Latest / Trumponomics / Episode 43: What have they done?

Transcript

Episode 43: What have they done? · Trumponomics

• 0:07
  Speaker 1: Hi, and welcome back to Bloomberg Benchmark, a show about
• 0:10
  Speaker 1: the global economy. It's Friday June. I'm Daniel Moss, Executive
• 0:16
  Speaker 1: editor for Global Economics at Bloomberg and New York, and
• 0:19
  Speaker 1: I'm joined on the line from London by my colleague
• 0:23
  Speaker 1: Paul Gordon. Paul is responsible for Western European central banks,
• 0:28
  Speaker 1: the news on the central banks. So Paul, what kind
• 0:32
  Speaker 1: of night have you had? A long one, for certain,
• 0:36
  Speaker 1: I was in at about four o'clock in the morning.
• 0:38
  Speaker 1: I got up about four o'clock morning to get out
• 0:41
  Speaker 1: the hotel and head over to the office and severally
• 0:44
  Speaker 1: bemused handful of people on the street at that time.
• 0:47
  Speaker 1: A little later on, my colleague was down at Canary Wharf,
• 0:49
  Speaker 1: obviously a big financial district in London, and there people
• 0:53
  Speaker 1: were looking at their phones, looking at the headlines. There
• 0:55
  Speaker 1: was a lot of swearing, i can tell you, and
• 0:58
  Speaker 1: a lot of the muse face. And there's a good
• 1:00
  Speaker 1: reason for that, because these are the people who have
• 1:02
  Speaker 1: been hit most of all. Initially, the markets have been plunging,
• 1:05
  Speaker 1: as you're aware, and it is the bankers he may
• 1:08
  Speaker 1: well be fearing for their jobs in some areas following
• 1:10
  Speaker 1: a brexcept and Britain's vote to leave the EU wasn't
• 1:14
  Speaker 1: really even that close, was it. Well, in the end,
• 1:17
  Speaker 1: pretty much cent so no, nowhere near as close as
• 1:22
  Speaker 1: some of the opinion polls had been in the run
• 1:24
  Speaker 1: up to the vote, and nowhere near as close. Quite
• 1:27
  Speaker 1: the reverse in fact of what the first opinion poll
• 1:30
  Speaker 1: said once the polls closed yesterday. So a lot of
• 1:33
  Speaker 1: people went to bed last night thinking, right, the Leave
• 1:36
  Speaker 1: campaign has lost, Remain will win, And when they got
• 1:40
  Speaker 1: up this morning they found it was a very different story.
• 1:43
  Speaker 1: And the country is not just divided on whether to
• 1:46
  Speaker 1: stay or whether to go. The results and where the
• 1:50
  Speaker 1: results have come from indicate a nation divided economically some
• 1:55
  Speaker 1: pretty stark ways. Talk about that, yes, I mean one
• 1:58
  Speaker 1: of the key divisions that you seen is on age.
• 2:01
  Speaker 1: The young have been supporters and the elderly much less.
• 2:04
  Speaker 1: So There's been division on wealth as well, the wealthier
• 2:08
  Speaker 1: people have wanted to stay and the poorer have not.
• 2:11
  Speaker 1: And also geographically, with the North in many cases voting
• 2:14
  Speaker 1: out and the South and particularly London voting in the
• 2:18
  Speaker 1: other exceptions there are though, that Scotland and Northern Ireland
• 2:21
  Speaker 1: voted to stay, and that does make the question of
• 2:25
  Speaker 1: the UK that union three year old union also gets
• 2:29
  Speaker 1: called into question. So speaking of London, it is one
• 2:32
  Speaker 1: of the great cities of the world. It is by
• 2:34
  Speaker 1: far the most populous region of the country. When you
• 2:38
  Speaker 1: go to the Starbucks around the corner from our office
• 2:41
  Speaker 1: for a red Eye with an extra shot, do you
• 2:44
  Speaker 1: expect to see people with their head in their hands?
• 2:47
  Speaker 1: Oh my god, what have we done? Well, I'll tell
• 2:50
  Speaker 1: you there's a good point to remember is that when
• 2:52
  Speaker 1: you do go to your local Starbucks, the person serving
• 2:55
  Speaker 1: you may well not be British. They may well have
• 2:57
  Speaker 1: come from one of the Southern European countries or one
• 2:59
  Speaker 1: of the Eastern European countries. One person I spoke to
• 3:02
  Speaker 1: earlier this morning, he asked me if I knew what
• 3:04
  Speaker 1: the result was, and I told him where it was headed,
• 3:06
  Speaker 1: that Leave was winning. He said that's good, and I said, well,
• 3:10
  Speaker 1: why is that? And he said that's going to be
• 3:11
  Speaker 1: good for the Southern European economies. All I could say
• 3:14
  Speaker 1: there was, don't be so sure at the point they're
• 3:16
  Speaker 1: being that, we don't yet know quite what ramifications of
• 3:20
  Speaker 1: this are going to be on a global scale. It's
• 3:22
  Speaker 1: fairly clear what they're going to be, at least in
• 3:23
  Speaker 1: the medium term on a national scale, but globally not
• 3:26
  Speaker 1: so much. We'll get back to the barista in a second,
• 3:29
  Speaker 1: because I think that's emblematic of something that we do
• 3:31
  Speaker 1: need to discuss. But first of all, under the immediate stuff,
• 3:34
  Speaker 1: now you're responsible for Western European central banks, the biggest
• 3:39
  Speaker 1: of which is the ECB, which in itself is a
• 3:42
  Speaker 1: product of the EU and was seen at the time
• 3:46
  Speaker 1: of its establishment in the late nineties as a just
• 3:49
  Speaker 1: a really natural thing, like dirt. We're more closely integrated.
• 3:53
  Speaker 1: Let's have a central bank that institution. Yes, well, there
• 3:57
  Speaker 1: were plenty of calls you'll remember yourself at the time,
• 3:59
  Speaker 1: to say, look, this doesn't actually make a lot of
• 4:02
  Speaker 1: sense to have a monitory union when you don't have
• 4:04
  Speaker 1: a proper fiscal union. But the push was there too
• 4:08
  Speaker 1: deep in European integration, and Monsher Union was seen as
• 4:11
  Speaker 1: one way of doing that. There is now some strain.
• 4:14
  Speaker 1: There has been a lot of strain within the EU
• 4:16
  Speaker 1: area for quite some time. What may happen now is
• 4:19
  Speaker 1: that because of the success of the lead campaign in
• 4:22
  Speaker 1: the UK, you get stronger calls for anti euro parties
• 4:26
  Speaker 1: in countries like Spain, countries like Italy, and that makes
• 4:30
  Speaker 1: the European central banks job far harder, and the European
• 4:33
  Speaker 1: Central Bank is struggling. That undermines the khesive myths of
• 4:36
  Speaker 1: the European Union in the eyes of some people. Wouldn't
• 4:39
  Speaker 1: it be ironic if it was Britain, which never really
• 4:43
  Speaker 1: wanted to join the euro system over which the ECB presides,
• 4:47
  Speaker 1: was the thing that not the e c B the greatest,
• 4:50
  Speaker 1: not Portugal, not Greece, not Italy, not Spain. That's entirely feasible.
• 4:55
  Speaker 1: The ECB has was quite slow, i have to say,
• 4:58
  Speaker 1: to respond today getting a state with out well behind
• 5:01
  Speaker 1: the Bank of England and the Bank of Japan and
• 5:04
  Speaker 1: some of the other banks that were open at that time.
• 5:07
  Speaker 1: It's been it had some tense discussions, we understand, and
• 5:12
  Speaker 1: that has highlighted some of the struggles within the European
• 5:14
  Speaker 1: Central Bank that you are made up in nineteen countries,
• 5:17
  Speaker 1: the nineteen central bank governors all with a slightly different
• 5:20
  Speaker 1: views there. But ultimately this is quite a strain on
• 5:24
  Speaker 1: the European central banks ability to operate. And you're right,
• 5:26
  Speaker 1: it's coming from a non new country Britain. This lead
• 5:30
  Speaker 1: vote is being characterized, at least in part as a
• 5:33
  Speaker 1: rejection of the liberal economic establishment, which has by and
• 5:39
  Speaker 1: large flourished since nineteen and the idea here was again
• 5:44
  Speaker 1: seemingly inexorable, seemingly inevitable, free flow of goods, services, capital,
• 5:54
  Speaker 1: and people. And the European Central Bank is about as
• 5:57
  Speaker 1: polyglot as you can get. The Bank think of England
• 6:01
  Speaker 1: is headed by a Canadian and you and me, Paul,
• 6:04
  Speaker 1: were products of that system. Now I first met you
• 6:07
  Speaker 1: when you were in Hong Kong. You were born in Britain,
• 6:10
  Speaker 1: and your wife is from where and you now live
• 6:13
  Speaker 1: in Frankfort, right. My wife is German, and my children,
• 6:17
  Speaker 1: who knows where they come from. They were born in
• 6:19
  Speaker 1: Hong Kong. They live in Germany, but they've got British
• 6:22
  Speaker 1: grandparents and great grandparents. So there is this generation coming
• 6:26
  Speaker 1: through that has an international feel to it, but it's
• 6:30
  Speaker 1: not really the majority of the population. And that's really
• 6:33
  Speaker 1: key for European politicians to think about Netlork. Not everybody
• 6:37
  Speaker 1: benefits from globalization, or if they are benefiting from globalization,
• 6:41
  Speaker 1: they don't realize it. They feel that they're suffering somehow.
• 6:44
  Speaker 1: That others are benefiting more, and that's what's caused this backlash.
• 6:48
  Speaker 1: That's dangerous for the European Union, for the European project,
• 6:51
  Speaker 1: is dangerous for the as you know, the supposedly inexorable
• 6:55
  Speaker 1: rise towards globalism, which is not really inexorable. It's been
• 6:58
  Speaker 1: a sort of been a lot of politicians sort of haggling,
• 7:02
  Speaker 1: sorting out deals between themselves, and there have been has
• 7:06
  Speaker 1: been a jump start, start and stop progress over more
• 7:10
  Speaker 1: than more than a hundred years. So I was not
• 7:13
  Speaker 1: born in the United States. I was born in Australia.
• 7:16
  Speaker 1: I've lived and worked around the world thanks to our employer,
• 7:20
  Speaker 1: Bloomberg News. My son was born in the UK, my
• 7:23
  Speaker 1: daughter was born here. Our colleagues, our producer Magnus born
• 7:28
  Speaker 1: in Sweden. Our colleague Alec, who does a lot to
• 7:31
  Speaker 1: make the podcasts get to air, lived for many, many
• 7:34
  Speaker 1: years in Hong Kong. I mean, are we being rejected here?
• 7:37
  Speaker 1: Is our model of the economy and the way we
• 7:41
  Speaker 1: see ourselves when we travel, when we buy things, when
• 7:46
  Speaker 1: we think about our aspirations for the future, we being rejected.
• 7:50
  Speaker 1: There's a great question, and I don't suppose we have
• 7:52
  Speaker 1: the answer to that. At this point. Again, this is
• 7:55
  Speaker 1: something politicians going to have to sit back and think about,
• 7:57
  Speaker 1: what are the economic benefits and how are those benefits
• 8:00
  Speaker 1: being distributed, and if they're not being distributed fairly, you
• 8:04
  Speaker 1: do get a political backlash, the political backlast that we've
• 8:07
  Speaker 1: been seeing, and that may make the whole model as
• 8:11
  Speaker 1: as you say, rejected, and that would be rather worrisome
• 8:14
  Speaker 1: for our generation. But not everybody sees it that way.
• 8:17
  Speaker 1: So the barista you mentioned in Starbucks, he or she
• 8:21
  Speaker 1: doesn't have to go home tomorrow. What's going to happen
• 8:24
  Speaker 1: for the next couple of years. This is going to
• 8:26
  Speaker 1: be a rather sort of torturous back and forth process,
• 8:30
  Speaker 1: but they will have to leave correct well. Interestingly, there
• 8:34
  Speaker 1: was a survey done amongst the German investors that concluded
• 8:37
  Speaker 1: only yesterday and of those respondents said they did not
• 8:41
  Speaker 1: think of Brexit would ultimately result in the UK leaving
• 8:45
  Speaker 1: the EUN and that goes against everything that the politicians
• 8:48
  Speaker 1: on both sides of the British debate have said. But
• 8:51
  Speaker 1: I did hear the argument made again today that maybe
• 8:53
  Speaker 1: the European Union will come back with such a generous
• 8:55
  Speaker 1: offer that Britain rethinks its stance. The most likely outcome, though,
• 8:59
  Speaker 1: is s over the next two years, the British exit
• 9:02
  Speaker 1: from the EU is negotiated without Britain taking partners negotiations,
• 9:06
  Speaker 1: a deal is struck by which it has some kind
• 9:09
  Speaker 1: of links to the EU. What they are remains completely
• 9:12
  Speaker 1: unknown at the moment. There are models Norway as one,
• 9:15
  Speaker 1: Switzerland is another, but they may not be suitable for
• 9:18
  Speaker 1: the UK, and that means two years of quite a
• 9:21
  Speaker 1: lot of uncertainty. The global economy just can't seem to
• 9:24
  Speaker 1: find blue water at the moment, can it. You're right,
• 9:28
  Speaker 1: you have this issue where you've got the rise of
• 9:30
  Speaker 1: nations like China for a while, you have the rise
• 9:33
  Speaker 1: of nations like Brazil, which is obviously going through a
• 9:35
  Speaker 1: very tough time at the moment. And when you get
• 9:38
  Speaker 1: those rapid periods of economic growth amongst sizeable or becomes
• 9:42
  Speaker 1: sizable economies and then they slow down, there are international repercussions,
• 9:46
  Speaker 1: and again you've got that anger amongst some groups of
• 9:50
  Speaker 1: people built up as they've seen their manufacturing jobs outsourced
• 9:53
  Speaker 1: in their view, and now things are slowing down and
• 9:57
  Speaker 1: they're not really in a position to benefit one way
• 9:59
  Speaker 1: or the other. And we could be in for some
• 10:03
  Speaker 1: years of fairly tough times on a global scale, just
• 10:06
  Speaker 1: when it looks like the global economy has dodged a bullet,
• 10:10
  Speaker 1: for example, in January, there are all sorts of dire
• 10:13
  Speaker 1: predictions about China and the market tumult that accompanied and
• 10:17
  Speaker 1: that abated, and we moved forward. People thought Greece would
• 10:21
  Speaker 1: blow up the euroregion. Okay, we survived that, We moved forward,
• 10:26
  Speaker 1: and I guess we'll struggle along or drift along with
• 10:29
  Speaker 1: global growth somewhere around two or three percent. But that's
• 10:33
  Speaker 1: not great, Paul, is it? It's not great. There are
• 10:36
  Speaker 1: many arguments out there that say that this may be
• 10:38
  Speaker 1: the way it remains for a long while. The arguments
• 10:41
  Speaker 1: sometimes sent on the demographics. There's just a relatively large
• 10:44
  Speaker 1: supply of labor, which keeps prices down and keeps productivity low.
• 10:50
  Speaker 1: There is, of course, the techno pessimism argument, which says
• 10:54
  Speaker 1: that inventions from eighteen seventy through nine seventy were one off,
• 10:58
  Speaker 1: they're not going to be repeated. That gave a vast
• 11:01
  Speaker 1: boost to growth in the developed world and ultimately the
• 11:04
  Speaker 1: rest of the world, and they can't be repeated. So
• 11:07
  Speaker 1: those arguments come in. If you do want to see
• 11:09
  Speaker 1: growth pick up, You've got to find some kind of
• 11:11
  Speaker 1: a source, something which is going to push us along,
• 11:14
  Speaker 1: and clearly, by its very nature that's as yet unknown
• 11:18
  Speaker 1: and as shocking as it is. The central banks have
• 11:20
  Speaker 1: made it known that they have prepared for this event,
• 11:23
  Speaker 1: even though it wasn't the result they wanted. Let's talk
• 11:26
  Speaker 1: about the person that's really in the hot seat. Bank
• 11:29
  Speaker 1: of England Governor Mark Karney himself a product of the
• 11:34
  Speaker 1: free flow of global goods, services, capital and people. Yes,
• 11:40
  Speaker 1: he is part of the free flow people from Canada
• 11:42
  Speaker 1: to the UK, and he's quite a few people. During
• 11:45
  Speaker 1: this whole Brexit debate, the Bank of England has put
• 11:48
  Speaker 1: out a numerous statements pointing to the downside risks of
• 11:51
  Speaker 1: a Brexit, and some have taken that as seeing the
• 11:56
  Speaker 1: Bank of England intervening in a political debate instead of
• 11:59
  Speaker 1: staying out of it. To the Mark Karney's defense has
• 12:02
  Speaker 1: been that nobody knows his personal view, that these were
• 12:04
  Speaker 1: all economic statements of probability which may or may not
• 12:09
  Speaker 1: come to fruition now we're seeing them being tested. But
• 12:11
  Speaker 1: certainly the market slump was something that was predicted. The
• 12:14
  Speaker 1: drop in the pound it was something that was predicted,
• 12:16
  Speaker 1: but because he is identified with that, with the remain stance,
• 12:21
  Speaker 1: through no fault of his own, he would say there's
• 12:23
  Speaker 1: a question mark over his future. Now Now, Governor Carney
• 12:27
  Speaker 1: made a televised address in addition to the statement that
• 12:30
  Speaker 1: the Bank of England put out, and if I'm interpreting
• 12:33
  Speaker 1: it that correctly, the first line of defense is liquidity operations.
• 12:38
  Speaker 1: Just throw as much liquidity at British lenders as possible,
• 12:42
  Speaker 1: and the second line monetary policy, well will get to
• 12:45
  Speaker 1: that in a few weeks. Is that the right interpretation,
• 12:48
  Speaker 1: It might be he wasn't quite that specific, certainly on
• 12:51
  Speaker 1: the liquidity, there's no doubt about that. The Bank of
• 12:53
  Speaker 1: England has two fifty billion pounds which it can throw
• 12:57
  Speaker 1: at banks should they need it. Banks can also access
• 12:59
  Speaker 1: swap clients with major banks around the world, including the FED,
• 13:03
  Speaker 1: the e CV, the Bank of Japan, the Swiss national banks,
• 13:05
  Speaker 1: and liquidity really shouldn't be an issue here. The key thing,
• 13:10
  Speaker 1: as you say, is what happens next if there needs
• 13:13
  Speaker 1: to be some kind of response to deal with the economy,
• 13:16
  Speaker 1: and that's difficult one to say. The slump in the
• 13:18
  Speaker 1: pound could push up inflation, which reduces the room for
• 13:21
  Speaker 1: the Bank of England to cut interest rates if it
• 13:23
  Speaker 1: needs to do so. But rates are at zero point
• 13:25
  Speaker 1: five the ECB as rates zero. It shows you can
• 13:30
  Speaker 1: take them that low, and some economists have said that's
• 13:32
  Speaker 1: precisely what the Bank of England is going to have
• 13:34
  Speaker 1: to do. And does Governor Carnee have some work to
• 13:38
  Speaker 1: do in terms of repairing relations with the out camp?
• 13:42
  Speaker 1: Who now, of course are the in camp? Depends who's
• 13:46
  Speaker 1: going to have to deal with I guess I mean
• 13:47
  Speaker 1: at the moment, of course, we still have the pre
• 13:49
  Speaker 1: existing government. David Cameron will step down. It remains to
• 13:53
  Speaker 1: be seeing what happens with the rest of his colleagues,
• 13:56
  Speaker 1: but their positions are obviously not very strong. Whoever is
• 13:59
  Speaker 1: coming in is at least initially almost certainly going to
• 14:02
  Speaker 1: have to deal with Mark Kearney, and Mark Conny is
• 14:05
  Speaker 1: going to have to handle that quite sensitively. He probably
• 14:08
  Speaker 1: has the skill to do so. Questions whether he chooses to,
• 14:11
  Speaker 1: and that remains to be seen. Well, we better let
• 14:13
  Speaker 1: you go and get that red eye with an extra shot.
• 14:16
  Speaker 1: But first I'm just wondering when you come home to
• 14:19
  Speaker 1: Frankfort tonight and you walk in the door and you
• 14:22
  Speaker 1: see your polyglot family, What on earth are you going
• 14:25
  Speaker 1: to say to them? Sorry, honey, we shrunk the union. Seriously.
• 14:30
  Speaker 1: I did text my wife to say, you know, she
• 14:33
  Speaker 1: asked how things were going, and I said, it's madness
• 14:36
  Speaker 1: at the moment, and she replied, it's sadness. And that's
• 14:39
  Speaker 1: the response I'm going to get when I go home. Well, Paul,
• 14:41
  Speaker 1: thanks for joining us. Benchmark will be back next week
• 14:44
  Speaker 1: and until then, you can find us on the Bloomberg
• 14:47
  Speaker 1: Terminal and Bloomberg dot com, as well as on iTunes,
• 14:50
  Speaker 1: pocket Cast, and Stitcher. While you're there, take a minute
• 14:53
  Speaker 1: to rate and review the show so more listeners can
• 14:56
  Speaker 1: find us. You can talk to and follow us on
• 14:58
  Speaker 1: Twitter at Dan almost DC and Paul you are p
• 15:02
  Speaker 1: Gordon sixty six on Twitter. See you next week. M. M.