Remembering Paul Volcker

landmark events of the past half century. He advised President Nixon on the decision to leave the gold standard, which led to the collapse of the whole post war Breton Wood system in one then, most famously, as Chair of the Federal Reserve for much of the eighties, he forced the US Central Bank to do what it took to confront inflation, even when what it took was a deep

recession and a soaring dollar. And then he was still around in two thousand and eight advising President Obama on how to cope with fallout from the global financial crisis, devising new rules for banks which remain in diluted form today. Has a massive legacy which I'm going to discuss with Paul Boker's co author Bloomberg's Christine Harper in a few minutes. But first, India. Now India is a lot to get

your head round. Even for so called experts, you'll surely know that it's got more than a billion people living in it. But along with that, it has twenty three major languages, eighty five political parties, and three hundred ways of cooking potato. It also has an ambitious Prime minister Knownrid Moody, who, like President Trump, has thrived by breaking with traditional models of how politicians should behave. But now

the economy is hitting trouble and so is he. In a few minutes, I'll ask our India economist Abushek Gupta whether the Prime Minister Moody has the capacity to turn things round. But first, Bloomberg Economy reporter Annoban Nag has this report from the diamond mines of West central India. Take diamonds, Hollywood, A listeners and a two billion dollar fraud and you have all the ingredients of made for TV scandal that had all India paying attention. So there

you have it. Now, Enforcement directed reading the offices of need A Moody, the famous jeweler who's really at the center of this entire scandal at the Punjab National Police rated the officers of Diamond mogul Nero Moody to investigate an Alex scam involving fake guarantees and sham transactions. Moody, who's not related to Prime Minister Narrendra Modi, was once a joweler to the stars. He had boutiques in London, Hong Kong and Mumbai. Nero Mody has denied wrongdoing. He's

currently being held in the UK and fighting extradition to India. Meanwhile, India's renowned precious stone dealers are still reeling from the reprocursions. After it was first alerted of the bank loot in the sixteenth of January, it took Punjab National Bank almost a month to understand the extent and gravity. India's low cost and high scale labor has turned the country into

a hub of global jewelry. India exports of the words polish diamonds, according to the industry's Export Promotion Council, many of which end up in engagement rings and diamond bracelets sold a jewelers like Tiffany's. According to the government, the sector employs nearly five million workers, accounting for almost seven percent of GDP, but the industry has been in serious trouble since the scandal broke, workers are losing jobs and

businesses are shutting shops. If anything is to go by this way, Prime Minister Modi has little chance of achieving his goal of reaching one trillion dollars in annual exports over the next five years. It's also weighing on the broader economy. So what went wrong? For answers, we went to the diamond hub of Surat. The city is a three and a half hour train journey north from India's

financial capital Mumbai. It's home to over a million people employed in the sector, including the skilled artisans that polished their diamonds. Many of them migrate from elsewhere in India, attracted by the prospects of higher income bubble by Criteria started off as one such artisan about four decades ago, and he now has the Seut Diamond Association. He wears a yellow and red thread around his right hand, an amulet worn by many of India's Hindus to protect someone

from trouble. It's a protection that his industry really needs right now. I have seen many slowdowns in my more than forty year career in the diamond industry. The last time it was severe was in two thousand eight. But conditions had normalized after a couple of months. But this time the slowdowns has dragged on for seven eight months now and has hurt a business immensely. How with the Sponde is a skilled artisan with nearly two decades of experience.

Five months ago, he reported to work at one of the thousands of diamond polishing factories, only to find the doors locked. The owner of the company had pulled down the shut ors overnight and fled without telling any of his forty workers. We were unable to track down the owner for comment. Ponde, who's thirty three, moved to Suos from across the country following the footsteps of his elder brother.

Before losing his job, used to own the equivalent of around three d and fifteen dollars a month, roughly double the country's per capita income. But Ponde is now boring money from friends to pay the rent on his one room house and the tuition for his two kids. The owners shut shop without paying us our monthly salary. I have been roaming the streets in the past month and more trying to get another job. They leave in the morning and come back home in the evening, but no luck.

Some factories say they don't have demand. Some say they don't have rough diamonds. The outcry following the near of Mody scandal has created an atmosphere of distrust between banks and jeweler's. Rob Vrani is a second generation director and be Vranian Company, a diamond cutting and polishing firm in Sura. He talked to us in his Glass World office about the factory floor. Behind him hangs his NBA diploma from Canada's Ryerson University. So liquidity crunches is one of the

biggest problem. That is that kind of has you know, made this crisis even worse so because of these certain companies that do want ethical practices, right bank have I think all of a sudden they've said that we don't want to give credit to the diamond industry because there are there are many cases you know that. In addition, the trade war between China and the US has put

a dampener on sales. Vrani said. While the US is the biggest consumer of Indian diamonds, a lot of stones transit through China for jewelry manufacturing or wholesale trading, with the U s cutting its purchases of Chinese goods. The Indian gem industry has felt the impact. So although India is not part of any global supply chain, exports have been hit, dragging down overall economic growth to four point

five percent in the third quarter. It's lowest in six years back in sorl It's hard times as employment in the industry has fallen and incomes for skilled artisans has been reduced by more than sev in the past few months. According to industry groups pour of A, the Sponde, the Skilled Artisan it's a bleak and hard struggle, mirroring much of the slowdown in the economy when they had. I

am so stressed right now. If this environment continues, then I have to consider leaving the industry and go back to the village and work in the field for a much less money. For Bloomberg News, I'm on near one now. So Abushek Gupta is Bloomberg's India economist. He's got a bit famous in the Indian market circles for disagreeing with other economists in Mumbai over what the Central Bank of India is going to do next, and I should say he's more often right than wrong. Abishek, thank you very

much for joining us. Thanks a lot, Stephanie for having me on the show. It's a pleasure. So those of us who are not necessarily following every twist and turn of the Central banks policies or indeed the Government of India's policies, you know, we hear that story there from Annaba Nag about how the diamond industry has been affected by trade wars and by the slowing of the Indian economy.

If we step back from the day to day of central bank policy and what's going on a month to month with the economy, you know, most people will have noticed. I think when No Injury Moody came to office in India in fourteen he got reelected again um this year, there was a lot of talk about major reform and putting the economy on a completely different trajectory. We have seen reforms, but if you look at the state of the economy, it doesn't look that great. What's happened, Stephanie,

I think that that's that's a great question. And indeed, if you look at No into more these drag record over the last few years, he has certainly delivered on a lot of significant structional reforms, I'll say, but the way I think about these reforms is that they aren't necessarily growth in anything at least in the short run. They prove efficiency and productivity over the medium term, but

what's exactly happening in the near term. For instance, let's just pick up one of the reforms, like Marin Smoothie delivered on a new bankruptcy law for India, and under this law, what's happening is that, or instance, bad assets would now be changing hands, so from an old promoter to a new promoter, and that and sometimes things get delayed in the legal process and stuff like this would negatively impact the economic activity of that secution it in

the short run, and similarly for other reforms as well, in the short run, in the initial years of these reforms, uh this that's uh, there's a transition phase which kind of slows things down. Having said that, my sense would have been that over the past few years, things should have already started looking up by now, but that has not been the case, And I kind of put the blame more on not sufficient monitor easy rather than not more reforms. So clearly, I think Monkey policy could have

done a lot more to support government structural reforms. Barallelly, but that hasn't been the case so far. Yeah, and it's true you've had you you were very critical and particularly of the previous head of the Reserve Bank of India. Um and when when the when Moody effectively got rid of him. You know, often when when governments interfere with who's going to run the central bank, there's a lot of concern in the markets about the independence of the

central bank being violated. But it was striking that there was not that kind of reaction from the markets when that happened, perhaps because investors agree with you that that the bank had been too tight. Yes, certainly that has been the case. In fact, one of the key even holding back India's economy is the weak state of uh

India's shadow banking sector. There are these non bank finance companies in India which essentially are extending credit to consumers and housing finance companies, and these companies were quite negatively impacted due to a liquidly crunch which was created in the economy in late twenty eighteen under the earlier RB governorate.

Over the last year, the new Central Bank governor has reversed some of those politty mistakes and we have seen credit spreads come down for the better rated companies, but some of the weak created companies, the credit spreads are still widening. And and that is financial financial shock that needs to be eased. I mean, we we've we had a bit in that piece about the pain that some of that the financial squeeze is causing in the diamond sector and for some for some in that region. But

obviously this is an enormously diverse economy. Um, the rural sectors particularly important, not just economically but politically. If you're sitting in a rural area, how have how have you really felt the impact of Prime Minister Moodi or maybe you haven't felt that much different that's a separate discussion altogether. So I mean, if you look at Prime Minister Marrieds Moodies policies, he has also reinvented himself in the in his political party, the b JP, in terms of delivering

more welfare oriented policies of the rural pool. In fact, if you sort of talk about giving free gas cylinder than gas connections, that that's being a very popular policy. Constructing toilets that has been another major campaign of his. And besides that, he's also increased electrification in rural villages and opened bank accounts for for the rural poor. And just this year he had announced an income support package for farmers. So I think he has done a lot

for the rural poor. However, the impact of that has been missing in terms of consumption. But probably the rural economy has benefited from American movies policies. And if you speak to taxi drivers in India who kind of come from some of these rural villages in smaller towns, they do confirmed that either they themselves and their families or the extended families people have benefited from reading the movies policies. So so he is popular in rural India as well. Hm,

that's interesting. I mean, I I guess people from a distance will be wondering. I mean, he's a He's a prime minister who has been controversial often outside of India for his treatment of people in Kashmir. He's violated the human rights in some ways or has been criticized for that. He's also um not always been a fan of of of press freedom. I think investors have sort of weighed

that against his ability to get the economy going. But how important is it for his future to really change the performance of the economy, or is he in a is he in a strong enough now position politically that he just needs to avoid a big recession. I think that that's that's a very important question that that hits said the point in terms of what will drive his

re election in two um. If you look at the first year of a second term, he has had great success in terms of delivering policies and legislation that appeals to his majority in the water base. Be it as you said, the application of Article three seventeen englishmir on the Supreme Court ruling in favor of a temple um or the current sort of ship amendment will which is uh we just got past yesterday in the Parliament, which

discriminates against Muslims. So all of these kinds of things do appeal to those database and have maintained his popularity with the masters. But my sense is that this is not what is going to count in four And I think even he understands the importance of reviving the economy because he had initially in twenty fourteen run on the end of development and he needs to bring economic prosperity and bring jobs for the junk demographic force, which is coming into the job market, and that is why he

has been focusing a lot on this dollar five brillion economy. Well, we will watch and wait, bishek Upta, thank you very much. Thanks. I said something about Paul Volca at the beginning of the program. Who's died this week, But someone who got to spend a lot of time with him in the last few years is Bloomberg's own Christine Harper, whose editor of Markets magazine but also wrote with Paul Vocer a memoir keeping at It, The Quest for Sound Money and

Good Government, which only came out a year ago. Christine, I know you've you've written and had conversations with people in the last few days since Paul Voker died. I guess one question to ask you is about the difference between the legend of Paul Volca, who I certainly found quite scary the few times that I interviewed him, not least because he was so tall, and the man that that you got to know in writing this book because it didn't quite work out the way you thought it

was going to go. Yes, I would say that's true. And my understanding is that most people who have had some personal dealings with him have come away with the same conclusion, which is that he has this very forbidding public persona. I mean, if you look at the you know, the photography UM taken while he was fed chairman, or the or the caricatures that were drawn of him, he was always as a sort of Olympian godlike figure glowering down at the mere mortals, who were you know, screwing

up the planet um. And so he did have this He had this kind of Old Testament quality to him. But once you met him in person, he was absolutely a sweetie pie. He was one of those people who seem like rough and could use that fearsome persona to sort of achieve outcomes he wanted and take on, you know, people or institutions he felt weren't living up to their requirements. But he loved people and he was. He was actually quite shy, and he was very humorous, and he was

unbelievable the kind. So when I first met him, I was, I think, like anybody, quite nervous, and he instantly won me over. He was very funny, love telling stories, chuckled a lot, and was always smiling, nothing like what I expected, And as I got to know him more, part of what I really enjoyed talking to him was, of course he had amazing stories about knowing everybody from you know, the leaders of basically every country. He served under six presidents.

You know, he's he's had this kind of incredible career. But but he also loved to talk about the crossword puzzle or he was a passionate home cook, and he would talk about the recipes in the New York Times. And you know, when he found an editing error, he

would he would relish that he'd found something like that. Um. He was really fun to be around and really pleasant and kind and uh and I think in some ways, you know, he he stood for for the people in what he tried to do publicly, he always put himself as somebody who wanted to take on corrupt influences and and make the government better and make the economy better for for the for the people. But he really did

love people. He you know, he took the regular city bus to and from his office until he was ninety years old. He didn't put himself apart. He he really saw himself as a public servant. I thought I was smiling at one of the comments in the Bitteries about

him often having shiny suits. You could imagine the Wall Street people being a bit sniffy about him not having spent money on his suits when he was FED chairman, you know, famously, he sort of got a little studio apartment in a building close to the FED that was basically all you know, college students living there. And he had I think a table, a chair, a bed, and some milk crates. And he would take his laundry to his daughters who lived nearby, to get it done every week.

And you know that's because his wife was stayed up in New York and was was quite ill, and she was taking care of their son, who had some disabilities, and she didn't want to move. So he just lived like this bachelor and flew back home every weekend. He

really didn't care about things. I mean, I remember him once telling me he thought all of the furniture in his apartment, which was quite a nice apartment in New York that he bought at the bottom of the real estate market in nineteen seventy three or something, all of that furniture was probably you know, fifty years old or something. He didn't he didn't really care um. He cared about people. He cared about UM principles, UM. He cared that society

do right by people. But he wasn't he was a materialistic, He wasn't selfish. I was. I was appalled that was an event a few years ago that I was speaking at was a sort of private thing of people thinking about the global economy. And I was a pulled when I saw the program that I was supposed to be co presenting with Paul Volka. And then I rapidly realized that it was actually quite liberating because it wouldn't matter at all what I said, because people would really just

what he said. But what did you find? I mean, did you find that he was actually quite cheerful? And it was also increasingly he had and we've spoken about this in the past. I mean that he was getting on and he certainly and he had his voice was definitely,

you know, reflected his age. So sometimes when you're interviewing him, at least the first time I interviewed him, I found it sort of disconcerting that I was I was expecting this person to play a crucial role in whatever piece I was doing and deliver this great interview, and yet he seemed, you know, he was in his late eighties

and would he possibly deliver. But then, of course you the moment he started talking, you realized that he had not only really prepared for the interview, but had incredibly wise and sharp things to say that you wouldn't have got from anyone out. So I always I did found it a pleasure of that you had to, as you say, you have to get past that rather intimidating demeanor, where he did often seem to be sort of scowling when

I don't. I don't think he was. But we've talked a lot about the personal stuff, which I think is is always important to remember and a nice thing to remember this week. But I'm of course people will also be interested, particularly since you got to know him in the last few years, of what his attitude was to

the current members of the American administration and particularly Donald Trump. Yes, well, um, that was a constant source of frustration, because I think one of the things about him that made him really different was that even though he could he could have a quite harsh judgment uncertain things if he felt they were clearly wrong, Like he had no tolerance for sort of people he felt were overpaid and you know, enriched themselves, at the expense of their customers or the public, or

or you know who corrupted institutions. But he he was he was an other in many other respects, this incredibly pragmatic and this incredible sort of tolerant person. So he wanted to give everybody the benefit of the doubt. So as much as you know, I and I know other people were trying to kind of get him to come out and you know, cast strong views on the situation, I think you know, he served under six presidents, he served under Nixon, he served under you know, LBJ and Kennedy.

He'd seen a lot of things, and so he was patient in a way that not many people are. Um. I do know that at the end Um and you know, he worked with me on a afterward for the paperback version of his book. He he expressed more concerned about the state of the world because in his book, in the book he um he talked about how you know, his mother had admonished him that things can look bad, but this country has gotten through a lot and will continue to be okay. But he wasn't so sure he

believed that anymore. He was very concerned about those sort of forces of you know that we're just sort of out there fighting facts, fighting science, you know, um, just you know, it would seemingly no scorn about the good of the country and of humanity. And so you know, he didn't like to name names, um, but he I think he was very, very displeased at at what he

sees going on in the country. And I'll also say, you know, he was he was quite a fan of of the FED, but he was very disappointed and how they watered down the Vulkar rule in the last couple of months. He had sent up a letter to J. Powell warning him not to do that, and they went ahead and did that, and he was not happy about that. He thought that was a big mistake. The rule, the rule that had been the response to the global financial

christ kind of constrain strain banks from taking excessive risks. Well, Christine, thank you very much. I mean, I think that the overriding conclusion, and when you read all these obituaries is what a consummate public servant he was. And I certainly hope that one of these days those kind of public servants will will come back into favor. Yes, I think

that's more than anything what he wanted. His legacy to be as an example for other people to follow into public service and into really believing that it was a noble calling, because he certainly felt it was. Where you'll see Christine, thank you very much, Thank you, thanks for listening to Stephanomics. We'll be back next week. In the meantime, you can find us on the Bloomberg Terminal, website, app

or wherever you get your podcasts. And for more news and analysis through the week from Bloomberg Economics, follow at Economics on Twitter. You can also find me on at my Stephanomics. The story in this episode was written and reported by Swansea Afonso and Anniban nag. It was edited by Bruce Douglas and produced by Magnus Hendrickson. Special thanks

to a Bushek Gupta, Christine Harper, and Nesserene Syria. Scott Lammon is the executive producer of Stephanomics and the head of Bloomberg Podcast is Francesca Levi bym By