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Conversations with the St. Louis Fed (Audio) · Bloomberg Intelligence

• 0:00
  Speaker 1: I'm here because it's the Homer Jones Memorial Lecture, the
• 0:03
  Speaker 1: big event for the St. Louis fed. Homer Jones is
• 0:06
  Speaker 1: noted for the way he took to a whole other
• 0:09
  Speaker 1: level the kind of research that was being done at
• 0:12
  Speaker 1: federalserve banks around the country. Carlos Kariga then in a
• 0:16
  Speaker 1: very important seat here as the director of research, and
• 0:18
  Speaker 1: I'm glad you had some time. It's a big day
• 0:20
  Speaker 1: for the bank. Where's this happy to be here. It's
• 0:23
  Speaker 1: a big day for the bank. And Homer George started
• 0:25
  Speaker 1: about sixty plays years ago what nowadays you know, became FRED,
• 0:29
  Speaker 1: our main data tool. Anybody can come to FRED and
• 0:32
  Speaker 1: look at their data. We have more than a hundred
• 0:34
  Speaker 1: thousand seats. And that started as an innovation thing back
• 0:37
  Speaker 1: in the nineteen sixties by Hommer Johnes. So it's great
• 0:39
  Speaker 1: to honor his memory. Okay, Well, one of your areas
• 0:43
  Speaker 1: of research is housing, the housing market, mortgage rates, how
• 0:47
  Speaker 1: it all feeds through the economy. And given what's going
• 0:49
  Speaker 1: on in the US housing market, I want to start
• 0:52
  Speaker 1: with that. Uh, particularly this this turn in the housing
• 0:55
  Speaker 1: market three on the thirty year fixed roughly up to
• 0:58
  Speaker 1: about seven percent. It feels like it happened in a
• 1:01
  Speaker 1: matter of weeks. It hit the market so hard. When
• 1:03
  Speaker 1: have mortgage rates done this in the past. Is this
• 1:06
  Speaker 1: almost unprecedented? Are we seen something like this? Well, we
• 1:09
  Speaker 1: had hybrid is raised in the past, you don't have
• 1:11
  Speaker 1: to go that far. In nearly two thousands and even
• 1:14
  Speaker 1: in the late nineties we had mortgage rates at digit level.
• 1:16
  Speaker 1: But such a rapid turn in a matter of you know,
• 1:20
  Speaker 1: two quarters, it's kind of unprecedented. We had, you know,
• 1:23
  Speaker 1: a sizeable increase in the early two thousand and five
• 1:26
  Speaker 1: or so, but it has been ratily dramatic. But we
• 1:29
  Speaker 1: also had a very rapid increasing inflation in the second
• 1:32
  Speaker 1: half of one so we have to be mindful about
• 1:35
  Speaker 1: how quick inflation escalated. And I think that's just, you know,
• 1:38
  Speaker 1: the appropriate reaction given how quick inflation moved. Sure well,
• 1:42
  Speaker 1: And one of the axioms in monetary theory people say
• 1:45
  Speaker 1: it over monetary policy has long and variable lags. There
• 1:50
  Speaker 1: was not much of a lag between the way progressive
• 1:54
  Speaker 1: rate hikes, particularly once the FED picked up the pace,
• 1:57
  Speaker 1: and what happened to mortgage rates. Uh As transmission of
• 2:01
  Speaker 1: monetary policy in some fundamental way changed, well, I mean,
• 2:05
  Speaker 1: this is kind of the same from the nineteen sixties
• 2:07
  Speaker 1: and nineteen seventies, and we all understand that the economy
• 2:10
  Speaker 1: is very different fifty years later. We have a much
• 2:12
  Speaker 1: more developed financial market and credit is a key player.
• 2:16
  Speaker 1: So it really transmit to create a sensitive sectors. But
• 2:19
  Speaker 1: non created sensitive sectors are also connected to create sensitive sectors.
• 2:22
  Speaker 1: And really stated a classical example, when we increase rates more,
• 2:26
  Speaker 1: you know, the coastal borrowing goes up, and that reduces
• 2:29
  Speaker 1: the demand for housing. The properties usually stay a bit
• 2:31
  Speaker 1: longer in the market, and there's a lot of purchases
• 2:34
  Speaker 1: that are tied to housing. People that buy a new house,
• 2:36
  Speaker 1: they often buy dotable goods and so on and so forth.
• 2:39
  Speaker 1: So that really connects the housing sector to the rest
• 2:41
  Speaker 1: of the economy. And and so the lacks that would
• 2:44
  Speaker 1: argue have been reduced dramatically, and housing is one of
• 2:46
  Speaker 1: the sectors that is more interconnected to the rest of
• 2:49
  Speaker 1: the economy, not only in terms of the value added,
• 2:51
  Speaker 1: but also in terms of employment. Employment growth in the
• 2:55
  Speaker 1: construction sector also leads employing growth in other sectors in
• 2:57
  Speaker 1: the economy. And that's what we see from looking at
• 2:59
  Speaker 1: deep without put table, and it's very different now than
• 3:02
  Speaker 1: it was, you know, about fifty years ago, so we
• 3:04
  Speaker 1: have to be mindful about that. So being mindful about
• 3:06
  Speaker 1: how it's changed, What does that mean for the economy,
• 3:09
  Speaker 1: What does it mean for UH monetary policy? And I
• 3:13
  Speaker 1: mean central banks broadley. This is just ant happening in
• 3:15
  Speaker 1: in the US with the FED, It's happening with other
• 3:17
  Speaker 1: central banks around the world. It's certainly not unique to
• 3:20
  Speaker 1: the US. And housing markets in essence are similar, but
• 3:25
  Speaker 1: financing markets for housing are very different across countries. We
• 3:29
  Speaker 1: have across the border Canada that has a very different
• 3:32
  Speaker 1: housing finance market, and we see that throughout Europe. So
• 3:35
  Speaker 1: that really changed the transmission mechan is, and that's a
• 3:38
  Speaker 1: key feature of how you know, financial markets are connected
• 3:42
  Speaker 1: with the real economy, and we have to be mindful
• 3:44
  Speaker 1: about how that change the transmission mechan is in terms
• 3:47
  Speaker 1: of the size but also in terms of the speed.
• 3:49
  Speaker 1: A lot of countries now are seeing their hormoners facing
• 3:52
  Speaker 1: sizeable research, whereas in this country the majority of hormoners
• 3:55
  Speaker 1: have fixed laans. So in some sense inflation is really
• 3:58
  Speaker 1: the fleeting the real value their aim, and so transmission
• 4:00
  Speaker 1: is going to be very very different, and we went
• 4:02
  Speaker 1: through a massive refinance emperiod in the last couple of years,
• 4:05
  Speaker 1: so there's a lot of you know, disposable income in
• 4:08
  Speaker 1: the part of the households. And what about mortgage debt
• 4:12
  Speaker 1: and what's difference now from the nineteen seventies, Well, the
• 4:16
  Speaker 1: shadow mortgage they're relative to disposable income in the nineties
• 4:20
  Speaker 1: seventies eighties was substantially lower than what we have right
• 4:23
  Speaker 1: now and now it's what before it was roughly about
• 4:26
  Speaker 1: fifty So that's just a big change in terms of
• 4:29
  Speaker 1: the volume and also in the composition. In the late
• 4:33
  Speaker 1: seventies early eighties, that was when the baby generation was
• 4:35
  Speaker 1: entered in the housing market, so we were expecting a
• 4:38
  Speaker 1: big increase in real estate prices. That didn't happen because
• 4:40
  Speaker 1: of the high inflation. Now we have those households and
• 4:43
  Speaker 1: the tailing of the life cycle and they're in a
• 4:46
  Speaker 1: very different position. And now we have the millenniums getting
• 4:48
  Speaker 1: into the market. Plus the COVID chock really changed a
• 4:50
  Speaker 1: whole lot of things. So how does that feed through
• 4:52
  Speaker 1: now when this central bank, the FED is racing rates
• 4:58
  Speaker 1: rapidly in bigger steps? Is there some risk there with
• 5:03
  Speaker 1: mortgage debt and debt holders, there's no immediate risk or
• 5:09
  Speaker 1: on mortgage debt like what we signed two thousand or seven,
• 5:13
  Speaker 1: what we would expect would be as low adjudgtment correction
• 5:17
  Speaker 1: in the housing market, price adjustment downward. We would see
• 5:21
  Speaker 1: we're already seeing in some areas inventory building up. But
• 5:25
  Speaker 1: we had inventory levels that were a normally low the
• 5:28
  Speaker 1: average historical value somewhere between six to eight months, and
• 5:32
  Speaker 1: we had inventory levels down to two months. So what
• 5:35
  Speaker 1: we would expect, just like what we see in vacancy,
• 5:37
  Speaker 1: is it's just an adjustment of correction to more normal levels. Now,
• 5:40
  Speaker 1: it could be the case that we're in a new
• 5:42
  Speaker 1: norm and may be a bit different from what we
• 5:44
  Speaker 1: see historically, but we're too far from those levels. So
• 5:48
  Speaker 1: another trend in the last few years has been private
• 5:53
  Speaker 1: investors buying up lots of a real estate and not
• 5:58
  Speaker 1: just multiple family dwellings but single family homes. Uh where
• 6:04
  Speaker 1: does that stand now? And what does that mean for
• 6:06
  Speaker 1: home affordability? Because there you can find individuals at oh
• 6:11
  Speaker 1: I couldn't buy the house for what two hundred fifty
• 6:14
  Speaker 1: seven thousand dollars that I thought I could. Now those
• 6:16
  Speaker 1: prices are over four hundred thousand because there's so much
• 6:18
  Speaker 1: demand from private investors. What we're gonna see now is
• 6:22
  Speaker 1: to what extends some of the trend that really started
• 6:24
  Speaker 1: to pick up in two thousand nine two thousand eleven,
• 6:26
  Speaker 1: in which you know, investors moved from equity about market
• 6:30
  Speaker 1: into real estate market could be reversed. These investors, they
• 6:33
  Speaker 1: provide a fair amount of liquidity across the U. S landscape,
• 6:37
  Speaker 1: not only in the big cities and vacation in areas,
• 6:40
  Speaker 1: but throughout looking for yields. And what we're finding is
• 6:43
  Speaker 1: that now it could be a perfect opportunity for them
• 6:46
  Speaker 1: to kind of cash out the capital games that they
• 6:48
  Speaker 1: have a crew pretty much in the last decade. If
• 6:51
  Speaker 1: you bought in two thousand and twelve and you have,
• 6:54
  Speaker 1: you know, had substantial cashuals coming out of certain properties
• 6:57
  Speaker 1: because you were listening them out, now may be a
• 6:58
  Speaker 1: good opportunity for you to kind of liquidate that investment
• 7:01
  Speaker 1: position and move to other markets. And that might be
• 7:04
  Speaker 1: a trend that we may see and that should help
• 7:06
  Speaker 1: to mitigate the affordability crisis. If you bought in two
• 7:09
  Speaker 1: thousand and twelve, you have plenty of it within the property.
• 7:12
  Speaker 1: So even if you see a market correction where prices
• 7:15
  Speaker 1: decline you used to on a pretty good territory, and
• 7:17
  Speaker 1: I would assume not not the hugest part of the
• 7:20
  Speaker 1: business landscape, but in terms of the profitability or how
• 7:26
  Speaker 1: strong they are fundamental, because there's a lot of concerns
• 7:28
  Speaker 1: now about debt that the companies are holding. Uh, it
• 7:32
  Speaker 1: seems that if they if they bought low and are
• 7:34
  Speaker 1: selling high, they're in a position now they should be
• 7:37
  Speaker 1: I would expect. So, I mean, I'm not concerned about
• 7:41
  Speaker 1: that positions at this point. As we were in two
• 7:43
  Speaker 1: thousand and five to two thou seven, that was more
• 7:45
  Speaker 1: of a concern. We had abundant supply coming to the
• 7:48
  Speaker 1: market at a period where you know, inventory was spilling
• 7:50
  Speaker 1: up and prices were decreasing and incomes were at risk.
• 7:54
  Speaker 1: Whatevery different situation with the current lebal market. We're still
• 7:56
  Speaker 1: a lot of mobility. Is a very strong leberal market,
• 7:59
  Speaker 1: one of the ones, the strongest one that we have
• 8:00
  Speaker 1: seen in the last three decades. So that concern coming
• 8:04
  Speaker 1: from the leberal market that ultimately funds those mortgage payments
• 8:07
  Speaker 1: does not seem to be there right now, at least
• 8:09
  Speaker 1: what we can see the near term and the households
• 8:11
  Speaker 1: have plenty of equity and pretty much everybody had to
• 8:14
  Speaker 1: refinance the refinance in the last couple of years to
• 8:16
  Speaker 1: putty a little mortgage rates. So final question, if Homer
• 8:20
  Speaker 1: Jones were here, and he would we're advising you on
• 8:23
  Speaker 1: your your next project when it comes to housing mortgages.
• 8:27
  Speaker 1: This area of the economy US globally is become so important.
• 8:30
  Speaker 1: What would he be advising you to look at? I mean,
• 8:33
  Speaker 1: that's an excellent question. I guess that the challenge going
• 8:36
  Speaker 1: forward is going to be internationalist billovers. How economy is
• 8:40
  Speaker 1: bouncing back from this COVID pandemic, plus the underlying structural
• 8:44
  Speaker 1: the changes are going on in the economy is going
• 8:46
  Speaker 1: to shape everything. We're seeing geo political changes and everything
• 8:51
  Speaker 1: kind of feeds into everything, and that's going to pose
• 8:53
  Speaker 1: interesting challenges. But we do know that, you know, the U.
• 8:56
  Speaker 1: S economy is one of the strongest one globally, and
• 8:58
  Speaker 1: we're seeing that with this frank of the dollar. When
• 9:01
  Speaker 1: things are uncertain, the dollar picks up a lot of
• 9:05
  Speaker 1: the strengths. I would say that we would still maintain
• 9:07
  Speaker 1: that position and and that's kind of good news for us.
• 9:10
  Speaker 1: All Right, Well, Karlov Karriga, thank you so much for
• 9:13
  Speaker 1: joining us today here at the Federatory Bank of St.
• 9:15
  Speaker 1: Louis on this very important Homer Jones Memorial Lecture day.
• 9:18
  Speaker 1: And plus they're always happy to have you equal all right,
• 9:23
  Speaker 1: Paula Matta, having a great time starting the day off
• 9:26
  Speaker 1: with a very interesting conversation, and the course will be
• 9:30
  Speaker 1: continuing throughout the day. I'm very happy to welcome to
• 9:32
  Speaker 1: Bloomberg rade you at the Federal Bank of St. Louis
• 9:36
  Speaker 1: on this very important day when they honor one of
• 9:38
  Speaker 1: the top economists in the country with the Homer Jones
• 9:41
  Speaker 1: Memorial Award and he gives a lecture. Sar prasade As
• 9:44
  Speaker 1: he said, professor of Cornell University, Senior Fellow of Brookings
• 9:47
  Speaker 1: and the author of another new book, The Future of Money,
• 9:51
  Speaker 1: How Digital transfer revolution is transforming currencies and finance. On
• 9:56
  Speaker 1: a busy day for you, Glad you could find the
• 9:57
  Speaker 1: time as well. It's a pleasure, Kathleen. So you've written papers,
• 10:02
  Speaker 1: two books about the dollar, its role in the world.
• 10:04
  Speaker 1: What drew you to cryptocurrencies and all the changes it's
• 10:07
  Speaker 1: it's doing and actually signaling, You know, I hang out
• 10:11
  Speaker 1: with central bankers a lot and a few years ago,
• 10:13
  Speaker 1: questions started arising about what the digital revolution might mean
• 10:18
  Speaker 1: for banking financing, particularly for central banks. So my plan
• 10:22
  Speaker 1: was to think about central bank digital currencies CBDCs and
• 10:25
  Speaker 1: what role they might play in in finance. But it
• 10:28
  Speaker 1: quickly became apparent to me that one needed to think
• 10:30
  Speaker 1: about basic developments taking place in financial markets as a
• 10:33
  Speaker 1: result of technology, which goes under the term fintech. Then
• 10:37
  Speaker 1: to think about cryptocurrencies and what they might mean for finance,
• 10:41
  Speaker 1: and then central bank digital currencies and what it might
• 10:44
  Speaker 1: all mean for the structure of financial markets and institutions,
• 10:48
  Speaker 1: central banking, and indeed the international monetary system, which is
• 10:52
  Speaker 1: why what was meant to be a slim little volume
• 10:54
  Speaker 1: turned into a five page tom I want to jump
• 10:57
  Speaker 1: into that, but I just have to ask you quickly.
• 10:59
  Speaker 1: Were you a little bit horror fight as you saw
• 11:00
  Speaker 1: bitcoin shooting up as high as a cart falling back down,
• 11:04
  Speaker 1: knowing that a lot of small investors who maybe have
• 11:07
  Speaker 1: invested much for getting swept along and maybe a not
• 11:09
  Speaker 1: so good way into this cryptocurrency world. You know, Kathleen,
• 11:13
  Speaker 1: one of the great joys in writing this book was
• 11:16
  Speaker 1: learning about the technology underlying bitcoin, and it's a phenomenal
• 11:19
  Speaker 1: technology if you think about what bitcoin is trying to accomplish,
• 11:22
  Speaker 1: being able to conduct transactions without using a trusted intermediary,
• 11:26
  Speaker 1: without even revealing a digital identity, actual identity, and just
• 11:30
  Speaker 1: using a digital identity, it's phenomenal. But bitcoin was meant
• 11:33
  Speaker 1: to be a medium of exchange. Instead it's become a
• 11:36
  Speaker 1: speculative financial asset, and as you've pointed out, many people
• 11:39
  Speaker 1: seem to have gotten taken in by the razzle dazzle
• 11:42
  Speaker 1: of the new technology, don't understand what risks they're taking on.
• 11:45
  Speaker 1: And if you're a wealthy investor willing to take a
• 11:48
  Speaker 1: roll of the dice, it's one thing. If you're an
• 11:50
  Speaker 1: unsophisticated investor putting a lot of your life savings on
• 11:53
  Speaker 1: the line, that is a buddying proposition. And certainly the
• 11:57
  Speaker 1: bitcoin price alatility has given us a lot to worry about. Well.
• 12:02
  Speaker 1: Central banks concerned about financial stability of decentralized payment systems
• 12:07
  Speaker 1: UH stable coins and how they can displace cash, you know,
• 12:10
  Speaker 1: traditional systems. At the same time, they're moving very slowly, carefully,
• 12:15
  Speaker 1: i might even say reluctantly to develop CBDC central bank
• 12:19
  Speaker 1: Digital coins. Yeah, I think all central banks rightly think
• 12:23
  Speaker 1: about the dangers of stepping in where the private sector
• 12:25
  Speaker 1: could provide services equally well. And there is clearly a
• 12:29
  Speaker 1: need for better payment systems, both domestically between consumers, between
• 12:33
  Speaker 1: consumers and businesses between businesses, and also the international level
• 12:37
  Speaker 1: where there are huge frictions in terms of payments. So
• 12:40
  Speaker 1: when you think about cryptocurrencies like stable coins, they're trying
• 12:44
  Speaker 1: to meet a real need. And of course, in many
• 12:46
  Speaker 1: developing countries and advanced economies around the world, the private
• 12:50
  Speaker 1: sector is doing a great job of providing low cost,
• 12:53
  Speaker 1: easy access digital payments. So the question is what is
• 12:56
  Speaker 1: the value proposition for a CBDC, And I think central
• 12:59
  Speaker 1: banks are rightly concerned that it could lead to some
• 13:02
  Speaker 1: risks of financial instability, disintermediation, the banking system, perhaps private
• 13:08
  Speaker 1: sector innovation in terms of payments being limited, so they're
• 13:11
  Speaker 1: treading very cautiously. But one thing that's clear is that
• 13:14
  Speaker 1: we definitely need better payment systems because after all, that's
• 13:17
  Speaker 1: the key lubricant of any market economy, and if it
• 13:20
  Speaker 1: doesn't work well and efficiently, there are things that could
• 13:23
  Speaker 1: be improved. So how big is the threat of these
• 13:27
  Speaker 1: digital payment systems to commercial banks. From the beginning, it's
• 13:31
  Speaker 1: been Oh, if people don't put their deposits in JP
• 13:34
  Speaker 1: Morgan and Bangup America and other places, that's going to
• 13:37
  Speaker 1: be a problem. So stable coins are an interesting element
• 13:41
  Speaker 1: of this discussion, and of course they could post a
• 13:43
  Speaker 1: threat to banks if they become seen as a deposit
• 13:46
  Speaker 1: taking institutions. Now, the interesting irony of stable coins, of course,
• 13:51
  Speaker 1: is that they completely wciate what Bitcoin was supposed to accomplish,
• 13:55
  Speaker 1: which is a departure from the dependence on fiard currencies.
• 13:58
  Speaker 1: Stable coins get their stable value precisely by being backed
• 14:02
  Speaker 1: up by stores of fiat currencies, but many stable coin
• 14:05
  Speaker 1: issuers do provide interstrates, and there is a concern that
• 14:09
  Speaker 1: if people see stable coins as being more functional in
• 14:13
  Speaker 1: terms of payment mechanisms and perhaps even offering higher interstrates
• 14:16
  Speaker 1: and bank deposits, then you could get a disintermediation of
• 14:19
  Speaker 1: the banking system. You could also have instability in the
• 14:22
  Speaker 1: financial system coming from stable coins themselves. That risk, I
• 14:26
  Speaker 1: think is somewhat mitigated by the fact that stable coins
• 14:29
  Speaker 1: need to be backed up one to one, so they
• 14:31
  Speaker 1: didn't affect narrow banks. It's not a huge threat but
• 14:34
  Speaker 1: there are other risks of the financial system we need
• 14:36
  Speaker 1: to worry about. You know, it's interesting because we look
• 14:38
  Speaker 1: at emerging markets, developing economies and all the advantages they
• 14:41
  Speaker 1: could get from these digital payment systems, stable coins, etcetera.
• 14:46
  Speaker 1: But you see some risks I don't know. I everybody
• 14:48
  Speaker 1: thinks about two emerging markets in this transition. You know,
• 14:52
  Speaker 1: a friction free international payments are a wonderful thing for
• 14:55
  Speaker 1: economic migrants send remittances back to their home countries for
• 14:58
  Speaker 1: small and mediumental prices, trying to access global pools of capital,
• 15:02
  Speaker 1: for investors looking for international portfolio diversification opportunities. But you
• 15:07
  Speaker 1: could have digital versions of the dollar of their in
• 15:10
  Speaker 1: min b being easily available in the future. You could
• 15:13
  Speaker 1: even have stable coins issued by major corporations UM such
• 15:16
  Speaker 1: as Amazon and perhaps one day Meta will provive with
• 15:19
  Speaker 1: stable coin project. These currencies, either private or official, might
• 15:23
  Speaker 1: be trusted more than the currencies issued by non credible
• 15:28
  Speaker 1: central banks UM in small open economies. So there is
• 15:32
  Speaker 1: an existential threat I think to some of these smaller currencies,
• 15:36
  Speaker 1: especially currencies and economies that are mismanaged or where the
• 15:39
  Speaker 1: central banks are not credible, so there's their currency could
• 15:42
  Speaker 1: get tanked. That's right, You could bear a real shakeout
• 15:45
  Speaker 1: because everybody in the country might decide that it's easier
• 15:48
  Speaker 1: to trust the currency issued by one of the major
• 15:51
  Speaker 1: economies or even one of the major corporations, because they
• 15:54
  Speaker 1: have deeper pockets and are more trustworthy than the domestic
• 15:57
  Speaker 1: central banks. So this could be a problem and dollar dominance,
• 16:01
  Speaker 1: I think maybe are some people are sort of hoping
• 16:03
  Speaker 1: that also push the dollar back a bit and their
• 16:05
  Speaker 1: currencies can rise, and that's going to happen. What do
• 16:07
  Speaker 1: you think that is the great hope that perhaps digital
• 16:11
  Speaker 1: technologies will provide a way to displace a dollar in
• 16:14
  Speaker 1: this medium of exchange or store of value function. Perhaps
• 16:18
  Speaker 1: if the digital uan were to be easily available, you
• 16:20
  Speaker 1: could see it getting a little more traction and international payments.
• 16:24
  Speaker 1: But the reality is that people are not going to
• 16:26
  Speaker 1: trust the currency just because it's available in digital form.
• 16:29
  Speaker 1: They care about what lies behind the currency, you know,
• 16:32
  Speaker 1: deep and liquid financial markets, but more importantly, what is
• 16:35
  Speaker 1: necessary to engender the trust of foreign investors and domestic investors.
• 16:40
  Speaker 1: There is an institutional system such as an independent central
• 16:43
  Speaker 1: bank and a system of checks and balances. All of
• 16:47
  Speaker 1: these are really important to inspire the trust of foreign investors.
• 16:50
  Speaker 1: I don't think there is any other economy um that
• 16:53
  Speaker 1: has the financial and economic might the US does and
• 16:56
  Speaker 1: is also backed up by an institutional framework of this sort.
• 17:00
  Speaker 1: So I don't think the dollar is going to be
• 17:01
  Speaker 1: significantly threatened anytime soon. Getting outside the crypto around for
• 17:06
  Speaker 1: a minute, Uh, strong dollar getting stronger all the time.
• 17:10
  Speaker 1: I am a World Bank meetings last week. It's a concern.
• 17:14
  Speaker 1: They say, go ahead, keep doing those rate hikes. But
• 17:19
  Speaker 1: what kind of risk do you see? What are your
• 17:21
  Speaker 1: concerns about this dollar that continues to strengthen. What it
• 17:24
  Speaker 1: means for the rest of the world. Well, it's a
• 17:26
  Speaker 1: sign of two things. One is that the US economy
• 17:28
  Speaker 1: has slightly better prospects, even though not great prospects, relative
• 17:32
  Speaker 1: to the rest of the world. And there is a
• 17:35
  Speaker 1: desire for safety. Right now. There is a great deal
• 17:38
  Speaker 1: of financial and economic termoil around the world, and people
• 17:41
  Speaker 1: still look to the U. S Dollar for safety. So
• 17:44
  Speaker 1: this is a bit of a paradox because a strong
• 17:47
  Speaker 1: dollar helps the U S a little bit of the
• 17:49
  Speaker 1: margin it makes important goes a little cheaper here, but
• 17:52
  Speaker 1: the positive effect is not that large. But for countries
• 17:55
  Speaker 1: around the world whose currency is are depreciating against a dollar,
• 17:58
  Speaker 1: it means more domestic in lationary pressures because lots of
• 18:02
  Speaker 1: international trade is still priced in dollars, so the prices
• 18:05
  Speaker 1: and domestic currencies of those goods go up. The cost
• 18:08
  Speaker 1: of financing debt um that is UH and servicing debt
• 18:12
  Speaker 1: that has been denominated in dollars is very high. So
• 18:14
  Speaker 1: for the rest of the world it's a huge negative.
• 18:17
  Speaker 1: So this asymmetry is a real problem for the world economy.
• 18:20
  Speaker 1: But right now there doesn't seem to be any easy
• 18:22
  Speaker 1: way out of it because the FED has to do
• 18:24
  Speaker 1: what it needs to do because otherwise we could get
• 18:27
  Speaker 1: higher rate hikes and even more economic pain down the road. Now, you,
• 18:32
  Speaker 1: as represent are giving the Homo Jones Memorial lecture today
• 18:35
  Speaker 1: quite an honor. Is there some point you're making in
• 18:39
  Speaker 1: that lecture You can't tell us exactly what you're saying
• 18:41
  Speaker 1: that that we would likely like to leave us with today.
• 18:45
  Speaker 1: I think it's going to be an interesting era of
• 18:47
  Speaker 1: competition in various forms of money um as we just discussed.
• 18:51
  Speaker 1: I think that is going to be competition between privately
• 18:54
  Speaker 1: issued moneies and central bank FIAT currencies in the medium
• 18:57
  Speaker 1: of exchange function even at the international and I can
• 19:00
  Speaker 1: see digital versions of some currencies beginning to, uh, you know,
• 19:04
  Speaker 1: at least compete with the dollar more effectively. So a
• 19:07
  Speaker 1: lot more interesting currency competition, and as an economist, I
• 19:10
  Speaker 1: think competition is a good thing, all right. Thank you
• 19:14
  Speaker 1: for joining us. Professor at Colonel University, senior fellow at
• 19:17
  Speaker 1: the Brookings Institute, and the author of a new book,
• 19:20
  Speaker 1: The Future of Money, How the Digital Revolution is transforming
• 19:24
  Speaker 1: Currencies and Finance. Thank you for joining us today here
• 19:27
  Speaker 1: at the St. Louis fed on Bloomberg Radio. It's been
• 19:29
  Speaker 1: my pleasure. Kathleen