Surveillance: Change in China Strategy Is Worrisome, Roach Says

of course on the Bloomberg. We want to bring Lionel Lauren back with Bloomberg gad Fly in London to talk to us about Italian banking and the mystery of Montopost. Here's the chart quickly on Monte Apost and this is a thousand euros and then two hundred euros and then one hundred euros and we're down here at eighteen right now. I mean, it's been a total collapse of this bank, Leonel.

What I'm frustrated about is I have not seen one iota of discussion about what it's going to cost the price of this transaction, whether it's the price of bond to equity, whether it's the yield taken on some form of bond or whether it's the actual dollar or euro figure that's going to be happened. Is there any price being discussed? That's a that's a good question. Um I Look, the difficulty here is that all all Italian banks have taken a big it. It's not just Montepasky the the

change that you mentioned. There has been market cat destruction across the board. Um, we don't even know. Investors don't even know what's the balance sheet is worth, what these on flolans are worth. Even appetite for the equity at these incredibly cheat bats levels of zero point one times at times book has not attracted the investors. So right now we're twenty billion euros right, twenty billion euros could get you thirty Montpaskys. Um, it's it's completely unclear as

to what you would spend the money on. So right now it's it's really complete lack of faith in in these balance sheets, in these valuations, and really the lack of mark to market going on here. For our global audience, particularly in London and particularly in New York and Washington, this is beyond odd. Are there outside institutions coming to bear upon an original Italian dialogue? And discourse. I'm skeptical.

I really wish there was, but I feel like we we were here at the start of this year, we're here at the end of this year twenty billion euros. Again, you could do a lot, You could buy un credit with twenty billion, But I feel that this is not political, and that the whole discussion will be about whether you can avoid a bailon of investors, whether you can get a political solution to kick the can down the road. It will require the ECB, it will require Europe, it

will require Germany agreeing something with Italy. My my concern is that we're still going to be talking about Italian banks and we still want to fix this solution well into next year. What would I have to do to get some degree of clarity on a bag of assets that I made buy from one of these institutions. How difficult would it be? It's it's difficult because there's so

much that goes on. I mean, you do want to get some value right, and and and trying to work out how you can actually get that tiny bit of value left. That takes some security on getting those cash flow. They've got villas in Tuscany, they've got they've got all kinds of stuff on their books, They've got buildings around the corner from our bureau in Rome. How do how do we value this stuff? But but the issue is

how do you retrieve the cash flows? Whereas the legal certainty some of these loans have been kicking around for ten years and unique political reform and legal from which you started to actually get the infrastructure behind getting the cash flows back for these vulture funds. There is appetite there. Absolutely, it's starting to change, but in terms of the discount that you would have to apply to get any concertancy on on getting the cash flows back, it's it still

remains a big question. Leono, very valuable, Thank you so much. Look for Lionel Laura with Bloomberg gad flying no doubt on European banking. He was former chairman of Morgan Stanley Asia, from a chief economist at Morgan Stanley, now a Senior Fellow at the Jackson Institute of Global Affairs at the University, also a senior lecturer at the Yale School of Management. Stephen Roach joins us here in our studios in New York,

recently returned from China. Great to have you here. And as someone who has traveled to China before, I know that the conversation plays itself out over and over and over again. People ask you while you're there for your sense of what US policy towards China is. And imagine there was some particular difficulty answering those questions this time

while you were over there. If people were asking you what Donald Trump's policy towards China is, I want to ask you how many times you had to feel that question? But what do you find yourself saying when asked? Well, you know, I I talk about them some of the challenges that this new administration is going to face in delivering on its promises to get America growing again, deliver jobs, and make the country great again. And is it? Is it a challenge It's going to come in China's expense

or ultimately in America's expense or the world's expense. And I guess the point that I make is that Trump inherits a difficult set of circumstances because the United States is a low savings economy that's going to be expanding its budget deficit under the Trump regine, and that budget deficit is going to push our low savings right, even lower create more problems with respect to our current account

and multilateral trade and balances. Tom So that puts pressure more and more on China and the US to find a way out that doesn't create issues for the dollar or U S interest rate. David I thought that was a key sentence within Dr Roaches note was a bilateral fix in a multilateral world, which really captured some of those tensions when you you're over there, How is news about the transition being communicated? In other ways? What what is of interest to the press in China about about

Donald Trump's China policy? In code as it is, what's being communicated? How has it been communicated? Well? I mean, and you know, the big shock was the phone call from Sighing, when President of Taiwan to Donald Trump, which really took the discussion US China into a realm that

the Chinese work completely unprepared for. UH. They understand the broad constellation of forces, whether it's the South China Sea, the UH, some of the currency capital outflow related issues, but Taiwan was not a topic that was thought about ahead of time by the Chinese, and it's not quite clear that it was something that was thought about by

the Trump administration either. But it is what it is, and this is, you know, touches on the key perceptions of territorial sovereignty for for China, and so I think the risk here is that the incoming Trump administration doesn't fully appreciate the waters that they are waiting into with respect to this issue. And I'm not sure the Chinese

fully understand it either. How will they adapt to the general nous of the cabinet and of the senior administration of fish choices, the idea of the military within a Trump administration, Well, it's it's a great question, Tom. I mean that sort of changes the character by which the by which this new administration is going to address global issues. Is it going to be one of uh negotiating a

a safer and saner worlds? Are going to be a more muscular The United States is going to demand uh that UM allies and adversaries alike, UH play according to its rules. Uh. These are these are tough strategic issues. One of the issues that that I found being addressed when I was there last week was, uh, what is the U. S Gonna do with respect to enforcing its treaties with h Japan? Korea, Taiwan, UH, and another Southeast Asian Assian economies. Is it gonna walk away? David, Girl,

This is really important. This goes to what we talked about before, which is adjacencies and that we have such a simplistic bilateral dealmaking tone. Frankly, not just Mr Trump. I don't mean to criticize the President elect without the nuances of those adjacencies. How does to David's question, how does Singapore look at the new administration and the pivot to Asia? Well, the new administration is UH pivoting away from the pivot under the Obama doctrine that won the

Secretary Clinton very much. UH supported that UMU. The US focus on Asia, especially through t PP was designed to put leverage on on on China and possibly contain what they worried to be a arise of China that was going well beyond something that UH, the United States was comfortable with strategically. UH and I think under if Clinton presidency, which will not occur, that that pressure that China containment strategy would have been an important feature of the next

four years. That is taking a different form right now under under Trump, China containment appears to be shifting from the economic realm to more of a military strategy. And that's a worrisome UH development to think about. Stephen Roach, of course, with Morgan Stanley for years and now at Yale University. A beginning question is, David, and I ask you and quizz you on our central banks. Is the

Phillips curve alive? And well, this odd relationship, this guestimate, this, if it was Newtonian nineteenth century, would be multiple plug in belief in a relationship of jobs, an inflation and a greater economy is a Phillips curve working? No, it's not working, but that doesn't prevent central banks from pretending that it will. I mean, why else did the Fed

UH move um UH last week? There's a belief that, you know, inflation is moving back to their target, and so they want they want to align interest rates with a commitment to price stability. So using short term interest rates to address um UH inflation control is at the heart of what central banks UH have long done in this country and and probably around the world as well. Tom what did you make of of what Jennet Yellen Fitcher?

Jennet Yellen said internews conference last week about the reader, which she and her colleagues has been thinking about the prospects for big fiscal policy, big fiscal spending. The fact that this decision was based at least in part on the sense that that might be coming down the line. How how active a role do you see the FED playing here if we are to see a big spending

package like the ones that the President elect has proposed. Well, you know, David, the FETE has always said that, you know, they uh don't believe that monetary policy can do the job alone. I mean, I used to work at the fedback in the Jurassic era, and that was something that was, uh, you know, always in the template of anything you wrote in terms of official statements, you know, you know, way back then. Uh. And and and still is the case

right now. And the and the Ft has argued in more recent times that the unconventional uh monetary ease and the swollen balance sheets reflect the fact that fiscal policy is not doing the heavy lifting. Well, guess what. Trump has promised to be much more proactive in terms of fiscal policy to so, uh does that mean that the FED has to accelerate? Uh, it's withdrawal from the current stance. And and I think that's what Janet Yellen was alluding to.

If in fact that the fiscal authorities are going to play a more active role as the President actors promised, and you know that suggests a different approach for central banks in the US. Well, we're speaking with John Taylor last week and he was the next chair Perhaps we could get him to say so, but he was very optimistic that we would see reform to the way the FED is structured and the way that the FED interacts with with the Congress, going for what he thinks the

appetite is there for for that to happen. Do you foresee that happening as well? A change here in that in that relationship. Principally, I would be surprised if if there would be legislation passed to sort of codify a rules based framework that Professor Taylor has long advocated. On the other hand, if he is appointed the next chairman of the Federal Reserve, you better believe that's where the that is headed. So I think it's going to be more personality driven rather than um driven by a new

piece of legislation that reformulates the mandate. How do you feel, then, personality driven about let's even assume not the chairman, not the vice chairman, but the governors in the President's with the president's having a heritage of business, not being fancy pants macro economists like Stephen Roach. We all agreed there's got to be a couple. Kevin Warsh comes to mind of people outside the normal economic boom. But a lot of people supporting the president elect would say down with

a macro economist, wouldn't they. Well, they I think they say down with experts, down with facts, down with truth. Okay, I'll go there. So I mean, you know, you've got to be careful, uh, in this um type of mindset that you know, when we go into where you can sort of say whatever you want and defend it as

the new post truth reality. But but you know, I think that um, you know, getting back to the FED, the FED historically from you know, the years that I work there under uh, people like Arthur Burns remember him, Tom too, Uh, Paul Vulker to Alan Greenspan and Janet Yelling. The chairman has played a disproportionate role in shaping Monty. You'd like to see less of that and FED decision making. I certainly think that this is a committee that should

be ruled by a democracy. Very quickly here you mentioned Sherman Burns. Folks, he used to do it unmeasured. Should we have a FED that has occuraged to do more than twenty five basis points if they're gonna act act with a little more power into the system, or should they stay green spanning and measured. Large measures are designed,

I think to surprise markets. Greenspan wanted to uh sort of out of the markets, and that it depends on you know where where we're how how far the markets go uh in taking us to unpleasant places, and if the markets are turned out to be a problem, which is clearly a risk in terms of some of the dislocations that we're seeing now in markets, and then will

require larger actions. David, can you imagine young Roach sitting at the FED with a pipe and never smoked a pipe, Tom, but certainly had you know, a great experience in dealing with characters like Arthur Burns character that goes back to the personalization about his chairman. Burns battled with the Nixon White House. Steven Roach always enjoyed David Gurr and Tom Keene. The Penguins beat the Rangers last night, which I think is the only reason. Stephen as here. Did you go

to the hockey game last night? You did not go to the hockey game. I did not. I'm waiting. I'm saving my energy for the Giants game on Thursday. That will be very exciting. Absolutely, Stephen A with us, uh with with Federated, tell us give us an update Unfederated. A long time ago, Federated owned the money market short term paper business. Do you still own it? I mean, even with all that's changed, we don't think we ever owned it, but we have a decent share of it.

You know, we're still one of the top ranked money market players. Uh in the United States. We're becoming a pretty big equity player, which is where I where. Um. Yes, yeah, I know you're focused on the equity view and we're just beginning or two thousand seventeen views. Are you surprised by the double digit wonderment of two thousand and sixteen? Uh? I am a little bit surprised. Tom. We We've been cautious all year up until the day after the try. Yeah.

Things changed, effects change, and we shifted at that point to a more at least neutral stance from an underweight stance on equities. But yeah, it's been a tough year.

I mean we've been through really an eighteen month bear mini bear market, really going all the way back to May fifteen, and we've now we think we've now exited that one of these It's interesting, David, is to have someone of such grizzled experience as Mr Arth, who was enjoyed being wrong before, so talking about it is not painful. It's like, you know, you're a little underweight this year, and that's what happens when you when you look at

a sort of what changed scars me too. Uh, let's go to the election, that's or what changed after that? We saw this impulse here to get into things that might be in line with it with an introduction spending plan. We sew people going to financials. How in that rush were you? And and now a few months after that, a few weeks after that, at least, how much sense did that make? How much of that was just exuberance? There's a little bit of exuberance in there. I wrote

a piece last weekend called wall of hope. You know, usually markets climb walls of worry, and right now this market is climbing a wall of hope. We're awesome, and it's it's unusual because you know, if you think about it against the context of a long period now where we've been told we can't grow, productivities declining, we just keep carving up the pie. Uh and business is really under attack. Really, I think we're seeing something different now.

There's something in the air. You can see it in the confidence indicators, you can see it in the stock market. You've got a businessman running the bully pulpit, if you will. And I think his proposals are somewhat misunderstood. Actually, in fact, people keep talking about fiscal package as if it is and I have every political anilist in the country in my offices over the course of the year. Obviously um and you know Hillary Trump didn't matter. We're gonna get

a big fiscal stimulus. I think we're in this world where we think, since the private sector can grow, the only to make it grow is the government either fed or the government spends money it doesn't have and somehow hires people and gets them to work. And that is precisely not what Trump is thinking about. He doesn't articulate it. Well, he's a businessman. He's an entrepreneur. But what I would like to use the term restructuring economic restructuring to define

the Trump program. And if you think about that, deregulation, getting out of the way of making business is more efficient, cutting their costs, cutting their tax burdens, making the tax code simpler, infrastructure spending from the perspective of making the economy more efficient, to raise productivity. All of those things can improve economic growth, maybe bump inflation a little. But importantly, I think, and this is the real up here with

the Trump plan. Uh the but the bond bears, and you know they've been out in force in the last twenty four hours even right the bond bears would say, look, this is full stop inflationary when you apply fiscal stimulus to an economy that's at full employment. But if you're providing structural reform to an economy and full employment, maybe you can increase the growth rate and not have inflation go through the roof, not have the ten year bond

you'll go to five. And in that context, you're in another leg of the equity bull market, and for now I think that's what we're in. Obviously, things don't go straight up, We're due for a pullback, some accident, something, but our view is that this wall of hope is going to keep us going for most of the next year.

How much of this is attributable to the plans that you were talking about their the infrastructure plans versus something more ineffable, just a new sense of optimism, the fact that we're going to see a change in Washington, the fact that we're going to see at Republicans controlling at the legislative branch and the executive branch. Less based on the granular nature of these plans. So I don't have the granular nature plans that, but but more just on

a feeling. Well, one of the things I've learned from the various scars on my back, David, is that I'm not a lot smarter than everybody else. So part of me thinks, oh, I have an insight here that no one else has figured out, because I hear when talking about this fiscal spending, and particularly the infrastructure in the roll focus, how big it's going to be, how many dollars it's gonna get spent. How quickly are I think the markets and businesses actually smell out what I smell

out that this is something more than just that. And um, I think that's part of what's going on. And look what's moving. I mean, you know the stocks that are really in the heart the cross hairs of these reforms, like the bank spooks. You've got deregulation, you've got lower taxes. Uh, you know, you've got nominal GDP growth picking up. These are all things that helped the banks. Uh. You know, the sector the right sectors are moving in this sort of different view of the world. So I think actually

people are sniffing this out. We are evaluations. I mean just on a trailing p basis. I mean, I mean not that you and I want to recite Graham Dot and Coddle, not the coronozoo Graham dot and or Coddle is but where are valuations right now? Graham dot I think that might have been a bill or something. Uh. Well, on a trailing basis, valuations look very extended. And you could say, in a way, this entire move post Trump has been a value a reevaluation of equities. I don't

think that's the case. I think we think markets are being valued about eighteen times where they believe earnings are gonna be in twelve to eighteen months to me, I mean interrupt. This is critical because you said eighteen months. Yeah, I agree, it's not a I mean the media does a one year view. I agree. The Trump is um has moved us out exactly in a wall of hope environment. People are willing to look eighteen months out in a things are going nowhere environment. Everyone wants to know. Tell

me what the trailing earnings are. I can't convey enough, folks how important this is. This is called theta on the X axis, which is a time continuum of the belief from confidence, and all of a sudden everybody reaches out. The middle syllable of economy is con confidence. It could be that's where the cynic for Brooklyn Commy doesn't go anywhere without confidence. So yeah, eighteen times one forty, which is where we think we easily get to by sometime

in two thousands. Are we going back to a cell side? The security analysts that come on the show all good people, where they're ordered by their research directors to start, well, can you give me a two thousand and eighteen view in you know, February of two thousand seventeen. That's you and I remember this. Yeah. The thing is about the cell side is they are hesitant to put out numbers that they don't have facts to support the great in the New world, Like really, they've got the Attorney General

chasing after whatever. So, but are we going back with Donald Trump? Are we going back to what you and I remember our five year view on international business machines? I think it is. It is changing now. It's very horizon is changing. Wall of Hope? Do you have any idea what we're talking about? David? You know, I follow, I could follow here climbing that wall of hope with you,

Stephen Federated Investors. Of course, I'm doing equity investments. They're forcing us to continue with Mr Author so much fun, Like really, I mean seriously, folks trying to figure out the time continuum and the changes of Mr Mr Oths phrase the wall of Hope. I love that with audacity. We will use that. Did you get that? David? Which David got it? I haven't started by Christmas shopping yet.

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Learn more and find your independent advisor dot com. Alan Krueger, Princeton economist, teacher of public policy at Princeton, has written a piece with his colleague there at the university, Alan Blinder, from a vice chair at the Fed Reserve, looking at Donald Trump's in structure mistake. As they put it, We've been talking about the infrastructure plan this morning, so much as we know about it. And before we get into that, Alan,

I want to ask you. I mean, I think right after the election, I was asking every guest without fail here for a definition of trump ponomics. Uh, let's reprise that here on December the twenty three, wenty closer to having a sort of standardized definition of what trump ponomics is. No good. We see that Ellen Krueger has continued to not take the surveillance radio course for emphasis. Give us a sense of maybe saut who knows uh? Donald Trump said,

uh thought wages were too high. The next day he said he was misheard UH many todays for ten dollar federal minimum wage, and apparently he plans to nominate someone for labor secretary was opposed to the minimum wage altogether. So I think it's very hard to divide exactly where he stands on economic policy, and it's a moving partment. Walk us through here what we know of the infrastructure proposal we expect to be on the table here when

he takes office. You point out in your piece that Peter Navarro and wilber Ross has outlined in some detail what that's going to look like. Give us a sense of a shape. Well, that's one area where the campaign actually was specific, um, one of the few areas, and what they proposed I think could be a component of a robust infrastructure plan, but just a component of it.

So I think the problem is that the plan is really lacking, as opposed to UH being a mistake to have an infrastructure plan, or even for this to be a component of the infrastructure plan. What Peter Navarro and wilber Ross proposed in their ten page white paper is to have the federal government provide a very large tax credit tax credit to encourage private investors to invest in infrastructure.

UM there are some projects, probably a small number, where that makes some sense to have h private sector participation in the design and construction of the infrastructure. U subsidies

drives us as awfully generous. But more importantly, there are many other projects where there's no revenustry, so there's no incentive for private investors to make an investment in public infrastructure projects like schools or hospitals, roads that don't have Told Allen, the hallmark of your work is granular with concept, and in the back of your important essay with Professor Blinder, you bring up something that I'm going to suggest worked

like a charm, which was Build America Bonds. Educator audience on the success the proven success of Build America bonds. Both America Bonds were one of secrets of the Recovery Act. The Recovery Act provided for a new type of municipal bond, one where the federal government encouraged subsidized UH municipal government state government to do infrastructure projects by giving them a

thirty direct subsidies to cover their interest costs. So instead of taxing them bonds which worked through wealthy investors who get interest tax free, these work by providing a direct subsidy to the state and local governments to pay their interest costs. These were taxable bonds, so they were appealing to investors from abroad, they were appealing to nonprofits depending funds, to any investors who don't have tax liabilities in the US.

They were available for just two years, tom and in that period almost two billion dollars to Build America bonds were issued. And remember two thousand that at the time when the bond markets were frozen. So there's new innovation enabled infrastructure to go forward up at a time when financing was extremely challenged. The state local governments say, by my calculations, over thirteen billion dollars because of the subsidy and the lower interest rate that they were paying. Why

were they paying a lower interest rates? They paid a lower interest rate because there were many more buyers and these bonds than municipal bombs. Because foreign investors and tension funds and and and UH nonprofits endowment funds, UH all desired these bonds. And I'm looking back on that Recovery Act. What are some some lessons learned here that this new administration could change or do things differently going forward here in terms of what what what didn't work about that

Recovery Act that could that could be different this time around. Well, you know, when you're talking about an eight billion dollar act, and I think there were many many different components for the cup REACT that was a very different time. Unemployment rate was on its way up ten percent at that time, probably higher without the Recovery Act. UM. But just as far as infrastructure is concerned, UM, I think one has to recognize that infratrustre infrastructure spending does go out slowly.

It takes a while to get the projects spot the ground. One aspect of infrastructure that does go out quickly, however, is maintenanced, and we have an enormous need in this country for maintaining our roads and our bridges and our highways,

for fixing UH structurally damaged bridges for example. UM maintenance also has a very high economic return, and it's particularly difficult to see how having a private equity investment is going to help prepare existing roads where it's already very difficult to collect more revenue in terms of tolls from

those roads. So UM, I think I would emphasize if, if, if the administration is interested in investing in infrastructure to generate a high return and to um generate more economic activity, and to focus on me Alan Krueger with US of Princeton University. Always there are eight ways to go, David, can I rip up the script Alan Krueger among minimum wage with card, among your teaching, among your public service,

your discussion with Professor Blinder, and infrastructure. You wrote a little book that I read every word of It was a jewel on terror. I found it exceptionally illuminating. Back then, it was new, it was different, and yet terror has endured. As you look at Berlin, as you look at the assassination and Anchora. What have you learned since you wrote that beautiful monograph about terror? Oh, thanks for asking me about it. Tom actually sitting right in front of me.

I'm about to revise the book because it's now almost ten years old and it needs it. It needs to be revised. That's wonderful. What's new? Well, I think what we've seen since I wrote What Makes a Terrorist is a very large expansion of lone wolf terrorism. People are acting on their own, may be inspired by some of the terrorist organizations, but not guided by them, not trained by them, not deployed by them. And I think that's

a very different type of terrorism. They tend to be people who have run into problems in their lives who are carrying out these acts, whereas the nine eleven type terrorists, the terrorists who are sent by the terrorist organizations, are much more disciplined. They're much more dangerous in the types of act that they can carry act out. All of

the loan terrorists are also dangerous, of course. Uh, And it's more of an existential threat and when it comes from a terrorist organization as opposed to these loan wolts, you know. I imagine wrapped into all of that is the role of the media and social media and the way that a lone wolf now can be radicalized with more ease than in the past. Absolutely. Uh, there's the way information spreads on the internet. Also, I don't think we've learned that the media should stay cool after these

terrorist attacks and wait for the facts to come in. Invariably, the initial reporting is wrong, Even the best initial reporting tends to be wrong, and that just rates his fear in the public and blows the fear beyond beyond the risk that we're actually facing the line here between radicalism and terrorism and your economics is that still a huge motivating factor here? Just economic disparity, economic dissatisfaction. I think

economic disparity has actually very little to do with it. UM. The terrorist organization seemed to be driven by geopolitical concerns, by occupations and conflicts and being on often the wrong side of history and using the only means they have. UM. The terrorists themselves are not people who are desperately poor even alone. Wolves tend to be people who look like

the populations that they're coming from. UM, and certainly go back to nine eleven, it was people who were well educated, from from very wealthy families, from the countries that they came from. UM. So I think we tend to look at events through a lens of economics and tend to attribute too much to economic motivations. How about through the lens of public policy and how we respond to this, how we prevented from happening. How much better are we at it now than we were when you first wrote

the book? Well, I think we're about to take a giant leak to being worse at it. I mean, I think provoking UH religious groups UM and criticizing entire religious groups is not a way UH to prevent radicalization. UM. You know, I admire what George Bush did in many respects by going to a mosque and saying that our enemy are these terrorist groups. I think we need to

focus on terrorist organizations and try to degrade their capabilities. Um, and need to take security precautions against the lone wolves. But that's not the biggest threat that we faced. That's not an existential threat I think to the US. On the other hand, the terrorist group being able uh to use weapons of mass destruction, that is a threat to the US. Yeah. I look, Allan. And to bring it back to I guess where we are right now. There's a construction of a cabinet. I've got to ask a

difficult question. Lawrence Cudlow has been a terrific market economist with a steam track record at bear Stearns. Mr Eisenboys down at the Atlanta Fed documented it's a number of years ago. And of course the rap that will be put out by critics of President elect Trump is that he's not a fancy pants PhD economist like Allen Krueger. Uh, with great candor and respect for your work. And frankly, Mr Cardlos, Larry Cardlos, do you think it's a requirement to be an academic and a PhD to be the

chairman of the President's Council of Economic Advisors. It's not a requirement, Tom, And at the very beginning of the council, in fact, there was a lawyer who was the chairman. Beginning with President Eisenhower. He asked Arthur Burns to review the Council Economic Advisors, and it was Arthur Burns's view that the council should be run by UH research economists economics who are familiar with the literature. UH doesn't have to be an academic, of course, and hasn't always been

an academic. UM. So I don't think there's a requirement that it is UH fancy pants PhD as you put it. But I think it is helpful for the person to be knowledgeable of certainly of the economy, but also of what the uhsearch has found about the economy. Let me interject your David as you jump in and suggested by fancy pants PhD, Mr Gurt, I understand that Alan Krueger works more than fifty one work week, where the stereotype of his work at Princeton is about eighteen a week.

You know, you sort of Wanders on Thursday to teach, you know, undergraduate very quickly here, Allan, when when you look at that role of c e A chair, how much of it is is baked in other ways? How much determinism do you have when you inherit that role to shape at what that council does? Well? Certainly at the beginning of the administration you do. Um, it's a great job, and I should say I think very highly Uh Larry Cutlo as television persona. I've always enjoyed interacting

with him. You've never called me persona. Continue, Allen, I'm still holding out and hope for you that there's a job for you. You know, there's a bow tie. There's a bow tie restriction. Uh. At the beginning of administration, when procedures are getting set, I think that's the time when individuals in any of these top level jobs going to have the greatest influence. Um, the council is a

terrific job. Being chairman of the CEA is a terrific job because you're basically heading a think tank right next to the president. You have an outstanding, hard working staff. They come for a year. Again, this is the way that Arthur Burne set it up for President Eisenhower. Um, the staff usually doesn't care too much about uh stepping on people's toes because they're gonna go back to their

previous jobs. And UM, you get to weigh in basically on any economic policy that you want to the second Arthur Burns reference of the of the show there, I know it's too much. Alan Krueger, with great respect, thank you so much, and congratulations early for any and all of whatever persuasion Trump's infrastructure mistake. Blinder and Krueger in the Wall Street Journal, and we look forward to the

new new edition of What Makes a Terrorist? When that when the Ling book, I remember when he brought it out, and to be blunt, David, it was so brutal that a lot of people couldn't read it. You know, it was just so shockingly direct about what his research showed in the mindset of those that commit terra. Let me get your attention, Americans. Imports would be more expensive, exports would be cheaper, which I guess means the President elect wants to buy a BMW or Mercedes or something like that.

Sebastian Galley has done terrific work on this. Deutsche Bank. Let's talk about something I don't know about, and I guess as most of our listeners don't know about. Sebastian, Good morning. The Better Way Reform package in a border to its proposal discuss it's a it's an interesting and UH and because the groundbreaking proposal made by the incoming administration UH to tax imports essentially an equivalent of putting

on a duty. That means if you would be shopping in Walmart, it would be significantly more expensive under the new plan. On the other hand, there's really no penalty for for exports for net net and theory it should be a positive for the U S economy. Unfortunately, it also probably means a bit of inflation coming through some more appeal for UH the U S because it looks

essentially better in terms of balance sheet. It's to some extent a good reform um and the outcome would be a stronger dollar and more inflation coming into the US. It it's a radical plan. UH, it's an interesting plan and UH it's it's very sizable in terms of its implication for mistic the mix of industries within the United States, and maybe some restoring of activity in the US. What's your sense of of whether or not this is going

to be come policy. I mentioned are we speaking with and Morris of City yesterday about the oil market, and he brought this up in that context as well, that a border tax adjustment could result in a boon here for US producers. What sectors do you see this affecting the most, well, anybody who's exporting, and including the the

oil sector. But the export sector in the United States is relatively weak, so pretty much anybody who starts to develop these kind of activity and it will probably take a few quarters for that to happen well well benefit from this. There are basically low added value type of producers sign I T sectors and the likes which would benefit very strongly because their margins are very poor. On the other side, there there are those who import a lot,

and that's actually right now. They the majority um and they would suffer and they would have to take a hit on their earnings. You, of course, are are deeply involved with for ex strategy. And let's let's talk a little bit about China. We kicked off the show talking to Stephen Roach about the Chinese economy, and I wonder if you're you're forecasting here a s Groundhog Day in the new year. Just in January and February of this year, there was so much trouble with China's reserves and we

saw so much movement in the Chinese currency. What's your your sense of where we're headed here in the new year, Well, what is what we've seen is the Chinese essentially been puts and more and more capital controls domestically UH to to stand the risk of outshows, including UM many marchers in acquisitions which we're going from China, particularly going into into Europe to acquire technology so that they could renovate the basically the industries within China. UH that has been cut,

which tells you that there's a lot of pain. That means in terms of potential outflows, they're they're still there, but they simply are not realized. What will happen in the beginning of the year is as pointed off by our colleagues in Asia, is that the retail investors will be allowed to export such fifty sum per person and that typically means us some upper pressure on the dollar versus that remimbi. So there might be UH some some weakening of the remimbia in the beginning of the year.

It might also be used as a signal to all the to the incoming administration, but that's not very clear. It's a bit playing with fire. If it's a very large evaluation. If it's a medium one, that it's more debatable. And so you know that when the big guys are playing in playing poker it so it can be a difficult game. Are there indications when you when you look at the currents, when you look at the Chinese currency, are you confident here that the Chinese government is letting

it is willing to let it float. Well, they can't let it float. They are not not fast enough because they would effectively be a form of extreme tightening of monetary conditions within China. So what it's trying to do

is achieve a reasonable pace of of the evaluation. Its currency is a cyclically overvalue it even though in long term and say it's actually quite cheap, they do have significant problems and as a fat Titans is driving a lot of demand for the dollar, plus the issue that they have in China um and and so the outcome is they're they're doing their best to to have a moderate evaluation, but that comes into the face of an incoming administration, which has decided to something ex actly for

now to concern sun China. So it might be difficult from where you said, what does the ability to quote unquote make money or maybe make alpha and e M currencies right now? Is that a context bard and hazards or is there a real opportunity and the travails of emerging markets given President Trump, well, I mean particularly I feel if we're going to get trade wars in that, which seems somewhat likely on the emerging markets are particularly vulnerable. Then then again, some of them are are doing a

little bit better. Higher old prices are helping some oil producers, and some of our colleagues are putting out to the Russian ruble is maybe being not so unappealing as it

used to be. So there are some marginal opportunity within emerging markets, but the ways of risk coming from the fact that the FED is tightening, that there is significant risk and it's propagating in different ways through emerging markets is not over and so you could get further shock going through emerging markets, whether it's Mexico, whether um, it's it's other part of the emerging market spectrum, which which will still be coming in in the in the next

a few quarters. Difficult to time them, but there are some pockets which maybe are of value, and Russian roubles have been identified by our colleagues. You mentioned Mexico and it was a currency we were following so closely during the presidential campaign. What is the legacy of that band when you look at here the Mexican currency versus the dollarance or what the future of that area is, what

do you see? Well, first, I have to apologize because a few years ago it was so bullish on the Mexican baso reforms and all the likes, and it has been essentially a disaster. The occurrency has been devaluing and at a steady pace, and it's extremely linked to expectations of offset tightening. It's been used as a proxy given it's a it's high correlation and uh and it also means that even though the risk have faded recently in the Mexican bay so that they still can can come

back in in the next few quarters. So unfortunately, whatever the fundamentals on Mexican Mexico are, they they are driven by the FETE into a secondary extent of the potential for some confrontation with a Trump adsinistration, which thankfully set a diminition. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on iTunes, SoundCloud, or whichever podcast platform you prefer. I'm out on Twitter at Tom Keene.

David Gura is at David Gura. Before the podcast, you can always catch us worldwide on Bloomberg Radio. Who you Put your trust in matters. Investors have put their trust and independent registered investment advisors to the two and four trillion dollars. Why learn more? Find your independent adviser dot com