Ye, Welcome to the Bloomberg Surveillance podcast. I'm Tom Keane jay Ley. We bring you insight from the best in economics, finance, investment, and international relations. Find Bloomberg Surveillance on Apple Podcasts, SoundCloud, Bloomberg dot Com, and of course on the Bloomberg We're watching em Currencies somewhat stable here, but as Hanky would lecture at Johns Hopkins, they are log quadratic. Uh to say the least, let me bring him in him without
further ado. After public service with President Reagan and with some serious counsel to the Baltic States, Stephen Hanky has done at all teaching at the Colorado School of Minds at Berkeley and holding corn and I really mean this, folks in applied economics at Johns Hopkins. Professor Hanky owns when currencies unravel, and we welcome him now to Bloomberg Surveillance. Steves, thank you so much for taking time with us today. First of all, his contagion clicked in, well, it's certainly
clicked in last night. The half big currencies are becoming more big by the day. We had the paso down twelve percent against the greenback. Turkey's LARDN three Indian Route PI record low against the us D, h Indonesian Rupe a three year low, and the list goes on and on, and I think Tom and Pim the key question or is what's what's going on? And I think people are just missing the boat here. The FED is tight, tight, tight.
And if we look at Milton Friedman and look at our cues are quantities, we have broad money is growing at a very modest pace four point seven percent year over year measured on him for Center for Financial Stability in New York UH. Then if we look at Bob Mundell's TS prices, the most important price in the world as a dollar euro rate, and it's at one sixteen now. That's that's under my comfort zone of one forty. It's tight.
It's tight. The dollar is very strong. Gold is hovering around the low end of my comfort zone, which is about twelve an ounce. It's about twelve twelve now, So we we have a very tight FED. That is strong dollar putting massive pressure on the emerging market countries UH and their half big currencies. So that's that's the over all seen and it's not going to get any better. And and it looks like the more the emerging market currencies collapse, there there is an increased probability that will
will have some blowback in the big major markets. Professor Hanky, is there something intrinsic about the value of the US dollar that investors have missed over the last six to twelve months. I don't think there's anything intrinsic. I think you just have to follow Bob Mundel and look at prices. And there are two big prices uh to look at, and that's a dollar er rate in gold and then and then beyond that you've got a lot of commodities.
I mean, all the base medals are done. Part of the tightness, by the way, China is extremely tight now. The big engine for growth in the world economy that the last ten to twenty years has been China. And if you look at the trend rate of growth and the money supply since too COS and three in China, the trend rate six for m TOO that's their broad
money major it's only growing at nine percent now. The trend rate of growth for credit to their private sector in China has been sixteen percent also and it's only growing at nine now. And I think President g is hit the panic button. They they've they've trying to unwind the squeeze that they've put on and rescue things, but it might be too little, too late. China is very
tight right now. So you've got the two the two big elephants in the room said, the central bank in China are very tight, and that's putting pressure on all these half baked currencies and and half half bag countries. Quite frankly, just come and glued. These carry trades unwind very fast under these conditions. All right, So let's say that Professor Stephen Hanky gets a call from the Central Bank of Turkey. What does he say? Okay, here's here's
what's going on in Turkey. Uh. The inflation rate now is I measure it very accurately, is a hundred and one percent on an annual basis. The official rates fifteen point eight five percent. So you have massive negative real yields and the carry trade in Winding and Turkey. The crisis will continue for a long time, as it's done by the way in ninety four and two thousand and today. The only way to stop this nightmare in Turkey is to make the lira as good as gold, make it
a clone of gold. And you do that with a currency board system. You fix the liras exchange uh and make it freely convertable at a fixed rate with gold, and you backed the lira a dent with gold reserves. So the la literally is good as good as gold. I think a thing I would stop the ham racking there, Steve Stephen Hankey, with this focus of the Johns Hopkins University, were thrilled to bring him to you today. Steve, there's the mathematics of being log linear, a straight line on
a percent change. Why access and then things get ugly and they curve, and then we go to the acclaimed world of Professor Hanky, which is hyperbolas, which focuses at moonshot think wheelbarrows of cash in Germany in World War Two. Are any of these e M currencies on the edge of hanky hyperbola? No, I don't think so, Tom, because
to get to those points, they're they're very rare. They're they've actually only been fifty eight in the world history that have gone to that hyperbola point and hit hyper inflation where yes, inflation rates per month. And we have one now, of course Venezezuela I'm major with high frequency data that I'm plaction rate every day and it's running sixty two thousand percent year every year, and the monthly rate is a hundred seventy two. So this has been
going on since November of two thousand and sixteen. So it hit, it hit your your point, Tom, and and it's the only one that steve. What's the prescription here for the I m F. I mean, you're one of the giants in this racket, with the late Michael Moosa, the late Rudy dorn Bush, Ken rogoff in the others in the angst it's out there at Global Wall Street. Is the institutions, particularly I m F can't come to the rescue this time because of the new size of
em markets. Is that a valid worry or can leguard get it done? I don't think size is the problem. I think the I m F is just has wrong headed thinking. I mean you look, for example, even at Venezezuela, we just talked about the inflation. Right, you can measure hyper inflations, and you can measure them very accurately. You can't forecast the course or duration Tom of a of a hyper inflation and the i m F just keeps
putting these inflation forecast out for Venezezuela. They they're a joke, complete complete revelation of the incompetence of the I m F. They say inflation is going to be a million percent by the end of the year in Venezuela. And of course the press, like good stenographers, just repeat this nonsense. I mean, you cannot forecast hyper inflation period, that's the end of the story. You can measure it very very accurately, can't forecast it. So the solution on these exchange rate regimes,
they're done in Argentina. Now Macree called the I m F fireman in and and it's been a complete disaster. Everything has collapsed since the I m F has come down.
And mac Cree doesn't realize. I don't know why he called the i m F because in two thousand and one, remember we had the I m F suspending the program to UH Argentina and this was Kohler was the manager director then and and and I am at basically double crossed Argentina and the complete meltdown during the crisis and the huge bank runds in November of two thousand one. I m F. We're gonna run out of time. I gotta cut Steve hank you off, which is you gotta
talk about the Brazilian I do. But we're gonna We're gonna come. We're gonna get Steve Hankey on as much as we can through this interesting e M time again.
He is at Johns Hopkins University. President Donald Trump, of course, sitting down for an exclusive Oval Office interview with Bloomberg, and the President covered a variety of topics, including the Russia probe, as well as trade policy and when it comes to the trade talks with the European Union, the President said that the European unions offered to scrap tariffs on US made automobiles is not enough. It's not good enough, no, because they do a lot more auto business than we
will ever do. In other words, well, first of all, it's not just tariffs. They also barriers up to our cars. They have they'll take the barriers down and they'll charge us no text. But it's not good enough because they will always sell more cars. Their cars, their habits, their consumer habits are to buying their cars, not to buying
our cars. In response, the European Commission President Jean Claude Junker said that the European Union will retaliate if President Trump raises tariffs on europe Pan autos, and that is a good time to bring in a gentleman who had a conversation with the president yesterday. Under the earl portrait of Andrew Jackson, painted in eighteen thirty five at the
Resolute Desk are John Michael Fait in conversation with the President. John, what was the energy like in the room away from the formal portraits, in the important comments and the president?
What was the backstory as you entered the Oval Office. Well, there's a lot of energy, almost of the March energy is there is with you and Pim, but it's it's Trump is I think the main thing which comes through the President of the moment is that he is someone who's in a sense of doubling down on Donald Trump. You know, he is not Other people may look at what's happening in the Oval Office and think he's got problems with the mid terms, he's got problems with Mueller.
He's got people resigning from his internal kind of a set of advisors. From his point of view, it's almost the opposite. He gives himself a grade A plus. He claims he has the best happened. As ever, he's forging ahead on everything. You know, he's just persuaded Mexico to do well, and Canada's next. And as you said in the clip, you know he's now moving on to the
w g O and Europe. And actually, I think you know there is a like all these people, many politicians trying to spin you things, think Trump genuinely believed that he's achieving these things. And the better or worst, that is the world we live in. If we were to write a Bloomberg quick take or something you helped invent the fourteen page wonder in the Economist magazine, what what we say would be the response of Europe, the response of China, of Canada, of Mexico to all of his trade,
not hysteria, but just trade discourse. Do they just does turn to the president and say no, Well, it's interesting you talk to business people and there is one bit of business people where most business people want him to succeed a bit um. So for instance with China, you talk to most European business people and they will say it is it would be wonderful if Donald Trump could
get China to open up. Um, and you might also talk to American and European people who say it would be very good if there were a fewer trade barriers between American Europe. But and this is a very big butt at the very least, he's playing with fire with these things, because most people would still say the w t O is incredibly useful and having a multilateral forum increases the amount of free trade all the way around the world, generally to the benefit of America as well.
Um And obviously nobody wants the trans Atlantic trade war, and the Chinese for the moment showing every sign of wanting to match Donald Trump tariff for tariff, So it is a slightly more nuanced picture than that either he would present all for that matter, his foes and a lot of business people, I think quietly under their breath, were condemning the trade war whilst desperately hoping that he succeeds,
especially with the Chinese. John michaels Wade, I want to say, leave it to an Englishman to teach us about our own role in history in the United States. Sometimes it takes someone from the outside to have a clear perspective. You've interviewed many world leaders, do you view Donald Trump is different? But yes, he is entirely different. Um. I think there are many world leaders who will try tom who will try to sort of spin things or try
to say they're doing better. You know, Donald Trump gives more impression of being a He's a sort of train heading in every direction at once, and even when he's trying to restrain himself, he finds it very difficult, and some cases he kind obloviates and goes past things. In
other cases he just says what he thinks. And I think that is the better or worth again to keep part of his appeal to people, because I think to his base he's someone who tries to say how he sees it, and that is that is worth something to him. And I think to any extent that he tried to bottle it up. Um, he's changed on that. If you want an example of one area though, where he has become slightly more disciplined, but you can see it in
his eyes that he's straining at it. It's the fed I think he has sort of accepted, after a degree of annoyance about the fact that he can't control the Federal Reserve. He's now accepted that that's probably a good thing. That is good that presidents can't do that, and he was polite about j Powell, but you can sense even then he wants to be able to run it. John Michael Twaitt with us, John, I want to switch gears here, and of course we're looking for an exclusive and lengthy
long read from John Michael Twayton Company Monday. So I was thinking of Alexis to Tokeville when I was thinking of having an Englishman talk about America. That would be very good and I often have to I often have to endure Tom Keene talking about prisons. I think, no, no, we're going to Britain right now, and I know we've got a long read feature coming out five thousand words on Monday. Theresa made dancing her way across Africa. But
except for that, John, we need a Britain update. Would you explain to me what the incentive is for anybody in Europe to put up with your Brexit debate? What's what's there incentive even to become engaged in this domestic foolishness of your United Kingdom. Well, you've actually you're actually asking the key question, because what is happening at the moment as the Europeans have just let it be, There's there's a slight sign over the past kind of ten
days that the Europeans have moved a bit. Macrons begun to say, look, it's a bit silly if Britain just crashes out of this thing. Um. It's already pretty clear that most of the burden of Brexit will be carried by Britain, but it isn't. It's also not entirely in Europe's interest. In France's Britain's neighbor. A lot of its trade comes through France. It's not in France's interest to have a complete sort of disaster on his on his doorstep.
So from business people, from politicians a bit there's at least slightly more willingness to come in. But you are basically right that what has happened is that from the British point of view, every day is dominated by Brexit headlines and what it means, and this it means. He will visit the people who run France or Germany or Italy and it's something they think about once every two months because they've been very happy leaving this with Michelle Barnier,
who is the European Commissions negotiator. Michael's way, it's like a digital Maven. I'm watching Theresa May to her second dance off the Independent video. Why don't we have that video? I mean, thanks to the Independent for giving me background
briefing for it is an amazing video. I don't think even I tried to work out that maybe some people may feel sympathy for Theresa John does the Have we lost the perspective that the balance of power in Europe has changed and will change because of the exit from the European Union. Yes, I think what is happening is that there are two. If we've had a somewhat Anglo anglocentric conversation said, I think there's any harm in saying this is I think from an Anglo centric point of view.
People used to talk a bit vaguely about an Anglo sphere where obviously America is the predominant partner and Britain plays the secondary role. But together they're probably greater than the some of their parts. That has always helped America having somebody else who's willing to stick up for roughly the same things. But firstly, the agenda which they're both pushing things like generally free trade, opening up things. Well,
that is no longer the priority of Donald Trump. Certainly. Secondly, you've got America withdrawing from some areas of the world, not wanting to do things. And thirdly, who've got Britain coming out of its main forum to influence people, which was the European Union. And so I think from the point of view of that Anglo message, which is to want to build out too big, I think there has
been a retreat. And it matters enormously that if you talk to American politicians, the most valuable thing about Britain was that it was the kind of friendly to American voice inside the U. I have to leave their gn Michaels, thank you so much. Congratulations on the many themes of your conversation with the President of the United States. Right now we speak with CBS is Margaret Brennan, who has a spirited face and Nation Sunday morning. Of course you'll
hear it on Bloomberg Radio Sunday two PM. I mean that speaks to the noise of this August Margaret in Washington to see Christia Friedland so abruptly exit to try to get this discussion at done. It's not a boring August,
is it. No. I don't think there is such a thing as a boring August with the Trump administration um and certainly this push to get a deal by today, by Friday, so that they can move forward with presenting to Congress some kind of proposal to overhaul NAFTA is something that many, like the president son in law Jard Kushner, are really pushing for. The hope is that it would lift from the political pressure both from Mexico ahead of their inauguration of their new president and ahead of those
upcoming elections in Canada in twenty nineteen. It's not clear if they can win that gamble. There's so many themes to talk about, Margaret, including what we're going to see in an hour in fifty five minutes on Capitol Hill with the Senator from Arizona. But to stay on trade. You have an experience of these negotiations, and I would suggest it's an experience of complexity. Does this administration do complexity? Uh?
They do in the sense that there is a number of people within the administration with varying different views as to how all of this should end up. But it seems like fundamentally on this issue of NAFTA UM, it comes back to some of the very basics that have always stuck the relationship, including, you know, coming to some kind of compromise with Canada over how their dairy farmers policies are are protected UM up there, and as well as this dispute mechanism that continues to be a sticking
point within the administration. It does appear that the President has made a push, with the urging of his son in law, Jared Kushner, to get the U. S. Trade Representative to make some move to make compromise possible on NAFTA. UH. The question, of course, is will the Canadians get on board with what Mexico and the US have agreed to at this point, Margaret, President Donald Trump has definitely boasted of the performance of not only the U. S. Stock
market but the US economy. Do you get the sense from talking to your sources in Washington that the political establishment also feels that level of enthusiasm for American economic power visa VI these trade negotiations. They have enthusiasm about the economic power, but they've got great anxiety that all of that could start being damaged or dissipate, particularly towards the end of September as some of those retaliatory tariffs
start to bite in the heartland. Um, And there's really no you know, even though you see these glimmers of hope with say Europe or Canada and Mexico on potential trade negotiations or even deals, the Chinese are such a different group of negotiators and really I'm not hearing any momentum on that front. And that is the trade dispute that really could bite, And so there is anxiety around that.
There's this urge among Republicans to say, get something done on trade where we can stand behind you, uh, you know, uh and stand with you against China. But so far, um, there's very little hope. And you heard that from the President just this week, blaming China for what he says is diplomacy faltering with North Korea. Margaret tell us about
Face the Nation Sunday mornings. We'll be tracking and continuing to report on these services here in Washington for Senator John McCain, and we will be speaking to former Secretary of State and former Senator John Kerry this Sunday, who's got a brand new book out. He spent a lot of time with John McCain, even though the two of them were opposite sides of the aisle and had very
different perspectives. You know, John Carey rocketed to fame as a war protester, John McCain a prisoner of that war, and the two found common cause in the nineties to say, let's make peace, let's help find uh those missing in action and use that toe hole to establish diplomatic relations between the US and Vietnam. It's really an extraordinary story, and and Terry tells us about that. Michael Brennan, thank you so much. Of course, you can see Face a
Nation on CBS. Do that Sunday morning. You can listen to Face the Nation Bloomberg Radio Sunday two PM in New York, Washington, d C. And now Bloomberg one or six one Boston, Newburyport. Face the Nation this Sunday at two I'm Bloomberg Radio. We digress And if you go to the Point Sky website Brian Kelly's invention, you will
find it a wonderfully eclectic set of articles. Mike or Not is out moments ago with an article on how they figure out what the flight path will be for you when you go over oceans, just as that is one idea of the richness of this. Joining us here on a Labor Day weekend as we all traveled. Julian Hell who was with the points uh Guy website, Julian, just congratulations on what your website does in terms of eclectic travel. But I've got one arch question, when does
this all end? There's been articles that JP Morgan is overwhelmed by the success of their sapphire program. I'm sure there's others like JP Morgan because we're all doing this, we're all reading you guys, we're all trying to be as smart about the use of the miles. Do you guys feel like this is something where at some point the banks are just gonna say no. You know, it's a It's a good question because collecting travel rewards, especially through credit cards, is a bigger business than ever, and
consumers are more educated than ever. Just last quarter, Chase actually had over three hundred million dollars in unanticipated redemptions by customers were using their points wiser than they otherwise expected. So obviously it's partly part of the economic cycle in general right now. We're at the height of it, and credit card companies are doing great overall. Whether that will change when things turn down, it is a possibility. But on the other hand, consumers are just into travel, they're
into loyalty points. We certainly don't see the interests decreasing anytime soon. Julian, how many miles a year do you fly? I personally fly over a hundred thousand miles a year. Uh, And that's actually a small compared to some of my colleagues at the Points Guy. Some of them fly over two hundred thousand miles a year. And I have to tell you it is a lot of time on a plane, but a lot of times that we are flying up front, if you will, because we're reviewing business class in first
class cabins, it is a different experience. It's when you're flying up front. The the upfront cabins, while economy in the back has been worse than than the size, seat sizes are smaller than ever. Upfront, the story is very different where airlines are now competing for customers based on luxury and comfort. So flying in business or first especially internationally, is a whole different experience than it was even five years ago. All right, Well, help Tom get all the
business class that he deserves. What kind of cards should he be using and does he have to use more than one card? Ideally he should be using more than one card. And that's because to maximize your frequent flyer points and miles, you want to be using a card that earns bonus points on specific categories and then pick that the right card out of your wallets, depending on where you are. So if you've got saying but none of the cards actually pay for tuition for tuition, it's
a little trickier. We do actually have a few stories on the points go on how to maximize points when you're paying for tuition, So Tom, you know, we you can check those out. But when you're at a restaurant, you want to make sure you use a card that's getting bonus points, and restaurants you're shopping groceries, you want to use the groceries card. Let's get back to one of the news items of the moment, which is everybody wants to do longer flights, which to me screams top
of the market. And whether it's Sydney to New York or you know, you can name the long distance flight did the airlines have the responsibility to not over expand now like they've done in every other cycle before. That is the question, because every other cycle, as you said, the airlines have gone too far, too many flights, too many seats, and it ends up being an oversupply and
non enomb Deman. Qantas is talking about this uh new possible flight from Sydney to London, which would be over ten thousand miles, the longest non stop in the world if could happened now, the aircraft currently don't exist to do that distance call detailed already right here, small detail, but Airbus and Bowing are both working on versions of their aircraft that could do it. Qantas in particular has has this idea that they're going to do these ultra
long haul routes in an effort to when business. They think they have the business model for it. It is. It's a lot of resources into these very long haul flights and whether it works is yet to me. I noticed Pam American, I think just took out Chicago Shanghai. You know they've got three or four choices, yes, but they took one of them. Julian low cost carriers like Norwegian Wow, tell us about the way, tell us about low cost carriers, because I've had several people tell me
it works, and it works really well. You know, if you from a passenger perspective, as long as you know what you are getting into that when you book a ticket on a low cost carrier, the ticket price is not necessarily the end of the story. It may be a very low price on the actual air fare, but you've got to be aware that you may get charged extra, not just for bags, but but certainly for meals, even on international flights. Yeah, but okay, but we're talking like
three d bucks. The fly from continental Europe to l A. It is amazing and it's it's low. The airfares right now have are lower than they ever have been, especially to Europe, even transcon from New York to l A. When Jet Blue came in with Mint, their Mint products, they drove the prices down, even of the first class experience. So it is a great time from a consumer standpoint to fly. There is uh, there are clouds on the horizon.
With the price of oil being higher now than it's been over the last few years, that's gonna put a pinch on some of these revenues. Sorry, some of these expects is for the airline. I want to see what happened. I want to circle back finally here, uh Julian to the success that Chase has had. Do the other banks want to be like Chase? Or are they learning from Chase that they really don't want to go there because
of the huge expense of redemption. You know, It's it's a little bit of a mixed bag because Chase, of course, with its Chase Fire Reserve product that was extraordinarily popular when it first came out, and they've had really good retentions on that card, was a direct competitor to American Express, who had their own Platinum card, which was a high tier travel benefits card. So and and as a result of American Express has felt the need to improve their
Platinum card. So there certainly is competition there. On the other hand, where's Wells Fargo is an example. Yeah, Wells Fargo just came out with a new propel Amex card, but it's aimed at a very different segment of the market. It's a no annual fee card. So the credit card issuers have had to improve their products to compete. But they're aiming for different segments of the market. This has been wonderful. Julian and Kill thank you so much, greatly
appreciate it. With Brian Kelly over at the Points Guy website. 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio.