Italy Election was Unexpected, Eichengreen Says

dollar reduction of a trade surplus. Some China disputing reports this morning that it had offered to reduce its annual trade surplus with the United States by that number, with a Foreign Ministry officials saying he was unaware of any such concession. Where does the two billion come from? While the reduction in the U. S trade get with China by was on a list of demands that the president's administration made earlier this month, as Treasury Secretary Steve Manuchin

led a delegation to Beijing. So just where are we? What? I'm really pleased to say that Barry I. Can Green University of California Berkeley professor joins us now the author of his new Berkeley Populist Temptation, Economic Grievance and Political Reaction in the Modern Era, and joining us on his most recent project syndicate column as well, China and the future of democracy, Barry, where better to begin than with China.

Let's just begin with the news if we can, and we'll work our way through some of the work you've been doing recently. How realistic is it to get this trade surplus down two billion dollars? It's unrealistic period um. I think a number like that may be attainable over a decade um as a consequence of big changes in the structure of the Chinese economy, and maybe some changes in the structure of the U s economy as well,

but not as a matter of government fiat. If China were to take major steps to curtail its exports to the US, it would export more to other markets, say to Europe, and other countries in Asia would redirect their exports towards the United States. Even if you deal with the bilateral trade balance, you don't end up solving the problem if you regard it as a problem of the overall US trade deficit. The other big issues as well. Barry.

On the list of demands that the United States has reportedly given to China, this might be the easier one to get the Chinese to agree to. Bring this surplus down over an agreed period of time. The more difficult one, perhaps is to get the Chinese to stop subsidizing the industries around the made in China five effort. How difficult will that be? Barry? I agree that to focus on the trade deficit is to take our eyes off the more important issues. I don't think that China thing is

a big or objectionable issue. Every country has an industrial policy and does things us to try to develop its high tech sectors. Where China violates international norms is in terms of intellectual property protections. And my worry is that if we focus on the headline trade deficit number and and congratulate ourselves on our ability to export more motor vehicles to China, we lose sight of what really matters,

which is intellectual property rights. Bury the hallmark of your work, your books from Golden Fetters to Globalizing Capital, in the many many books that all of us have read, and of course this book Folcus is an immediate view of book of the year. This is on populism from Professor Eiken Green is the old phrase O B E. Then we get to a point where all our good thinking, where we're overcome by events. When you look at dollars strength,

how close are we to being overcome by events? I think there is obviously a tendency to react excess of lee. That's what financial markets do. They react excessively to news. So people are extrapolating the recent rise of the dollar into the future and imagining that it could proceed much further. And that's part of the reason I think why emerging markets are having such a tough time at the moment.

It could be that the dollar pauses, and that gives Argentina time, for example, to conclude its negotiations with the IMF. It gives Argentina time, but then you get knock on effects. For example, John I did log in honor of professor Ike Green. I did a semilog chart of Brazilian real which is curve a linear log, which means some acceleration back up to new Brazilian weakness. Is it a domino effect? Does it? Does it go from Argentina or Turkey onto

other things? Is is that what we learned in Ecuador, Mexico or Thailand, what we learned from from that earlier experiences that investors can um go to sleep for extended periods and then something called s along to send them a wake up call. So I don't think there is economic spillover from Argentina Brazil, but there is a greater awareness all of a sudden that there's an election coming in Brazil later this year, and that could deliver the unexpected, as it did in Italy. I look, Barry at the

political Maelstruman as we spoke on television this morning. I think our audience worldwide on radio wants to know what the backside of populism is. I mean, William Jennings Bryan was William Jennings Bryan and then things changed. How do things change? Is it just economic growth solves populous fears of elites. Economic growth certainly helps. So the economy in the United States had turned around in a year before that historic McKinley Brian election. Prices had begun to rise

rather than falling, So all that help. That helped the armors and UH and the workers. But the other thing that happened was an effort to address distributional concerns and to strengthen competition anticrust policy, to deal with the railway monopolies. And UH. It's not only only growth, but it's also

economic and social policy. More broadly, then you have to ask the question why are some countries better able to respond in that constructive manner, whereas in contrast, you saw in Italy and Germany in the ninet twenties no no response and UH an even more extreme swing to the right. Have we had the populist shock yet, Barry? Have we actually seen that and where have we seen it? Well?

I think we have seen it in a sense that there's been a profound disaffection towards mainstream political parties, UH, criticism of the elites, UH, targeting immigrants, minorities and others, and and authoritarian tendencies. So if you asked me to define populism, I would say anti elite, anti authoritarian, and anti other where other can mean the wealthy bankers or or foreigners, depending on whether you have right wing or left wing populism. So, yes, we've seen it, we just

don't know how it will end. Very congratulations on this effort, folks. I'll be direct. I've already downloaded it to the old kindle. I've got a big trip coming up and it will be major airplane reading. Already a shortlist for Book of the Year, The populist populist temptation by Barry Coon Green at the University of California at Berkeley. We greatly appreciate his attendance. Julia Carnado with us right now, with micro policies,

we look at any number of things. I think, just because of time, Julie, I really want to focus in on the inflation dynamic. Is the Fed's measurement of inflation right now anywhere near accurate in the measurement of the inflation our viewers feel? Yes, I mean, I think that what they tend to look at is while they focus on core inflation as the underlying trend, they look at headline inflation. So right now we're seeing headline inflation perk up a bit on higher gas. Goods is coming up

as well as it was. Actually, you know, broader goods, core goods prices really aren't showing the strength that they've been wanting to see. So we see things like auto prices coming down because auto the auto cycle is peaked and we're seeing auto demand come off. Auto prices are you know, people have to offer discounts to get people

to buy cars now. So broadly speaking, the inflation picture looks pretty benign again abstracting from what consumers are going to feel as a big hit front gas prices in the near term overnight. John Fair, I bring this up because of Japan, where I mean, I'm sorry it was it was Mouldi nominal g d P John, and Mouldy inflation as well in Japan. Julia West thinky credit picture

in the United States. Now, the New York Fed coming out with their high frequency data, the release of the credit loans and and looking at the number of consumers inquiring about taking a more credit within six months, and it's fallen into five point six five it's very very low. Yeah, So that reflects again the peaking of the auto cycle, less demand for auto's, less need for loans ferrautos. In general,

consumers have not shown a taste for releveraging one. Credit standards are still pretty tight, but in general we really haven't seen that sort of rush to add on new obligations, even as the economy is better, in the labor market heats up a bit, so people will be sort of wandering about that drop of five point six five percent. I'm wondering whether that's related to tax savings, so that I need to take on more credits. So is there an optimistic story there or is this one of pessimism.

I mean, that's a that's a pretty high frequency read. I mean I think, um, most consumers did see a small bump in their paychecks, but a lot of consumers are facing uncertainty because of higher state and local liabilities. So I think, net net, a lot of consumers are going to be really uncertain until they file their taxes next year about what the net effect of the tax cut is for them. So I wouldn't call this attack story.

I just think in general, if you look at debt to income, consumers have been cautious the entire cycle, and there's no sign that that's about to fade. Are we make America great again? I mean, you've been more cautious in you you know, you made your reputation on being right about a more subtle and diminished GDP versus consensus at the time. If we're not at this represent run rate,

where are we? Well? Look, I think a lot of my view is based in the demographics of our country and of the global economy, and so you've got a lot an older generation sation that is more focused on saving their gains. If if equity prices go up, that's great. We'll spend a little, but we'll save more than we did in the past, and and and focus on retirement. So I think that that's just a reality that we face. So I still think potential GDP growth is below two.

We're running pretty strong right now. Um, that's creating good, good labor market momentum. I think we can see that continue. But the underlying trend is is pretty pretty modest. Where are you in good question? Most people agree on we'll get close to a three handle. That's what the government is looking for. The economists surveys by Bloomberg on the Street, the median estimate this year, I believe it's two point eight pc. It's going to be the high. Two seems

to be the consensus view. That's the consensus. The consensus breaks down significantly next year and the year after that. What's your view? So so, not surprisingly I'm on the more cautious side, partly because, um, I think when we do tax when we do fiscal stimulus, defice financed fiscal stimulus at full employment, we are going to see margins of crowding out. Um, We're going to see higher interest rates,

tighter financial conditions, perhaps wider trade deficit. All of these things mean that the pass through to the domestic economy is not going to be as strong. Jiropolicy Advisors, thank you so much. Thank you for wearing like an evening gown type you would graduate. I'm all amped up for team coverage. I mean, I wore a tuxedo today for radio. It works on radio. You look, you look fabulous. Pharaoh. On the other hand, what do you have on an A C. Mullin Jersey over there? I know, well, a weddy.

You don't wear black to a wedding in the not at Kingdom's home. It's a few really really please protocol breath tell us about that. No one of the European aristocracy would wear black to a wedding. Really, what do they wear? You would? You would wear a different color, black and gray and perhaps gray. You'll strung man, you'll, I'll go to find many men in the city of London as well wearing black suits. One of the miracles, the miracles buried on the internet is the photo of

me at my junior problem. That wasn't a black tuxedo. Let's get right to it. And there's been a huge demand for foreign exchange analysis, whether it's Berry ken Green in international economics or in the trenches of gazing at the Bloomberg one M McCormick. Mark McCormick with t D Securities, UM is very good at folding Bloomberg functionality into his reports. Mark, when you walk in in the morning, what's the first

thing in the FX world you look at on your Bloomberg? Yeah, the first thing is always the w c RS function. So I look at w c R, S, w E, I, w B and just the commodity function to kind of see what's going on across different asset classes. I look at w c RS and folks, this is a function I know John Farrell doors as well, and you can parse it into the different buckets of dollar dynamics against G seven, against d x Y, against the emerging market a d x y blah blah blah. Which bucket is

of most interest to t D Securities right now? Um? It's actually, so I do I do two different buckets, one to customize where it's all G ten, and then I do one that I frame out that's kind of global macro. So I throw in the major emerging markets to T d cover. So we'll you know, we look at Turkey, a little bit of South Africa, Brazil, uh, some of the Latin and some of the major Asians.

So come in and kind of look at what's going on the G ten, kind of give this sense of what's going on with the d x Y and then kind of pull it back out to what's going on and some of the major emerging markets. After I looked at my rad screen, you know, I've got it on the screen right now, Mark, and I've got the daughter was device currency in my basket. Just plane emerging markets have set the time period to one month, and it

is ugly. The Turkish Lyra down ten percent, the Argentine pace so dance sevent the Mexican pay so down almost nine percent. The Polish slotty has been hammered as well. Muhammad Alarium Bloomberg view columnist, Bloomberg opinion columnist and of course economic advisor to Alliance as well, talking about this trifecta of higher roll prices, stronger dollar, high US rates injecting some poison into emerging markets. Just how brutal is

it right now for a m Mark? Yeah, this is a this is a tricky time pre um because like what you have is you've got tighter global financial conditions. So obviously you've got the US rate story, which is very clear. We've seen the break of on the tenure, which is causing some kind of global financing stress. You've got the moving library, So librar o I S has been moving probably maybe on what people would look as

like technical reasons. We maybe it's some refinancing of the budgets and those kind of things, along with some repatriation that's come through from the Cisco package. But the other side of it is you've got US real rates are starting to move up. I think that's one thing that a lot of people kind of misses that the US real rate is the global plumbing of the financial markets, and so the US tenure real rates back is pretty

close to one. So to me, what we're kind of really focused on is whether or not the US deal ker is going to continue to whether US real rates are going to break one percent. And also the story behind the scenes is the ECB and the b o J are are gradually normalizing policy when you look at the deils of their balance sheets. So you've got this really kind of toxic mix for emerging market which you have volatility and you've got the end of easy money

coming at the exact same time period. Mark, let's go on Canadian onion. In the time we've got left, you're with Toronto Dominion Bank TV Securities. And is there a play in Looney right now or is there a a play and a different Canadian pair where John can you know, recover financially from his wedding gift to Megan and and Henry, I mean, where where's the place to make it? Henry? It's Henry, Not excuse me, folks, it's Henry, not Harry. Okay, Mark, Mark,

where can I make money in Canada? Yeah, it's a very interesting time because I think what people are usually focused on in Canada they always look at oil prices, and they always look at the kind of interest rate differential or terminal rate spread to get between the US and UH in Canada. What I think people are missing again in this story is that Canada is now becoming

what we're calling a credit currency. And so you've got essentially, um, we're where in the world, as we just kind of mentioned here, in emerging markets, where you've got its global tighter financial conditions you've got what we'd call a regime change in financial system. Central banks are ending the easy money game. And Canada here is a country that sits with a very large current account deficit two and a

half percent of GDP. It has not improved since the paper tantrum, Which was one positive evaluation signally got from emerging markets is they started to reduce those external and bounce is once the taper tantrum started in two thousand twelve, two thirteen. But the concern for Canadas, you have a country that hasn't really started to deliver yet, you have a wholesale funded banking system. You've got tighter financial conditions coming from the US and that's being passed on the

Canadian consumer. And the big story here is that the Bank of Canada is already engineered and overshoot um. Whether or not they call it temporary or whether tactically they are going to overshoot their inflation target. You're going to have lower real rates in Canada. You're gonna have a very large current account deficits. Did you see Did you see? JOHNA. McCormick didn't answer the question give me an economic dissertation. I just want to know John where you can make

money to bake up for your wedding present. Yeah, to Henry, I guess he was town. What do I do? Run mind? Yeah, I mean do a do do a dou. So it's straight up to buy dollar cat dips trade on fifty, but it's also a cross trade on on evaluation but basket. So we're looking at short cat against Yeah, we're looking

at short cat against cable, shortcat against euro. So essentially what we're trying to do is we want to be along all those turn accounts surplus countries that we still see those currencies as being undervalued over the next six or twelve months, and we're short the Canadian dollar against them. So that's kind of the want to. You don't want to be traveling to Europe. McCormick was long the Winnipeg Jets leave alone. Just quickly. You mentioned Canada has not delivered.

We've all heard stories about the property marketing Canada. We've all heard very ugly stories. Where is it and where's it going? In your mind? Where do you see things going? Well? I think things are still relatively positive, So there's you know, you kind of have your sentiment base, you know, where should you know, where how do people feel about it, and how people feel what's the common knowledge about the real estate market and whether or not they want to

continue to kind of you know, buy into it. And there's also the supply demand. The supply demand for kind of the real estate market is really driven by what's happening in toront know, which is becoming a much more globalized city and you're seeing a lot more immigration, You're seeing a lot more you know, pressure on the supply

and demand story. It's kind of like you know, where New York City was ten fifteen years ago in terms of you have all these people coming in, you have these different industries changing, and the city is just not ready for it. So there is a natural pressure that prices do we just have to to kind of continue

to rise. But the story is is how much really is this impacted by the mobility of global capital and how much money is kind of coming in from other countries and how much is that dislocating the potential for people that can afford real estate versus kind of like how much is this an asset play? So I think the baseline here is that the market's cooling off, but it's pulling off at the exact same time that the consumers have just are basically just starting stage one of

the leveraging. So the domestic demand story is really kind of I think what is the major concern is that if housing market and the consumer come off from the exact same time, there hasn't been anything else to kind of kind of hand over the economy to continue to move. Mark, nobody cares Jets or Vegas, which one I guess I'll just go Vegas. No, you're we You work for TV Securities. You're supposed to say Jets. I stopped watching sports after the Raptors. Uh after they got swept by the by

they did. I know, it's it's therapy as well. Okay, Mark McCormick, thank you so much, greatly appreciate what TV Securities. That was brilliant, nice summary there of Canada. Pim Fox and I on a Friday with John Tucker and we're sitting around anxiously deciding what champagne to buy for the Royal wedding, and Campbell's falls apart, so we're able to go out and get Scott muschikin. He's with Wolf for years, with d l J and Kidder Peabody's when every award

out there, he was so good. The Wall Street Journal in their beauty contest a couple of years ago, actually retired him. He's not retired. He's with Wolf where he's He's seen the Durance family struggle for years. Scott Um nineteen or rather two thousand and eight, ten years ago, Campbell's soup with a moldy five point one percent total return and the two minute drill is they're not getting it done. From their annual report of ten years ago.

At Campbell, we believe the key to sustainable success more than ever is on course strains, major trends and outstanding opportunities worldwide. Isn't this about nobody wants to buy a can of Campbell's tomato soup. Yeah. Hey, first of all to him and Tom, thanks thanks for having me. But you know it's interesting, Uh, the ship category actually grew this year, UM, Believe it or not. It was a cold winter, so soup grew. So you know, one of the things going on here is just lot out mismanagement

of Campbell's UM. Now there's unprecedented change afflicting the food at home space UM, and there's certainly that headwind and very disturbing coming off that conference call with them talking about not being able to get pricing through and what is that is that that's Bentonville, that's Walmart. Walmart saying no way, guys. You know, we're we got a plan and we're keeping prices low and so aluminiums up, steals up.

You're not getting pricing, But go ahead, Scott, I had a slide rule when people were talking about this good family, the steward of Campbell's soup should sell the company. Is that same conversation going on today? I mean, I think you gotta look at Campbell's and they talked about a strategic review and you know, from our perspective, ten billion dollars in revenue going against you know, guys like Kroger and Walmart. You know, the scale is just not there.

Uh and clearly the operating acumens not there. And so I think, you know, the family should think about it. I think Kraft Hyns makes a lot of sense, honestly, and we've talked about that and even in writing like I don't think they have the scale to do it. I think there's unprecedented change coming at this industry. Food at home industry and people need to bulk up, and not only retailers. But I think these manufacturers have to think about coming together, all right, So Scott Mushkin, let's

say that they're thinking about coming together. You mentioned Craft Hynes. Is that the only one? I mean, I think that in our opinion, it seems it seems somewhat logical. Um, there's obviously long term investors in in Kraft times uh three g in in Berkshire, Hathaway. So if the dor and Sandy wants to do it, they you know that it makes sense there. But I mean, as they said, everything is on the table and it's always tough to speculate, but it makes a lot of sense. They fit nicely together.

How long can they keep doing this? Campbell's Yeah, I mean, you know, I think the markets telling us that you know, they're they're they're tired of of what Campbell's has been doing over the last ten years. Um and the challenges. And we saw you know, Kroger partnering with Accado yesterday. Um, the industry is it's tell Tom about that. To hang on a second, Tell people, tell tell people about and Tom about this this deal, because this is interesting. What

Kroger did with Ocado. It's licensing some technology that is already being tested and used in France and also in Canada. Yeah, and then of course over in the UK. So I mean the you know, Accado basically is an automated system to bring online groceries to your home. Um, and Kroger his license decked technology. It's been pretty successful over in the UK, and as you mentioned, there now spreading their

wings into other markets. Um. But the net of it is, and this is the challenge, is Kroger's agreed to build twenty STU where houses distribution centers. That's all extra capacity. Um. Funny enough, the birthrate came out yesterday I think from the CDC, and it was the lowest it's been. So the challenge with the industry is it's not growing all that fast. Populations of fifty BIPs. You know, food at

home may not even be growing fifty BIPs. And so when Kroeger announces they're gonna build twenty fulfillment centers, you know almost gives me heart palplications and like more capacity into an overcapacity industry. Uh, not to mention what Amazon is doing with Whole food, So you know, they got to play. The industry is changing, but man as is tough out there. It's tough out there, and with your experience, Scott Michigan, is just simple. It all gets worked out.

You know, the five year plan becomes the three year plan. I think everybody can basically stay. Campbell's has been a modest train wreck for a number of years for whatever reasons, and all that every other industry is rolling up essentially, look at media just as one example. When does the food frenzy start and they all merge? I mean, you know it should in our opinion, it should, and it's it's started to a degree. I mean obviously Campbell's bought, but but Lance, but um, it needs to happen at

a much more rapid pace. I mean, we would have thought, and we've wrongly thought over the last six months it would have sped up. Um. But you know, even on the retail side, there's this kind of like almost overconfidence, um that things will be okay, it's all gonna work itself out. We've seen you know, bad trends before. But you know, in our opinion, that's that's the wrong thought to have. That you really need to partner and partner quickly.

Pen very quickly. Kraft Heine's employment thirty nine thousand, Campbell soup half as much eighteen thousand. That gives you the skills. Yeah, well, Scott, I just wanted to know if that is, Uh, if that sort of underscores the I guess the scorecard that you've got. You covered twenty three companies officially, you've got thirteen holes and ten buys. That's not a big bull

endorsement for the sector, is it. Yeah? And then you know, you know, we've we've known each other for years, and you know one of the things that you know, I think I got wrong honestly over the last six months. So we were very barished on the food at home sector with a lot of cells. With tax reform, we believe nominal growth in the U S would accelerate, which is actually happening. We thought the inflation rate would rise,

that's happening. Generally. That becomes a much more productive environment for the food at home sector. Uh. Realizing there's unprecedented change. But right now we're seeing is that this idea of nominal growth helping the sector, it's just not not coming through. Um. The unprecedented pressures are winning the day. Well, let's be constructed here are you've been kind to come out and

short notice Scott Muskin. What is natural Grocers? Oh? Natural Grocers. Oh, it's a it's a small regional chain selling natural organic food out of it's located at the Denver's that stores kind of in the mid all ther performance and that you're killing it on natural Grocers, it means it's been why is that a moon shot versus everybody else troubled?

So so I think you know, one of the things we see in the food at home industry is well, first of all, geography matters, right, So they're located in Denver, they have a lot of stores in the oil market, which is rallying, uh huge, and so they're they're getting a big economic benefit. But we see is this so as you get up into the national organic channel, it does respond to a better economy and more robust economy, and so natural grocers. So I think that's factor number one.

Factor number two is you know, there's just not a lot of liquidity in that stock, and so I think that you know, when it can, it can overshoot and undershoot just because of the liquidity factors. But you know, definitely their business has improved markedly because of what's going on in the macro industry, macro economy. Scott really appreciate this on short notice with wild free search. Scott musing on Campbell's soup as well. Thanks for listening to the

Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio