YouSaid · the spoken record

William White

lines on the record: 76
first: 2021-12-03
most recent: 2021-12-03
sittings or episodes: 1
sources: podcast

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“One of the things that we've seen in recent years, well, maybe even recent decades, is that labor's share of total income has gone down. And I guess those numbers actually for labor share would include the wages of Jamie Diamond. But even at that, sort of the wage share has gone down and the return to capital has gone up. And a lot of consideration as to why that has happened. I guess I'm of the view that there has been a kind of creeping sort of”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Which is you can inflate away. The other one is you just write it off. And I guess his view was, and it certainly would demand more investigation in the modern world, is that it's fair to take the money away from people on a careful orderly basis depending on how much they can afford to give up, as opposed to a generalized process of inflation that basically hits the poor the worst. or hits the poor the most so you get into some ethical considerations here as well so you know I've already mentioned economics psychology philosophy ethics I wish that all of these issues were reducible to simple you know to a small number of simple equations but they are”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Basically at the expense of the creditors and sort of who are the creditors? Well, a very large chunk of them these days would be people who own pensions, you know, people who are expecting the assets that are held by their pension fund to pay off. So the creditors now are very, very widely spread. And in addition, I mean, there's quite a literature that indicates that when you get high inflation, it hurts poor people the most. The rich people somehow managed to always figure out how to evade the worst consequences. There's poor people that wind up paying the price. So Keynes, I think it was Keynes actually, who originally made this point that there's two ways out in a certain sense when there's too much debt, there's two ways out. One of them is you can inflate it away.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Could it work in the modern world? And secondly, if it did work would you want it to work? Could it work well could you keep the interest rates down in the kind of world that we have today? You remember in the post war period it was all capital controls and all sorts of regulations on the operations of banks. It was a much more tightly constrained world than the one we have at the moment, particularly with respect to international capital flows. And then you start thinking about crypto and various ways in which you can sort of get out of the regulated system. So the first question is could you do it? And there I think I find it implausible that you could do it. I could be wrong, but I think it's implausible. Would you want to do it? And here's where you get into some very sort of interesting ethical questions almost because you're reducing the debt.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Well, yeah, it worked in the post war period. You remember there was the so called Fed Treasury Accord with the Fed said they would keep interest rates very low. In the UK, I think they did something very similar. And it worked. I mean, there's quite a literature on this. And the way that it worked was you get high inflation. And there was relatively high inflation in the post-war period. Relatively high inflation, the interest rates don't move to reflect it, so the real interest rate is low. Or to put it another way, the real value of the debt is declining every year. So in some cases it was, you know, I think in France it got as high as eight or nine percent per annum for about ten years. The UK was not far off, the US. So yeah, it worked. Now, the next question is”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Fortunately the place that we are and again going back to my complex systems, these systems are always path dependent. You can't start from any place other than where you are. And that's another joke which I've used sometimes about the guy lost in Ireland and he wants to get to Dublin. He sees an old man standing in the field he says, How can I get to Dublin? And the old man responds If I were you, I wouldn't start from here. That's where we are. So it is essentially a very sort of tricky situation in which the Fed and the other central banks find themselves.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“which is that you use very low interest rates in order to try to stimulate the economy, but in the process you generate all of this debt and all of these other imbalances, and then you find yourself in a situation where you're gradually coming to understand the situation that you've put yourself in. And then this is the debt trap. The debt trap is you can't stay where you are in terms of interest rates because they're so low they're just encouraging still more of the imbalances and the debt and all the rest of it. Oh no, I can't stay where I am, but you can't raise rates either because you've already, as it were, stretched the system to such a degree that the higher interest rates threaten to cause everything to come unstuck. So this is not a place where you want to be, but it is unfortunate.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“the central bank is overnight money. Okay, that's what those liabilities are, those excess reserves that are held by the commercial banks. And those are in a balance sheet where the central bank is part of a government, which indeed it is. That net balance sheet, the duration of the debt is much shorter. So now we have a situation where we've got lots and lots of debt. It's debt of poor quality, and it's dead of low duration. And higher interest rates could play a very sort of important role in ensuring that people who ought to pay are not in a position to pay. They can't service the debt at those higher interest rates. And that, I guess, is the big worry, and we were talking about this at the BIS, I mean, ten years ago. What we called the worry we had was what we call the debt trap.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“There's a lot of, Jack, there's a lot of questions. I'm not sure I'm going to get them all in proper order. But clearly the difficulty about raising rates when debt levels are so high, and for that matter, not just debt levels are very high, but the quality of that debt has been getting worse and worse for years and years. You know, we're heading down from AAA to CCC, etc, etc. And the maturity of that debt very frequently has been getting shorter and shorter. When you think about government debt, for example, and the way in which the central banks have bought so much of it onto their balance sheet, so you look at the actual figures and it says, well, the duration, the average duration of the debt is eight years.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“He really picked it up already. Right up there with her, why are you looking for your keys under the light? That's not where you lost them, and the answer is, well, that's where the light is.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“because everything that goes around comes around. And the reality is that in a complex adaptive world humans use these little curistic devices to allow them to sort of make sense of things. And I guess what I'm saying is that when it comes to inflation, it might very well be that the answer is four, because it's obvious stuff that goes up just continues to go up. So I'm not saying that that's the truth, but what I am saying is that it could be the truth. And if it is the truth, then we have been taking some big risks by saying that it's not going to happen, that we perhaps ought not to have taken. So these are very important assumptions.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Of leaning all of those structural weaknesses that have been generated by past policies, all of those zombies and everything else the weak financial institutions that I was talking about, all of that then threaten to implode causing a kind of crisis, which of course is the very thing we're trying to avoid. So this is a big thing about whether the inflation expectations are anchored or whether they aren't. A very old, I mean, this is in keeping with this complex adaptive stuff. A line Larry Summers got off. Sometime I think in the nineteen eighties I can't remember. I'll do it very fast. One, two, three, what comes next? The answer is four, it's obvious. They say no not so fast it could be three'cause the best predictor of tomorrow always today. Could be two because in the end everyone.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“And if that's not true that the expectations are anchored, let's suppose that the actually expectations about the future are really just extrapolations of what's recently happened. So inflation has gone up and people's expectations is it'll continue to go up, okay? So instead of your expectations being regressive, it'll go back down again. Maybe it's just going to be more of the same. So if it's for today, it'll be five tomorrow. Now, if that's the case, then you will get into a wage price spiral just as you did, for example, in the late nineteen seventies. And if that happens, then of course the central banks will eventually have to lean against it. But the point is that by then the process, the dynamic will be so well entrenched that they'll have to lean very hard.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“But I think what it really comes down to is in the current circumstances is that the Fed and other central banks are saying they can take chances with inflation running high, higher than their target and higher than they would like. And we know at the moment now that measured inflation is what four or five percent in the United States lower but still rising in other places. And the central banks are saying don't worry about it. We think it's transitory in the sense that the short run forces pushing inflation up will go away. And you needn't worry about higher prices causing a wage price spiral because wages and prices are anchored in people's expectations which are themselves anchored by the central bank's target for inflation, which they've well publicized. Well, let's suppose that's not true.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“fall apart, and yet the real world is characterized by very little else. But I want to make go back to my basic point is that the fundamental starting point, what kind of a system is it that we're trying to control if you've got that wrong, then no amount of tinkering is going to fix things up.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Let's say, you know, some of these standard models that are used and what I consider to be the reality of the real world, you know, in these models basically you're assuming that there's a representative agent who somehow is acting in a rational fashion, whose all understanding, who knows the nature of the system within it works, he's listening to the central bank so that the central bank's targets for inflation become his expectations of inflation. I don't believe that any of these things are true. They have no money, they have no debt, they have no bankruptcy, you know, they have no points of feasure where things”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Well, I think the fundamental problem I've referred to economics and I've referred to psychology, that the underlying problem is a philosophical one. It's what I've characterized earlier on as the central banks have made a profound ontological error, that is to say they have misread the nature of the system that they are trying to influence. And so they think that it is simple and static when in fact it's complex and adaptive, and this is a fundamental error, and there's no amount of fine tuning what they do that's actually going to overcome the fact that their starting point is the wrong starting point. And everything else follows from that. So I could go into a full list of the difference between”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Was that after so many years of these misleading forecasts, there seemed to be no appetite at all to ask whether the fundamental analytical framework that they were using to make their forecast was not fundamentally flawed. So to me the really big problem is not an economic problem, it's almost a psychological problem about why do people hold on to false beliefs as long as they as long as they tend to do.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Well, I don't think they don't think they have been successful. I mean, if you go back and you look at the great financial crisis, you know, we had eight, well, let's say ten years basically of recovery from the earlier recession, but it was the slowest recovery that we've seen in the postwar period. So things got better, but at a achingly slow pace through the whole period, I might point out the IMF, the OECD, all of the major central banks were offering up. Forecasts at the beginning of each successive year for how growth was going to be faster than next year and how inflation was going to go back up to targets next year and it never did. And this went on nine or ten years in a row. And I guess the only thing that surprised me was”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“All sorts of loans for bad and unproductive purposes and resources are getting gobbled up in consequence, and so your capacity to really produce useful things is going down not up. Financial firms that because they were under pressure, their profits were under pressure were refusing to admit that loans were bad loans, so they were just carrying NPLs on the books. So you have more and more zombie companies competing against companies that could actually do something useful. So the list just sort of goes on and on. And the honest truth is that all of the stuff that I saw before two thousand eight, I saw in spades prior to the pandemic, and of course the pandemic has actually made things worse still. It's bad, battered, and baddest.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Things, for example, like what they call the theory of covered interest parity, which my colleague Claudio Borio says is the closest thing to a physical law in economics. It doesn't apply anymore. You know, and so there's all sorts of these things, and I was worried even before the great financial crisis about the way in which easy credit was spreading over to the emerging markets. So the problem was really starting with the big economies, most importantly, of course, the US and the Fed, but also the ECB and the Bank of Japan, but it was spreading over to the emerging market economies, and so we were starting to see the same kind of problems there as we were seeing here. All sorts of implications for the supply potential of the economy that people are making all”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Really have nothing to do with the underlying fundamentals, and of course we can see this already by two thousand eight, and today, I mean, if you look at sort of the measures of price earnings ratios and spreads and the VIX, and I mean, you can just see it absolutely in spades. Another worry we had even then was liquidity in financial markets, that there were more and more incidents of what they call flash crashes, and we've seen more and more of that since the Great Financial Crisis. We have seen even before the great financial crisis and certainly more recently all sorts of anomalies in financial markets where things that previously used to get just arbitraged out, that doesn't happen anymore. And so you get”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“But these very low interest rates that were squeezing margins were basically making the financial business of many people, the banks, the insurance companies, the pension funds unprofitable, and they in turn, as they tried to keep their margins up, were taking ever more risky bets on all sorts of outlandish loans and loans that they otherwise wouldn't have made. And so that was to me a sort of a real problem. Another aspect of it, and this is by no means disappeared, is that you wind up bidding up the prices of financial assets as the interest rates are very low and the discount rates on future earnings are very low. So the prices of financial assets get up to levels that”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“bending forward in time. And the way in which this happens is that people build up debts to build up debts to do spending today that they couldn't otherwise afford. But eventually the debts accumulate, what Alan Greenspan called headwinds. So eventually the policy doesn't work anymore. But having said that, getting back to your unintended consequences, all the time that you're doing this, the unintended consequences of your policies are building up and building up and basically causing imbalances within the economic and financial system that eventually turn nasty, you know, the old phrase they wind up biting you in the bum. And there's whole piles of these things. I mean, I guess the thing that I worried about most was the financial sector.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“When you evaluate a policy, it seems to me you have to look first of all at its effectiveness, and then sort of does it work or does it not work in achieving the objectives you're trying to achieve? And then you have to ask yourself about all of the side effects, the unintended consequences. And I guess the position that we'd taken not me alone but sort of colleagues and myself at the BIS was that the effectiveness of monetary policy in stimulating demand was sort of going down with the frequency with which the policy was relied upon. And what I mean by that is that really going back to the late nineteen eighties, every time there was a bit of a downturn or a threatened downturn, the answer was easy money. And the problem with that is that the way that it works really is by bringing”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT
“Yes, well, it wasn't an easy period because working at the BIS, of course, the BIS is totally owned by the central bank. So in effect, what we were doing was criticizing the fundamental behavior of our shareholders. So needless to say this had to be done with a certain amount of care. I think we pushed the assertiveness of our views about as far as we could without having a really negative reaction. But unfortunately, it was not aggressive enough to actually convince anybody that what we were saying was true.”
2021-12-03 · Forward Guidance · The Unintended Consequences of Central Banks' Easy Money | William White · IDENTIFIED FROM THE TRANSCRIPT