Surveillance: Powell Is A Consensus Builder, Ryding Says

his nominee instead has raised interest rates. This according to three people who were present in the Hampton's listening to the President of the United States. Joining us here in New York City. Present with us is John Riding, Anti que Economics chief economist and founding partner. Good morning to your John, John. I guess the big important is whether any of this influences the Federal Reserve. Does it. If it does, it's only to be more resolved in getting

on with the job of renormalizing interest rates. But to be honest, the Fed is going to be guided by the fact the unemployment rates at three the inflation rate is pushing above two uh and that's going to keep the Fed on task raising interest rates in September and December this year, and I was like spoke with Tom and the tv UH in the last hour four more times in two thousand nineteen, regardless of what the president said.

And by the way, there is nothing in h J. Pal's background to have led one to believe that he was going to be an easy money UM central bank head uh and UM. So I don't know. I wasn't president in Hampton's. I don't vacation in Hamptons, so I can't say what was It wasn't said behind He might have been there because Tom King was away Friday and yesterday, so maybe Tom, did you make it to the Hampton's? Did the temperature went down? Could handle it? Did you?

Did you get a position in the FX marketing time? But no story came out. I mean, that's what's crazy about this, right. There were people who were privy to some pretty important comments from the President the United States and a private setting job, but it doesn't affect policy. Mark market moves on headlines, and we have a president who can give us more headlines than others from his own cell phone. Um. But in the end, as a comeback,

it's what the FED does uh? And I think ahead, please no. I I think that the FED is the FED is on task here and will be more truly data driven than it comes three or four years ago. Then push against the good economists who you agree to disagree with on this point, who say it will be damaging to raise rates. How do you respond to those good and qualified economists. I don't see what the damage. Look,

we we there's nothing more damaging. Again, you're talking tenurees on for the financial crisis and less financial crisis and the great recession we went through. And what were the origins of that. It wasn't that monetary policy was too tight too quickly. It was that monastry policy was far too easy for far long in a too likely regulated capital market environment. So the thing is that, you know, going going back to another famous ahead of the vet, the vet's job is to take the punch bowl away

when just when the party is getting good. And this party has been pretty good for a good while, and they've only been sort of closing the bar in very small stages. And I think that that's what they have to continue to do. I think that's what history, doesn't it. And when you hear unconventional central banking guide years like low interest rates are good, high interest rates caused inflation. You're talking about Turkey, you're talking about Venezuela, you're talking

about Argentina, talking about a very different economics textbook. Um, John, I think it's also quite easy to point out and maybe the Federal Reserve is still quite accommodative. Absolutely, as I said again with Tom before, the short term interest rates who below the inflation rate. We have negative real interest rates and that is an historical anomaly and one

that if persisted, would lead to misallocation of capital. And it's that misallocation of capital as we had the capital misallocated in the in the in the last decade um that led to the housing bubble and led to the mortgage crisis in the financial Now, this line probably doesn't work on the campaign trail, but the yield curve is

something the FED might respond to. The Atlanta FED President Raphael Bostock yesterday claimed that he will not vote for anything but that will knowingly invert the curve, and he's hopeful that as we move forward he won't be faced with that. We seriously face in the prospect that over the next couple of meetings, we might see some descent at the FED because of whether yield cove is right now, yield curve is right now? Look, I suppose that's possible. We've had the center at the FED before um in

in rate hikes last year. But the FED is not an innocent actor on the long end of the curve. The FED has a massive balance sheet in long term bonds, both mortgage bonds and treasury securities that are holding down long rates. So I will put the question back, would President Bostick want to see a faster wind down of the balance sheet or even active sales of long end

rates which would push interest rates up? As by the way, I think will the supply of treasury is that need to be issued in order to fund the growing federal deficit? And John, let me ask you a slightly technical question as well. When the curves should they be looking? Tim Dowey of the University of Oregon race this, Does it FED funds right out to tends? Is it twos tends? What are the FED looking at? Well? When I joined the New York Fed in the Fed's expert in that

area was an economist called Arturo. Yesterday, I worked with him. His work was three month te bills to UH ten year rates, and that curve is a lot less flat than the market popularized two years to ten year curve, which is where you know people people tend to look but but I think FED fund not FED fund, but

it's pretty much same thing. Three month bills to ten years is where the FEDS research points within within this is I guess the people behind German Powell, as you mentioned, he's a pragmatist, but at the same time he's not an account This line up the governors right now and now they will defend this chairman. Well, I I think you know j. Pau By by training, you know, is

a lawyer, is a capital markets guy. I have to say that he assimilates and understands research in a way um that you know might surprise economists and say, well if you don't have a page, so you don't have this, you know, how can you get it? He? I mean he gets it um uh. And I think he is a consensus builder. And I don't think that in terms of the governors of the FED, who are all too few compared to the seven governors that the FED is supposed to have. Uh, they there's no um that that

all of them would be back. John Bran j Pa Good to see It, Q Economics, Chief Economists and found in Karna. He is the author of Securities Regulation Cases of Materials Edition. John Ferrell read that cover to cover. He is the most cited lawyer on entrepreneurial and corporate affairs. Of course he is John Coffee. There is only one of Columbia Law School, and we are honored. The Professor

Coffee joins us this morning on Professor Musk. John Coffee, if you were advising Elon Musk this morning, what would you say to him? Well, he needs to reach an agreement with his board, and he needs to reach an agreement with the SEC, and he needs very much to shrink his shareholder base. To do a going private transaction. He has to get the number of shareholders a record of Tesla below three. Currently they're around one thousand, one hundred and fifties. So it's a shrink that's gonna be

hard to do. Uh. Simultaneously, he can't do this transaction if the SEC is suing him, and I think with the SEC really watching him, which he probably should give without a fight, is some kind of an agreement about how he will make future statements about the company and this proposed transaction. Thus, I think the SEC is going to insist that you enter an agreement that you won't make further statements on Twitter without at least first clearing

them with your general counsel on the board. Okay, John, and you're in your classroom and you mentioned Netflix and the re Hastings rule. We're gonna make original law here to come out. Are we going to make an original law that treats technology companies like industrial companies? Or is technology gonna have an asterisk where they have a different securities and regulation process. I think investors are the same investors invest in both kinds of companies, and investors want

full information. Twitter statement, limited as it is to something like a hundred and fourteen letters, really can't explain the complexity. And his statement that funding was secured was extreme overstatement, and it's partly the product of having to compress what he was saying to a tiny number of letters. Thus, I think you need to make a fuller statement and then add your social media statements afterwards, but start out with something that you disclosed to the SEC, to the

market generally and in a corporate press release. So, Professor, there is a difference, of course between best practice, which is something you've just described, and something that is legally required and something that would be against SEC roles. You've served as a member on the SEC Advisory Committee, and I'm interested, Professor, as to whether you would be telling them that actually they need to rethink disclosures on social media. Well,

I think social media is useful. No one wants to keep it off of social media, but that's not inconsistent with having simultaneous statements. Make your statement on social media to that audience, but the rest of the market, not all of which goes to social media, is entitled to some disclosure that's filed with the SEC and a formate K or something that's put on the corporation's website where everyone knows they can go. A selective disclosure is problematic.

What should the board do? And the board is made up of different principles. Let me start with the most visible member to the audience, and that is Mr Murdoch. James Murdoch, of course affiliated with Fox and perhaps Disney. How should a board member like James Murdoch act and react to all of this? Well, of course, there is

a committee that doesn't include him. They've appointed a committee to engage in valuing the company, and I think everyone should be focused on the need to come up with an independent investment banker and an independent law firm that helps this committee decide with the fair value the company is. The price cannot be four dollars just because Mr Musk said that. The company has got to sit down and evaluate their current value, looking at all the current factors

and looking at professional help and investment vanking firm. Once they do that, they might well decide they're worth more because the premium that Musk was offering was only and frankly,

most going private transactions see something like a thirty premium. John, what's the Bard's duty to investors right now after the interview of The New York Times, Well, I think right now the company has so many problems with their burn rate on cash flow that they've got to make sure they can communicate clearly that they are viable, that they are not burning money at such a negative cash flow

that they can't afford to issue new debt. They already have ten billion of dead outstandings, and the idea that you can triple that um is something of a fantasy us joining us or without question or interview of the day on equities and Tesla and corporate governance. He is John Coffee of Columbia Law School. They're bro Professor of Law,

director of their Center on Corporate Governance. Within the board, I guess it's a it's a smaller, more focused board, and I guess it's friends of Elon is a board? Are they getting enough advice now? And how does the board interact with their independent law firm? Well, they need to choose the independent law firm. They apparently have one. They really got two law firms because they got one handling the possible litigation and another dealing with the valuing

the company. But the committee needs both an independent investsel banker and independent law firm that will be there focused on what is the fair value of this company today? What do we need to know and how do we negotiate with Mr Musk? Because it is not their job to sit down and say yes to Mr Musk. It is their job to say the fair value of this company, given all the different range of options in front of us, is at least X, and therefore we want you to

improve your offer is this board independent of Elon Musk? John? Again, is this board independent of Elon Musk? Well, I must say that they have more relationships with him over a twenty year career than any other board I can think of right away. It's kind of an incestuous relationship because people even on the committee have previously been employees and Mr Musk and other firms. What would you do that? I mean, what what would be the John Coffee action

for this board? I mean, they're going through all the right things, I get that, but what is the next creative step for a board to get control of an uncontrollable founder slash ceo? Well, I think the first thing would be to establish a protocol. You will make no more statements about the company or this transaction without first having them cleared by our general Council and by the

law firm representing the in the committee. We want to make sure we don't get an obligation to fight off sec and private losses because you are too impulsive and saying things too quickly and too glibly. What will be the lasting impact on this and Silicon Valley? I mean, I know Tessa is unique, but we've had a few other entrepreneurial tech types feeling like they play with their own record. Bug. I'm afraid that that all depends on whether this is a success or a failure. This is

still to be resolved. Drama every day Like a kaleidoscope. This changes in terms of whether people have losses or they have gains, whether the burn rate is so high nothing seems feasible, or whether the board should be seeking more than This has to play out, And I think settling with the sec so that you no longer have them over your shoulder and putting a cloud in transaction and then coming up with evaluation that you're comfortable with and that can't be just we're going to do with

Mr musk Off. John Coffee, author of Entrepreneurial Litigation. It's Rise Fall in Future out a few years ago, of course at Columbia Law School, thrilled to bring you Professor Coffee, Foreign Affairs with a new issue out, and of course this September issue is always an important event, but never more important than their new issue. Why because you and me we are so dumb about the modern Internet. In the modern web, the book is the magazine rather is

the World War Web. And it is absolutely brilliant cover to cover on stuff we don't know with this, Gideon Rose, he is, of course the editor in chief of Foreigners. Gideon, congratulations on this. Let me get right to it. The Internet has lost its promise to gus, so thank you very much for your kind words about the issue. UM. Basically,

think of this as a four act play. In the first act, the United States Government creates the fundamentals of what will now call the Internet, UH, the communications networks, the Defense Department stuff, all that. In Act to the United States Government pairs with and partners with the private sector to develop. This makes it the infrastructure generally public and then allows private sector actors to develop all sort of applications so forth. This is the golden age of

the Internet, the nineteen nineties. Things like that. Act three, this starts to pray because the system goes on autopilot. And what happens is the large private tech companies UH take over large course portions of the Internet and become a sort of oligopoly running things on their own. Government regulators really don't really get involved, and the Internet takes on its own life. And during chapter three, Act three, various people start to push back against the problems with

the Internet. The Chinese try to succeed in a cyber sovereignty in their own sphere. The Europeans try to do regulation with gdp R, the Indians trying to build a new Internet from the ground up on more populist public good UH bases, and the Americans sit around wondering, g

can we control the tech companies? But Americans are so embedded in an Anglo American view of liberal capitalism, in which the government lets the private sector do its stuff, that American policy has allowed the Internet to create problems, and now other people are stepping in to fix the problems. Explained, then who has the power here is? You go chapter by chapter brilliantly. Is it China or the power or

is it a European regulatory structure. So the great question is we don't know who's going to have the power and act for because what happened in Act one and two was the U. S Government created the infrastructure and turned it over to the private sector to help run. And in Act three we ended up getting a lot of pushback. And right now you have governments like China, you have regional regulators like those in Europe, you have private sector companies like big tech. You have the citizens

in general and you and you. Nobody knows who is going to control the commanding heights of the digital economy, like for example, data regulation. Who is going to get to keep and control and monetize the data, the individuals, the companies, the government. You mentioned commanding heights, which is of course Daniel Jurgan in his classic book on the nineteenth to the twentieth century capitalism, there were two wars

in the middle of Dan Jurgen's commanding heights. What's going to be the warfare equivalent of this technology in our society? So it's not going to be warfare in terms of geopolitical conflict between uh the major powers. What's going to happen is there was a common American sponsored liberal open order of the Internet, somewhat parallel to the globalization order, and American officials moved that forward to get all the benefits.

But they forgot that the destruction. Part of creative destruction creates pushback and people resist. And what you're seeing now in China, in Europe, in India, even in the US, is people reacting against an unfettered private tech or dominated internet. But no one knows how to re establish control because you don't want to kill the goose that's laying the golden eggs. So what's happening right now is a question

over the future control of the Internet. It's not necessarily just gonna be what it was in the last couple of decades, which is the United States debating whether or not to allow tech companies to have control over things. Now other global players are in fact going to be the news. Just in the last twenty four hours, Apple limit x number of apps to China. I mean within your chapter on China. They're making the rules were not and even Tim Cook, chief operating officer of Tesla Bound

Tim Cook asked to bow to China. So what I feel about this is it's a little bit like the econom nationalism in other areas that we're seeing right. Globalization races forward, it produces lots of wonderful things, lots of creative destruction and turmoil, but it also produces pushback and problems for people inside major developed Western countries, which causes

them to want to put breaks in the process. Okay, the fact is the Chinese are doing the same thing with the Internet, and just like American economic nationalists and populists and British ones and places elsewhere want to hive off their economies from the globe and establish sovereignty. So the Chinese are trying to do the same thing for the Internet, right, But we're talking about two different different things, right.

Getting on the one side, it's like cybersecurity and and I guess you know, the cyber race on who will have supremacy between China and the US. The other one is simply who is in the third act? It could be regulators, right, and this is Europe. Europe as leading the forefront regulation. I know Tom in the past has pushed back against it, but when it comes to data protection,

these are the new p full in town. Yes, but it's actually there are several competitors trying to do the same thing, and we don't know which way of controlling the problems is going to win out. The European approach is regulation for the whole system, Okay. The Chinese approaches secession from the system cyber sovereignty. Eventually, the goal of that is to create essentially a Splinternet in which there's a general public Internet. But the Chinese have built their

own platforms, their own system and twenty years. In effect, it will be much more of a Chinese dominated Internet than UH than American dominated one. The Indians want to re engineer the whole thing from the ground up. Fascinating.

Our article by Nanda Nilakani UH from Emphasis about what the Indians are doing in Internet policy maybe the most impressive and interesting of all of the different approaches, even though we don't hear much about it, and basically in the United States we're still wondering what to do because we don't basically have the conceptual ability to direct companies

the way the government wants. And so for the public ones talking about regulation because there's a great, great, great article in the latest edition of Foreign Affairs written by Helen Dixon saying regulate to liberate? Can Europe save the Internet? Cannet? Well, so this is the great question. We tried to present a fair picture of this whole, big debate that's going forward on the future. So the lead piece in the packages by Adam Siegel talking about the transition of power

from the United States to China. Helen Dixon's article expresses the European approach, which is, no, we doesn't have to be the U s approach or the Chinese separate one we can regulate it. Non Da Nilakani talks about the Indian one. We also have a number of different pieces on specific challenges of cybersecurity. You should look at the European approach, the Chinese approach, the Indian approach, and the

American approach as variants of the same thing. Now that we've unleashed the wonderful creative destruction of digital technology, how do we keep it going forward in a positive way while controlling the social and political effects of all this creative destruction? But with these nations ever come together get in I don't know whether it's a plaza chord for the Internet, but you know that's the kind of idea.

So if people like John writing we're controlling this stuff, then the answer would be yes, because there's an obvious benefit for people to come together in a collective action coordination solution to reap the benefits of a coordinated policy uh with into a regulation. But the problem is, right now we have a tied in infnational politics in the United States and elsewhere which is going inward rather than collective.

And I think the answer is we're moving towards a splinternet more than we are towards a new You steal that word splinternet, you get a royalty on that. It's not mine, but it's royalty. Here's the New York Times today, folks all read it for your Russian ackers broad and attacks to conservatives. First of all, I got to make some news here was this was a counsel on foreign

relations hacked by by Russians. Is within this article. Like everybody else, we're constantly fit an attacked by various different actors. But that's just that's like, the Russians don't bother me as much. The Russians are like um, butch Casside and the Sundance harassing the railroad. Who's the Catherine Ross of the World War Web? The Chinese who are gonna be building a whole new railroad. So we're worrying, like E. H. Harriman and the Union Pacific Railroad about who's stealing our

little We're worrying about who's stealing or are safe. The Chinese are going around buying up the land and running the developing engine technology. Twenty years from now, we're gonna be running on Chinese trains and we're gonna be wondering, how did that happen. Okay, Well, then what Francie's wonderful question about how do we get together on this? Where's the unifying force, particularly given the fractious politics our presidents

having with our allies. Karen corn Blue and UH, Michelle Flournoy UH and Michael so Meyer have pieces in the article in the package telling you what the United States should do, and there are a lot of things. Again, I would look to the Indian approach of the internet as a public good that may hold the best solution down the long road. You have a two cook stock

options is not the public good. The question of the regulation of capitalism in a way that is beneficial economically but also sustainable politically and socially is going to be the question of the mid century. Gideon, do you think any of these companies would self regulate for real? Not

just but just like Martin? Look, yes, yeah, we can count on the tech companies to self regulate, just like we can count on the pharmaceutical companies to provide low cost medicines for everybody without regard to jacking up things when they have a scarce monopoly like an EpiPen. Alright, perfect, we we uh, we do a little bit of you know, that's that's a no. But why not if you listen

to the rationale of them regulating. It's either you regulate or you don't survive if people stop using you because you don't. You know, they don't trust. This is they make money out of trust. It don't make money out of selling drugs. Yes, in the long run, but in the short run you make money by increasing your share of things. Right, we have a president right now who is ignoring the entire costs of a global trade war to get some short term, minor advantage in trivial, little issues.

So that kind of thinking, if it can apply to the President of the United States and the entire Republican Party, it also applies to individual private sector company managers, so we can't rely on them to be responsible for the entire global community down the road. Gideon, thank you so much. Your most important issue. I I really mean this, folks, how dumb I am on our World War Web and I've got to read it cover to cover cancer. Enough

about it. The big question now going forward is what will the relationship be between the U S and Turkey, and Turkey being it's incredibly important geopolitical location, that it's in who is going to come to its rescue? And I'm really pleased to say we are now being joined by Amanda Sloat, the Robert Bosch Senior Fellow in the Center on the United States and Europe at Brookings. Amanda,

thank you so much for being here. So I want to start with now that we do seem to have found some stability for today in the Turkish lira, how much financial aid will Turkey need and who is going to provide it? I well, thank you for having me, and that's an excellent question. As you said, we are seeing stability today. The money that they got from Qatar

last week, the fifteen billion, has helped stabilize things. But we also had Treasury Secretary Manuchin out last week saying that the US was preparing more sanctions, and we had President Trump and his wide ranging interview with Reuter's yesterday indicate his continued frustration with Turkey. So I think it is quite possible that we will see the US imposed

sanctions or addition measures on on Turkey this week. Then we come to the question that you asked, which is how the Turkish markets will respond in and what the broader challenge of this is Turkey certainly could try and find money from other other partners. Uh, they could repair US ties as an easy way of dealing with this. And then there's still are all the broader structural problems that we are seeing in Turkey with one of the easiest fixes they could make to is being let the

central Bank raised interest rates. Yeah, and as you talk about the potential for the US to a place further sanctions on Turkey, we are just getting some breaking headlines that the Treasury is sanctioning Russian vessels and shipping companies, uh, and also issuing cyber and North Korea related sanctions to just sort of put into context that sanctions are free flowing these days. So it isn't a hard stretch to

think that there might be more on Turkey. But Amanda, I guess then the question becomes, you know, we did get that loan from Cutter, and I'm wondering we'll Russia and will China step in to try to align themselves more mostly with Turkey financially at this point, Uh, it's certainly possible. Uh. The Turks have been in touch with

the Russians. There was a call between the Turkish and Russian leaders about a week and a half ago, and last week we saw the Russian Foreign Minister in Turkey uh the challenges that Turkey and Russia have continued to

have a difficult relationship. You may remember it was less than three years ago that Turkey shot down a Russian jet that had violated its airspace along the border with Syria, leading Russia to slap a number of economic sanctions on Turkey, forcing Air Tawan a year later to apologize to Putin as a way of getting those lifted. So certainly any measures that come from Russia are going to have strings attached.

From China's perspective, China has been investing quite significantly in other parts of Europe, and it would be in China's interest to have another foothold in Turkey, which again continues to raise questions for Europe in the United States about what the longer term implications are going to be from from greater Chinese investment in some of these Allied countries. Doctor Slot, is wonderful to have you with us, particularly after your public service to the nation on the watch

for Southern Europe and Turkey. Can you enlighten our American listeners on the importance and present fragility of this large air base we have in Turkey. Is it a threat, Is it an important pawn in this debate, or even with a rhetoric, is a truly untouchable I it certainly is in asset that the Turks could use in retaliation for American sanctions on them. It's a Turkish base that the US has been using for an extended period of time.

The UN has various strategic assets that are located there. UH. It's also been very helpful to the US in terms of prosecuting the fight against the Islamic State in Iraq and Sirius, since being able to fly missions from the base is much easier than having to fly off carriers the Gulf. UH. So far, there has been some using, amongst them some lower levels officials. I think in in Turkey, some pundits and Turkey that it could be put on

the chopping block. I am not aware of air to Wana or any senior Turkish officials making that threat, although it's It's certainly something that has come up periodically in in the past when the US has has done things that Turkey has not liked. So from where you sit, I'm sure the President has his own agenda. Is separate from that is the new State Department advising perspective to

the President on complexities like that air base. I am sure the State Department and the Pentagon are feeding all of that information into the White House, but as you say, it is not clear to me that President Trump is taking some of the broader considerations into account. Who who is the who is Turkey's ally, Well, it depends on the day, and it depends ends on on the the issue.

I One thing that's been quite striking in Turkey over the last couple of weeks is that we're seeing them try to mend relations with European countries that they have

had very fraid relations with. It's quite striking this week that you have the Germans coming out musing about whether or not they need to provide financial support to Turkey, since it's certainly not in Europe's economic interest to to see the Turkish economy tank uh And over the last couple of years, Germany itself has had very difficult relations with Turkey, following accusations of Nazi like behavior. When the Germans didn't allow Turkish ministress to campaign to diasporic communities.

Before constitutional referendum, Turkey was also imprisoning some German citizens on spurious charges, and these things lad the Germans to impose some of their own economic measures in terms of issuing travel advice to citizens, limiting the number of export credits that that they were giving to their their own businesses. So it's it's quite a role reversal when we now have the German having gone through something quite similar, with the Turks now wondering if they're going to have to

come to Turkey's defense to help stabilize its economy. Yesterday on Plumber Creator, we were speaking with Admiral James Tavridi's who formerly was the military commando of NATO as well as the U. S. Navy admiral, and he was saying that there is a chance that perhaps Turkey would leave NATO and if if it did, it would be disastrous for the US. Do you agree, yes, I definitely think it would be disastrous. There has been talking about whether

or not NATO should kick Turkey out. NATO does not actually have any mechanisms to do that, so it's a decision that Turkey would have to take itself. I have not seen any indication from Turkish leadership that that's something that they want to do. I think a lot of their regional security comes under the offices of the NATO umbrella. Turkey has continued to be a good player and and member of NATO in the sense of contributing very actively

to the ongoing mission in Afghanistan. Are the Alliance's second largest military uh and actually they are one of the countries that is on track to meet defense spending targets within the next couple of years. This has been wonderful. Don't be a stranger. Doctor Amanda Slote with Brookings or Public Service again at the U S Government is Deputy Assistant Secretary for Southern Europe and Eastern Mediterranean Affairs. Uh Dr Slip thank you again so much, of course serving

now at Brookings as well. Thanks for listening to the Bloomberg Surveillance podcast. Subscribe and listen to interviews on Apple Podcasts, SoundCloud, or whichever podcast platform you prefer. I'm on Twitter at Tom Keane before the podcast. You can always catch us worldwide. I'm Bloomberg Radio