WEBVTT - Kopi Time E077 - Barry Eichengreen on War, Inflation, Crypto, Debt

0:00:07.140 --> 0:00:08.459
<v Speaker 1>Welcome to Coffee Time,

0:00:08.470 --> 0:00:08.930
<v Speaker 2>a

0:00:08.930 --> 0:00:12.100
<v Speaker 1>podcast series on markets and economies from DBS group research

0:00:12.110 --> 0:00:14.660
<v Speaker 1>Team will break Chief Economist welcoming you to our

0:00:14.660 --> 0:00:16.050
<v Speaker 2>77th episode,

0:00:16.540 --> 0:00:20.150
<v Speaker 2>I'm excited about this one. There are macro economists and

0:00:20.150 --> 0:00:24.290
<v Speaker 2>economic historians and then there is Barry Eichengreen. He's George

0:00:24.290 --> 0:00:26.590
<v Speaker 2>C pardee and Helen and party professor

0:00:26.590 --> 0:00:27.730
<v Speaker 1>of Economics and political

0:00:27.730 --> 0:00:29.310
<v Speaker 2>science at the University

0:00:29.310 --> 0:00:30.030
<v Speaker 1>of California at

0:00:30.030 --> 0:00:32.280
<v Speaker 2>Berkeley. His contribution

0:00:32.280 --> 0:00:33.060
<v Speaker 1>to economics

0:00:33.060 --> 0:00:36.400
<v Speaker 2>and international finance stretches over four decades.

0:00:36.409 --> 0:00:37.390
<v Speaker 1>Consider his

0:00:37.400 --> 0:00:38.460
<v Speaker 2>seminal book,

0:00:38.540 --> 0:00:40.409
<v Speaker 2>Golden Federer is the Gold Standard and the Great

0:00:40.409 --> 0:00:41.610
<v Speaker 1>Depression, published in

0:00:41.610 --> 0:00:43.410
<v Speaker 2>1992, or

0:00:43.420 --> 0:00:44.580
<v Speaker 1>the co authored volume

0:00:44.590 --> 0:00:47.150
<v Speaker 2>in defense of public debt. Published just last year

0:00:47.640 --> 0:00:49.129
<v Speaker 2>in between, Professor

0:00:49.130 --> 0:00:50.060
<v Speaker 1>Eichengreen has delved

0:00:50.070 --> 0:00:52.449
<v Speaker 2>deeply into exchange regimes, trade

0:00:52.450 --> 0:00:53.550
<v Speaker 1>and monetary unions,

0:00:53.550 --> 0:00:58.279
<v Speaker 2>financial market, contagion, banking crisis, global, international financial architecture and

0:00:58.290 --> 0:01:01.320
<v Speaker 2>all of these in the context of now or a

0:01:01.320 --> 0:01:03.000
<v Speaker 2>century ago and across

0:01:03.000 --> 0:01:03.640
<v Speaker 1>events in the

0:01:03.640 --> 0:01:07.650
<v Speaker 2>US eurozone, china latin America and so on. So truly

0:01:07.740 --> 0:01:08.670
<v Speaker 1>an honor to have him

0:01:08.670 --> 0:01:12.360
<v Speaker 2>on board today. Professor Barry Eichengreen, welcome to Covid Time.

0:01:12.940 --> 0:01:15.310
<v Speaker 2>Thank you tom you're you're making me feel long in

0:01:15.310 --> 0:01:15.959
<v Speaker 2>the tooth,

0:01:16.540 --> 0:01:17.030
<v Speaker 2>but

0:01:17.030 --> 0:01:18.190
<v Speaker 1>so relevant

0:01:18.200 --> 0:01:22.090
<v Speaker 2>then and now, um professor, I have just read a

0:01:22.090 --> 0:01:24.110
<v Speaker 2>long list of your expertise but I didn't

0:01:24.110 --> 0:01:25.370
<v Speaker 1>mention post

0:01:25.370 --> 0:01:29.690
<v Speaker 2>conflict reconstruction. Neither did I talk about sanctions, but you've

0:01:29.690 --> 0:01:30.100
<v Speaker 2>been writing

0:01:30.100 --> 0:01:31.170
<v Speaker 1>on these issues lately,

0:01:31.170 --> 0:01:32.380
<v Speaker 2>given the war in Ukraine.

0:01:32.380 --> 0:01:33.400
<v Speaker 1>So let's begin

0:01:33.400 --> 0:01:33.960
<v Speaker 2>there

0:01:34.040 --> 0:01:38.100
<v Speaker 2>in a recently published article in project syndicate. You wrote that,

0:01:38.110 --> 0:01:41.490
<v Speaker 2>talking about marshall plan for Ukraine is a popular

0:01:41.490 --> 0:01:43.090
<v Speaker 1>sport nowadays. But

0:01:43.090 --> 0:01:44.380
<v Speaker 2>Ukraine's reconstruction

0:01:44.380 --> 0:01:45.120
<v Speaker 1>must be done

0:01:45.130 --> 0:01:47.100
<v Speaker 2>with full appreciation of the

0:01:47.100 --> 0:01:48.400
<v Speaker 1>most relevant features

0:01:48.400 --> 0:01:49.190
<v Speaker 2>of the plan that

0:01:49.190 --> 0:01:50.590
<v Speaker 1>was put in motion close

0:01:50.590 --> 0:01:53.670
<v Speaker 2>World War Two europe. So, if you may walk us

0:01:53.670 --> 0:01:56.060
<v Speaker 2>through those features from your historical study,

0:01:57.440 --> 0:02:01.510
<v Speaker 2>I I should probably start by mentioning the context for

0:02:01.510 --> 0:02:04.660
<v Speaker 2>that historical study. I did my work on

0:02:05.140 --> 0:02:08.429
<v Speaker 2>Uh the history of the Marshall plan some together with

0:02:08.430 --> 0:02:13.290
<v Speaker 2>my colleague Brad Delong some together with a former student,

0:02:13.290 --> 0:02:17.700
<v Speaker 2>now colleague mark at the beginning of the 1990s, because

0:02:17.700 --> 0:02:21.740
<v Speaker 2>everybody was thinking about a Marshall plan for Eastern Europe

0:02:21.740 --> 0:02:26.050
<v Speaker 2>and the former Soviet Union. So the context was different.

0:02:26.240 --> 0:02:26.970
<v Speaker 2>Obviously,

0:02:26.970 --> 0:02:28.480
<v Speaker 1>there was no war

0:02:28.490 --> 0:02:29.660
<v Speaker 2>raging in that part of

0:02:29.660 --> 0:02:30.830
<v Speaker 1>the world

0:02:30.840 --> 0:02:33.160
<v Speaker 2>at the time. Um

0:02:33.639 --> 0:02:37.310
<v Speaker 2>so the situation in Ukraine is somewhat different now, although

0:02:37.310 --> 0:02:42.510
<v Speaker 2>I think marshall plan history is relevant once again. So

0:02:42.510 --> 0:02:44.760
<v Speaker 2>I would I would make a couple of

0:02:45.139 --> 0:02:48.560
<v Speaker 2>points building on that. Um post

0:02:48.560 --> 0:02:49.720
<v Speaker 1>World War Two

0:02:49.730 --> 0:02:53.660
<v Speaker 2>uh experience. First of all, um

0:02:54.139 --> 0:03:00.429
<v Speaker 2>Marshall plan funds began to be dispersed even before the

0:03:00.440 --> 0:03:05.320
<v Speaker 2>conflict in europe was entirely over. So the war with

0:03:05.320 --> 0:03:07.329
<v Speaker 2>Nazi Germany was certainly over. But

0:03:07.330 --> 0:03:08.010
<v Speaker 1>there was still a

0:03:08.010 --> 0:03:09.760
<v Speaker 2>civil war raging in Greece

0:03:10.139 --> 0:03:17.120
<v Speaker 2>Through 1949, uh into 1950. and Marshall Plan funds began

0:03:17.120 --> 0:03:18.410
<v Speaker 2>to flow from the United

0:03:18.410 --> 0:03:19.300
<v Speaker 1>States to

0:03:19.300 --> 0:03:26.380
<v Speaker 2>The recognized government of Greece already in 1948. So one

0:03:26.380 --> 0:03:27.240
<v Speaker 1>here sometimes

0:03:27.240 --> 0:03:31.120
<v Speaker 2>today that we should wait until the conflict in in

0:03:31.120 --> 0:03:32.160
<v Speaker 2>Ukraine is over,

0:03:32.240 --> 0:03:37.850
<v Speaker 2>until the Russians withdraw or whatever before we begin to

0:03:37.850 --> 0:03:40.570
<v Speaker 2>provide aid for reconstruction

0:03:40.580 --> 0:03:41.640
<v Speaker 1>as opposed

0:03:41.650 --> 0:03:42.490
<v Speaker 2>to military

0:03:42.490 --> 0:03:43.650
<v Speaker 1>aid. Think

0:03:43.660 --> 0:03:47.360
<v Speaker 2>marshall plan experience shows that uh thoughtfully

0:03:47.940 --> 0:03:52.910
<v Speaker 2>administered and dispersed, we can begin to provide aid for

0:03:52.920 --> 0:03:54.180
<v Speaker 2>reconstruction

0:03:54.190 --> 0:03:56.080
<v Speaker 1>once the west of the country

0:03:56.080 --> 0:03:57.339
<v Speaker 2>is secure, for

0:03:57.340 --> 0:04:00.160
<v Speaker 1>example, uh already today.

0:04:00.170 --> 0:04:01.000
<v Speaker 2>Um

0:04:01.010 --> 0:04:02.820
<v Speaker 1>secondly, uh

0:04:02.830 --> 0:04:03.920
<v Speaker 2>there has been talk

0:04:03.930 --> 0:04:06.060
<v Speaker 1>about whether

0:04:06.340 --> 0:04:10.870
<v Speaker 1>we the West should be providing mainly grants or loan

0:04:10.870 --> 0:04:13.660
<v Speaker 1>guarantees and it's worth recalling that

0:04:13.670 --> 0:04:14.710
<v Speaker 2>uh european

0:04:14.710 --> 0:04:17.110
<v Speaker 1>countries came out of World War Two heavily indebted

0:04:17.120 --> 0:04:17.880
<v Speaker 2>and we

0:04:17.880 --> 0:04:21.420
<v Speaker 1>provided grants rather than uh more

0:04:21.420 --> 0:04:21.850
<v Speaker 2>debt

0:04:22.240 --> 0:04:22.650
<v Speaker 2>if you

0:04:22.650 --> 0:04:26.260
<v Speaker 1>will. And I think that's relevant to Ukraine today as well.

0:04:26.260 --> 0:04:30.190
<v Speaker 1>They looking forward are are going to face uh

0:04:30.200 --> 0:04:30.820
<v Speaker 2>difficult

0:04:30.820 --> 0:04:33.760
<v Speaker 1>problem of debt renegotiation. They're going to have

0:04:33.760 --> 0:04:35.570
<v Speaker 2>to restructure the debts

0:04:35.570 --> 0:04:37.760
<v Speaker 1>that they inherited from the pre

0:04:37.760 --> 0:04:39.130
<v Speaker 2>war period.

0:04:39.130 --> 0:04:39.990
<v Speaker 1>Their economy will

0:04:39.990 --> 0:04:40.860
<v Speaker 2>have shrunk.

0:04:40.940 --> 0:04:44.550
<v Speaker 1>Uh those negotiations will take time. So I don't think

0:04:44.550 --> 0:04:45.890
<v Speaker 1>we should add pile more

0:04:45.890 --> 0:04:46.360
<v Speaker 2>debt

0:04:46.740 --> 0:04:47.180
<v Speaker 2>on top

0:04:47.180 --> 0:04:48.180
<v Speaker 1>of the existing

0:04:48.190 --> 0:04:49.370
<v Speaker 2>debt if

0:04:49.370 --> 0:04:50.770
<v Speaker 1>you will. And finally

0:04:50.770 --> 0:04:52.520
<v Speaker 2>there's the question

0:04:52.520 --> 0:04:53.790
<v Speaker 1>of how a marshall plan

0:04:53.790 --> 0:04:54.630
<v Speaker 2>for

0:04:54.640 --> 0:04:56.849
<v Speaker 1>Ukraine should be structured and

0:04:57.240 --> 0:04:58.120
<v Speaker 2>administered.

0:04:58.130 --> 0:05:01.770
<v Speaker 1>I don't think it should be administered by the Bretton

0:05:01.770 --> 0:05:05.390
<v Speaker 1>woods institutions, for example, by the I. M. F. And

0:05:05.390 --> 0:05:06.700
<v Speaker 1>the World Bank Russia

0:05:06.700 --> 0:05:07.010
<v Speaker 2>being a

0:05:07.010 --> 0:05:08.860
<v Speaker 1>member of the I. M. F. And the World Bank

0:05:08.870 --> 0:05:11.700
<v Speaker 1>uh and uh in

0:05:11.700 --> 0:05:12.770
<v Speaker 2>a position therefore

0:05:12.770 --> 0:05:16.230
<v Speaker 1>to throw a wrench in the works if you will.

0:05:16.240 --> 0:05:17.550
<v Speaker 1>The um

0:05:17.839 --> 0:05:21.589
<v Speaker 1>uh brilliance of the marshall plan was that the US

0:05:21.589 --> 0:05:26.400
<v Speaker 1>government set up autonomous self standing agency that could

0:05:26.400 --> 0:05:27.500
<v Speaker 2>cut through red tape

0:05:27.500 --> 0:05:29.200
<v Speaker 1>and wasn't uh

0:05:29.210 --> 0:05:29.810
<v Speaker 2>answerable

0:05:29.810 --> 0:05:33.550
<v Speaker 1>directly answerable to the bureaucracies of the U. S. State

0:05:33.550 --> 0:05:36.550
<v Speaker 1>Department and the U. S. Treasury Department. And I think

0:05:36.560 --> 0:05:41.620
<v Speaker 1>a self standing international agency maybe under the umbrella of

0:05:41.620 --> 0:05:42.080
<v Speaker 1>the United

0:05:42.080 --> 0:05:42.859
<v Speaker 2>Nations,

0:05:43.240 --> 0:05:47.000
<v Speaker 1>uh maybe under the umbrella of the O. E. C. D.

0:05:47.010 --> 0:05:49.660
<v Speaker 1>Would be the right way to go for Ukraine as well.

0:05:50.440 --> 0:05:53.710
<v Speaker 1>Would you consider a BRD or the european union along

0:05:53.710 --> 0:05:57.050
<v Speaker 1>the same lines? Well, I would I I would be

0:05:57.050 --> 0:05:58.820
<v Speaker 1>prepared to consider

0:05:58.820 --> 0:05:59.260
<v Speaker 2>E. B. R.

0:05:59.260 --> 0:06:01.750
<v Speaker 1>D. Um E. B. R. D. Did not

0:06:02.140 --> 0:06:05.950
<v Speaker 1>exactly distinguished itself in its early

0:06:06.339 --> 0:06:07.429
<v Speaker 2>days.

0:06:07.440 --> 0:06:08.480
<v Speaker 1>Um

0:06:08.490 --> 0:06:09.400
<v Speaker 2>in

0:06:09.400 --> 0:06:12.910
<v Speaker 1>The early 1990s it became famous more for for building

0:06:12.910 --> 0:06:15.130
<v Speaker 1>lavish headquarters with with a lot of

0:06:15.130 --> 0:06:16.230
<v Speaker 2>marble than

0:06:16.230 --> 0:06:19.779
<v Speaker 1>it didn't dispersing funds. But it is presumably leaner and

0:06:19.779 --> 0:06:25.450
<v Speaker 1>meaner now. And I I would um uh consider that

0:06:25.640 --> 0:06:28.060
<v Speaker 1>uh I I don't think um

0:06:28.540 --> 0:06:33.520
<v Speaker 1>Reconstruction of Ukraine is going to be an exclusively Eu endeavor.

0:06:33.529 --> 0:06:36.450
<v Speaker 1>We're going to want to uh in in in enlist

0:06:36.450 --> 0:06:39.100
<v Speaker 1>the support of the United States and Japan

0:06:39.110 --> 0:06:40.480
<v Speaker 2>and others.

0:06:40.490 --> 0:06:44.190
<v Speaker 1>So uh the european union, the european commission is clearly

0:06:44.190 --> 0:06:46.910
<v Speaker 1>going to have to play a leading role. Whether it

0:06:46.920 --> 0:06:48.760
<v Speaker 1>should house

0:06:48.940 --> 0:06:51.180
<v Speaker 1>this autonomous agency though is another

0:06:51.180 --> 0:06:51.550
<v Speaker 2>matter

0:06:52.540 --> 0:06:53.740
<v Speaker 1>if I may ask you one more follow up

0:06:53.740 --> 0:06:54.620
<v Speaker 2>question, what's your

0:06:54.620 --> 0:06:56.930
<v Speaker 1>view on the refugees?

0:06:56.930 --> 0:06:58.080
<v Speaker 2>So Ukraine is

0:06:58.080 --> 0:07:02.029
<v Speaker 1>blessed with many skilled workers. Some of them presumably will

0:07:02.029 --> 0:07:04.960
<v Speaker 1>fill the labor market gap. The skills mismatch that Poland

0:07:04.960 --> 0:07:08.310
<v Speaker 1>had before this conflict. And of course, you know, the U. S.

0:07:08.310 --> 0:07:10.940
<v Speaker 1>Is granting large number of green cards to Ukrainians and

0:07:10.940 --> 0:07:15.540
<v Speaker 1>so on for the post conflict rebuilding. Would you want

0:07:15.550 --> 0:07:16.790
<v Speaker 1>the refugees to go

0:07:16.790 --> 0:07:17.490
<v Speaker 2>back as soon as

0:07:17.490 --> 0:07:20.060
<v Speaker 1>possible? Is that what we saw in the case of

0:07:20.060 --> 0:07:20.370
<v Speaker 1>europe

0:07:20.370 --> 0:07:21.100
<v Speaker 2>post World War Two?

0:07:21.100 --> 0:07:23.210
<v Speaker 1>Or it was the case that you know, many left

0:07:23.220 --> 0:07:25.750
<v Speaker 1>regardless and many stayed on and that was sufficient?

0:07:26.440 --> 0:07:28.230
<v Speaker 1>Well, in the case of of

0:07:28.230 --> 0:07:29.330
<v Speaker 2>Ukraine, I think it is

0:07:29.330 --> 0:07:34.380
<v Speaker 1>critically important to reverse the brain brain. Uh, among other things,

0:07:34.390 --> 0:07:35.090
<v Speaker 2>Ukraine

0:07:35.090 --> 0:07:35.860
<v Speaker 1>had

0:07:36.240 --> 0:07:42.190
<v Speaker 1>relatively small but vibrant high tech sector. Uh people can

0:07:42.190 --> 0:07:45.080
<v Speaker 1>work remote so maybe they can work from Poland

0:07:45.090 --> 0:07:46.300
<v Speaker 2>for

0:07:46.310 --> 0:07:47.270
<v Speaker 1>the Ukrainian

0:07:47.280 --> 0:07:48.090
<v Speaker 2>startup.

0:07:48.100 --> 0:07:51.390
<v Speaker 1>But I think more generally it will be important to

0:07:51.400 --> 0:07:57.540
<v Speaker 1>attract back the skilled workers. There was a lot of

0:07:57.540 --> 0:07:58.460
<v Speaker 1>labor

0:07:58.540 --> 0:08:02.670
<v Speaker 1>displacement after World War Two, a lot of voluntary

0:08:02.680 --> 0:08:03.520
<v Speaker 2>and

0:08:03.520 --> 0:08:05.880
<v Speaker 1>some involuntary movement

0:08:05.890 --> 0:08:06.650
<v Speaker 2>of labor

0:08:06.650 --> 0:08:11.360
<v Speaker 1>from from the east to uh to the west. The

0:08:11.370 --> 0:08:12.520
<v Speaker 2>big problem after

0:08:12.520 --> 0:08:15.060
<v Speaker 1>World War Two was rebuilding the housing stock

0:08:15.240 --> 0:08:15.860
<v Speaker 2>and

0:08:15.870 --> 0:08:17.740
<v Speaker 1>uh thereby allowing

0:08:17.740 --> 0:08:19.220
<v Speaker 2>people to move

0:08:19.220 --> 0:08:20.240
<v Speaker 1>back to the

0:08:20.250 --> 0:08:21.370
<v Speaker 2>urban centers

0:08:21.380 --> 0:08:25.370
<v Speaker 1>and the industrial centers where their labor was needed where

0:08:25.370 --> 0:08:27.520
<v Speaker 1>they were most productive. And this is going

0:08:27.520 --> 0:08:28.600
<v Speaker 2>to be a big problem for

0:08:28.600 --> 0:08:30.260
<v Speaker 1>Ukraine as well.

0:08:30.260 --> 0:08:31.220
<v Speaker 2>They want to attract

0:08:31.230 --> 0:08:31.760
<v Speaker 1>back

0:08:32.140 --> 0:08:34.650
<v Speaker 1>the refugees skilled workers,

0:08:34.660 --> 0:08:35.709
<v Speaker 2>but they're going to have

0:08:35.710 --> 0:08:37.650
<v Speaker 1>to be able to house them and

0:08:37.660 --> 0:08:38.550
<v Speaker 2>it will take

0:08:38.550 --> 0:08:43.590
<v Speaker 1>years to rebuild the housing stock. So I think um

0:08:43.600 --> 0:08:44.370
<v Speaker 1>modern

0:08:44.370 --> 0:08:45.330
<v Speaker 2>technology can be

0:08:45.330 --> 0:08:48.390
<v Speaker 1>part of the solution. They're modular housing and so forth.

0:08:48.400 --> 0:08:49.450
<v Speaker 1>But where you

0:08:49.450 --> 0:08:50.280
<v Speaker 2>can rebuild a

0:08:50.280 --> 0:08:53.160
<v Speaker 1>bridge or a railway virtually overnight,

0:08:53.340 --> 0:08:53.830
<v Speaker 1>pontoon

0:08:53.830 --> 0:08:54.540
<v Speaker 2>bridges

0:08:54.540 --> 0:08:58.530
<v Speaker 1>and uh, and and so forth, rebuilding the housing stock

0:08:58.530 --> 0:09:02.850
<v Speaker 1>takes longer. And that will be a constraint on repatriation.

0:09:03.240 --> 0:09:05.770
<v Speaker 1>Uh, Professor, I can I just want to press you

0:09:05.770 --> 0:09:07.460
<v Speaker 1>a little more on the IMF's World Bank

0:09:07.460 --> 0:09:08.770
<v Speaker 2>question. I just want to go back there for

0:09:08.770 --> 0:09:12.780
<v Speaker 1>a second. Both institutions have already offered, you know, substantial

0:09:12.790 --> 0:09:14.459
<v Speaker 1>assistance to the Ukrainian

0:09:14.460 --> 0:09:15.410
<v Speaker 2>government. And of

0:09:15.410 --> 0:09:17.400
<v Speaker 1>course, Ukraine has had multiple

0:09:17.400 --> 0:09:18.480
<v Speaker 2>programs with the I. M.

0:09:18.480 --> 0:09:21.199
<v Speaker 1>F. In the past by myself. And as an ep,

0:09:21.210 --> 0:09:24.860
<v Speaker 1>actually worked on a Ukraine program 20 years ago. Um,

0:09:24.940 --> 0:09:26.770
<v Speaker 1>you wouldn't want those

0:09:27.340 --> 0:09:31.449
<v Speaker 1>interactions to be suspended even under your envisioned framework.

0:09:32.040 --> 0:09:32.630
<v Speaker 2>No,

0:09:32.630 --> 0:09:33.080
<v Speaker 1>I think,

0:09:33.090 --> 0:09:34.740
<v Speaker 2>um, that

0:09:34.750 --> 0:09:41.270
<v Speaker 1>the agency in in in charge of dispersing uh, bilateral

0:09:41.270 --> 0:09:41.579
<v Speaker 1>aid

0:09:41.580 --> 0:09:42.360
<v Speaker 2>from the United

0:09:42.360 --> 0:09:47.410
<v Speaker 1>States to Ukraine, from the european union to Ukraine can

0:09:47.410 --> 0:09:48.450
<v Speaker 1>also work with the

0:09:48.450 --> 0:09:49.400
<v Speaker 2>I. M. F. And and

0:09:49.400 --> 0:09:51.650
<v Speaker 1>and and the World Bank. But it's a matter of

0:09:51.660 --> 0:09:53.250
<v Speaker 1>who's going to be in charge

0:09:53.940 --> 0:09:58.790
<v Speaker 1>if you will. And what the um, where, where the

0:09:58.800 --> 0:10:00.849
<v Speaker 1>organizing center will

0:10:00.860 --> 0:10:01.770
<v Speaker 2>uh,

0:10:01.780 --> 0:10:04.550
<v Speaker 1>be housed. And I think it should be housed outside

0:10:04.550 --> 0:10:06.260
<v Speaker 1>the bank and outside the fund.

0:10:06.740 --> 0:10:08.640
<v Speaker 1>I don't think your friends in Washington are going to

0:10:08.640 --> 0:10:13.240
<v Speaker 1>be very happy to hear this. I'm gonna move on

0:10:13.240 --> 0:10:18.309
<v Speaker 1>to one more subject on the conflict. So, this is

0:10:18.309 --> 0:10:21.450
<v Speaker 1>the first line of an article you recently wrote for

0:10:21.460 --> 0:10:25.480
<v Speaker 1>the East AsIA forum, what will be the demonstration effect

0:10:25.490 --> 0:10:27.030
<v Speaker 1>of Western sanctions on

0:10:27.030 --> 0:10:27.559
<v Speaker 2>Russia?

0:10:28.640 --> 0:10:29.059
<v Speaker 1>Mm hmm.

0:10:29.940 --> 0:10:33.840
<v Speaker 1>So it's widely argued that with

0:10:33.850 --> 0:10:34.980
<v Speaker 2>uh,

0:10:34.990 --> 0:10:40.520
<v Speaker 1>western sanctions and in particular with the virtually unprecedented step

0:10:40.530 --> 0:10:42.140
<v Speaker 2>of freezing

0:10:42.140 --> 0:10:42.809
<v Speaker 1>the

0:10:42.820 --> 0:10:43.970
<v Speaker 2>foreign exchange

0:10:43.970 --> 0:10:46.199
<v Speaker 1>reserves of Russia's

0:10:46.210 --> 0:10:47.280
<v Speaker 2>central bank,

0:10:47.290 --> 0:10:48.370
<v Speaker 1>there will be movement

0:10:48.370 --> 0:10:49.460
<v Speaker 2>away from the

0:10:49.640 --> 0:10:50.470
<v Speaker 1>dollar

0:10:50.480 --> 0:10:51.960
<v Speaker 2>in particular

0:10:51.960 --> 0:11:00.260
<v Speaker 1>movement away from reliance on Western financial institutions, both swift

0:11:00.260 --> 0:11:04.959
<v Speaker 1>as a messaging system, the new york clearinghouse, US banks,

0:11:05.340 --> 0:11:07.160
<v Speaker 1>etcetera. Uh, it's

0:11:07.160 --> 0:11:08.130
<v Speaker 2>important though,

0:11:08.140 --> 0:11:12.189
<v Speaker 1>to observe that you asked not about US sanctions, but

0:11:12.190 --> 0:11:13.050
<v Speaker 1>about Western

0:11:13.440 --> 0:11:16.260
<v Speaker 1>sentence where the West

0:11:16.840 --> 0:11:17.320
<v Speaker 1>in this

0:11:17.320 --> 0:11:18.660
<v Speaker 2>context means

0:11:18.660 --> 0:11:21.610
<v Speaker 1>not only the United States and Canada and Western europe,

0:11:21.610 --> 0:11:25.860
<v Speaker 1>but also Japan and South Korea and

0:11:26.240 --> 0:11:31.090
<v Speaker 1>others. So in this context, the West is a set

0:11:31.090 --> 0:11:32.240
<v Speaker 1>of economic and political

0:11:32.240 --> 0:11:32.960
<v Speaker 2>values,

0:11:33.640 --> 0:11:36.770
<v Speaker 1>if you will, meaning that there are relatively few places

0:11:36.780 --> 0:11:37.010
<v Speaker 1>to

0:11:37.010 --> 0:11:38.350
<v Speaker 2>go. So,

0:11:38.360 --> 0:11:40.760
<v Speaker 1>the demonstration effect will be

0:11:40.770 --> 0:11:41.950
<v Speaker 2>to make

0:11:43.240 --> 0:11:45.990
<v Speaker 2>countries contemplating the possibility that one day

0:11:45.990 --> 0:11:47.030
<v Speaker 1>they might be in the

0:11:47.040 --> 0:11:48.160
<v Speaker 2>position that Russia

0:11:48.640 --> 0:11:48.929
<v Speaker 2>is

0:11:48.929 --> 0:11:52.150
<v Speaker 1>currently in um, China,

0:11:52.540 --> 0:11:53.959
<v Speaker 1>uh,

0:11:53.970 --> 0:11:54.830
<v Speaker 2>wonders

0:11:54.840 --> 0:11:58.470
<v Speaker 1>whether there could be a more direct conflict with the

0:11:58.470 --> 0:11:59.300
<v Speaker 1>United States

0:11:59.300 --> 0:11:59.859
<v Speaker 2>over

0:12:00.440 --> 0:12:03.250
<v Speaker 1>Taiwan. Most obviously,

0:12:03.260 --> 0:12:04.300
<v Speaker 2>uh, such

0:12:04.300 --> 0:12:07.590
<v Speaker 1>countries will want to hedge their bets, that will be

0:12:07.590 --> 0:12:07.700
<v Speaker 1>the

0:12:07.700 --> 0:12:09.349
<v Speaker 2>demonstration effect,

0:12:09.360 --> 0:12:11.450
<v Speaker 1>but I think they will quickly

0:12:11.929 --> 0:12:12.429
<v Speaker 1>come to

0:12:12.429 --> 0:12:13.720
<v Speaker 2>learn that

0:12:13.730 --> 0:12:14.990
<v Speaker 1>hedging their bets is

0:12:14.990 --> 0:12:15.610
<v Speaker 2>not really

0:12:15.610 --> 0:12:17.040
<v Speaker 1>possible in the short

0:12:17.040 --> 0:12:18.200
<v Speaker 2>run because there's

0:12:18.200 --> 0:12:19.250
<v Speaker 1>nowhere to

0:12:19.740 --> 0:12:22.710
<v Speaker 1>turn uh, and, and building an alternative

0:12:22.710 --> 0:12:23.790
<v Speaker 2>set of

0:12:23.800 --> 0:12:26.340
<v Speaker 1>institutions that does

0:12:26.350 --> 0:12:27.660
<v Speaker 2>create a

0:12:27.660 --> 0:12:32.790
<v Speaker 1>viable alternative is a time consuming process. So I think

0:12:32.790 --> 0:12:34.370
<v Speaker 1>the best case in point

0:12:34.380 --> 0:12:35.730
<v Speaker 2>is china

0:12:35.730 --> 0:12:39.660
<v Speaker 1>has been attempting to build an alternative to chips the

0:12:39.660 --> 0:12:45.689
<v Speaker 1>new york based dollar based interbank clearing house china's alternative

0:12:45.690 --> 0:12:48.680
<v Speaker 1>is called uh sips the cross

0:12:48.679 --> 0:12:49.459
<v Speaker 2>border

0:12:49.470 --> 0:12:50.510
<v Speaker 1>interbank

0:12:50.520 --> 0:12:51.380
<v Speaker 2>payments

0:12:51.390 --> 0:12:52.770
<v Speaker 1>system. China

0:12:52.770 --> 0:12:53.599
<v Speaker 2>has been trying

0:12:53.600 --> 0:12:55.260
<v Speaker 1>To build it for seven years now

0:12:55.640 --> 0:12:56.559
<v Speaker 1>and it hasn't gotten

0:12:56.559 --> 0:12:57.160
<v Speaker 2>too far,

0:12:57.540 --> 0:12:58.050
<v Speaker 2>yep,

0:12:58.059 --> 0:12:59.179
<v Speaker 1>I think

0:12:59.190 --> 0:13:01.520
<v Speaker 2>china's alternative is viable

0:13:01.520 --> 0:13:05.160
<v Speaker 1>and it will continue to grow, but it won't provide

0:13:05.540 --> 0:13:07.470
<v Speaker 1>uh an alternative. In the

0:13:07.470 --> 0:13:08.360
<v Speaker 2>short one.

0:13:08.740 --> 0:13:11.350
<v Speaker 1>I remember talking to a senior

0:13:11.740 --> 0:13:12.589
<v Speaker 1>official at

0:13:12.590 --> 0:13:13.470
<v Speaker 2>Beijing a few years

0:13:13.470 --> 0:13:19.230
<v Speaker 1>ago and he argued that we coming from our Western

0:13:19.230 --> 0:13:23.540
<v Speaker 1>persuasion think that without capital account convertibility, a country cannot

0:13:23.540 --> 0:13:27.330
<v Speaker 1>have a fully international currency. And his argument was, you

0:13:27.330 --> 0:13:30.280
<v Speaker 1>don't have to have corner solutions, you can have mid points.

0:13:30.290 --> 0:13:33.679
<v Speaker 1>Um I sort of understand the wisdom behind that, but

0:13:33.679 --> 0:13:36.670
<v Speaker 1>I fail to see it catching traction. I mean there

0:13:36.670 --> 0:13:37.510
<v Speaker 1>are many countries

0:13:37.510 --> 0:13:38.470
<v Speaker 2>which large

0:13:38.480 --> 0:13:41.960
<v Speaker 1>run large and persistent trade deficits, vis a, vis china,

0:13:41.960 --> 0:13:44.550
<v Speaker 1>so they can all have some sort of a glorified

0:13:44.550 --> 0:13:45.360
<v Speaker 1>barter system.

0:13:45.370 --> 0:13:48.530
<v Speaker 2>You know, you give me stuff, I pay you with

0:13:48.530 --> 0:13:48.969
<v Speaker 2>R and B

0:13:48.970 --> 0:13:50.070
<v Speaker 1>and then I buy stuff from you

0:13:50.070 --> 0:13:51.660
<v Speaker 2>and you take the R and B back,

0:13:51.740 --> 0:13:52.250
<v Speaker 1>but it

0:13:52.250 --> 0:13:54.079
<v Speaker 2>hasn't really caught on, I mean in the last couple

0:13:54.080 --> 0:13:54.459
<v Speaker 2>of months we're

0:13:54.460 --> 0:13:55.540
<v Speaker 1>hearing petrol

0:13:55.550 --> 0:14:01.460
<v Speaker 2>RMB and rubble RMB swap. Um so you, you remain

0:14:01.470 --> 0:14:02.880
<v Speaker 2>unpersuaded that

0:14:02.890 --> 0:14:03.920
<v Speaker 1>anytime soon. We're going to

0:14:03.920 --> 0:14:05.260
<v Speaker 2>see any seismic movement.

0:14:05.740 --> 0:14:08.760
<v Speaker 2>Yeah. You know, um it

0:14:09.840 --> 0:14:13.280
<v Speaker 2>we we can monitor cross border use of the Renminbi

0:14:13.280 --> 0:14:17.790
<v Speaker 2>in large part through swift because the ironic fact is

0:14:17.790 --> 0:14:22.790
<v Speaker 2>even though china is building this cross border interbank payments system,

0:14:22.790 --> 0:14:25.450
<v Speaker 2>it still sends instructions between

0:14:25.450 --> 0:14:27.020
<v Speaker 1>domestic for

0:14:27.020 --> 0:14:30.610
<v Speaker 2>transfers between domestic banks and foreign banks through

0:14:30.620 --> 0:14:31.490
<v Speaker 1>Swift. It

0:14:31.490 --> 0:14:33.150
<v Speaker 2>still depends on that

0:14:33.240 --> 0:14:37.900
<v Speaker 2>Messaging system. If you look there, the renminbi accounts for 2%

0:14:37.980 --> 0:14:39.060
<v Speaker 2>by value

0:14:39.440 --> 0:14:43.290
<v Speaker 2>Of cross border payments, where the dollar accounts for 40%

0:14:43.430 --> 0:14:47.060
<v Speaker 2>and the euro is not too far behind the dollar

0:14:47.440 --> 0:14:50.760
<v Speaker 2>along that dimension. So

0:14:51.140 --> 0:14:51.780
<v Speaker 1>the

0:14:51.790 --> 0:14:53.510
<v Speaker 2>Renminbi is growing in

0:14:53.510 --> 0:14:57.229
<v Speaker 1>importance over the last few years, its share by value

0:14:57.230 --> 0:14:57.380
<v Speaker 1>of

0:14:57.380 --> 0:14:59.540
<v Speaker 2>transactions through swift has risen

0:14:59.540 --> 0:15:04.280
<v Speaker 1>From like 1.9% to 2.4% or some number

0:15:04.280 --> 0:15:04.660
<v Speaker 2>in that

0:15:05.420 --> 0:15:07.230
<v Speaker 1>neighborhood. But it's

0:15:07.240 --> 0:15:08.260
<v Speaker 2>still very far

0:15:08.260 --> 0:15:10.360
<v Speaker 1>from being a full fledged rival to the dollar.

0:15:10.840 --> 0:15:11.550
<v Speaker 1>Absolutely.

0:15:11.560 --> 0:15:11.960
<v Speaker 2>Um

0:15:11.970 --> 0:15:15.060
<v Speaker 1>What about on the issue of weaponization of the dollar?

0:15:15.070 --> 0:15:19.520
<v Speaker 1>This aspect that the US has pursued twice in the

0:15:19.520 --> 0:15:22.140
<v Speaker 1>last one year. First it froze the Central Bank of

0:15:22.140 --> 0:15:26.790
<v Speaker 1>Afghanistan's US based reserves. And now a large part of

0:15:26.800 --> 0:15:30.760
<v Speaker 1>Russian Central bank's reserves are unusable because the same. I mean,

0:15:30.770 --> 0:15:35.080
<v Speaker 1>that ought to give certain antagonist of the US pause

0:15:35.080 --> 0:15:37.360
<v Speaker 1>in terms of holding US dollar assets.

0:15:37.740 --> 0:15:40.430
<v Speaker 1>So it does give them pause. But the point is

0:15:40.440 --> 0:15:42.790
<v Speaker 1>they don't have a lot of other places to go.

0:15:42.790 --> 0:15:44.360
<v Speaker 1>They can't move into euros.

0:15:44.840 --> 0:15:48.050
<v Speaker 1>They can't move into pounds sterling. Uh

0:15:48.440 --> 0:15:48.800
<v Speaker 2>I

0:15:48.810 --> 0:15:50.060
<v Speaker 1>recently

0:15:50.440 --> 0:15:52.810
<v Speaker 1>published a paper together with a

0:15:52.820 --> 0:15:54.010
<v Speaker 2>couple of colleagues

0:15:54.020 --> 0:15:55.750
<v Speaker 1>both at the I. M. F

0:15:55.760 --> 0:15:57.050
<v Speaker 2>observing that

0:15:57.050 --> 0:16:00.359
<v Speaker 1>over the last couple of decades there has been gradual

0:16:00.790 --> 0:16:03.950
<v Speaker 1>migration away from dollar reserves

0:16:05.340 --> 0:16:06.460
<v Speaker 2>in a small

0:16:06.460 --> 0:16:10.230
<v Speaker 1>part toward the Renminbi, but principally toward

0:16:10.230 --> 0:16:11.030
<v Speaker 2>nontraditional

0:16:11.030 --> 0:16:13.650
<v Speaker 1>reserve currencies like the Canadian dollar

0:16:14.040 --> 0:16:17.180
<v Speaker 1>and the Australian dollar and the korean

0:16:17.190 --> 0:16:18.450
<v Speaker 2>won. Those

0:16:18.450 --> 0:16:21.580
<v Speaker 1>countries are all participating in in in in the sanctions.

0:16:21.580 --> 0:16:23.770
<v Speaker 1>So they do not provide safe havens

0:16:23.780 --> 0:16:24.600
<v Speaker 2>for

0:16:24.610 --> 0:16:29.280
<v Speaker 1>countries contemplating moving away from the dollar. Really,

0:16:29.290 --> 0:16:30.080
<v Speaker 2>the only place

0:16:30.080 --> 0:16:31.650
<v Speaker 1>to go is toward the

0:16:32.140 --> 0:16:32.890
<v Speaker 2>Renminbi

0:16:32.890 --> 0:16:35.280
<v Speaker 1>and how freely you will be able to use your

0:16:35.280 --> 0:16:36.550
<v Speaker 1>Renminbi reserves

0:16:37.040 --> 0:16:37.750
<v Speaker 2>is

0:16:37.760 --> 0:16:42.810
<v Speaker 1>uncertain both because of those regulatory restrictions that you mentioned

0:16:42.810 --> 0:16:46.680
<v Speaker 1>before and because chinese banks

0:16:46.690 --> 0:16:47.600
<v Speaker 2>are

0:16:47.610 --> 0:16:49.340
<v Speaker 1>reluctant to

0:16:49.350 --> 0:16:50.380
<v Speaker 2>flaunt

0:16:50.390 --> 0:16:53.040
<v Speaker 1>Western sanctions to

0:16:53.040 --> 0:16:54.060
<v Speaker 2>openly for

0:16:54.060 --> 0:16:55.460
<v Speaker 1>fear of secondary

0:16:55.640 --> 0:16:56.320
<v Speaker 1>sanctions.

0:16:56.320 --> 0:16:57.230
<v Speaker 2>There, china

0:16:57.230 --> 0:17:01.590
<v Speaker 1>is still heavily interdependent with the West. Chinese banks value

0:17:01.590 --> 0:17:03.770
<v Speaker 1>their ability to do business with

0:17:03.950 --> 0:17:05.250
<v Speaker 1>the West. That

0:17:05.260 --> 0:17:06.030
<v Speaker 2>business is a whole

0:17:06.030 --> 0:17:08.120
<v Speaker 1>lot more valuable to them than business with

0:17:08.119 --> 0:17:08.550
<v Speaker 2>Russia.

0:17:08.940 --> 0:17:16.590
<v Speaker 1>I suppose the wisdom in the post-1990-91 episode when Soviet

0:17:16.590 --> 0:17:18.360
<v Speaker 1>Union broke up was that if we

0:17:18.740 --> 0:17:23.850
<v Speaker 1>move towards economic integration and more liberalization countries like breakaway

0:17:23.850 --> 0:17:28.219
<v Speaker 1>Russia or china post W. T. O. Would as you

0:17:28.220 --> 0:17:31.379
<v Speaker 1>just pointed out that have certain interests in place, which

0:17:31.380 --> 0:17:35.820
<v Speaker 1>would make them shy to embrace conflict. Um I think

0:17:35.820 --> 0:17:38.270
<v Speaker 1>you still are holding on to the belief that

0:17:38.340 --> 0:17:42.170
<v Speaker 1>conflict risk can be mitigated if there's deeper integration.

0:17:42.740 --> 0:17:43.750
<v Speaker 1>Yeah.

0:17:43.760 --> 0:17:44.390
<v Speaker 2>So,

0:17:44.400 --> 0:17:48.680
<v Speaker 1>well we learned that there is no end to history.

0:17:48.680 --> 0:17:54.870
<v Speaker 1>We learned that um uh economic fostering economic interdependence won't

0:17:54.869 --> 0:17:56.170
<v Speaker 1>lead to

0:17:56.180 --> 0:17:56.910
<v Speaker 2>changes

0:17:56.910 --> 0:18:01.550
<v Speaker 1>in countries, fundamental changes in the country's political regimes. But

0:18:01.640 --> 0:18:05.150
<v Speaker 1>if they have an economic stake in their relations

0:18:05.150 --> 0:18:05.660
<v Speaker 2>with

0:18:05.940 --> 0:18:07.960
<v Speaker 1>rivals, they will think

0:18:07.960 --> 0:18:09.030
<v Speaker 2>twice about

0:18:09.040 --> 0:18:10.169
<v Speaker 1>jeopardizing that

0:18:10.180 --> 0:18:11.060
<v Speaker 2>through

0:18:11.740 --> 0:18:12.150
<v Speaker 1>kio

0:18:12.150 --> 0:18:13.790
<v Speaker 2>political action.

0:18:13.800 --> 0:18:15.490
<v Speaker 1>So um

0:18:15.500 --> 0:18:18.949
<v Speaker 2>Russia is kind of proof by counter example.

0:18:18.950 --> 0:18:19.590
<v Speaker 1>Mr

0:18:19.600 --> 0:18:21.359
<v Speaker 2>Putin for whatever reason,

0:18:22.540 --> 0:18:25.649
<v Speaker 2>I hesitate to say in his wisdom for whatever reason,

0:18:25.660 --> 0:18:26.930
<v Speaker 1>decided to go to

0:18:26.930 --> 0:18:27.919
<v Speaker 2>war. And I

0:18:27.920 --> 0:18:29.140
<v Speaker 1>think uh we

0:18:29.140 --> 0:18:31.660
<v Speaker 2>have seen that the economic

0:18:31.660 --> 0:18:32.620
<v Speaker 1>consequences

0:18:32.630 --> 0:18:38.160
<v Speaker 2>are for for Russia are are very serious, quite profound

0:18:38.170 --> 0:18:39.350
<v Speaker 2>and are not going

0:18:39.350 --> 0:18:40.540
<v Speaker 1>to be reversed

0:18:40.550 --> 0:18:41.560
<v Speaker 2>anytime

0:18:41.740 --> 0:18:43.060
<v Speaker 2>in the foreseeable future,

0:18:44.040 --> 0:18:45.189
<v Speaker 2>right? That's the

0:18:45.200 --> 0:18:46.700
<v Speaker 1>demonstration effect.

0:18:46.710 --> 0:18:47.830
<v Speaker 2>Um Alright

0:18:47.840 --> 0:18:48.109
<v Speaker 1>enough

0:18:48.109 --> 0:18:50.540
<v Speaker 2>about Russia and the war.

0:18:50.550 --> 0:18:51.820
<v Speaker 1>Let's talk about something

0:18:51.820 --> 0:18:53.800
<v Speaker 2>that commands the headlines every single

0:18:53.800 --> 0:18:55.040
<v Speaker 1>day, the

0:18:55.050 --> 0:18:56.350
<v Speaker 2>Great inflation of 20

0:18:56.350 --> 0:18:57.139
<v Speaker 1>22

0:18:57.150 --> 0:18:58.670
<v Speaker 2>uh here, your

0:18:58.670 --> 0:18:59.460
<v Speaker 1>take on it

0:19:00.040 --> 0:19:00.460
<v Speaker 2>here.

0:19:01.740 --> 0:19:02.170
<v Speaker 2>So

0:19:02.170 --> 0:19:06.900
<v Speaker 1>I think this uh inflation will be with us for

0:19:06.910 --> 0:19:07.420
<v Speaker 1>some

0:19:07.420 --> 0:19:07.860
<v Speaker 2>time.

0:19:08.240 --> 0:19:12.320
<v Speaker 1>We're still going to be battling with this problem in

0:19:12.330 --> 0:19:18.909
<v Speaker 1>2023 absent a recession. So that's a big caveat right

0:19:18.920 --> 0:19:23.350
<v Speaker 1>uh unconditional forecasts of how inflation is going to play

0:19:23.350 --> 0:19:23.750
<v Speaker 1>out

0:19:23.760 --> 0:19:24.770
<v Speaker 2>our

0:19:24.940 --> 0:19:27.790
<v Speaker 1>treacherous and they don't make a lot of sense because

0:19:27.790 --> 0:19:31.530
<v Speaker 1>there's one scenario in which the U. S. And the

0:19:31.530 --> 0:19:34.980
<v Speaker 1>world economy continued to expand

0:19:34.990 --> 0:19:36.460
<v Speaker 2>and in that

0:19:36.460 --> 0:19:38.670
<v Speaker 1>scenario I think in in inflation

0:19:39.240 --> 0:19:41.160
<v Speaker 1>above 4%

0:19:41.740 --> 0:19:42.130
<v Speaker 2>is

0:19:42.130 --> 0:19:45.400
<v Speaker 1>going to persist in the United States in europe and

0:19:45.400 --> 0:19:47.040
<v Speaker 1>Britain more generally.

0:19:47.050 --> 0:19:48.119
<v Speaker 2>And there is another

0:19:48.119 --> 0:19:53.149
<v Speaker 1>scenario in which we do tip into recession later this

0:19:53.150 --> 0:19:54.359
<v Speaker 1>year or next year,

0:19:55.050 --> 0:19:55.310
<v Speaker 2>in

0:19:55.310 --> 0:19:56.270
<v Speaker 1>which case

0:19:56.840 --> 0:19:57.470
<v Speaker 2>that bed is

0:19:57.470 --> 0:20:00.260
<v Speaker 1>off, if you will, the pressure of demand

0:20:00.640 --> 0:20:01.660
<v Speaker 1>will be less.

0:20:02.040 --> 0:20:05.010
<v Speaker 1>The pressure on on inflation

0:20:05.010 --> 0:20:05.550
<v Speaker 2>will

0:20:06.040 --> 0:20:06.590
<v Speaker 2>come down

0:20:06.590 --> 0:20:10.810
<v Speaker 1>faster of its own volition and the pressure on central

0:20:10.810 --> 0:20:14.360
<v Speaker 1>banks to continue to raise rates will be less. So

0:20:14.369 --> 0:20:15.280
<v Speaker 1>the way I

0:20:15.280 --> 0:20:18.210
<v Speaker 2>think about the the the the problem in the no

0:20:18.210 --> 0:20:20.170
<v Speaker 1>recession case

0:20:20.180 --> 0:20:21.850
<v Speaker 2>is that

0:20:22.040 --> 0:20:23.399
<v Speaker 2>the best case scenario

0:20:23.400 --> 0:20:24.170
<v Speaker 1>in the US and

0:20:24.170 --> 0:20:26.270
<v Speaker 2>europe is that uh

0:20:26.440 --> 0:20:28.320
<v Speaker 2>in in in inflation comes

0:20:28.320 --> 0:20:29.330
<v Speaker 1>down next

0:20:29.330 --> 0:20:30.740
<v Speaker 2>year towards four

0:20:30.740 --> 0:20:31.270
<v Speaker 1>percent.

0:20:31.740 --> 0:20:34.540
<v Speaker 2>If the neutral real

0:20:34.550 --> 0:20:35.619
<v Speaker 1>interest rates,

0:20:35.619 --> 0:20:38.730
<v Speaker 2>Natural rate of real rate of interest is one half

0:20:38.730 --> 0:20:42.100
<v Speaker 2>of 1%. The Fed has to jack up

0:20:42.100 --> 0:20:43.609
<v Speaker 1>its policy rates to 4.5

0:20:43.609 --> 0:20:45.190
<v Speaker 2>percent just to keep

0:20:45.200 --> 0:20:46.250
<v Speaker 1>inflation

0:20:46.250 --> 0:20:46.770
<v Speaker 2>steady

0:20:47.740 --> 0:20:48.520
<v Speaker 2>at four.

0:20:48.640 --> 0:20:49.660
<v Speaker 1>And if the Fed is

0:20:49.660 --> 0:20:50.980
<v Speaker 2>uncomfortable with four,

0:20:50.980 --> 0:20:52.450
<v Speaker 1>which it will be, it's going to

0:20:52.450 --> 0:20:53.699
<v Speaker 2>have to raise rates

0:20:54.340 --> 0:20:56.040
<v Speaker 2>above 4.5

0:20:56.040 --> 0:21:00.410
<v Speaker 1>percent. So I think, you know, as we speak today,

0:21:00.410 --> 0:21:03.460
<v Speaker 1>the markets are are displaying more volatility

0:21:03.840 --> 0:21:09.050
<v Speaker 1>and signs of more worries. So they're finally catching up

0:21:09.050 --> 0:21:12.449
<v Speaker 1>with this scenario, which is the

0:21:12.940 --> 0:21:16.310
<v Speaker 1>you ain't seen nothing yet scenario in terms of central

0:21:16.310 --> 0:21:17.109
<v Speaker 1>bank

0:21:17.119 --> 0:21:18.720
<v Speaker 2>reactions. So,

0:21:18.730 --> 0:21:23.109
<v Speaker 1>uh if economies continue to expand, I think that's what

0:21:23.109 --> 0:21:26.150
<v Speaker 1>we will see continued financial volatility movement away

0:21:26.150 --> 0:21:27.060
<v Speaker 2>from risk

0:21:27.440 --> 0:21:29.960
<v Speaker 1>assets. Um and

0:21:30.340 --> 0:21:34.859
<v Speaker 1>More than 2 50 basis point hikes by the Fed

0:21:35.240 --> 0:21:37.960
<v Speaker 1>which is what's in the market, all that's in the

0:21:37.960 --> 0:21:38.360
<v Speaker 1>market

0:21:38.940 --> 0:21:40.179
<v Speaker 2>at the

0:21:40.180 --> 0:21:43.659
<v Speaker 1>moment. I haven't quite gotten my head around how the

0:21:43.670 --> 0:21:50.150
<v Speaker 1>recessionary scenario will play out. We're all collectively only beginning

0:21:50.150 --> 0:21:51.859
<v Speaker 1>to think about that possibility.

0:21:52.540 --> 0:21:54.700
<v Speaker 1>I was about to ask you for a probability distribution

0:21:54.700 --> 0:21:57.220
<v Speaker 1>around the two scenarios. But I think with your last sentence,

0:21:57.220 --> 0:21:59.910
<v Speaker 1>I think your caveat is well taken. Um I want

0:21:59.910 --> 0:22:01.810
<v Speaker 1>to ask you one follow up question on the US

0:22:01.810 --> 0:22:05.890
<v Speaker 1>dollar and one question on inflation later on the U. S. Dollar.

0:22:05.890 --> 0:22:08.560
<v Speaker 1>So you talked about risk aversion that

0:22:08.940 --> 0:22:12.710
<v Speaker 1>routinely leads to the dollar strengthening and now we have

0:22:12.720 --> 0:22:15.570
<v Speaker 1>perhaps a couple of 100 basis points of disinflation ahead

0:22:15.570 --> 0:22:17.450
<v Speaker 1>of us and a couple 100 basis points of interest

0:22:17.450 --> 0:22:19.330
<v Speaker 1>rate ahead of us in the next 6 to 8

0:22:19.330 --> 0:22:22.300
<v Speaker 1>months just this year. So that's 400 basis points of

0:22:22.300 --> 0:22:26.180
<v Speaker 1>increasing real interest rate under this scenario. Can the market

0:22:26.180 --> 0:22:28.400
<v Speaker 1>really be that forward looking at pricing all of it,

0:22:28.400 --> 0:22:32.760
<v Speaker 1>meaning the dollar has peaked or there's still substantial strength

0:22:32.770 --> 0:22:35.159
<v Speaker 1>in the dollar lingering for the rest of the year.

0:22:35.840 --> 0:22:36.459
<v Speaker 1>Yeah,

0:22:37.740 --> 0:22:40.570
<v Speaker 1>so exchange rate forecasting is

0:22:40.580 --> 0:22:42.280
<v Speaker 2>uh risky

0:22:42.280 --> 0:22:44.360
<v Speaker 1>business. And and I can put on my

0:22:44.359 --> 0:22:45.359
<v Speaker 2>academic cap

0:22:45.940 --> 0:22:46.790
<v Speaker 1>and

0:22:46.800 --> 0:22:47.930
<v Speaker 2>uh

0:22:47.940 --> 0:22:50.860
<v Speaker 1>say I don't have skin in that game,

0:22:51.340 --> 0:22:55.000
<v Speaker 1>if you will uh you know, efficient markets theory tells

0:22:55.000 --> 0:22:59.129
<v Speaker 1>us that the markets have priced all this in, they

0:22:59.140 --> 0:23:01.770
<v Speaker 1>know that the U. S. Economy is stronger than

0:23:02.340 --> 0:23:06.940
<v Speaker 1>many other economies and that will be dollar positive because

0:23:06.940 --> 0:23:09.450
<v Speaker 1>the Fed is going to be moving faster than other

0:23:09.840 --> 0:23:13.659
<v Speaker 1>central banks. In response. They know the dollar is a

0:23:13.660 --> 0:23:17.980
<v Speaker 1>traditional safe haven and and that um there will be

0:23:17.980 --> 0:23:22.100
<v Speaker 1>more volatility favoring safe haven currencies going forward,

0:23:22.100 --> 0:23:23.280
<v Speaker 2>that uh in

0:23:23.280 --> 0:23:27.450
<v Speaker 1>principle all ought to be in in in the markets already.

0:23:27.840 --> 0:23:28.859
<v Speaker 1>But

0:23:29.440 --> 0:23:32.320
<v Speaker 1>21st century economists, even academics

0:23:32.330 --> 0:23:34.010
<v Speaker 2>are skeptical

0:23:34.010 --> 0:23:36.310
<v Speaker 1>about efficient markets theories.

0:23:36.320 --> 0:23:37.010
<v Speaker 2>So,

0:23:37.020 --> 0:23:40.610
<v Speaker 1>you know, the markets were slow to cotton on to

0:23:40.609 --> 0:23:42.800
<v Speaker 1>these ideas, maybe

0:23:42.800 --> 0:23:43.689
<v Speaker 2>they haven't fully

0:23:43.690 --> 0:23:46.710
<v Speaker 1>incorporated them yet. And we'll see a bit of additional

0:23:46.710 --> 0:23:47.560
<v Speaker 1>dollar strength

0:23:48.340 --> 0:23:48.730
<v Speaker 1>indeed,

0:23:48.740 --> 0:23:50.400
<v Speaker 2>is a strong

0:23:50.400 --> 0:23:53.230
<v Speaker 1>dollar not a problem for the US and basically a

0:23:53.230 --> 0:23:54.459
<v Speaker 1>problem for the rest of the world,

0:23:55.040 --> 0:23:58.270
<v Speaker 1>I think um That's what

0:23:58.740 --> 0:23:59.550
<v Speaker 2>john Connolly

0:23:59.550 --> 0:24:00.290
<v Speaker 1>would have said,

0:24:00.300 --> 0:24:01.780
<v Speaker 2>right, it's our currency,

0:24:01.780 --> 0:24:06.139
<v Speaker 1>It's your problem, Treasury Secretary in the 1970s for for

0:24:06.140 --> 0:24:07.170
<v Speaker 1>the youngsters

0:24:07.640 --> 0:24:13.130
<v Speaker 1>among among us. Um I don't think it's a problem

0:24:13.130 --> 0:24:16.460
<v Speaker 1>for the US economy at the moment.

0:24:16.940 --> 0:24:18.190
<v Speaker 2>If you look back at

0:24:18.190 --> 0:24:21.389
<v Speaker 1>The at the mid 1980s when the dollar was so

0:24:21.390 --> 0:24:23.840
<v Speaker 1>strong and it and that was

0:24:23.850 --> 0:24:25.630
<v Speaker 2>associated with

0:24:25.640 --> 0:24:31.060
<v Speaker 1>uh gaping trade deficits for the United States and the

0:24:31.060 --> 0:24:36.090
<v Speaker 1>rust belt problem, the industrialization of the Heartland, that's not

0:24:36.090 --> 0:24:38.400
<v Speaker 1>a problem at the moment. The U. S. Economy seems

0:24:38.400 --> 0:24:39.950
<v Speaker 1>to be firing on all

0:24:40.040 --> 0:24:42.560
<v Speaker 1>cylinders and uh

0:24:42.940 --> 0:24:43.360
<v Speaker 1>ah

0:24:44.540 --> 0:24:48.850
<v Speaker 1>uh certainly uh there's excess demand for

0:24:48.859 --> 0:24:49.369
<v Speaker 2>a lot

0:24:49.369 --> 0:24:53.060
<v Speaker 1>of things that are in supply chain

0:24:53.540 --> 0:24:54.710
<v Speaker 2>shortage

0:24:54.720 --> 0:24:57.459
<v Speaker 1>at the moment. But it's a big problem for the

0:24:57.460 --> 0:24:59.790
<v Speaker 1>rest of the world because it

0:24:59.800 --> 0:25:00.920
<v Speaker 2>feeds inflation,

0:25:00.930 --> 0:25:04.120
<v Speaker 1>weak currencies feed inflation and the rest of the world

0:25:04.130 --> 0:25:09.710
<v Speaker 1>and they create serious debt sustainability problems for countries with

0:25:09.710 --> 0:25:12.950
<v Speaker 1>dollar denominated debts. So we're gonna see

0:25:13.540 --> 0:25:17.050
<v Speaker 1>more problems developed along both of those lines.

0:25:17.540 --> 0:25:20.560
<v Speaker 1>So professor in one area where the market's interviews very

0:25:20.560 --> 0:25:22.920
<v Speaker 1>forward looking is the supply of the U. S. Dollar.

0:25:22.920 --> 0:25:25.760
<v Speaker 1>So when we look at aggregate indicators of liquidity, it

0:25:25.760 --> 0:25:29.020
<v Speaker 1>doesn't seem like there's major tightening taking place anywhere in

0:25:29.020 --> 0:25:29.790
<v Speaker 1>the world.

0:25:29.800 --> 0:25:31.270
<v Speaker 2>But in the

0:25:31.840 --> 0:25:32.560
<v Speaker 1>uh

0:25:33.440 --> 0:25:36.550
<v Speaker 1>dollar desks around the world there is you know already

0:25:36.550 --> 0:25:38.560
<v Speaker 1>you can see this sort of panic around not there

0:25:38.560 --> 0:25:41.340
<v Speaker 1>not being enough dollar and so on. Um So that

0:25:41.340 --> 0:25:44.880
<v Speaker 1>that I find interesting that quantitative tightening hasn't come yet

0:25:44.890 --> 0:25:47.950
<v Speaker 1>but people are charging a premium in their local currencies

0:25:47.950 --> 0:25:49.270
<v Speaker 1>for dollar supply

0:25:49.340 --> 0:25:53.800
<v Speaker 1>um on the inflation. I read recently this book by

0:25:53.810 --> 0:25:57.130
<v Speaker 1>Charles Good Heart, which came out last year, where his

0:25:57.130 --> 0:26:00.550
<v Speaker 1>point was that the next two decades or so would

0:26:00.550 --> 0:26:03.320
<v Speaker 1>be characterized by a sport of inflation as opposed to

0:26:03.320 --> 0:26:05.250
<v Speaker 1>the disinflation of the last three decades

0:26:05.260 --> 0:26:06.199
<v Speaker 2>for structural

0:26:06.200 --> 0:26:08.010
<v Speaker 1>reasons aging

0:26:08.010 --> 0:26:08.510
<v Speaker 2>contrary to

0:26:08.510 --> 0:26:11.120
<v Speaker 1>what we thought in the context of Japan is actually

0:26:11.119 --> 0:26:12.460
<v Speaker 1>going to be inflationary

0:26:12.540 --> 0:26:15.219
<v Speaker 1>um de globalization is going to be a fact of

0:26:15.220 --> 0:26:17.440
<v Speaker 1>life that's inflationary as well and

0:26:17.440 --> 0:26:20.000
<v Speaker 2>china, you know, both suffering

0:26:20.000 --> 0:26:20.810
<v Speaker 1>from the globalization

0:26:20.820 --> 0:26:22.940
<v Speaker 2>and aging would also contribute toward inflation.

0:26:22.950 --> 0:26:23.620
<v Speaker 1>So what's

0:26:23.619 --> 0:26:24.340
<v Speaker 2>your view on this

0:26:24.340 --> 0:26:25.720
<v Speaker 1>structural inflation

0:26:25.720 --> 0:26:26.160
<v Speaker 2>story?

0:26:26.640 --> 0:26:31.110
<v Speaker 2>I have immense respect for my uh colleague

0:26:31.109 --> 0:26:32.210
<v Speaker 1>Charles good

0:26:32.210 --> 0:26:36.680
<v Speaker 2>Heart. I tend to uh disagree with him on this one.

0:26:36.690 --> 0:26:40.380
<v Speaker 2>I looked back at the 1970s and there were central

0:26:40.380 --> 0:26:41.850
<v Speaker 1>bankers like

0:26:42.340 --> 0:26:46.310
<v Speaker 2>uh Fed Chairman Arthur Burns who cited structural

0:26:46.320 --> 0:26:47.320
<v Speaker 1>explanations

0:26:47.320 --> 0:26:52.270
<v Speaker 2>for the high inflation of that decade. But along came

0:26:52.270 --> 0:26:53.050
<v Speaker 2>paul Volcker

0:26:53.440 --> 0:26:55.900
<v Speaker 2>in 1979 and he

0:26:55.900 --> 0:26:57.359
<v Speaker 1>showed that its central banks

0:26:57.359 --> 0:27:00.430
<v Speaker 2>that determine the rate of inflation that even if there

0:27:00.440 --> 0:27:07.080
<v Speaker 2>are strong labor unions or uh big firms with market

0:27:07.080 --> 0:27:11.449
<v Speaker 2>power or whatever or unfavorable demographics, that would be the

0:27:11.450 --> 0:27:13.060
<v Speaker 2>current version

0:27:13.240 --> 0:27:13.660
<v Speaker 2>that

0:27:13.840 --> 0:27:15.710
<v Speaker 2>uh tend to create more

0:27:15.710 --> 0:27:16.840
<v Speaker 1>inflation, Other things

0:27:16.840 --> 0:27:17.260
<v Speaker 2>equal.

0:27:17.640 --> 0:27:20.690
<v Speaker 2>Those other things are not equal and particular

0:27:20.690 --> 0:27:21.290
<v Speaker 1>central bank

0:27:21.290 --> 0:27:27.160
<v Speaker 2>policy is not equal. So I think uh central bankers

0:27:27.160 --> 0:27:28.600
<v Speaker 1>views of

0:27:28.609 --> 0:27:33.470
<v Speaker 2>what is attainable in terms of inflation and what is

0:27:33.470 --> 0:27:36.060
<v Speaker 2>desirable in terms of inflation

0:27:36.140 --> 0:27:36.580
<v Speaker 2>from the

0:27:36.580 --> 0:27:37.350
<v Speaker 1>point of view of

0:27:37.350 --> 0:27:42.070
<v Speaker 2>maintaining their credibility and therefore the effectiveness of their policies

0:27:42.080 --> 0:27:42.890
<v Speaker 2>is that

0:27:42.890 --> 0:27:44.030
<v Speaker 1>they're going to have to do whatever

0:27:44.030 --> 0:27:44.770
<v Speaker 2>it takes

0:27:45.840 --> 0:27:50.800
<v Speaker 2>to invoke Mario Draghi um inflation back down toward

0:27:50.800 --> 0:27:52.050
<v Speaker 1>target that

0:27:52.060 --> 0:27:55.560
<v Speaker 2>is within their capacity and that is desirable.

0:27:56.040 --> 0:28:00.510
<v Speaker 2>Um Regardless of what structural factors demographic or

0:28:00.510 --> 0:28:01.840
<v Speaker 1>otherwise might be pushing

0:28:01.840 --> 0:28:03.060
<v Speaker 2>in the other direction,

0:28:04.040 --> 0:28:08.240
<v Speaker 2>how quickly they can achieve that uh is

0:28:08.240 --> 0:28:09.440
<v Speaker 1>another issue recalled

0:28:09.440 --> 0:28:10.619
<v Speaker 2>the first rule of

0:28:10.619 --> 0:28:13.550
<v Speaker 1>forecasting, give them a forecast digested

0:28:13.940 --> 0:28:17.889
<v Speaker 1>or give them a date. Never give them both. Um

0:28:17.900 --> 0:28:20.609
<v Speaker 1>You know, I had a question for you, I'm reading

0:28:20.609 --> 0:28:23.380
<v Speaker 1>through that question. I realized it's a rhetorical question but

0:28:23.390 --> 0:28:26.719
<v Speaker 1>for the benefit of the viewers of this podcast I'm

0:28:26.720 --> 0:28:28.180
<v Speaker 1>gonna read it out. But you don't have to answer

0:28:28.180 --> 0:28:30.070
<v Speaker 1>because I think you've answered the question in the quotation

0:28:30.070 --> 0:28:32.590
<v Speaker 1>that I have. So this came out in current history

0:28:32.600 --> 0:28:34.060
<v Speaker 1>earlier this year and you wrote

0:28:34.440 --> 0:28:37.740
<v Speaker 1>cryptocurrencies like Bitcoin are too volatile to possess the essential

0:28:37.740 --> 0:28:38.670
<v Speaker 1>attributes of money,

0:28:39.040 --> 0:28:42.540
<v Speaker 1>stable coins have fragile currency packs that diminish their utility

0:28:42.540 --> 0:28:45.840
<v Speaker 1>in transactions and central bank digital currencies are a solution.

0:28:45.840 --> 0:28:46.950
<v Speaker 1>In search of a problem.

0:28:46.960 --> 0:28:48.790
<v Speaker 2>How great

0:28:48.800 --> 0:28:51.410
<v Speaker 1>these three sentences and given what's happening in the last

0:28:51.410 --> 0:28:54.219
<v Speaker 1>couple of weeks, you've been incredibly present here. I'm not

0:28:54.220 --> 0:28:55.850
<v Speaker 1>gonna press you on this question. I think you have

0:28:55.850 --> 0:28:58.650
<v Speaker 1>summed it up very very well here. Um would you

0:28:58.650 --> 0:28:59.770
<v Speaker 1>like to add anything or

0:28:59.840 --> 0:29:00.560
<v Speaker 1>we'll move on.

0:29:00.940 --> 0:29:08.040
<v Speaker 1>Um Yeah, I think that speaks for itself. Indeed. Indeed brilliant.

0:29:08.050 --> 0:29:11.170
<v Speaker 1>And and how good does this sound? Okay. My final

0:29:11.170 --> 0:29:13.700
<v Speaker 1>question and this is about your latest book which was

0:29:13.710 --> 0:29:16.390
<v Speaker 1>entitled in defense of public debt and those who have

0:29:16.390 --> 0:29:20.240
<v Speaker 1>not read it should because it talks about the productive

0:29:20.250 --> 0:29:23.650
<v Speaker 1>aspects of public expenditure fueled by public debt that can

0:29:23.650 --> 0:29:25.620
<v Speaker 1>help and those of us who have worked in Bretton

0:29:25.620 --> 0:29:28.970
<v Speaker 1>woods institutions for long have struggled with how to account

0:29:28.980 --> 0:29:30.270
<v Speaker 1>in the fiscal side

0:29:30.640 --> 0:29:34.010
<v Speaker 1>expenditure that matters for long term growth and not, I

0:29:34.010 --> 0:29:37.660
<v Speaker 1>highly recommend this book. Um but this is a difficult

0:29:37.660 --> 0:29:39.890
<v Speaker 1>year for anybody willing to issue

0:29:39.890 --> 0:29:40.690
<v Speaker 2>debt.

0:29:40.700 --> 0:29:43.190
<v Speaker 1>We already have in the emerging markets, you know, debt

0:29:43.190 --> 0:29:46.120
<v Speaker 1>default and making some debt crisis. So what's the way

0:29:46.120 --> 0:29:49.560
<v Speaker 1>forward for governments which are already heavily indebted?

0:29:50.440 --> 0:29:50.860
<v Speaker 1>Okay,

0:29:51.340 --> 0:29:51.870
<v Speaker 2>I don't think

0:29:51.870 --> 0:29:53.380
<v Speaker 1>there's a single way forward.

0:29:53.390 --> 0:29:54.410
<v Speaker 2>Certainly

0:29:54.420 --> 0:29:59.090
<v Speaker 1>um low low income countries and some middle income countries

0:29:59.090 --> 0:29:59.600
<v Speaker 1>are going to

0:29:59.600 --> 0:30:00.760
<v Speaker 2>have to restructure their

0:30:00.760 --> 0:30:02.680
<v Speaker 1>debts. The international

0:30:02.690 --> 0:30:03.550
<v Speaker 2>policy

0:30:03.550 --> 0:30:04.870
<v Speaker 1>community has

0:30:04.880 --> 0:30:06.729
<v Speaker 2>acknowledged that

0:30:06.740 --> 0:30:09.270
<v Speaker 1>fact already for a couple of years

0:30:09.640 --> 0:30:10.320
<v Speaker 1>now.

0:30:10.330 --> 0:30:13.800
<v Speaker 2>So they came out with uh

0:30:13.810 --> 0:30:15.160
<v Speaker 1>sustainability

0:30:15.540 --> 0:30:16.770
<v Speaker 1>initiative

0:30:16.780 --> 0:30:18.670
<v Speaker 2>Back in 2020

0:30:18.670 --> 0:30:19.760
<v Speaker 1>towards the beginning

0:30:19.770 --> 0:30:21.360
<v Speaker 2>of the Covid

0:30:21.840 --> 0:30:25.120
<v Speaker 2>crisis. But there has been very little

0:30:25.120 --> 0:30:25.750
<v Speaker 1>progress in

0:30:25.750 --> 0:30:27.900
<v Speaker 2>actually implementing that.

0:30:27.910 --> 0:30:28.550
<v Speaker 1>And only a

0:30:28.550 --> 0:30:32.270
<v Speaker 2>small handful of countries that

0:30:32.280 --> 0:30:32.630
<v Speaker 1>have

0:30:32.630 --> 0:30:33.640
<v Speaker 2>approached the

0:30:33.640 --> 0:30:34.900
<v Speaker 1>authorities and their

0:30:34.900 --> 0:30:36.020
<v Speaker 2>private creditors

0:30:36.030 --> 0:30:37.460
<v Speaker 1>to restructure

0:30:37.460 --> 0:30:39.360
<v Speaker 2>debts that are clearly not

0:30:39.540 --> 0:30:42.710
<v Speaker 2>sustainable. So we're gonna have to keep crying and try

0:30:42.710 --> 0:30:46.560
<v Speaker 2>harder to deal with that problem. On the other hand,

0:30:46.570 --> 0:30:51.140
<v Speaker 2>there are uh advanced economies, the United States,

0:30:51.150 --> 0:30:52.580
<v Speaker 1>most of the

0:30:52.580 --> 0:30:56.800
<v Speaker 2>economies of the european union Japan, which

0:30:56.800 --> 0:30:57.800
<v Speaker 1>don't have an immediate

0:30:57.800 --> 0:30:59.710
<v Speaker 2>crisis of debt

0:30:59.720 --> 0:31:00.770
<v Speaker 1>sustainability

0:31:00.780 --> 0:31:02.340
<v Speaker 2>because

0:31:02.350 --> 0:31:03.450
<v Speaker 1>uh

0:31:03.640 --> 0:31:04.020
<v Speaker 2>our is

0:31:04.020 --> 0:31:05.260
<v Speaker 1>still less than she

0:31:05.740 --> 0:31:10.360
<v Speaker 2>because the effective real rate of interest paid on those

0:31:10.360 --> 0:31:14.880
<v Speaker 2>debts is less than the real growth rate

0:31:14.890 --> 0:31:16.980
<v Speaker 1>of their economies. They're

0:31:16.990 --> 0:31:18.780
<v Speaker 2>able to grow the denominator

0:31:18.780 --> 0:31:20.460
<v Speaker 1>of the debt to GDP ratio

0:31:20.940 --> 0:31:22.810
<v Speaker 1>faster than

0:31:22.820 --> 0:31:23.670
<v Speaker 2>the numerator

0:31:23.680 --> 0:31:28.020
<v Speaker 1>unless they continue to add to the numerator rapidly by

0:31:28.030 --> 0:31:28.570
<v Speaker 1>running

0:31:28.570 --> 0:31:29.170
<v Speaker 2>big

0:31:29.180 --> 0:31:31.050
<v Speaker 1>primary budget

0:31:31.740 --> 0:31:36.700
<v Speaker 1>deficits. I do think that we need

0:31:36.700 --> 0:31:37.100
<v Speaker 2>to look

0:31:37.100 --> 0:31:41.930
<v Speaker 1>forward to uh era when maybe growth is going to

0:31:41.930 --> 0:31:47.240
<v Speaker 1>be slower because of Charles, good hearts, unfavorable demographics. When

0:31:47.250 --> 0:31:47.900
<v Speaker 1>the real

0:31:47.900 --> 0:31:49.430
<v Speaker 2>interest rate is going to begin

0:31:49.430 --> 0:31:50.459
<v Speaker 1>to trend

0:31:50.940 --> 0:31:51.400
<v Speaker 2>very

0:31:51.400 --> 0:31:55.390
<v Speaker 1>slowly and gradually upward, it tends to move slowly over

0:31:55.390 --> 0:31:56.420
<v Speaker 2>historical time

0:31:56.430 --> 0:31:59.860
<v Speaker 1>when that relationship will be less favorable. From the point

0:31:59.860 --> 0:32:02.760
<v Speaker 1>of view of debt sustainability, we're

0:32:02.760 --> 0:32:03.700
<v Speaker 2>going to have to think

0:32:03.710 --> 0:32:06.990
<v Speaker 1>as well about the next crisis when governments are going

0:32:06.990 --> 0:32:09.090
<v Speaker 1>to have to do whatever it takes, including on the

0:32:09.090 --> 0:32:11.270
<v Speaker 1>fiscal front. So we've learned

0:32:11.540 --> 0:32:12.960
<v Speaker 1>that crisis come

0:32:13.540 --> 0:32:15.960
<v Speaker 1>more often than we used to think

0:32:15.970 --> 0:32:16.200
<v Speaker 2>that

0:32:16.200 --> 0:32:18.750
<v Speaker 1>the period of the great moderation is over and there

0:32:18.750 --> 0:32:19.770
<v Speaker 1>will be another

0:32:20.240 --> 0:32:21.140
<v Speaker 1>uh global

0:32:21.140 --> 0:32:22.200
<v Speaker 2>financial crisis

0:32:22.210 --> 0:32:23.300
<v Speaker 1>or pandemic

0:32:23.310 --> 0:32:24.740
<v Speaker 2>or climate

0:32:24.740 --> 0:32:28.570
<v Speaker 1>change related crisis that will

0:32:28.570 --> 0:32:30.190
<v Speaker 2>require deploying

0:32:30.190 --> 0:32:32.270
<v Speaker 1>the available fiscal resources. So those are

0:32:32.270 --> 0:32:33.080
<v Speaker 2>both

0:32:33.090 --> 0:32:34.209
<v Speaker 1>arguments

0:32:34.220 --> 0:32:35.160
<v Speaker 2>for

0:32:35.170 --> 0:32:38.120
<v Speaker 1>moving in the direction of fiscal consolidation

0:32:38.130 --> 0:32:40.150
<v Speaker 2>once or

0:32:40.160 --> 0:32:41.290
<v Speaker 1>assuming that

0:32:41.290 --> 0:32:42.730
<v Speaker 2>recovery is

0:32:42.740 --> 0:32:45.709
<v Speaker 1>secure. So I think that's what the advanced economies are

0:32:45.710 --> 0:32:48.300
<v Speaker 1>going to have to do. And in the United States

0:32:48.300 --> 0:32:50.209
<v Speaker 1>for example, we have come a long way in the

0:32:50.210 --> 0:32:51.080
<v Speaker 1>last year

0:32:51.090 --> 0:32:52.450
<v Speaker 2>in terms of

0:32:52.450 --> 0:32:55.580
<v Speaker 1>reducing the size of the budget deficit, it's come down

0:32:55.580 --> 0:32:56.270
<v Speaker 1>from

0:32:56.740 --> 0:33:00.930
<v Speaker 1>effectively from 14% of GDP to 6% of GDP. How

0:33:00.930 --> 0:33:02.540
<v Speaker 1>much more fiscal grab do you want to

0:33:02.540 --> 0:33:02.950
<v Speaker 2>add

0:33:03.340 --> 0:33:03.860
<v Speaker 2>in the short

0:33:03.860 --> 0:33:06.580
<v Speaker 1>Run one might ask, but we're going to have to

0:33:06.580 --> 0:33:10.250
<v Speaker 1>stay that course. I think uh in the interest of

0:33:10.250 --> 0:33:12.260
<v Speaker 1>debt sustainability and in

0:33:12.260 --> 0:33:13.720
<v Speaker 2>terms of

0:33:13.730 --> 0:33:17.630
<v Speaker 1>enhancing our capacity to borrow in in the event of

0:33:17.630 --> 0:33:19.960
<v Speaker 1>another crisis of some sort

0:33:20.540 --> 0:33:21.380
<v Speaker 1>going forward.

0:33:21.390 --> 0:33:22.480
<v Speaker 2>So this

0:33:22.480 --> 0:33:26.860
<v Speaker 1>problem needs to be attended to uh immediately in the

0:33:26.860 --> 0:33:30.120
<v Speaker 1>case of low income countries in the medium term, in

0:33:30.120 --> 0:33:32.270
<v Speaker 1>the case of of advanced economies,

0:33:32.940 --> 0:33:34.870
<v Speaker 1>you've touched on a critical issue. I think

0:33:34.870 --> 0:33:35.930
<v Speaker 2>january april,

0:33:35.940 --> 0:33:39.330
<v Speaker 1>I think the Treasury Department's reports suggest that the overall

0:33:39.330 --> 0:33:42.760
<v Speaker 1>deficit in january april was almost zero or slight surplus.

0:33:42.770 --> 0:33:45.750
<v Speaker 1>Uh And as a result, Treasury Supply is is substantially

0:33:45.750 --> 0:33:49.050
<v Speaker 1>lower than anything anybody expected. Uh This has been a

0:33:49.140 --> 0:33:52.460
<v Speaker 1>through the force. Professor Barry Eichengreen, thank you so much

0:33:52.460 --> 0:33:54.560
<v Speaker 1>for your time and insights.

0:33:54.640 --> 0:33:55.770
<v Speaker 2>Timer. Thank

0:33:55.770 --> 0:33:56.050
<v Speaker 1>you.

0:33:56.640 --> 0:33:56.870
<v Speaker 1>It's a

0:33:56.870 --> 0:33:57.840
<v Speaker 2>pleasure.

0:33:57.850 --> 0:34:01.640
<v Speaker 1>And thanks to our listeners to for your time, Kobe

0:34:01.640 --> 0:34:05.150
<v Speaker 1>time was produced by Kendall Rich from Spy studios, daisy

0:34:05.150 --> 0:34:09.940
<v Speaker 1>Sharma and violently provided additional assistance. All 77 episodes of

0:34:09.940 --> 0:34:12.130
<v Speaker 1>Coffee Time are available on all

0:34:12.130 --> 0:34:13.270
<v Speaker 2>major podcast

0:34:13.270 --> 0:34:15.570
<v Speaker 1>platforms including apple, google and

0:34:15.570 --> 0:34:17.080
<v Speaker 2>Spotify. And

0:34:17.080 --> 0:34:20.149
<v Speaker 1>as far as our research publications and webinars

0:34:20.150 --> 0:34:22.170
<v Speaker 2>are concerned, you can find them all by

0:34:22.170 --> 0:34:23.640
<v Speaker 1>googling DBS Research

0:34:23.640 --> 0:34:24.170
<v Speaker 2>Library.

0:34:24.239 --> 0:34:24.819
<v Speaker 2>Have

0:34:24.830 --> 0:34:25.230
<v Speaker 1>a great

0:34:25.230 --> 0:34:25.670
<v Speaker 2>day