Latest / Stephanomics / Ray Dalio and Lawrence Summers Keep Sounding the Inflation Alarm

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Ray Dalio and Lawrence Summers Keep Sounding the Inflation Alarm · Stephanomics

• 0:05
  Speaker 1: Hello, and welcome to Stephonomics, the podcast that brings the
• 0:08
  Speaker 1: global economy to you. We have a special episode this
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  Speaker 1: week devoted to a conversation I had recently as part
• 0:13
  Speaker 1: of the Catre Economic Forum. The topic was restructuring the
• 0:17
  Speaker 1: global economy, and the speakers were two men whose views
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  Speaker 1: always attract a lot of attention. Ray Dalio is the
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  Speaker 1: co chief investment officer of Bridgewater Associates, the world's biggest
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  Speaker 1: hedge fund, which he founded in He's a multi billionaire
• 0:32
  Speaker 1: who also became a best selling author recently when he
• 0:35
  Speaker 1: put his philosophy for life and Work into a book.
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  Speaker 1: Larry Summers is well known to listeners of Stephanomics. His
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  Speaker 1: Harvard economics professor who has also been U S Treasury
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  Speaker 1: Secretary under President Bill Clinton and head of President Obama's
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  Speaker 1: National Economic Council. Larry has been allowed critic of President
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  Speaker 1: biden stimulus programs. Overall, He says the US is now
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  Speaker 1: following the most irresponsible fiscal policies in forty years. Both
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  Speaker 1: he and Ray Daniel have been sending the alarm on
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  Speaker 1: inflation too, So I started by asking about that, Larry.
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  Speaker 1: I mean, we have a former FED chair sitting as
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  Speaker 1: Treasury Sectory Janet Yellen, but that doesn't seem to have
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  Speaker 1: made her more concerned about the inflation that we have
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  Speaker 1: coming down the track, and indeed can already see in
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  Speaker 1: the US and despite that massive fiscal stimulus that's also
• 1:35
  Speaker 1: here and going to continue. Is there something that policymakers
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  Speaker 1: in Washington are missing that you're seeing when you say
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  Speaker 1: we should be worried more about inflation? Arithmetic? I don't
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  Speaker 1: think the arithmetic is terribly difficult. We're looking at an
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  Speaker 1: average GDP GAPP relative to potential GDP of two percent
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  Speaker 1: this year, and we're looking at a fourteen percent of
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  Speaker 1: g d P fiscal stimulus along with massive growth in
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  Speaker 1: the FEDS bound sheet and very low real interest rates. Arithmetic.
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  Speaker 1: We're looking at UH labor shortages as measured by job
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  Speaker 1: openings or is measured by workers comfort and quitting at
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  Speaker 1: record UH levels. Arithmetic, We're looking at a current rate
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  Speaker 1: of inflation that, if you look at the last two
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  Speaker 1: or three months, is running close to eight percent. Now,
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  Speaker 1: no one thinks that that's the new guilty and rate
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  Speaker 1: of inflation, So of course there's transient inflation. The important
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  Speaker 1: question is whether that is six percentage points of transcence
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  Speaker 1: inflation or four percentage points of trans scient inflation, and
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  Speaker 1: I don't see the basis for policy makers serenity that
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  Speaker 1: it's a full six percent of transient inflation. I welcomed
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  Speaker 1: the feds limited efforts to markets used towards UH reality
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  Speaker 1: and growing awareness that this overheating is likely to necessitate
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  Speaker 1: a monetary policy response. But I still think the reality
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  Speaker 1: of overheating, just if you look at the most basic
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  Speaker 1: UH numbers, is UH being overestimated. The prevailing forecasts that
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  Speaker 1: the FED in the Lighthouse, indeed, in much of the
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  Speaker 1: consensus of professional economic forecasters in February, was that we
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  Speaker 1: would have inflation just above two percent this year. We've
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  Speaker 1: already had more inflation than that in the first five
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  Speaker 1: months of the year. That would suggest to me that
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  Speaker 1: people should not just modify their forecasts, but should think
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  Speaker 1: about what their errors are thinking were that led them
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  Speaker 1: to be so far off in their forecasts. Ray we
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  Speaker 1: had therefore from Larry the economists, indeed, that the mathematicians
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  Speaker 1: response to the situation. I mean, as an investor, we've
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  Speaker 1: seen that pivot of some of some kind by the
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  Speaker 1: FED last week, quite calm market reaction but should market
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  Speaker 1: should investors generally be taking this threat a lot more seriously?
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  Speaker 1: There are different kinds of inflation. UM. I'm not particularly
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  Speaker 1: worried about the classic supply uh, you know, demand pressing
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  Speaker 1: up against supply, although we'll find out soon because there's
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  Speaker 1: something like ten pc of g d P s stored
• 5:00
  Speaker 1: in financial assets that's going to be coming out, and
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  Speaker 1: so it's likely that there's going to be a big
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  Speaker 1: pickup in demand and that will probably raise prices uh significantly.
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  Speaker 1: And it also depends how you count for inflation, because
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  Speaker 1: like housing prices, housing prices themselves are going up a lot,
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  Speaker 1: that rental prices to going down a lot, And if
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  Speaker 1: you went to a three percent inflation rate or some bounds,
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  Speaker 1: you know that that's not one of those things that
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  Speaker 1: gets me very nervous or very excited. The real issue
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  Speaker 1: is that we have a supply demand issue of bonds,
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  Speaker 1: because we're going to have to sell a lot of
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  Speaker 1: bonds to those um in the world who own bond
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  Speaker 1: inventories and they have very low interest rates, negative real
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  Speaker 1: interest rates, and they're overweighted in US bonds and they're
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  Speaker 1: gonna have to buy a lot more. And that is
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  Speaker 1: also coming at a time when Chinese capital markets are
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  Speaker 1: the capital markets of kindy more attractive. That creates a
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  Speaker 1: supplied demand issue that can create a monetary inflation, because um,
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  Speaker 1: there will not be enough demand to buy those bonds,
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  Speaker 1: and that means that it's likely that the Federal Reserve
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  Speaker 1: will not be able to taper or cut back and
• 6:19
  Speaker 1: might actually have to increase to prevent interest rates from
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  Speaker 1: going up. And that's a classic monetary inflation. So that's
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  Speaker 1: my bigger concern, um than just the spirit all right,
• 6:31
  Speaker 1: how much would you say this is a global issue,
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  Speaker 1: not just something that's related to US fiscal policy. For example, Look,
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  Speaker 1: I would say we're driving our car at a hundred
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  Speaker 1: miles an hour on a road that is empty right
• 6:50
  Speaker 1: now but will always be empty. And I don't know
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  Speaker 1: what form the accident will come, but when you're driving
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  Speaker 1: a hundred miles an hour, it's probably not actually the
• 7:01
  Speaker 1: fastest way to get where you're going, because you're likely
• 7:04
  Speaker 1: to have some kind of dislocation, whether that comes in
• 7:09
  Speaker 1: product and labor markets, whether that comes in spiking of
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  Speaker 1: interest rates, whether that comes first in a decline in uh,
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  Speaker 1: the value of the dollar. I don't presume to be
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  Speaker 1: able to predict, but that we're on a problematic course
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  Speaker 1: where anything can happen and none of us can predict
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  Speaker 1: markets precisely, but where the balance of risks is very
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  Speaker 1: very much on the too much liquidity overheating side. Seems
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  Speaker 1: to me to be relatively clear. I think these tendencies
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  Speaker 1: are present in many places, but I think they're by
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  Speaker 1: far more pronounced in the United States UH than they
• 8:00
  Speaker 1: are in UH the rest of the world. UM. It's
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  Speaker 1: not that extraordinarily low interest rates are unique. It's not
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  Speaker 1: that extraordinarily big budget deficits are unique. It's that having
• 8:15
  Speaker 1: them in tandem with an economy that's growing at what
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  Speaker 1: people think I expect will be a double digit rate
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  Speaker 1: this courter and UM, along with an epic degree of
• 8:32
  Speaker 1: labor shortage, that's what he is. UH. It seems to
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  Speaker 1: me the extraordinary feature of UH, of this of this moment.
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  Speaker 1: It would be a very different thing if we were
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  Speaker 1: creating liquidity in an extraordinary way to respond to a
• 8:55
  Speaker 1: major output gap. But to be doing this kind end
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  Speaker 1: of thing in a labor shortage economy seems to me
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  Speaker 1: to be very intensely problem at you mentioned the dollar,
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  Speaker 1: I mean I guess one could see there are different
• 9:21
  Speaker 1: scenarios that come out of this. I mean, the classic
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  Speaker 1: scenario for the US growing faster than everybody else sucking
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  Speaker 1: in a lot of imports would be that actually the
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  Speaker 1: dollar could rise and export problems for the rest of
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  Speaker 1: the world that way. But I know, but Ray, you
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  Speaker 1: just mentioned that you potentially see the dollar heading down.
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  Speaker 1: So is this is there a fundamental threat to the
• 9:41
  Speaker 1: dollar that comes out of this? Yes, the way I mean,
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  Speaker 1: I'm just dealing with the mechanics. You know. The way
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  Speaker 1: it works is you sell a lot of bonds. So
• 9:51
  Speaker 1: now who do you sell the bonds to? And when
• 9:54
  Speaker 1: I look around and calculating warms the bonds and what
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  Speaker 1: they have to buy, and what the incentives of buying, uh,
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  Speaker 1: they're they're bad. And in fact, you can see dollar
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  Speaker 1: selling of bonds. What that means is then the Federal
• 10:10
  Speaker 1: Reserve is in a position of either seeing rates rise
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  Speaker 1: because there's not enough demand to meet that in fact,
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  Speaker 1: that they start selling it would be a very bad situation,
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  Speaker 1: and that they can't let that happen because that would
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  Speaker 1: be very bad for the economy and markets and all
• 10:28
  Speaker 1: sorts of things. So we have to keep in mind.
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  Speaker 1: Where we are, we're at the end of a long
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  Speaker 1: term debt cycle, and that means that the Federal Reserve
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  Speaker 1: will have to do what they did last time, which
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  Speaker 1: is to buy a lot more to prevent the interest
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  Speaker 1: rates from going up. That's very non cyclical. It's one
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  Speaker 1: of those cases where you know, in reserve currencies it's
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  Speaker 1: a it's a very dangerous thing. Now you compare that
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  Speaker 1: with alternatives, um first best alternatives or other asset classes,
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  Speaker 1: but all so, let's say China, for example. I think
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  Speaker 1: the situation that we're in is quite similar to the
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  Speaker 1: going from the late seven late sixties into the early
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  Speaker 1: seventies when there was a different core inflation rate in
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  Speaker 1: the United States versus Germany and Japan. It's different balance
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  Speaker 1: of payments situation. We're in a basically a balance of
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  Speaker 1: payments deficit. They're in a balance of payments surf bus position.
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  Speaker 1: That means that they chronologically worried about important inflation and
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  Speaker 1: there's favorable capital flows. So I think that that's negative
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  Speaker 1: for the dollar, particularly against Asian currencies. I have uh
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  Speaker 1: raised instincts, but considerable agnosticism on timing. There are classic
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  Speaker 1: periods in the early nineties is the one that comes
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  Speaker 1: to mind where large budget deficits, it's spurred growth, sucked
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  Speaker 1: in capital, and we're associated with an appreciation of UH
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  Speaker 1: the dollar. So I'm not sure of timing here, but
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  Speaker 1: I think al and I'm not as confident as Ray
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  Speaker 1: as UH in the long term attractiveness of Chinese UH
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  Speaker 1: capital markets and indeed of foreign UH capital markets UH
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  Speaker 1: to the dollar, but I think the risks are substantial.
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  Speaker 1: And one of the things that I hear people say
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  Speaker 1: it seems most bizarre to me is they say, now
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  Speaker 1: you don't understand UM now or in an era of globalization,
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  Speaker 1: and so the inflation process is much stickier, or we
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  Speaker 1: can't get rapid inflation because of globalization. I think the opposite.
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  Speaker 1: Because of globalization, we are much more like a small
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  Speaker 1: country than we used to be, and that means that
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  Speaker 1: the dollar gets into trouble, which it easily could, that
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  Speaker 1: the pass through the inflation is going to be more
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  Speaker 1: rapid than it would have been UH decades decades ago.
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  Speaker 1: So I basically share the kind of concern UH that
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  Speaker 1: uh Ray is expressing, just with a bit more uncertainty
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  Speaker 1: about timing. And I guess i'd add one more thing, Uh, Stephanie,
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  Speaker 1: and I think it's kind of an important UH point,
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  Speaker 1: and it's simplicit in something that Ray said. The really
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  Speaker 1: hard monetary policy challenges are not actually moments like the
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  Speaker 1: period after leaving or the period a year ago this spray,
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  Speaker 1: when there's massive illiquidity and markets are breaking down and
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  Speaker 1: it's entirely obvious the direction that policy should move. You
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  Speaker 1: need to provide liquidity, and the questions have to do without.
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  Speaker 1: The really hard monetary policy dilemmas are when it's not
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  Speaker 1: clear which way to go, when on the one hand
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  Speaker 1: you have a falling currency and an excess supply of bonds,
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  Speaker 1: and on the other hand you have a weakening UH
• 14:27
  Speaker 1: economy and rising UH inequality and the fear of procession,
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  Speaker 1: and you don't know whether you're um cutting rates to
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  Speaker 1: respond to the latter problem we're doing tightening things to
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  Speaker 1: respond to the former problem. Those are the really difficult
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  Speaker 1: moments in monetary policy where even the direction is not
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  Speaker 1: entirely clear, And my fear is that we're setting ourselves
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  Speaker 1: up for such a moment. I think that the fact
• 14:59
  Speaker 1: that will you that they are actively looking to have
• 15:02
  Speaker 1: that overshoot an inflation the change of approach in terms
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  Speaker 1: of the average inflation model in order to sort of
• 15:09
  Speaker 1: reset the system and indeed get that wage growth through
• 15:12
  Speaker 1: to parts of the economy that perhaps have not seen
• 15:15
  Speaker 1: it over the last few years, and that that could
• 15:17
  Speaker 1: be more politically sustainable long term. So so rad do
• 15:23
  Speaker 1: you see that that that is an argument that the
• 15:25
  Speaker 1: FED could make that it's worth some short term risk
• 15:30
  Speaker 1: to achieve that more sustainable outcome. As as I mentioned, UM,
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  Speaker 1: I think if you see break even inflation rates goal
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  Speaker 1: above three percent or something like that, and you see
• 15:41
  Speaker 1: that spurit, then you have the dilemma of the timing
• 15:43
  Speaker 1: of the monetary policy. As I said, I'm not particularly
• 15:48
  Speaker 1: worried about that particular inflation, but the other things that
• 15:51
  Speaker 1: worry about there um the whole shift um in terms
• 15:56
  Speaker 1: of the quantity of debt money that's being produced. It
• 16:00
  Speaker 1: goes into great bubbles, creates an enormous amount of liquidity
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  Speaker 1: UM and that I think will be manifest by either
• 16:07
  Speaker 1: a rate rice tracing inflation or or dollar decline. And
• 16:13
  Speaker 1: I think then we also have to deal with the
• 16:15
  Speaker 1: changes in um uh, the political situation, the wealth gap situation.
• 16:20
  Speaker 1: The wealth with the wealth gap is the left right question. Um,
• 16:26
  Speaker 1: there's a lot of conflict in terms of left right politics.
• 16:30
  Speaker 1: There's there's a big move pretty much probably two more
• 16:34
  Speaker 1: left politics, believing that there's not enough fair share of
• 16:38
  Speaker 1: incomes and so on, and those great structural changes that
• 16:43
  Speaker 1: will have um um effects. The amount of money which
• 16:48
  Speaker 1: is has gone to profits has increased from about six
• 16:52
  Speaker 1: percent of revenue to about of revenue, and that's decreased
• 16:57
  Speaker 1: the share that's gone to incomes. Those things could be
• 17:00
  Speaker 1: structural changes that shift the wealth and income. I think
• 17:05
  Speaker 1: there we're here to those that are going to be
• 17:08
  Speaker 1: more beneficial let's say, two workers, than to um capitalists.
• 17:13
  Speaker 1: I think in general that's a particularly a US issue.
• 17:17
  Speaker 1: It is a European issue too, although it's a world issue,
• 17:20
  Speaker 1: but it differs around the world. So um, I think
• 17:22
  Speaker 1: those are the bigger issues. That and the rise of
• 17:25
  Speaker 1: China and what the rise of China means, those that
• 17:28
  Speaker 1: I think are the bigger issues. Larry, I mean the
• 17:32
  Speaker 1: global when you say the globalization as an interesting point
• 17:35
  Speaker 1: about with US becoming more like a single a single
• 17:38
  Speaker 1: country responding to things. But one could argue that the
• 17:41
  Speaker 1: things that globalization was associated structurally with falling inflation for
• 17:45
  Speaker 1: a long time at a period where you also have
• 17:48
  Speaker 1: central banks focusing more on inflation, and you have this
• 17:51
  Speaker 1: sort of shift em bargaining power away from workers. If
• 17:55
  Speaker 1: all of those things are going into reverse, Um, that
• 17:59
  Speaker 1: is potentially more inflationary, but also a better world for
• 18:03
  Speaker 1: for workers, or a more inclusive world, more sustainable politically.
• 18:09
  Speaker 1: Let me let me take your question a moment ago
• 18:12
  Speaker 1: and then and then come to that, stefanitiely Um. Look,
• 18:16
  Speaker 1: I think the arguments about average inflation targeting and so forth,
• 18:20
  Speaker 1: they kind of have their have their place. But I
• 18:24
  Speaker 1: think we need to recognize when you declare victor when
• 18:29
  Speaker 1: we've got a record labor shortage effect, probably shouldn't be
• 18:34
  Speaker 1: obsessing about making sure that their opportunities available. When we've
• 18:42
  Speaker 1: now got average inflation over the last two or three
• 18:45
  Speaker 1: years up to two, we don't have the problem of
• 18:50
  Speaker 1: meeting more inflation in order to get to some kind
• 18:53
  Speaker 1: of uh level of average. So I just think we
• 18:59
  Speaker 1: need to recognize the new reality is very different from
• 19:04
  Speaker 1: the secular stagnation reality of two years ago. Look, I
• 19:08
  Speaker 1: am all for a strengthening on a variety of dimensions
• 19:13
  Speaker 1: at the hand of workers. I think we need to
• 19:16
  Speaker 1: raise the wage. I think we need to re empower
• 19:20
  Speaker 1: the ability to organize unions. I think that you can't
• 19:25
  Speaker 1: read the stories about working conditions in Amazon and not
• 19:31
  Speaker 1: think that something should be happening to re balance things.
• 19:38
  Speaker 1: At the same time, I think you have to recognize
• 19:41
  Speaker 1: that doing all of those UH things, he is going
• 19:46
  Speaker 1: to bear on the inflation process. It's gonna bear on
• 19:51
  Speaker 1: what economists call the natural rate of unemployment, and you're
• 19:56
  Speaker 1: going to have it have a set of consequences, and
• 20:00
  Speaker 1: you need to factor those in UH in setting macro
• 20:04
  Speaker 1: economic policy. I mean, we had a moment very much
• 20:09
  Speaker 1: UH like the current moment, coming after a long period
• 20:14
  Speaker 1: of no inflation. We had a government that had very
• 20:18
  Speaker 1: expansive desires for what it was going to do. He
• 20:22
  Speaker 1: had a progressive tide sweeping through the country, changing attitudes
• 20:29
  Speaker 1: on very many fronts. We had that in the nineties sixties,
• 20:35
  Speaker 1: and what we saw was that inflation um rose more
• 20:42
  Speaker 1: rapidly than anybody anticipated. That a right wing tide in
• 20:47
  Speaker 1: politics was ushers in with the success of elections lags
• 20:54
  Speaker 1: of Richard Nixon and UH Ronald Raven and that what
• 21:01
  Speaker 1: happened in the ultimately did not serve the interests of
• 21:07
  Speaker 1: the progressives who supported it, and you saw a big
• 21:11
  Speaker 1: upsurge with the way in which the United States went
• 21:15
  Speaker 1: off gold and imposed tariffs universally fifty years ago UH
• 21:21
  Speaker 1: this summer, so a return to UH that does not
• 21:28
  Speaker 1: seem to me to be what we should be targeted.
• 21:34
  Speaker 1: I think Larry and I agree that this is looking
• 21:37
  Speaker 1: more like the late sixties UM transitioning to the early
• 21:41
  Speaker 1: seventies UM, and that has implications for the balance payments
• 21:45
  Speaker 1: and the dollars, so we've covered that UM. I'm more
• 21:48
  Speaker 1: worried about the inflation in UH financial assets and what
• 21:54
  Speaker 1: that means for returns and bubbles that are developing, because
• 21:58
  Speaker 1: there's a massive amount of liquidity around and it's being
• 22:01
  Speaker 1: thrown around so that it's a difficult environment for those
• 22:06
  Speaker 1: returns to be justified. I think we're building kind of
• 22:10
  Speaker 1: a bubble. So I think inflation in financial assets and
• 22:16
  Speaker 1: so on is UM is an issue related to liquidity
• 22:20
  Speaker 1: anyway you think about it. What's happened is the net
• 22:23
  Speaker 1: worth of UM of of Americans and most people and
• 22:30
  Speaker 1: developed countries is higher than it's ever been. I mean,
• 22:33
  Speaker 1: all of a sudden, it was a big boost the
• 22:35
  Speaker 1: net income, yet production isn't. So what you've seen is
• 22:41
  Speaker 1: a lot of people got a lot of money which
• 22:44
  Speaker 1: they're still holding, and they put it into the stock
• 22:48
  Speaker 1: market everything and interest rates go down and they borrow,
• 22:52
  Speaker 1: and that is a dynamic that creates a bubble. And
• 22:57
  Speaker 1: that's what I would say is the main the main issue.
• 23:01
  Speaker 1: Let me just say that there's some division of labor
• 23:03
  Speaker 1: on this panel, and Ray has talked more about financial assets,
• 23:08
  Speaker 1: but I share his UH concern about asset price inflation,
• 23:15
  Speaker 1: and I would say the idea that lower returns have
• 23:19
  Speaker 1: led to higher asset prices, and of course, while that
• 23:23
  Speaker 1: transition is taking place, everybody's enjoying wonderful capital gains. There's
• 23:29
  Speaker 1: been a tendency for people like me and Ray to
• 23:33
  Speaker 1: warn for some years now that long term returns are
• 23:39
  Speaker 1: going to be lower on assets. And we've been saying
• 23:43
  Speaker 1: that for some years, and people who've been in asset
• 23:45
  Speaker 1: markets have done very very well because even lower UH,
• 23:52
  Speaker 1: even higher capitalization ratios, price earnings ratios, asset price to
• 23:57
  Speaker 1: rent ratios have been taken. And I suppose some people
• 24:02
  Speaker 1: are probably concluding that the warnings are unwarranted as a
• 24:06
  Speaker 1: consequence of that nobody knows for sure, but my feeling
• 24:11
  Speaker 1: would be that the warnings are now even more valid
• 24:16
  Speaker 1: because the conditions precedent there are the basis for the
• 24:19
  Speaker 1: warnings have become even more true with the passage of time.
• 24:24
  Speaker 1: Both of you have you come in it from different perspectives.
• 24:27
  Speaker 1: You may put different shades on it, but you clearly
• 24:29
  Speaker 1: think that there's some potential bumps coming down the road,
• 24:32
  Speaker 1: or risks that we need to be much more concerned about. Larry,
• 24:35
  Speaker 1: I know you wish that that stimulus in the US
• 24:37
  Speaker 1: have been spent on different things at the beginning of
• 24:39
  Speaker 1: the year that might actually support the supply side of
• 24:42
  Speaker 1: the US economy, UM and other things. You know, with
• 24:46
  Speaker 1: the mistakes, if you like, have already been made in
• 24:48
  Speaker 1: your view, But what's the best response, assuming that the
• 24:53
  Speaker 1: FED and indeed other policymakers accept your analysis, what's the
• 24:57
  Speaker 1: most constructive response? Now that wouldn't it self caused a
• 25:00
  Speaker 1: lot of volacility and upset. The necessary responses probably will
• 25:06
  Speaker 1: in the short run cause some volatility and upset. But
• 25:10
  Speaker 1: I'd like to see signals that overheating, liquidity, and bubbles
• 25:17
  Speaker 1: are now seen as major risks facing the American economy,
• 25:22
  Speaker 1: and I'd like to see a program of structural improvement
• 25:27
  Speaker 1: for the supply side that is fully paid for by
• 25:31
  Speaker 1: tax increases as the response, and a reduction in the
• 25:37
  Speaker 1: amount of populist transferring of UH cash to large routs
• 25:47
  Speaker 1: UM in the economy. I think we know that I
• 25:53
  Speaker 1: probably Larry and I agree on just saying it very simply, UM,
• 25:57
  Speaker 1: there's a ton of money around UH, and about your
• 26:00
  Speaker 1: money goes down and how much it goes down relative
• 26:03
  Speaker 1: to goods and services and how much it goes down
• 26:05
  Speaker 1: to financial assets. It's going to go down to both,
• 26:08
  Speaker 1: and that really raises financial assets and it changes capital
• 26:12
  Speaker 1: flows in important ways. I think that it's easy to
• 26:17
  Speaker 1: say that the fit should tighten, and I think that
• 26:21
  Speaker 1: they should. They put on the brakes in a little bit.
• 26:23
  Speaker 1: But I think you'll see a very sensitive market and
• 26:27
  Speaker 1: a very sensitive economy because the duration of assets has
• 26:31
  Speaker 1: gone very, very long, and just the slightest touching on
• 26:36
  Speaker 1: those brakes has the effect of m hurrying markets because
• 26:42
  Speaker 1: of where they're priced and also UM passing through to
• 26:45
  Speaker 1: the economy. We have to keep in mind since the
• 26:48
  Speaker 1: cyclical peak in every cyclical peak in interest rates and
• 26:53
  Speaker 1: every cyclical drought has gone steadily below the one, but
• 27:00
  Speaker 1: for it until we've had zero, and then every quantitative
• 27:04
  Speaker 1: easy in other words, purchasing of money, buying of money,
• 27:09
  Speaker 1: and purchasing the bonds has been greater than the one
• 27:12
  Speaker 1: before it. That is a debasement of the value of
• 27:16
  Speaker 1: the currency in one way or another. So I think
• 27:20
  Speaker 1: that I think the challenge of the FED is going
• 27:22
  Speaker 1: to be able to balance those in a highly political
• 27:26
  Speaker 1: sensitive environment because of this wealth class class. So it's
• 27:31
  Speaker 1: a difficult position for the FED. I think, well, that's um,
• 27:35
  Speaker 1: that's that's two perspectives we've had on the what what
• 27:37
  Speaker 1: leadership in a post pandemic world looks like? And I
• 27:40
  Speaker 1: know we've we've we've we've focused a lot on this
• 27:42
  Speaker 1: financial piece, but it clearly has huge global implications as
• 27:47
  Speaker 1: well as implications for the path for the US economy
• 27:50
  Speaker 1: is on for the next few years. So thank you
• 27:51
  Speaker 1: very much to both of you. Rate Value and Laurence
• 27:55
  Speaker 1: Summers will appreciate you you're joining us. That's it for
• 28:04
  Speaker 1: this episode of Stephonomics. We'll be back with more reporting
• 28:08
  Speaker 1: on as well as analyzing of the global economy next week,
• 28:12
  Speaker 1: but you can get more in the meantime from the
• 28:14
  Speaker 1: Bloomberg Terminal or website, and by following our Economics on Twitter.
• 28:18
  Speaker 1: This episode was produced by Magnus Hendrickson, with thanks to
• 28:22
  Speaker 1: Ray Dalio, Larry Summerson, and Lisa R. Shamble. Mike Sasso
• 28:27
  Speaker 1: is executive producer of Stephonomics and the head of Bloomberg
• 28:29
  Speaker 1: Podcast is Francesco