Surveillance Special: Tom Keene Speaks With Ben Bernanke

A wonderful author. His book, Encouraged to Act, starts quickly and moves ever forward breathlessly through the crisis that we have all lived and the aftermath as well. He's out now with a new addition paperback, perfect for beach reading, and it's got a new after the word as well. Ben. Congratulations, I know you've done the interview circuit. I want to dive into a longer, more thoughtful conversation about many of these themes. Let me first begin with the emotion you

capture at the beginning of the book. Anybody in the racket of business journalism knows the name Michelle Smith. She's the keeper of the gate. She guards the lock and key at the fed. If you don't get along with Michelle Smith, you don't talk to anyone. You open your book with you exhausted in an office with Michelle Smith. Tell us about that moment where you really finally hit the wall in this crisis. Well, Michelle Smith was also

functioning to my chief of staff and general advisor. And that was the day that UM we had decided to to uh intervene with a I G. And it was an enormously risky situation. I had been earlier that day to Congress. I talked to a group of senators and representatives and they basically made it clear that we were on our own, that whatever we did was our responsibility

and our call. And of course, this was a couple of days after after Lehman, and the financial system was in in shock, essentially, and it required an unanimous vote to take the actions we did, which was eventually to lend eighty five billion dollars today i G. So it wouldn't collapse, and so I could have stopped it, but you know, we thought it was the right thing to do, and and we went ahead and did it. But it was perhaps the darkest one, or at least certainly one

of the darkest moments. From there on things began to look better, But certainly there was some very dark moments. That's all sorts of hindsight going on here. I remember being trend fixed at a fancy Bloomberg chart, watching bear Stearns go down in flames, and we all have our individual uh moments here. Not when did you know it was all clear? But from those dark moments, where did you get the confidence that the theory and the foundations that you had learned at M I T and onto

your teaching career at Stanford Princeton. The other is when did it click in that you may get this right? Well, I think I understood the crisis. The crisis it was about some prime mortgages, about all these things, but it was basically a panic. It was a financial panic, very analogous to the runs on the banks we saw in the nineteenth century or in the depression, but it was

an electronic panic. So everyone was in the sense that the short term funding of the system, through the repo market to the commercial paper market was all being withdrawn. Everything was freezing up. And you know, I'd seen the analogy to the earlier panics, and I unders I think I understood in principle at that point how we were going to comment, how we were going to stabilize the situation.

But the politics was difficult, as you know, even after even after leaving failed, it took quite a while to get Congress to act. Took two tries before they would act. I think the passage of the Top Bill, the the Troubled Asset Relief Program, which provided money to stabilize recapitalize the banking system. And then there was a meeting in October of the of the g G seven in Washington where we met with the finance ministers and central bank

governors of the other major industrial powers. And there was a sense of that meeting that we had to work together, you know, hanging together or hang separately at that point, and I talked about it in my in my book, and between that resolution in Washington and then collectively among the G seven that we were gonna do what it took. To use Mario drag famous phrase, I thought from there that we were going to find our way out, but it was still very tricky. It's such a luxury of

a longer conversation with Ben Bernankey. We're going to touch on a number of the themes that we've got going on right now. And of course we will avoid, as we always do with any former FED official, the immediate talk as we go to the FED meeting this afternoons. I'm not gonna ask Ben Bernanke about how many interest rates will they do this year? Anything like that. That's part of the rules of the game. One of the joys is is to look back at your former speeches.

I want to speak about the structure of the FED, and this goes back to your speak fifteen years ago almost now with Milton Freeman and presence his ninetie birthday. It's a great speech about something you're really good at, which is depression history. But at the end of it you talk about then, which is exactly like now, this uncertainty of FED leadership. Benjamin Strong in the Depression has the audacity to get sick and die, and you make

clear they never recovered. Do we face that now with this this new administration into multi talk about John Taylor, they talk about Glenn Hubbard, but they talk about other names as well that don't have your pH d jobs. Do we have a risk of a leaderless FED with President Trump? Well, I think it's presumption is to say, we don't know who he's going to appoint. He could conceivably reappoint Jenny Yellen, which I think would be from

his perspective, would be to reappoint Cherry Yellow. Jerry Yellen would be certainly, from his perspective, a very reasonable sensible thing to do. She's obviously highly competent, she's done a good job, she's got the confidence of the markets. But whoever, whoever is appointed, I'm sure will certainly work carefully with

the rest of the FMC. And there's a reason why there's so many people on the Federal Market Committee making those decisions, including seven members of the board and then high quality staff which provides a lot of guidance and help.

So I don't think we're quite in the situation by any means, And of course very hopeful that that um they will appoint, if not Janet Yell, and if they will appoint somebody strong and kind competent with within that is this sharp debate within the business media, and I would suggest with an economics as well, where if you've bet, I'm gonna pick on Gary Khne of the of the Trump administration. With great respect for Mr Kohn's abilities. Do

you need to have a PhD in economics? You need to be a front line academic out of m I t give me presumptuous to say that. I mean Paul Looker does not have a PhD. He was obviously very familiar with monetary policy and the FED, having been in the system for a number of years, and obviously new markets. Uh. Well, so I think there's a range of skills that you

can have. But obviously you also have to be at least familiar obviously with monetary policy and how it works and what some of the issues are and and there are important technical components to it. But but leadership is not constrained by a narrow set of skills. There's there's I think different types of backgrounds that could generate create a good fair chair. But it is important, obviously to know a lot about monetary policy and the financial system.

What do you envision that our vice chairman of what I'm gonna call generally regulation will do? This is a new position. There's talk Randy Coral's name, among others, has come up for a more regular I think it's it's not the romance of the FED that we cover Bloomberg and within all of business economics. What do you envision

that job to be for that new kind of vice chairman. Well, it's a very important job obviously because, as they say, personnelitis policy and so even if the regulatory structure is only moderately changed, is not substantially changed the way it's applied in executable man are a lot in practice. So uh, you know, the people they've talked about generally are people who are I think highly qualified. I've had a lot of background in financial regulation. But it's also important to

get somebody who will take very seriously. What I think we kind of learned from the from the Great Crisis was that it is not enough to be looking at individual banks and at the individual components of the system. Somebody has to think hard about the stability of the system as a whole. And that was something that really was course brought home to us when the system as

a whole went into shock in two thousand eight. So, uh, that person will have a very important role coordinating with other regulators, the ft i C and other agencies trying to make sure not only are banks individually stable, but is the system as a whole resilient for the next shock that will come. One more question, and we look

back to things we've learned. Another crisis, within the depression, within the great contraction, as many have called it, there's this single idea that we had to keep the banks afloat. This has been a great theme of yours. What's so interesting is you're in speech. If you don't go back to nineteen twenty nine, you go back to challenges of

nineteen eight. Do you worry that right now we have any of the precursors or setups, not of the hysteria of a depression, but of nineteen eight when everything was perfect, and yet it wasn't. Wasn't, No, it wasn't. I wouldn't say so. I see strong parallels there, and among other things, the FED is in a much better position, and I think it's much stronger, smarter than we used to be. Well,

one hopes so, One hopes so. You know, sometimes sometimes things go in cycles, but certainly our financial system is a lot stronger. And one of the problems of the thirties was that the FED, which was at that point it was very young institution and only been created in nineteen fourteen, essentially uh and one of its its objectives

was to help maintain stability in the banking system. It did not succeed in doing that, and in the United States, something like eight thousand banks failed in the nineteen thirties, which not only had menacing negative impacts on the money supply, but also in credit as you would imagine. And one of the lessons we took in the financial crisis of two thousand and eight was that the financial system is a critical input to the health of the economy as

a whole. You can't let it collapse because it will bring down the rest of the economy. And I think that was certainly something we learned with the benefit of hindsight seeing what happened in the nineteen thirties. If you're just joining us on Bloomberg Television and Bloomberg Radio, lengthy conversation with a former chairman of the Third System, Ben Bernanke.

The book is The Courage to Act. It is out with a new afterward where he speaks uh interestingly and I would say, perhaps sharply about the president administration and their view for it will get to that in a moment. I want to talk about investment. It's a theme that constantly occurs with another work that all of our economic team does. It's why equal see plus I plus G plus annex and I isn't there. In oh seven o eight, Ken Rogolf identified this to me. Bill Pole identified this

to me. Now everyone knows that where is the investment? What the mystery of the lack of investment? Now? Well, Uh, it has been weaker than we would like capital investment, new factories, new buildings and so on. UM, it hasn't been catastrophically bad, but certainly should should be better. And that would be better not only in terms of driving demand, you know, for for output, but also in creating more capacity and increasing productivity and helping us grow more in

the long run. UM. I think you know, Larry Summers talks about secular stagnation, and I have some sympathy with that. I have some other thoughts about that. But but there is some evidence that around the world that U there's a lot of savings looking for good investments to make UM.

But for variety of reasons slower growth, slower growing labor force, UH, relatively weak productivity gains, and advanced industrial economies, that the number of strong capital projects that pay a high return is just limited and with the amount of saving that we see looking for returns that's driving down the olds keeping interest rates a little globally. Uh, we have to look for new sources of growth, new industries, new technologies, those things are becoming I think, which is why I

don't buy secondistagnation as a permanent situation. But right now, and partly because of the after effects of course of the crisis itself. Uh, we just we just don't have the opportunities out there that that we would like. Can there be a policy prescription to jump start investment that is modern and forward looking, or do we risk having a nostalgic investment where we build you know, as they did in Japan years ago, bill roads. Well, those there's

different There's there's different elements. There's cost, the capital and tax policy obviously know it's got a discussion about core protectorates. There is technology. We need to continue to support technological advance and the adaptation of new technologies into commercial purposes. Um skilled workers to provide complements to those uh, to

those uh investments. Uh. Even you mentioned roads and buildings, you know, in the United States, I don't think we're quite in the state where we couldn't benefit from some improved infrastructure in New York as well. I mean, you know, you were talking the other day about how long it took you to get from Washington hosts DC l G

A fix. If you want you want people spend less time in traffic jams and uh less time traveling from city to city, which is the detriment to productivity, then you know infrastructure is is one way to prove that to mension, so that there's a number of different things that can can can help. But it's a slow process. You can't expect people make firms make capital investments over five, ten, twenty year horizons. You can't expect everything to turn on a dime. But I'm hopeful that there will be some

improvement in that. I had the clearest memory Chairman Bernanke, Chairman Greenspan, not baffled but almost bewildered by the buoyant productivity of another time and place. Every chairman of a FED, all with courage to act, are their productivity cards. Cherry Yelling has been out a very tough deck on productivity.

It's a mischief. Speaking with my colleague Michael McKee about this, it is at the top of Mike mckey's list, capital dynamics, labor dynamics, and with a great honor to Robert Solo, this odd thing off to the right side of the equation. What is wrong with America's productivity right now? Well, some of it may be after effects of the financial crisis. After all, the crisis led to a fewer startups of

new firms. Let's venture capital, less r and D, less capital investment, all those things that generate productivity over time. I think we're moving away from that now. It's almost a decade since since the crisis. The other thing is the line pursued by Bob Gordon, you know his work on to Rise and Fall of American Growth, and he argues that the period after World War Two, the fifties sixties was kind of unusual period. There was a lot

of catch up after World War two. Um, a lot of transformation is happening in the American economy, which we're not quite seeing that degree of change at this time. And so the slower productivity gains are just reflecting the fact that technology comes and eds and flows. You mentioned Greenspans technology boom in the nineties. That was a period where the new I T revolution. Information technology revolution was really first having its big impact on productivity from areas

from office work to retail, you know, to engineering. Um that seems to have slowed in two thousand five. Appears by that time that a lot of that first wave of I T productivity had been absorbed. It may we may get another wave, but at the mother we're kind of in a little bit of a flat spot. Within this flat spot of productivity is the clearly, with Mr Trump doing so well in Senator Sanders and the populism and other elections around the world, there's a primal scream

to do something about how do you lift wages? Where does wage growth? Where does that sense as Mr Gordon talked about with a wonderful twining center that you and I live, Where does that prosperity come from? Well, it's not just prosperity. I think there's an interesting in the following sense. There's an interesting paradox, which is that if you look at the economy as a whole, you talk about the unemployment rate and job creation and GDP growth

and all those things. You know, the recovery has been pretty good overall unemployments for and a half percent, we created sixteen million jobs. But then, of course Donald Trump was elected president because a lot of people are very dissatisfied.

So it's not just the overall strength of the economy with the United States is frankly the envy of a lot of other economies in the world, but the fact that those games are not being broadly shared, that social mobility, upward mobility is is not what it was forty or fifty years ago in the United States. So a big part of the overall growth picture is also trying to make sure that everyone is contributing, everyone is sharing in prosperity.

I think that is that is where we have fallen down, where we have not helped provide the opportunity that that we need. Is it a cultural dearth of productivity? Page five, eighties six? Here this so it's five eighties six, and it reads faster than that. It's not more in peace, don't be don't be afraid, Bernankee. I called on Congress to increase spending or cut taxes, or at least to

avoid new austerity. Are we victims of our cultural economics, almost our cultural religion where we can't spend money when we need to? What it's it's ironic because of course now we're talking about big tax cuts. You know, from at least from the perspective of putting people back to work, it would have made more sensitive had more tax cuts and more spending twelve, which is when I was asking

for that. I think that from at least from that perspective, with unemployment at four and a half percent, the case today is a little weaker. Although there's always a case for improving the quality of the tax colle making it more the fish and fair simple and so on. But in terms of adding demand to the economy, you know that that would have been a little bit better a

few years ago. Let's make some news. Here are these tax cuts, tax cuts you can support is proposed, and particularly are these tax cuts within a gilded age where all those benefits go too narrowly to the affluence. Well, if I talk about the proposal, the income tax proposal for personal income, I guess I have a couple of concerns. One is that it is more demand side, I think oriented than supply side. That is, it's going to generate

more consumer spending. It's not obvious it's going to increase the potential of the economy very much and as they're saying, four or five years ago, we could have used more demand side uh stimulus. Today it's not as obvious that we do need that. The other aspect of it, uh is that has written down. Of course we don't know the details. That appears like it would create a bunch bigger deficit. I'm not opposed to increasing depths under our

circumstances by any means. But if we're going to increase the depthit, why not think about improving the efficiency of the corporate tax code or doing infrastructure that I think would have more direct effects on supply potential output than personal tax You didn't suffer the pain of working at CBO, right, Uh No, But I was in the White House for a while and I had my connections with o MB that officers and management budget. Do you have in your head a deficit to GDP percent? Where for ben Burn

Nankey it becomes problematic? Is it five right now? Folks worth three give or take a little five? Does does your caution click in at six percent? Where is it? Well? I think that what the way I think about this is the CBO, the Professional Budget Office, does these um projections of the debt and the depths out for years,

and so I think about it that way. I mean, I think you can always have I was supportive of the fiscal program in two thousand nine in the depth of the recession, where where because the recession was so bad we needed some fiscal stimulus that a big deficit was kind of inevitable at that point. So I tend to think about the longer term perspective, and so how much will changes in paul See effect that longer term trajectory.

And by the way, I think one of the key elements to that is really what's going to happen to healthcare. Not that I really want to get into the deep details of healthcare policy, but but uh, the federal government, which some people have described as being an insurance company with an army, you know, that's basically the two things it does. It It ensures people for health and retirement,

and it and runs the military. Um, if if the cost of healthcare in our aging society continue along the lines we you know, we've seen in the past few decades, that's gonna be a huge fiscal burden. Years ago, I'm gonna go I'm gonna take debate, folks. Here we go on healthcare, which is the theme in Washington this afternoon. It was sevent of GDP. It's ridiculous how much more we spend in every other prosperous nation in this world.

Would you suggest that the Affordable Care Act, Obamacare or trump Care can lower that contribution to GDP of healthcare, Well, there's been some success on that in the last few years, and that the rate of growth of healthcare costs is diminished somewhat. But the quite honestly, the focus of both Obamacare and and some of the proposals here are more about coverage. I mean, how many people are covered and at what cost, and the tough decisions about quality, what

we're gonna pay for, how much is gonna cost. That that's there, but it hasn't gotten as much attention as the coverage. To take a memo, we're going to a three hour and maybe we got too many things to talk about here today. A couple more minutes with Ben Berniky here, and we're gonna come back on some important themes, including the idea of the FED banalance sheet, which I

know is really front and center. I was talking to our Brendan Murray and he talks about the complacency that's out there, the quiet that's out there without reporting every day at Bloomberg, Are you worried that we're lulling ourselves into being not careful with our economic thought? Is it just too quiet up there right now? Well, you know, markets are are pretty quiet, the volatility indicators are pretty low, and I don't feel understand it. Certainly the world is

is a dangerous place in some dimensions. Certainly, Uh, there there's no shortage of geopolitical concerns. Uh, you know, from North Korea, you know, to the Middle East. Um, But markets so far don't order politics. So we're seeing, for example, in Europe to market so far, I've kind of dismissed those things. That's interesting you make of that. And for the haves, those that have assets and are in the game, not the people that feel so removed and disaffected. There's

just the quiet to what's going on. Yeah, No, I don't really have a great explanation for it. I think that the good news is that, you know, while a lot of the increase in market valuations in the last six months or four months came about because of of the reaction that there was going to be some kind of Trump Bool, which so far is not obviously materialized, and it looks to be pushed further out in the future. Uh not all of it is not all the market

reactions due to expectations about President Trump's policy. Some of it is due to the fact that it's has been a some of better tone globally. I mean, we've seen a little bit better tone in in Europe, a better tone in China. And that's that. That has made people, I guess a little more comfortable because you and I use kufuls or slide rules. Remember you had a slide rule and it was a pain. You couldn't figure out how to use it. And one day this magical thing

showed up, a Hewlett Packard calculator. Remember the first rich kid in your class, so that want to yeah, and you know everybody the rich kids had him. It was like, one day I'll have this too. That technological progress that you and I lived in many others, that many of our viewers and Bloomberg people lived, is that really what's going on now is a technological progress that is only advantage to a certain group of people versus a broader

part of society. Well, I don't know. I mean, everybody has a cell phone, or a large number of people have cell phones, even an emerging markets. So some of the some of these technological things are helping the advances are helping a lot of people. I think it is true that that there's a bit of a paradox again that we talked about all these amazing advances in communications and artificial intelligence and so on, but overall productivity just

isn't doing very much. And I think the truth is that outside of some areas like communications like social media, that the technological opportunities we see out there have not yet really you know, completely diffused into our economy, and that that's a potential for the next couple of decades. Now we're gonna come back with Ben Bernankey in support

of the Courage to Act. It was hugely successful and hardcover now out in paperback with a new Afterward, we're gonna come back and talk about the immediate issues of the Feller Reserve. No, not the meeting today, that's not fair game. But yes, we will talk about the balance

sheet as well. Right now, the joy before our FED meeting is a conversation where the former Feller Reserve System chairman Ben bernanke he is out with a courage to act, hugely received in a hardcover here a year ago, maybe fourteen months ago, and now on paperback with a new biting afterward about the events of his Washington Now he's of course been at the Brookings Institution writing must read blogs on a really accessible theory that's on the edge

of Milton Freedman. I mean, I remember Milton Friedman when we were kids writing newsweeks. Are you enjoying grinding this out or is this David Wessel beating you every Wednesday? And get the note I do try to get to get out something else in a while. It's a it's a public service. Let's go right to it right now. I'm not going to ask you about silly Fed immediacly, but I am going to ask you about the FED

balance sheet. You've written about this. I would suggest it is a fear in some camps, bordering on the sterea. And you seem to face this debate about lowering the FED balance sheet the balloon up during the crisis. You seem calm about it. Are you calm about it? In actually might calm? I mean, I think they're legitimate questions about how big it should be ultimately, and we can talk about that, of course, but but there seems to be no concern, certainly not much visible in markets that

the unwinding part is going to be very difficult. Uh. The whole strategy the FED is basically two Uh. At some point stop reinvesting maturing securities and let it run off in a very quiet, passive way. And I suspect that will be received pretty well when the concision of your thought, what you lead to always is within the paragraph distinctions, and you've got an important distinction within the

balance upward. Educate our audience about the word to shrink passively and that there's different ways to shrink, and you make a key distinction there. Well. Sure, the balance sheet is mostly consists of U S Treasury securities and mortgage backed securities Fanning and Freddie securities backed by US government. UM, those are obviously you know, private sector type of private securities that are owned by the FED, and they have a maturity and at some point, you know, each individual

security will will mature and and and run off. And what happened was that earlier on in the process of expanding the balance sheet, we began to say well, look, we don't want a balance sheet to decline in a passive way because things are running off, you know, maturing. So we began to process. This is back in whenever a security ran off, we took the proceeds, we reinvested it in new security, so to keep the size of

the balance sheet unchanged. And so since October when they said stopped buying securities, that balance sheet has basically been fixed size. But all maturing securities haven't been replaced. Now, what they're eventually going to do, according to their explanations and many speeches and and and the minutes and the like, is that at some point, probably in this year, next year, they're gonna say, well, from now on, we're gonna not replace all of the maturing securities, may replace half of them,

for example, whatever they decide. And that just means that without actually selling anything right or taking any active decision, the balance sheet will vary gradually over a number of years, you know, just begin to shrink deck down towards something more sustainable. There's a there's in folks within a curse to act. The photos are absolutely extraordinary, and particularly family photos of the Bernicke's of Europe and particularly of Lithuania.

There's a wonderful, lonely photo of you taking lunch with Tim Geitner, where I'm sure you had lots to talk about at the time. Maybe you didn't even need You just talked to each other about what you're gonna do with the ugly media. Within that was the glide path from two thousand seven to win the balance sheet was done. Do you have a date where you would think we would get the balance sheet to normalcy? Is it two

years out, five years out? Is it twenty years that well, the FAT has released a lot of simulations or projections of what they think it will do, and of course it depends where they decided to end up. UM. I think the best guess is something like four or five years after they began the process of unwinding to to get back to some kind of sustainable level um. And so again, I think that it's not going to be

a huge problem. Um. And one reason though they waited until this point to begin that process is if it does end up tightening conditions to the v races interest rates a little bit, then they have raised the short term rate, the federal funds rate enough away from zero necessary they can can wait, or even if necessary, cut a little bit too offset whatever effect the balance she's had in terms of policy wants and everybody worried about the found and what cherry yelling is gonna say, and

all that. This is the most important item of this entire conversation. You your Princeton commencement speech, you talked about a parent who bought a Cadillac every year, that truition cost so much and then you drive it off a cliff. That guy was Carl ricka donna. He's with us in Bloomberg Economics, zero space out of Princeton, and his father every year drove a Cadillac off the cliff to pay for your pay Yeah, meta, Well, maybe not importantly, But

Carl today said to me something very important. He said, just what you alluded to. You need an interest rate buffer to make the balance sheet reduction work. They work in tandem. What's your confidence that well meaning people can link those two items together to make the balance she's shrink and at the same time get the right buffer that you need. Well, they don't want to start the process of shrinking the balance sheet until the interest rate is far enough away from zero. They feel that they

have some confidence space. They want to make sure the economy is moving along in a good way at that point. You know, if if it's a very uncertain period and things are slowing down, they might delay and be cautious. Um, but they're just gonna have to monitor. I mean, there's really no there's no magic crystal ball. You have to see what's happening in the economy, following the data, following

the financial markets. And you know, I think they'll they'll they'll be able to do it unless there's some new problem from outside, some new shop of some kind. But I don't see any practical reasons why they can't unwind the balance sheet in a relatively passive way within the dynamic of the balance sheet. And then so much that you're here talk about the expansion of the balance sheet. Is it about measuring it to economic growth? Or do you measure it to price change? Do you measure it

to wage growth? Or is it a set? Is it a super thing that FED looks at. Mostly is what is the outlook for the economy? What is the model and the analysis and the best guesses of the of the economists say about where the economy is going? One it put infut into that outlook is what's the state of financial conditions? Are financial conditions very tight with high interest rates and low equity prices, or they loose that

are supportive of growth. Um. So they'll be looking at the outlook of the economy trying to assess how the balance sheet wind off wind down is affecting those financial conditions, and based on that they'll make those judgments. Um. Just because of time here and we could go on for hours. I could go on for hours. You probably don't want, so let's talk about It's not in your book. It's in the moments, in the zeit geist of the world

at this time. It's in the French elections, it's in the special election in the United Kingdom, and it's here as well. And that is trade. Douglas Irwin was with us of Dartmouth is wonderful against the tide from years ago, Paul Krugman's essay on Ricardo from twentysome years ago. If I state, interview after interview, we have the risk of becoming a zero sum America and our in our rhetoric back to a mercantile state, is that a legitimate risk?

To ben Vernankee I don't think it's very likely because the cost of doing it would be so overwhelming, you know, just just the idea of shutting down and after for example, that the US auto industry in the Mexican auto industry are so integrated that if you were to draw a barrier between those two parts of the industry, you would have not only it wouldn't be good for the US auto industry, they would be shutting down to semi lines because they couldn't get the parts. So the world is

very integrated now. So I just think that any attempt to really shut down trade would have such a bad effect almost immediately that that people would back off in that. And I don't see that happening frankly. I mean, you're seeing a lot of discussion saying talk about rhetoric. You're seeing some some actions taken, like the like the lumber uh action, you know, against Canada, and there's gonna be a bunch of things like that. But I I guess I just don't see it as a realistic threat that

there's gonna be a major shutdown. Written workings or have you responded to the Navarre A ross thesis of trade and particularly trade with China. Well, it's not the case that, uh, the trade is a zero sum game. I mean, that's certainly true. Everyone benefits, or at least every major economy that's involved in trade is going to benefit the same way that you and I benefit from trading with our neighbors, you know, in in in a store or in uh

in a factory. Um. But it's not to say that there aren't improvements that can be made in our relationships. And I you know, I think that uh, if you've ever seen if you've ever seen a trade agreement, they're incredibly complicated. There are many of them are deal with the details of small differences across different products and the like. So I'm not denying there couldn't be ways that you

could improve our trade relationships. But the broadly speaking, I mean I think that we are we United States are irretrievably and irreversibly integrated into the global economy. There's really no way we would want to undo that. We can we can try to uh improve the relationship, we can try to do better for people who are displaced or disrupted by trade, but we certainly don't want to end our our global our global role. If you're just joining

us on Bloomberg Television, Bloomberg Radio worldwide. Ben Bernanke in conversation and support of the Courage to Act with a new afterword, A memoir of crisis and its aftermath. I can't say enough about the velocity of the book and getting through the most difficult eight nine and ten years Enable Bernankey, My son, you used able Bernankey. I hope you enjoyed the royalty check. I don't know what it costs me. I was like cats, like two d or

something or two fifty or something. That's able, Bernankey. Are the dollar dynamics Enable Bernankey? True? Today? Is President Trump ignorant of what dollar dynamics could be? Given some of what we hear in right, there is a bit of a contradiction in different parts of the program that in that the some of the fiscal plans, so the infrastructure tax cuts, that part of it, if it doesn't come about, is going to raise interest rates and cause the dollar strength.

And strong dollar has a lot of effects in the economy. One of the effects it has it's probably gonna make it more difficult to say, bring back manufacturing jobs, because manufacturing the US would be less competitive goldally, so there's different parts of the of the program which are not entirely consistent the dollar is one of the reasons that, uh, you know that that the fiscal part could actually be

inconsistent with the trade part. With within this and just one more question here and I want to get to the broader American picture. Is a phrase expect the unexpected? What is the unexpected we could see within international economics using currency as a litmus paper. Is it do you do you think about rend men need? Is it about dollar dynamics? Is it something to do with europolitics right now and the experiment of the euro? What's the part of currency dynamics that could be the unexpected in the

coming years. Well, uh, there was a lot of relief, you know that, at least in the financial circles that Mr Macron one one along with Lepen won the first round of the French election because of the concerns that le Pen would push to take France out of the Euro. Um it does look to me like, at least for the media future, the Euro is going to remain stable. If there was a country like particularly one of its biggest for France, that tried to leave the Euro Zone.

It would be very disruptive and would have major implications not just for the Euro's a currency, but for for a wide range of assets. So there are some political risks that come, you know, from Europe. There similar risks in in in Asia. And remember the evaluation in August by the Chinese which had such disructive effects on the global financial markets because people don't understand, you know, what

it was about, what was the reason for it. And and they have sence them to much clearer about their strategy, which has been very helpful. And I'm honor to ask you this question. Uh, and this goes back to Tokyo two thousand five speech, which I consider your most important academic effort, your courage to act to tell Japan how

to reflate is abonomics. Ben Bernankee's speech of two thousand five. Well, actually, I'm going to be at the Bank of Japan later this month and I'm gonna try to update some of that. I think they've they've made a lot of progress. I think that bonomics and particularly the very aggressive policy to the Bank of Japan have moved them in the right direction.

But quite honestly, it's been harder than I anticipated in two thousand um and I need to think hard about, you know, what more they can do if they need to do something. In your book, there is a one single picture which speaks to transparency. It is the first picture in your book, A Couraged Act. It's you on a street corner in Dylan, South Carolina with Scott Paley

of CDs. Was that your decision to do that? Was that your screaming call, we have to be more transparent I'm going on in general, yes, but you mentioned the beginning of the hour you talked about Michelle Smith my communication FED. No, no, no, she thought it was a good idea. I mean, traditionally the FED has been very, very removed from so to the main street. I mean, this is just just just a culture and very focused more on financial markets, on economists, you know, and and

on some limited part of the of the media. But it was clear that in the middle of a crisis as we were having that it was important for the FED to get out and explain what we were seeing, what we were doing, why we were doing it. And and the sixty Minutes program with Scott Paley where we went back to my hometown of Dylan, we sort of showed my background, tried to humanize me a little bit, but also just try to get a chance and difficult, I know, but try to give me a chance to

explain to ordinary people what the FED is. I mean, most people don't have that good a sense of what the FED is and what it does. And it seemed that that was the time when it was really important to get out there. If I live a Dylan, South Carolina, if I believe up on the northern border of South Carolina, it was railroads. I looked the other day, there's Dillon Yarn, which has gone through all the textile turmoil, and that I want you to speak to Mr Trump's America that

has been to use the phrase financially repressed. Low interest rates, low nominal rates, low real rates. They can't save. There's been twelve and fifteen years of median incomes dagnation here. What can the elites do in Washington, in the sanctuary cities, what can they do to assist those people who have been crushed? All Right, So this is a big, big issue for the United States. People are the American dream

is about upward mobility. It's about the idea that if you are even if you are very modest origins that if you work hard and you get some education and you, you know, continue to to improve yourself, that you'll you'll make your way up the ladder, and that upward mobility is much reduced to compared to what it was a few decades ago. And it needs to be a major it needs to be a major priority for policymakers in general for Americans. UM, it's not an easy problem. It's

been many years into making that. Many things you need to do, ranging from um, you know, pre k interventions, through programs for working class kids, through apprenticeships, through better access to college, to more infrastructure to create more productivity, to improve technologies, all these things you need to make the economy stronger, but with more focus on the question of who's it for? You know, we we can't just have look at the overall numbers, the overall GDP numbers.

You have to think about is everyone got a chance to make their way up the ladder? And if not, then the economy is not really serving. We're living were you have fed chairman for a guilded age, I mean you were in crisis. We know that from a courage to act or so I should say this is cherry yelling a chairman for a guilded age. Is it a plutocracy? I think that's that's a little strong, But it is certainly true that the share of growth, the share of GDP gains going to the upper fraction of the of

the contribution is is very high. And what as you mentioned, it reflects the fact that the median wage has not risen very much over the past few decades of the debates about the exact measurement. But what I what I think is is important is not just the fact that there's a range of outcomes, but the fact that you start off at at a lower part of the distribution than the odds are today, that you're going to stay there, You're not gonna be able to make your way up

the ladder. So I think people are okay with a certain amount of difference in a certa amount of inequality, as long as I feel that it's fair and that everybody has a chance. And I think through an increasing extent people don't think there's a fair fair game, and that that is really important to address. What can the monetary leads and I don't mean just the FED, and I don't want you to talk about this FAT day, but the easy to be the bank of a leaders

of our financial system. What can they do then to jump start that sense of fair Well, I think what what the FED has has done in other central banks, you know, the let's look back. I mean, the policies were very criticized. They were arguably gonna People were saying, oh, they're going to create hyper inflation, They're not gonna have any benefits. Now we look at an economy that in many ways is much better off now than was a

fewyears ago. We have not had hyper inflation, we've had low and stable inflation, and we've had a lot of job creation. And I think that helping the economy meet its potential and provide jobs, that's the best thing that central bank can do. And that's the fact that FET has done that. The FED, however, does not have the ability to create you know, better educational opportunities. It can't

make factories more productive. Um, those are things that that the private sector and other policymakers have to be addressing. The FAT has a certain number of things that can do, and it's really not fair to ask it to go beyond the tools that it actually has. When you write volume two. Ellen Meltzer would tell you you must write a volume two. He was good at that is where many others when you write a volume to a courage to act, there's a single sentence in your book and

it is President Obama. You people are shell shocked, and he simply goes, how did we get to this point? He just quietly as that, how did you respond? And how would you respond today to Americans saying how did

we get to this point? Well, the crisis itself was a complicated phenomenon, and it was essentially a big panic in the financial system that was built up over a number of years, excessive risk taking, excessive reliance on short term funding, and and frankly, you know, the regulators and the policymakers didn't see it coming, or at least not enough.

I mean, we addressed some parts of it, so that that was a failing and certainly is one of the reasons why people are still angry today, because even though we've recovered from it and they're still they went through

a lot. But I think, you know, again, I think it's important to distinguish that, as important as it was, from these longer term issues which go back to at least to the seventies of slower productivity growth, greater inequality, and lower lower social mobility, which the crisis didn't help any of that, but it wasn't the cause of it. This is something that's been going on now for probably at least forty years, and it's not something that's going

to turn around in a few weeks. That the takes gonna take a lot of concerted effort attention to get us back in the right on the right track. Ben BERNANKEI thank you so much a courage to act, and I did not ask him how many rate increases we would see this year. 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. David Gura is at David Gura. Before the podcast, you can always catch us worldwide on Bloomberg Radio.