker had the 0:19:01.320 --> 0:19:05.160 background and the support to do that. So this central 0:19:05.160 --> 0:19:07.490 bank I don't think it's going to do that and 0:19:07.490 --> 0:19:10.929 therefore you're going to kind of continue to have longer 0:19:10.940 --> 0:19:13.320 negative real interest rates and 0:19:14.510 --> 0:19:21.480 Therefore more stimulative than otherwise and inflation could um continue longer. 0:19:21.480 --> 0:19:27.629 Like you can't. So looking at this history in 1982 0:19:27.640 --> 0:19:30.190 you know we had to start to have these very 0:19:30.190 --> 0:19:32.179 rapid interest rate increases and 0:19:32.750 --> 0:19:37.730 the economy started growing again in 84 85 you like 0:19:37.730 --> 0:19:40.820 around the mid eighties combined with the collapse of Opec 0:19:40.820 --> 0:19:44.960 and the falling oil prices you started to have low 0:19:44.960 --> 0:19:49.740 and stable inflation in the like 85 85 86. And 0:19:49.750 --> 0:19:52.869 I think the decline in inflation is going to be 0:19:52.880 --> 0:19:58.300 a little more little more tamed and you know we 0:19:58.300 --> 0:20:00.710 may not reach 2% by 0:20:01.330 --> 0:20:05.620 2024. We might I think I think it will be 0:20:05.619 --> 0:20:10.130 higher than that uh higher than that for longer. So 0:20:10.130 --> 0:20:14.430 if I were I the tips spread I mean let's 0:20:14.430 --> 0:20:18.639 say it's between two up 2.5 around 2.5 0:20:19.359 --> 0:20:22.840 And I think if I I would bet on something 0:20:22.840 --> 0:20:26.840 higher than 2.5 over the next five years on average. 0:20:26.850 --> 0:20:27.359 Yeah 0:20:28.030 --> 0:20:34.210 so that's mainly because of the more accommodating um more 0:20:34.210 --> 0:20:35.680 accommodating um 0:20:37.770 --> 0:20:40.959 not not a not a draconian monetary tightening sort of 0:20:40.960 --> 0:20:44.240 more accommodating. Being aware of the labor markets and the 0:20:44.240 --> 0:20:45.720 financial markets. 0:20:45.730 --> 0:20:47.030 Very interesting 0:20:47.030 --> 0:20:48.660 thing. So 0:20:48.660 --> 0:20:52.720 so robert you're basically saying that the demand side impulse 0:20:52.720 --> 0:20:55.100 is not going to go away even if we have 0:20:55.100 --> 0:20:58.170 some favorable developments on the supply side. So you know 0:20:58.180 --> 0:21:01.520 all production gets wrapped up the war in Ukraine ends 0:21:01.530 --> 0:21:05.200 even then you don't think the demands that impulse will 0:21:05.210 --> 0:21:06.380 go and therefore 0:21:06.720 --> 0:21:08.669 inflation net net will remain 0:21:08.869 --> 0:21:09.560 substantially 0:21:09.560 --> 0:21:10.320 above target. 0:21:11.220 --> 0:21:15.890 Yeah. Above target. That's right. I think I think there's 0:21:15.890 --> 0:21:19.650 two you know economists here kind of on both both 0:21:19.650 --> 0:21:24.150 sides of this like there's one group who say its 0:21:24.160 --> 0:21:29.950 supply side stuff temporary and you know the china's covid 0:21:29.950 --> 0:21:31.080 and um 0:21:31.619 --> 0:21:34.379 and the other group says yeah but it's it's a 0:21:34.380 --> 0:21:38.630 combination and uh um the 0:21:39.500 --> 0:21:42.330 like someone like Larry summers for example would say that 0:21:42.330 --> 0:21:42.740 it's 0:21:43.359 --> 0:21:46.290 you know it's um you gotta unless you tighten money 0:21:46.290 --> 0:21:48.930 or have a have a crank have a deep recession 0:21:48.930 --> 0:21:51.369 you're not gonna get the inflation rate down 0:21:52.140 --> 0:21:56.109 and I'm a little bit more towards the summer's camp 0:21:56.109 --> 0:21:58.929 on this that you need to you need to really 0:22:00.109 --> 0:22:02.450 you need to have a recession um 0:22:03.010 --> 0:22:06.570 Like not again it's very divided people people so you 0:22:06.570 --> 0:22:09.590 don't need a recession. We really need a recession to 0:22:09.590 --> 0:22:15.070 bring the inflation rate down to target and I don't 0:22:15.070 --> 0:22:15.990 think this 0:22:16.800 --> 0:22:22.460 um the demand side. Both, both the fiscal side and 0:22:22.460 --> 0:22:25.670 the monetary side because we're talking about even another some 0:22:25.670 --> 0:22:28.310 more money from more spending coming on before the health 0:22:28.310 --> 0:22:33.040 care and the prescription which I think are necessary things 0:22:33.040 --> 0:22:37.260 for the U. S. But we're not talking about fiscal 0:22:37.260 --> 0:22:41.109 tax tax increases or you know we're still, the debate 0:22:41.109 --> 0:22:44.600 is still on increasing government spending. So 0:22:44.900 --> 0:22:49.340 um for those reasons. Um Yes I I guess I 0:22:49.340 --> 0:22:51.170 agree with what you're saying. 0:22:51.720 --> 0:22:53.629 Yeah that I 0:22:53.630 --> 0:22:54.800 suppose you know 0:22:54.810 --> 0:22:55.609 so 0:22:55.619 --> 0:23:00.000 extending that summer's Dicle argument that you need substantial rise 0:23:00.010 --> 0:23:02.680 in unemployment or a deep recession to bring prices under 0:23:02.680 --> 0:23:06.840 control that desirable. I mean what would you rather have 0:23:06.850 --> 0:23:09.250 live with inflation or lose your job? I think most 0:23:09.250 --> 0:23:10.929 people will say the former. 0:23:10.990 --> 0:23:13.690 I think that's right. I think that that's there in 0:23:13.700 --> 0:23:17.180 there in lies the political conundrum that's exactly right that 0:23:17.190 --> 0:23:19.830 I'm a tenured professor so I'd rather have low prices 0:23:20.010 --> 0:23:25.330 so summers but that's not good for your for the 0:23:25.340 --> 0:23:30.300 for the lovely baristas and charming waiters and 0:23:30.859 --> 0:23:33.820 you know the very helpful um 0:23:34.800 --> 0:23:37.860 Production workers. It's and it's not a good thing so 0:23:37.869 --> 0:23:44.300 that that's the and the it's it's a little bit different. 0:23:44.300 --> 0:23:47.850 Again the 80s was a different different thing that 0:23:48.480 --> 0:23:52.930