Odd Lots - Hyun Song Shin On What Central Banks Have Learned From The Crisis

Episode Date: July 2, 2020

Central banks and fiscal authorities around the world have taken extraordinary measures to stem the economic fallout from the coronavirus crisis. But what’s proven most effective, and what have central banks learned over the last several months? On this episode, we speak with Hyun Song Shin, economic adviser and head of research at the Bank for International Settlements, about the new policymaker toolbox that has emerged and what more needs to be done.See omnystudio.com/listener for privacy information.

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And I'm Joe Wisenthal. So Joe, one of the really interesting things about our current economic situation is that we basically have a recession that's been induced by policy. I'll be it not necessarily economic policy, but by policy in general. This fact makes understanding this moment in the economy very bizarre. It's not like anything that we've ever seen before, in part because of exactly what you just identified, which is that a lot of the slowdown that we've seen in economic activity was completely by design. And it's hard to think of any previous comparison that really works as an analogy. Yeah, exactly.

So along with this policy-induced research, session, we also have the fact that the economic contraction has been much, much stronger or darker than we've seen in recent years. I think plenty of people have pointed out at this point that it's probably the biggest stop to economic activity that we've seen either since World War II or the Great Depression, so eclipsing the great financial crisis of 2008. Definitely. But the other thing that goes along with that, and I guess this is what we're going to talk about is because so much of the slowdown was by design, and obviously it wasn't all done by law. I mean, people naturally changed their behavior in response to the virus, but so many policy

changes were by design to slow the spread of the virus. We also saw a sort of near real-time policy response to that because leaders or policymakers sort of recognizing that they're going to tell people to stay home, they're going to tell people to not travel, and so forth. then the economy automatically, along with that, needs a lot of support. Right. Well, we can argue whether or not central banks were sort of the grownups in the policy room in this particular instance. But you're right. We are going to talk about the central bank policy response on this particular episode. And we have the perfect person to do it, someone who's been on all thoughts before, actually, the economic advisor and head of research over at the bank for international settlements. Hjong-Shin.

Hian, thank you so much for coming on again. Hi, Tracey. Hi, Joe. It's good to be back. And thanks for the invitation. So I should just mention that a lot of this conversation is pegged to the most recent report out of the BIS that really describes both the depth of the economic contraction that we've seen in recent months and also the policy response. If you just sum up 2020 from a policy perspective, what has struck you the most, what stood out? Oh, boy.

Well, you know, it's a defining moment for the global economy, Josie. I think we've never seen anything like it. It's, you know, three big shots rolled into one. I mean, first of all, let's not forget it's a health crisis. It is a pandemic. And then, as you said, there was also the economic sudden stop. That was partly induced by the lockdowns, but also it also arises some of the changes in the way that people behave.

And then on top of all that, we have the acute form of a financial crisis back in March when the financial system basically froze up and the central banks had to really enter to be trying unfree the financial system. So obviously one of the advantages, arguably, that policymakers had going into this crisis, was that in the last crisis, central bankers did a lot of innovation in terms of coming up with new policy tools to ease the strain on the financial system. How much did that help them being able to build upon the work of what was done in 2008 and 2009. And sort of what would you say were the, I guess, key policy innovations this time around

that are brand new tools in the toolkit that central bankers now can theoretically reach back towards if needed? Yeah, Joe, I think that's a very good question. I think one big difference between what happened this year and back in 2008 was, in the back in 2008, the banking sector, the financial system was the epicenter of the crisis. And then the real economy suffered the aftershocks of the contraction and the stress in the financial system. I think what's different this time round is that the shock came from outside of financial system. And what that meant was that the remedial measures also had to be somewhat different. Now, I think the same set of tools that we used in 2008, again, proved very useful.

In fact, many of the liquidity facilities were already on the shelf, so you could just dust those off and then we deploy them. But I think the difference this time round is that because it's something that hits the real economy, rather than something that hits the banking system, there are a fewer tools, if you like, to reach those at the receiving end, those at the acute receiving end of the crisis. So, for example, for the banking system, the central bank has direct levers of policy intervention when you get to the banking system.

I mean, you can extend liquidity to the banks. You can also use your authority as the supervisors. And, you know, there are direct levers that you can use to. alleviate the stress. Now, this time around, the people who were really at the sharp end were, you know, ordinary individuals and small businesses that suddenly saw their cash flow just dry up. And, you know, if you need groceries, if you need to have, you know, urgent essential spending, it's not going to be enough to have the old tool. So I think what we needed to do this time round, what central banks and also fiscal authorities needed to do

this time around was to innovate really beyond the tools that we had in the great financial price. So this is a point that I actually wanted to discuss with you. So it feels like central banks are pretty good at solving liquidity problems. You know, they can extend short-term credit to sort bridge certain gaps between revenue and expenses. But it also feels like central banks aren't necessarily that good at solving threats to solvency. And in the current crisis, arguably solvency is a bigger issue. So what's the challenge facing central banks when it comes to liquidity versus solvency and what can they do on the latter? Yeah. And that's a really important question, Tracy. I think what we can say is we're at the end of the acute phase, we're at the

end of the liquidity phase. Back in March and early April, we did see a lot of stress in the financial markets, less so in the banking sector, because I think we did a lot in the intervening news to strengthen the banks. But we did see market-based finance really freeze up. And that's both in the income market, but also through market-based intermediaries like the money market fund. The issue this time round is how do you get the financial resources to the people really in need at the acute end of the shop? I think we saw quite a lot of ingenuity and imagination from the point of view of fiscal

authorities. The fiscal packages that have been unveiled have been really. very large in historical context. Just to give you an order of magnitude, the budgetary announcements in advanced economies is of the order of 10% of GDP in the last few weeks. And then you add on top of that guarantees and funding scheme that are of a similar order of magnitude, so 10 to 12%. So just there, you have something like 22% of GDP from the advanced economies.

And it's much smaller in the emerging markets. It's more like 3% plus another 3% than the guarantees, and we can get to that later. But the issue has been how do you get the money to those in need quickest? And here I think we have seen quite a bit of diversity. And you saw that one of the chapters in the report this year is about the payment system and about the role of the central bank and putting in place an efficient and cost-effective payment system. And I think what we did see is that those countries that had payment systems where you can get the money down the line to those in greatest need also did best in terms of disbursing the transfer in the most efficient way. Now, we, as you said earlier, we are now at a phase where the initial liquidity stress has passed.

we're looking ahead to potentially a period when we will see a lot more failures of businesses and insolvencies. And I think here the limits of just lending to hide over a period of illiquidity. Clearly, we will go to the limit of that kind of role. Although having said that, even for the fiscal support, what you need to do for that is to have a financial system that can absorb the additional financing, you know, through the bond market, for example, through the government bond market that can support the extra spending. To keep the financial system on an even keel, you wouldn't need the central bank to play a pretty important smoothing role there as well.

So I think there is still a role for central banks going forward, but the baton has to go over to the fiscal authorities much more. This is really a key thing, and we talk a lot about central bank independence. And you hear that term a lot, and I think one of the things that I sense is that the meaning of that term has changed so that at one point it was like, okay, central banks aren't going to be beholden to political pressure, and they can fight inflation, even if that's not popular. But I feel like lately that central bank independence mostly means a huge. technocratic institution that could just move really fast while politicians debate things.

So central bank could turn to switch and implement a new policy. Politics just doesn't move at that speed. How much is the success of the central banks really been about that, just the fact that not that they're doing unpopular things or that they're not beholden to political whims, but just the fact that they're designed to be sort of outside of day-to-day, real-life, electoral politics. One of remarkable things this time round is how quickly the fiscal authorities have actually moved. If you think about the speed with which these fiscal packages were announced, it's really unprecedented. To that extent, I think this difference in speed probably didn't

hold this time round, although of course, you know, fits about alleviating stress in the financial markets. Clearly put the central bank with the, as a participant in the market. And the market, as a participant in the market itself, can move much more quickly. But I think in terms of independence, the key issue here is that when the central bank plays a role in concert with the fiscal authorities, I think the key is that the central bank is doing this in pursuit of its monetary policy mandate, you know, rather than somehow subordinating monetary policy to, you know, to other goals. I think independence is about, you know, that issue. Are you subordinating your own? monetary policy goals to some other objective like in a fiscal sustainability.

And I think there, you know, we can think of independence in the broader context. And I mean, after all, we have to think about the central bank as a public institution that has to ultimately have the to derive its authority and, you know, legitimacy from, you know, from the electorate. As long as the monetary policy mandate is clear in the front of your mind, I think the central bank should display as much imagination and flexibility as it can. Sorry, but just to back up for a second, can you maybe explain the difference between what central banks are currently doing

when it comes to buying securities from the market versus what people call direct monetary financing? Yeah, so I think there's a term, Tracy, called fiscal dominance, which is the idea that monetary policy actions are subordinated to fiscal policy. So if you're somehow beholden to a fiscal objective, and for example, if you were to buy government bonds directly in the primary market, you know, that could be a form of fiscal dominance. And indeed, many central banks are prevented by the laws that actually govern central banks from engaging in private market finance and like that. The dividing line gets a little bit more blurred when you're intervening in a secondary market, so you are buying government bonds in the open market.

But then it becomes more of a kind of technical distinction. I think the important thing is the intention with which you intervene. If it's to preserve, for example, finance stability, make sure that the bond market is working well. You are preventing very volatile changes in government bond yields. I mean, these are all very much pursuant to your monetary policy. objective. The key thing is that these interventions should be done with a view towards eventual disengagement, eventual exit, and that be done in a temporary way. You can get the news whenever you

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what happened was we saw essentially an entire run on the corporate system. That's why there had to be this massive intervention. the dollar surged about 9% in the course of two weeks between the 9th of the 23rd, which I imagine is probably one of the fastest, largest wounds in history. As you say, we don't really know what's going to happen economically. We don't know if fiscal authorities will do their part to keep creditors alive to the degree they need to. But did the actions that the central banks took, particularly the Fed and backstopping the corporate bond market, setting up these even more aggressive swap lines with other central banks around the world.

Will those theoretically prevent us from seeing another similar sort of like wholesale run on the system regardless of what happens with the trajectory of the economy? So I think what we saw in March was the was actually very different from what we saw in some respects in 2008. In 2008, we had the epicenter of the crisis around the back. system. It was the stress in the backing system and the de-leveraging and the withdrawal of funding between the interconnected part of that. That really drove the stress then. This time, we saw the stress very much in the market-based system, as you say, we saw it in the corporate fund market, we saw it in the market-based intermediaries, for example in the money market funds. Because

dollar funding is so central to the functioning of the global economy through dollar funding, it also spilled over to emerging markets and just dollar funding markets more generally. And what the Fed did back in March was, in a way, the classic the playbook where you intervene, you provide liquidity against collateral and also through the central bank swap lines, against the collateral provided by other central banks. You alleviate the stress in the dollar funding market as well. So, you know, we've gone through that initial phase. I don't think we can rule out another flare-up,

but I think it seems that for the moment we have got over that initial acute phase. But I think we have learned some lessons this time around, for example, how the dollar funding market and the short-term funding market through, for example, the money market funds through commercial paper, how they all interacts with the drawing of credit lines on the banking system, they all interact. So I think we've learned a lot. I think we managed to sail through that initial period quite well.

I think one thing that's been quite hopeful has been how resilient the emerging markets have been this time around. What we saw was that in spite of the initial, very sharp phase of stress in March, the emerging markets have fared reasonably well. The emerging market, local currency bond markets have really come back back strongly. I think it is a testament to the resilience that emerging market, for forest has also built up through both accumulation reserves, but also weaning themselves off the dollar-based instruments of the borrowing in dollars and increasingly financing themselves through the local currency sovereign bond this year.

And I think that's been, I think, a very good lesson to learn from this episode. I wanted to ask you about this actually, because, you know, we have seen emerging markets sell a lot of debt in recent years, some in hard currency. i.e. U.S. dollar denominated and some in local currencies. And there's a bit in the most recent BIS report where they talk about the idea that currency mismatches have basically been shifted from borrowers to lenders, i.e. to foreign investors. So considering the most recent experience and the economic crisis where we did have a lot of currency disruptions, do you think investors are going to to be more reluctant to fund emerging markets going forward, especially if they don't get the

same kinds of returns that they've grown used to in recent years? Yeah, I think one thing we need to bear in mind is that in the sovereign bond market, so in the emerging market, sovereign bonds issuance, around 80% of the issues is in local currency. So in that respect, we are well actually past the era of original sin, so-called, which is the idea that emerging market borrowers, if they want to borrow from foreigners, have to borrow in half currency. I think we're well-entrally over that. What we've seen is that emerging market governments, at least, have been able to borrow in domestic currency, to the extent that, you know, 80% of the solid one market is in local currency. What that

doesn't actually guarantee though is that the you know whoever buys local currency sovereign bonds will be able to hold on to them during periods of stress because during periods of stress it may be that for a portfolio manager that has a portfolio of these emerging market bonds other risk constraints may kick in so you have a diversified portfolio of let's say corporate bonds and emerging market level of currency bonds, a period of stress will tighten conditions. You know, your own risk appetite will diminish as well, which means that things that you would previously have been happy to hold,

you would rather not hold at that point. And if that occurs simultaneously across a whole way that investors, you could see a more concerted round of selling. And I think this is the kind of dynamic that, you know, we have to watch out for in that although the emerging market government has been able to borrow in domestic currency, the investors may be dollar-based investors or euro-based investors, other investors that have obligations to their policyholders or to their beneficiaries in hard currency. So unless you've somehow hedged beforehand when you've gone into these emerging market,

local currency bonds, which typically investors don't, you will have a currency mismatch, you know, from the investors point of view. And typically this is the first, you know, asset class that comes under, you know, selling pressure. So I think the lesson here is it's not only enough just to borrowing a domestic currency, you really need to think about, you know, how you can develop a, you know, a deep and liquid market where the investors are also quite sticky. Now, It has to be said that the investors, I think there has always been an element of, you know, the cyclicality. And during the height of the crisis back in March, you know, there was some very good

picking. I think that's when a lot of the investors came back in. The spreads are not back to where they were before the March, you know, stress episode. So there is still a little bit of a gap there. But I think the lesson here, I think, is, yes, you should, you know, you can. you can increase resilience by borrowing into domestic currency, but the exchange rate matters a lot because the exchange rate does tend to amplify the gain and losses for the investors. And it's really the investor's behavior, which you really need to factor in when you try and

look ahead to what might be happening in the market. You know, you talk about the liquidity demands on investors. I mean, that got so intense in March, and we talked about. this on some prior episodes that even treasury holders, holders of the safest asset class of the entire world, even they got into a squeeze, particularly relative value hedge funds. The Fed had to step in to provide liquidity to that market. Is that a situation that, in your view, now that the Fed has gone there to ease liquidity strains there, that that is the type of liquidity strain that's not likely to come up again now that we've seen what the Fed is willing to do?

Yeah, I think the Fed's intervention in March was really important to quell, you know, the stress in the treasury market. There were some specific, you know, structural issues back in March. I mean, there were these relative value traders who were quite important doing the cash breach of arbitrage. You know, there were shades of LTCM. there as well where if you're doing a relative value trade and the trade moves against you, then you're somehow forced to unwind, which tends to widen the spread that you're trading. What the Fed did was to go in and intervene directly and purchase the traders directly. The dealers also had issues to do with their balance sheet was already quite large,

that they had limited capacity to control these sales. On top of all this, the dollar was strengthening and emerging market central banks were also trying to secure dollar liquidity and so there was some sale pressure

coming from emerging market in all authorities as well. So it all came together back in March. I think we've seen that through the Fed's intervention that period passed. I think we also learned lessons on some

of the pitfalls of trying to, you know, trying to sustain these kind of broken relative value trades when the spreads gets very tight and some of the potential reversal that could come when these things are unwound. But I think this is still something that we need to keep a close eye on. And I think it's, you know, because the treasury market is, if you like, the cornerstone of the financial markets more generally. It is the benchmark security after all. I think it's a very important market to be functioning well.

So the BIS is often called the central banks bank. I'm just wondering, was there anything about the policy response that we've seen over the past few months that surprised you when it came to central banks? I suppose, you know, we could widen that question, Tracy. Let me just repeat the point that I made earlier that this time. round, the really welcome surprise was how quickly the fiscal authorities were able to move and able to put in place really very large fiscal packages very quickly. It still took a little bit of time for that money to reach those most in need. And I think the payment system is very important for that.

And central banks are really quite poor to keeping the payment system in the payment system working well. So I think the central banks played a very important role in that too. But in general, given how unusual and how unprecedented this crisis is, I think we have to be using our, you know, the best, you know, forward-looking analysis that we have and try and sort of figure things out, you know, before they happen and try and anticipate things. Now, I think one thing that what's very important to say is, you know, initially people thought that this could be a V-shaped recovery where, you know, this could be something like a suspended animation where we can just, you know, stop everything, stop the clock for a few weeks and then come back.

Clearly that wasn't the case. And I think it's, in retrospect, that's not a surprise because the economy is not just an anatomistic collection of individuals. It is, you know, think about all the relationships there between the surprise. buyers, customers, the workers. Think about even for one firm, all the history of these very complex web of interconnections that actually sustain the local economy. If you have a wave of failures that destroy these very complex world of interconnected relationship, you are actually destroying the fabric of what makes the economy tick. And so,

I think from the very beginning there was really imperative to make sure that as well as flattening the mortality of individuals, you really needed to flatten the mortality of firms as well because you want to preserve those complex web of interactions interconnections so that once you emerge from all this, you can then restart the economy on something like the old in a set of relationships. Otherwise, once you, you know, dissolve these relationships, you really are starting from square one. Because it takes such a long time to reestablish these, you know, this way of relationships, you're going to take a very long time. So the speed of recovery is going to be that much slower. But I think the, you know, the task going forward

is, you know, having preserved as much of the social fabric as possible, they will come time when you read now then need to think about which are the viable firms, which are the ones that should go through an orally process of bankruptcy. And you should do it in a way when you can do it away from stress situations where you're forced to shut down viable firms. I think that part still needs to be done. I think it's been a very good collaboration. It's been a very good collective effort, I would say, on the part of the authorities. It's not just central banks. You know, all those interbanks do play a key role.

You know, it's been a team effort with the fiscal authorities as well. I'm June Grosso, inviting you to join me for the Bloomberg Law podcast. Every weekday, we help you make sense of the legal stories that shape the nation and the world. Listen for complete analysis of the biggest court cases, the latest actions from Congress and regulators and the legal moves driving the markets. From corporate law to constitutional law and from state courts to the Supreme Court. At Bloomberg Law, we go beyond the day's headlines. We speak with top attorneys, judges, scholars, and policy experts to break down what the rulings really mean. We do this every weekday, then bring you the best conversations in our daily podcast.

Search for Bloomberg Law on YouTube, Apple, Spotify, or anywhere else. else you listen. On the East Coast, listen as you start your day. And on the West Coast, catch up in the evening. That's the Bloomberg Law podcast with me, June Grosso. Subscribe today wherever you get your podcast. I want to ask you about something that calls back to the last time we had you on the podcast, and that was about the centrality of the dollar and the dollar in global trade. And we talked about the sort of decade of dollar strength and sluggish global trade. It hasn't been, prior to this crisis, wasn't a good decade largely for emerging markets. So far, we've seen obviously nothing that's really shaken the foundations of the dollar.

And of course, we already talked about the huge flight to dollars in March. Has anything that you've seen over the last few months, however, changed the long-term future. story at all. Is there any reason to think that we've sown the seeds in some way for some sort of new currency or new trading order sort of in the medium to long term? I think the short answer is no, Joe. I think the, I think to bear in mind is the pre-eminence of the dollar is not just about the strength of the United States. It's also about the fact that the financial system, you know, as well as the real economy, is, is aware of the of contractual relationships.

And a lot of those contracts are denominated in dollars. And so what this sets up is a collective action problem. It's a coordination problem where if everyone else is contracting in US dollars, then you know, you are best of also following, you know, that convention. I mean, it is it is a coordination gain in that respect. And so all parts of both the financial system, real economy, trade financing, you know, they all mutually support each other in that respect. I think, you know, the actions of the Fed this time around with the swap arrangements and also

the repo arrangements that the Fed has also rolled out this time around called FEMA, vis-a-vis of the central banks who post-Tresherry collateral, I think these actions, while the dollar stress condition very early. I think reassures the users of dollars in that respect. Now, over the very, very long term, I mean, there may be some shifts. I think this is where the historians have a lot to say. You know, over the centuries, you know, these centrality of one currency or another, they do change. But in the foreseeable future, I don't I think so. I think, you know, still all the points point to the dollar continuing to play a very pivotal role. So, Hian, one of the upshots of everything that we've been talking about is basically

not only will there be higher indebtedness for economies, but also that, you know, arguably with quasi-MMMT or, you know, more fiscal stimulus in general, there's going to be a, you know, a tighter gripped from governments and the public sector on the private economy. What does that mean going forward for economies going forward? You basically anticipated my question. We were both thinking the same thing. I beat you too. I'm so glad.

It's a very good question. I think, you know, one very interesting fact, and this is something that I mentioned earlier, One very interesting fact is that advanced economies have been able to roll out very large fiscal packages, both budgetary and in terms of funding and guarantees, 10% in terms of budgetary measures, another 12% in terms of funding and guarantees. So that's for the advanced economies. If you look at the emerging market, it's been far smaller. The budgetary measures are on the order of 3% of BDP,

and the guarantees and funding is more like 2% to 3%. I think it's interesting to ask why there is that difference. And partly the incidence of COVID-19, that was different in the early stage, but now, you know, we see Latin America being hit very hard. So I don't think it's the shock from the pandemic itself. I think you have to search for the reason in how much the market is willing to absorb in terms of government that has to come onto the market in order to finance spending. The really topical issues can central banks finance the fiscal expenditure through monetary financing? I think there, you know, if we look at the emerging markets, and of course emerging markets

have a very long experience of this. When governments try to do this, when central banks try to use monetary financing in a very aggressive way, what you find is typically the exchange rate is going to be under a lot of pressure. And that makes sense because if you try and finance spending by taking on, you know, through reserves, so through deposits of commercial banks at the central bank,

and unless you're somehow remunerating those reserves, there's going to be in a portfolio shift where the commercial banks are not happy to hold these reserves. You know, they will look for the dollars. And what you see is a very sharp depreciation of domestic currency. And when you have a very sharp depreciation like that, what you see is, you know, inflation picking up pretty quickly.

So it's not the usual tradable's inflation where the exchange rate depreciation then leads to, you know, more expensive imports and so on. It's more that once you have a very sharp depreciation of a currency, it actually shapes the confidence in the monetary system. And this leads to a more generalized, you know, pickup in in uncertainty, more generalized pickup in inflation. And this is typically how, you know, you would see this kind of episode of monetary financing

ending up, where you have inflation picking up very fast. Knowing all this, knowing all this, emerging markets tend to be very cautious about pushing monetary financing, and instead they tend to rely much more on government's issuing government bonds and financing it through the, you know, through the conventional way. But now, if you try and do that, the question is how much appetite is there in the market to absorb all this new issuers? And I think this is going back to an earlier discussion about the original sin and about the appetite of global investors, unless you have a very large domestic investor base, are going to absorb all this. There's going to be a limited appetite. So I think

what we can say is emerging markets know all of this. They've anticipated that there is a limited amount of fiscal space that they have. And although, of course, they could use the money, they think that discretion is the more prudent strategy, and this is what's holding back. Now, I think for the advanced economies, they clearly have a lot more space. and if you're a central bank that actually is the guardian of the reserve currency, then of course you have even more spent.

But I think in the end, I don't think that there are no constraints whatsoever. I mean, there are constraints. It's just that for the Fed, for example, those constraints are not really very visible at the level of these kind of even as large as these expenditures are. they're not really something that's going to be going to bring the Fed. So, I mean, in the in the M&T discussion you have in the US, I find that discussion a little bit parochial, if I may say so, in that it is very much a kind of a US-centric discussion,

when in fact, you know, the Fed is not your typical central bank. I mean, the Fed is a very, very special central bank, which issues the, you know, the preeminent, you know, reserve currency in the world. And so it's always used. And I would urge, you know, my colleagues in the US to just cast an eye throughout history and through the emerging markets just to see, you know, what their experiences have been. And, you know, there is a balance sheet constraint. It's a consolidated boundary constraint. Then you've got to think about the central bank and the government together. But it's still there. It's not that, you know, it's somehow disappeared.

Well, let the record show that I didn't, I'm not the one who brought up MMT on this episode. Whether there is a, whether there's no constraint, whether the, wherever the constraint is, it does appear that rich countries, wealthy countries do have some more space, arguably, substantially more space. We don't know exactly where the line is. Regardless, they do have more space than they've used. And as you mentioned earlier on in the discussion, that probably the surprise has been the degree to which fiscal authorities moved extremely fast this time around. Do you think in the medium or short term that we're likely to see them push or explore the limits of that space?

Or do you think that they'll sort of very quickly retreat to, okay, that was a one-off, we're not going to keep doing this. And really, we're going to let the task of macroeconomic stabilization. go back to the monetary authority? I think that very much depends on how the real economy evolves. I think if all goes to plan and we do see a gradual recovery from here, I think the very aggressive fiscal intervention will have been a one-off. I think that's the good scenario, and then we can go back to something which is more like normal. but if we see a second way, if we see the pandemic somehow sort of lingering and

wreaking, you know, more damage, then I think we may need to, you know, dip further into these other policy tools. So that, I think, remains to be seen. And I just, I think, you know, we just have to be prepared for all these eventualities. Well, Hjohn, it's always really great having you on the podcast. Thank you so much for coming on. Thanks, Tracy. Thanks, Joe. It's a it's always a pleasure to join again. Thank you. It was great. So, Joe, I know I was the one to bring up MMT in this episode, but I only did it because I was preempting your question. No, I wasn't, I mean, I wasn't going to ask about MMT or anything like that, but I do think that they had question of, is this going to be a shift in terms of where fiscal policymakers feel they really have

responsibility to boost the economy or will they quickly go back to saying, you know, that's the central bank's job? I think it's one of the biggest questions, period, in terms of thinking about what the economy and various asset classes will do in the short and medium term. Yeah, I agree. I mean, also one of the things that we're probably going to learn from this crisis is just how much more fiscal space develop nations and specifically the U.S. have versus emerging markets, which is, you know, terrible. And ironic at the same time because emerging markets arguably need more monetary help to fight the coronavirus than the U.S. Yeah, that is one of the perverse things, that there's no substitute in this crisis for spending a lot of money, investing in, well, A, spending money just so people can pay their bills, and B, building out the infrastructure to fight the virus.

and some countries have the resources to do it and some don't. I guess that's always the case, but it really is clear in a sort of fast-moving acute crisis, that gap. Yeah. I guess, you know, people within countries have been talking about the potential for the coronavirus to sort of accelerate inequality dynamics that were already present in society. And I have a feeling that we're probably going to see that same trend on a sort of international level. So inequality between emerging markets versus developed markets is just going to increase, partially because of the sort of dynamic with investors that HUN was also describing. I do think, and it's something that we should keep exploring, that the length of time it takes us to return to something resembling normal is going to be really important. Like if in the U.S., it looks like unemployment is going to continue to trend down for a while, then we can just go back to maybe the old,

ways. But if it, you know, if we're still here a year from now and unemployment is in the teens, then I think like that really raises the odds of like a, you know, potential for like radical policymakers, just radical policies because I think the political pressure to do something about that would just get absolutely immense, the longer sustain, the longer we have essentially depression level economic activity. Yeah, I think that's fair. So we'll, uh, we'll reconvene in a year or so. Sounds good. I'll talk about this.

Okay. This has been another episode of the All Thoughts podcast. I'm Tracy Alloy. You can follow me on Twitter at Tracy Allo. And I'm Joe Wisenthal. You could follow me at the stalwart. And follow our guest on Twitter, Hjong Shinn.

He's at Hym Song Shinn. Follow our producer, Laura Carlson. She's at Laura M. Carlson. Follow the Bloomberg head of podcast, Francesca Levy, at Francesca Today. As well as all of the podcast that we produce here, at Bloomberg under the handle at podcasts. Thanks for listening. Bloomberg Tech returns to San Francisco, June 3rd and 4th. Join me, Emily Chang, along with Tom Giles,

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