Danny Blanchflower on Global Markets: A Shock Is Coming (Audio)

tenths of one percent. Nastack is down six tenths of one percent, down twenty nine points, fifty two fifty four right now on NASDAC down industriels down sixty one points, a drop there of three tenths of one percent. The Tenure down twenty two thirty seconds yield one point six one percent, Gold down eighty ounce the thirteen thirty seven and drop also of six tenths of one percent, and crude oil surging after the inventories report a four point

six percent. Now West Texas Intermediate rallying to a barrel sixty one right now on w T I I'm Charlie Peloton. That's a bloom Bird business flash. You're listening to Taking Stock with Bim Box and Kathleen Hayes on Bluebird Radio. As Charlie Peller just said, the European Central Bank leaving all of its key interest rates unchanged, holding off on shifting its main policy levers, even as inflation in the nineteen country currency block remains stubbornly low. Here to tell

us more is Danny blanch Flower. He's professor of economics at Dartmouth College and he can be followed on Twitter at d underscore blanch Flower. Danny blanch Flower, thanks for being with us. Sure, well, go ahead. Yeah, they didn't really do anything. And the surprise is that, Um, Actually, if your job is to get inflation back to target and you forecast that over the time coming that you're not going to be able to get it to target,

the obvious response ort to be that you should do something. Um. So that doesn't really hang together. But I guess the answer has to be later. Later more will be coming, um, as they decide whether they can go more negative and what else it is that they can buy, given they've been buying everything that's out there. Well, I was going to ask you that if you are not capable of not you personally, but if you're running something and it doesn't work for twenty four months, you know you have

an inflation forecast. Is there a possibility maybe someone else with a different idea might be a good bet. Well, right, I mean you know that. I mean, how can that does not apply to central bankers? Well, they can only do what they can do, I guess. I mean the problem for central bankers is that, um, they have fiscal authorities as well that should try and be and help them out. But they've all been a well for a really long time since they discovered Kane for nine months

in two than nine. Hence why you've seen authorities around the world saying, um, you need to see the fiscal authorities cutting taxes, putting in stimulus. Um, that's that's kind

of where we are. The central bank has not got that much firepower sitting at the zero lower bound, and obviously the worry is that you would like rates to be up high so when the shock that inevitably comes hits you, you can cut rates, and obviously you can so I think in a way the u CB is looking at what additional things can it do, particularly with the Brexit shock. That's clearly we don't have bigger shock it is, but it clearly represents a negative shock to

the euro Area and to the UK. So so essentially drug has made it clear shocks are to the downs that there's limited things that they can do, and what do you do? Unemployments only ten per cent and inflation is point two. But if that's as good as it gets after eight years of recession, you're right, you maybe

should look at what the heck is going on? Well, what would you suggest, is there anything that would be an alternative to economic stimulus that comes from governments because they seem to be recalcitrant and making they are recalcitrant. I mean, in some sense, what we've learned is that this is simply not enough. We are clearly in um some some degree of a stagnation. We have not gone back to pre two thousand and eight levels. But look back at Japan. We worried about the Japanese lost decade.

Well we're eight years into that lost decade in the UK, the US and Europe. But let's still be aware that there are many countries in your two countries, especially in Europe, with unemployment rates above Spain and Greece. And I'm just looking at the graph here of inflation rates in July sixteen account twelve twelve EU countries Bulgaria, Croatia, Slovenia, Spain, Netherlands, Poland cycles and so it goes on. In Italy, all still in deflation. So the answer is you're right, this

is eight years in and it's failed. Time to do something different, but nothing different is really on the table. So there's no obvious way out, and there's a shot coming, a shock that would do what to the system. Well, I mean, let's just think about I'm not saying there's a shot coming tomorrow, but there is a thing called the business cycle, and these the hasn't been repealed, right, No,

it's not been repealed. Just just checking, just checking the last time I looked at having well, because I just just to give you the sorry for the your side, but you know THEO Dragi said today, for the time being, the changes are not substantial enough to warrant a change in policy. There is no question about the will to act or the ability to do so. I understand that.

But I'm looking at point to a forecast, the point inflation for sixteen one point six in seventeen, which looks unlikely, and one at seven I think it is in in in eighteen UM, and go back to the unemployment rate of ten per cent. So this is great news, I suspect not um. I mean, that's obviously a considerable worry.

You can go to the Euros that website and you can look at these unemployment rates and we're looking at you know, eleven points eleven points six in Italy, um nine point nine in France, nineteen point nine in Spain, twenty three point three in Greece, and then we're celebrating. Stand, there's not much that we can do. Um. Not good, all right, not good. Let's but let's say you get the call from the Angela Merkel and she says, you know,

Danny Blanche Flower, You've got experience. You're on the policy making committee of the Bank of England. You're also a professor of economics at dartmin And you get one wish. What would you wish that the European Central Bank would do or that my government should do? Well? Your government should start to do a very large fiscal stimulus. Go and start to think about a trillion euros to start with.

Investing in the infrastructure and capital investment and so on to help out the e c B. This is obviously where we have to go. They've been reluctant to do that. I mean, the worry came in a way, is that if you can think back to the thirties, what caused the Great Depression to go away? The answer was a huge fiscal expansion in preparation or in actuality of a war. That's what got the Great Depression over with a huge

fiscal expansion. Well, we'll have to wait and see whether the Germans are willing to spend the money to help Europe. Thanks very much, Danny Blancheflower, Professor Economics, Dartmouth College. This is Bloomberg coming up on Bloomberg taking stock. Have you ever wanted to create your own business? While one couple has created an educational and plate tool that's composed of bendable blocks, We've got details next