1 00:00:07,140 --> 00:00:08,459 Speaker 1: Welcome to Coffee Time, 2 00:00:08,470 --> 00:00:08,930 Speaker 2: a 3 00:00:08,930 --> 00:00:12,100 Speaker 1: podcast series on markets and economies from DBS group research 4 00:00:12,110 --> 00:00:14,660 Speaker 1: Team will break Chief Economist welcoming you to our 5 00:00:14,660 --> 00:00:16,050 Speaker 2: 77th episode, 6 00:00:16,540 --> 00:00:20,150 Speaker 2: I'm excited about this one. There are macro economists and 7 00:00:20,150 --> 00:00:24,290 Speaker 2: economic historians and then there is Barry Eichengreen. He's George 8 00:00:24,290 --> 00:00:26,590 Speaker 2: C pardee and Helen and party professor 9 00:00:26,590 --> 00:00:27,730 Speaker 1: of Economics and political 10 00:00:27,730 --> 00:00:29,310 Speaker 2: science at the University 11 00:00:29,310 --> 00:00:30,030 Speaker 1: of California at 12 00:00:30,030 --> 00:00:32,280 Speaker 2: Berkeley. His contribution 13 00:00:32,280 --> 00:00:33,060 Speaker 1: to economics 14 00:00:33,060 --> 00:00:36,400 Speaker 2: and international finance stretches over four decades. 15 00:00:36,409 --> 00:00:37,390 Speaker 1: Consider his 16 00:00:37,400 --> 00:00:38,460 Speaker 2: seminal book, 17 00:00:38,540 --> 00:00:40,409 Speaker 2: Golden Federer is the Gold Standard and the Great 18 00:00:40,409 --> 00:00:41,610 Speaker 1: Depression, published in 19 00:00:41,610 --> 00:00:43,410 Speaker 2: 1992, or 20 00:00:43,420 --> 00:00:44,580 Speaker 1: the co authored volume 21 00:00:44,590 --> 00:00:47,150 Speaker 2: in defense of public debt. Published just last year 22 00:00:47,640 --> 00:00:49,129 Speaker 2: in between, Professor 23 00:00:49,130 --> 00:00:50,060 Speaker 1: Eichengreen has delved 24 00:00:50,070 --> 00:00:52,449 Speaker 2: deeply into exchange regimes, trade 25 00:00:52,450 --> 00:00:53,550 Speaker 1: and monetary unions, 26 00:00:53,550 --> 00:00:58,279 Speaker 2: financial market, contagion, banking crisis, global, international financial architecture and 27 00:00:58,290 --> 00:01:01,320 Speaker 2: all of these in the context of now or a 28 00:01:01,320 --> 00:01:03,000 Speaker 2: century ago and across 29 00:01:03,000 --> 00:01:03,640 Speaker 1: events in the 30 00:01:03,640 --> 00:01:07,650 Speaker 2: US eurozone, china latin America and so on. So truly 31 00:01:07,740 --> 00:01:08,670 Speaker 1: an honor to have him 32 00:01:08,670 --> 00:01:12,360 Speaker 2: on board today. Professor Barry Eichengreen, welcome to Covid Time. 33 00:01:12,940 --> 00:01:15,310 Speaker 2: Thank you tom you're you're making me feel long in 34 00:01:15,310 --> 00:01:15,959 Speaker 2: the tooth, 35 00:01:16,540 --> 00:01:17,030 Speaker 2: but 36 00:01:17,030 --> 00:01:18,190 Speaker 1: so relevant 37 00:01:18,200 --> 00:01:22,090 Speaker 2: then and now, um professor, I have just read a 38 00:01:22,090 --> 00:01:24,110 Speaker 2: long list of your expertise but I didn't 39 00:01:24,110 --> 00:01:25,370 Speaker 1: mention post 40 00:01:25,370 --> 00:01:29,690 Speaker 2: conflict reconstruction. Neither did I talk about sanctions, but you've 41 00:01:29,690 --> 00:01:30,100 Speaker 2: been writing 42 00:01:30,100 --> 00:01:31,170 Speaker 1: on these issues lately, 43 00:01:31,170 --> 00:01:32,380 Speaker 2: given the war in Ukraine. 44 00:01:32,380 --> 00:01:33,400 Speaker 1: So let's begin 45 00:01:33,400 --> 00:01:33,960 Speaker 2: there 46 00:01:34,040 --> 00:01:38,100 Speaker 2: in a recently published article in project syndicate. You wrote that, 47 00:01:38,110 --> 00:01:41,490 Speaker 2: talking about marshall plan for Ukraine is a popular 48 00:01:41,490 --> 00:01:43,090 Speaker 1: sport nowadays. But 49 00:01:43,090 --> 00:01:44,380 Speaker 2: Ukraine's reconstruction 50 00:01:44,380 --> 00:01:45,120 Speaker 1: must be done 51 00:01:45,130 --> 00:01:47,100 Speaker 2: with full appreciation of the 52 00:01:47,100 --> 00:01:48,400 Speaker 1: most relevant features 53 00:01:48,400 --> 00:01:49,190 Speaker 2: of the plan that 54 00:01:49,190 --> 00:01:50,590 Speaker 1: was put in motion close 55 00:01:50,590 --> 00:01:53,670 Speaker 2: World War Two europe. So, if you may walk us 56 00:01:53,670 --> 00:01:56,060 Speaker 2: through those features from your historical study, 57 00:01:57,440 --> 00:02:01,510 Speaker 2: I I should probably start by mentioning the context for 58 00:02:01,510 --> 00:02:04,660 Speaker 2: that historical study. I did my work on 59 00:02:05,140 --> 00:02:08,429 Speaker 2: Uh the history of the Marshall plan some together with 60 00:02:08,430 --> 00:02:13,290 Speaker 2: my colleague Brad Delong some together with a former student, 61 00:02:13,290 --> 00:02:17,700 Speaker 2: now colleague mark at the beginning of the 1990s, because 62 00:02:17,700 --> 00:02:21,740 Speaker 2: everybody was thinking about a Marshall plan for Eastern Europe 63 00:02:21,740 --> 00:02:26,050 Speaker 2: and the former Soviet Union. So the context was different. 64 00:02:26,240 --> 00:02:26,970 Speaker 2: Obviously, 65 00:02:26,970 --> 00:02:28,480 Speaker 1: there was no war 66 00:02:28,490 --> 00:02:29,660 Speaker 2: raging in that part of 67 00:02:29,660 --> 00:02:30,830 Speaker 1: the world 68 00:02:30,840 --> 00:02:33,160 Speaker 2: at the time. Um 69 00:02:33,639 --> 00:02:37,310 Speaker 2: so the situation in Ukraine is somewhat different now, although 70 00:02:37,310 --> 00:02:42,510 Speaker 2: I think marshall plan history is relevant once again. So 71 00:02:42,510 --> 00:02:44,760 Speaker 2: I would I would make a couple of 72 00:02:45,139 --> 00:02:48,560 Speaker 2: points building on that. Um post 73 00:02:48,560 --> 00:02:49,720 Speaker 1: World War Two 74 00:02:49,730 --> 00:02:53,660 Speaker 2: uh experience. First of all, um 75 00:02:54,139 --> 00:03:00,429 Speaker 2: Marshall plan funds began to be dispersed even before the 76 00:03:00,440 --> 00:03:05,320 Speaker 2: conflict in europe was entirely over. So the war with 77 00:03:05,320 --> 00:03:07,329 Speaker 2: Nazi Germany was certainly over. But 78 00:03:07,330 --> 00:03:08,010 Speaker 1: there was still a 79 00:03:08,010 --> 00:03:09,760 Speaker 2: civil war raging in Greece 80 00:03:10,139 --> 00:03:17,120 Speaker 2: Through 1949, uh into 1950. and Marshall Plan funds began 81 00:03:17,120 --> 00:03:18,410 Speaker 2: to flow from the United 82 00:03:18,410 --> 00:03:19,300 Speaker 1: States to 83 00:03:19,300 --> 00:03:26,380 Speaker 2: The recognized government of Greece already in 1948. So one 84 00:03:26,380 --> 00:03:27,240 Speaker 1: here sometimes 85 00:03:27,240 --> 00:03:31,120 Speaker 2: today that we should wait until the conflict in in 86 00:03:31,120 --> 00:03:32,160 Speaker 2: Ukraine is over, 87 00:03:32,240 --> 00:03:37,850 Speaker 2: until the Russians withdraw or whatever before we begin to 88 00:03:37,850 --> 00:03:40,570 Speaker 2: provide aid for reconstruction 89 00:03:40,580 --> 00:03:41,640 Speaker 1: as opposed 90 00:03:41,650 --> 00:03:42,490 Speaker 2: to military 91 00:03:42,490 --> 00:03:43,650 Speaker 1: aid. Think 92 00:03:43,660 --> 00:03:47,360 Speaker 2: marshall plan experience shows that uh thoughtfully 93 00:03:47,940 --> 00:03:52,910 Speaker 2: administered and dispersed, we can begin to provide aid for 94 00:03:52,920 --> 00:03:54,180 Speaker 2: reconstruction 95 00:03:54,190 --> 00:03:56,080 Speaker 1: once the west of the country 96 00:03:56,080 --> 00:03:57,339 Speaker 2: is secure, for 97 00:03:57,340 --> 00:04:00,160 Speaker 1: example, uh already today. 98 00:04:00,170 --> 00:04:01,000 Speaker 2: Um 99 00:04:01,010 --> 00:04:02,820 Speaker 1: secondly, uh 100 00:04:02,830 --> 00:04:03,920 Speaker 2: there has been talk 101 00:04:03,930 --> 00:04:06,060 Speaker 1: about whether 102 00:04:06,340 --> 00:04:10,870 Speaker 1: we the West should be providing mainly grants or loan 103 00:04:10,870 --> 00:04:13,660 Speaker 1: guarantees and it's worth recalling that 104 00:04:13,670 --> 00:04:14,710 Speaker 2: uh european 105 00:04:14,710 --> 00:04:17,110 Speaker 1: countries came out of World War Two heavily indebted 106 00:04:17,120 --> 00:04:17,880 Speaker 2: and we 107 00:04:17,880 --> 00:04:21,420 Speaker 1: provided grants rather than uh more 108 00:04:21,420 --> 00:04:21,850 Speaker 2: debt 109 00:04:22,240 --> 00:04:22,650 Speaker 2: if you 110 00:04:22,650 --> 00:04:26,260 Speaker 1: will. And I think that's relevant to Ukraine today as well. 111 00:04:26,260 --> 00:04:30,190 Speaker 1: They looking forward are are going to face uh 112 00:04:30,200 --> 00:04:30,820 Speaker 2: difficult 113 00:04:30,820 --> 00:04:33,760 Speaker 1: problem of debt renegotiation. They're going to have 114 00:04:33,760 --> 00:04:35,570 Speaker 2: to restructure the debts 115 00:04:35,570 --> 00:04:37,760 Speaker 1: that they inherited from the pre 116 00:04:37,760 --> 00:04:39,130 Speaker 2: war period. 117 00:04:39,130 --> 00:04:39,990 Speaker 1: Their economy will 118 00:04:39,990 --> 00:04:40,860 Speaker 2: have shrunk. 119 00:04:40,940 --> 00:04:44,550 Speaker 1: Uh those negotiations will take time. So I don't think 120 00:04:44,550 --> 00:04:45,890 Speaker 1: we should add pile more 121 00:04:45,890 --> 00:04:46,360 Speaker 2: debt 122 00:04:46,740 --> 00:04:47,180 Speaker 2: on top 123 00:04:47,180 --> 00:04:48,180 Speaker 1: of the existing 124 00:04:48,190 --> 00:04:49,370 Speaker 2: debt if 125 00:04:49,370 --> 00:04:50,770 Speaker 1: you will. And finally 126 00:04:50,770 --> 00:04:52,520 Speaker 2: there's the question 127 00:04:52,520 --> 00:04:53,790 Speaker 1: of how a marshall plan 128 00:04:53,790 --> 00:04:54,630 Speaker 2: for 129 00:04:54,640 --> 00:04:56,849 Speaker 1: Ukraine should be structured and 130 00:04:57,240 --> 00:04:58,120 Speaker 2: administered. 131 00:04:58,130 --> 00:05:01,770 Speaker 1: I don't think it should be administered by the Bretton 132 00:05:01,770 --> 00:05:05,390 Speaker 1: woods institutions, for example, by the I. M. F. And 133 00:05:05,390 --> 00:05:06,700 Speaker 1: the World Bank Russia 134 00:05:06,700 --> 00:05:07,010 Speaker 2: being a 135 00:05:07,010 --> 00:05:08,860 Speaker 1: member of the I. M. F. And the World Bank 136 00:05:08,870 --> 00:05:11,700 Speaker 1: uh and uh in 137 00:05:11,700 --> 00:05:12,770 Speaker 2: a position therefore 138 00:05:12,770 --> 00:05:16,230 Speaker 1: to throw a wrench in the works if you will. 139 00:05:16,240 --> 00:05:17,550 Speaker 1: The um 140 00:05:17,839 --> 00:05:21,589 Speaker 1: uh brilliance of the marshall plan was that the US 141 00:05:21,589 --> 00:05:26,400 Speaker 1: government set up autonomous self standing agency that could 142 00:05:26,400 --> 00:05:27,500 Speaker 2: cut through red tape 143 00:05:27,500 --> 00:05:29,200 Speaker 1: and wasn't uh 144 00:05:29,210 --> 00:05:29,810 Speaker 2: answerable 145 00:05:29,810 --> 00:05:33,550 Speaker 1: directly answerable to the bureaucracies of the U. S. State 146 00:05:33,550 --> 00:05:36,550 Speaker 1: Department and the U. S. Treasury Department. And I think 147 00:05:36,560 --> 00:05:41,620 Speaker 1: a self standing international agency maybe under the umbrella of 148 00:05:41,620 --> 00:05:42,080 Speaker 1: the United 149 00:05:42,080 --> 00:05:42,859 Speaker 2: Nations, 150 00:05:43,240 --> 00:05:47,000 Speaker 1: uh maybe under the umbrella of the O. E. C. D. 151 00:05:47,010 --> 00:05:49,660 Speaker 1: Would be the right way to go for Ukraine as well. 152 00:05:50,440 --> 00:05:53,710 Speaker 1: Would you consider a BRD or the european union along 153 00:05:53,710 --> 00:05:57,050 Speaker 1: the same lines? Well, I would I I would be 154 00:05:57,050 --> 00:05:58,820 Speaker 1: prepared to consider 155 00:05:58,820 --> 00:05:59,260 Speaker 2: E. B. R. 156 00:05:59,260 --> 00:06:01,750 Speaker 1: D. Um E. B. R. D. Did not 157 00:06:02,140 --> 00:06:05,950 Speaker 1: exactly distinguished itself in its early 158 00:06:06,339 --> 00:06:07,429 Speaker 2: days. 159 00:06:07,440 --> 00:06:08,480 Speaker 1: Um 160 00:06:08,490 --> 00:06:09,400 Speaker 2: in 161 00:06:09,400 --> 00:06:12,910 Speaker 1: The early 1990s it became famous more for for building 162 00:06:12,910 --> 00:06:15,130 Speaker 1: lavish headquarters with with a lot of 163 00:06:15,130 --> 00:06:16,230 Speaker 2: marble than 164 00:06:16,230 --> 00:06:19,779 Speaker 1: it didn't dispersing funds. But it is presumably leaner and 165 00:06:19,779 --> 00:06:25,450 Speaker 1: meaner now. And I I would um uh consider that 166 00:06:25,640 --> 00:06:28,060 Speaker 1: uh I I don't think um 167 00:06:28,540 --> 00:06:33,520 Speaker 1: Reconstruction of Ukraine is going to be an exclusively Eu endeavor. 168 00:06:33,529 --> 00:06:36,450 Speaker 1: We're going to want to uh in in in enlist 169 00:06:36,450 --> 00:06:39,100 Speaker 1: the support of the United States and Japan 170 00:06:39,110 --> 00:06:40,480 Speaker 2: and others. 171 00:06:40,490 --> 00:06:44,190 Speaker 1: So uh the european union, the european commission is clearly 172 00:06:44,190 --> 00:06:46,910 Speaker 1: going to have to play a leading role. Whether it 173 00:06:46,920 --> 00:06:48,760 Speaker 1: should house 174 00:06:48,940 --> 00:06:51,180 Speaker 1: this autonomous agency though is another 175 00:06:51,180 --> 00:06:51,550 Speaker 2: matter 176 00:06:52,540 --> 00:06:53,740 Speaker 1: if I may ask you one more follow up 177 00:06:53,740 --> 00:06:54,620 Speaker 2: question, what's your 178 00:06:54,620 --> 00:06:56,930 Speaker 1: view on the refugees? 179 00:06:56,930 --> 00:06:58,080 Speaker 2: So Ukraine is 180 00:06:58,080 --> 00:07:02,029 Speaker 1: blessed with many skilled workers. Some of them presumably will 181 00:07:02,029 --> 00:07:04,960 Speaker 1: fill the labor market gap. The skills mismatch that Poland 182 00:07:04,960 --> 00:07:08,310 Speaker 1: had before this conflict. And of course, you know, the U. S. 183 00:07:08,310 --> 00:07:10,940 Speaker 1: Is granting large number of green cards to Ukrainians and 184 00:07:10,940 --> 00:07:15,540 Speaker 1: so on for the post conflict rebuilding. Would you want 185 00:07:15,550 --> 00:07:16,790 Speaker 1: the refugees to go 186 00:07:16,790 --> 00:07:17,490 Speaker 2: back as soon as 187 00:07:17,490 --> 00:07:20,060 Speaker 1: possible? Is that what we saw in the case of 188 00:07:20,060 --> 00:07:20,370 Speaker 1: europe 189 00:07:20,370 --> 00:07:21,100 Speaker 2: post World War Two? 190 00:07:21,100 --> 00:07:23,210 Speaker 1: Or it was the case that you know, many left 191 00:07:23,220 --> 00:07:25,750 Speaker 1: regardless and many stayed on and that was sufficient? 192 00:07:26,440 --> 00:07:28,230 Speaker 1: Well, in the case of of 193 00:07:28,230 --> 00:07:29,330 Speaker 2: Ukraine, I think it is 194 00:07:29,330 --> 00:07:34,380 Speaker 1: critically important to reverse the brain brain. Uh, among other things, 195 00:07:34,390 --> 00:07:35,090 Speaker 2: Ukraine 196 00:07:35,090 --> 00:07:35,860 Speaker 1: had 197 00:07:36,240 --> 00:07:42,190 Speaker 1: relatively small but vibrant high tech sector. Uh people can 198 00:07:42,190 --> 00:07:45,080 Speaker 1: work remote so maybe they can work from Poland 199 00:07:45,090 --> 00:07:46,300 Speaker 2: for 200 00:07:46,310 --> 00:07:47,270 Speaker 1: the Ukrainian 201 00:07:47,280 --> 00:07:48,090 Speaker 2: startup. 202 00:07:48,100 --> 00:07:51,390 Speaker 1: But I think more generally it will be important to 203 00:07:51,400 --> 00:07:57,540 Speaker 1: attract back the skilled workers. There was a lot of 204 00:07:57,540 --> 00:07:58,460 Speaker 1: labor 205 00:07:58,540 --> 00:08:02,670 Speaker 1: displacement after World War Two, a lot of voluntary 206 00:08:02,680 --> 00:08:03,520 Speaker 2: and 207 00:08:03,520 --> 00:08:05,880 Speaker 1: some involuntary movement 208 00:08:05,890 --> 00:08:06,650 Speaker 2: of labor 209 00:08:06,650 --> 00:08:11,360 Speaker 1: from from the east to uh to the west. The 210 00:08:11,370 --> 00:08:12,520 Speaker 2: big problem after 211 00:08:12,520 --> 00:08:15,060 Speaker 1: World War Two was rebuilding the housing stock 212 00:08:15,240 --> 00:08:15,860 Speaker 2: and 213 00:08:15,870 --> 00:08:17,740 Speaker 1: uh thereby allowing 214 00:08:17,740 --> 00:08:19,220 Speaker 2: people to move 215 00:08:19,220 --> 00:08:20,240 Speaker 1: back to the 216 00:08:20,250 --> 00:08:21,370 Speaker 2: urban centers 217 00:08:21,380 --> 00:08:25,370 Speaker 1: and the industrial centers where their labor was needed where 218 00:08:25,370 --> 00:08:27,520 Speaker 1: they were most productive. And this is going 219 00:08:27,520 --> 00:08:28,600 Speaker 2: to be a big problem for 220 00:08:28,600 --> 00:08:30,260 Speaker 1: Ukraine as well. 221 00:08:30,260 --> 00:08:31,220 Speaker 2: They want to attract 222 00:08:31,230 --> 00:08:31,760 Speaker 1: back 223 00:08:32,140 --> 00:08:34,650 Speaker 1: the refugees skilled workers, 224 00:08:34,660 --> 00:08:35,709 Speaker 2: but they're going to have 225 00:08:35,710 --> 00:08:37,650 Speaker 1: to be able to house them and 226 00:08:37,660 --> 00:08:38,550 Speaker 2: it will take 227 00:08:38,550 --> 00:08:43,590 Speaker 1: years to rebuild the housing stock. So I think um 228 00:08:43,600 --> 00:08:44,370 Speaker 1: modern 229 00:08:44,370 --> 00:08:45,330 Speaker 2: technology can be 230 00:08:45,330 --> 00:08:48,390 Speaker 1: part of the solution. They're modular housing and so forth. 231 00:08:48,400 --> 00:08:49,450 Speaker 1: But where you 232 00:08:49,450 --> 00:08:50,280 Speaker 2: can rebuild a 233 00:08:50,280 --> 00:08:53,160 Speaker 1: bridge or a railway virtually overnight, 234 00:08:53,340 --> 00:08:53,830 Speaker 1: pontoon 235 00:08:53,830 --> 00:08:54,540 Speaker 2: bridges 236 00:08:54,540 --> 00:08:58,530 Speaker 1: and uh, and and so forth, rebuilding the housing stock 237 00:08:58,530 --> 00:09:02,850 Speaker 1: takes longer. And that will be a constraint on repatriation. 238 00:09:03,240 --> 00:09:05,770 Speaker 1: Uh, Professor, I can I just want to press you 239 00:09:05,770 --> 00:09:07,460 Speaker 1: a little more on the IMF's World Bank 240 00:09:07,460 --> 00:09:08,770 Speaker 2: question. I just want to go back there for 241 00:09:08,770 --> 00:09:12,780 Speaker 1: a second. Both institutions have already offered, you know, substantial 242 00:09:12,790 --> 00:09:14,459 Speaker 1: assistance to the Ukrainian 243 00:09:14,460 --> 00:09:15,410 Speaker 2: government. And of 244 00:09:15,410 --> 00:09:17,400 Speaker 1: course, Ukraine has had multiple 245 00:09:17,400 --> 00:09:18,480 Speaker 2: programs with the I. M. 246 00:09:18,480 --> 00:09:21,199 Speaker 1: F. In the past by myself. And as an ep, 247 00:09:21,210 --> 00:09:24,860 Speaker 1: actually worked on a Ukraine program 20 years ago. Um, 248 00:09:24,940 --> 00:09:26,770 Speaker 1: you wouldn't want those 249 00:09:27,340 --> 00:09:31,449 Speaker 1: interactions to be suspended even under your envisioned framework. 250 00:09:32,040 --> 00:09:32,630 Speaker 2: No, 251 00:09:32,630 --> 00:09:33,080 Speaker 1: I think, 252 00:09:33,090 --> 00:09:34,740 Speaker 2: um, that 253 00:09:34,750 --> 00:09:41,270 Speaker 1: the agency in in in charge of dispersing uh, bilateral 254 00:09:41,270 --> 00:09:41,579 Speaker 1: aid 255 00:09:41,580 --> 00:09:42,360 Speaker 2: from the United 256 00:09:42,360 --> 00:09:47,410 Speaker 1: States to Ukraine, from the european union to Ukraine can 257 00:09:47,410 --> 00:09:48,450 Speaker 1: also work with the 258 00:09:48,450 --> 00:09:49,400 Speaker 2: I. M. F. And and 259 00:09:49,400 --> 00:09:51,650 Speaker 1: and and the World Bank. But it's a matter of 260 00:09:51,660 --> 00:09:53,250 Speaker 1: who's going to be in charge 261 00:09:53,940 --> 00:09:58,790 Speaker 1: if you will. And what the um, where, where the 262 00:09:58,800 --> 00:10:00,849 Speaker 1: organizing center will 263 00:10:00,860 --> 00:10:01,770 Speaker 2: uh, 264 00:10:01,780 --> 00:10:04,550 Speaker 1: be housed. And I think it should be housed outside 265 00:10:04,550 --> 00:10:06,260 Speaker 1: the bank and outside the fund. 266 00:10:06,740 --> 00:10:08,640 Speaker 1: I don't think your friends in Washington are going to 267 00:10:08,640 --> 00:10:13,240 Speaker 1: be very happy to hear this. I'm gonna move on 268 00:10:13,240 --> 00:10:18,309 Speaker 1: to one more subject on the conflict. So, this is 269 00:10:18,309 --> 00:10:21,450 Speaker 1: the first line of an article you recently wrote for 270 00:10:21,460 --> 00:10:25,480 Speaker 1: the East AsIA forum, what will be the demonstration effect 271 00:10:25,490 --> 00:10:27,030 Speaker 1: of Western sanctions on 272 00:10:27,030 --> 00:10:27,559 Speaker 2: Russia? 273 00:10:28,640 --> 00:10:29,059 Speaker 1: Mm hmm. 274 00:10:29,940 --> 00:10:33,840 Speaker 1: So it's widely argued that with 275 00:10:33,850 --> 00:10:34,980 Speaker 2: uh, 276 00:10:34,990 --> 00:10:40,520 Speaker 1: western sanctions and in particular with the virtually unprecedented step 277 00:10:40,530 --> 00:10:42,140 Speaker 2: of freezing 278 00:10:42,140 --> 00:10:42,809 Speaker 1: the 279 00:10:42,820 --> 00:10:43,970 Speaker 2: foreign exchange 280 00:10:43,970 --> 00:10:46,199 Speaker 1: reserves of Russia's 281 00:10:46,210 --> 00:10:47,280 Speaker 2: central bank, 282 00:10:47,290 --> 00:10:48,370 Speaker 1: there will be movement 283 00:10:48,370 --> 00:10:49,460 Speaker 2: away from the 284 00:10:49,640 --> 00:10:50,470 Speaker 1: dollar 285 00:10:50,480 --> 00:10:51,960 Speaker 2: in particular 286 00:10:51,960 --> 00:11:00,260 Speaker 1: movement away from reliance on Western financial institutions, both swift 287 00:11:00,260 --> 00:11:04,959 Speaker 1: as a messaging system, the new york clearinghouse, US banks, 288 00:11:05,340 --> 00:11:07,160 Speaker 1: etcetera. Uh, it's 289 00:11:07,160 --> 00:11:08,130 Speaker 2: important though, 290 00:11:08,140 --> 00:11:12,189 Speaker 1: to observe that you asked not about US sanctions, but 291 00:11:12,190 --> 00:11:13,050 Speaker 1: about Western 292 00:11:13,440 --> 00:11:16,260 Speaker 1: sentence where the West 293 00:11:16,840 --> 00:11:17,320 Speaker 1: in this 294 00:11:17,320 --> 00:11:18,660 Speaker 2: context means 295 00:11:18,660 --> 00:11:21,610 Speaker 1: not only the United States and Canada and Western europe, 296 00:11:21,610 --> 00:11:25,860 Speaker 1: but also Japan and South Korea and 297 00:11:26,240 --> 00:11:31,090 Speaker 1: others. So in this context, the West is a set 298 00:11:31,090 --> 00:11:32,240 Speaker 1: of economic and political 299 00:11:32,240 --> 00:11:32,960 Speaker 2: values, 300 00:11:33,640 --> 00:11:36,770 Speaker 1: if you will, meaning that there are relatively few places 301 00:11:36,780 --> 00:11:37,010 Speaker 1: to 302 00:11:37,010 --> 00:11:38,350 Speaker 2: go. So, 303 00:11:38,360 --> 00:11:40,760 Speaker 1: the demonstration effect will be 304 00:11:40,770 --> 00:11:41,950 Speaker 2: to make 305 00:11:43,240 --> 00:11:45,990 Speaker 2: countries contemplating the possibility that one day 306 00:11:45,990 --> 00:11:47,030 Speaker 1: they might be in the 307 00:11:47,040 --> 00:11:48,160 Speaker 2: position that Russia 308 00:11:48,640 --> 00:11:48,929 Speaker 2: is 309 00:11:48,929 --> 00:11:52,150 Speaker 1: currently in um, China, 310 00:11:52,540 --> 00:11:53,959 Speaker 1: uh, 311 00:11:53,970 --> 00:11:54,830 Speaker 2: wonders 312 00:11:54,840 --> 00:11:58,470 Speaker 1: whether there could be a more direct conflict with the 313 00:11:58,470 --> 00:11:59,300 Speaker 1: United States 314 00:11:59,300 --> 00:11:59,859 Speaker 2: over 315 00:12:00,440 --> 00:12:03,250 Speaker 1: Taiwan. Most obviously, 316 00:12:03,260 --> 00:12:04,300 Speaker 2: uh, such 317 00:12:04,300 --> 00:12:07,590 Speaker 1: countries will want to hedge their bets, that will be 318 00:12:07,590 --> 00:12:07,700 Speaker 1: the 319 00:12:07,700 --> 00:12:09,349 Speaker 2: demonstration effect, 320 00:12:09,360 --> 00:12:11,450 Speaker 1: but I think they will quickly 321 00:12:11,929 --> 00:12:12,429 Speaker 1: come to 322 00:12:12,429 --> 00:12:13,720 Speaker 2: learn that 323 00:12:13,730 --> 00:12:14,990 Speaker 1: hedging their bets is 324 00:12:14,990 --> 00:12:15,610 Speaker 2: not really 325 00:12:15,610 --> 00:12:17,040 Speaker 1: possible in the short 326 00:12:17,040 --> 00:12:18,200 Speaker 2: run because there's 327 00:12:18,200 --> 00:12:19,250 Speaker 1: nowhere to 328 00:12:19,740 --> 00:12:22,710 Speaker 1: turn uh, and, and building an alternative 329 00:12:22,710 --> 00:12:23,790 Speaker 2: set of 330 00:12:23,800 --> 00:12:26,340 Speaker 1: institutions that does 331 00:12:26,350 --> 00:12:27,660 Speaker 2: create a 332 00:12:27,660 --> 00:12:32,790 Speaker 1: viable alternative is a time consuming process. So I think 333 00:12:32,790 --> 00:12:34,370 Speaker 1: the best case in point 334 00:12:34,380 --> 00:12:35,730 Speaker 2: is china 335 00:12:35,730 --> 00:12:39,660 Speaker 1: has been attempting to build an alternative to chips the 336 00:12:39,660 --> 00:12:45,689 Speaker 1: new york based dollar based interbank clearing house china's alternative 337 00:12:45,690 --> 00:12:48,680 Speaker 1: is called uh sips the cross 338 00:12:48,679 --> 00:12:49,459 Speaker 2: border 339 00:12:49,470 --> 00:12:50,510 Speaker 1: interbank 340 00:12:50,520 --> 00:12:51,380 Speaker 2: payments 341 00:12:51,390 --> 00:12:52,770 Speaker 1: system. China 342 00:12:52,770 --> 00:12:53,599 Speaker 2: has been trying 343 00:12:53,600 --> 00:12:55,260 Speaker 1: To build it for seven years now 344 00:12:55,640 --> 00:12:56,559 Speaker 1: and it hasn't gotten 345 00:12:56,559 --> 00:12:57,160 Speaker 2: too far, 346 00:12:57,540 --> 00:12:58,050 Speaker 2: yep, 347 00:12:58,059 --> 00:12:59,179 Speaker 1: I think 348 00:12:59,190 --> 00:13:01,520 Speaker 2: china's alternative is viable 349 00:13:01,520 --> 00:13:05,160 Speaker 1: and it will continue to grow, but it won't provide 350 00:13:05,540 --> 00:13:07,470 Speaker 1: uh an alternative. In the 351 00:13:07,470 --> 00:13:08,360 Speaker 2: short one. 352 00:13:08,740 --> 00:13:11,350 Speaker 1: I remember talking to a senior 353 00:13:11,740 --> 00:13:12,589 Speaker 1: official at 354 00:13:12,590 --> 00:13:13,470 Speaker 2: Beijing a few years 355 00:13:13,470 --> 00:13:19,230 Speaker 1: ago and he argued that we coming from our Western 356 00:13:19,230 --> 00:13:23,540 Speaker 1: persuasion think that without capital account convertibility, a country cannot 357 00:13:23,540 --> 00:13:27,330 Speaker 1: have a fully international currency. And his argument was, you 358 00:13:27,330 --> 00:13:30,280 Speaker 1: don't have to have corner solutions, you can have mid points. 359 00:13:30,290 --> 00:13:33,679 Speaker 1: Um I sort of understand the wisdom behind that, but 360 00:13:33,679 --> 00:13:36,670 Speaker 1: I fail to see it catching traction. I mean there 361 00:13:36,670 --> 00:13:37,510 Speaker 1: are many countries 362 00:13:37,510 --> 00:13:38,470 Speaker 2: which large 363 00:13:38,480 --> 00:13:41,960 Speaker 1: run large and persistent trade deficits, vis a, vis china, 364 00:13:41,960 --> 00:13:44,550 Speaker 1: so they can all have some sort of a glorified 365 00:13:44,550 --> 00:13:45,360 Speaker 1: barter system. 366 00:13:45,370 --> 00:13:48,530 Speaker 2: You know, you give me stuff, I pay you with 367 00:13:48,530 --> 00:13:48,969 Speaker 2: R and B 368 00:13:48,970 --> 00:13:50,070 Speaker 1: and then I buy stuff from you 369 00:13:50,070 --> 00:13:51,660 Speaker 2: and you take the R and B back, 370 00:13:51,740 --> 00:13:52,250 Speaker 1: but it 371 00:13:52,250 --> 00:13:54,079 Speaker 2: hasn't really caught on, I mean in the last couple 372 00:13:54,080 --> 00:13:54,459 Speaker 2: of months we're 373 00:13:54,460 --> 00:13:55,540 Speaker 1: hearing petrol 374 00:13:55,550 --> 00:14:01,460 Speaker 2: RMB and rubble RMB swap. Um so you, you remain 375 00:14:01,470 --> 00:14:02,880 Speaker 2: unpersuaded that 376 00:14:02,890 --> 00:14:03,920 Speaker 1: anytime soon. We're going to 377 00:14:03,920 --> 00:14:05,260 Speaker 2: see any seismic movement. 378 00:14:05,740 --> 00:14:08,760 Speaker 2: Yeah. You know, um it 379 00:14:09,840 --> 00:14:13,280 Speaker 2: we we can monitor cross border use of the Renminbi 380 00:14:13,280 --> 00:14:17,790 Speaker 2: in large part through swift because the ironic fact is 381 00:14:17,790 --> 00:14:22,790 Speaker 2: even though china is building this cross border interbank payments system, 382 00:14:22,790 --> 00:14:25,450 Speaker 2: it still sends instructions between 383 00:14:25,450 --> 00:14:27,020 Speaker 1: domestic for 384 00:14:27,020 --> 00:14:30,610 Speaker 2: transfers between domestic banks and foreign banks through 385 00:14:30,620 --> 00:14:31,490 Speaker 1: Swift. It 386 00:14:31,490 --> 00:14:33,150 Speaker 2: still depends on that 387 00:14:33,240 --> 00:14:37,900 Speaker 2: Messaging system. If you look there, the renminbi accounts for 2% 388 00:14:37,980 --> 00:14:39,060 Speaker 2: by value 389 00:14:39,440 --> 00:14:43,290 Speaker 2: Of cross border payments, where the dollar accounts for 40% 390 00:14:43,430 --> 00:14:47,060 Speaker 2: and the euro is not too far behind the dollar 391 00:14:47,440 --> 00:14:50,760 Speaker 2: along that dimension. So 392 00:14:51,140 --> 00:14:51,780 Speaker 1: the 393 00:14:51,790 --> 00:14:53,510 Speaker 2: Renminbi is growing in 394 00:14:53,510 --> 00:14:57,229 Speaker 1: importance over the last few years, its share by value 395 00:14:57,230 --> 00:14:57,380 Speaker 1: of 396 00:14:57,380 --> 00:14:59,540 Speaker 2: transactions through swift has risen 397 00:14:59,540 --> 00:15:04,280 Speaker 1: From like 1.9% to 2.4% or some number 398 00:15:04,280 --> 00:15:04,660 Speaker 2: in that 399 00:15:05,420 --> 00:15:07,230 Speaker 1: neighborhood. But it's 400 00:15:07,240 --> 00:15:08,260 Speaker 2: still very far 401 00:15:08,260 --> 00:15:10,360 Speaker 1: from being a full fledged rival to the dollar. 402 00:15:10,840 --> 00:15:11,550 Speaker 1: Absolutely. 403 00:15:11,560 --> 00:15:11,960 Speaker 2: Um 404 00:15:11,970 --> 00:15:15,060 Speaker 1: What about on the issue of weaponization of the dollar? 405 00:15:15,070 --> 00:15:19,520 Speaker 1: This aspect that the US has pursued twice in the 406 00:15:19,520 --> 00:15:22,140 Speaker 1: last one year. First it froze the Central Bank of 407 00:15:22,140 --> 00:15:26,790 Speaker 1: Afghanistan's US based reserves. And now a large part of 408 00:15:26,800 --> 00:15:30,760 Speaker 1: Russian Central bank's reserves are unusable because the same. I mean, 409 00:15:30,770 --> 00:15:35,080 Speaker 1: that ought to give certain antagonist of the US pause 410 00:15:35,080 --> 00:15:37,360 Speaker 1: in terms of holding US dollar assets. 411 00:15:37,740 --> 00:15:40,430 Speaker 1: So it does give them pause. But the point is 412 00:15:40,440 --> 00:15:42,790 Speaker 1: they don't have a lot of other places to go. 413 00:15:42,790 --> 00:15:44,360 Speaker 1: They can't move into euros. 414 00:15:44,840 --> 00:15:48,050 Speaker 1: They can't move into pounds sterling. Uh 415 00:15:48,440 --> 00:15:48,800 Speaker 2: I 416 00:15:48,810 --> 00:15:50,060 Speaker 1: recently 417 00:15:50,440 --> 00:15:52,810 Speaker 1: published a paper together with a 418 00:15:52,820 --> 00:15:54,010 Speaker 2: couple of colleagues 419 00:15:54,020 --> 00:15:55,750 Speaker 1: both at the I. M. F 420 00:15:55,760 --> 00:15:57,050 Speaker 2: observing that 421 00:15:57,050 --> 00:16:00,359 Speaker 1: over the last couple of decades there has been gradual 422 00:16:00,790 --> 00:16:03,950 Speaker 1: migration away from dollar reserves 423 00:16:05,340 --> 00:16:06,460 Speaker 2: in a small 424 00:16:06,460 --> 00:16:10,230 Speaker 1: part toward the Renminbi, but principally toward 425 00:16:10,230 --> 00:16:11,030 Speaker 2: nontraditional 426 00:16:11,030 --> 00:16:13,650 Speaker 1: reserve currencies like the Canadian dollar 427 00:16:14,040 --> 00:16:17,180 Speaker 1: and the Australian dollar and the korean 428 00:16:17,190 --> 00:16:18,450 Speaker 2: won. Those 429 00:16:18,450 --> 00:16:21,580 Speaker 1: countries are all participating in in in in the sanctions. 430 00:16:21,580 --> 00:16:23,770 Speaker 1: So they do not provide safe havens 431 00:16:23,780 --> 00:16:24,600 Speaker 2: for 432 00:16:24,610 --> 00:16:29,280 Speaker 1: countries contemplating moving away from the dollar. Really, 433 00:16:29,290 --> 00:16:30,080 Speaker 2: the only place 434 00:16:30,080 --> 00:16:31,650 Speaker 1: to go is toward the 435 00:16:32,140 --> 00:16:32,890 Speaker 2: Renminbi 436 00:16:32,890 --> 00:16:35,280 Speaker 1: and how freely you will be able to use your 437 00:16:35,280 --> 00:16:36,550 Speaker 1: Renminbi reserves 438 00:16:37,040 --> 00:16:37,750 Speaker 2: is 439 00:16:37,760 --> 00:16:42,810 Speaker 1: uncertain both because of those regulatory restrictions that you mentioned 440 00:16:42,810 --> 00:16:46,680 Speaker 1: before and because chinese banks 441 00:16:46,690 --> 00:16:47,600 Speaker 2: are 442 00:16:47,610 --> 00:16:49,340 Speaker 1: reluctant to 443 00:16:49,350 --> 00:16:50,380 Speaker 2: flaunt 444 00:16:50,390 --> 00:16:53,040 Speaker 1: Western sanctions to 445 00:16:53,040 --> 00:16:54,060 Speaker 2: openly for 446 00:16:54,060 --> 00:16:55,460 Speaker 1: fear of secondary 447 00:16:55,640 --> 00:16:56,320 Speaker 1: sanctions. 448 00:16:56,320 --> 00:16:57,230 Speaker 2: There, china 449 00:16:57,230 --> 00:17:01,590 Speaker 1: is still heavily interdependent with the West. Chinese banks value 450 00:17:01,590 --> 00:17:03,770 Speaker 1: their ability to do business with 451 00:17:03,950 --> 00:17:05,250 Speaker 1: the West. That 452 00:17:05,260 --> 00:17:06,030 Speaker 2: business is a whole 453 00:17:06,030 --> 00:17:08,120 Speaker 1: lot more valuable to them than business with 454 00:17:08,119 --> 00:17:08,550 Speaker 2: Russia. 455 00:17:08,940 --> 00:17:16,590 Speaker 1: I suppose the wisdom in the post-1990-91 episode when Soviet 456 00:17:16,590 --> 00:17:18,360 Speaker 1: Union broke up was that if we 457 00:17:18,740 --> 00:17:23,850 Speaker 1: move towards economic integration and more liberalization countries like breakaway 458 00:17:23,850 --> 00:17:28,219 Speaker 1: Russia or china post W. T. O. Would as you 459 00:17:28,220 --> 00:17:31,379 Speaker 1: just pointed out that have certain interests in place, which 460 00:17:31,380 --> 00:17:35,820 Speaker 1: would make them shy to embrace conflict. Um I think 461 00:17:35,820 --> 00:17:38,270 Speaker 1: you still are holding on to the belief that 462 00:17:38,340 --> 00:17:42,170 Speaker 1: conflict risk can be mitigated if there's deeper integration. 463 00:17:42,740 --> 00:17:43,750 Speaker 1: Yeah. 464 00:17:43,760 --> 00:17:44,390 Speaker 2: So, 465 00:17:44,400 --> 00:17:48,680 Speaker 1: well we learned that there is no end to history. 466 00:17:48,680 --> 00:17:54,870 Speaker 1: We learned that um uh economic fostering economic interdependence won't 467 00:17:54,869 --> 00:17:56,170 Speaker 1: lead to 468 00:17:56,180 --> 00:17:56,910 Speaker 2: changes 469 00:17:56,910 --> 00:18:01,550 Speaker 1: in countries, fundamental changes in the country's political regimes. But 470 00:18:01,640 --> 00:18:05,150 Speaker 1: if they have an economic stake in their relations 471 00:18:05,150 --> 00:18:05,660 Speaker 2: with 472 00:18:05,940 --> 00:18:07,960 Speaker 1: rivals, they will think 473 00:18:07,960 --> 00:18:09,030 Speaker 2: twice about 474 00:18:09,040 --> 00:18:10,169 Speaker 1: jeopardizing that 475 00:18:10,180 --> 00:18:11,060 Speaker 2: through 476 00:18:11,740 --> 00:18:12,150 Speaker 1: kio 477 00:18:12,150 --> 00:18:13,790 Speaker 2: political action. 478 00:18:13,800 --> 00:18:15,490 Speaker 1: So um 479 00:18:15,500 --> 00:18:18,949 Speaker 2: Russia is kind of proof by counter example. 480 00:18:18,950 --> 00:18:19,590 Speaker 1: Mr 481 00:18:19,600 --> 00:18:21,359 Speaker 2: Putin for whatever reason, 482 00:18:22,540 --> 00:18:25,649 Speaker 2: I hesitate to say in his wisdom for whatever reason, 483 00:18:25,660 --> 00:18:26,930 Speaker 1: decided to go to 484 00:18:26,930 --> 00:18:27,919 Speaker 2: war. And I 485 00:18:27,920 --> 00:18:29,140 Speaker 1: think uh we 486 00:18:29,140 --> 00:18:31,660 Speaker 2: have seen that the economic 487 00:18:31,660 --> 00:18:32,620 Speaker 1: consequences 488 00:18:32,630 --> 00:18:38,160 Speaker 2: are for for Russia are are very serious, quite profound 489 00:18:38,170 --> 00:18:39,350 Speaker 2: and are not going 490 00:18:39,350 --> 00:18:40,540 Speaker 1: to be reversed 491 00:18:40,550 --> 00:18:41,560 Speaker 2: anytime 492 00:18:41,740 --> 00:18:43,060 Speaker 2: in the foreseeable future, 493 00:18:44,040 --> 00:18:45,189 Speaker 2: right? That's the 494 00:18:45,200 --> 00:18:46,700 Speaker 1: demonstration effect. 495 00:18:46,710 --> 00:18:47,830 Speaker 2: Um Alright 496 00:18:47,840 --> 00:18:48,109 Speaker 1: enough 497 00:18:48,109 --> 00:18:50,540 Speaker 2: about Russia and the war. 498 00:18:50,550 --> 00:18:51,820 Speaker 1: Let's talk about something 499 00:18:51,820 --> 00:18:53,800 Speaker 2: that commands the headlines every single 500 00:18:53,800 --> 00:18:55,040 Speaker 1: day, the 501 00:18:55,050 --> 00:18:56,350 Speaker 2: Great inflation of 20 502 00:18:56,350 --> 00:18:57,139 Speaker 1: 22 503 00:18:57,150 --> 00:18:58,670 Speaker 2: uh here, your 504 00:18:58,670 --> 00:18:59,460 Speaker 1: take on it 505 00:19:00,040 --> 00:19:00,460 Speaker 2: here. 506 00:19:01,740 --> 00:19:02,170 Speaker 2: So 507 00:19:02,170 --> 00:19:06,900 Speaker 1: I think this uh inflation will be with us for 508 00:19:06,910 --> 00:19:07,420 Speaker 1: some 509 00:19:07,420 --> 00:19:07,860 Speaker 2: time. 510 00:19:08,240 --> 00:19:12,320 Speaker 1: We're still going to be battling with this problem in 511 00:19:12,330 --> 00:19:18,909 Speaker 1: 2023 absent a recession. So that's a big caveat right 512 00:19:18,920 --> 00:19:23,350 Speaker 1: uh unconditional forecasts of how inflation is going to play 513 00:19:23,350 --> 00:19:23,750 Speaker 1: out 514 00:19:23,760 --> 00:19:24,770 Speaker 2: our 515 00:19:24,940 --> 00:19:27,790 Speaker 1: treacherous and they don't make a lot of sense because 516 00:19:27,790 --> 00:19:31,530 Speaker 1: there's one scenario in which the U. S. And the 517 00:19:31,530 --> 00:19:34,980 Speaker 1: world economy continued to expand 518 00:19:34,990 --> 00:19:36,460 Speaker 2: and in that 519 00:19:36,460 --> 00:19:38,670 Speaker 1: scenario I think in in inflation 520 00:19:39,240 --> 00:19:41,160 Speaker 1: above 4% 521 00:19:41,740 --> 00:19:42,130 Speaker 2: is 522 00:19:42,130 --> 00:19:45,400 Speaker 1: going to persist in the United States in europe and 523 00:19:45,400 --> 00:19:47,040 Speaker 1: Britain more generally. 524 00:19:47,050 --> 00:19:48,119 Speaker 2: And there is another 525 00:19:48,119 --> 00:19:53,149 Speaker 1: scenario in which we do tip into recession later this 526 00:19:53,150 --> 00:19:54,359 Speaker 1: year or next year, 527 00:19:55,050 --> 00:19:55,310 Speaker 2: in 528 00:19:55,310 --> 00:19:56,270 Speaker 1: which case 529 00:19:56,840 --> 00:19:57,470 Speaker 2: that bed is 530 00:19:57,470 --> 00:20:00,260 Speaker 1: off, if you will, the pressure of demand 531 00:20:00,640 --> 00:20:01,660 Speaker 1: will be less. 532 00:20:02,040 --> 00:20:05,010 Speaker 1: The pressure on on inflation 533 00:20:05,010 --> 00:20:05,550 Speaker 2: will 534 00:20:06,040 --> 00:20:06,590 Speaker 2: come down 535 00:20:06,590 --> 00:20:10,810 Speaker 1: faster of its own volition and the pressure on central 536 00:20:10,810 --> 00:20:14,360 Speaker 1: banks to continue to raise rates will be less. So 537 00:20:14,369 --> 00:20:15,280 Speaker 1: the way I 538 00:20:15,280 --> 00:20:18,210 Speaker 2: think about the the the the problem in the no 539 00:20:18,210 --> 00:20:20,170 Speaker 1: recession case 540 00:20:20,180 --> 00:20:21,850 Speaker 2: is that 541 00:20:22,040 --> 00:20:23,399 Speaker 2: the best case scenario 542 00:20:23,400 --> 00:20:24,170 Speaker 1: in the US and 543 00:20:24,170 --> 00:20:26,270 Speaker 2: europe is that uh 544 00:20:26,440 --> 00:20:28,320 Speaker 2: in in in inflation comes 545 00:20:28,320 --> 00:20:29,330 Speaker 1: down next 546 00:20:29,330 --> 00:20:30,740 Speaker 2: year towards four 547 00:20:30,740 --> 00:20:31,270 Speaker 1: percent. 548 00:20:31,740 --> 00:20:34,540 Speaker 2: If the neutral real 549 00:20:34,550 --> 00:20:35,619 Speaker 1: interest rates, 550 00:20:35,619 --> 00:20:38,730 Speaker 2: Natural rate of real rate of interest is one half 551 00:20:38,730 --> 00:20:42,100 Speaker 2: of 1%. The Fed has to jack up 552 00:20:42,100 --> 00:20:43,609 Speaker 1: its policy rates to 4.5 553 00:20:43,609 --> 00:20:45,190 Speaker 2: percent just to keep 554 00:20:45,200 --> 00:20:46,250 Speaker 1: inflation 555 00:20:46,250 --> 00:20:46,770 Speaker 2: steady 556 00:20:47,740 --> 00:20:48,520 Speaker 2: at four. 557 00:20:48,640 --> 00:20:49,660 Speaker 1: And if the Fed is 558 00:20:49,660 --> 00:20:50,980 Speaker 2: uncomfortable with four, 559 00:20:50,980 --> 00:20:52,450 Speaker 1: which it will be, it's going to 560 00:20:52,450 --> 00:20:53,699 Speaker 2: have to raise rates 561 00:20:54,340 --> 00:20:56,040 Speaker 2: above 4.5 562 00:20:56,040 --> 00:21:00,410 Speaker 1: percent. So I think, you know, as we speak today, 563 00:21:00,410 --> 00:21:03,460 Speaker 1: the markets are are displaying more volatility 564 00:21:03,840 --> 00:21:09,050 Speaker 1: and signs of more worries. So they're finally catching up 565 00:21:09,050 --> 00:21:12,449 Speaker 1: with this scenario, which is the 566 00:21:12,940 --> 00:21:16,310 Speaker 1: you ain't seen nothing yet scenario in terms of central 567 00:21:16,310 --> 00:21:17,109 Speaker 1: bank 568 00:21:17,119 --> 00:21:18,720 Speaker 2: reactions. So, 569 00:21:18,730 --> 00:21:23,109 Speaker 1: uh if economies continue to expand, I think that's what 570 00:21:23,109 --> 00:21:26,150 Speaker 1: we will see continued financial volatility movement away 571 00:21:26,150 --> 00:21:27,060 Speaker 2: from risk 572 00:21:27,440 --> 00:21:29,960 Speaker 1: assets. Um and 573 00:21:30,340 --> 00:21:34,859 Speaker 1: More than 2 50 basis point hikes by the Fed 574 00:21:35,240 --> 00:21:37,960 Speaker 1: which is what's in the market, all that's in the 575 00:21:37,960 --> 00:21:38,360 Speaker 1: market 576 00:21:38,940 --> 00:21:40,179 Speaker 2: at the 577 00:21:40,180 --> 00:21:43,659 Speaker 1: moment. I haven't quite gotten my head around how the 578 00:21:43,670 --> 00:21:50,150 Speaker 1: recessionary scenario will play out. We're all collectively only beginning 579 00:21:50,150 --> 00:21:51,859 Speaker 1: to think about that possibility. 580 00:21:52,540 --> 00:21:54,700 Speaker 1: I was about to ask you for a probability distribution 581 00:21:54,700 --> 00:21:57,220 Speaker 1: around the two scenarios. But I think with your last sentence, 582 00:21:57,220 --> 00:21:59,910 Speaker 1: I think your caveat is well taken. Um I want 583 00:21:59,910 --> 00:22:01,810 Speaker 1: to ask you one follow up question on the US 584 00:22:01,810 --> 00:22:05,890 Speaker 1: dollar and one question on inflation later on the U. S. Dollar. 585 00:22:05,890 --> 00:22:08,560 Speaker 1: So you talked about risk aversion that 586 00:22:08,940 --> 00:22:12,710 Speaker 1: routinely leads to the dollar strengthening and now we have 587 00:22:12,720 --> 00:22:15,570 Speaker 1: perhaps a couple of 100 basis points of disinflation ahead 588 00:22:15,570 --> 00:22:17,450 Speaker 1: of us and a couple 100 basis points of interest 589 00:22:17,450 --> 00:22:19,330 Speaker 1: rate ahead of us in the next 6 to 8 590 00:22:19,330 --> 00:22:22,300 Speaker 1: months just this year. So that's 400 basis points of 591 00:22:22,300 --> 00:22:26,180 Speaker 1: increasing real interest rate under this scenario. Can the market 592 00:22:26,180 --> 00:22:28,400 Speaker 1: really be that forward looking at pricing all of it, 593 00:22:28,400 --> 00:22:32,760 Speaker 1: meaning the dollar has peaked or there's still substantial strength 594 00:22:32,770 --> 00:22:35,159 Speaker 1: in the dollar lingering for the rest of the year. 595 00:22:35,840 --> 00:22:36,459 Speaker 1: Yeah, 596 00:22:37,740 --> 00:22:40,570 Speaker 1: so exchange rate forecasting is 597 00:22:40,580 --> 00:22:42,280 Speaker 2: uh risky 598 00:22:42,280 --> 00:22:44,360 Speaker 1: business. And and I can put on my 599 00:22:44,359 --> 00:22:45,359 Speaker 2: academic cap 600 00:22:45,940 --> 00:22:46,790 Speaker 1: and 601 00:22:46,800 --> 00:22:47,930 Speaker 2: uh 602 00:22:47,940 --> 00:22:50,860 Speaker 1: say I don't have skin in that game, 603 00:22:51,340 --> 00:22:55,000 Speaker 1: if you will uh you know, efficient markets theory tells 604 00:22:55,000 --> 00:22:59,129 Speaker 1: us that the markets have priced all this in, they 605 00:22:59,140 --> 00:23:01,770 Speaker 1: know that the U. S. Economy is stronger than 606 00:23:02,340 --> 00:23:06,940 Speaker 1: many other economies and that will be dollar positive because 607 00:23:06,940 --> 00:23:09,450 Speaker 1: the Fed is going to be moving faster than other 608 00:23:09,840 --> 00:23:13,659 Speaker 1: central banks. In response. They know the dollar is a 609 00:23:13,660 --> 00:23:17,980 Speaker 1: traditional safe haven and and that um there will be 610 00:23:17,980 --> 00:23:22,100 Speaker 1: more volatility favoring safe haven currencies going forward, 611 00:23:22,100 --> 00:23:23,280 Speaker 2: that uh in 612 00:23:23,280 --> 00:23:27,450 Speaker 1: principle all ought to be in in in the markets already. 613 00:23:27,840 --> 00:23:28,859 Speaker 1: But 614 00:23:29,440 --> 00:23:32,320 Speaker 1: 21st century economists, even academics 615 00:23:32,330 --> 00:23:34,010 Speaker 2: are skeptical 616 00:23:34,010 --> 00:23:36,310 Speaker 1: about efficient markets theories. 617 00:23:36,320 --> 00:23:37,010 Speaker 2: So, 618 00:23:37,020 --> 00:23:40,610 Speaker 1: you know, the markets were slow to cotton on to 619 00:23:40,609 --> 00:23:42,800 Speaker 1: these ideas, maybe 620 00:23:42,800 --> 00:23:43,689 Speaker 2: they haven't fully 621 00:23:43,690 --> 00:23:46,710 Speaker 1: incorporated them yet. And we'll see a bit of additional 622 00:23:46,710 --> 00:23:47,560 Speaker 1: dollar strength 623 00:23:48,340 --> 00:23:48,730 Speaker 1: indeed, 624 00:23:48,740 --> 00:23:50,400 Speaker 2: is a strong 625 00:23:50,400 --> 00:23:53,230 Speaker 1: dollar not a problem for the US and basically a 626 00:23:53,230 --> 00:23:54,459 Speaker 1: problem for the rest of the world, 627 00:23:55,040 --> 00:23:58,270 Speaker 1: I think um That's what 628 00:23:58,740 --> 00:23:59,550 Speaker 2: john Connolly 629 00:23:59,550 --> 00:24:00,290 Speaker 1: would have said, 630 00:24:00,300 --> 00:24:01,780 Speaker 2: right, it's our currency, 631 00:24:01,780 --> 00:24:06,139 Speaker 1: It's your problem, Treasury Secretary in the 1970s for for 632 00:24:06,140 --> 00:24:07,170 Speaker 1: the youngsters 633 00:24:07,640 --> 00:24:13,130 Speaker 1: among among us. Um I don't think it's a problem 634 00:24:13,130 --> 00:24:16,460 Speaker 1: for the US economy at the moment. 635 00:24:16,940 --> 00:24:18,190 Speaker 2: If you look back at 636 00:24:18,190 --> 00:24:21,389 Speaker 1: The at the mid 1980s when the dollar was so 637 00:24:21,390 --> 00:24:23,840 Speaker 1: strong and it and that was 638 00:24:23,850 --> 00:24:25,630 Speaker 2: associated with 639 00:24:25,640 --> 00:24:31,060 Speaker 1: uh gaping trade deficits for the United States and the 640 00:24:31,060 --> 00:24:36,090 Speaker 1: rust belt problem, the industrialization of the Heartland, that's not 641 00:24:36,090 --> 00:24:38,400 Speaker 1: a problem at the moment. The U. S. Economy seems 642 00:24:38,400 --> 00:24:39,950 Speaker 1: to be firing on all 643 00:24:40,040 --> 00:24:42,560 Speaker 1: cylinders and uh 644 00:24:42,940 --> 00:24:43,360 Speaker 1: ah 645 00:24:44,540 --> 00:24:48,850 Speaker 1: uh certainly uh there's excess demand for 646 00:24:48,859 --> 00:24:49,369 Speaker 2: a lot 647 00:24:49,369 --> 00:24:53,060 Speaker 1: of things that are in supply chain 648 00:24:53,540 --> 00:24:54,710 Speaker 2: shortage 649 00:24:54,720 --> 00:24:57,459 Speaker 1: at the moment. But it's a big problem for the 650 00:24:57,460 --> 00:24:59,790 Speaker 1: rest of the world because it 651 00:24:59,800 --> 00:25:00,920 Speaker 2: feeds inflation, 652 00:25:00,930 --> 00:25:04,120 Speaker 1: weak currencies feed inflation and the rest of the world 653 00:25:04,130 --> 00:25:09,710 Speaker 1: and they create serious debt sustainability problems for countries with 654 00:25:09,710 --> 00:25:12,950 Speaker 1: dollar denominated debts. So we're gonna see 655 00:25:13,540 --> 00:25:17,050 Speaker 1: more problems developed along both of those lines. 656 00:25:17,540 --> 00:25:20,560 Speaker 1: So professor in one area where the market's interviews very 657 00:25:20,560 --> 00:25:22,920 Speaker 1: forward looking is the supply of the U. S. Dollar. 658 00:25:22,920 --> 00:25:25,760 Speaker 1: So when we look at aggregate indicators of liquidity, it 659 00:25:25,760 --> 00:25:29,020 Speaker 1: doesn't seem like there's major tightening taking place anywhere in 660 00:25:29,020 --> 00:25:29,790 Speaker 1: the world. 661 00:25:29,800 --> 00:25:31,270 Speaker 2: But in the 662 00:25:31,840 --> 00:25:32,560 Speaker 1: uh 663 00:25:33,440 --> 00:25:36,550 Speaker 1: dollar desks around the world there is you know already 664 00:25:36,550 --> 00:25:38,560 Speaker 1: you can see this sort of panic around not there 665 00:25:38,560 --> 00:25:41,340 Speaker 1: not being enough dollar and so on. Um So that 666 00:25:41,340 --> 00:25:44,880 Speaker 1: that I find interesting that quantitative tightening hasn't come yet 667 00:25:44,890 --> 00:25:47,950 Speaker 1: but people are charging a premium in their local currencies 668 00:25:47,950 --> 00:25:49,270 Speaker 1: for dollar supply 669 00:25:49,340 --> 00:25:53,800 Speaker 1: um on the inflation. I read recently this book by 670 00:25:53,810 --> 00:25:57,130 Speaker 1: Charles Good Heart, which came out last year, where his 671 00:25:57,130 --> 00:26:00,550 Speaker 1: point was that the next two decades or so would 672 00:26:00,550 --> 00:26:03,320 Speaker 1: be characterized by a sport of inflation as opposed to 673 00:26:03,320 --> 00:26:05,250 Speaker 1: the disinflation of the last three decades 674 00:26:05,260 --> 00:26:06,199 Speaker 2: for structural 675 00:26:06,200 --> 00:26:08,010 Speaker 1: reasons aging 676 00:26:08,010 --> 00:26:08,510 Speaker 2: contrary to 677 00:26:08,510 --> 00:26:11,120 Speaker 1: what we thought in the context of Japan is actually 678 00:26:11,119 --> 00:26:12,460 Speaker 1: going to be inflationary 679 00:26:12,540 --> 00:26:15,219 Speaker 1: um de globalization is going to be a fact of 680 00:26:15,220 --> 00:26:17,440 Speaker 1: life that's inflationary as well and 681 00:26:17,440 --> 00:26:20,000 Speaker 2: china, you know, both suffering 682 00:26:20,000 --> 00:26:20,810 Speaker 1: from the globalization 683 00:26:20,820 --> 00:26:22,940 Speaker 2: and aging would also contribute toward inflation. 684 00:26:22,950 --> 00:26:23,620 Speaker 1: So what's 685 00:26:23,619 --> 00:26:24,340 Speaker 2: your view on this 686 00:26:24,340 --> 00:26:25,720 Speaker 1: structural inflation 687 00:26:25,720 --> 00:26:26,160 Speaker 2: story? 688 00:26:26,640 --> 00:26:31,110 Speaker 2: I have immense respect for my uh colleague 689 00:26:31,109 --> 00:26:32,210 Speaker 1: Charles good 690 00:26:32,210 --> 00:26:36,680 Speaker 2: Heart. I tend to uh disagree with him on this one. 691 00:26:36,690 --> 00:26:40,380 Speaker 2: I looked back at the 1970s and there were central 692 00:26:40,380 --> 00:26:41,850 Speaker 1: bankers like 693 00:26:42,340 --> 00:26:46,310 Speaker 2: uh Fed Chairman Arthur Burns who cited structural 694 00:26:46,320 --> 00:26:47,320 Speaker 1: explanations 695 00:26:47,320 --> 00:26:52,270 Speaker 2: for the high inflation of that decade. But along came 696 00:26:52,270 --> 00:26:53,050 Speaker 2: paul Volcker 697 00:26:53,440 --> 00:26:55,900 Speaker 2: in 1979 and he 698 00:26:55,900 --> 00:26:57,359 Speaker 1: showed that its central banks 699 00:26:57,359 --> 00:27:00,430 Speaker 2: that determine the rate of inflation that even if there 700 00:27:00,440 --> 00:27:07,080 Speaker 2: are strong labor unions or uh big firms with market 701 00:27:07,080 --> 00:27:11,449 Speaker 2: power or whatever or unfavorable demographics, that would be the 702 00:27:11,450 --> 00:27:13,060 Speaker 2: current version 703 00:27:13,240 --> 00:27:13,660 Speaker 2: that 704 00:27:13,840 --> 00:27:15,710 Speaker 2: uh tend to create more 705 00:27:15,710 --> 00:27:16,840 Speaker 1: inflation, Other things 706 00:27:16,840 --> 00:27:17,260 Speaker 2: equal. 707 00:27:17,640 --> 00:27:20,690 Speaker 2: Those other things are not equal and particular 708 00:27:20,690 --> 00:27:21,290 Speaker 1: central bank 709 00:27:21,290 --> 00:27:27,160 Speaker 2: policy is not equal. So I think uh central bankers 710 00:27:27,160 --> 00:27:28,600 Speaker 1: views of 711 00:27:28,609 --> 00:27:33,470 Speaker 2: what is attainable in terms of inflation and what is 712 00:27:33,470 --> 00:27:36,060 Speaker 2: desirable in terms of inflation 713 00:27:36,140 --> 00:27:36,580 Speaker 2: from the 714 00:27:36,580 --> 00:27:37,350 Speaker 1: point of view of 715 00:27:37,350 --> 00:27:42,070 Speaker 2: maintaining their credibility and therefore the effectiveness of their policies 716 00:27:42,080 --> 00:27:42,890 Speaker 2: is that 717 00:27:42,890 --> 00:27:44,030 Speaker 1: they're going to have to do whatever 718 00:27:44,030 --> 00:27:44,770 Speaker 2: it takes 719 00:27:45,840 --> 00:27:50,800 Speaker 2: to invoke Mario Draghi um inflation back down toward 720 00:27:50,800 --> 00:27:52,050 Speaker 1: target that 721 00:27:52,060 --> 00:27:55,560 Speaker 2: is within their capacity and that is desirable. 722 00:27:56,040 --> 00:28:00,510 Speaker 2: Um Regardless of what structural factors demographic or 723 00:28:00,510 --> 00:28:01,840 Speaker 1: otherwise might be pushing 724 00:28:01,840 --> 00:28:03,060 Speaker 2: in the other direction, 725 00:28:04,040 --> 00:28:08,240 Speaker 2: how quickly they can achieve that uh is 726 00:28:08,240 --> 00:28:09,440 Speaker 1: another issue recalled 727 00:28:09,440 --> 00:28:10,619 Speaker 2: the first rule of 728 00:28:10,619 --> 00:28:13,550 Speaker 1: forecasting, give them a forecast digested 729 00:28:13,940 --> 00:28:17,889 Speaker 1: or give them a date. Never give them both. Um 730 00:28:17,900 --> 00:28:20,609 Speaker 1: You know, I had a question for you, I'm reading 731 00:28:20,609 --> 00:28:23,380 Speaker 1: through that question. I realized it's a rhetorical question but 732 00:28:23,390 --> 00:28:26,719 Speaker 1: for the benefit of the viewers of this podcast I'm 733 00:28:26,720 --> 00:28:28,180 Speaker 1: gonna read it out. But you don't have to answer 734 00:28:28,180 --> 00:28:30,070 Speaker 1: because I think you've answered the question in the quotation 735 00:28:30,070 --> 00:28:32,590 Speaker 1: that I have. So this came out in current history 736 00:28:32,600 --> 00:28:34,060 Speaker 1: earlier this year and you wrote 737 00:28:34,440 --> 00:28:37,740 Speaker 1: cryptocurrencies like Bitcoin are too volatile to possess the essential 738 00:28:37,740 --> 00:28:38,670 Speaker 1: attributes of money, 739 00:28:39,040 --> 00:28:42,540 Speaker 1: stable coins have fragile currency packs that diminish their utility 740 00:28:42,540 --> 00:28:45,840 Speaker 1: in transactions and central bank digital currencies are a solution. 741 00:28:45,840 --> 00:28:46,950 Speaker 1: In search of a problem. 742 00:28:46,960 --> 00:28:48,790 Speaker 2: How great 743 00:28:48,800 --> 00:28:51,410 Speaker 1: these three sentences and given what's happening in the last 744 00:28:51,410 --> 00:28:54,219 Speaker 1: couple of weeks, you've been incredibly present here. I'm not 745 00:28:54,220 --> 00:28:55,850 Speaker 1: gonna press you on this question. I think you have 746 00:28:55,850 --> 00:28:58,650 Speaker 1: summed it up very very well here. Um would you 747 00:28:58,650 --> 00:28:59,770 Speaker 1: like to add anything or 748 00:28:59,840 --> 00:29:00,560 Speaker 1: we'll move on. 749 00:29:00,940 --> 00:29:08,040 Speaker 1: Um Yeah, I think that speaks for itself. Indeed. Indeed brilliant. 750 00:29:08,050 --> 00:29:11,170 Speaker 1: And and how good does this sound? Okay. My final 751 00:29:11,170 --> 00:29:13,700 Speaker 1: question and this is about your latest book which was 752 00:29:13,710 --> 00:29:16,390 Speaker 1: entitled in defense of public debt and those who have 753 00:29:16,390 --> 00:29:20,240 Speaker 1: not read it should because it talks about the productive 754 00:29:20,250 --> 00:29:23,650 Speaker 1: aspects of public expenditure fueled by public debt that can 755 00:29:23,650 --> 00:29:25,620 Speaker 1: help and those of us who have worked in Bretton 756 00:29:25,620 --> 00:29:28,970 Speaker 1: woods institutions for long have struggled with how to account 757 00:29:28,980 --> 00:29:30,270 Speaker 1: in the fiscal side 758 00:29:30,640 --> 00:29:34,010 Speaker 1: expenditure that matters for long term growth and not, I 759 00:29:34,010 --> 00:29:37,660 Speaker 1: highly recommend this book. Um but this is a difficult 760 00:29:37,660 --> 00:29:39,890 Speaker 1: year for anybody willing to issue 761 00:29:39,890 --> 00:29:40,690 Speaker 2: debt. 762 00:29:40,700 --> 00:29:43,190 Speaker 1: We already have in the emerging markets, you know, debt 763 00:29:43,190 --> 00:29:46,120 Speaker 1: default and making some debt crisis. So what's the way 764 00:29:46,120 --> 00:29:49,560 Speaker 1: forward for governments which are already heavily indebted? 765 00:29:50,440 --> 00:29:50,860 Speaker 1: Okay, 766 00:29:51,340 --> 00:29:51,870 Speaker 2: I don't think 767 00:29:51,870 --> 00:29:53,380 Speaker 1: there's a single way forward. 768 00:29:53,390 --> 00:29:54,410 Speaker 2: Certainly 769 00:29:54,420 --> 00:29:59,090 Speaker 1: um low low income countries and some middle income countries 770 00:29:59,090 --> 00:29:59,600 Speaker 1: are going to 771 00:29:59,600 --> 00:30:00,760 Speaker 2: have to restructure their 772 00:30:00,760 --> 00:30:02,680 Speaker 1: debts. The international 773 00:30:02,690 --> 00:30:03,550 Speaker 2: policy 774 00:30:03,550 --> 00:30:04,870 Speaker 1: community has 775 00:30:04,880 --> 00:30:06,729 Speaker 2: acknowledged that 776 00:30:06,740 --> 00:30:09,270 Speaker 1: fact already for a couple of years 777 00:30:09,640 --> 00:30:10,320 Speaker 1: now. 778 00:30:10,330 --> 00:30:13,800 Speaker 2: So they came out with uh 779 00:30:13,810 --> 00:30:15,160 Speaker 1: sustainability 780 00:30:15,540 --> 00:30:16,770 Speaker 1: initiative 781 00:30:16,780 --> 00:30:18,670 Speaker 2: Back in 2020 782 00:30:18,670 --> 00:30:19,760 Speaker 1: towards the beginning 783 00:30:19,770 --> 00:30:21,360 Speaker 2: of the Covid 784 00:30:21,840 --> 00:30:25,120 Speaker 2: crisis. But there has been very little 785 00:30:25,120 --> 00:30:25,750 Speaker 1: progress in 786 00:30:25,750 --> 00:30:27,900 Speaker 2: actually implementing that. 787 00:30:27,910 --> 00:30:28,550 Speaker 1: And only a 788 00:30:28,550 --> 00:30:32,270 Speaker 2: small handful of countries that 789 00:30:32,280 --> 00:30:32,630 Speaker 1: have 790 00:30:32,630 --> 00:30:33,640 Speaker 2: approached the 791 00:30:33,640 --> 00:30:34,900 Speaker 1: authorities and their 792 00:30:34,900 --> 00:30:36,020 Speaker 2: private creditors 793 00:30:36,030 --> 00:30:37,460 Speaker 1: to restructure 794 00:30:37,460 --> 00:30:39,360 Speaker 2: debts that are clearly not 795 00:30:39,540 --> 00:30:42,710 Speaker 2: sustainable. So we're gonna have to keep crying and try 796 00:30:42,710 --> 00:30:46,560 Speaker 2: harder to deal with that problem. On the other hand, 797 00:30:46,570 --> 00:30:51,140 Speaker 2: there are uh advanced economies, the United States, 798 00:30:51,150 --> 00:30:52,580 Speaker 1: most of the 799 00:30:52,580 --> 00:30:56,800 Speaker 2: economies of the european union Japan, which 800 00:30:56,800 --> 00:30:57,800 Speaker 1: don't have an immediate 801 00:30:57,800 --> 00:30:59,710 Speaker 2: crisis of debt 802 00:30:59,720 --> 00:31:00,770 Speaker 1: sustainability 803 00:31:00,780 --> 00:31:02,340 Speaker 2: because 804 00:31:02,350 --> 00:31:03,450 Speaker 1: uh 805 00:31:03,640 --> 00:31:04,020 Speaker 2: our is 806 00:31:04,020 --> 00:31:05,260 Speaker 1: still less than she 807 00:31:05,740 --> 00:31:10,360 Speaker 2: because the effective real rate of interest paid on those 808 00:31:10,360 --> 00:31:14,880 Speaker 2: debts is less than the real growth rate 809 00:31:14,890 --> 00:31:16,980 Speaker 1: of their economies. They're 810 00:31:16,990 --> 00:31:18,780 Speaker 2: able to grow the denominator 811 00:31:18,780 --> 00:31:20,460 Speaker 1: of the debt to GDP ratio 812 00:31:20,940 --> 00:31:22,810 Speaker 1: faster than 813 00:31:22,820 --> 00:31:23,670 Speaker 2: the numerator 814 00:31:23,680 --> 00:31:28,020 Speaker 1: unless they continue to add to the numerator rapidly by 815 00:31:28,030 --> 00:31:28,570 Speaker 1: running 816 00:31:28,570 --> 00:31:29,170 Speaker 2: big 817 00:31:29,180 --> 00:31:31,050 Speaker 1: primary budget 818 00:31:31,740 --> 00:31:36,700 Speaker 1: deficits. I do think that we need 819 00:31:36,700 --> 00:31:37,100 Speaker 2: to look 820 00:31:37,100 --> 00:31:41,930 Speaker 1: forward to uh era when maybe growth is going to 821 00:31:41,930 --> 00:31:47,240 Speaker 1: be slower because of Charles, good hearts, unfavorable demographics. When 822 00:31:47,250 --> 00:31:47,900 Speaker 1: the real 823 00:31:47,900 --> 00:31:49,430 Speaker 2: interest rate is going to begin 824 00:31:49,430 --> 00:31:50,459 Speaker 1: to trend 825 00:31:50,940 --> 00:31:51,400 Speaker 2: very 826 00:31:51,400 --> 00:31:55,390 Speaker 1: slowly and gradually upward, it tends to move slowly over 827 00:31:55,390 --> 00:31:56,420 Speaker 2: historical time 828 00:31:56,430 --> 00:31:59,860 Speaker 1: when that relationship will be less favorable. From the point 829 00:31:59,860 --> 00:32:02,760 Speaker 1: of view of debt sustainability, we're 830 00:32:02,760 --> 00:32:03,700 Speaker 2: going to have to think 831 00:32:03,710 --> 00:32:06,990 Speaker 1: as well about the next crisis when governments are going 832 00:32:06,990 --> 00:32:09,090 Speaker 1: to have to do whatever it takes, including on the 833 00:32:09,090 --> 00:32:11,270 Speaker 1: fiscal front. So we've learned 834 00:32:11,540 --> 00:32:12,960 Speaker 1: that crisis come 835 00:32:13,540 --> 00:32:15,960 Speaker 1: more often than we used to think 836 00:32:15,970 --> 00:32:16,200 Speaker 2: that 837 00:32:16,200 --> 00:32:18,750 Speaker 1: the period of the great moderation is over and there 838 00:32:18,750 --> 00:32:19,770 Speaker 1: will be another 839 00:32:20,240 --> 00:32:21,140 Speaker 1: uh global 840 00:32:21,140 --> 00:32:22,200 Speaker 2: financial crisis 841 00:32:22,210 --> 00:32:23,300 Speaker 1: or pandemic 842 00:32:23,310 --> 00:32:24,740 Speaker 2: or climate 843 00:32:24,740 --> 00:32:28,570 Speaker 1: change related crisis that will 844 00:32:28,570 --> 00:32:30,190 Speaker 2: require deploying 845 00:32:30,190 --> 00:32:32,270 Speaker 1: the available fiscal resources. So those are 846 00:32:32,270 --> 00:32:33,080 Speaker 2: both 847 00:32:33,090 --> 00:32:34,209 Speaker 1: arguments 848 00:32:34,220 --> 00:32:35,160 Speaker 2: for 849 00:32:35,170 --> 00:32:38,120 Speaker 1: moving in the direction of fiscal consolidation 850 00:32:38,130 --> 00:32:40,150 Speaker 2: once or 851 00:32:40,160 --> 00:32:41,290 Speaker 1: assuming that 852 00:32:41,290 --> 00:32:42,730 Speaker 2: recovery is 853 00:32:42,740 --> 00:32:45,709 Speaker 1: secure. So I think that's what the advanced economies are 854 00:32:45,710 --> 00:32:48,300 Speaker 1: going to have to do. And in the United States 855 00:32:48,300 --> 00:32:50,209 Speaker 1: for example, we have come a long way in the 856 00:32:50,210 --> 00:32:51,080 Speaker 1: last year 857 00:32:51,090 --> 00:32:52,450 Speaker 2: in terms of 858 00:32:52,450 --> 00:32:55,580 Speaker 1: reducing the size of the budget deficit, it's come down 859 00:32:55,580 --> 00:32:56,270 Speaker 1: from 860 00:32:56,740 --> 00:33:00,930 Speaker 1: effectively from 14% of GDP to 6% of GDP. How 861 00:33:00,930 --> 00:33:02,540 Speaker 1: much more fiscal grab do you want to 862 00:33:02,540 --> 00:33:02,950 Speaker 2: add 863 00:33:03,340 --> 00:33:03,860 Speaker 2: in the short 864 00:33:03,860 --> 00:33:06,580 Speaker 1: Run one might ask, but we're going to have to 865 00:33:06,580 --> 00:33:10,250 Speaker 1: stay that course. I think uh in the interest of 866 00:33:10,250 --> 00:33:12,260 Speaker 1: debt sustainability and in 867 00:33:12,260 --> 00:33:13,720 Speaker 2: terms of 868 00:33:13,730 --> 00:33:17,630 Speaker 1: enhancing our capacity to borrow in in the event of 869 00:33:17,630 --> 00:33:19,960 Speaker 1: another crisis of some sort 870 00:33:20,540 --> 00:33:21,380 Speaker 1: going forward. 871 00:33:21,390 --> 00:33:22,480 Speaker 2: So this 872 00:33:22,480 --> 00:33:26,860 Speaker 1: problem needs to be attended to uh immediately in the 873 00:33:26,860 --> 00:33:30,120 Speaker 1: case of low income countries in the medium term, in 874 00:33:30,120 --> 00:33:32,270 Speaker 1: the case of of advanced economies, 875 00:33:32,940 --> 00:33:34,870 Speaker 1: you've touched on a critical issue. I think 876 00:33:34,870 --> 00:33:35,930 Speaker 2: january april, 877 00:33:35,940 --> 00:33:39,330 Speaker 1: I think the Treasury Department's reports suggest that the overall 878 00:33:39,330 --> 00:33:42,760 Speaker 1: deficit in january april was almost zero or slight surplus. 879 00:33:42,770 --> 00:33:45,750 Speaker 1: Uh And as a result, Treasury Supply is is substantially 880 00:33:45,750 --> 00:33:49,050 Speaker 1: lower than anything anybody expected. Uh This has been a 881 00:33:49,140 --> 00:33:52,460 Speaker 1: through the force. Professor Barry Eichengreen, thank you so much 882 00:33:52,460 --> 00:33:54,560 Speaker 1: for your time and insights. 883 00:33:54,640 --> 00:33:55,770 Speaker 2: Timer. Thank 884 00:33:55,770 --> 00:33:56,050 Speaker 1: you. 885 00:33:56,640 --> 00:33:56,870 Speaker 1: It's a 886 00:33:56,870 --> 00:33:57,840 Speaker 2: pleasure. 887 00:33:57,850 --> 00:34:01,640 Speaker 1: And thanks to our listeners to for your time, Kobe 888 00:34:01,640 --> 00:34:05,150 Speaker 1: time was produced by Kendall Rich from Spy studios, daisy 889 00:34:05,150 --> 00:34:09,940 Speaker 1: Sharma and violently provided additional assistance. All 77 episodes of 890 00:34:09,940 --> 00:34:12,130 Speaker 1: Coffee Time are available on all 891 00:34:12,130 --> 00:34:13,270 Speaker 2: major podcast 892 00:34:13,270 --> 00:34:15,570 Speaker 1: platforms including apple, google and 893 00:34:15,570 --> 00:34:17,080 Speaker 2: Spotify. And 894 00:34:17,080 --> 00:34:20,149 Speaker 1: as far as our research publications and webinars 895 00:34:20,150 --> 00:34:22,170 Speaker 2: are concerned, you can find them all by 896 00:34:22,170 --> 00:34:23,640 Speaker 1: googling DBS Research 897 00:34:23,640 --> 00:34:24,170 Speaker 2: Library. 898 00:34:24,239 --> 00:34:24,819 Speaker 2: Have 899 00:34:24,830 --> 00:34:25,230 Speaker 1: a great 900 00:34:25,230 --> 00:34:25,670 Speaker 2: day