Welcome to the Bloomberg Surveillance Podcast and I'm Tom Keene Jai 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 Say what you will. But there was a moment where Prince Charles in the United Kingdom showed the flag. It was twenty three years ago as the Britannia slipped out of the harbor of Hong Kong and into the Pacific Ocean.
This after Christopher Patton said very simply that key phrase that we knew at the time, again twenty three years ago, Uh, the idea of moving on. I'll get the phrase for you in a moment. We are honored that on this important day for Hong Kong, Lord Patton can join us. Lord Patton, Who do you blame for this moment? It was to wait at least fifty years we didn't get there. Who do you blame? Chi Jin Ping? Chi Jinping is a new sort of Chinese dictator. Well, when I say new,
different from his immediate predecessors. Um certainly is in the nineteen nineties and since nineteen while they have been far from open in Wong or in China, on the whole, Chinese leaders kept to their agreement on one country two systems that Hong Kong could continue with a high degree of autonomy with its own freedoms. What we've seen with Jijijijiinping is a determination to strengthen the party's hold over everything.
He's been throwing China's weight around in a way which is in a danger to all democracies around the world, and I think he needs to be called out. And he's taken advantage of this coronavirus, which of course has been more difficult to deal with the way it was covered up in the initially by secretive communist officials. He's trying to take advantage of that. Not only in Hong Kong, but there are incursions by Chinese troops into India. They've
been throwing their weight around in around Taiwan. They've been throwing their weight around in the South China Sea, despite the promises they made to President Obama. So this is down to shijin Ping, who is terrified of having to deliver in Hong Kong. The promises that people were made that they could live under the rule of law. In relatively we see this, Lord Patton on a week where Stanley hodis, there are the merchants of Hong Kong going
back centuries. How would you suggest the business leaders of Hong Kong will react to this? What would be the best patent path? Well, I want to say this very clear. When I was Governor of Hong Kong, and there was great support from the American Chamber of Commerce, from the United States in general for what we were trying to secure in Hong Kong. And even though I had worries about China, as we've all did, worries about a communist system,
not about Chinese people, but about about communism. And I used to lobby every year Congress to give their China Most Favored Nation status verdictively open trade, although then outside the w t O rules. And I used to also argue that whatever happened, we shouldn't danger the well being
in Hong Kong. And that's still my my feeling. I think that what should happen, I hope I am following President the Secretary of States Pompeo's understandable reaction is that we should form together countries which will make a Hong Kong will make China pay for what it's doing in home. And I hope that we will stand up for Hong Kong as over five hundred political leaders and church leaders
and others around the world have already done. I hope will together and I hope that business will welcome that, because there's no question at all that if you undermine the rule of law in Hong Kong, then you start to make Hong Kong a less important financial hub in Asia. It's already responsible for maybe two thirds or more of the direct investment which goes into an out of China. And I just think that a lot of people will but running their businesses from Hong Kong or about recruiting
people to work in Hong Kong. So I hope business will put without without too nervousness, and fairly to China what they actually think. Um, Chris Patton, good morning from London as well as Francene, So are you saying that actually the steps taken by the US so far could could actually backfire and just hurt businesses and people that have already been through a lot in the law. Let me be absolutely clear about this and what President, what Secretary of State said, and what I imagine the President
will saying course is pretty accurate. I mean he's he's defined described what everybody is saying. That this is coach and horse bol of law in Hong Kong and through the promises made to Hong Kong of one country, two systems, and that throws out overboard. And I'm very pleased that the Secretary of State made that. And so you can't argue that what's happened leaves Hong Kong with a high
degree of autonomy. It doesn't. But what I hope is that the American legislature, that Senator and Congress won't move on from that and impose some sort of sanctions on Hong Kong if you want to impose sanctions on China time, but please don't heard Hong Kong at the moment, because it's been heard badly enough by what China has done. So we would you not say that that the UK and the U should actually treat Hong Kong right now
as a rest of China. I hope that we will still try to work to restore some degree of autonomy, a greater degree of autonomy in Hong Kong, and that we will make China understand that there is a price to be paid for what it's been doing, not just
in Hong Kong, but elsewhere too. There is next month or upcoming meeting of the G seven, and I've argued that and should make sure that Hong Kong is on the agenda there, and that President Trump, who I think will be in the chair at that meeting, and others together a common position on Hong Kong and on China. We all have the same interests, whether commercial or otherwise,
in relation to China. Where you look at the annual reports of the international Chambers of commerce in Beijing, Japanese, American, European, they all do the same thing. They all make the same complaints about the way that China does business. And what we need to do is not work separately in
relations to China. We need to have a common position that will terrify China's picking us off one of the Lord Patton, your comment from twenty three years ago, your historic single sentence, I have relinquished the administration of this government. God saved the Queen. Pattent, What is your advice this morning to the Secretary of State of the United States, As you call for an allied response, a developed, developed economy response. What would be your counsel to Mr Pompeio.
My counsel to Mr Pompey would be first of all, to thank him for the interest he has taken in Hong Kong, which I think is widely, widely and enthusiastically accepted in Hong Kong. He's not interfering in Hong Kong. He's expressing the sentiments of the democratic politician about the possible fate of a what was UH community under the rule of law. So I thank him for that. And the Chinese don't understand that the problems in Hong Kong
because of them, not because from people from outside. But I would also ask him to remember that liberal democracies around the world, and I mean the word liberal not in a particularly American sense, but in the classical sense. Open societies around the world are always strongest when they worked together. The world did so well for fifty or sixty years because under American leadership, Europe, Japan, Canada, Australia, United States, all of us worked together under American leadership.
And I hope that that's what this administration or a future administration will do. Because oh, that China is an enemy to us. Now, I'm sorry to say that, but that's how it behaves not Chinese people that the Chinese Communist Party loo patnant. You started off by saying that, you know, President she is going to beyond what any other leader has done so far, and you called him a dictator. Why do you think he feels emboldened enough to do that now when when predecessors hadn't. But he
feels emboldened to do it. But first of all because he reckons that the rest of the world, and it's true, are very preoccupied with with fighting the pandemic, which got as bad as it has been, partly because of the secrecy and mendacity of the Communist Party in the early stages when they're very brave Chinese doctors would find that
blow the whistle on what was happening in Wuhan. But I also think that he's probably under a great deal more pressure and reacting with some nervousness because, first of all, is the party of the way the pandemic was handled.
And I think it's also true that the impact on the economy in China is going to see unemployment rising and all sorts of economic and social tensions are related to that, and what I think he is trying to do is to whip up as much nationalist sentiment as possible, claiming that everything that's going wrong is because of black hands, because of the United States, because of the outside world.
I wanted to deflect attention from the fact that the real problem is how the Chinese Communist Party behaved, and China and communist parties are always ultimately the same. They're brutal and their liars should should how should you deal with them? So we were from Anglomroke. I mean, it's pretty big accusations that you're saying. If if you get Europe and how what Angela Merkel was saying. She she seems to intimate that actually the EU should should get
closer to to China because of economic ties. Would that be a mistake? I think I can't believe she actually said that. I think it would be a terrible mistake. What we should try to do is to make sure that China behaves by the rules, that China keeps the agreements it makes, which he doesn't do at the moment. I don't believe in cutting off all ties with but I do believe in standing up to China when it breaks its word to it to us and it does over.
But we will need to have some sort of relationship with China if we're going to deal with future pandemics, and in the years ahead, for example, there are going to be big problems about anti microbial resistance, given not least that of the antibiotics in the world are made in China, So we will need to have some sort of agreement. Will need to find agreements, which they on
the environment, we need to do that on trade. But when they break them, when they kind of bully, as they've been doing recently in Australia, and as they've done in Sweden, as they've done in Norway and elsewhere, we need to step up to them. These new wolf borrior diplomats who give a bad name need to be told to get out of place. Chris Patton, how do we find a new show and lay? I mean after Mao, a gentleman came along who allowed for a handshake with
Richard Nixon. If China is in search of a way to calm things down, can you identify that person or can you identify the process within their totalitarian regime or you get to the next show and lay now. I can't and nobody from the outside can. What you can depend on is it even it looks completely united against the world. You can depend on the fact that there's politics going on in there like nobody's business. But you know, how did how do you manage to express a country
view in China? If when you do so, your or does disappear straight away? I noticed that in the vote in the in the rubber stamp parliament today there was one dissenting vote on the Hong Kong resolution and six I think who who abstained? I imagine that they're already in re education camps and learning the right things to do. So it's very difficult to be a dissident in China, and this president Ji jinpingalist dictator has don't forget and
closed down any dissident activity that he's seen. Um he's locked up human rights lawyers, one or two people who were critical of him, UM the way he handled the coronavirus have simply disappeared. And those who tried to on the social media try to set out what was happening, they've been closed down. This is this is not some it's done a good Guy, and he is intent on sending his Ministry of State Security into Hong Kong, which
is the sort of equivalent of the Chinese KGB. And they're not being sent to Hong Kong in order to sell dim Sum. Actually try to shut up anybody who objects to what China lord pattern. Across from Alexandra House and down from the Mandarin Hotel and Central Square are the offices of the JP Morgan Company. I want you to advise American banking right now on what their approach should be after this historic day. How should James Diamond
and others sustain and project in Hong Kong. Well, I think they should be a very cautious, which I imagine they will be. I hope they went pull out of Hong Kong. What's actually been happening as China has been trying to tighten its grip on Hong Kong. What's been happening is unfortunately quite a lot of I think, particularly
younger executives, who have been wanting to move elsewhere. But I'm good, delight, I'm pleased that the main banks and others are still there in Hong Kong, and I hope that they will continue to support the American Chamber of Commerce and the American Chamber of Commerce will continue to stand up for the rule book, will continue to stand up of law, will continue to stand up for all those things which have helped Hong Kong and American business
in Hong Kong, an American business around the world to prosper because American business is so successful, because it's helped to create an environment markets can operate in a fair on a fair basis, and I think that's the way that the best banks have behaved, not occasionally without without getting things wrong. But we won't go back over all that there's still better than an alternative. I can in
gole Chris Patton, thanks so much for joining us. We'll have to get you back on also to address some of the issues out there on the South China Sea and whether that's where the first confersation between the US and China will actually happen. Christopher Patton, their former governor of Hong Kong. Let's start the program this morning show where we can do that with Evan Brown of UVSS Management.
Evan Fancaster to catch up with you, sir. Let's just start with a question that I think is on a lot of people's minds at the moment, it is clear that the relationship between China and the United States is breaking down again. What's less clear is why this market is not picking up on it outside of the hank saying, outside of the Chinese currency, what's your read on things
right now? Evan, Yeah, I think I think the market is taking a lot of these broader issues on Hong Kong, on technology, on capital flows and separating them from trade. They see the Hong Kong issues as more as more regional and drawn out and view from the over rightly or wrongly, the view from the overall market is that as long as this Phase one trade deal stays in place, then it's not so much a global market issue. And I think, uh it was actually on that on that point.
Very interesting that on Friday the U S Trade Representative and U S Department of Agriculture coming out with a joint statement and saying that the trade the trade agreement is still going well, and if even in the context of obviously China purchasing a lot fewer agricultural goods than than was agreed, and so the administrations are really trying to separate trade from technology in Hong Kong and the lake. And as long as that happens, I think the market
will be able to to hold that. Yeahvin, let me ask a sixty question your multi asset. Where is the gain right now in the multi of multi asset? Which part is where I can be comfortable being if a man actually trying to make a gain over the next twelve months. Yeah, so I think, um, Well, if you're really trying to make a gain, I think it's uh, it's buying some of the laggards here, buying some of the things where we're seeing a genuine policy change and
where they're deep valuations. So I was starting in Europe right We everyone's hated European banks forever, but I do think we are seeing some meaningful, meaningful policy changes happening out of Europe with with the recovery plan announced yesterday. Obviously we know this is going to take time to get agreed upon, but the direction of travel is is clear, and the signals for Merkel from Germany, the leader of the facto leader of Europe going forward towards a fiscal
union is really important. So I could see some rerating there. And also people should start paying attention to Japan massive fiscal stimulus coming out of Japan right now. Um, and uh, you know, if we're looking at monetary and fiscal combination and the power that that that can create for an economy, we're not finally getting it from Japan. We've had it on the monetary side, but not this strong on the fiscal side. So, um, the deep value opportunities there to
pick up. Evan, I want to pick up on what you were talking about, the e use fiscal response that we saw proposed not yet past, still facing some resistance, probably from the frugal four. You wrote that the distribution of risks right now for Europe are poised to the upside from being to the downside earlier. Where do you see this not priced into risk assets in Europe? The idea that the EU proposal will get past in its
current form and will bleed into the region. Yeah, so all right, And and and in terms of the distribution of risk, I mean, I'll tell you I was concerned myself about about Europe when that German court ruled against against the e c B. And and I think it's scared Mercle too. And I think that's why we're seeing this change on the fiscal side. But I think where it's it's not so much price. UH is European Bank that's definitely one of them. Italian equity is extremely cheap.
But I really think this is going to go a long way in people looking at the at the fiscal trajectory of Italy. Obviously it's ugly, but just the signal that Europe is moving the direction saying we have your back.
And to be honest, these frugal floor um, you know they're putting up a fight, but honestly they don't have that much leverage when you have the four main leading countries of Europe, uh, you know, Germany, France, Italy, Spain behind this and UH and and so I think that their their their power in in driving or slowing down. This debate is probably exaggerated. Evan. You'll have to forgive me. Maybe I'm a glass half empty kind of guy, in which case I'm sorry. But Tom, how long have we
been talking about this? And maybe I've just been conditioned by much of the last ten years. There are still holdouts. Let's even say that they capitulate the Netherlands, Australia, Austria come along with this whole plan. You've still got to wait until early next year for that capital to be deployed. Just think about that. Every month matters. Right now, we're sitting here in the United States arguing about whether d
C whites a month or two. Europe, even if it gets his act together, won't be able to deploy this until the start of next year. There's no question to the timeline here, folks, is really really, really quite something. Heaven. One of your thoughts on that, how fast can Europe move? Not fast? Unfortunately, nothing, Nothing is easy in Europe, and that's why you know, we crucially are going to rely on the e c B to form a bridge over the course of this time before we can really get
things going. I think I think that's why we're not necessarily saying jump all in on on European equities in European assets right now, because it's you're not going to see the speed that you're seeing in Japan right now. I mean, we are nervous about the the US not acting quickly enough. At least in Europe, you have some better automatic stabilizers in the background than you do, say in the in the US or perhaps some other regions.
But the burden will definitely at Lee, Uh depend on the ECB ramping up its QE program and finding ways around these ongoing core challenges from U coming out of Germany. Ivan, I love it. Nothing is easy in Europe. I will say nothing is particularly easy in the US right now when it comes to reopening the economy, and that's been one of the driving issues that it's been pushing stocks higher. How complicated is it when we talk about reopening at a time when people still don't know that much about
the virus, the path, the spread. Where are you looking to find value amid this sort of risk on tilt with reopening still very much unproven. It's it's really tricky, Lisa. I mean we we have the same kind of uncertainty that that everyone does. I think, Um, you know, we're we're obviously looking at all the high frequency data that that Google and Apple and others are providing showing activity of gradually picking up. I think the market is liking that.
They like to see things getting less add but clearly on a year over year basis, overall levels of activity are still quite quite depressed. So we're tracking it. We're
not trying to make big predictions about it. So clearly we're seeing some improvement right here, it could stall out because reopening or not, it comes down to whether people feel comfortable, do they feel safegoing out um and I think that's that psychological barrier is going to take a while to get through, and that's why it's so crucial that we get a new fiscal plan coming through so that you know, as the private sector has this caution.
The private sector always has caution after a recession, but especially dealing with an uncertain virus that you're going to need to see on the fiscal side, you know, consumers made whole businesses, uh, you know, continued lenning and support there and and most importantly, I think at state and local governments which have been on the front line of this crisis. Evan, great to catch up with you. So we've got to continue that European conversation at a light
to day Evan Brown, that of UBS asset management. It's really going to be interesting to see how Mr Pompeo and the President adapt and adjust to the reality that two thousand forty seven is here. There have been many good thinkers on this over the years. One of the greats has been Jonathan Fenby of T S Lombard. He's put out not one but a series of books on China, and one of them, of course, was a wonderful monograph, fabulous book. Will China Dominate the Century? Jonathan Fenby? Will
Beijing dominate Hong Kong? Well, politically, that is certainly the way we're going. Uh. The the decision to put national security legislation through the National People's Congress, which was approved today in Beijing, that shows that Beijing is going to take political control I think in Hong Kong, delegating some activity to the local government, but definitely the national interest
now predominates. Jonathan, has to be an objective, and for much of the last several decades, the objective was to try and shape and influence the behavior of the Chinese Communist Party. What's the objective now in Washington? The objective in Washington now, I think is to accept you growing friction with China and to try to move business away from China, to undermine that economic political link which was built up after Dengshaw things opening up at the end
of the nineteen seventies. Uh. And this is actually, to my mind, reflected in China, where you've got this growing emphasis on self reliance on absorbing pressure from the United States, And as you were saying just a few moments ago, the whole question now, I think, is how Trump moves on the ass of what might Pompeo gave us last night on saying Hong Kong no longer have the high degree of autonomy on which the relationship was based. Alright,
So Jonathan, let's talk about next steps. There is talk about the US provoking Hong Kong's special trading status, and we're even hearing some leaders of the protest movement over in Hong Kong support this measure. But experts say that this will actually hurt Hong Kong and the US far
more than China. What's the thinking there, Yes, it's likely to hit Hong Kong more because, of course, Hong Kong's special position between the mainland of China and the rest of the world and particularly the United States, depends on that special status. If that is removed, if Hong Kong is subject to the same conditions as the rest of China, then Hong Kong will suffer and question mark will be
raised over the whole American relationship with Hong Kong. So this is this is playing for some quite big stakes, and Jonathan, quite clearly one of those big stakes of the commercial relationships that China and the Communist Party has with a continent in Europe. Europe has tried to sit on the fence through all of this for much of
the last several years. Jonathan, in your mind, if we approached that moment, that inflection point where Europe can no longer sit on the fence and try and play both sides, yes, so we're moving towards that, and the coronavirus crisis has
has pushed in that direction. You're getting European governments having second thoughts about world wag for instance, including here in the in the UK, and I think you know there is It will take a long time in Europe, as things always do, but there is a feeling that we need Europe needs to reevaluate the relationship with China. This hasn't been made easier by the reluctance in Europe to
get on board ord with Donald Trump. Europe doesn't know where the Trump administration is going and doesn't want to be in thrall to the Trump policies. But I think there's a growing feeling in Europe that they need to
reevaluate the relationship with Beijing. There's a growing fear as well that what we're seeing is a more assertive dictator, a more assertive Chinese leader in the last several weeks, Jonathan, what is happening on the border with India that you have some transparency, some clarity, some details on because sitting here in New York, it's hard to get the right perspective on what is happening with China, not just in Hong Kong, but elsewhere to well, that's part of China.
There's a whole series of things happening at the moment um. The South China see for instance, Taiwan, Hong Kong, and the Indian border fits into that, and China, I think, is going to press its border frontier claims there as well as elsewhere. So we're getting China operating on quite a number of fronts at the moment, and nobody quite knows how to deal with that, it seems. And all this is linked in with I think the overall desire to to use the Tompion phrase, make China great again.
Jonathan Fanby One final question. I began my discussion with Lord Patton this morning talking about the Governor and Prince Charles looking back at Hong Kong as they went out into the Pacific Ocean. In that assumes a British response to this moment, how would you suggest or how would you recommend that Prime Minister Johnson respond to what we
see between Washington and Beijing. Well, Um, the UK relationship with China over Hong Kong has always been a pretty difficult one to define in British terms, because as Britain still wants to go on trading with China, but Britain now has to decide whether it stands by the Joint Declaration and the position which it thought it was in as a result of Hanover agreements, and it has to define it's a much more clearly its own position there.
But I don't think that Britain should have any illusions about how much weight it bears in the present relationship. I don't think anyone thinks we make it seven. Jonathan Fenby of T. S. Lombard great to catch up with you. It is our simulcast on television in radio Lisa Brownowitz, Jonathan Farrell and myself in his time where you just stop and speak to Americans confronting this policy head on.
One of them is Jeoffrey Arkamoto out of Pomona in computer science and at Georgetown as well, and he has taken the position for President Trump of first Deputy Managing Director at the International Monetary Fund. Mr Akamoto, wonderful to have you on. I must speak, is Eric Martin addressed
in his article on you last week. The very different skill set you bring versus the heritage of the position for America, and that is people with Wall Street experience like John Lipsky, or maybe it's people with the right pedigree of economics like your predecessor David Lipton. You are going to be different. In what way? Will you be different? Is the first Deputy Managing Director representing the interests of America. Well, thanks, Tom, it's great to be here this morning, and I'm enjoying
the new format. Uh. Look, I think it's no surprise that I or no shock that I do come with a different set of skills in a different background. Um, it's just it starts from the position that I have a lot of respect for my predecessors and knowing John and and having immense respect and kinship with with David Lipton, who I still talk with. UM. But look, I think you know what we need now is is somebody who's going to be trying to bring the world together on
these critical issues. We didn't anticipate a pandemic before I started in this role. We're here now, and I think since I've arrived, we've been moving quickly to try and build relationships across institutions in the multilateral framework and also bilaterally with our key countries and partners. That's what's going to be effective in not only responding to the health side of this, but also on the economics, which for
some countries is just as important or even more important. Right, So much of this you mentioned bilaterally is the new non multilateral relationship of President Trump to the world. You're representing essentially an administration that is decidedly not multilateral. MS Gore Gave has pushed against that aggressively. How does the United States address on multilateral institution if it doesn't believe
in the underlying theory? You know, I think you know what the US wants as an effective multilateral framework, And certainly that's something that I worked on quite a bit when I was in the in the U. S administration. I'm very proud to be in the current slot that I'm in now, which is trying to nit this up better and to make our programming more effective. This is a this is a huge challenge. One thing that we've had to deal with as as I think we all
have in this crisis is moved with incredible speed. Uh. So we were talking a bit about markets and and UH and market reactions, but but really some of the optimism in the market is reflected in the fact that you know, institutions like ours have moved with incredible speed uh and at an incredible scale that's unprecedent in our history. Well in our history, Jeffrey. The history of the International
Monetary Fund is simple. They are there really as a crisis policymaker of last resort and usually offer what are considered not draconian but very strict terms to any country that is in in real need. Right now, a lot of countries don't want to deal with the former I
m F regime. Can you recommend to the managing director that this needs to be a kindler, kinder and general I m F. I think the conversation Crystaline and I have been having with countries as this is not your father's or even your grandfather's I m F. We are approaching the world in the in the context of this
pandemic in a new way. A lot of that you can see, and how we are provisioning our facilities for for emergency finance at this point in time, which is, you know, we're telling countries very We're very frank, spend what you have to at this point, but please keep the receipts. And we're gonna be holding countries accountable on the back end for this, but we're not second guessing some of the decisions they have to make in terms of spending on critical health priorities and social safety nets.
I spoke to David mel Pass of the World Bank about this question, but that was before we dragged two thousand forty seven into two thousand twenty. How will you advise the managing director and maybe over the phone owner a walk down to the hay Adams, how will you advise the Trump administration to deal with this issue of Hong Kong. You know, I think my role in this, and I think our institution's role in this is not to involve too much in the geopolitics. What we're looking
at this from is from an economic perspective. And one thing that is for certain is Hong Kong is an incredibly important financial and commercial trading hub, not just to the world, but also to China and to the United States. That's underpinned by a you know, a series of policies that have been built up over time, whether it's credible monetary authority, a well regulated banking sector, uh, you know,
a strong reserve position. These are the kinds of things that we'll be looking at when we see about where where Hong Kong is headed from here. And clearly the outlook for Hong Kong, well it's a little a little unclear at this point or too early to judge given recent developments, is relevant in terms of the global economic outlook. One of the things we know, and this is for our radio listeners nationwide and also television as well, Mr Okamoto, we come to a point where we say, when's the
next cash call on the United States? How do you observe the fiscal structure of the I M F right now? And well, you need to go to President Trump into the Capitol Hill looking for more resources. You know. It's a it's a it's an interesting perspective. I think one way we look at it is is a little bit different, which is we're entering into this crisis better resource than we have in any prior crisis, and so we're we have a trillion dollars in financial firepower that you know,
we are ready and able to deploy. That's being deployed in real time today right now. Given the even the some of the more pessimistic projections that we have, we think we have the sufficient resources that we need to carry out our our role in this Obviously, we we are, we are. We are um encouraged by the good amount of international cooperation that's come behind some of our recent requests for resources, for example, fundraising campaigns to help some
of our poorest countries which have gone met. So that's that's a good thing, and that bodes well for any future needs we may have. Jeffrey, one final question, if I may, and this goes back to the heritage of the United States, and with our economic counselors at the I M F now ge to GOP and F there, but I'll go back to the time of Kenneth Rogoff of Harvard and of course to the great Rudy dorn Bush of m I. T. Long ago and far away.
The fundamental difference right now in these crises plural is we have much more of a floating rate regime versus the fixed nature that we had in the fifties and the sixties. Give us your opinion of dollars strength or dollar weakness, which is most efficacious for America, you know. I I'll let the President and UH and UH and the Treasure Sectory speak on where they think the dollars
should be at any given point in time. I think what's important here is that the Fed is doing all that it can to support of financial markets, both through monetary policy and through some of its financing operations that are there are forthcoming jointly with the Treasury Department. And this is obviously we enter into this world, as you said, with flexible exchange rates. That allows flexible exchange rates to be part of the buffers that help, you know, countries
weather this. For some countries, this is the first time they're having to use some of these tools. And so that's where our advice, paired with ours as you put in these icons of the I M F. Historic expertise and UH and a wealth of knowledge gets deployed on the ground to help countries in real time. Mr Acomona, thank you so much for joining us today. Both Jonathan Lees and I look forward to seeing you at the next actual I MF meetings, whether it's the Spring meetings
or the annual meeting. We look forward to that as well. Jeffrey Akamoto Folks, the first Deputy Managing Director of the I m F on radio and television, A must listen for Global Wall Street right now. Cheery Viceman is just really a most remarkable strategist because he's not he's Vasser and Harvard Economics, acutely sharp on emerging markets and international economics and pulling that into a strategy for Australia's Macquarie Bank.
And we're thrilled he could join us this morning. I've got to go right to the dollar and the dollar dynamics theory. The President, I think you wanted week dollar and now I think you want strong dollar. What dollar are you predicting? Yeah? So so this is interesting, and I should say before that, good morning to all of you. Um this fine morning. I I we know we have a view of the dollar that sees it actually weakening versus the euro and sterling. Uh subwhat at least going
into the back half of this year. Whether it's what Trump wants or not, I think is not what's relevant here, although uh, you know, what what Trump is doing is going to have some say over what the dollar does, and and particularly the election in our view, because we think that one of the issuests that market is not fackered in recently are the risk around the US election.
And I'm not speaking so much about the presidential election, but of course if the Senate goes democratic, I think that the situation with regard to taxes could change in the US. We could see a shift away from US equities. It's the prevailing winds shift towards higher statutory corporate tax
rates or wealth taxes or capital gains taxes. And if that were to happen, we could see the dollar start to weaken against some of the majors as as all occases around the world, simply start to move away from the US equity. So that's clearly one thing that could take the dollar a bit lower relative to the to the Euros potentially, and that's certainly something that's tied us uh political risk. But that's out there that I think the market is not taking too much account up right now,
I think the rest are mild. However, right, I mean, even if we were to get something like this, there's still some issues prevailing at the downside, and the euro dollar we can not that much against euro and sterlings the backup and Sarah, you touched on the Trinyon dollar question. In the FX market, what's the driver? What's the dominant driver? Is it right differentials? Is it policy? Is it fiscal policy? Which one is it at the moment for you, Terry, well,
you know, I think it's more rate differentials. At this point. It's been very difficult for the market to to make um distinctions between fiscal policy across countries. Let's say, when we're talking about trillions of dollars of spending and loan guarantees in other ways in which fiscal authorities is going to try to influence the economy. It's very very difficult to I think, in my mind for traders unitfax traction say okay, well that country is stimulating more and that
country stimulating less. It all turns into a mismash at some point, especially in so far as you're not getting very much guidance, uh with regard to when all of these policies will will be ending. I will say this, however, to the extent that fiscal policy is not just stimulatively but has other effects as well, it could be important.
And I'll bring up here the case of the the Pandemic Emergency Relief Fund that the EU is thinking about um going full it with AU as you guys know, about seven fifty billion euros all told in grants and loans. That's obviously going to be to some extent stimulatory. But I think the extent is going to help the Euro in the back half of this year. It's not because stimulatory, but because it speaks one of the most important medium term risk and longer term grow which is the existential
risk of an ultimate Euro break up. As we see more EU unity. Because of this fiscal stimulus, it could help the Euro. But that's a special case. I think in most instances, fiscal policy, at least the magnitude of it is not that important, and it will be things like rate differentials that drive these currencies. All right, Terry, let's talk about rate differentials in an era of yield curve control. John and Tom have been talking about this extensively.
We've heard from FED officials This is clearly something they're considering. If the Federal Reserve does peg the yield curve at a certain place, if it commits to buying enough treasuries to keep it there, what does that mean in terms of currencies. Does it dampen all the volatility? Does it give a lift to the dollar? I think I think it's going to dampen volatility. I don't think it's necessarily
going to give a list um. And of course this is all we all have to consider this in relative terms, Right, is yield curve control better or worse for the dollar? And say the alternative strategy that that might have pursued, Let's say in an alternative universe, which was to go to say, negative rates. Uh, let's put it this way. I think if the fit did go to negative rates, it would be much worse for the dollars than if
it were to do yield curve control. The problem with yelker control is that it's a very very tricky thing, of course, because if you were to peg let's say, the three year yield of the five year yield to a specific level, you would have to issue policy got in respect of the short term the overnight rate, which is consistent to where you are pegging the three year
yield or the five year yield. If you make a mistake in that regard, you may have the market choose to either buy um three year paper or five year paper aggressively or sell it, in which case the said would lose control of its balance sheet. If it were to do that, I need to lose call of its balance sheet, because it's the yield in a long place. Then I think you would have a problem for the dollars.
But let's assume for now that the set is pretty wise and savvy about this, and that when it takes a three year yield or the five year yield, you will do it in a mary that's consistent with the level. It's consistent with the forward guiding position, in which case mclary w us on Tom Kane's favorite subject, Terry. This
drives Tom Keane totally insane. But I wonder whether it sounds more dramatic than actually is, because if they do go forward with what Williams and Clara have talked about in the last couple of weeks, all they're basically saying is that yield curve control is the following. It is a compliment to forward guidance and date contingent forward guidance.
And basically they're just going to turn around and say for the next two or three years, say we'll sit on yields out to five years, three years, whatever it might be, in line with the forward guidance. And guess what the market is already there, Terry, The market is in line at the front end into the belly with the FED funds rate already. So hasn't the market already done this work, Terry? Isn't the Fed just basically saying
case the cap. So I agree with Richard Clara und percent that Yelker control is complimentary and it has to be done as a compliment to Ford guidance. But there's the rub, right, if they were to make a mistake, or maybe the market misinterprets them as as as issuing a a forward guidance which is not consistent with the yield at which they're pegging the three or five year bond or the ten year bond, then you have a problem. You have to thread the needle a little bit here, right.
You have to make sure that the forward guidance that can issue is specific enough. The market always interpreted to be consistent with that you're that you're in gendering promote here. That's important, I think. But like I said earlier, I think the sad IS is savvy about this. The fact that the people like Richard Clara are speaking about you controlling terms a compliment with Ford guidance and consisting four GUIDs suggesting me that it won't be a problem. Certainly
not the forward. Sorry, Weiman McQuary on the license with the Federals f Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keene before the podcast. You can always catch us worldwide. I'm Bloomberg Radio