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Danny Blanchflower on Global Markets: A Shock Is Coming (Audio) · Bloomberg Intelligence

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  Speaker 1: Global business news twenty four hours a day at Bloomberg
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  Speaker 1: This is a Bloomberg Business flag from Bloomberg World Handquarters.
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  Speaker 1: I'm Charlie Howett. Stocks are slipping from records, the DAL,
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  Speaker 1: the SMP, NASTAC all declining this Thursday after European Central
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  Speaker 1: Bank President Mario Draggy downplayed the need for more stimulus
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  Speaker 1: measures to bolster growth. The SMP five hundred index down
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  Speaker 1: six now to one seventy nine, a drop of three
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  Speaker 1: tenths of one percent. Nastack is down six tenths of
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  Speaker 1: one percent, down twenty nine points, fifty two fifty four
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  Speaker 1: right now on NASDAC down industriels down sixty one points,
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  Speaker 1: a drop there of three tenths of one percent. The
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  Speaker 1: Tenure down twenty two thirty seconds yield one point six
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  Speaker 1: one percent, Gold down eighty ounce the thirteen thirty seven
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  Speaker 1: and drop also of six tenths of one percent, and
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  Speaker 1: crude oil surging after the inventories report a four point
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  Speaker 1: six percent. Now West Texas Intermediate rallying to a barrel
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  Speaker 1: sixty one right now on w T I I'm Charlie Peloton.
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  Speaker 1: That's a bloom Bird business flash. You're listening to Taking
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  Speaker 1: Stock with Bim Box and Kathleen Hayes on Bluebird Radio.
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  Speaker 1: As Charlie Peller just said, the European Central Bank leaving
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  Speaker 1: all of its key interest rates unchanged, holding off on
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  Speaker 1: shifting its main policy levers, even as inflation in the
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  Speaker 1: nineteen country currency block remains stubbornly low. Here to tell
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  Speaker 1: us more is Danny blanch Flower. He's professor of economics
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  Speaker 1: at Dartmouth College and he can be followed on Twitter
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  Speaker 1: at d underscore blanch Flower. Danny blanch Flower, thanks for
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  Speaker 1: being with us. Sure, well, go ahead. Yeah, they didn't
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  Speaker 1: really do anything. And the surprise is that, Um, Actually,
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  Speaker 1: if your job is to get inflation back to target
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  Speaker 1: and you forecast that over the time coming that you're
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  Speaker 1: not going to be able to get it to target,
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  Speaker 1: the obvious response ort to be that you should do something. Um.
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  Speaker 1: So that doesn't really hang together. But I guess the
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  Speaker 1: answer has to be later. Later more will be coming, um,
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  Speaker 1: as they decide whether they can go more negative and
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  Speaker 1: what else it is that they can buy, given they've
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  Speaker 1: been buying everything that's out there. Well, I was going
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  Speaker 1: to ask you that if you are not capable of
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  Speaker 1: not you personally, but if you're running something and it
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  Speaker 1: doesn't work for twenty four months, you know you have
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  Speaker 1: an inflation forecast. Is there a possibility maybe someone else
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  Speaker 1: with a different idea might be a good bet. Well, right,
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  Speaker 1: I mean you know that. I mean, how can that
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  Speaker 1: does not apply to central bankers? Well, they can only
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  Speaker 1: do what they can do, I guess. I mean the
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  Speaker 1: problem for central bankers is that, um, they have fiscal
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  Speaker 1: authorities as well that should try and be and help
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  Speaker 1: them out. But they've all been a well for a
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  Speaker 1: really long time since they discovered Kane for nine months
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  Speaker 1: in two than nine. Hence why you've seen authorities around
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  Speaker 1: the world saying, um, you need to see the fiscal
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  Speaker 1: authorities cutting taxes, putting in stimulus. Um, that's that's kind
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  Speaker 1: of where we are. The central bank has not got
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  Speaker 1: that much firepower sitting at the zero lower bound, and
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  Speaker 1: obviously the worry is that you would like rates to
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  Speaker 1: be up high so when the shock that inevitably comes
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  Speaker 1: hits you, you can cut rates, and obviously you can
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  Speaker 1: so I think in a way the u CB is
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  Speaker 1: looking at what additional things can it do, particularly with
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  Speaker 1: the Brexit shock. That's clearly we don't have bigger shock
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  Speaker 1: it is, but it clearly represents a negative shock to
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  Speaker 1: the euro Area and to the UK. So so essentially
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  Speaker 1: drug has made it clear shocks are to the downs
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  Speaker 1: that there's limited things that they can do, and what
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  Speaker 1: do you do? Unemployments only ten per cent and inflation
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  Speaker 1: is point two. But if that's as good as it
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  Speaker 1: gets after eight years of recession, you're right, you maybe
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  Speaker 1: should look at what the heck is going on? Well,
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  Speaker 1: what would you suggest, is there anything that would be
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  Speaker 1: an alternative to economic stimulus that comes from governments because
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  Speaker 1: they seem to be recalcitrant and making they are recalcitrant.
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  Speaker 1: I mean, in some sense, what we've learned is that
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  Speaker 1: this is simply not enough. We are clearly in um
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  Speaker 1: some some degree of a stagnation. We have not gone
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  Speaker 1: back to pre two thousand and eight levels. But look
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  Speaker 1: back at Japan. We worried about the Japanese lost decade.
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  Speaker 1: Well we're eight years into that lost decade in the UK,
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  Speaker 1: the US and Europe. But let's still be aware that
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  Speaker 1: there are many countries in your two countries, especially in Europe,
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  Speaker 1: with unemployment rates above Spain and Greece. And I'm just
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  Speaker 1: looking at the graph here of inflation rates in July
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  Speaker 1: sixteen account twelve twelve EU countries Bulgaria, Croatia, Slovenia, Spain, Netherlands,
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  Speaker 1: Poland cycles and so it goes on. In Italy, all
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  Speaker 1: still in deflation. So the answer is you're right, this
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  Speaker 1: is eight years in and it's failed. Time to do
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  Speaker 1: something different, but nothing different is really on the table.
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  Speaker 1: So there's no obvious way out, and there's a shot coming,
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  Speaker 1: a shock that would do what to the system. Well,
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  Speaker 1: I mean, let's just think about I'm not saying there's
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  Speaker 1: a shot coming tomorrow, but there is a thing called
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  Speaker 1: the business cycle, and these the hasn't been repealed, right, No,
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  Speaker 1: it's not been repealed. Just just checking, just checking the
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  Speaker 1: last time I looked at having well, because I just
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  Speaker 1: just to give you the sorry for the your side,
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  Speaker 1: but you know THEO Dragi said today, for the time being,
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  Speaker 1: the changes are not substantial enough to warrant a change
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  Speaker 1: in policy. There is no question about the will to
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  Speaker 1: act or the ability to do so. I understand that.
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  Speaker 1: But I'm looking at point to a forecast, the point
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  Speaker 1: inflation for sixteen one point six in seventeen, which looks unlikely,
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  Speaker 1: and one at seven I think it is in in
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  Speaker 1: in eighteen UM, and go back to the unemployment rate
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  Speaker 1: of ten per cent. So this is great news, I
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  Speaker 1: suspect not um. I mean, that's obviously a considerable worry.
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  Speaker 1: You can go to the Euros that website and you
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  Speaker 1: can look at these unemployment rates and we're looking at
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  Speaker 1: you know, eleven points eleven points six in Italy, um
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  Speaker 1: nine point nine in France, nineteen point nine in Spain,
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  Speaker 1: twenty three point three in Greece, and then we're celebrating. Stand,
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  Speaker 1: there's not much that we can do. Um. Not good,
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  Speaker 1: all right, not good. Let's but let's say you get
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  Speaker 1: the call from the Angela Merkel and she says, you know,
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  Speaker 1: Danny Blanche Flower, You've got experience. You're on the policy
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  Speaker 1: making committee of the Bank of England. You're also a
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  Speaker 1: professor of economics at dartmin And you get one wish.
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  Speaker 1: What would you wish that the European Central Bank would
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  Speaker 1: do or that my government should do? Well? Your government
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  Speaker 1: should start to do a very large fiscal stimulus. Go
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  Speaker 1: and start to think about a trillion euros to start with.
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  Speaker 1: Investing in the infrastructure and capital investment and so on
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  Speaker 1: to help out the e c B. This is obviously
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  Speaker 1: where we have to go. They've been reluctant to do that.
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  Speaker 1: I mean, the worry came in a way, is that
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  Speaker 1: if you can think back to the thirties, what caused
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  Speaker 1: the Great Depression to go away? The answer was a
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  Speaker 1: huge fiscal expansion in preparation or in actuality of a war.
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  Speaker 1: That's what got the Great Depression over with a huge
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  Speaker 1: fiscal expansion. Well, we'll have to wait and see whether
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  Speaker 1: the Germans are willing to spend the money to help Europe.
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  Speaker 1: Thanks very much, Danny Blancheflower, Professor Economics, Dartmouth College. This
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