Hello, Welcome to Stephanomics, the podcast that brings the global economy to you. I have to tell you this is the last episode of this series. We're packing a lot in.
I'm recording from the historic Mount Washington Hotel in Breton Woods in New Hampshire, where I've been at an eclectic gathering of intellectuals and finance folks commemorating the anniversary of that famous Breton Woods Conference when the Allied Powers got together after World War Two to set down the rules for a new world economic order, and they created key institutions like the International Monetary Fund and the World Bank.
Later you'll hear me chatting with a former US executive director of the IMAT about the kind of global economic cooperation we need today. I also caught up with the economist Neurial Rubini. We talked about why he hates cryptocurrencies and what's going to cause the next financial crisis. But first, we have the battle over the future of the global
economy that's happening right now on the Mexican border. You'll remember President Trump shocked everyone threatening to slap big tariffs on Mexico for failing to stop the flow of Central American migrants from south to north. Now, after emergency talks, the Americans gave the Mexican President, Andres Manuel Lopez, a bred known by his initials Amblow, forty five days to
do better tackling the problem. He's now sent a new federal force down to police the country's porous and geographically messy border with Guatemala, where people and goods have previously flowed freely. Bloomberg Economy reporter Eric Martin decided to go see what was happening here. On the banks of the Succa River. There's a constant buzz of activity. Locals make their living haulling goods onto rickety rafts made a fly within rubber tires. The cargo depends on the direction from
Mexico to Guatemala. It's usually kinds of cooking oil or bags of rice. Having the other way, it's mostly people, many of them are bound for the US. All of it, technically speaking, is illegal. Still, the customs and immigration officials patrolling the international bridge have ignored it. That has helped make the river a key economic hub in the poorest region in Mexico. They Errta Alicia Flentis has been running a supply store in the Mexican border town of Sida
didlgo for the past four decades. She told me that the river Contraband is the only source of jobs for towns on both the Mexican and Guatemalan sides of the river want that hand. Everyone lives off of this. What happens if it's gone, forget it? Everyone would be poor. The merchandise needs to continue to flow, but this river trade may not last much longer. Last month, the first of thousands of National Guard troops arrived as part of omlo's plans. The soldiers came with their m sixteens and
told us that they didn't want us to work. Rooster is a thirty one year old raft captain who didn't want to give me his real name for fear of reprisals. He's been making a living moving goods and people across the river for the past death. If they make it more difficult for us to transport merchandise, we need to figure out how to resolve the problem. The new show of force on the border is meant to stem the tide of migrants escaping violence and poverty in Central America.
Among them is main Orgean, a nineteen year old Honduran migrant who told me he's making his second attempt in less than a week to reach the US. I was reported a week ago and I started to come back the same day. There's no work where I leave. The migrants crossing the river are for the most part from Guatemala, El savor And and Duras, but people from Haiti, Cuba, Africa, and even India have recently begun appearing in greater numbers. Many arrived to Central America or South America by plain
and then crossed through Mexico. Bumblow admits that parts of Mexico's seven dred mile frontier with Guatemala and Belize aren't well policed, and he's promised to secure them. His efforts have started to pay off, at least from the u S perspective. Customs and Border Protection seven July that the number of people stopped at the border fell twenty eight percent from May to June. All the numbers tend to decline in the summer, that's more than the usual drop.
Trump at least seems pleased he should regret up from Mexico because the Mexican people very midst with all of these tens of thousands of people, hundreds of thousands of people walking through Mexico. Despite President Trump's enthusiasm, there are many people who are skeptical about whether Mexico can stop migrants in the long term. Among them, as Duncan would, he's the director of the Mexico Institute at the Woodrow Wilson International Center for Scholars in Washington. He's been studying
Mexico for more than two decades. Mexico is now become a much more difficult piece of terrain to to to get across, so I think that that will provide a terrant effect in the in the short term, but in the long term, I feel as though we're going to see similar numbers of migrants coming through Mexico. They will
learn to get around the various checkpoints. Mexican soldier has visited the Chats River a week after the government promised to step up efforts to patrol the border, but locals told me they quickly withdrew arguments with the raft operators threatened to spill over into violence. Mexico is likely to face more challenges as it attempts to balance the protection of human rights against the pressure from the American government. It's understandable why we saw the calls from the United
States government for Mexico to do more. What I think is perhaps a mistake is to push so much of the burden onto Mexico at a time when Mexico has severe financial and fiscal restrictions. Mexico's economy is showing signs of weakness after years of modest if unspectacular growth. GDP is slowing thanks in part to Trump's unpredictable behavior. Threatening to rip up NAFTA and imposed tariffs have hurt investor confidence.
While Trump has been focused on undock minted migration, the levels of people arriving to the US are actually below the records from a decade ago. In recent years, as many Mexicans have returned to Mexico as left for the US. Now, there's a risk that Trump's pressure causes the country's economy to weaken. That could results in fewer jobs in poor communities like those in Chiapas, and force more Mexicans to join Hondurans, Salvadorans, and Guatemalans in seeking work in the US.
Here's duncan Wood again. Overall, the deterrent measures that we're seeing being put in place by Mexico are probably not sustainable. So ultimately, I think this provides a short term solution at the very best, and we're likely to see that in the medium to long term. The problem continues as long as the underlying fundamental crisis in Central America is there. Migrants from Central America are fleeing some of the highest murder rates in the world. Many used to work in agriculture,
but they've seen their crops devastated by climate change. Their government spend little on social services, citizens have few or no job opportunities, and plans to develop the region could take years. Ultimately, no amount of security on the Mexico Gualamala border is likely to stop undocumented migration as long as the economic attraction of the US remains. It would be ironic if Trump's heavy handed efforts to stop the flow of migrants end up driving even greater numbers to
seek a better life north of the Mexican border. You heard there from one of the front lines in the battle over the future of the global economy. I had a chat here with Meg Lundziger, a former US executive director of the i m F who is now a public policy fellow at the Wilson Center in Washington. We started by talking about the spirit of Breton Woods and whether we could revive it to confront the big international
economic challenges the world faces today. This is pretty amazing when you look back that these delegates committed their governments to treaty organizations, meaning you give up a little bit of sovereignty by signing on to a treaty. But they all got their home governments to ratify it. And these organizations have continued and have had to change in many, many different ways, but still been very effective over the
years of dealing with crises. With that said, it's hard to predict the future and how we know today what's going to drive us to agree. We don't have that same sense of fear. In some respects, we are to because there are a lot of different things going on that create fear. But over all, in the political classes and the governments, there's not a unifying sense of what that overarching problem is and what we should do about it. And you see it every day in the press, you're
reporting on it. Just how we all just see the world so completely different. I mean by we are our leaders and then there's very little chance that there would be anything this dramatic as the same as the Breton Woods institutions coming out. But that was one thing this volume that we put together at the Breton Woods Committee
this year. If you read Paul Boker's first essay, it's all about the spirit of Breton Wood's not that he's urging global leaders to come up with a whole new system, but that he's urging them to remember, we need to cooperate if we're going to handle problems, if we're going to anticipate what's coming, if we're going to find ways to all be part of the solution, which at times means making a commitment to others so that you all benefit.
And that's hard to find these days. And of course, as most people listening well know, but that's the former FED chair from from back in the eighties, Paul Worker. And we had a report this week from the Mexican border talking about the irony that you could have extent really strenuous efforts to cut down immigration and illegal immigration at the at the Mexican American border, with the Mexican government under great pressure from President Trump to do that.
But at the same time President Trump's economic policies threatened to hurt the Mexican economy and actually push more people into trying to immigrate to the U. S Now. That's a long way, I mean, if you listen to the footage, is a long way from this sort of pleasant hotel
at the top of the mountain. But it struck me that some of the issues involved in Donald Trump, donald Trump's policy on Mexico, on immigration and his success does symbolize some of the change in the environment since four you talked about fear being the animating factor for the leaders. Then you know, now instead of people being terrified of economic nationalism and wanting never to have that conflict again, you have globalization that people feel has not necessarily worked
for them. There's kind of a distance between these global institutions and people in countries like the US and different European countries, and you have US and you have immigration figuring much more prominently than we might have thought. We were very focused in when we think about globalization all
these years. We've been very focused on goods trade and how do you deal with flows of money and maybe do we not think enough about what flows of people are going to mean for individual communities and for and for our politics. We didn't think at all about that perfectly, and it's certainly not the big migration flows that we've all seen in our countries. I mean, why is the UK leaving the EU? And immigration has been one of the big reasons, and it's been a fear in in
the US too. It's a little hard for me because I'm an immigrant to uh there's a lot of them about. Yeah, a lot of us are here and love this country and have made it a home and wanted to do well. So it's a little hard, you know. And I mean the immigrants I see who are frankly taking care of my lawn and cleaning my house. They're here and they're working hard, and they're doing a lot of things that
many Americans really have no interest in doing. So I welcome that they're here, they're working hard, and I think the US has to be a little more open to this. With that said, I guess a lot of people feel jobs are being taken away. I'm not quite sure where the jobs that have kept the middle class going, you know, manufacturing services, that a whole lot of that is being taken away by immigrants coming from Central America. I don't get that sense. So At times, it's hard for me
to puzzle where this fear has come from. And sometimes I feel like it's an overly manufactured fear on the political classes on President Trump, that it's not really a threat now. At the same time, we also have, because of his announcements and policies, this effort of more to come to the US the families get here before the borders completely shut down. So we've kind of created this
conundrum for ourselves. And as you pointed out in the beginning, by some of the other policies, we've made it more difficult for these countries to thrive to grow, you know, threatening to leave NAFTA. So of course that's going to instead of ize more to come to the United States for a better life. So I think there needs to be a little bit deeper thinking of all the inner
linkages of the policies in this administration. Well, it's interesting because we have One thing we heard about in this conference is some of the history of the Britain was negotiations, and it was this kind of cutthroat battle between the American representative Harry Dexter White and the British representative John
Maynard Keynes. And there's plenty of books and and the stories about their competition, but it was all about us, about the US installing itself at the center of these institutions and the center of the new system with everything revolving around the dollar. And again, what strikes you as a difference now is that's in a lot of the conversations we have is about the absence of US leadership. You have institutions that were kind of established to give
the US the ultimate decision making, the ultimate veto. Power used to sit there with your veto in the IMF. I don't think you used it very much, but people cared a lot about what you believe because you was the US. Um Do you think China is going to fill that vacuum of sort of international economic leadership? Apparently the they're very interested in this history about Breton Woods. They've been. We heard that the history of the negotiations they've been. They sold more copies in China of this
American academics book than they have in the US. You know, that's very interesting, Stephanie, because in my experience, the Chinese want to be part of that, They want to be at the center of the system. They want to have a clear voice and the decision making in the system. But they don't really want to be number one. And I think it's because they recognize they're really not at the point where they can undertake that type of global leadership. Do they want their currency? Do you want the M
and B to become the global currency? No, they certainly don't. What do they do in their financial sector? They control things, They control inflows and outflows, They impose capital controls, they lift capital controls. Their monetary policy has zero independence, right, it's they're at the behest of the government whether they loosen the credit or tighten the credits. So um, I think China is nowhere in the position to undertake that leadership role in terms of guiding institutions or you know,
pulling all these country reads together. And it's interesting though you do get international collaborations often when, as someone said to me, when you have politicians actually looking out of looking standing on a window ledge looking down, that's when they start to do serious looking down at the abyss.
But even in our time in the late nineties in the U. S. Treasury, there was a kind of healthy competition among international leaders to have initiatives and policy proposals and then you come back from the summit and you say I have one with my proposal for development or this and that. I mean, it's amazing that that is not where the action is for most politicians. That's not
going to help them domestically. And that's all that matters now is when the next domestic election, Right get the leadership of the Conservative Party, when the election in twenty right get a bigger majority in the parliament. So well, I fear they were surrounded by lots of people doing very exciting, innovative financial things. So we shouldn't sound too much like sort of middle aged people bemoaning that helped terrible world. There's been plenty of good thing LANs. Thank
you very much. Well, thank you, Stephanie Pleasure. M here are Breton Woods. I bumped into another old friend, the economist new Or Rubini, who's a professor at m y U and head of Rubini Macro Associates. Recently he's been a very public critic of cryptocurrencies. Since the conference was organized by Bancor, a company heavily involved with cryptocurrencies, I wondered whether he was surprised to be invited. You've been coming out very strongly against digital currencies recently. Why why
are you so worried about them? Well, I'm not actually worried about them. I think that the term cryptocurrencies is a misnomer. For something to be a currency has to be an account, a means of payment, stable store of value. Um not with this pricing anything in bitcoin or any other cryptocurrency. Bitcoin can only five transactions per second. The Visa network does twenty five thousand per seconds, and it's not the stable store of value because the price can
go up or down twenty percent in a day. That's why even at the blockchain or crypto conferences where I go, they don't even accept their bitcoint for paymentality of the conference because the profit markin could be wiped out by a sudden movement of the price, So no merchant is going to be using it. So it's a misnumber. They're not really currencies that the bubble does venteen collapse into does eighteen. There's been a rally this year, but bitcoin
is still more than fifty percent below the peak. The other top ten or eight percent belo peak, and I think there's a little bit of a fad. But in these crypto and quote currencies. They are not going anywhere. They're useless, and I think there's a bigger, fading blockchain that, in my view, is the most over hyped technology uine history and no better than the glorified than spreadsheet. But
that's a different story. We talked last in last week's podcast, we actually talked to the French finance Minister, Brunda Lamaire about Libra and the extraordinary amount of attention that the G seven finance ministers, the G twenty you mentioned, President Trump have all been talking about this one proposal by one company. Do you think librastor justifies the amount of attention it is getting to some extent. First of all, again they pretended it's going to be a blockchain tool,
but it's not. It's going to be fully centralized. So this is a gimmick as a way to try to avoid the unquote regulation and so on. Secondly, you know there are two billion users on Facebook, most of them are only mos. Anybody can sign up with fake name. I suppose that you sign up and then you can take some of these libra from US and send it to Panama or any other shore financial center. And again, all the rules about anti money laundering or not your customers.
I've breached that, of course, you know, uh, financial officials are worried about it. This is not the little bit small cryptoscam. You know, one of the largest company the world wants to create essentially a money function without having a banking license, without proper anti money laundering, without proper not your customer stuff. And they're saying we're not going to allow it, rightly so, and it was striking the
Facebook literature about this. And of course they always say they're only going to have a small number of votes in this, It's going to be a lot of other players if it goes ahead. UM, I share some of your skepticism, but it's extraordinary when you look at they're what they're claiming about it. They'll say, they say, you should be able to it should be just as easy to transfer money wherever you are in the world to
wherever in the world. You shouldn't have any any borders, And that does seem an extraordinary thing that you would expect to be able to do that without any of the normal obstacles to cross border banking or any of those things. And I've heard you talk quite a lot about what the seeds are for the next global financial crisis and how soon that might be coming. I mean, finally, if you think about how that might play out and those kind of environments, it's really when that happens, it's
really important to have some kind of global cooperation. Do you think we're not going to see that at this time? Or we will still have the right kind of collaboration between central banks even if governments are more adults with one another. Well, if the next crisis occurs because of a combination of excessive credit than that and some shocks and things like a trade or attack or between US and China could be triggering of it, or another old shock if us in Iran go to work would be
the trigger of it. I think that first of all, we'll have less cooperation in the past, but also the national policies are going to be more constrained compared to the past. You know, fiscal policies constrained because now deficit debts are higher than before. More of their policies constrained because we don't have much headroom. You know, the fathers two and fifty business points of rate cuts before they
go to zero. While in Europe, e c B smb Rigs Bank or in Japan the boj are already negative rates. They can go a little more negative, but not much more. And the ability to backstop and bail out banks, corporates or even houshold is constrained for two reasons. One is, there is now a political backlash against building out the bank as well as treat the city the corporations, so
I don't think it's going to be as easy. And secondly, you know there's this doom look between banks and the sovereigns Summings are so indebted that a lot of their death is at the hands of the banks, and the banks are themselves fragile because of the exposure to the sovereign and therefore this doom look between some of the banks implies that's going to be very hard to have the same backstop of the financial system we got during
the global financial crisis. So when the stuff is going to hit the fan, Unfortunately, compared to ten years ago when we had all the policy bulleis, we've is a lot of them mount the physical credit backstre bailed out this time around is going to constrained becauseine God's going to go from the International Motri Fund to the European
Central Bank. Do you think she can hold together the Eurozone through the next recession or potentially crisis the way that Mary drug has I think it's an excellent choice. She's eminently qualified. A great respect for her, and she, like Mary Drugg, is certainly committed to do whatever it takes to keep the Eurozone together. But there are things that are not under the control of the CB. Say suppose that during the next crisis, Italy the output collapses
as it is already now in a recession. Lefts and let's go essentially higher and higher. Italy with the publish government is doing policy of nose terity and or reform. They're not going to qualify for the European bailout mechanism that are the es M, nor for what is called the o MT that is the bailout package that the CBS, because the condition for the o m T is essentially that the country is under effectively a program I m
F style of program hosterity and the form. And They're big problem with Italy is that Greece was easy problem to want a billion euro public that and there was a troya program two billion euro could back stop both Greece and its own creditors. But Italy is too big to fail but also too big to be saved. The Italian public that there's two point three treat on euros, so there is no MF or EU or CP or
troya program can back stop Italy. So if if something were to happen in Italy, either the Italian decide to tighten their belts like risk it in the game of Chicken in two thousands and fifteen gris blinked, or otherwise Italy may jump off the cliff and live the Eurozone, and that may provide an existential threat to the Eurozone itself.
We don't know what's gonna happen, but at some point there will be a clash between Italy and not just the you, but before even the uth within Italy in the markets when the same, so there'll be a sunden stop money. It is going to fly out of the banks, run on the banks, around on public debt and anything. Decide this is what we want or we're going to accept the constraints are being in a monetary game with
a common currency. We don't know what's going to be the endgame of that particular drama of that slow motion train rack. But we may have a slamotion trainbreck right, so we've got to watch a surprise bubbles and Italy like a hawk to see what's coming next, and US and China and US. Yes, but Italy, that whole in the Eurozone that still is there even though there're supposedly
it's been been fixed. You're quite right that that is the key issue that any country that would qualify if you have a run, a really existential run on the on the currency, or a panic around Italy, it would still have to qualify for that support to get. So you face exactly the same issue. It's too big to fail, but potentially too big to say nobly. Thanks very much.
It's been pouring rain in Britain woods up in the New Hampshire Mountain the last day or so, but I think the liquidity but the sun's finally coming out so we should get some fresh air. Thank you. Thanks for listening to our first season of Stephanomics. We'll be back in October, but if you're just discovering our show now, you can find past episodes on the Bloomberg Terminal website, app or wherever you get your podcast we'd love it if you took the time to rate and review the
show so it can reach more listeners. And for more news and analysis from Bloomberg Economics right through the summer, follow our Economics on Twitter, and you can also find me on at my Stephanomics. The Mexico story in this episode was reported and written by Eric Martin. It was produced by Magnus Hendrickson and edited by Bruce Douglas. Eric's original story on this topic was edited by Anne Riffenberg
and David Papadopoulos. Special thanks to the organizers of the Breton Woods At conference and also to make Lundziger, Neural Rubini, Carlos, Manuel Roriguez, Jose Roscoe, and Cintia Berrera. Our executive producer is Scott Laman, and the head of Bloomberg Podcast is Francesco Levy. M