G-20 Expanding Global Trade

" Just -- and I hope you were able to hear of some of the points that Peter was making job reaction what what what's coming out of London again. Well I think it's and it's good news that there wasn't successful having them. The big stimulus package globally around the world -- we don't need at this point need to worry about. Ex government excesses I think this financial stability board -- son's very much like. The financial stability forum that has existed I think it's expanding that to include the G twenty countries. That form has been useful it has issued reports and if that's the kind of thing what is being proposed I think it's. It's helpful and and and not harmful so it's much better of course and some. New new body with the regulatory authority globally."

" Also seems like a decent about a commitment to global trade. That's going to be a positive right that we don't see any I'm I know there are going to come out and and and say anything like -- hey we're going to be protectionist but the idea they're committing real money to global trade it's gotta be positive now."

" Well I think it depends on how the money is used quite frankly this has gotta be careful about this you know last December they had a meeting in all twenty countries said that they were. Not going to move and a protectionist direction we now know that seventeen of those took. What the World Bank views as protectionist actions and I agree so I would have liked those to have them discuss. You know why did you do this to the seventeen really start of the accountability now. But so much and his agreements my experience as you can make the pledges. But then holding countries accountable in some way in and of course they have to go back to their own domestic constituents. Get things passed so there's a lot to be done. But I think it's good again you don't have a big push towards global stimulus you haven't gone with a global stability regulator. Seems the -- things on global currencies are really. Muted so that's low I think good from my perspective plus they came out with an agreement we have got to think positive."

" And as you're missing -- global currencies it is one of capital another headline that the Euro actually hit a fresh one week high versus the die are so two week high versus. The yen still looks like at least in the currency market that's what's happening right now."

" That's interesting because you gotta think professor -- that that all the actions we're taking dead domestically would be dollar negative in the long run right that this would. The weakening it to our currency and a potentially being inflationary got a lot all the spending what's your view on currencies."

" Well I think the long term unless we -- in a lot of these excesses it will be negative for the dollar you also have the Federal Reserve increasing the money supply rapidly. They say they can pull it back I hope they're correct but if they're not then you're gonna have. Inflationary forces and of course inflationary forces. Are not the things that maintain the first empower our currency so you gotta look for that carefully and I think like the market I'm a little bit worried about it right now."

" Let's talk a little bit about the federal a Federal Reserve then because obviously we're now at a rate setter. I down -- at -- near zero and you say the Federal Reserve you know how to -- What would be the action moving forward by the Federal Reserve DC -- Are raising rates sometime by -- and the idea they have a lot of other things that they can do but it will but what if you can -- out what didn't you know the next. I don't know -- nine months looks like what would you what would you do with the Federal Reserve. "

" It was a lot of whether rates rise depends on when the recovery begins but I know. The markets are building in some increases next year I think that's realistic. But the question is whether the Fed can deliver on that right now they're increasing the money supply very rapidly. And off the pullback on that next year they have to reduce that if they wanna sees even a small increase in in rates next year. I think the the hope is that this will see some recovery. Signs of recovery later this year in 2010 it'll be. More substantial and that of course will require. Rate increases the markets have already built that in but the question is whether the Fed will be able to delivery to -- politically and then technically because they have. They're out purchasing mortgage backed securities. And of course they're planning to purchase treasuries so those are all things that increase the money supply intend to keep rates lower for a -- for."

" You know talk -- I talked earlier are mentioned earlier that year your name is synonymous with the Taylor rule which you brought in the -- which is. -- very famous way meet in the economic probably still looking at interest rates and and applying. That is inflation expectations and all the rest we can you can explain in layman's terms exactly what the Taylor rule is for people don't know. And you know I know that you think it was -- who was not put in the places that should been under chairman Greenspan get a little dust up of people read The Wall Street Journal last few weeks from the chairman. And whether or not chairman Bernanke will employ the Taylor rule going forward from here."

" things -- chair -- key is that so many good things about Taylor rule over the years. I would also say that for most of his term I don't Greenspan. Followed monetary principles quite consistent with the Taylor -- during the the eighty's and ninety's where we had tremendous expansions and shorter recession so really wasn't until reason. Periods that they got off the Taylor rule on I think that's one reason why we had that moment. What with the what is the -- it's a description of how central banks including the Fed should set interest rates and it says that when inflation starts to pick up. They should start to raise rates by a certain amount and when the economy goes into recession they should cut rates by a certain amount -- that certain amount is important that gives guidance about how much to change. And I think that's why it's been useful both to policy makers. Into the markets and now I'm the guy is too low bed right -- criteria."

" It got really low and that's been your argument that it got asserted her -- that in your argument in the past is a hate that these rates were way too low and I know. Chairman Greenspan and others to come back and said well listen it wasn't just dots there was a savings water around the world and countries like China and everybody else for money into the United States rates went down because of events that really. Events that happened in the world you know essentially as their arguments and yeah simplest terms you have satellite right."

" Well first of all there wasn't a global savings glut need to look at global savings rates around the world that they were low compared to the 70s80s and ninety's so that doesn't add up. Plus is. You know it's not just long term rates which affect mortgages you have adjustable rate mortgages. Which are tied very closely to those short rates like the federal funds rate. The 30% of the market was adjustable rate mortgages during the during this -- And they rose you -- fraction rose a lot. So I don't think you can reasonably argue that monetary policy was not a factor in that boom is just so much evidence. In the other direction and certainly this global savings glut. Doesn't add up as an alternative explanation that makes cents."

" You know our viewers are off -- might consider how to explain different candidates -- listening to our conversation about one thing that is for sure. -- what they're saying is the one thing that's for sure professors that people are going to drink beer did you drink beer -- do you like beer. Of course that they got here exactly record here is just separated by maybe some -- maniacs than technical. Technical questions and wires connection now wants for example she I think that's the testing now -- vaccinate -- kind of the object to having a conversation here and we are tunes. That's interesting right eat drink beer we drink very intriguing British a couple of things for sure in the economy -- during this time where there's a lot of uncertainty. What do you think are few things. That we can hold onto as troops I did you have a fundamental set of truths about what's going on is -- going to be all doom and gloom moving forward because this spending were saying I mean the budget going to get past we get that we -- stimulus is not over. So we give us give us sex and maybe some things stand on besides here."

" Well we remain in some of his spending you know the more we can do it the better off will be -- we can prevent -- that's from rising so much the better off we'll be. Actually for me it's pretty simple. Get back on track. Do what was working so well in the eighty's and ninety's it has long expansions we had short recessions. We didn't have huge interventions in the economy like we're seeing more recently we didn't have these big stimulus packages. We kept tax rates slow fabric cut taxes rates permanently. We had a monetary policy that. Followed principles that work very well other central banks were doing it to me it's very simple get back on track. Politically it's so difficult and and but I think the more people understand that and more people look at the facts not just try to look at the rhetoric. Not be partisan not be ideological I think the better off will be."

" That's what's great haven't -- like this on this show and have some time to do and I gotta go teach a class which is great to sell high profile professors actually teach the class who was criticized accountants and I didn't you know and after teaching let me tell you right now he can write books but he also about teachers have. I had gotten teach a class it's interesting job. To see what what's gonna come next right professor -- because as you say hey we should we should cut back on not on the spending and do it that way."

" Let's just say you know what. A lot of this growth that you -- the eighties and nineties but he is especially if it at the latter and that a lot of the growth some say was quote unquote artificial in other words it was built on. The fact that we were borrowing money and levering up to the degree that. Hate no this was really a mirage she wasn't as real as we thought it was the trauma that aren't."

" Well I don't think it's driving basically had it that was coming down as a share GDP during his during this period you had. A lot of good productivity growth we had a tremendous boom in productivity those are real real gains that's not based on -- Plus if you really believe that argument. That's too much that was a problem why would you create so much more in debt we're just going you know even buy that theory we're going in the wrong direction so. No matter how you cut it seems to me reduce the excesses stop the massive interventions -- get back on track is that it is the thing to do."

" So where I last got a question what if you could look at an industry as the next growth industry the next place to have this type of period where he would have longer periods of growth insure the short periods of recession. What do you think is the next kind of wave of growth that could produce that sustained level."

" you know talking here from Silicon Valley. They have and I go walk down the street talk to young people young kids they got a tremendous amount of ideas. I have no idea which one of those but it's good to be good. And it's it's so exciting to see. This entrepreneurial spirit we have in this country which is why we're going to be great so I can't pick. Maybe I got another maybe there's a no brainer page sitting and out of that class you're about to teach at the top of the hour graduate until my friend's house your mind can we stop I. Anytime I would love and the students would love it sidekick hey John Taylor thanks very much for coming out really we really really appreciated and good luck with the book getting off track. Canada suddenly dead right sailing good."