Surveillance: Risks of Silly Leftism & Silly Rightism With Rose

is US trade weighted real broad dollar. This is the broadest measurement of the dollar with strong dollar up one standard deviation over the fifty year chart. The plaza chord way over on the left side, so it is a strong dollar to say the least, which is a good entry point on equ it Ease with Edmund shing A B and P. Perry by the global head of Equity in Derivative Strategy in Maryland. Watson joins us today a black Rack, their head of Global Fundamental Fixed Income Strategy Maryland.

Currency dynamics and fixed income really affect the coupon right now. To begin with Euro in this this London hour, what do you do on currency as you try to find coupon in Europe. Yeah, that's right. So if you're a European investor, you're a DOMS hold investor, then it's really important to be aware of the hedging costs. And I think if you're looking for coupons then we do see um,

you know, potential of the opportunities in euro credit. We see opportunities also elsewhere in Asia and also in dollars nominated assets as well. But it's really important to be aware of the carrier get then also the hedging cost back because it's about three percent, which is a lot. So I think it's very very important to be very aware of when you're tryd of looking at that coupon, what in investor actually gets back half the aging cost?

And maybe you don't have the urging cars and equities, but you certainly have the current currency translation as well. What a strong dour due to US smart nationals or

is it too small a part to play? Well, you can't say it's too small time because if you look at the SMP five index, something like forty of earnings are from overseas, so clearly has it has an impact, um, maybe not as much an impact as it as currency does in Asia or in the US, but an impact nonetheless, of course, I think the real issue for equities is not going to be just the currency by itself. It's

going to be much more where the currency goes. And I think it's going to be much more about really the debt mountain that the US has to deal with in the coming years, and what does that do to the currency. I think that's more of an issue in terms of stability going forward. What does that do to the currency? Well, I think it makes the currency get down. I think Toma's pointed out the fact that the dollar is way high. Okay, fine, and everyone's been very bullish

the dollar. Well we're not. We're pretty barished the because we think eventually the debt mountain comes to bear, someone's going to buy this U S debt. Remember, they running massive budget deficits. I love the way everyone complains about Italy in the Italian budget deficit. The US got a massive budget deficit. It's a only going to get worse. Trump is not doing anything to help that. And they

think that everyone's going to buy their debts to be fair. Yeah, but the thing is they still need people to buy their debt. Front scene. Someone has to buy it. Yeah, the treasury of sellers. Who is the buyer? Not the Russians, not the Chinese. Oh, good luck, the domestic US investor. Let's see, let's see if they absorb all of the debt. Okay, Well, where do you see dollar going from here? You know, so the medium term, we also see the dollar depreciating

from here. Um as has been very strong at the moment, we did see a bit of a pause after the FED sickly. J. Powell was suggesting that they might be on pausing for an extended periods of time. Um And I think as we go forward, you know, the US is in the late cycle of the business cycle as well. So our view is also the over the medium term at least the dollar will also to depreciate. Okay, what

happens if we have a trade route? Does it? Does it mean that actually the FED is back at hiking far too early to say, I think the Fed will leave it a few months. Look, they're not doing a big rush. Core inflation is not going up that quickly despite the rise and wage inflation. And they're also, of course in the US. Don't forget helped by the the oil price. The oil price has a lagged effect to inflation.

It was coming down, remember in December, quite considerably, and the feed through their foot core inflation is going to be someone negative rather than positive, at least for the next few months. So they have a little window where they can sit and do not very much. In particular Maryland, where is black rock and the concept of lower for longer? We had Gary Shilling and yesterday arguably the best two

decades call on lower interest rates, etcetera. But but where is black rocks formal statement and how low and how long we stay with this great regime? Yeah? So, um, I also think that they're going to stay lower for a lot longer. And you know, our core view at the moment is we'll have a pause at least for the first half of this year. Um. As Edmund said, um, you know, I agree with this statement that the FEND is going to be very patient. They're in no rush

to do anything. And then when you see the development of inflation, when you see the development of global factors, global trade, when you see the development of the U S economy and activity, then I think potentially in the second half of the year you could see a further hike or you could see a continued pause. But I certainly think in the US and if you look globally as well, if you look at the ECB, um, you

know they're in nowhere to do anything either. Um. You know, the Bank of England wants to show up the economy and we think that you know, on the margin, at some point they will ride rates. But I think broadly, when you look at the global economy, when you look at development markets, we are in a completely different regime to the past, and we are going to see rates much lower for longer, and the end point is also

going to be much much lower. To James Bullard and his phrase of regime change, it is a most interesting time administing on the markets. B and B very Maryland wantson and fixed income as well with black Crocket join. I guess a man whose career has taken him from the Fed to the I m F, from City Group and now with the Milken Institute the chief economist. It is Billy and he joins us from Washington. Good morning

to your bill. Want to so help me out as always to draw a distinction between noise and news substance and happy talk. What do we have this morning? The most substantive thing you just mentioned is the fact that the dollar has been gaining stronger and stronger over the last week or so. And think about it. Interest rate parody told us that when the Fed talers, we're supposed to pause, the dollar is supposed to weaken. Instead, what

has happened. It tells us that interest rate parody models don't work, and I think the traders around the world are learning that the hard wave. One thing do you have to keep in mind is that the US continues to be a magnificent global capital and everyone in the world wants to come here, despite the fact that we have rising deficits, rising death to GDP ratios. And as was saying to Tom earlier, one of the things that we have to be cautious about is keep things in perspective.

All this worrying about the US is like talking worrying about pimples on a teenager's face when the rest of the world has cancer and and I think we have to remember it breaks it and even the problems within China, all the dead problems they're having, is demonstrating to us that the leverage is being put to use in the US much better than it is being put to use

in the rest of the world. There is a belief Bill that if we get some kind of trade daila will go a long long way to curing the world's ills. It will be some kind of panacea. I take it from your Bill, and you don't share that belief. Well, actually, um strangely enough, I take that view, but on a on a much longer term basis. We've had social problems and political problems tearing apart Europe and Middle East and

Asia for centuries. And I think one of the things that the milk and formula tells us is prosperity comes with the use of capital in a smart way to bolster social capital. In other words, when we get the global economy and regional economies to grow faster, a lot of the social problems start to go away at least

become less important. And I think that's the formula that that is being used around the world now by by us when we have these regional conferences we're doing the Middle East right now, we're trying to get everyone to focus on strengthening social capital by using financial capital to build up the global economy and to build up growth. Increasingly, that build that's not what I say from many nations around the world. In fact, what I do see is an urge to limit the flow of capital in many ways,

depending on where that capital is coming from. Is that of concern to you and you felt that into this tried discussion. That scares the hell out of me, John, because one of the things that I when I was at the i m F, it was absolutely forbidden to talk about global capital controls. Right, capital controls were an anathema because you wanted global to freely flow around the world.

Now people at the i m F are getting promotions for writing papers like the Approach Big Use of Capital controls and small Open Economies when capital influence threatened to overwhelm domestic financial infrastructure. Wow, what a change of I m F philosophy in the last ten years. And I think that reflects the growing sense of of of not being able to build the appropriate infrastructure and capital markets that are resilient enough to to strong flows in and out.

And I think that's the problem that that's not being faced by my profession, the economics profession, and the financial uh market participants out there. Flows into the United States, the flows from the rest of the world is is essentially safe, safe haven flows. I think one of the things that people are afraid of is the fact that take China for example, every rich person I know in

China wants a backdoor out. They want to put their kids in Australia for education, they want to put their kids in the UK, in the US, And I think this need for a back door shows you that the world is really very unstable. And where are they going They come into the US, and I think the US represents a lot of social and there are a lot of problems that you just talked about with with Gideon um But but one of the things that we have to keep in mind is that we are very dynamic economy.

And even even with that dynamism, the social problems become lessened when we are able to grow fast. And I think one of the things that has hurt us since two thousand and eight is this very very sluggish recovery that's been taking place. Right now, we have some possibility of having sustained growth. But as a practicing economist, I mean, I know you're doing bigger, broader things with milk and and as a practicing economist, what's your terminal run rate of of us g d P. I mean some of

these shops, Bill Lee have really grim statistics. John Farrell, there's a couple under two percent, Right, it's a terminal

run rate. What's Billy's terminal run rate? Well, well, I I keep my my my my union card as a PhD economist by saying, well, ye know, the natural growth is limited by population and productivity growth, and and and the where where I have a bit of more opt isum than a lot of the shops around that have the one handle on US growth is the possibility that US productivity will start to strengthen with appropriate use of

capital invested in the right right uh assets. And I think the things that we have been having trouble with is that dead assets encourage entrepreneurs to stay with continuing uh existing technologies, because what does the deadholder want their money back? But equity capital represents the possibility of of of shooting for the moon and and and and swinging for those technologies that will raise productivity, raise proctivity growth.

And I think as financing starts to resort more to equity, especially through private equity, Yeah, I think we're going to see more of that bill just to taste some of this out. Essentially, the equation you offered was the recipe for potential growth in America? Where do you see potential GDP?

And I should add to this, I think the thing that markets and market participants worry about is just the rate of change from above potential while above potential three four percent back down to two how quickly we get that and whether we overshoot to the down side as well. Yeah, the possibility of soft landing has escaped the FED for for many decades, and I have to be guilty of

that as myself. Um, but but I think one of the this is the best chance we have of getting a soft landing because we don't have any of the imbalances that normally cause the FED to to really spike interest rates because inflation is getting running out of hand. Uh. Structural um. Structural forces that are keeping disinflation in the front of every form C member is one thing that is I think keeping the FED from resorting to the kind of stop good policies that have killed every past recovery.

Are those structural forces simply technology? I mean you mentioned earlier ability the effective Amazon and pricing is they know they essentially take retail to a perfectly competitive microeconomics. But the bottom line is technology is the great unmentionable here Should the I m F, should World Bank? Should the others be doing more in the study of these profound technological effects. I think the I m F and and World Bank aconomis even fed economists um should get some

dosage of private sector experience. And I have to say I have been blessed by my years at the City because I have seen how the markets misappropriate capital. And I think one of the things that that that that productivity models go for is what is the long trend and how is the long trend changing? And my god, the last the next guy who used an HP filters estimate a potential GDP, I'm going to bash them in the head because that's completely ignoring how capital is being used.

But I would love to say that you just bashing people in the hands. We can in the studio, and every time an economists says something he doesn't like, you could come up on the other hand him in the face. Billy, thank you so much for the Milken Institute for getting us started. We are thrilled to bringing with his kindness

every new issue of foreign affairs magazine. Get the physical copy, reasonable subscription and it is just filled it Inside this month is a twisted view on the global new nationalism, but with a real American angle. Julapor leads it off with a controversial walk through our nationalist to Kischen Stacy Abrahams is in there in many other worries A well, I thought Michael mandel O Gideon on on Europe was really quite good. I mean, we talk about nationalism in Europe.

It's an extraordinary original nationalism, isn't it. It is, you know, one of the greatest questions we have right now, and this goes back to what you were talking about with Billy in the last segment, is how much the social concerns are related to economic concerns, not just in question

of growth, but also distribution. And so in Europe, where you've had uh not much progress in a lot of places, you see social divisions and social groups uh coming up and trying to get our own and pulling their own back from the larger community of the EU because they don't feel they've benefited from it. And that's for the question is not just growth but also the distribution of growth and getting people to feel like they profit getting all members of the community to feel like they're part

of a national economy. And John max Foot, writing in the Washington Post, he's got the all in tex average take in Sweden of dollars. In the US, it's fifteen dollars. To Gideon's point, though, is this word feeling it's getting you to feel like you are participates. Well, now, I think it's important because you know, undoubtly the data tells you that over the last ten years, the world's richer, there is greater prosperity poverty has been Solo Martin is

the best on that he would strongly endorse. And Gideon, we are obsessed and perhaps quite rightly, between the distribution of wealth as you put it. Can we make an effective argument that says wealth in equality is the price we pay for greater global prosperity. I think that that is the basic bargain that capitalism makes right, the equal distribution of riches rather than the equal distribution of poverty

as Church will put it. But that doesn't mean that the policies that we have at the national level and other levels don't affect just how much of the share goes to the rich and what people like picketing everybody else has basically shown is that over the last couple of generations, as the global economy has done well, as poor people in the developing world have done extremely well, as rich people have done well, middle and working classes

in the advanced industrial world have not. They have not tended to see many of the benefits from growth even in their countries, and so they have a legitimate right to say, wait a second, what about us? And the question has to be, how do you get the benefits that accrued to the economy as a whole to be delivered to the population as a whole. Let's talk about

the risks. I remember one of the final addresses from Margaret Thatcher in Parliament, and essentially she made one of a very effective argument that there were elements of the left, the far left, that would be happier if the gap was smaller and everyone was poorer. So the gap between the rich and the pole was smaller, but ultimately if everyone was poor, there would be elements of the left

that would still be happy with that outcome. How do we avoid the pendulum swinging aggressively to the left to bring the wealth in a quality gap all the way in without making a country poorer. Well, I would suggest that the easiest way to take the wind out of the sales of the socialists would be for the capitalists to pay a little bit more concerned to distributional effects and to actually have you can put it this way,

social democracy is the price of avoiding socialism. In your new issue, do you address the new socialism that everyone's ranting and raving about now? We address aspects about it. So, for example, one of the main art main arguments used against greater social spending is that you can't have any increased deficit or debt. And there's an interesting piece in Summers Larry Ferman and sorry Larry Summers and Jason Furman argue sing that you know, deficits are not so huge.

What really matters is are they going up even faster than you can afford to deal with them? And that you know, essentially keeping we don't need to reduce debt dramatically at this particular time. We need to keep things in control, they argue. And so it's not just a question of how do you do this? But what are the downfalls? What are the real pitfalls? Like Jonathan was talking about, what are the dangers you have to be

really aware of. And yet taking too much money and spending too much and constricting the economy too much would be a problem. But if your publics reject the entire framework of less a fair capitalism on which your economy is based, the results will be I see a risk that silly leftism will take advantage of the opportunity created by silly right ism and that sensible policy. I feel myself stealing phrases as we go leftism. Capitalists can't reform themselves.

Socialists will get the political power to do what they want. Do you believe that can compet in a country like America? I think you see it happening right now. When centrist policies on the economy don't get a good hearing, uh and and and other. You know, rich people's policies just get run the way people wanted. Then you end up

getting popular pushback in a way that's often economically. When I say working, what I mean what's effective with the electra Because of the midterms, the Democrats didn't take this radical left wing approach to the mid terms, and their approach, the centrist approach, was quite effective in the House. You know, it's interesting to see what exactly the Democratic Party's agenda will be, how radical they actually are are We're giving

a few a lot of attention. We're letting a couple of names, We're letting a couple of names completely, and their back ventures that are not you know, Nancy Pelosi and Chuck Schumer don't seem to me like they're going to be leading a bunch of guillotine uh crowds too. We just saw this on the Pelas and who's really

matter in the last twenty four hours. Do you have a confidence that we all have a political process that melds to the middle as we go through the primary season, convention Hope, yes, hope, Okay, Hopeing audacity with Gideon Rose. I can't say enough about the new nationalism the new issue of Foreign Affairs magazine. A number of articles sided there. One I'd mentioned. We didn't even get to Russhire Sharma definitive on emerging markets, writing with great passion about India

as well. That'll be the first article I'll read in this new issue. This is a joy for Paul Sweene. You and and I we are gourmands of a certain level, and we know that if you were the Austin Goulsby of the Boost School, of the former chairman of the President's Council of Economic Advisors, you can wander out to north of the Permian Basin, south of the panandle tow scenic Lubbock, Texas for ant Trina's lasagna, and it's a wonderful lesson on what we'll do within our trade policy

of the United States of America. Austin, it's classic goalsby one oh one. You're at the Boost School. You're screaming in a bunch of over smart educators and you're saying, Hey, it's about Aunt Trina's lasagna. Discuss. Yeah, Well, my my Auntriina and my uncle Bob. They've moved to Abilene, where my parents are. But at that time my aunt Traina's lasagna or maybe it was pot roast stuffed down the sink in their kitchen clogged the drain. My uncle goes

and gets a product since band called the bomb. It's a combination of plunger and firearm, and he blows the clog out of that drain. But of course they live in a converted apartment, so he blows it not to the sewer. But blows it into the neighbors during and all over the fitchen of the neighbors. And so my analogy was that that is what's wrong carriffs, because you blow it out of the steel industry, but you just

blow it onto the auto industry or or something. Well, bring this over seriously, Professor Goldsby to Booth School in the University of Chicago. And when Jacob Winer, I mean, with the bomb down the drain, are we heading towards mercantilis M. Golsby style? Don't say Goolsby style, that's terrible. If we are, it certainly feels many days like that's what what the president has in mind, that that he kind of wants to go back to some mercantilist enterprise

for the United States. And I wish somebody which would explain to him the way the way mercantilism went away is because merganialism doesn't work. Uh. And so I think that's one of the bigger risks that we face, is that that we could spiral into some trade war situation with China and drive both of us into recession. Um, but hopefully not Look, ah, you know, maybe they can find some way like with NAFTA, light they did with

Europe that they they basically just backed away. They had a lot of bluster, we're gonna beat you up, we're gonna put it in terrorists, but at the end of the day they just kind of backed away and moved on. And so that's what I'm hoping happens. So, Professor gouldsby the U. S. Trade delegation is in China this week. Um, what do you think is a realistic negotiated agreement between

the two sides at this point? It's the reason that's hard to say is I don't think that there's any substantive agreement that that is that is material to the to the economy or to our trade that that they

can negotiate. So the answer to that question is whatever gets the President to stop threatening a trade war, and if that means vague commitments on the part of China that in the future they'll buy more stuff and you know, to make some announcement of things that they largely already agreed to, which is the style of the of the quote unquote new NAFTA, and was certainly the style of the quote unquote deals with Europe, where they agreed only to keep negotiating with a certain goal in mind. I

think something like that would be realistic. I think any let's let's say they went there and there was a delightening struck and there was a meeting of minds and they said, ah, we've got a new comprehensive trade agreement. They would not be able to pass such an agreement through Congress in the next two years. So in a way, the the most expansive things, There's no way it's realistic. Who, in your opinion, is is which side has more incentive

to get a deal done. We see, we know the political ramifications on our side, but we also know the economic issues affecting China. The growth is slowing, and one can argue that they certainly need do not need a trade war. So who was the most incentive? Well, you don't like Like I always say, every day without a trade war is a good day for America. Um, maybe there they have more incentive, but but it is the situation where we threatened to burn their house down, they

threatened to burn our house down. And you say, oh, but our house is smaller than your house, So you know you you have You're in a worse position than US. Yes, maybe that's a relatively worse position, but both these houses will be burnt down. So this I just think this mercantilist mentality is the wrong approach and it doesn't take into account the way business works in America or around

the world. So if you if you escalate the disputes like this with China, there's a whole bunch of American manufacturing companies that get a lot of their you know, the power supply that goes into the machine that's being made in the United States, the power supplies coming from China.

So if you go to start throwing tariffs in, you will find exactly what happened with steel and aluminum, which is a whole bunch of people in the United States say, wait, you were doing this to help the US, but actually we have to shut down production and lay people off because those are our inputs. So I just people need to just take one step back and think there's nothing wrong with trying to get trying to change China's behavior.

You're in some way that you want them to. The question is is getting jumping up and down, having a tantrum, screaming and trying to shove their facing It is that going to work, and I think that's that's much more likely to do the opposite of work that China agreed to publicly do some some vague promises, but then turn around and mess with the United States using the channels they have, but which might be helped North Korea, which

might be investigate Apple and stop people buying iPhones. You know, there's a whole bunch of channels. But Austin on a Matthew basis, I mean all of the equations of fancy pants algebraic equations in Opsfeldt Rogoff, which I'm sure you read cover to cover, yell or m I T. I mean any graduate level textbook. There's lots of time functions within the equations. May I respectfully suggest our time functions and our presidential time function is a little bit different

than the long your time functions of China. Yeah, well you look. Maybe I'm in the Great Economist. Bob Solo, my my former teacher, said that at the heart every explanation of growth goes from the equations that goes down in a blaze of amateur sociology. And I'm whatever I say about that statement of the what's the time function? What's the time horizonees versus the US is going to go down in a blaze of amateur sociology. But said

I agree. In my I'm not a super expert, but I was involved in the in the S and E D meetings with China and UH in the Obama administration, we negotiated multiple things with China. They do have a long view and my my experience is public humiliation of the China needs to try to get them to late UM is really quite well defeating. We are out of time, Austin. We got to continue this conversation. This is absolutely brilliant

Austin Gouldsby. Of course, of Y L M. I T. And of course it's Booth Schools Chicago right now to small school UH Paul in Chicago's absolute best economists coming out of sports teams are awesome as well. Austin Goolsby, thank you so much. He's a former chairman of the President's Council of Economic Advisers. 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.