Surveillance: Fiscal Vs. Monetary Policy With Buiter

of England and Money to Villiam. Good morning. We've had three growth scares in the last ten years, fifteen sixteen and now eighteen nineteen. Each and everyone driven by manufacturing, led by manufacturing, and the previous two didn't bleed into services in a big way. It was a head fake. We got out. Okay, is this any different? Well, I'm getting increasingly concerned that in Europe euro areas, actually it may be something different that we will get because of

the extreme weakness of manufacturing. Data and sort of supplementary information about global trade coming from Korea that confirms this weakness as being more, i think than just manufacturing slow down. And I'm afraid this looks like it could really rub every part of the economy in the wrong way. For anyone tuning in this morning that hasn't seen the data yet.

Exports out of South Korea down almost the data in Germany, the p m I coming in at forty one point four, there was a hope that we'd see her pick up their villain. Let's talk about the policy response. The e CP has thrown everything at it. Is that gonna work. No, it's not going to be enough. Central banks in the policity. The ECB with a polity ated miners sixty beats are effectively pushing on a string, maybe a nice string to push on, but it really will not boost activity where

it needs to be boosted. Only fiscal policy can do that, Professor. But I want to get out in front of our conversation with William Dudley this morning, and I want to give it in a sixty thousand foot view way over the topics at hand, negative interest rates, what that does to savers and what it does to the incentives in Europe, the low rates, the fiscal and financial repression. Rather in the United States, have we thought too hard for fourteen years?

Have we boxed ourselves in to a set of economics where we thought, you know, maybe this works, but to a lot of people. It's not It may not be working for a lot of people, but it doesn't mean

there's a lot you can do about it. The fact that indust rates are negative now for seventeen chillion worth of debt outstanding is a larger reflection of a very low in the negative neutral global real interest rate, and central banks sort of tinker that fundamental reality which is driven by demographics, by lack of embodied technical change, and

by other real economy factors. So central banks are not in some sense causing I didn't say they're causing it, but they have to deal with this new lower phenomenal GDP. You mentioned demographics and such. Do we need to clear out the zombie companies, the zombie assets and liabilities that have that have persisted through this twelve and fourteen years, especially in Europe, there has not been a thorough cleaning up with the bank balance sheet and it was always

a good idea to do that. Of course, timing is wouldn't be ideal about determined attempt to clean up the balance sheets go be part of the solution to this problem. This Manchester United qualifiers as an ambie company join for not just yet, though some Manchester United fans might fill that way. Villam, I just want to run things out on the fiscal policy question. There's a lot of people on this side of Atlantic look into Europe just saying this has got to be inevitable. Now this is the

only policy tool left. Surely they're going to use it. Madame Legard will make the difference as a European looking at the situation play out all of the experience you have. Do you see any chance of this happening in the next eighteen months. I do. Actually, it's not going to be dramatic. You're not going to see the kind of

Trump style as an eighteen fiscal stimulus. But we could get a percent of GDP worth of fiscal relaxation in a selected number of countries, the ones with the most fiscal elbow room Germany, Netherlands and all that, and some smaller fiscal stimulus in in the rest of the euro Area where fiscal challenges are greater. If at the same time the ECB continues to engage in quantitative easing, Yeah, they're being business for what looks like a mini helicopter

money drop. He Philliam going to catch you out with the conversation to be continued right now. We like to migrate sort of to a October kickoff of American politics. We can do that with Wendy Shower. She's a Brown University. I like what you say, Wendy, in the beginning of your note on the brand of populism, What is the brand of populism of Iowa front runner Elizabeth Warren. That's

truly economic populism. I mean it's almost a blueprint from the ten eight nineties start of saying the individual working person deserves detection, deserves to make a decent wage. It's not sort of this elite tax cut, let's generate jobs through corporate America. It's what can we do to the individual. And so it's different from the Trump brand. When I first met the Senator ages ago, she was a professor

at Harvard and she was total policy want. I say that with all great respect for her public service, and she's still that way. Is there any evidence of policy want you can get elected? Well, I mean we're seeing that in the polls now with her right, and we're seeing the response literally if you see the response in her rallies and look at the way she sort of characterized herself. She dresses pretty simply. I mean, you're not

supposed to pay attention, but everybody does anyway. She's simple in her dress, she's simple in her address to people. She you know, runs sprints, she takes pictures with everybody.

She really is trying working very hard to have come down from that Ivory Tower mountains and really relate to people one on one and that way, even though she's policy focused, she's finding a way to relate what she wants to do policy wise to have an effect their daily lives and the moment that seems to be resonating. Do you see that with the fourteen flavors of Democrats in Iowa? Is she at the margin pulling over a new constituency or new constituencies plural? I think she's working

awfully hard at it. And where she's being I think strategically smart is talking about trade, figuring out how that effects formers. It's so important formers. However, you have to brace yourself for Trump to cut a deal with China and get this thing off the table by December. So she's not focusing all over time on that because you realizes that issue might actually go okay. But those are economic issues and we're very familiar with, you know, economics first,

it's the economy stupid. Except last time around there other than depressed GDP, that didn't have much to do with the election. It was the battle of Mr Trump versus the Secretary of State. And I just wonder do we actually get back to policy discussions as we go through the conventions in the election or do you see a redux of the tenor of the tumbra of two thousand

six team? Well, tomm, you're pointing out something so vitally important, which is that you have to break through a TV screen or a video screen or a phone screen, whatever it is. You have to have a kind of charisma that says I'm gonna fight for you. And that's the big question mark. Can she break through on the national stage in the general And we're seeing her breakthrough a little bit so far, but yeah, there's some question marks.

Other way you can do that, it will be personality versus personality, and she will have to look as tough as Trump, and that is always more difficult for a wan to do than a man. So it's absolutely right question mark. However, she is performing better than anybody thought she would. What about in the twenty counties that matter. Maybe it's thirty, maybe it's ten. I don't know. That's

not my area of folks. But in the in the hyper narrow counties of those five or six key states, do they know how to spell W A R R E N. I mean, is it working well? I think for her, she's gonna have to do a tremendous amount of recent politics in those areas. You're gonna have to get out there and meet and greet people, because that seems to be strong as asset Minnesota. You know, Minnesota could go either way, Republican or Democrat. You know, how

does she play in Minnesota. That's the kind of thing I don't really start thinking about. Now, is this what Secretary Clinton didn't do? I think Clinton had so much more more baggage than Warren. Warren has ideological baggage. She has reputational baggage. For she thinks, however, you can counteract that when you meet somebody first you know firsthand, or you go to town meetings, their CAUCUSUS and over the

primary season she can counteract that in some ways. But whereas Clinton could not shed the baggage because it was twenty years worth of baggage. And that's one thing was Warren does not have. Whatever baggage she has, is actually fighting for consumers. So I don't see her having to lift that kind of heavy load that Clinton had to lift. And that's the margin of difference. That would mean, I don't, you know, doesn't torpedo her campaign against Trump. It would

be a tall mountain climb, it would. But I don't think he can be labeled the same way Hillary was labeled. How do you identify if your folks, if you're just joining us Wendy Show or Brown University, we diverge here on politics on a Monday morning. Future is a negative one, Professor Schiller. And this is a phrase. It was used disaffected Democrats at the time of the liberal blow up the Democratic Party. How do you identify disaffected Republicans, the

people that do not support the president? How big are they and are they identifiable? It's a great question. I don't think there are disaffective Republicans at the moment. I think the Republicans that are annoyed, but I don't think they are they still going to vote for Donald Trump. Yeah, I firmly believe that, you know, I do. I don't think they're going to cross the aisle to vote for

our Sanders or Biden or a warrant. The problem is they may stay home if Biden's a nominee, and they can live with Biden, but they don't want to vote for a Democrat and may stay I'll sit this one out. And if they sit that one out, it becomes and that's the advantage Obama had over me, and that's how the Democrats can win. But I don't think anyone's crossing the aisle in this day and age. Explain the dynamics of one moderate, which is Biden, among the front runners

of the Democrats. I mean, are there moderates out there that can find some masks or we beyond that? No, I do think we're beyond that within within the general election. Whether we we have it in the Democrat party, it's sound clear. But I think there's a lot of fatigue with sort of up and down with Trump. I mean, there's just general fatigue and Biden is sort of a

calm waters kind of right. This is like the guy who will get you there, smooth sailing, no disruption, no uncertainty, and there are people who are kind of craving that and he's liberal enough. So I think, particularly with men, because we white men in the Democrat Party, can Biden actually get them out the door, take him away from Sanders. That's the only way he wins the nomination. And that's what we're looking for right now. Is he resonating with

that particular group within the party. They tend to be more moderate than everybody else in the Democratic Good update, Professor Shoulder, Thank you so much, Professor Political Science of It Brown. We're thrilled that she could join us. Julia Cornado joins us right now, before we get into the report discussion, Julia, why are the p M S and I S M has become so important? Is it because

the math is better? Well, I think with the market measure that we're going to get this morning, it's useful because, as Jonathan mentioned, we get it twice a month. We get a preliminary reads and a final read. The other thing is that it's a consistent UM survey across country, so it's comparable from the US to the Eurozone, to Japan, etcetera.

So it's a it's a useful timely barometer. Do you expect to say the same story that we're seeing in Europe, Julia, which is weight manufacturing, but perhaps some small signs that is showing up in services, well, that would be very important for the US. UM. The consensus is expecting a little bit of a bounce in the services measure, and we've seen service sector resilience in the US so far, and that is absolutely essential because we don't expect to

me manufacturing sector to be snapping back anytime soon. And and really the Senate sector has been carrying the entire weight of the economy. Julia Cronado with this macro policy advisers. One minute ago, the headline comes out and John, I guess we get used to this. New York Fed takes

sixties six billion of treasuries, securities and repo operations. So, Julia, they brought in full faith and credit bills, notes and bonds as a general statement, and they pushed out cash to whom to a variety of people, to banks, and through banks, to other financial intermediaries. UM. So it is really um the liquifying the entire financial system through these operations,

including including foreign demand as well. And then on Friday, we had the idea that big banks were reticent to do something with their cash or their security is and the blame goes back to Bossle is that the only way we fix this is to deregulate the regulation. Um that would be one road you can go down. But the sets certainly knew that these regulations have been in place, and they made a decision to sort of explore the frontier of how much reserves were needed by the system.

And they found the frontier. So we had a liquidity crunch on one of these periodic moments of elevated demand. They're going to act, probably movie move to actually increase the level of reserves in the system. I think that's we found the frontier. So Julia, ultimately does that mean expanding the balance sheet again? And when do you expect

to see that? Well, they've been very clear signaling that this will be part of the October communication that we get from them, that they will explore these issues make a decision by the October meeting. So that's that's what

I would expect to see. If the former New York Fed president built outly running an all had recently and Tom and I are really looking forward to catching up with him in about an arrant thirty minutes time that Plug thought bloomlet c and for Bloomberg Ready, I, Julia, excuse that, but he said that you could focus on the bills and not further down the curve, and then the optics of it will improve. And that's just one

way of communicating. This is not que What do you what do you think of that, Julia focusing on buying treasury bills instead of going further down the curve to expand the balance sheet and increase reserves. Well, I'm not

sure that they're going to go that route. When they have discussed this at the meetings this year, and they have been discussing these issues all year, they've sort of tied all of the balance sheet policy together under one investment policy, So both the reinvestment the mortgages and treasuries, as well as balance sheet expansion would all fall under the same policy, which currently is to sort of invest across the curve with the issuance pattern. And now folks

are coronado dumb question of the day. I'm always qualified to do that. Does the pile sees this arcane PhD trust dynamics of the repo market? Does that mean that our listeners see D at their bank is a lower yield than it would be otherwise. No, this is unaffected. This doesn't affect retail yields. UH. And in fact, one of the goals of keeping these markets liquid is that these kinds of funding crunches don't affect retail yields. That all of this is behind the scenes plumbing in the

wholesale market. Retail market should be Okay, we're losing Julia right now, Julia Coronado, thank you so much for wonderful explanations today. We are thrilled to bring you now. James Travitas UH, with his public service to the nation in the Navy and in course to Supreme Commander NATO as well with the Carlisle Group. Ad been wonderful to have with you. We could do a two hour conversation. We don't have time for that, but I do want to go back to a small memo which shows from another

time and place, business as usual. May six, two thousand ten, Brussels. And this is where the Chief of Defense of the Ukraine, the Chief of Defense of Turkey, and the Supreme Allied Commander of NATO one Admiral James Travitas wandered into a room and signed a document to drive forward an ecumenical feel about Europe within all the politics of the moment. After what you've observed this weekend, has your efforts of May six, two thousand and ten been just destroyed by

this domestic US politics? Certainly it's a setback. Tom. In any time UM you allow domestic politics to insert themselves in national security international concerns, you run great risk. And this is where the old saying comes from that UM politics ends at the water's edge. Well not so much anymore. And therefore very carefully crafted set of relationships with Ukraine are keetering right now. That's bad for US security. Do

you perceive this is absolutely critical? Speaking with my good friend David Gura, who I know had Ambassador Brady on Nicholas Brady I believe was on up this weekend. And whether it's Nicolas Brady or it's James Travitas, the question is the same. Do you perceive this as a one off foreign policy domestic politics moment, the unusual nous of President Trump's tenor or is there a new permanence here

to where we take domestic politics abroad. I think there's always been a subliminal element of what's going on domestically that bleeds into our international stances. Classic example, you and I are old enough to remember as the war in Vietnam, which eventually was completely driven by domestic politics. But um, since the fall of the Cold War, the fall of the Berlin Law, we have not seen this level of region. And like everybody else, hey, I want to read the

transcript of that conversation and make a judgment. Does it exist? I? Oh, absolutely, I assure you would exists. Every time the President of the United States speaks to a foreign leader, it is recorded and transcribed. That's a fact. It exists. It's a government document, and given all that has happened, I think we need to take a look at it and then we can make a judgment. And that's a fair statement.

Are you suggesting then that the uproar over Trump putin at Helsinki just with translators their documents to those conversations. That's a different, uh environment, when you're over when you're overseas. No, this is a phone call he made from the White House, and I've seen hundreds of those transcripts over the years. Typically they're passed around at the highest level, so is

Supreme allet Commander at NATO. I would see UH interestments and discussion of UH of the President of the United States with David Cameron or with Nicholas Sarpos or Angela Merkel, because you need that intelligence content for your situational awareness. Um, so it exists for sure if you're just joining US admirals to Vidis. Of course, you know his book, The Leader's Bookshelf was my book of the year here in a not too distant pass. I still highly recommend that book.

It's at least fifty books out there to make you wiser and smarter about the path of the nation and the future of our foreign and military policy. Can you explain, Admiral that I'm sure you aspired to be on the Joint Chiefs of Staff at whatever form. I mean, everybody does it wears a uniform, how they relate to this president. I mean they're all going to be quiet and take the maddest stoic line and all that. But what's actually going on at the Pentagon among our chiefs that are

joint first and foremost. I was very lucky because I became Supreme Allied Commander of NATO. I was also commander you a Southern command, Everything South of the United States, so I never had to be in Washington in that

mouth politics. Lucky me exactly my point um. But of course these are my friends and contemporaries who have done this, and in time, I think you've categorized it exactly right, which is all of them are citizens, all of them have used but the professionalism at that level has to be as solid as a brick wall, and it is. There are a few certain chiefs in lifetime, but I would bet my life that you will never see a member of the Joint Chiefs of Staff, Chairman of the

Joint Chiefs out there in a public way involved. And how did it happen? How do you do we have war plans with Iran? I mean, you know, I don't want to give away the family secrets here, Adam get you in trouble, but I mean, I know General Dunford listens every moment of Bloomberg surveillance. But we have war plans with Iran. I get that. Now we're sending troops to Saudi Arabia. Is it quit like Gulf War two? Gulf War one troops? I mean, what's that deployment signify

to you? First? We do have war plans for every contingency around the world, including war with North Korea, with China, with Russia in in this case with Iran, those are well built there, well resourced, they're detailed, um and they have escalation clauses in the time. So you start at the bottom and you probably look at things like cyber attacks. That probably what's going to happen next to Iran. But the deployment of troops will be part of that war plan,

contingency plan, operational plan. And no, it will not be a hundred fifty thousand troops going to Kuwait. This will be uh in the thousand or two at the most. Mostly they'll be there to defend US facilities are embassy. I don't I don't mean to interrupt. What are two thousand troops going to do with the margin anywhere? Whether it's midtown it is midtown Manhattan or Riad, I mean, come on, it is it will be. To answer your fundamental question, yes, this will be deployment of trip Okay, Admiral,

thank you so much. I needed a new book idea from you from the leader's bookshelf. I got to get back to my core. I'm reading about the Romans now. Tom the book coming out on October about character ten Admirals and the voyage of characters. You should check it out. There we go, it's a book plug by James Trevitas. Somehow I think we'll be doing that. We will apples to me. Just thank you so much. Here's to the Carlisle Group, our former supreme and compender U Nato is 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 Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio