Call Me Back - with Dan Senor - The Economic "Trilemma" - with Mohamed El-Erian

Episode Date: October 27, 2022

Record inflation, another wake-up call out of Beijing, a new prime minister in the UK, overhang of supply chain shocks and massive fiscal and monetary stimulus from the pandemic, all against the backdrop of the Russia-Ukraine war, which shows no signs of abating. What are the economic implications of all this? What should Central Banks be doing? Dr. Mohamed El-Erian returns to the podcast. He is President of Queens' College at Cambridge University. Mohamed serves as part-time Chief Economic Advisor at Allianz and Chair of Gramercy Fund Management. He’s a Professor at The Wharton School, he is a Financial Times contributing editor, Bloomberg Opinion columnist, and the author of two New York Times best sellers. He serves on several non-profit boards, including the NBER, and those of Barclays and Under Armour. From 2007-2014, Mohamed served as CEO/co-CIO of PIMCO. He worked at PIMCO for a total of fourteen years, and was chair of President Obama's Global Development Council. Mohamed also served two years as president and CEO of Harvard Management Company, the entity that manages Harvard’s endowment. He has been chair of the Microsoft Investment Advisory Board since 2007.

Volcker was dealing with a dilemma, growth versus inflation. Powell is dealing with a trilemma, growth, inflation, and financial stability. So as hard as Volcker's challenge was, I think that Chair Powell faces an even harder one. The midterm elections are just around the corner where voters will be going to vote with, according to just about every poll, inflation top of mind, the staggeringly high cost of living. We've just had yet another wake-up call out of Beijing and another change at number 10 Downing Street, the fifth prime minister, that's number five, in seven years. And still the overhang of supply chain shocks and massive fiscal and monetary stimulus from the pandemic, all against the backdrop, of course, of the Russia-Ukraine war,

which, as Fred Kagan reminded us a couple weeks ago, shows no signs of abating. What are the economic implications of all this? And what should central banks be doing? Well, our friend Dr. Mohamed Al-Aryan returns to the podcast. He is president of Queens College at Cambridge University. Mohamed serves as part-time chief economic advisor at Allianz and chair of Gramercy Fund Management. He's a professor at the Wharton School. He's a Financial Times contributing editor, a Bloomberg opinion columnist, and the author of two New York Times bestsellers. He's a real underachiever. He also serves on several nonprofit boards, including the National Bureau of Economic Research and those of Barclays and Under Armour. From 2007 to 2014, Mohammed served as CEO and

co-CIO of PIMCO, which has over $2 trillion under management. He was also chair of President Obama's Global Development Council. He served for two years as president and CEO of Harvard Management Company, the entity that manages Harvard's massive endowment. And he's been chair of Microsoft's Investment Advisory Board since 2007. Lots to discuss with Mohamed, including who his model central banker is, who is actually getting this crisis right, which we'll discuss at the end of this episode. This is Call Me Back. And I'm pleased to welcome back to this conversation fan favorite Mohamed Al-Aryan, who joins us from Cambridge in the United Kingdom, where there's been a lot of news lately. Maybe we'll get to that. I'm in Tel Aviv, so Call Me Back is truly a global podcast.

Mohamed, thanks for coming back on. Thanks for having me on. So before we get to the doom and gloom, I want to spend a moment talking about a topic that historically has been doom and gloom, but is not right now. And it's about a passion that you and I share, and I want to focus on a key number, a key data point, which is 40-17. 40-17 was, as you know, the score of the Dolphins-Jets game at MetLife Stadium a few weeks ago,

which was the highest scoring game the Jets have enjoyed for as long as I can remember for the Jets, and was an incredible seeming pivot point for the Jets' season, and they've just been on a roll since then. You and I were both at that game, and I just, before we get to the sort of more trivial topics, I do want to talk about the paramount issue of the day, which is how are you feeling about our New York Jets? I'm glad you said right now. And for those of you who haven't followed the Jets since 1968,

which is my case, right now is very important because we tend to go through a cycle where our hopes are high and then reality hits us in the face, or I should say punches us in the face. This time around, we are seven games into the season and we are doing well. So this is an incredible time. It's something that I haven't experienced for quite a few years. So I'm enjoying it enormously, but I remain worried. Experience has suggested that we shouldn't get carried away. And worry is just a constant state of, I think, both being a Jets fan and an economist. I think being a Jets fan, you are right to be

worried because you've had very little good news for decades. The economy is different. The economy has two-sided risks, upside and downside. The Jets, unfortunately, have had a lot more downside than upside, as you know. And you met on that day, we were at the Jets game. Share with our listeners, you met Joe Namath. So what our listeners should know is I entered into a bet on air with Joe Kernan that some of you may have seen. It was a bet about the stock market. And he said that if he wins, he would like me to take him to Taco Bell. So I thought that's great. And then he didn't ask me what I want. And by the end of the show, I reminded him that I hadn't specified what I wanted. And he said, what do you want? I said, either Jets or Mets game.

And he said, done, because I think he had confidence rightly in him winning the bet. And as it turned out, he lost the bet. So off we go into a Jets game when I get a call saying, by the way, we're not sitting where we thought we were going to sit. We're going to go to the owner's box. And for those of you who know me know that that's actually bad news because I like to concentrate on the game and I'm not very social, but it was a wonderful experience. And I was watching the game when someone said, you better come into the box.

And I said, I really don't want to. And they said, you really need to come into the box. And I came in and I was wearing the number 12 jersey. I have lots of number 12 jerseys, which are Joe Namath's old number. And there he was. And it was an incredible experience that you've got to be as old as me. And you have to have had Joe Namath play this critical role in getting you hooked on the Jets to understand what an important time that was. Yeah, you can look at it a number of ways. He also, you know, kind of introduced this pathology to you that in your life, which is New York Jets fandom, which I've introduced to my kids. Here we are where the Jets are going into week eight at five and two in their division.

They're ahead of the Dolphins. They're ahead of the New England Patriots. This is extraordinary. I was in Lambeau Field at Green Bay with our common friend Paul Ryan a few weeks ago, two weeks ago, I guess, and it was like being in the cathedral and watching the Jets there, and I am predicting that they are going to beat the New England Patriots, even without this incredible talent, Brees Hall, this running back, who we sadly lost in an injury last week. But he will be back. He's this unbelievable spark plug for the team.

But the team in general is actually pretty strong. So, Mohamed, keep wearing that jersey because I think you're helping with our good cheer. And if there are any Patriots fans out there, just reminding you that the Patriots are the only team below 500 in the division. And that's really unusual. And they are the only team. Not the only team. They are. Actually, they are.

They lost to the Chicago Bears most recently. The Chicago Bears are one of the worst teams in the season. So for you and I to watch our division rival, the New England Patriots, suffer like that is its own sense of joy. This is where we derive joy, watching the Patriots suffer and, God

willing, inshallah, this Sunday, that suffering will continue at the hands of our New York Jets. Yeah, I wouldn't bet on that latter point. I mean, I think we enjoy this because we know it's going to all change. It's all going to come crumbling down. That's what history teaches us. So this is a moment. So we might as well make the most of it. And here we are. Okay. So let's jump into weightier topics. Last time you were on was in July. And at that point, we had just gotten

the headline inflation number reported out at 9.1%. A lot has happened in the world since then, in the geopolitical world. A lot has happened in the macroeconomic world. A lot has happened in the markets. And a lot has happened in the political season. We're heading into midterm elections. So against all of that backdrop, can you talk a little bit about where we are now since we last got together and how we got here? So let's start with inflation. The inflation number that's reported most widely has come down. That's good news. It's come down because energy prices have come down. We all know this when we go fill up our car. However, it remains high at over 8%. More worrisome is this economic notion of core inflation. And what a core inflation tries to do is it strips out the most volatile component of inflation, energy and food. Core inflation continues to go up. So we still have an inflation problem.

Inflation is proving to be too high and too persistent. Beyond that, relative to other countries, the US economy is doing well. I call it the cleanest dirty shirt. We're not pristine. We know that. But we're cleaner than the vast majority of other countries. And the big question now is the following. Will the Federal Reserve succeed in bringing inflation under control without tipping us

into a recession and or without triggering financial instability? Put another way, can we bring down inflation without an economic accident and without a financial accident? Okay, just before we move off the numbers. So inflation, the headline was at 9.1%. Now headline has come down to 8.5%. Some were celebrating this decline to 8.5%, but you're saying don't overread the headline number because that core number at 6.5 is still dangerously robust and is not going down. Correct. There's two elements about it. One, it's not yet coming down,

and two, its drivers have broadened. So if you think this inflation was driven first and foremost by high energy prices, high food prices, and that's why people jumped to the conclusion that it is, quote, transitory, meaning it is temporary. It is reversible. Don't change your behavior. It's going to go away. Had you looked at the history of inflation, you'd know that there is a good chance that that sort of inflation shock changes behavior. And then you have many other prices starting to change.

And then you go from two drivers of inflation to a number of drivers of inflation. And that's where we are today. Inflation will come down. The question is at what cost? Okay. And I want to get to that in a moment. Before we do, two other terms that are being thrown around are stagflation and recession. And the pundit class says, we're not in a recession yet, we're dangerously close to a recession, but we are experiencing stagflation, or there's a debate about how severe the stagflation is or will get. So again, this may be a little remedial, but please just can you define the distinction between stagflation and a recession? And then give us your assessment of where we're at. So let's start with recession.

The technical definition of recession is two quarters in a row with negative growth. We've had that. But most people, most economists will say, well, the technical definition has been met. The economic definition has not. Because a recession typically is associated not only with negative growth, but with higher unemployment, which we have not seen as yet, and a sense that the economy is contracting both in the services and in the manufacturing sector. We have not seen that as yet. So we are not in recession. And when we are in recession, we all feel it because of income insecurity. And of course,

it hits the most vulnerable segments of our population particularly hard. The conventional wisdom is that we will fall into recession, but it will be, I quote, short and shallow. I hope that that is right. But if we do fall into recession, it's not clear it will be short and shallow. Some people say that there's 100% chance of recession. I don't think we're there yet, but there's an uncomfortably high probability. Stackflation is- Sorry, go ahead. Go ahead. Stagflation is worse. Stagflation is when you get both a recession, very low growth, and high inflation. So you as an individual not only get hit by income insecurity, but whatever income you have, it's purchasing power is being eaten by higher prices. So you get hit on both sides. And that's why stagflation is so difficult to handle, both as an individual and as a policymaker. When you say the expectation among some experts

that if there is a recession, it will be, what did you say, slow and shallow? Short and shallow. Short and shallow. So what is that based on? Like what is that, what is the assumption behind that projection? It just seems that these economic downturns are so dynamic as we experienced in 2000, as we experienced in 2008, the idea that once a recessionary period gets going, there's any way to predict with certainty or near certainty, forget about certainty, just some sort of high probability that it'll be short, shallow, deep, long. I mean, there's so many forces at play here, both domestically and internationally and geopolitically that are inputs here that it just seems hard to kind of make that assertion.

So I couldn't agree with you more. And we have a tendency, as we discovered last year with transitory inflation, as we may discover this year with short and shallow, to become cognitively hostage to a certain framing that we reinforce and reinforce without looking at a much wider possibility of outcomes. Let me tell you why people are saying short and shallow. And there's two reasons. One is the labor market. We have still a strong labor market. Our unemployment rate is well below 4%.

We are creating jobs every month. When you look at our labor market, it is incredibly robust. And therefore, people are saying that it's hard to generate a deep recession with a relatively robust labor market. That's number one. Number two is balance sheets. Corporate balance sheets in particular are relatively strong. And again, if corporate balance sheets are relatively strong and the labor market is relatively robust, you would expect short and shallow to be the outcome. So that is people looking at these two factors and extrapolating. The reason why I caution people,

say, keep an open mind, just like I cautioned people more than a year ago, keep an open mind about inflation, is because of what you said. There's other things happening. There's financial fragility. And we've come very close to a few financial accidents around the world. The whole global economy is slowing down in a correlated fashion

and much faster than people expect. So you have to keep an open mind. Let's hope we don't get into recession. And if we do get into recession, let's hope it's short and shallow, but let's plan on a much wider distribution of outcomes. You have said when the most recent inflation numbers came out that the Fed and our policymakers

who have influence over fiscal policy, they have a trilemma in front of them. Can you explain what you meant by that and what are the three variables? So the three variables are inflation, growth, and market functioning or financial stability. Normally, we think of the trade-off as follows, and it's a very bad framing, but that is the trade-off that we get into. When the Fed is late,

and the Federal Reserve is very late this time around in reacting to inflation, it tends to overreact and tip the economy into recession. Economists will remind you that we don't have a single episode in history where the Fed has been late in recognizing that we have an inflation problem and we haven't ended into a recession. So the dilemma is how do you lower inflation without undue damage to economic growth, to jobs, and to well-being. That's the dilemma. When the Federal Reserve and other central banks have not only been late,

but have flooded the system with liquidity, have conditioned the financial market to get used to zero interest rates, massive liquidity injections, you then also risk a financial accident. And we had an example of that in the United Kingdom, where I am right now. There was a sudden increase in market interest rates because of unfunded fiscal announcements by the government.

And next thing we know, the pension system almost collapsed. And we discovered that that sector, which is regarded usually as boring and calm, had levered interest rate risk and was caught offside. And it had levered interest rate risk because it assumed interest rates would never go up. We have the same issue in the US. We have certain segments of the market that have optimized a financial regime that's no longer around. And they now have to deal with the most front-loaded interest rate increase by the Fed that we've seen in decades.

Okay, so I want to go back. I want to come back to that point because I want to look at some of these historic periods to compare to this one. 1970s, you would rather be Paul Volcker in the 1970s than Jay Powell today, given the depth of the challenge that Powell faces. So that's a pretty striking thing to hear, because we all look back or we hear about the 70s and inflation in the 70s is this horrendous period in American life. So why did Volcker have an easier job than Powell? Two reasons. One is Volcker was dealing with a dilemma, growth versus inflation. Powell is dealing with a trilemma, growth, inflation, and financial stability. And the trilemma is a lot more

complicated than a dilemma. So if you think in terms of the Olympics, the gymnastics, there's always a degree of difficulty in whatever routine you're attempting. The degree of difficulty that is facing Powell is a multiple of the one that faced Volcker. That's the first reason. The second reason is that Volcker came after a Fed that had lost its credibility. Volcker was not responsible for the loss of credibility of the Federal Reserve. That came under Arthur Burns, who had flip-flopped in addressing inflation and had allowed inflation to get out of control, and Volcker came in to clean up someone else's mess. In this case, the mess was created in part, not wholly, but in part by Powell, by the Powell Fed.

They mischaracterized inflation as transitory for way too long. They then didn't act quickly enough. Their forecasts have been consistently wrong, and the communication has been less than consistent. So you have a situation where Chair Powell has to restore the credibility of a Fed that it itself undermined. And that's a much harder thing to do than what Volcker had. So as hard as Volcker's challenge was, I think that SharePower faces an even harder one. I want to fast forward to 2000, the year 2000,

where you had this huge, preceding it, this huge run-up in the stock market, largely tech-driven. It was like the largest stock market boom in U.S. history, and it ended in March of 2000 with massive declines in a number of these tech stocks and other parts of the stock market. What was the challenge at that point for the Fed during the March 2000 or post-March 2000 crash? What was the challenge? What did they do? And where did it lead us? So think of the body of a dog and the tail of a dog.

And the body of the dog is a real economy. It is growth. It is jobs. It is wages. The tail of the dog is the financial system. And what you don't want is the tail to wag the dog. Because when the tail wags the dog, things break all over the place. There are times when you get such a shock to financial markets, typically after they've gotten carried away, and then they collapse, where that can transmit economic harm, and it's very difficult to control. We've seen it most recently, of course, in 2008. 2008 was a financial accident. But it resulted in a great recession. And it came very close to pushing us into a depression, meaning that both this generation and the next generation would have been harmed a lot.

We got away with a great recession. It was very painful. But we managed to contain it. So the last thing you want is a financial accident to derail the real economy. And that's what was the risk in 2000. That was again the risk in 2008. It was again the risk in 2013. And it is again the risk today that we may have a financial accident that undermines economic well-being. And once again, I want to stress, once again, it is the most vulnerable segments of our society that pay the highest price. post-March of 2000 and then post-2008 did increase dramatically the holdings on the Fed balance sheet, and there was never real easing, real reversal in Fed policies, which

were like emergency measures that were effectively locked in place, perhaps for too long, I think you have argued. So doesn't that make this next period we're in particularly challenging? Because it's not just, as you say, the biggest mistake the Fed has made in history is misdefining inflation as transitory. But also the big challenge is the Fed just has fewer tools now because it's been using its powers to address previous crises and as things eased up, not changing policies. And so now the Fed is like – it's like missing ligaments almost in terms of its ability to fight the next battle. That's absolutely right.

And there's a big pandemic that is also risking the Fed, and that's inflation. The Fed was lucky. In 2008, in 2000, it didn't need to worry about inflation. So when you have a financial accident and you don't have to worry about inflation, you flood the system with liquidity. When you have inflation, that becomes hard. It's like driving a car where you have one foot on the brakes to bring down inflation and one foot on the accelerator to deal with financial instability.

That's not a good way to drive the car. So that's the concern that we have is that you simply don't have enough tools. And the tools that you do have go in opposite direction. And that's a concern. That's why it is very important to be on time to address this. You know, central banks need three things. They need time, they need skill, and they need luck. The Fed has run out of time because it's so late.

So it needs a lot more skill and a lot more luck than previous Federal Reserves. I want to ask you about the, in September, the OPEC Plus announced that it was going to cut supply, oil supply, which obviously made a lot of headlines internationally. It was received quite negatively in some corners in Washington as a major slight by certain parties in OPEC+, especially Saudi Arabia. You've told me you were not surprised by OPEC Plus's decision. Can you explain why? Yeah. So OPEC, as you know, is made up of a lot of countries and has one goal. It has the goal of stabilizing oil prices as they see that to mean certain things. And the current OPEC plus is committed to stabilizing oil prices at around $90 to $100

a barrel. That's how they operate. That's how they think. And when Chinese demand in particular started coming down and when oil prices came under pressure, most people in the industry that have been following OPEC for a long time expected it to do exactly what it did, which is to cut production. They cut production by 2 million barrels. Those who looked at international relations were surprised because they thought that President Biden's visit to Saudi Arabia would somehow change the way OPEC responds. But Saudi Arabia is one member, influential, yes, but it is one member. And you are trying to get a cartel to change its behaviors.

Cartel don't change their behaviors that easily. So I must say, I wasn't surprised at all. I was actually surprised that the international relations people thought that OPEC would change its behavior. You're in the UK now. You talked a little bit about the challenges in the UK and what lessons we can learn from them. If you were advising Andrew Bailey, the head of the central bank, the Bank of England, if you were advising the new Sunak government, what would be your counsel now?

So I wouldn't have much advice to the Bank of England. I think the Bank of England has recently behaved in a highly responsible and effective way, and they've pushed back against two things that other central banks have found it hard to push again. One is fiscal dominance, meaning you just do what the fiscal authorities force you to do. And the second thing is market dominance. You just become hostage to markets. Unlike other central banks, the Bank of England over the last month has stood up to both these things in an admirable fashion. As to the government, and we are speaking on the day

that they decided to postpone from October 31st to November 17th, the big policy announcement that they have promised to the nation and to the markets. Which was the announcement for how they were going to pay for this big fiscal program that the trust government had announced. Correct. It has three components. One, as you rightly say, how are you going to pay for the fiscal program? And they have identified a hole of 35 billion pounds second they need to make a decision

as to what to do with energy subsidies after six months and third they need to explain and get outside validation through of of their growth projections and all that was like supposed to come on the 31st of this month october and now pushed back now it's understandable that parenthetically muhammad i will say as a communications professional i will say the communications professional had me i was sort of saying to my friends in the uk really you picked october 31st while like the markets are reeling from this this horrendous train wreck that was the up up until a few days ago, the 40-plus day life of the trust government.

You picked October 31st for this big announcement, Halloween. Couldn't you have picked another date? So for that reason alone, they were wise to move it the date to middle of November. But I digress. So they need you. Look, I think it's understandable. You have a new prime minister. He just came in.

He needs time to assess. They indicated today that they're looking at 104 different measures. So it's understandable that he needs more time. It's also a good time to postpone it. Why? Because the markets are calm and the markets are forgiving right now. But there are two risks. One is that there was a reason why they picked November 31st,

and that's because the Bank of England's next policy meeting is on November 3rd. So they picked, sorry, October 31st to give time for the Bank of England to digest the new measures and then make an informed decision. So by postponing it, once again, the Bank of England is flying blind into the policy space. And the second risk is that while markets are calm today, because they believe the Fed is going to, quote, pivot, although we've changed the definition of pivot from reduced rates to just slow down the increase. But the market believed that the Fed will pivot. Markets are calm, but no one can guarantee that in two weeks'

time, they'll still be calm. In three weeks' time, they'll still be calm. So it is understandable, but it comes with risks. And what would be your counsel for the U.S. government writ large at this point? Assuming we come out of the midterm elections with divided government, which is a Republican House, I think the House majority will be very comfortable. The Republicans will have a very comfortable margin in the House. I think there's a higher than 50-50 chance Republicans will win the Senate. So you have a Democratic executive branch. You'll have a Republican Congress, which means nothing is going to get done. And there'll be appropriations bills, and there'll be basic spending bills. There'll probably be a vote on the debt limit, which may have us at the edge of our seats or not.

But other than that, not much is going to get done. So you basically have divided government. You have a Fed that, as you have laid out, is now finally spooked. They should have been spooked a long time ago. So you get to advise any or all of the parties here. What is your counsel? So first I would say understand the consequences of not much getting done. In the old days, and we go back here to 2010,

the Tea Party, the shellacking, the shutdown of government, we could pass on the responsibility to central banks. In fact, we turned the Fed into the only game in town when it became to policy. It's okay that Congress is paralyzed. Somehow the Fed will build one bridge after another, keep things ticking until the Congress is able to get things done. We now know two things. One is there is significant collateral damage and unintended consequences of the Fed being the only game in town.

And two is the Fed's own flexibility is highly, highly restricted by inflation and by the fact that it's so late on inflation. So the first thing I would say to them is understand the consequences of not getting much done. It will have significant impact on our ability to grow in future and on our productivity and our international competitiveness. That's number one. Number two, I will say that there are things we can do to navigate what I think should be a bumpy journey.

That should not be. That's the reality. We're on a bumpy journey, but it should be to a better destination. There's a lot of upside if we get this period right, and we have the tools to get to a better destination while minimizing the bumpy journey. If we're not careful, and if we are stuck in the not much gets done paradigm, then we'll find that this bumpy journey is to a worse destination. Three short questions before we let you go. One is the housing market.

There's a lot of data flying around about going market by market, at least in the West, showing the peak in housing and then how the housing numbers are just coming way down. Where do you think that goes? Is there going to be this dip? Is it going to be a crash? So I'll give you one number. For the first time since 2001, the 30-year fixed mortgage rate is above 7%. Put another way, if you could have afforded a house $400,000 a year ago, you probably can't afford more than a $200,000 house. So affordability has become a real issue because of higher mortgage rates. When affordability becomes a big issue, demand becomes a problem. And when demand becomes a problem, prices stop going up, and there's a possibility that prices come down.

The good thing for the housing market is that supply is still not ample. So this is not 2008 where we've overbuilt and we have empty homes everywhere. So that's going to limit the downside to housing. That's the good news. The bad news is the people that are getting excluded from the housing market tend to be first-time buyers. And it's once again the young. It's once again people that are at the lower end of the income ladder that get hurt. And that means this is not just an economic issue. It also has social consequences.

China has been in the news for a whole range of reasons, including, you know, resurging public health crisis, increasing tensions with Taiwan, and a continued seeming market and macroeconomic meltdown or at least crisis. And then, of course, this past week, the party Congress and the dramatic image of Hu Jintao being escorted out as he sat there next to President Xi. And the party Congress voted on, the CCP voted on kind of the real cementing of consolidation of President Xi's power going forward, perhaps indefinitely. That image, that was pretty dramatic. Do you think about that image in a sort of economic and a macroeconomic context? I do. I think there are two important consequences of what's happening in China. One is that globalization is changing. It's changing in a meaningful fashion. This is not

a cyclical shock to globalization. This is a secular and structural shock, and we have to adjust to a very different type of globalization. And I think that is well appreciated. Geopolitical tensions aren't going to go away. French shoring, near shoring, the importance of putting resilience in front of efficiency for companies, that's not going to go away. So I think that is generally understood. The second thing that's less well understood is that whether it's China or Japan,

the assumption has always been what happens there stays there. So that if you are worried about the global economy, if you're worried about global markets, you don't have to worry about Japan and China. We are in a different world because you get what's called cross-ownership. China and Japan own a lot of U.S. securities, U.S. treasuries, of course, but also U.S. high yield, U.S. investment grade. And there is a risk that as pressure builds in both of those countries for different reasons,

you get what's called cross-asset contamination. And those of you who are in the financial world will know what it's like when suddenly you have a holder, a long-term holder of an asset that decides that they need to or have to dispose of that asset. And that's the one risk I think people aren't thinking enough about. Last, you're very critical of the central bank leadership, at least in Washington, D.C. Are there any central bank leaders you see around the world or government leaders, non-central bankers, but just leaders of governments around the world that you

see or that you interact with, you're a man of the world, you're dealing with policymakers all over the, and regulators all over the planet, that you're like, wow, that's the, how do I put it, that's the Joe Namath of the central banking world to bring this conversation full circle. Someone you look at and you're like, wow, in a sea in which nobody seems to be getting it right or very few people seem to be getting it right. And there is real groupthink. And groupthink where they're completely misdiagnosing this. You said transitory inflation was a complete misdiagnosis.

They continue to make some of the mistakes you talked about in this conversation. But chairman or chairwoman X, wow, they're wise, they're sober, they're visionary. Anyone out there you would tell us to look at, look out for, potentially model after? So let me answer that question in two part. One is, yes, I have been critical of the Fed, but I've been critical for the following reason. Central banks are given enormous power. They're given independence. They don't have to go to Congress when they make decisions, and they need to be held accountable.

If you don't hold a central bank accountable, a couple of things happen. Policy mistakes multiply, and then they risk losing their independence. So accountability is an integral part of an independent central bank that is effective. And that is why not just I have been critical, but it's interesting to see how many former Fed officials have been critical of this Fed. I think that is indicative in itself. We all know how important the Fed is. It is critical.

We all know how critical independence of the Fed is. And it's important to have accountability for decisions that were made. And that includes that this is the only central bank that hasn't come out and said, we've made a mistake. This is why we've made a mistake. And that's how we've corrected our process not to repeat the mistake. The ECB, the European Central Bank, has come out and done it and the Bank of England. As to which central banks I think are doing a good job, well, we talked about the Bank

of England. I think that after being late initially, they have really course corrected and they also have had to handle all the political volatility that we talked about. And then there's quite a few central banks in the developing world, Brazil being an example, where they behaved on a timely fashion.

They increased interest rates aggressively from 2% to over 13%. And their inflation rate today is 5%. And they have a history of high inflation. So the fact that they are delivering 5% inflation without having damaged economic growth is something that we should admire. So yes, there are a few central banks that have done well, and you're absolutely right.

We should point to them, and we should learn from them. What I would call the Sauce Gardener, Garrett Wilson, and Brees Hall of the central banking world. There we go. Got you laughing. Our listeners can't see you right now but you're cracking up uh okay muhammad thank you for this as always you've been incredibly generous with

your time and your wisdom uh and your insights and i will no doubt huck you to get you back on, both to talk football and talk sense about the macro economy and the Fed. But until then, you know, best of luck this Sunday and stay safe and healthy out there. Thank you. And I expected

a J-E-T-S-J-J-J-J, but maybe for next time. No, no, no. We got it. We got it. We're going to do this and we're going to win. Take care. Thanks. Thank you. That's our show for today. If you want to follow Mohamed, you can catch him on Twitter at Elrian M. That's E-L-E-R-I-A-N-M, as in Muhammad. And you can also follow his work at the Financial Times and at Bloomberg. Call Me Back is produced by Ilan Benatar. Until next time, I'm your host, Dan Senor.