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Hoover's Ohanian: Fed Policy is 'Not the Right Medicine'(Audio) · Bloomberg Intelligence

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  Speaker 1: business flash. Bloomberg jaging stock to the Fed in focus.
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  Speaker 1: Interest rates start too row for where the economy is going.
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  Speaker 1: The question is how much higher should they be. Feds
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  Speaker 1: increased to fast yes, and in doing so, it has
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  Speaker 1: increased its liability. Keeping interest rates at zero for a
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  Speaker 1: long time is not going to cause inflation to go up.
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  Speaker 1: It's very controversial. I think what we need to do
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  Speaker 1: is find a way for the FED to integrate its
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  Speaker 1: policy and think more about its impact on the world.
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  Speaker 1: The Fed in focus on Bloomberg Radio, the Fed in
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  Speaker 1: focus day to affect your Janet Allen's testimony to the Congress,
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  Speaker 1: this time the House of Representatives the Financial Services Committee,
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  Speaker 1: pretty much a repeat of yesterday's testimony. But when you
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  Speaker 1: step back and look at the two days with Jane
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  Speaker 1: Allens seems to be saying is that she no longer
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  Speaker 1: is certain the Federals the economy, excuse me, is on
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  Speaker 1: an upswing that will continue and warrant more rate hikes.
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  Speaker 1: She is concerned even about long term slowdown with Larry
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  Speaker 1: Summers from a Treasure Secretary called secular stagnation, and that
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  Speaker 1: could put the FED on hold for a long time.
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  Speaker 1: Joining us now is Leo Hanian, senior fellow at the
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  Speaker 1: Hoover Institution at Stanford University. Lee welcome, Hi, thanks for
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  Speaker 1: having me so on that particular point, do you think
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  Speaker 1: Janet Yellen's acknowledgement of Larry Summer's argument, which a lot
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  Speaker 1: of people have not been on his bandwagon, is justified.
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  Speaker 1: You're certainly an expert on long term trends on on
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  Speaker 1: US growth. What do you see? Yeah, I mean, in
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  Speaker 1: terms of the data we've been seeing, there's really no
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  Speaker 1: sign that the economy has recovered back to its pre
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  Speaker 1: two thousand and eight trend um productivity growth, which is
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  Speaker 1: is about point nine percent per year since two thousand
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  Speaker 1: and nine, its historical averages two and a half percent
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  Speaker 1: per year. So this is the most disturbing trend that
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  Speaker 1: I'm seeing in the economy right now. Uh, And I
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  Speaker 1: don't see any sign that productivity growth is going to increase.
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  Speaker 1: Professor h hanean um And I just want to note
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  Speaker 1: that you're not only a professor of economics at the
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  Speaker 1: University of California u c l A, but also advised
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  Speaker 1: many federal Reserve banks. Also to note that you are
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  Speaker 1: at the Hoover Institution and the head of the enter
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  Speaker 1: Family Program at u c l A. In that context,
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  Speaker 1: of your research. You did some research about the New
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  Speaker 1: Deal and Franklin Delano Roosevelt, if you were to do
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  Speaker 1: that same kind of research on what the Federal Reserve
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  Speaker 1: has been doing in the last five to ten years
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  Speaker 1: in the United States, give us an idea of how
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  Speaker 1: that would play out. Well. In the nineteen thirties, we
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  Speaker 1: had a slow recovery where jobs didn't come back. The
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  Speaker 1: big difference is that productivity growth was very, very rapid
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  Speaker 1: after after three And what happened is that once we
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  Speaker 1: free the economy up by removing some gum rate interventions
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  Speaker 1: that were depressing job creation, depressing new business formation, the
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  Speaker 1: economy really started to take off about in nineteen thirty nine.
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  Speaker 1: Today we don't have the benefit of having a strong
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  Speaker 1: underlying economy with with strong productivity growth. And the set
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  Speaker 1: is is put themselves really into a corner. And then
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  Speaker 1: they've really pinned themselves into a corner in the sense
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  Speaker 1: that they've kept the interest rates obviously close to zero um,
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  Speaker 1: they've embarked on a number of quantitative easing programs, and
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  Speaker 1: when you look at the data, you don't see the
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  Speaker 1: employment population ratio coming back anywhere close to we were
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  Speaker 1: before we see very weak productivity growth. And there's not
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  Speaker 1: really any evidence I'm aware of it indicates that the
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  Speaker 1: if the FED continues to do this, the it will
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  Speaker 1: enhance economic growth in any way. Uh, FED policy is
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  Speaker 1: not really the medicine for the disease we have right now. Well,
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  Speaker 1: what is the medicine then? Yeah, the biggest you know,
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  Speaker 1: the biggest issue we have right now, and this is
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  Speaker 1: this is a unique situation with the US economy. We're
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  Speaker 1: the only country in the world has had two plus
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  Speaker 1: years of systematic, persistent economic growth on average year and
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  Speaker 1: year out. No other country has ever done that over
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  Speaker 1: a two century period. And the reason we've been able
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  Speaker 1: to do that is because we replace big businesses that
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  Speaker 1: ultimately decline with new transformational businesses that take off. So
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  Speaker 1: back in the twenties, it was General Electric and General
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  Speaker 1: Motors in US, Deal and DuPont and Kodak, and they
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  Speaker 1: helped us grow through the nineteen fifties and sixties. And
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  Speaker 1: then after that it was Apple and Microsoft and Oracle
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  Speaker 1: and FedEx and Walmart and Costco, and they've been the
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  Speaker 1: reason we've been able to grow for the last three
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  Speaker 1: five years. What we know what we're not seeing now
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  Speaker 1: is who will be the new Apple, the new Microsoft,
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  Speaker 1: the new fed X, the new Walmart. And we have
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  Speaker 1: about a thirty drop in new business formation. We've never
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  Speaker 1: seen anything like that. What new business owners tell us
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  Speaker 1: is that they see high tax rates, particularly a tax
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  Speaker 1: code that really impacts them much differently than the tax
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  Speaker 1: code impacts very large businesses. They talk about a difficulty
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  Speaker 1: finding skilled workers who are well matched for jobs. They
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  Speaker 1: talk about difficulties in finding capital, and so some of
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  Speaker 1: those issues I think we can sort out, such as
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  Speaker 1: UM reforming dot frank, which has really impacted community banks,
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  Speaker 1: which were the banks that really made it possible for
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  Speaker 1: new businesses, a small businesses to grow, and they're just
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  Speaker 1: having a really hard time getting loans because it's become
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  Speaker 1: so expensive to make a small business loan. I think
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  Speaker 1: that is that kind of pass a lot. I don't
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  Speaker 1: even know where. I gotta say that's a very uh
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  Speaker 1: coach and description of what's going on. Very interesting. Lee
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  Speaker 1: Orhanian is a senior Fellow at the Hoover Institution at
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  Speaker 1: Stanford University and also professor of Economics at u C
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  Speaker 1: l A. Didn't that thank you very much for joining us,
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  Speaker 1: Sir um Kathleen. Very interesting descriptions. I think so too. Honestly,
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  Speaker 1: Lee is summing up so many issues, and I think
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  Speaker 1: the kind of the point he was getting out and
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  Speaker 1: maybe you're gonna get two PM. Can the federally fixes
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  Speaker 1: by keeping race solo? I thought, that's the big questions
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  Speaker 1: description of this is not the right medicine for this
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  Speaker 1: particular ailment. Very telling. You're listening to taking Stock on
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  Speaker 1: Bloomberg Radio, Hoover, taking Stock is a brunt to you
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  Speaker 1: by um being coming up next, we're going to continue
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  Speaker 1: the FED in focus