Bloomberg Audio Studios, podcasts, radio news. Gaty Gopinath was an academic at Harvard. She was known within the racket, we all knew that, but found immense acclaim As the former deputy Managing Director of the International Monetary Fund, she brought an academic gravitas to it that was just absolutely wonderful. As they do, they wanted her to stay at IMF.
She had to return to Harvard. Professor Gopinath joins us in this time of international turmoil, geta thank you so much for joining this morning.
What was it like.
Your first day back at Harvard? You go from Gorgieva in four hundred PhDs telling you what to do with the IMF? What was it like in front of the kids at Harvard the first day? Hi?
Tom, always I was miss speaking to you, So it's great to kick off with you. Know this kind of a question that I don't usually get from anybody else.
Well, what was it like? I mean, did you Stanley Fisher says that that Samuelson used to throw chalk? What did you do with the dumb students after the fancy people at the IMF?
It's actually been going great. I am enjoying very much being back at Harvard. And it also helps to be able to be able to speak a little more freely than one does when when you're when you're at the IMF. So I'm enjoying this moment a lot. And also I love working with the students and getting back into research and something I did miss.
Well, that's where I wanted to go. The research of say Rudy Dornbush back ages and ages or can ro go Off and others, is there is a cycle to financial upset, a cycle to financial contagion with the private credit percolation, and again a war is tangible. Are we at another inflection point where we see crisis in finance?
The troubles in a with private credit were actually there even without the right current war in Iran, we were seeing signs of distress in terms of loan defaults. I mean,
this has always been an incredibly opaque sector. And when we're worried about where we could see another crisis coming around the corner, it was about this huge growth and non bank financial institutions that now own over fifty percent of the world's assets, and especially in a private credit, private equity hedge funds which are highly leveraged and valuations
that are stretched. So it is a combination that really can get you know, things can get pretty tenuous if we have major shocks of the kind we're looking at right now. And as I said, we've just had the biggest oil shock in history. And you know, thankfully our economies are not as dependent on oil as was in the nineteen seventies, and therefore we could weather more of it now than we did back then. But this is a huge, major event to the global economy.
I want to bounce off what you were just saying about the war and its effect on the global economy, because even a long war, would that have a limited consequence for global GDP or will there be longer term damage done?
A lot depends upon how long oil prices stay high. Right, had come down to oround eighty five yesterday and now then it shot back up to one hundred and now covering around ninety six. So you know, coming into twenty twenty six, the assumption was that twenty twenty six would be a year when oil prices would average sixty five
dollars a barrel. Right, I think in the best case scenario, we're looking at it averaging now seventy five dollars a barrel, which just from the oil channel shaves off about zero point one two point two percentage point of global growth. But this continues, and I don't think this will requires We're not talking necessarily that everything gets sorted out in
a week. But if this continues well past a few weeks, and we're looking at now average for the year hitting eighty five, now that's beginning to shave off like zero point three percentage point to global growth point four percentage point, and global inflation starts going up by fifty basis point sixty basis points. So this needs a solution relatively soon. Otherwise we're all looking at countries around the world dealing with many countries dealing with statuflationary shocks.
What about emerging economies, they would be vulnerable here to persistent high energy prices, right.
Emerging markets have especially the ones of course that are importers. I mean other countries who are exporters benefit from the higher oil prices. But the ones that are importers, and these include you know, India, many of the East Asian economies. Of course, China also is a big importer of energy. Do they have big strategic reserves, so they're kind of a little more insulated. But yes, so they tend to
be importers. They also are much more energy dependent. Their economic output is much more energy dependent than the rich nations of the world are. And we've also seen the dollar appreciate. So it's a combination of oil prices going up and the dollar appreciating, and that's leading to really scarcity. I mean, we seen rationing in many emerging countries around the world. It's not that you can simply pass through very high point prices.
An exceptional day for Bloomberg Surveillance. Edward Morse was with us earlier. Charles Canter of Newburger Berman as well. In our We're Honored with Gutik Openhath, where there's the former International Monetary Fund Deputy Managing Director holding court at Harvard Economics after her sojourn of public service. Gita, I look at where we are, and my answer is currency is
the litmus paper of the system. Are the traditional dynamics of foreign ext change in play now or is there a new regime we have to get used to.
I think this episode has told us that the traditional regime sustains. There have been a lot of questions about the dollars dominance and whether we've seen some sort of financial decision making shifts sufficiently in the world that things are going to behave differently. But what we saw right at the onset of the war, whether there was a Hue spike and uncertainty, was it the dollar strength and relates to pretty much all other currencies in the world.
Capital flows to emerging markets didn't. You didn't see a whole scale reversal, but you saw lesser flows going into emerging markets and their currency is depreciated. The US stock market held it better than other countries also because I mean frankly, US being a bigger net energy exporter makes it less of a slight creationy shop for the US than for many other countries.
In the world. Doctor Copinett, I think of my great mentor at LC Meg to say, who we lost recently, the work of Ragarajan at Chicago and your work as well. And India is a balance and full crome point between all these global tensions. Is there a new India now or is it a traditional relationship in India with China, with Russia and with America.
I think the word is complicated. It's really complicated at this point in time. What good news is that India's economy is growing strongly from internal demand and from internal sources or that's pushing growth, you know, the build out on infrastructure, the digital payment system. There is good growth momentum coming from within India. What they have had to do, which I think is actually positive over the last year, is to go out and make more trade deals with
other countries. They just did that with the European Union, but they also did that previously with the UK. I think that's a good thing. I think it helps for India to bring its tap a freight down and they're going to have to keep this up. It's a complicated world. It's people are unsure about who their friends are and for how.
Long right now. Second headline coming out of Iran. This is from some form of Iran TV. This is published on the Bloomberg It's not speculation quote. Iran says it began new wave of missile launches on Israel. Buttre's up against the headline of about twenty years ago. Brent crude ninety eight dollars thirty two cents. Alexis Christopherus with Gidy Gopinett of Harvard.
So, you know, what about the beneficiaries or the winners. And I guess I hate to use the word winners in war because I don't think there're any winners in war. But when you're talking about large net energy exporters outside the Gulf, are they going to be benefiting? And I'm thinking Norway, you know, Russia, of course, Canada, Yes.
Certainly, these absolutely, these countries benefit from oil being at one hundred dollars a barrel. That's a huge windfall that you know, it's very helpful. And I would say for Russia right now, this is great because they could really use the money that they're getting from their oil sales. When oil was at sixty five dollars a barrel, it was getting really hard for their economy and you could see the strains. One hundred dollars a barrel helps them.
Now.
That said, if this now morphs into a more broader financial crisis because of growth dropping everywhere, inflation going up, we're already it's kind of clear we're moving into a much more tighter monetary policies stance everywhere in the world relative to what it would have been in the absence of this massive oil price shock. You know that combination is never good for the world as a whole, for pretty much all countries.
Can I do an audible?
Please do?
I'm going to do a terrible time audible with geta Gopinath. So we're on stage in Marrakesh and there's like planes flying over. It's a tent. There's like eight hundred one thousand people in there. You know, Geita is there. I think I can't remember the details. I think substituting for uh, the managing director because she had to go see the King of Morocco or whatever. In Christine Laguard's there and a bunch of other worthies And I never got this
question into Geita gopinazh. So we're going to do it right now. Get to gopinaz You came out of Princeton Holding Court at Harvard, Ken, Rogoff, and BERNANKI did part of your PhD. I want you to explain the impact of the Nobel Laureate Claudia Golden on economics. You and I never got to talk about this. We're going to do it this morning. Tell me what Professor Golden did in labor economics, in our behavior in our society that was so important.
Claudia, who won the Nobel Prize for her work recently and was long over you, basically total brought us, I'm sorry, brought us gender economics, which is to basically point out out that there are salient differences between how women and men participate in the labor force, what they get paid, why they get paid differently, the importance of family and child rearing, which has an impact on women, and it's hugely important because for multiple reasons, besides the fact that
we all want to live in a society where you get rewarded for your skills and talents at a fair level, we're in a situation where worldwide fertility rates have come down and you cannot fix that problem without recognizing that it is tied to how women engage with the labor force and what it takes. And if by having a child you are restricted and that impedes you because you get very little support from your partner to be able
to engage in work. You know, the incentives to do that get damp, and so you know it's her contributions have been tremendous and Tom, I think we have to keep in mind that for a long time. It was not cool to be working on you know, gender issues. When I say a long time is when Claudia was much younger. At that time, as an economist, you wanted to be working on you know, monetary policy, macro policy,
those were the big topics to focus on. So for Claudia to go against the wind and say no, I'm actually going to work about gender and women in the workplace, right, that was a huge you know, stepping out of line and courders to help for that.
One quick question, get to go. But as we got to go with the rant in the news. But I have to ask, are you letting your students use AI? Is AI constructives tool in the classroom?
Yes? Right now I'm teaching a class to pH d students and I think that they should absolutely use AI in a particular way. But at the same time, I want to make sure that they're also developing their own cognitive skills. I think the risk is that we're going to outsource everything to a smarter friend and in the end don't learn anything. So we have to strike the balance right one.
Hundred percent agree. Thank you so much for that. Professor Gopinath at Harvard University Republic Service for India and America. Noted at the International Monetary Fund