Emerging Markets Have Never Experienced A Crisis Like This Before

had yet to discuss. Well, we're starting to get there in terms of hitting all the really big themes I think. Okay, Okay, I'm not going to result, but yes, go ahead. Of the many crises will we be covering today, Okay, the one that we definitely have not talked about yet is

emerging markets. And you know, there are all kinds of aspects to a extraordinary economic disruption of this sort, the likes of which we've never seen in terms of essentially a mandated halt to so many businesses worldwide, But one acute vulnerability point is obviously emerging markets. Countries whose economies may rely on tourism or other exports to richer countries, countries that have a lot of dollar denominated debts but are suddenly finding it very difficult to acquire those dollars

in their normal means of business. This is a huge shock domestically from many countries, but also a huge shock to world trade. And of course emerging markets are sort of necessarily the most the most at risk here, right, So you have this perfect storm really of pressures on emerging markets. You have up the big spike in the dollar, which, as you mentioned, causes pain for emerging markets in different ways, a bunch of different ways. You also have the contraction

in global trade. You have the fall in the oil price, which is bad if you're an oil exporting developing nation. And then of course you have the coronavirus pandemic itself, which could disproportionately impact developing countries given that they have fewer health resources, fewer financial resources, and different not really ideal living conditions to actually battle the virus. So yeah, it's it's a pretty bad mix for em at the moment. Right. The way as you put it, there really is sort

of like just being buffeted on every side. Right now. So our guests today, and I feel like our guest today is yet another one of our recent guests that deserves when we eventually get oddlock toade bags or something like this, because this might be his fourth or fifth time. We've talked to Dan Wing several times, We've talked to Chris White several times, and of course our guests today, Brad Setser, it's got to be at least this fifth

time talking to us since we launched the podcast. But he has been tracking the e M angle very closely and really has been uh for years, but UH now sort of with this particular crisis, and so we'll sort of get a broad overview of um the crisis facing different e m s and what needs to be done going forward. So, without further ado, Brad Setser, thank you very much for joining us. That's a great pleasure. Brad.

Just sort of big picture if you, how does this shock to the real economy for e MS as a whole? And I know people always say you can't look at ems as a whole, and every country has its unique situation, but as a whole, how does it compare to prior major downturns in global trade of the global economy, and this this shock is clearly going to be significantly worse than the two thousand and eight shock, the global financial crisis, It's clearly going to be significantly worse than the Asian

financial crisis. I think this is across a range of measures. You know, it is the biggest shock the emerging world is faced in the last thirty years. Yeah, I think I saw someone on Twitter describing the current economic situation or the crisis is sort of like the Spanish flue meets Great depression meets two thousand and eight financial crisis meets Asia financial crisis, which is a pretty terrible mix

when it comes to e MS. What would you say is the biggest pressure point at the moment, what's causing the most pain? Well, I think there are two distinct pressure points. One pressure point does the global financial crisis analog pressure point? Those countries that have borrowed in dollars or those countries that have a large dependence on foreign investors holding their local currency debt have had difficulty borrowing dollars and have had to manage a world where a

lot of foreign investors are pulling money out. And then that's been combined with a shock to global trade, but a particularly sharp shock to global trade and tourism and global commodity prices, so symmetric fall and trade. Um it obviously hurts activity, but it doesn't create gaps between exports and imports. But if you're reliant on tourism and tourism goes to zero, all of a sudden, you can't pay

your import bill. If you rely on oil exports, and your break even used to be fifty or sixty, and you can't get twenty dollars a barrel today for lower volumes, all of a sudden, again you can't cover your imports. Though. So it's the combination of the financial shock and the real shock, the real shock to trade, the shock to health is almost certainly coming. But I think they're for most emerging economies. That's uh something that I'll play out over the next month before we go any further. A

little bit of housekeeping. Two points is a of course, we've had bread on so many times. I didn't even really properly introduce him in the beginning, but he is a senior Fellow or the Council on Foreign Relations as well as a senior adviser of EXANTE Data I just feel like so hopefully most of our listeners have heard Bread or followed him for a long time, but forgot

to do that. Also another crucial piece, we went the we want the no introduction necessary route, which is which is a form of praise really uh, and also another crucial form of consideration. We're recording this April nine, twenty, and we've been saying that a lot of we want people to know exactly which day it's been recording because

things are moving so fast. But there's another special reason it's important to bear in mind the day that we're recording this, which is that next week, which is when people will likely be listening to this is the I m F Spring meetings, and those of course take on new urgency in light of the sort of twin shocks

that Brad had this uh just described. So of course we're recording this before those happened, and we don't know what will have been announced by the time you're listening, but sort of bread, uh, that gives us a chance to pivot again sort of big picture, what is the role of the I m F in alleviating some of the acute crisis and what does it happen it's toolbox when so many countries are all suffering at the exact

same time. The the i m S role broadly speaking, is to lend reserves for an exchange reserves two countries that don't have enough foreign exchange reserves, and that may be countries that don't have enough foreign exchange reserves relative to their short term debt that is coming due. Maybe that countries that don't have enough foreign exchange reserves relative to the number of foreign investors in their local markets

who want to get out. Or it may be that countries that don't have enough foreign exchange reserves to cover the fall off in their exports without reducing their imports very dramatically. Now there's some details, you know, the i m F can, in the process of providing balance of payment support also provide budget financing, and that certainly will

have a role. But in general, the i m F is a an institution that is designed to provide countries that need reserves with reserves and to give lend people reserves for longer periods of time and for a broader set of uses. Then, say the kind of foreign exchange which is provided through say the FED swap lines, which is really short term lending to support short term funding needs of banks. The I m F has a lot

more flexibility. It lends for several years, varies a little bit, but it usually lends UH in conjunction with a program of some reform and policy change. Now, look, we're in a different world than the usual world the reforms or policy changes that may go with I MF lending, and in this context, maybe we the I m F asked you to spend more on your public health system, or the I m F ask you to increase the amount

of public spending to poor families. I don't think the conditionality needs to be thought of as the traditional conditionality in all cases, and that will be interesting to see whether or not we get an element of that in UH next week's I m F meetings. UM, just when it comes to the state of effects reserves in emerging markets, can you give us a sort of high level overview of what those look like right now? Who is best positioned in this environment and who is maybe UH warsaw

so sure. I mean, there are a set of emerging economies that basically interact with the global economy as creditors. They have more foreign assets than they have foreign liabilities, and in many cases they have more liquid foreign exchange reserves in their central bank, then they have external debt. That is broadly a description of Korea, it's broadly a description of China. It is certainly a description of Taiwan.

It is a description of Thailand. On the other end of the spectrum are emerging markets that have almost no reserves or almost no reserves that they haven't borrowed from their own banks and have substantial external debts. The most extreme cases leban On Earth, but Turkey falls in that category. And then you have I think Argentina broadly speaking, as

we all know, falls in that category. And then you have a set of countries in the middle countries that do have reserves, that do have already pre negotiated credit lines from the I m F, but have substantial external act and it is possible that the withdrawal of foreign credit, together with a loss of export receipts could leave them

short reserves. So those are countries like Colombia or Indonesia, South Africa, uh and in bad states of the world, even a country like Mexico, which is a special case because of his relationship with the United States. And then that same split is present amongst the oil exporting economies. Saudi Arabian Russia, the two biggest, both have about a

half trillion in reserves. That's enough that they can broadly speaking cover their imports this year even if oil doesn't rebound, and still have enough reserves so there's no real threat to financial studaility. But then there are much weaker oil exporting economies Algeria, Oman and Goal and Nigeria, almost Ecuador obvious. The list goes on and on, and those countries broadly speaking lack enough for an exchange info to pay their

foreign debts. Right now, I have a question that might be a little stupid and it's not facetious, but I think some people might interpret it as such. Does a country like Argentina, which has spent years of being sort of closet disconnected already from the global financial system due to all of its defaults, is this less of a shock in a weird way to them because this is

sort of business as usual. Yes, I think that's right. Actually, um, it's less of a shock because even before the coronavirus, Argentina was seeking at debt restructuring for all of its external debt and that debt restructuring was going to involve almost no near term payments, so you know, essentially they they their creditors were already anticipating a deep loss and no near term cash flow. It's also a smaller shock just because of the structure of Argentina's exports. To be honest,

Argentina exports soybeans, wheat, and beef. And if you think of the kind of trade that is likely to see the least disruption, that's trade in in basic foods. And while soy is an input into the production of chicken and pork, it's a pretty important input, and so therefore

Argentina's trade is going to see somewhat less disruption. So I think both on the financial side, you know, Argentina was already essentially heading to default, already not going to be paying, already reliant on the I m F, and on the current account side, they happen to be in a position where there's a re reasonable basis for thinking

that Belsia smaller loss and exports. Yeah, but you can look at other countries like Lebanon, which is very reliant on tourism and remittances and faces an even bigger problem even though they too essentially entered the coronavirus shock in default right, we actually have an All Lots episode with Paul McNamara talking specifically about the situation in Lebanon from a few months ago. And I don't think things have

improved since then. Um I wanted to go back just to the idea of the external debt and emerging markets. It's not like this hasn't been on people's radars before. You know, we saw the Bank for International Settlements, for instance, writing over and over and over that dollar denominated borrowing was a potential vulnerability in emerging market and now it seems like it could really come back to haunt them. We did see some emerging market economies that did try

to borrow more through domestic currency bonds. Has that helped them at all? Yes? Uh, you know, I think it obviously helps if your currency falls, if your debt is denominated in your own currency, If you're debt denominated and foreign currency, the real burden of that debt goes up. It hasn't been a panaceat the fact that a lot of foreign investors were holding local currency debt meant that

they were more exposed to currency moves. And in their efforts to limit their exposure, two further falls in the currency they would sell, and that puts the pressure on the local bond market. It puts pressure obviously on the exchange rate. So in that sense, it became an amplifier of the a lot of the currency moves, but in a sort of strange way, it amplifies those moves, which is bad, but it makes a country itself less vulnerable to the impact of an undervalued currency. But it clearly

has introduced a new new type of dynamic into the market. Uh, and that dynamic can in its own way be destabilized m so Bron. Obviously, one of the questions out there is we don't really know, and that everyone just started guessing what post crisis economic behavior will look like. Presumably some tourism will come back, but we don't know how many years it will take for tourism to return to, say, twenty nine levels, or people to be comfortable traveling at

the same degree they did. We don't know the degree to which a rich country like the US may choose to prior ties importing fewer things, especially after what we've seen in terms of shortages of masks and ventilators and other sort of basic equipment. Will this, in your view, create a rethink about these sort of financial and growth models that EMS have currently undertaken in terms of the presumption that tourist revenue or export revenue UH just might

not be there again. And how much could we plausibly expect to see that all change. You know, I think it's it's a good question, it's a hard question. I think. I think you're right to say that those emerging markets that were most reliant on tourism face a particularly difficult challenge. You know, those emerging economies most reliant on oil also potentially face a long run challenge. Depends on them. It's tint to which oil demand rebounds and where the long

run price settles. But you could imagine this not being a temporary shock, UH. And then manufacturing heavy East Asia does face a shock to their growth models. In China, in particular, if the world moves away from a model of what you might call full globalization, which would be if all of our phones come from China and all

of our personal protective equipment comes from China. That's fine, that's more efficient to a world where there's more desire for at least regionalization of supply chains, if not nationalization, and a much higher point priority on resilience. Resilience can mean bigger stockpiles, but resilience can also mean local manufacturers who have the capacity to ramp up production in bad states of the world. So I do think that there will be some very significant challenges in some cases that

may create new opportunities. You know, a world where there is more regionalization of supply chains, particularly in North America, would arguably be good good for Mexico at the expense of China, and it would help Mexico manage the loss of oil export revenue and the tax revenue that Mexico has historically gotten from its oil production. But it does imply some important long run adjustments on the part of

many economies. Speaking of long run adjustments, we're talking a lot about the vulnerability of emerging markets that have borrowed in dollars, the attempts to shift away from that little bit and issue more local currency debt. Would you expect the current crisis to lead to a significant shift in the relationship between emerging markets and the US dollar. Would

more em countries potentially try to move away from dollar dependence. Well, it's it's it's hard to move away from dollar dependence if creditors still want to lend to you in dollars. And given the volatility and emerging currencies, I can see in some sense more pressure for those economies who want to still borrow to borrow in hard currency just because the creditor side may be less willing to take local

currency risk. We don't know, um, you know what. I think the general move is likely to be towards more resilient balance sheets across the board, to higher reserves, less external debt, and in a world of less external debt if you can manage it, less hard currency debt. The countervailing pressure and all of that is that there are a set of countries that really don't want to adjust in the near term, and they may go out and

borrow an awful lot of dollars. I'm thinking of a country like Saudi Arabia, which has a choice threefold joys. It can either reduce its imports to reflect lower levels of oil exports lower revenues from oil oil exports, or it can maintain as imports relatively high levels and make up for the deficit and foreign exchange by borrowing, probably in dollars, or it can run down its reserves. So I would think that, you know, for Saudi Arabia, the easiest choice might well be more borrowing and a less

resilient balance sheet. So I think the response will vary. But the basic lesson here is that only emerging economies with fortress like external balance sheets, uh, we'll be able to come off relatively well. So I think the pressure general direction of pressure will be towards more fortress like

balance sheets. And one of the reasons why I think it's important that the i m F be very aggressive in some ways very generous in its response, because if every country wants to have a fortress balance sheet, that introduces inefficiencies of its own um and so you would want in some sense insurance mechanisms to help absorb true exogenous shocks so that every country in the world doesn't try to self insure. And in principle that's to the role that the I m F and the other multilaterals

could play. Speaking of countries that have fortress balance sheets that we haven't really talked about much, obviously China, which still has an extraordinary mono foreign reserves and has shown the ability to sort of withstand the acute phase of this crisis and use domestic firepower to maintain its economy.

It appears to be coming back online. Nonetheless, it's going to face pressure, particularly if there is any sort of you know, modest deglobalization, because again exports and so forth, what do you see as potential course shifts that we could be looking for it from the sort of Chinese economic model going forward. So I think, you know, there's a couple of powerful offsetting forces that are impacting uh,

China and China's external position right now. One is the broad contraction and all trade, which hurts China because China trades a lot, probably hurts activity as much as it hurts the balance of payments. And then China, because it is the world's biggest commodity importer, stands to be the biggest winner from lower oil prices. And because China has been such a huge source of tourists. The lockdown and they fall in tourism has significantly reduced China's imports, and

therefore it works to improve China's balance payments. So in the short run, I don't actually see any pressure on China's balance of payments. If anything, I think as China's exports, particularly of medical equipment, ramp up, and as the full impact of lower oil prices shows up in China's import data, China's surplus, in my view, is likely to rise, but that rise will um with less activity. It's going to be an increase in your surplus when you're exporting less

and importing less. So there is still a shock two China's economy. And there's obviously been a shock to China's economy from the measures that China has taken to slow the spread of the virus internally. And I think now China, broadly speaking, confronts a choice between two different growth models. I don't think going back to the two thousand seven, two thousand and eight export driven growth model is a

viable option in today's world. That would be a world where China's current account surplus goes to like ten percent of Chinese GDP or a jillion dollars and the world becomes more dependent on Chinese manufacturing. I think there's fairly obvious as reasons why that's not a politically or our

economically acceptable outcome right now. So then China either has to maintain domestic dynamism through a very high level of investment, and that has been done through a mix of loose credit for state sponsored firms, a lot of government sponsored industrial policy projects UH, and then a lot of quasi public investment often done by local governments, all the things we used to spend all sorts of time talking about.

There's no reason why I, given China's high savings rate, it couldn't try to do that yet again and generate a bit of a recovery using the tried and true Chinese investment from above growth model. The alternative and when I'm personally drawn to is a world where China radically reforms it's UH system of tax and the system of spending. China actually has an incredibly regressive tax system. China collects one point three percentage points of its GDP and income tax,

which is a extremely low number in the US. And you know we aren't we aren't considered a high tax country. We get ten percent of GDP from personal income tax, so China is a k one eighth of our level. The system of social contributions has a very high minimum contribution for urban workers, which means that in a lot of cases the poorer, you are, the bigger your tax burden.

And then world workers with those who lack the right huko household residency don't pay into the system of social contributions. They're lower cost to the employer, but they also don't

get urban social benefits. So a system we're trying to reformed as taxation and really quite radically much bigger collections from income tax, completely rethought, distribution of the burden of social contributions, subsidy income subsidies for low wage work like we have in the US through the earned income tax credit, combined with much more spending on public health, much less of out of pocket expense for Chinese workers who seek routine medical care, and an expansion of social benefits so

that migrant workers can send their children to school where they work, rather than having to have them educated where they're from and live with their grandparents. That kind of deep transformation, UH faces enormous resistance, but I think that's by far the best pass forward China, and I think it's got some really positive externalities for the world. A lot more investment in public health in China sounds like something that would have been great to have done five

years ago. Brad. Just going back to the world of emerging markets as a whole, and I know we're not supposed to treat it as one big, homogeneous block, but I'm wondering if there's an indicator or one lynchpin that you are currently watching to gauge just how bad the difficulties or the crisis in them could actually get. I'm not really watching one, I think you know. I'm watching the oil price knowing that it splits emerging economies into winners and losers. But the more extreme the move and

the longer the move, the deeper the loss and the losers. UH. And then you know, any any index of the dollar against a basket of emerging arc of currencies that excludes China, I think is a good proxy for stress. The i f S capital flow data, high frequency capital flow data, is now widely followed and they've done a really good job.

And I also watched that rathlessly. So following on Tracy's question about UH E M as a whole, and as we're talking about in the beginning, people will be listening to this at the UH sort of during the period of the I m F Spring meeting, and you've talked sort of generally about the need for the I m F to be generous here and what it can do

and sort of providing reserves. What has it already done, and what specifically insert it's toolbox should it do that it's never done before, if it's a crisis that it's never experienced on this scale, And how is the I m F itself liquidity or capital constraint because I don't think I have a great feel for the IMF's own constraints where they come from, and how how aggressive the sort of the natural limitations on its own ability to

be aggressive. Sure, So I mean I think what the I m F is now doing is is it has a set of rapid financing instruments that are generally give countries low levels of access, but they get the access very quickly and an enormous number of countries. I think it's apposed to the idea of applied for access to these rapid financing vehicles, which will get somewhere between fifty and hundred billion dollars out the door. And then the I m F has pre existing credit lines with Mexico

and Colombia. Those lines haven't been drawn, but they are available, so that would sort of define I think the I MS existing response to think about what the more the I m F could do. I guess it probably helps to start by talking about the I m F liquidity position. The I m S capital position isn't a real constraint. The World Bank runs on a capital model. The I m F runs on a quota model, and it sets

aside loan loss reserves and the like. But essentially the I m F takes contributions, it doesn't lever them up in the outside market, and then it lends them out. Because it is the preferred creditor, it historically has always been paid. So it doesn't operate on a capital model where it has to use in a small amount of

equity capital support a broad amount of lending. It operates more on a pooling model, whereby contributions from its members are pooled and lent out, and the fact that it defaulting on the I m F is defaulting on the world effectively assures payment. The IMF now has about six billion and quota resources permanent contributions. It's lent out about two d and not all of the quota contributions are

what the I m F calls usable. Some countries contributing their own currency and it's not very practical to lend that out. In addition, the i m F now has two billion supplemental credit line from many of its members, called the New Arrangement to Borrow, which allows the guy m have to borrow from a subset of its membership to increase its lending capacity that is already expected to go to around fifty billion at the end of this year.

A lot of people ted Truman leading the way of said that this should be accelerated, and I hope that has agreed at the meetings next week. The US already has approval from Congress to bring forward the US contribution to the New Arrangements to Borrow, so it's just a

matter of getting all the needed improvements. And then there's a final backup credit line, a set of bilateral loans from members of the i m F that is now four billion, but it is set to fall the two billions when the New Arrangement to Borrow expands, and a lot of people have suggested, hey, in the face of a global crisis, why bring this backup line of credit down keep it at its current level of four hundred.

So if the I m F were to agree at the meetings, or as members were to agree two bring forward the expansion of the new arrangement to borrow and keep the current bilateral lines available, then the I m F would really have close to a trillion dollars in new lending capacity on top of the two billion or so that has already comitted. The precise amount that's already committed that's going to change more of these rapid instruments are approved, so that gives you a ballpark estimate of

the size. Now, there's one other thing the IMF can do, which is a little complex and generates a lot of controversy, and it's called an SDR allocation. The SDR is the I m S unit of account. It's basically a basket of the world's biggest currencies, mostly dollars in euros, and the i m F, thanks to John Maynard Keynes, has the authority to give all of its members SDRs, which

act as reserves. It's called an SDR allocation. And right now the IMF could provide a five dred billion SDR allocation with the support of the U S administration, but without a congressional vote anything more, much more than that would require a congressional vote. Now, the I m F has kind of indicated that they're not going to push this right now, which I think is a mistake. I presume that's because the US has indicated it doesn't support it right now, which I also think is a mistake.

This is a time when I think almost all countries around the world do need more reserves, and this is a way of getting those reserves out into the system very quickly. So the special drawing rights issue has sort of been on the radar for years and years. Now, why do you see Why do you think there's so much resistance to it? I mean, it is kind of global money creation, and a lot of people don't like the idea of an international institution create global money or

reserves for an exchange reserves. Uh. And then it's not targeted, so it goes to all members. That includes some members of the United States doesn't like. But you know, hey, I've noted the biggest beneficiary is actually the United States.

And given how creative the Treasury has been recently in using the Exchange Stabilization Fund, which is the United States owned reserves to backstop FED lending, it's kind of pennywise, but pound foolish to get obsessed about Iran's small str allocation and deny yourself a much bigger str allocation, which you've already shown in the US IS case. You know how to use um and use effectively, uh and creatively.

But those are the kinds of arguments. It is an increase in everyone's reserves in proportion to their quote our contribution to the if. Before we go, I want to go back real quickly to what we were talking about before with regards to the potential path of Chinese reforms that they could take. You sort of stressed that this would be a good opportunity to re rethink there's domestic redistribution. That's something we've talked about with Michael Pettis in the

past as well. If we were to see a more robust sort of Chinese household sector, basically more buying power among the lower and middle classes, presumably more external demand for goods, could this, in theory be the beginning of a further internationalization of the Chinese u N in terms of the sort of need to If there were domestic buyers of all kinds of goods, not just commodities and not just tourists. Could this begin to accelerate that process,

and it could be part of that. There's I don't think there's a direct line between the reforms to China's taxation and public spending that I've called for and a broader global role for China's currency. The broader global role depends to some degree on the willingness of the world to hold you on denominated assets. See and why denominated assets.

That's partially a function of China's exchange rate choices, partially a function of the people's confidence that if you put money into China you can get it out in times of stress, and partially a function of, you know, kind of the broader utility of the Chinese yuan and settling global transactions. And right now, you know trade between Africa and Europe is not denominated in Chinese yuan. It's denominated

in dollars. And I still think it's more likely if there's a change, the change will be two towards more trade denominated in euros than two a ard more trade donominate and you want outside of trade with China's immediate neighbors. Now, one thing that I would note here is a China that has a more consumer oriented economy is in some ways a China that needs to trade less. China is perfectly capable of making its own consumer goods. It tends

to import investment goods and tends to import commodities. So I don't necessarily think this is a China that is out in the global market sucking in consumer goods from the rest of the world. I think it's more likely that is it is a China that imports less and the China that also exports less, and that would be kind of consistent with She's vision and china national self reliance. But it's also consistent with a desire on the part of many of China's current big trading partners or more

resilience and more diversity in their supply chains. Um. So I can imagine it being part of somewhat less globalized world, and in that world there may be less pressure to move away from the vale uh brand. Finally, then to that point, I mean, again, we don't know what the

future policy have looked like. Uh would you would you say the US is in that situation where if political leaders chose to, it could more or less close itself off to the world from a trade standpoint in terms of adequate domestic demand and capability of building the things that needs well, I mean right now, the US is well. I shouldn't say right now, I say, you know, over the past twenty years, the US has generated surplus domestic demand which it has shared with the world. That's what

ongoing trade deficits mean. Uh. And as a result, the US has less robust and well developed supply chains and a lot of industries uh, some of our big trade competitors. And one thing which probably should get more attention going forward is that our biggest export industry by far, particularly when you look at exports outside of the immediate neighborhood of Canada and Mexico, is aircraft UH. And one sector that is likely to have a persistent to climb his aircraft.

Less tourism equals less travel equals less demand for planes, and then going has some self created problems as well. So in that sense, the US does space a challenge of offsetting the loss of a big export sector, not the loss, but reduction in size of this very large exports sector, and making that up with new domestic sectors or new exports sectors. But the bigger point is that

the bigger your home market. In general, the less absolute need you have to trade is I think true, but that doesn't mean that shutting yourself off from trade doesn't still have cost. And I think the challenge is kind of finding the right balance going forward between resilience UH and the advantages and efficiencies created by integration. I think that there will be a shift towards greater priority on resilience,

and there should be. I certainly think the U S should get rid of the tax incentives that now encourage the offshoring of pharmaceutical production. That's a separate issue. And you know, as the world moves towards the higher priority on resilience, there will be a little bit less emphasis

on efficiency. But in my view it's not you don't go to absolute resilience and give up all efficiency from trade, nor do you remain in the world or any efficiency, including the less savory tax efficiencies that many companies now exploit through their global supply chain, are tolerated and encouraged. So getting that new balance right to me as a h policy imperative for the next three years. Brad, thank

you so much for joining us Thursday. Fantastic conversation and I'm sure we'll have you back on again before too long. Very good, we'll get that too, right, you know, Tracy. Obviously, when we book Brad, I think, uh, the focus was to some extent, Okay, what's the e m angle on

this crisis, and we certainly hit that. But I don't think there's anyone we talked to regularly the that's capable of pulling in so many different threads and connecting it all together, including at the end, how US tax policy encourage the offshoring of pharmaceutical manufacturer and how that's coming to haunt the US in the past. There's no one who can pull it together like Brad. Yeah, Brad has an uncanny ability to really get to the biggest themes

possible in a given subject. So he's basically talking about rebalancing the entire US economy and also the Chinese economy, and obviously that's a big deal. I think a lot about how we're probably going to see pressure to do this at the same time that the government is dealing

with the coronavirus. So the US government and also potentially emerging market economies are basically going to be under pressure to reform their economies or change them in some really really big ways at the same time that all the virus drama is happening, and I sometimes wonder what that mix is going to look like and whether or not they're going to be able to get the balance right, as Brad put it, when they're under that kind of pressure. Yeah, No, absolutely,

all kinds of interesting things here. I think, like you know, when I think about crises more broadly, and you and I have talked about this, having followed the last crisis, is crises create moments where people sort of rethink everything, business models and growth models and so forth. And just the speeded severity of this one and the fact that literally virtually nobody is unaffected by it, I think lends

itself to that. So all these questions about how much should we trade, how much should we depend on external financing, everything is now sort of up for debate in a way that it hasn't really been in quite a while. Yeah, with big crises come big questions, I guess, and one of those has got to be about the role of a staller and whether or not plays too central a role in the global financial system. And I suspect we're

going to end up talking about that again very very soon. Yeah, and it's important because people, you know, people are always coloring for the demise of like that the dollar is going to go down. And I think, you know, the point that I've tried to make and others is not that like the will may contribute to the demise of the dollar. It's not what people think, like they look at we're spending all this money, or the fan is

expanding the balance sheet by trillions of dollars. I think it really is going to come down much more to these questions about how much do countries want to be interdependent on the on each other? From the US from a real good perspective, from other countries, from a financing perspective, do we want to become a little less interdependent on each other? That question maybe what sort of determined whether the dollar takes on some sort of diminished role in

the future than it has today. Yeah. Absolutely, And I guess also whether or not the Federal Reserve is happy to be playing the role of the world's central banker, although I got to say recently it seems like it is so Yes, that's sort of a step change in the central banks behavior. So lots to talk about there an endless stream of major market crises for us to delve into. Joe, you know, I was thinking though, like at the end with Brad, because it was so comprehensive.

It's like, maybe we're getting to the point of where relation the big ones. I'm sure there's like ten more really big ones we haven't here yet, but maybe we're sort of rounding the corner a little bit in terms of the extremely big themes. You will never let me forget this, will you? No? Okay, this has been another episode of the Odd Thoughts Podcast. I'm Tracy Alloway. You can follow me on Twitter at Tracy Alloway and I'm Joe Wisn't thought. You should follow me on Twitter, or

you can follow me on Twitter at the Stalwart. And you should follow our guest on Twitter, Brad said sir. He's Brad Underscore, said ser and be sure to follow our producer on Twitter, Laura Carlson. She's at Laura M. Carlson followed the Bloomberg head of podcast Francesco Levi at Francesca Today, as well as all of the Bloomberg podcasts under the handle at podcasts. Thanks for listening.