YouSaid · the spoken record

Carmen Reinhardt

lines on the record: 33
first: 2020-06-01
most recent: 2020-06-01
sittings or episodes: 1
sources: podcast

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“The other key factor in American bankruptcy law is that it facilitates the borrowing of money in bankruptcy. And so when a firm files for bankruptcy in the United States, ordinarily that doesn't mean they've reached the end of the line. It means that they're going to renegotiate their obligations and come back out again. But the particular limitation that I'm concerned about now is that the system works very differently when the courts are congested, that it works when they're not congested. Even under the best of circumstances, most small businesses that file for bankruptcy don't actually reorganize.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“I'm something of an evangelist for the American bankruptcy system. The American bankruptcy system is designed to give viable businesses that run into financial distress an opportunity to fix their financial problems and have another go at it. It is designed to facilitate reorganization where reorganization is a realistic option. For decades, the American bankruptcy system was unique in the world in that regard. I would distill its genius to two simple elements of our bankruptcy laws. One is they leave the managers of a company that files for bankruptcy in charge. So the managers continue to run the business. It is business as usual to the extent possible.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Reasons for that as well. But a lot of money has gone out the door. There is kind of mixed evidence about whether midsize businesses have access to the funding they need or not. If you look to bigger firms so far, at least in terms of having access to funding, either outside of bankruptcy or inside of bankruptcy, there does appear to be a fair amount of funding there. There are a lot of private equity firms and hedge funds that have money. So it's a very complicated picture right now. It's really hard to tell whether things are falling apart or whether people like me who have been warning about a bankruptcy wave or overstating the case.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“One of them obviously, that's a pretty strong signal. I'm on the Puerto Rico Oversight Board and we have a bunch of bankruptcy lawyers and financial advisors advising us. Obviously, it's a huge, huge case. It used to be the main show in town without lots else going on. That is not true right now. Firms are being deluged with other cases. So from that anecdotal perspective everything seems to be consistent with the bankruptcy wave. From a slightly broader perspective, it's a little bit more mixed. So if you look at what's happening with small business funding from Washington, the first $350 billion of the paycheck protection program under the CARES Act was taken up really quickly. It's going more slowly now. That doesn't necessarily mean that businesses don't need the money. There's some other.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“So, there are a couple different ways one could answer that question quantitatively, there are various places that have filing numbers. I personally tend to go to the American Bankruptcy Institute, which is a nonprofit organization, nonpartisan, which has a lot of very good data. A lot of the data is monthly, quarterly, yearly, so it's not up to the minute, but there's some of that as well. So I go there from an anecdotal perspective. I look at things like our businesses making extraordinary loans. Are they drawing on lines of credit? And that's what we've been seeing for the past few months. And then you look for things like have firms hired bankruptcy attorneys. There's a relatively small number of firms that handle a disproportionate amount of the big cases. When you learn that a business is hired”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“In my experience, it's usually pretty close to the time of the recession. It tends to be a few months rather than a year with businesses and with consumers, it comes even more quickly. The key variable for consumer bankruptcy filings is the unemployment rate. Bankruptcy filings tend to go up within two or three months of a jump in the unemployment rate.”
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“That you would expect to push many of them over the edge. And we've already started to see some of that happening. We've seen JC Penny and a number of other companies that were precarious before the coronavirus crisis toppling towards bankruptcy.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“I do expect there to be at least some wave. There's not always a bankruptcy wave after the bursting of the dot-com bubble. There was very little effect on business bankruptcy filings. After the Great Recession, they essentially doubled. I would be surprised if they don't go up lots more than that this go around because we basically shut down the economy for several months and there are lots of businesses that have very little extra cash, small businesses in particular. And if you shut them down for a month, even if they're getting some support from Washington, there's a very good chance they're not going to come back without bankruptcy kind of help. There also were lots of firms that had a significant amount of debt before the coronavirus crisis. And so this is just the kind of hiccup.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“the bank and financial industry has been very much against this because they believe it's bad for their profits. I think it would not be. And as long as you dealt with cash hoardings and you really only need to stop big financial firms, pension funds, insurance companies from hoarding billions, tens of billions of dollars you don't care about somebody hoarding a million dollars. It's not the issue. The Fed had said, well, we don't want to hear about it because if it ain't broke, don't fix it. But it is broke now. And they'll be thinking about it. Nothing's going to happen soon. It's just too big a step. But my forecast would be that we have a long, painful road to recovery here. And negative interest rates would be a piece of dealing with it. Finally, while our focus is on public sector debt concerns,”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“I've argued for a very long time that if we live in this world with very low neutral real interest rates and very low inflation, you have to have the option of deeply negative rates in order to deal with a massive crisis like a pandemic, like a cyber war, you have to have that option on the table. It is the whatever it takes instrument. It's the bazooka. It's the instrument that central banks need in this situation of very low inflation, deeply negative rates. We have quite a dramatic effect. This would raise”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Rogolf, for his part, remains an ardent supporter of deeply negative rates, which he argues would provide a powerful boost to the economy without the feared negative consequences for banks or savers, as long as central banks prevent cash hoarding among financial institutions.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“And you could certainly put on additional large programs. And I wouldn't really worry that you'd be doing a huge amount of damage. So the upside of expanding asset purchases or further financing large government deficits that are ultimately used to shore up aggregate demand directly seems a lot bigger.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“View is that it probably doesn't make a huge difference partly because if you move into negative rates, it has to be a very slow move because if you're doing this for the first time, you don't really know what the side effects are, no policymaker that I know would be comfortable just cutting in steps of fifty basis points into negative territory, and I wouldn't advise that. So you'd have to kind of inch your way in as the ECB did, for example. And that's unlikely to have a large positive effect on the economy, whether it has a large negative effect, I'm not convinced of that necessarily, but I think the potential upside of going into negative territory is probably quite small. Whereas with QE, you don't have to proceed cautiously. We've had large bolts of QE, and we know how that works.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“On the financial system, we've seen large outflows of capital from emerging economies, especially in February and March. That is stabilized somewhat more recently, but the pressure is definitely still there. And it could certainly get worse again if the news flow and general market sentiment took another turn for the worse whether it would be something to derail a global economic recovery, I think that's less likely because most emerging economies are just not quite systemically important enough to generate a global crisis. China is probably the one real exception to that, and China so far seems to be on a reasonable path as far as the recovery from the virus is concerned. So it's concerning four emerging markets, but I don't think it's a major downside risk. For the advanced economies or the world economy as a whole.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Economies, of course, are under a lot of pressure depending partly on how bad the virus gets for them and partly on how much of a hit they take from other economies. On the virus, there's a ton of uncertainty in the advanced economies. There's even more uncertainty, I think, in the emerging economies. So that's a risk, and many emerging economies are highly vulnerable to the global economic cycle, either because they're very resource dependent or because they're very manufacturing dependent. And so the economic outlook for emerging economies is, in many cases, extremely difficult, although there's much more variation across the emerging world than there is across the advanced world. And there's, of course, a concern that that is also going to result in pressure”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Yes, they are in stronger positions. My view of this is it's not the currency of denomination. It's the court of jurisdiction. It's the fact that the local currency was adjudicated in home country courts. Greece was able to brutally treat its creditors and the debt adjudicated in Greek courts, whereas the debt adjudicated in London courts got paid in full. So that's been a good shift. In fact, I've argued for 30 years that EM should only be able to borrow in their own jurisdictions. But they have a lot of corporate debt that's not in local currency. And most EMs are not that diversified and are not really in a position to allow their corporations to just melt down. So yes, but we're not looking at the 80s. We're not looking at the 1990s. We're not looking at the 2000s.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“I think we're looking at a situation for emerging markets that's unparalleled since the nineteen thirties, the collapse in commodity prices, the collapse in global trade very likely deglobalization. Good chance that China's growth is going to be more like three percent the next 10 years than the kind of fast-paced that was taking commodity prices to new heights. They're facing COVID-19. So I think we're already going to see a number of frontier markets.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“As concerned as Rogoff and Hazis are about the euro area, they seem even more concerned about debt dynamics in emerging markets. With Rogoff calling the current situation the most troubling since the 1930s.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“A lot of money within the euro framework, it's not even allowed to, and they've been given some reprieve on that. But it's not one hundred percent clear how far the markets will go. Of course, it's a fragile situation. And much more generally, 2008 had an enormous effect on politics. Surely this is going to be bigger. Surely it's going to be more unpredictable and how the euro plays out is one feature of that.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“The euro cannot easily withstand these two and three standard deviation shocks. And there's huge anger in Italy. There's anger in Germany. This is not a good moment for the euro. It's going to go one of two ways. One way is that there's greater integration. They issue a corona bond or a euro bond some form of mutualization beyond the ECB. And the other possibility is that we really see an unraveling. It's hard to know. The Europeans have shown to rise to the occasion in the past, but we're at the early stages of this. And it's hard to know if it lasts another couple years will go. Italy is in dire straits. It needs to be able to buy.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“large deficits in the periphery and in Italy in particular is going to encourage irresponsible fiscal policy and ultimately leave Germany on the hook for footing the bill. I don't agree with that view, but I think it's clearly the reality. And there is a significant amount of concern that the decision by the German Constitutional Court a few weeks ago may be a signal that Germany would push back against, for example, an increase in the size of this pandemic asset purchase program. And so it's made our expectation that we'll see an expansion of that program at the June ACB meeting, a closer call. That said with the onslaught of the COVID crisis there has definitely been more of a sense of European solidarity than there had been in many years.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“I am concerned that we could at least see enough euro area crisis concern that you could see sizable further increase in peripheral spreads. The southern countries in the euro area are going through extremely deep recessions and they're having to spend a lot. They're running extremely large deficits. And there is a lot uncertainty about how far the ECB would go in helping them and how far Europe more broadly would go in helping them from an economic perspective, there isn't really a true limit on the central bank's ability to finance large expansions in government spending and in government deficits. But the political constraints are there and the political constraints have to do of course with the concern in Germany that financing”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“In the near term, the odds are greater that we're in a deflationary environment because my view is the economy is still turning for the worse. There are a number of market commentators saying debt is high. It has to end in inflation. But that's not true as long as interest rates stay very low because there are no pressures. There would be no reason to do that. However, if you look over the course of history, stuff happens. And people think that any bad shock is going to drive down interest rates. And they'll find out they're wrong. Stuff can happen that goes the other way. And that would create a lot of pressure, even if there were pressure on real interest rates, say rising a couple percent over a two or three-year period, that would put a lot of pressure, then inflation would be in the conversation. So markets don't believe there's”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Security debt should be looked at as junior debt. So when the market-based debt goes up, it isn't necessarily a free lunch. You're just not seeing the risk passed on to other parts of the government's portfolio because there's no market in them. So I think we should be borrowing in this situation because we can. That said, of course it's not desirable to have debt go up. Of course it's not a free lunch. I think that view is just wrong. But that doesn't mean that we shouldn't be buying lunch for everybody right now.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“the market debt, the headline debt that you see really represents just a sliver of the obligations of the modern welfare state, with pensions being very important. So Blanchard, we had a debate on this at the IMF suggested that Italy could borrow a lot more market should be fine with that. That may be true, but as high as Italy's debt is, I think it's running at 135% of GDP, it's paying out 16% of GDP, not of government spending, 16% of GDP in publicly provided pensions right now. So that swamps its debt position. And certainly for the United States, social security alone swamps debt. I would say the market-based debt should be looked at as senior debt, the social”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“So Blanchard's point seems to be that when the interest rate is below the growth rate, you can have a big bulge in borrowing and then over time sit back and let the debt GDP ratio fall. But if you look historically, it's actually extremely common for the interest rate to be less than the growth rate, the paper by Palo Mauro at the IMF finds it happens more than half the time in advanced economies over the past 200 years. And it's not particularly a predictor that your positions totally safe. And if you borrow very short term, you're vulnerable to interest rates going up.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“However, Rogolf emphasized that high deficits and debt levels are nevertheless not a free lunch, even with today's low interest rates, and markets are going too far in expecting that real rates and inflation will never rise.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“The government is basically doing is stepping into the breach that the private sector has left, private sector is pulling back very hard, demand is weak, economic activity is weak. And in that environment for the government to run extremely large deficits, I think is not inflationary. It's not, I think, a reason to worry about a debt crisis, at least in an economy like the US or the UK or Japan or other advanced economies that have floating exchange rates and their own central bank. And it's certainly not a reason to worry about a growth drag. I can see the correlation, but the causation could easily go the other way. And it's hard for me to see. How I would go from larger deficits to weaker growth, certainly in the short term, all else equal, you run a bigger deficit, you deliver more stimulus to the economy.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“In a situation where the other risks to structural growth are massive. We are looking at output being down by who knows what the real number is. We may never know, but certainly 25% across the world. And I don't see the US and global economy coming back to 2019 levels for perhaps five years. That depends a lot on how the pandemic unfolds. But worrying about a quarter percent of growth here or there over longer-term future periods is really not the issue right now. You should use debt when there's a big payoff. There's a very big payoff right now. And I'm not terribly concerned about the longer term cost.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Careful about attributing causation. That said, there's now been a substantial academic literature over the last 10 years that thoroughly supports the idea that there is this correlation between high debt and lower growth. The causation remains debated although other authors show that when you have a recession or a crisis, countries with high debt are more reluctant to support the economy. We're also very careful to say different countries are different. The United States is an entirely different position than Italy. But the main point is gains right now to borrowing are just tremendous. And the growth implications to not borrowing would be a lot greater than any growth implications to borrowing.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“So I have to say, my views have been misstated by polemicists in our paper, Carmen Reinhardt and I've created a new data set on debt, we group debt from all advanced economies into buckets of below thirty percent, below 60 percent, below 90 percent and above ninety percent. And we observe that there is a correlation between growth and debt above 90 percent and that you got a slightly lower average growth. We very carefully clarified that having your debt go from 89 to 90 percent no more meant you were going to have a big change than if your cholesterol level went from 199 to 200 or that you drove at 56 miles an hour instead of fifty five miles an hour. And we're very”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“You've argued that debt to GDP ratios, 90% or higher for developed economies, is generally associated with growth rates and something to be somewhat concerned about. Do you still think that's the case?”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT
“Absolutely, we're looking at the worst natural catastrophe in generations probably since the Spanish influenza. And the whole point of having a strong balance sheet is to be able to use debt aggressively when you're faced with a full on crisis, and this is one where I would have no problem if they did the same again twice over if we get out of this in one piece.”
2020-06-01 · Goldman Sachs Exchanges · Daunting Debt Dynamics · IDENTIFIED FROM THE TRANSCRIPT