The Munk Debates Podcast - Friday Focus: Round The World – Cuban Missile Crisis

Episode Date: October 28, 2022

Friday Focus provides listeners with a focused, half-hour masterclass on the big issues, events and trends driving the news and current events. The show features Janice Gross Stein, the founding director of the Munk School of Global Affairs and bestselling author, in conversation with Rudyard Griffiths, Chair and moderator of the Munk Debates. The following is a sample of the Munk Debates’ weekly current affairs podcast, Friday Focus.   On this edition of the Friday Focus podcast, Janice and Rudyard start the show with a discussion of three international stories that captured public attention week. First, how should the world interpret the unceremonial departure of former Chinese leader Hu Jintao from the Peoples Congress midway through the final day of proceedings? Second, what does the West owe the women and girls bravely protesting the Iranian regime? Is it finally time to abandon the stalled nuclear deal with Tehran? And, finally, what should Canadians make of the Bank of Canada’s smaller than expected rate hike this week? Was it the right move or a forced error in the fight against continuing high inflation? This podcast is a project of the Munk Debates, a Canadian charitable organization dedicated to fostering civil and substantive public dialogue. More information at www.munkdebates.com.Become a Munk Donor ($50 annually) to get 72-hour advanced access to the full length editions of Friday Focus and Munk Dialogues. Go to www.munkdebates.com to sign up. Hosted on Acast. See acast.com/privacy for more information.

The following is a complimentary excerpt of this week's edition of the Friday Focus podcast by The Monk Debates. To access full-length editions of each and every episode, along with all kinds of great additional benefits and perks, become a donor to the Monk Debates. You can do that for as little as $25 a year, and you'll receive each and every year 50 Friday Focus episodes at full length. It's all available right now on our website. in just a few simple clicks. Triple W. The Monk Debates.com.

Look for the Friday Focus option in our navigation bar, the top right of the website. Make your donation and we will send you each and every Friday a link to listen to the full-length edition of this program. Thanks in advance for your generous contribution. Hello, Monk members. Roger Griffiths here, your host and moderator. Welcome to this, the regular Friday Focus podcast. This is our weekly.

program where we dig into the big issues and ideas in the news with Janice Gross Stein, the founding director of the Monk School of Global Affairs, internationally renowned scholar and author who joins us from a hotel room in San Francisco. What dedication we're recording this on Friday. So the time difference, Janice, is not working in your favor. No, it isn't. And Roger, this week was so busy. How are we going to? going to choose what we're going to talk about this morning. This is a tough one. Yeah, well, look, if you're willing to play along, I want to go to do a tour de monde, jump around a bunch of topics that kind of think stand out as unanswered questions as we record this on Friday the

28th of October. And first, let's start with what happened at the beginning of the week. The ascension of G to exalted status as a third term. as a de facto supreme leader of China, an event in these carefully orchestrated, scripted moments that struck all of us as incongruent, bizarre. I'm still lacking a good explanation for it. And Janice, you know what it was. It was this escorting out of the room in front of all the cameras of former Chinese Premier Hu Jintao.

Janice, what do we know at the end of the week? what this signaled, what it was, is it simply a sick man who wasn't feeling well? Or is this, is this theater on a grand scale? It's more than theater. It's really fascinating. It's this little vignette, as you're unscripted right here, not part of the plan. If you, if our listeners, play the video again, you're going to see a red folder on the desk at front of Hujendau, and under that a piece of paper. Now, as far as I understand, on that piece of paper, were the names of the seven standing members of the Politburo.

Hu Jintao reached out to see it, saw that none, none of, he had two in mind that he thought should be on that Politburo. Those names were not on the list. he started to speak quite loudly to express his disappointment. And you see next to him, you see somebody walk over next to him, put their hand on that red folder and a piece of paper under it and move it away. And Hu Jintao tried once more. It was at that point that the aide turns around, stands behind him, lifts him up under his arms, and the next person keeps that red fold.

on the desk. He was escorted out forcibly. Now, if you want a story to tell you about China today, that's it. Hujintel does not know that all his protegees are off the Politburo, that all seven are Xi Jinping supporters. He's surprised. He speaks out. He gets one sentence out.

That's all it took. And then you see this picture that. flashed around the world of this older man being forcibly escorted out. That's China today. Fascinating. Well, that kind of makes some sense to me. Again, when you first see it, you're not sure if it's a health issue. You do see Xi looking kind of perturbed. And you wonder yourself, well, you know, why do this in front of the cameras? If it was scripted from the beginning, but I think what you're saying makes sense that it wasn't scripted, but it was still nonetheless a signal sent on this list that no one really wanted to acknowledge.

And that the next day, once the markets had digested it, there was a precipitous sell-off on Chinese-denominated securities traded outside of China. So don't look at the Chinese Stock Exchange. They kind of manage that like all their numbers. But if you look at what happened in Hong Kong, and the Chinese stocks, especially the internet stocks listed in the United States, an ugly week. As I don't know, Janice, investors, the world now it sinks in a new, is this a new era? Is this a moment of kind of rupture in China where we have returned full circle back to the Mao-type strongman?

Well, you know, Roger, let's actually look at the numbers. If you follow the money, that always tells you an interesting story, as you well know. trade with China is up. It's up. If you look at foreign direct investment, it's pretty stable. So below the level of these very high value technology products such as chips and more is coming. That's clear that we're going to see more. And it's going to be really difficult, frankly, to enact some of this and to enforce some of this.

but we're almost living in two worlds. At the very high end, at the high value end, freeze, decoupling, go beneath the surface a little bit, not that many factories have moved out of China. To Vietnam, it's tough to move factories. It doesn't happen overnight. And so two-way trade between the two countries

is still going on, and as it is between Canada and China. Those numbers tell you a lot. Yeah, well, we will see what The trajectory of those numbers is, I guess, is the Biden administration and even Canada now with Christian Friedland's kind of foreign affairs policy kind of synopsis statement seeming to align with the idea of the future as being competition between open democratic societies and more closed authoritarian societies. And that's why I want to go next on our roundup here.

It's to another authoritarian society that's in turmoil. And that's Iran. It's been popping in and out of our news feeds over the last month. as protests have grown, led largely by young women's schoolgirls, in fact. This week saw the Biden administration under increasing pressure to do something more demonstrative in support of the protesters. They, as you know, Janice, are trying desperately to get this deal on uranium enrichment over the line with the European powers to restore and return Iranian oil to international

markets that would lower prices significantly, that in turn would love. lower inflation. It seems, Janice, like we're trying to have our cake and eat it too. What do you think we should do? Do we owe the women, the schoolgirls of Iran, frankly, our moral support, or do we have to, in a sense, throw them under a proverbial bus, possibly a pretty nasty one in the name of what ultimately is an economic interest, cheap oil? That's that competition between our values and cheap oil at a time. time of high inflation.

Some people are talking about a very, very cold winter in Europe, parts of Europe will freeze. Some people are saying, I'm not persuaded. I think this exemplifies, Richard, the tough world that we are living in now. Here's a little bit of an escape, I think, from this dilemma. There's not much outsiders can actually do to help the protesters on this. street. There's almost a risk because these processors have achieved so much. What's the big gain so far, not regime change. It doesn't feel to me like we're anywhere close to that. What do I always look for? Do we have any police units crossing over to the demonstrators? Is there one unit of the

Republican guards that defects. You need in a security state, some of the coercive apparatus of the state has to cross over to the demonstrator's side. That hasn't happened really yet. What has happened, though, so the very senior aitoaists are using this kind of language. We do not approve of the use of force against our daughters. That's a game. There's a split now

at the very top of the clerical elite. This is a step too far for police to be beating and in fact killing women who are taking to the streets. These protests are not dying down. Their best hope for success, keep your distance from anybody in the West because then they could be portrayed. You're just proxies.

You are being used. Yeah, fair enough, Janice. But, you know, it's just such, Well, how's the regime? You know, I mean, I've really come around to the Israeli view that there is not a deal to be made here on enrichment. The Iranians have strung this out for what going on five years now. They are getting closer and closer to, you know, stockpiles of uranium that could allow them to create a warhead. They already have the missile technology.

They've perfected that. And I just I just think there comes a moment where we just have. have to acknowledge that this, this is a pariah regime. It is, it's venturing onto the same, uh, toxic scorched earth as North Korea. Yeah. And, you know, we, we could, yet we continue to hold out on these negotiations, uh, around a joint American, European, Iranian agreement. And I just wonder, Janice, when is it time to cut our losses and acknowledge this regime for what it is? A horrible, theocratic kleptocracy that, as you rightly mentioned, is killing its own women. One thing that may change this game a little bit, because actually, I don't think, I think the nuclear deal is in big, big trouble.

Given two things that are happening at the same time, Roger, we talked about women, the first these really correct. women who are taking to the streets over and over and over and over again, some being killed. The second thing, though, is the drone camping that is going on with Iranian drones that have gone to Russia against Ukraine, which is, you know, attacking Ukrainian infrastructure. Europeans now are looking at this, the only place in the world that Russia can get. drones to attack civilian infrastructure is from Iran. I think that public opinion in Europe will certainly turn. I don't think there's any prospect, really, that this deal will move forward,

given the inside pressure and the outside pressure that's coming at the same time. Great. Well, let's move to our third topic of this kind of Toulamonde discussion that we're having in the first segment of the show. And I want to bring it back to Canada. and a decision that I think affects all of us, at least those of us who are mortgage holders or have credit cards or car loans, which is pretty much everybody, which is the Bank of Canada surprising markets. After having talked tough for weeks, arguably doing a lot to regain its credibility as an inflation fighting institution, everyone anticipating pricing in 75 point increase to the overnight rate, another historic. high hike, a sudden pivot of sorts, 50 points. Now that you could say, what's the difference of 75 to 50? Well, it's different insofar as it really was a mismatch between what the bank was

seeming to telegraph before the meeting and market expectations. So when a bank makes a move like that, a central bank, it has consequences. It's made a choice. Janice, why did it make this choice. There are allegations circling of political pressure being placed on the bank by the NDP. We know Pierre Polyev has been at them for a while. They now have angry homeowners across the country who maybe went too far into debt on second and third properties. What do you make of this surprise reversal? Let me take off the table, the prospect, the Tiff Macklin caved to political pressure. He's a very determined. and a resolute person who's lived through more than one crisis.

He was Mark Carney's deputy before he himself became governor. So I don't give that much weight, frankly, Richard. And you're right, this was a market signal. It doesn't matter that it was 25 basis points less than people expected. This is a deliberate market signal. He's pausing. That's what he's doing. He's pausing because some of the economic data

that he's looking at, suggests that we may be in for a recession starting in the next quarter early next year. And I think he's taking a pause to see how high inflation will remain in the next month, two months from now. He has room to go back up if he needs, but he doesn't want to overshoot the target. As you have said many times, Roger, you know, raising the rate for borrowers is a blunt instrument to solve a very complex problem. Parts of our economy are overheating. Parts of our economy are suffering. But there's only this one blunt tool. It seems to me he is telling everybody, I'm on pause now.

Let's look at the data a month from now or two months from now. I don't think it's politically driven. No, no, I agree with you that I'll give them the benefit of the doubt. I think what worries me, though, Janice and worries a lot of market participants is this was the mistake that we made in the 70s. It was a stop and go approach that tried constantly to balance, understandably, the desire for less economic pain and still achieve the goal of bringing down inflation. And as Larry Summers, you know, former U.S. Treasury Secretary, a former monk debater,

kind of smart guy who's been around for a while, made a great point. I think this week, that never has inflation been this high and been successfully brought down without a severe economic contraction. And it seems that understandably, we want our cake and eat it too. We want inflation to come down, but we don't want to internalize what I fear is right now a fairly inevitable price of a sharp economic contraction. What the bank, I think, is risking here are two things. One, its own credibility. I mean, this is an institution that said in 2020, interest rates will be low for a very long, long time. They got the transitory call wrong. Now they're coming back and saying, well, we're going to try to have our cake and eat it too.

And we think inflation will be at 3% at the end of 2023. Now, another projection, you know, you can take that with a big grain of salt. I'm sure they do themselves. It all just seems, Janice, to be kind of, again, wishful thinking, a hopium over reality and over what experience would say, the Larry Summers, the Muhammad Alarians, the Bill Dudleys, all the people we've talked about on this show who are saying that, you know what, you have to get rates higher to quench inflation. You have to hold them there. And if you pause too early, you create a dangerous stop and go moment that could really cause a lot of economic damage and a lot of market uncertainty. There's no question that's a risk. When you're implementing a strategy, you're on the road, you see some negative consequences and you pause, you confuse people, and you increase the uncertainty. And there's no question that's a risk here, rather. But again, I think you know, I both said, Canada is not an uninhibited, unconstrained actor. The Europeans central bank pushed up.

By 75. By 75 points. That's a big hike in Europe that in many, in some parts, has inflation that's much higher than Canada's and also has much higher risk of recession, given the price of energy in Europe and comparison to ours. They made that move. If the Fed and the United States moves again, frankly, the Bank of Canada is not going to have much choice. It is really hard because our dollar will drop against those.

Importing, importing inflation, all those cabbages and cauliflowers and lovely peaches and pears that we bring from Florida and California end up costing a lot more. That's right. So he's in a very tough spot. He has very little room to maneuver. You have to hope he's seeing data. Yeah. forecast that you and I are not and we'll know in a month. We'll know. We will know in a month.

But to me, it just, what worries me is just another fumble on the communication. We can argue about the substances we just have, but it's just odd for such an important institution after the whole transitory debacle and after, you know, rates will be lower forever, now kind of fumbling again, saying, oh, we're going to be all tough on inflation and then not following through it. Just to me, I worry that we don't really have the intestinal fortitude to do what's necessary. And this would just be my final point. You know, when you have that 6% inflation, as we have had core inflation year over year, you have to remember that that's a loss of your purchasing power. Your dollar buys it effectively 6% less this year compared to next year.

It also buys 6% less the year after, the year after, the year after, forever. You've lost that purchasing power. You've lost that component of your wealth forever. These are really consequential serious things that, yes, interest rates, raising borrowing costs, that affects us all too. But inflation is a miseration. It is destroying your wealth, not just in the moment, but in a sense, unless you had a period of deflellan, which I think is highly unlikely, it's removed that power of your dollar

vis-a-vis the goods and services you purchase forever. You know, to come back to your point, Roger, about communication, that's a big part of what the Bank of Canada has to do. It's as important as the interest rate strategy is, is the communication about the interest rate strategy. And why is that there's a phrase that central bankers used at one time it was called forward guidance. Forward guidance is a fancy word to say,

we are sending signals to the market about what to expect. So when he talked about that interest rate increase, which was smaller than expected, he said we may be close to the end. He was sending a signal. So his expectations, that's what he was saying to the market right now, and to you and to me, about our own spending,

we may have seen the worst of this. Now, I'm dubious, given the winter that's ahead in Europe, given the turmoil in the energy markets, and given what promises to be just a very tough winter with some baked-in inflationary drivers. If he's wrong, you're going to have to walk that back after you've created expectations in the marketplace. That's the trouble here. That's really the dilemma. Yeah. And then what credibility do you have at that point for the market to believe anything that you say? Well, let's take a pause there.

We'll say goodbye to our complimentary monk members and we'll convene our donors circle. All of you, thank you for your generous contributions to the monk debates to participate in the second half of each edition of Friday Focus, where we go deeper into a specific topic. We're going to do a dive with Janice right after this break for our donors on the Cuban Missile Crisis. What have we learned 60 years later? What can we apply to our thinking about the risk of nuclear weapons today in 2022? If you want the second half of Friday Focus, and we'd love to have you as part of the full-length

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