Where the U.S. Still Rules in Asia

cover global economics from Bloomberg View. Helping me sort through these ideas is guest host Joe Weisenthal, an executive editor at Bloomberg and co host of Benchmark's sibling podcast, Odd Lots. Joe, it's great to have you here, and thanks for helping me sift through some of these impressions and experiences from

my trip. First of all, I'm really jealous that you just traveled through Asia, because I love I haven't spent that much time in Asia, Hong Kong, a little bit, Qualumpoor, Singapore, I love, I always love traveling there, so I can't wait to hear your impressions, and I appreciate you, uh, the merging of the podcast for today. Well, it's always good to have someone who's inherently skeptical, but it's such a good humid way to sort of keep my intellectual

adventurism in check. Well put, so, I will be interrogating you, stress testing your ideas today, stress testing your observations. So let's talk about some of the columns that I wrote when I was at that you've been following the work closely. I appreciate this, which one's come to mind. All right, Well, you mentioned the Tokyo one. You mentioned this idea that an important, perhaps an important indicator of what's going on with the Japanese economy is slippage in the quality of

the services at restaurants. And I understand, although I've never experienced it myself, that quality service at restaurants is extraordinary just at any time in Japan, in Tokyo, but that maybe that's changing a little bit. Well, look, it's long been considered accurately that the quality of service not just in restaurants, but people notice it. In restaurants in Japan is easily first among the G seven. And of course people love that you're not required to tip, so you

don't feel guilty. Now, you don't feel guilty, You don't feel guilty at all. Now, this is something that is Zumi de Valiate noticed. She's the head of Japan Economics at Merrill Lynch Bank of America. She observed over lunch that services starting to slip subtly to a foreigner. You're not necessarily going to see it, but it's there if you look for it. And this is part of a broader phenomenon, which is the Japanese labor force is simply

running out of people. It's running out of people. Now, before we get to the labor force and before we to the subtle slippage in the quality of service, real quickly describe typical restaurant experience. What would you what's the experience in a Japanese restaurant in Tokyo that would set it apart from a sort of an equivalently priced dining experience in New York City. Well, for one thing, as soon as you walk in, you're showing to your table,

no fuss, no mass. The table is always clean, whether it's talking high end, mid end, low end. The service is super attentive. There are generally several people attending to everything comes right on time, that high degree of attentiveness and again no tipping. You know you mentioned the slippage. Give it a little example of what you and your lunch guests notice, and then explain what does this really tell us about the state of the macro economy? And well,

it was barely perceptible to me. A Zumi de valierate a lunch guest, uh noticed it. You're waiting A couple of second is longer. They're seemed to be one or two fewer servers for a full restaurant Tokyo lunchtime. The financial district again, if you live there, you know the subtle science to look for. But look, I don't want to overdo this. It's part of a broader phenomenon, which is we're really getting to the bottom of the labor market here in Japan. The jobs rate is two pot

it's falling to some extent. The shrinking population has been shielded or obscured by more older people coming into the workforce and more women coming into the workforce. Now that extra pool is just about depleted. So I think the Japanese labor market is potentially facing a shock equivalent to the shock that the economy underwent in the eighties. What happened the eighties are the Plaza Accord, the dramatic strengthening

of the end that followed that agreement. So many Japanese companies move operations offshore, and the main obsession between then and now has been what do we do without domestic operations? How do we manage it? Now? All of a sudden, this shrinking labor pool means you've got to have a domestic strategy. So what went on in the restaurant that time is just part of a broader peace. We tend to think of Japanese demographics as being deflation ry. What

if they're not right? And I've always wondered this too, because you know, we talked about, Okay, it's getting older and older and there's deflationary. But if that means fewer workers, and that means a fiercer competition for the pool of available workers, you could imagine the sort of inflationary implications at the same time. Let's let's talk about another country

you've visited, and I find this very amusing. In the US, I would really say with the election that we've really moved from talking about the FED all the time to politics. But what you've observed when you were in China, the FED is still incredibly important. So I was in Hong Kong at the time of the last Federal Open Market Committee meeting in late July. And don't forget, we've been fed this narrative here in the US that America is on the retreat in Asia, its influences waning, and you

know it's China's to lose, China's everywhere. But you know what, being in Hong Kong for the week of the f o m C meeting was illuminative for me. It was all you heard about on TV, not just Bloomberg TV, CNN, BBC, CNBC. Every email that came into your inbox was from an analyst. It all led with the f o m C. Then there was the granular taking a part of the statement afterwards. At barely any point in this three or four day session with the FED was the People's Bank of China mentioned.

That's China's central bank. So if the US is on retreat and China's dominant, hang on a second, here, shouldn't there be some discussion of what the People's Bank of China is doing with policy and where it's taking the economy. Something didn't square there. That is that is really fascinating. Now, obviously there's the fact that the Hong Kong dollar is still pegged to the US dollar, so in a very direct manner um, you know, they, as it said, Hong

Kong imports our monetary policy. But is it something deeper than that? Well, this is a financial center for Asia as a whole. So people are not just talking about what's going on in a couple of streets around Admiralty or Central or Cowlown where our producers to hang out. This is what the financial and economic community in Asia was obsessing about. Now, you know, there are differences. Sure, we knew a year ago there would be an f o MC meeting at that time. PBOC doesn't publish its schedule.

It's also true the PBOC reports to the State Council in China, that's the cabinet, so the structure is different. But still there seemed to be this disconnect. If the US has lost it and China owns it, why obsession with this fairly technocratic American institution. That is very fascinating. I guess it's kind of a relief, you know, if we sort of hold on to this notion of incredible American influence abroad that at least in this respect, there

doesn't seem to be any diminishment. I mean, some people say it might not be a good thing, but kind of bolsters are you know, are standing a little bit? You know? I asked the Budget Director of Indonesia about this issue, and he kept saying, but you still have the FED. You still have the FED. The FED is still most important because it affects our financial mark. It's what it does to global portfolios, affects how much we

pay to borrow. Well, it's funny, so you mentioned Indonesia and that you also wrote a column about that, and Indonesia strikes me is one of these amazing stories of a country that's grown incredibly in wealth. It's massive. It's one of the most digital countries in terms of the number of people who are on the internet. Incredible number of people from Indonesia. But you don't really hear much about it. People don't talk about it as much as you know they talk about other Asian countries or other

emerging markets. Why is that, you know, it's a great question. I mean, let's walk back a bit here. It is easily by a country mile, Southeast Asia's largest economy. It is the world's third largest democracy, it is the world's largest Islamic country, and it is a thriving, rumbunctious democracy. So what's happened is that for the past twenty years, since the Asian Financial crisis, which really brought about literally a revolution in Indonesia, the country has been transformed. There's

a post set of institutions in place. And by the way that people making the decisions in government were all personally scarred by that experience. I mentioned the budget director. He was on a scholarship to Cornell had to pack up and go home because his scholarship was denominated in repair. So when the Asian financial crisis hit, it was academics interrupted. So they're over that now. It's got thirty four provinces, all of which seriously safeguard the large degree of autonomy

that they have. It's got an independent central bank. It's got a debt ceiling. I don't know if that's such a good thing. It's got a budget deficit ruler could qualify for the Eurozone. All the post ninety eight institutions are in place. The question I asked myself was why doesn't the country really want to lead. The ingredients are all there, the runways, they're the fuels in the plane. Indonesia could unambiguously lead to the region if it chose.

My sense is it's still looking in would still trying to figure out in this post ninety world what it wants to be. One of the questions that raises is things like, you know, the role of political Islam, and then New York Times has written a lot about that, but it's obscured a lot of other things that are going.

It's it's interesting because when you talk about these countries that have experienced deep economic scars and how they can last, and you know, so many times people talk about the Buddhist Bank having the institutional memory of the Weimar hyperinflation and how the degree to which that informs policy decades later.

So it's interesting. It sounds like there are some parallels where this country was deeply economics economically scarred, and the you know, even with it thriving and becoming much richer, that those you know, those moments don't just feed easily. You know. It's interesting. A lot of the retrospective is done of the Asian financial crisis, have tended to be very aggregate or focused on things like currency pegs a good thing, whereas the region in terms of its debt

in balance as etcetera, etcetera. But if you want to see where the region is twenty years later, you've really got to take a look at Indonesia. I mean, they had more than just a recession and a change of government. They had a complete systemic collapse, and it actually looked for a while like the country would literally come apart. In the end, only one province East Team will broke away. The rest stayed with the country at the price of much,

much greater autonomy. I feel like I have to go in Indonesia because I've been to Malaysia a few times and when last time I was in Malaysia, is trying to a friend of mine, he just like Indonesia is amazing, Jakarta is an amazing city. It really does feel like there's a potential for some fascinating stories that many of us here are probably missing. Well, you know, I lived in Kuala Lumpa for two years during the Asian financial crisis, and for a while there we were Malaysia had its crisis.

There's nothing compared with Indonesia. So for a while there we were rotating in and you know, Indonesian and Malaysia, as you know, compete for supremacy culturally and everything else for like the Malay world. But you know, there is a sense of optimism, a sense of freewheeling, a sense that we've remade this country. Destination perhaps unknown, but we know what it looks like. Malaysia seems to be going

through a funk right now. Yeah, I'm really jealous of your travel, as I said at the beginning, but after talking to you about these you know, sort of three observations, I'm reminded why it's so important to get out of our world here in New York and talk to people in these, uh you know, different markets. Picture. What sort of your big takeaway of things right now? Having seen the world for a little while from the opposite side

of the planet. My big takeaway, and this gets back to the issue of whether the US is in actual or relative decline versus China. I think the picture is a lot more complicated, a lot more complicated, and you know, in many ways the US is still dominant. Is that dominance being challenged? We're talking economics Here're not talking about the South China Sea or anything like that. Is that economic dominance of the US being challenged? Yes? Is China

coming up? Yes? Has it supplanted the US economically? I'm not sure about that. Even though that idea is very much in vogue and think tanks here in the Northeast, I'm not sure it's entirely true. Well, Dan, I appreciate you, and we've still got the FED and we still got the That's right, that's the big lie said. We still have the fan in the dollar. Dan. I appreciate you having me join your podcast to discuss your columns and travels. And I just learned quite a bit. Joe. Next time

you can steal along in my backpack. How about that? That's a deal. Benchmark will be back next week and until then, you can find us on the Bloomberg terminal, Bloomberg dot com, and our Bloomberg app, as well as on Apple podcast, pocket casts and Stitcher. Why you're there, take a minute, rate and review the show so more listeners can find us, and do let us know what you thought of the show. All your listeners in Hong Kong,

Indonesia and Japan were expecting to hear from you. You can follow me on Twitter at Moss, Underscore, Echo and Joe as Odd Lots listeners know you are at at the store. Benchmark is produced by Sarah Patterson. Head of Bloomberg Podcast is Alec McCabe, former Hong Kong resident. Thanks for listening without t t under Burner The my fer a bo