Latest / Bloomberg Intelligence / Leo Melamed Sees Potential for a Global Financial Crisis(Audio)

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Leo Melamed Sees Potential for a Global Financial Crisis(Audio) · Bloomberg Intelligence

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  Speaker 1: ETF report. I'm Catherine Cowdery. You're listening to Taking Stock
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  Speaker 1: with pin Box and Kathleen Hayes on Bloomberg Radio. Volato
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  Speaker 1: financial markets, unprecedented central banks over the past few years
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  Speaker 1: that have taken us to places that no one could
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  Speaker 1: have imagined, places like negative interest rates, the relation between
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  Speaker 1: US and China, so many things hanging over the markets now.
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  Speaker 1: Who better to ask where are we and where are
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  Speaker 1: we going next? Than Leo Malomed. Of course, he is
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  Speaker 1: the founder of finance futures, the man who went from
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  Speaker 1: chairman of the Chicago Mercantile Exchange to create the International
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  Speaker 1: Monetary market, leading the CME then in creating a number
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  Speaker 1: of important financial instruments. Instruments from foreign currency futures to
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  Speaker 1: T bills, Euro dollar stock index futures, he spearheaded the
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  Speaker 1: world's first electronic trading system, Globex, and so much more,
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  Speaker 1: and he joins me now on taking stock. Welcome to
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  Speaker 1: the show. Welcome, I'm very happy to be here. It's
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  Speaker 1: a real treat. So let's start with where we are
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  Speaker 1: in the US when it comes to the Federal Reserve.
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  Speaker 1: At this point, Leo, what should people be doing? Just
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  Speaker 1: kind of putting you know, shutting out the Fed noise
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  Speaker 1: or saying wow, Janet Yellen is still worried about the
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  Speaker 1: labor market, doesn't sound very aggressive on rates. What what
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  Speaker 1: is your take there? Well, you know, she she's between
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  Speaker 1: a hard and a hard place, because it is it
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  Speaker 1: is true that we are a part of international system.
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  Speaker 1: It's not just to see it's not just the United
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  Speaker 1: States by itself. It's a it's an ocean of problems
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  Speaker 1: around us that that she has to deal with. And
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  Speaker 1: our progress has been um really very very slow in
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  Speaker 1: terms of recovery from the two thousand eight uh A crash.
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  Speaker 1: And so yes we are and we're certainly on a
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  Speaker 1: better trajectory than the rest of the world, but we
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  Speaker 1: can't live alone. We are all our trading partners are
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  Speaker 1: in trouble. Europe is in trouble, Japan is in trouble,
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  Speaker 1: China is in trouble. Who who are we going to
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  Speaker 1: sell our goods to and how are we going to
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  Speaker 1: recover if if no one else around US does? That's
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  Speaker 1: her problem, and I understand it well. Speaking of China,
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  Speaker 1: the President is in China, the US China Economic Dialogue underway,
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  Speaker 1: Jack Lou criticizing that, well, maybe urging the Chinese to
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  Speaker 1: take some steps to signal more trade policy better those uh,
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  Speaker 1: the islands that are disputed that they are becoming more
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  Speaker 1: and more contentious all the time. What does what does?
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  Speaker 1: Where is China now? And what you just mentioned the
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  Speaker 1: fact that that they're not growing what that means for
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  Speaker 1: the US and the rest of the world. That's right,
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  Speaker 1: and I think in there they're trend of um lush
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  Speaker 1: growth is going to continue for a while. You know,
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  Speaker 1: we look, we look to be able to have a
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  Speaker 1: two percent GDP. They're talking about a six percent. I
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  Speaker 1: don't even think that they can reach six percent. So
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  Speaker 1: it sounds like, you know, they're much better off than
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  Speaker 1: we are, but they're not because they've they've got a
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  Speaker 1: real bad issue in nonperforming loans which occurred as a
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  Speaker 1: result of coming out of the two thousand mate um
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  Speaker 1: debacle that the world had, and they sort of recovered
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  Speaker 1: from that because they just threw money into the system. Now,
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  Speaker 1: that was okay for a little while, but it's continue
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  Speaker 1: to a point where the nonperforming loans throughout their uh
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  Speaker 1: private sector is such that I don't know what they're
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  Speaker 1: gonna do with that. So yeah, you know, one of
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  Speaker 1: the things that they do is that, you know, you
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  Speaker 1: may if you can't do something domestically, maybe you do
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  Speaker 1: something internationally. And that's where the islands come in. So
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  Speaker 1: they're gonna they're gonna be, you know, difficult to deal
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  Speaker 1: with on that because they've got internal problems right now.
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  Speaker 1: You know, just the opposite of what some people are
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  Speaker 1: saying about China doing manipulations or eating our launchers things
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  Speaker 1: like that. That's that's just simply not true. At the moment.
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  Speaker 1: China is having a tough time just staying study. In fact,
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  Speaker 1: they have to support their currency because it would fall
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  Speaker 1: um much more if they didn't. So it's not I
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  Speaker 1: wouldn't say it's in good shape at all. Well, you know,
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  Speaker 1: quite apart from the economic fundamentals and and the political leadership.
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  Speaker 1: There's a question of the markets in China and there's
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  Speaker 1: structure as somebody who who revolutionized financial markets in the
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  Speaker 1: US and around the world. What what is what is
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  Speaker 1: China's big challenge now? What where are they and where
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  Speaker 1: do they need to go next to really have mature, open,
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  Speaker 1: you know, internationally powerful markets. That's a hard it's a
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  Speaker 1: hard answer, the hard question to answer. You know, you've
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  Speaker 1: got to understand that what they want to do is
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  Speaker 1: to become a consuming society because they grew out of
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  Speaker 1: exports and right now their exports, of course have diminished
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  Speaker 1: considerably because the rest of the world UH situation, and
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  Speaker 1: so what they've been trying to do is change from
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  Speaker 1: an exports society to a consumption society. That's not easy
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  Speaker 1: to do at any time because we're talking about a
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  Speaker 1: you know, a huge, huge population. So um, it's hard
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  Speaker 1: at any time, but harder yet during the time when
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  Speaker 1: the conditions in the world are not that good. Now overall,
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  Speaker 1: China has done miraculously well. We all understand that in
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  Speaker 1: the past thirty years that their their ability to bring
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  Speaker 1: out um their nation from poverty and from UH really
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  Speaker 1: truly difficult UH economic world, to a competitor in the world,
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  Speaker 1: to someone to a nation that is second to the
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  Speaker 1: United States. So you can't deny that they are capable people,
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  Speaker 1: and they are capable and they have capable leadership. But
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  Speaker 1: you know when when a totalitarian type government uh that
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  Speaker 1: can how how distance the rest of the world with
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  Speaker 1: quick decisions and so forth, is a good thing at times,
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  Speaker 1: but when it continues to do that and doesn't know
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  Speaker 1: when to stop, it hasn't got the the kind of
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  Speaker 1: um maysayers only disputing their their plan um. They don't
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  Speaker 1: know how to stop, and that's their problem that they're
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  Speaker 1: still continuing to throw money into um operations and buildings
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  Speaker 1: that cities that are goose cities and so forth, major problems.
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  Speaker 1: Do you see potential for another financial crisis? Japan can't okay?
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  Speaker 1: Where how what do what do you see? Well? I
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  Speaker 1: just see that that nation. You know, you're dealing with
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  Speaker 1: negative interest rates. It's it's unheard of, it's not it's
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  Speaker 1: not the kind of thing that's going to work, and
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  Speaker 1: it isn't working. You've got Japan, um what they've been
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  Speaker 1: in a depression now for twenty five years, and they
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  Speaker 1: can't seem to get out of it. It's getting worse.
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  Speaker 1: Europe maybe it's in a little better shape than Japan,
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  Speaker 1: but it isn't that much better. And they've got internal problems.
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  Speaker 1: You've got Greece, and you've got Italy, and now you
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  Speaker 1: have even the the Brexit situation and the British people, Um,
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  Speaker 1: you know, one can't even blame them if they say
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  Speaker 1: we don't want to be part of that. So all
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  Speaker 1: of this is a condition that does not call for
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  Speaker 1: a great rebound. I think I don't know that we'll
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  Speaker 1: go back into a recession, but we're certainly not going
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  Speaker 1: to be in a growth mode either. Final question before
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  Speaker 1: I let you go, what indicator is there one thing
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  Speaker 1: people should be watching closely as as that sign media
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  Speaker 1: that that's where we're heading. I really, I really think
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  Speaker 1: the corporate spending has to pick up and and if
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  Speaker 1: you saw that happen, but to do that, you need
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  Speaker 1: a tech tax structure that is much more um, much
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  Speaker 1: more invitive of of corporate spending. So um, I really,
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  Speaker 1: I really think that we have to have some fiscal changes.
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  Speaker 1: Leo Malama, thank you so very much for joining us.
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  Speaker 1: He is concerned about financial excesses in China. He's concerned
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  Speaker 1: about negative interest rate into and not working. Says there
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  Speaker 1: is potential for a financial crisis and he's hoping that
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  Speaker 1: maybe some fiscal steps could be taken to get corporate
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  Speaker 1: spending going again. This is taking Stock. I'm Kathleen Hayes,
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  Speaker 1: and this is Bloomberg Radio. H