Leo Melamed Sees Potential for a Global Financial Crisis(Audio)

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with pin Box and Kathleen Hayes on Bloomberg Radio. Volato financial markets, unprecedented central banks over the past few years that have taken us to places that no one could have imagined, places like negative interest rates, the relation between US and China, so many things hanging over the markets now. Who better to ask where are we and where are

we going next? Than Leo Malomed. Of course, he is the founder of finance futures, the man who went from chairman of the Chicago Mercantile Exchange to create the International Monetary market, leading the CME then in creating a number of important financial instruments. Instruments from foreign currency futures to T bills, Euro dollar stock index futures, he spearheaded the world's first electronic trading system, Globex, and so much more, and he joins me now on taking stock. Welcome to

the show. Welcome, I'm very happy to be here. It's a real treat. So let's start with where we are in the US when it comes to the Federal Reserve. At this point, Leo, what should people be doing? Just kind of putting you know, shutting out the Fed noise or saying wow, Janet Yellen is still worried about the labor market, doesn't sound very aggressive on rates. What what

is your take there? Well, you know, she she's between a hard and a hard place, because it is it is true that we are a part of international system. It's not just to see it's not just the United States by itself. It's a it's an ocean of problems around us that that she has to deal with. And our progress has been um really very very slow in terms of recovery from the two thousand eight uh A crash. And so yes we are and we're certainly on a better trajectory than the rest of the world, but we

can't live alone. We are all our trading partners are in trouble. Europe is in trouble, Japan is in trouble, China is in trouble. Who who are we going to sell our goods to and how are we going to recover if if no one else around US does? That's

her problem, and I understand it well. Speaking of China, the President is in China, the US China Economic Dialogue underway, Jack Lou criticizing that, well, maybe urging the Chinese to take some steps to signal more trade policy better those uh, the islands that are disputed that they are becoming more and more contentious all the time. What does what does? Where is China now? And what you just mentioned the fact that that they're not growing what that means for

the US and the rest of the world. That's right, and I think in there they're trend of um lush growth is going to continue for a while. You know, we look, we look to be able to have a two percent GDP. They're talking about a six percent. I

don't even think that they can reach six percent. So it sounds like, you know, they're much better off than we are, but they're not because they've they've got a real bad issue in nonperforming loans which occurred as a result of coming out of the two thousand mate um debacle that the world had, and they sort of recovered

from that because they just threw money into the system. Now, that was okay for a little while, but it's continue to a point where the nonperforming loans throughout their uh private sector is such that I don't know what they're gonna do with that. So yeah, you know, one of the things that they do is that, you know, you may if you can't do something domestically, maybe you do

something internationally. And that's where the islands come in. So they're gonna they're gonna be, you know, difficult to deal with on that because they've got internal problems right now. You know, just the opposite of what some people are saying about China doing manipulations or eating our launchers things like that. That's that's just simply not true. At the moment. China is having a tough time just staying study. In fact, they have to support their currency because it would fall

um much more if they didn't. So it's not I wouldn't say it's in good shape at all. Well, you know, quite apart from the economic fundamentals and and the political leadership. There's a question of the markets in China and there's structure as somebody who who revolutionized financial markets in the US and around the world. What what is what is China's big challenge now? What where are they and where do they need to go next to really have mature, open,

you know, internationally powerful markets. That's a hard it's a hard answer, the hard question to answer. You know, you've got to understand that what they want to do is to become a consuming society because they grew out of exports and right now their exports, of course have diminished considerably because the rest of the world UH situation, and so what they've been trying to do is change from

an exports society to a consumption society. That's not easy to do at any time because we're talking about a you know, a huge, huge population. So um, it's hard at any time, but harder yet during the time when the conditions in the world are not that good. Now overall,

China has done miraculously well. We all understand that in the past thirty years that their their ability to bring out um their nation from poverty and from UH really truly difficult UH economic world, to a competitor in the world, to someone to a nation that is second to the United States. So you can't deny that they are capable people,

and they are capable and they have capable leadership. But you know when when a totalitarian type government uh that can how how distance the rest of the world with quick decisions and so forth, is a good thing at times, but when it continues to do that and doesn't know when to stop, it hasn't got the the kind of

um maysayers only disputing their their plan um. They don't know how to stop, and that's their problem that they're still continuing to throw money into um operations and buildings that cities that are goose cities and so forth, major problems. Do you see potential for another financial crisis? Japan can't okay? Where how what do what do you see? Well? I just see that that nation. You know, you're dealing with

negative interest rates. It's it's unheard of, it's not it's not the kind of thing that's going to work, and it isn't working. You've got Japan, um what they've been in a depression now for twenty five years, and they can't seem to get out of it. It's getting worse. Europe maybe it's in a little better shape than Japan, but it isn't that much better. And they've got internal problems.

You've got Greece, and you've got Italy, and now you have even the the Brexit situation and the British people, Um, you know, one can't even blame them if they say we don't want to be part of that. So all of this is a condition that does not call for a great rebound. I think I don't know that we'll go back into a recession, but we're certainly not going

to be in a growth mode either. Final question before I let you go, what indicator is there one thing people should be watching closely as as that sign media that that's where we're heading. I really, I really think the corporate spending has to pick up and and if you saw that happen, but to do that, you need a tech tax structure that is much more um, much more invitive of of corporate spending. So um, I really, I really think that we have to have some fiscal changes.

Leo Malama, thank you so very much for joining us. He is concerned about financial excesses in China. He's concerned about negative interest rate into and not working. Says there is potential for a financial crisis and he's hoping that maybe some fiscal steps could be taken to get corporate spending going again. This is taking Stock. I'm Kathleen Hayes, and this is Bloomberg Radio. H