tv WSJ at Large With Gerry Baker FOX Business May 12, 2019 8:30pm-9:00pm EDT
radcliffe my special guest. 10 am live sunday on fox news channel. also here on fox business every weekday tune in weekdays from 6♪ ♪ to 9 name eastern for rnrnrnr♪ ♪ here on fox business. ♪ have a great weekend ♪ everybody, thank you for ♪ being with me. ♪ i will see you again next ♪ time. ♪ [music] gerry: hello! and welcome to "wsj at large". after an impressive bull run this is a rocky one for markets. the main reason, rekindled fears with a trade more between the u.s. and china. -- it looked like they were making progress. some even thought an agreement was imminent. but then suddenly last weekend,
all of that changed. president trump's of the high tariffs would indeed go ahead and i was a talk support is what happened. >> by the way you see the tariffs we are doing. because they broke the deal. they broke the deal! gerry: in fact, as the wall street journal reported this week it seems the chinese had reneged on commitment stayed earlier made to reform the economy in several key areas. protecting intellectual property left, ending the ability to transfer information and opening other markets. u.s. did indeed raise tariffs on $200 billion worth of chinese imports. now investors fear a full-blown trade wars on the way. but the talks are still going on and who knows, we may still get the deal. but it is also possible that perhaps investors fears about the impact of the u.s. china trade fight have been somewhat overblown. china imports are just over two percent of america output.
some sectors and some individual business are being hit very hard. but the impact on the u.s. economy hardly seems to justify some of the panic we've been seeing in the markets. that is not to say of course u.s. economy does not face many big challenges. this week my guess is one of the worlds most successful investors. the founder, cochairman and co-chief investment officer of bridgewater associates, also one of the most thoughtful intellectually independent of business leaders. he's worried about a number of critical issues that confront the us. he regionally published a book. a big book called appropriately enough, principles for navigating big debt crises. and to talk about that and more he joins me. thank you for being here. let me start with this principles for navigating that crisis. tell us if you would, the history of debt crisis and many
examples, tells if you would, how debt cycles unfold and where you think we are in the current debt cycle.>> first of all, i think there's productivity that we learn to do things better and raise our living standards and i think that there are two major debt cycles around that. the ones that we see mostly driven by debt cycles. and they are cyclical because when you give credit, you give buying power. so it's a net gain.when you take back then have to pay it is cyclical. there is a short-term debt cycle which we call a business cycle. where you set. have recession,sank -- when you up and becomes too hot you put on the brakes. we are well acquainted with that cycle. i think it's interesting to talk about how it might be a little bit different this time but anyway. it's interesting.
then there is a long-term debt cycle which is the accumulation of that. and as the debt rises relative to income and in order to reverse that, interest rates keep going down. you hit zero interest rates. when you hit zero interest rates, the first type of monetary policy, number one, if that is what go to the second one. that's central bank printing more and it causes credit to go out. quantitative easing. and when that ceases to work you go into a new type of monetary policy which i will call monetary policy three. we will talk about what that looks like but we are, it is important to then say, where are we? where are we is, we are relatively late in the shorter debt cycle. you can tell by operating rates of fairly long and there. and we are very late in the long-term debt cycle. meaning the capacity of central banks to ease monetary policy
is limited. gerry: what is isthe historical cycle telling us? are we in for another debt crisis? >> the period, there are analogous periods. the most analogous is in the 1930s in a number of ways. so 1929 to 1932, debt crisis, interest rates at zero. 2008 to 2009 debt crisis and interest rates are zero. the only two times when central bank printed money and because recovery was from 1932 to 1937. andy expansion that we have been in. during the period we also as a result of this had a widening wealth gap and a widening opportunity gap. and we have populism. very much like today. >> history does not always repeat itself precisely but are
you suggesting that we could see something unfold both in economic and medical terms? what we saw in the 1930s? >> yes.i would take second and show the parallels. and it is corrected, history didn't necessarily repeat itself but the cause effect relationship and important things to understand, they are analogous. on monetary policy the question is what happens when you hit zero interest rates and quantitative easing does not work as well. europe is there, japan. >> the u.s. is going -- >> if we have a downturn, let's just play with that. because someday that will come. when you have a downturn, the average amount of stimulation was 500 basis points of interest rate. we have about half of that and then you have quantitative easing. she can measure the difference between where we are by those
measures. now let's just go beyond and say what happens next. i'm not saying it's going to happen but -- i am trying to have us look at how the machine works. gerry: i understand. so what happens next? >> what happens next is -- well, first of all if you have a downturn, and monetary policy is not effective, the only way of dealing with that is the coordination between fiscal and monetary policy. that's what history is. just as interest rates, true as interest rates hit zero you go to quantitative easing. it is as true that when you hit zero interest rates and you have quantitative easing, not working, the only thing that works is the coordination and monetization of deficits. so that is the historical comparison. the big issue there is whether politics can allow that coordination. because in a politically fragmented environment.
history has told us that there is populism and conflict. gerry: have to wrap up for a break in a second but something again, what happened in the 1930s was the great depression, nationalism and the war. essentially the end of the 1930s. again, i know history does not repeat itself but are you saying there is a real risk of the same kinds of things with all the effects that had unfolding in the next -- >> history has shown that when you have a large wealth gap, and you have a downturn, and you have an ineffective monetary policy, and you're required to have coordination monetary policy, that is a challenge and when you also have a rising power, challenging and existing power in much the same ways that china is now rising to challenge. that those are important factors. in determining the nature of the dynamic.
gerry: i want to come back to more about that and will talk about the outlook more this is huntsville, alabama. aka, rocket city, usa. this is a very difficult job. failure is not an option. more than half of employees across the country bring financial stress to work. if you're stressed out financially at home, you're going to be too worried to be able to do a good job. i want to be able to offer all of the benefits that keep them satisfied. it is the people that is really the only asset that you have. put your employees on a path to financial wellness with prudential. bring your challenges.
can we talk? we used to play so beautifully together. now we can barely play anything... even cards with the girls. if you have bent fingers, and can't lay your hand flat, talk to your doctor. it may be dupuytren's contracture. your hand is talking. isn't it time you listened? there are nonsurgical options. take the first step. and learn more about dupuytren's. at factsonhand.com ♪ gerry: my guest is trent atp
made clear the close dialogue to our situations the 1930s. as discussed, we know the ended. it did not end well. in economic terms or geopolitical terms.how could we avoid that? even talk about coordination of policy. how do we get the united states and the rest of the world out of this where we are in this phase of the debt cycle without risking something really unpleasant? >> again, which emphasize, put aside the 30s , it's an interesting parallel. most important the i want to understand people understand the cause effect relationship. so what happens when zero
interest rates are there. what happens when the downturn happens, what happens when you're populism at people at odds. just to think of that dynamic. then history gives many examples of that. the issue really is how we deal with each other. okay? can there be coordination? so we are in a very interesting time. we have fragmentation.these are all manageable if we could coordinate and work well with each other. the main headline from all of history is how people deal with each other. whether they fight or whether they coordinate. that's the lesson of history. >> right. and quite often, they, as we have seen repeatedly through history, they fight. one of the reasons they fight is a number reasons, economic reasons, property, national
identity. how do you think we again, we avoid the risk given the poles we have, given where we are in the cycle, given nationalism and populism and given inequalities, how do avoid the risk that we do fight? >> i think it is pretty simple, right? if we say, let's rise above each of our individual desires. gerry: i mean are people going to do that? >> i am not saying what is -- i think it is possible. i think it is possible. it is not probable. gerry: right. >> i think as a country if we say what are the principles that bind us together? can we agree on the principles that bind us together? can we agree that we need to get behind those principles and operate in a cohesive way so we are not fragmenting and so, those -- if we go to the over
arcing principles. whether we're in this together or whether we have one faction that is going to try to kill another faction and that will fray. that is the choice that we have. gerry: but they seem to be pulled further apart right appear. >> it is human nature but that is it. right?is only a personal -- it is choice, how we are with each other. if we can agree on that and if it is conceivable to agree on that and say, now it is important to pull together to bring the disparities to work for common answer and be fearful of that conflict. gerry: but how do you do that? some say fundamental problems in the u.s. right now and when the reason the country is tearing itself apart is partisanship and it's a problem of inequality. we've never seen the kind of extremes of inequality that we have in the united states. like we have in the 1920s and
then maybe the 1930s. there are people who argue especially the democratic side what we need to do is raise taxes, have more government spending, more safety net and opportunities. do you think that is right, is that the answer? >> i think that first, had to ask ourselves is the economic output that we are wanting, are we getting what we want? and when i look at the disparity, on -- i am a capitalist. and at the same time, i think that many of the outcomes, if it is not working for the majority of people, it is not successful. and i broke the economy into two parts to examine it. the top 40 percent and the bottom 60 percent. and the bottom 60 percent of the economy is poor. federal reserve study. 40 percent of all americans could not raise $400 in the event of an emergency. the gap in education is spending.
the top 40 percent spends five times as much money education than the other. these issues -- we have to say, are those the outcomes? if we can agree that it has to be majority and that we are in it together, then we are going to be able to move forward on that. right? gerry: the second of the break. when we come back i'll ask ray dalio more about his views on capitalism. how does work and maybe how it needs to be reformed. needs to be reformed. that is next. hey, who are you? oh, hey jeff, i'm a car thief... what?! i'm here to steal your car because, well, that's my job. what? what?? what?! (laughing) what?? what?! what?! [crash] what?! haha, it happens.
and if you've got cut-rate car insurance, paying for this could feel like getting robbed twice. so get allstate... and be better protected from mayhem... like me. ♪ [spanish recording] so again, using "para", you're talking about something that is for someone. ♪ pretty good. could listening to audible inspire you to start something new? download audible and listen for a change. gerry: i am back with
he wrote recently, talking about capitalism. something along the lines of if systems do not adapt, they die. do you think really the capitalism faces that kind of existential threat right now? >> yeah, pretty much. i think we can't take the existence of capitalism for granted. i think you could easily have a movement to an opposite extreme that is detrimental to our --! it can be soviet socialism, -- >> and a number of different things. but i mean, i think most important, it could be a system that actually does not work as well. right? so you can easily find a movement from one extreme to the opposite extreme and it is a damaging system. in fact it is the nature of it. and if it doesn't work badly enough, people can become confrontational. so i think that there is a risk of one form or another of some kind of a big change, be careful about using the word revolution but revolutionary
change. can be detrimental. the key is that you have to both increase the size of the pie through productivity and effective economic policies and divide the pie well. >> is in a challenge that socialists or social democratic system let's call it that, especially if you look at europe. it has a much more social democratic system in the united states, much higher safety net much lower levels of inequality, public provision of education healthcare, much fairer distribution of resources but the economy is weak. they're not getting productivity growth they are not given overall growth. isis is a market dynamic economy. what is the solution? >> because you keep the good and do not want to get rid of the bad. but let's be specific. that entrepreneurship, that america has, look at the difference in technology. there is none going on in europe.
entrepreneurship, the changing of social classes. economic classes. from the bottom to the top. gerry: how do you preserve -- >> the point is that it's not happened. if you look at the changes in the last 30, 40 years in terms of economic mobility, so the way that i think -- i think that is what you have to do. save the good and keep that. but you have to understand things like education. i study what makes countries successful across countries and across time. and there are some basic things. education is most fundamental. equal quality education. and infrastructure and such things. gerry: i get it but that's what they have in europe, but they do not have the entrepreneurship. how do preserve that? >> i think we could look back on just what it was when i was
growing up. so you do not have to look far. you do not just how to look at europe. you can look at america, not that many decades ago. when i was lucky enough to do, it was, i went to a public school and i came out into a job market and i got student loans and i worked hard and i aspired for certain things. i'm not saying i'm a role model, different people have done in different ways. the model is better and clearer. today, is it correct that most americans would say we should have equal opportunity? can we agree on that? and then say, can we then, are we delivering on that? >> it will probably require high tax rates, you would be comfortable with that. more taxes and more spending? is that some do you think is worth paying? >> i think where you get the money from and how will you spend on delivering it. i know that in terms of
education, my wife is involved in public education in connecticut which is a state of rich and poor people who are having that. i see it firsthand and i see it in a number of places. they were people for lack of money in there, do not have adequate books and so on. >> they also have very high taxes. businesses are fleeing connecticut for that. >> and they should! it is a model for that dilemma. now the question to answer your question -- gerry: very quickly because we had to wrap up. >> okay. can we agree on striving for equal opportunity? can we measure how well we are doing on that and can we realize that the system is in jeopardy of the swing unless we do that? gerry: is a good note to and on. ray dalio, thank you. and despite the problems no should really be writing off capitalism yet.
-that's how a home and auto bundle is made. [ chuckles ] so, what are some key takeaways from this commercial? did any of you hear the "bundle your home and auto" part? -i like that, just not when it comes out of her mouth. -yeah, as a mother, i wouldn't want my kids to see that. -good mom. -to see -- wait. i'm sorry. what? -don't kids see enough violence as it is? -i've seen violence. -maybe we turn the word "bundle" into a character, like mr. bundles. -top o' the bundle to you. [ laughter ] bundle, bundle, bundle. -my kids would love that. -yeah. nueven if you try to eat well,. you might fall short in key nutrients. get more by adding one a day. it's the #1 multivitamin uniquely designed for men and women. one serving, once a day. one a day. and done. you wouldn't accept an incomplete job from any one else. why accept it from your allergy pills? flonase sensimist relieves all your worst symptoms,
day with capitalism paramedic critics are raising doubts about whether he can continue in its current form. politicians especially those on lot of all kinds of plans to fix it or abolish it. the system isn't perfect. far from it. but before we dispense with capitalism or even fundamentally overhaul it, might want to ask perhaps if what is needed in the u.s. is perhaps more competition in the economy and freer markets. after all, history does show
that capitalism has been a successful formula for billions of people.over the last couple of centuries. that is it for us this week. next week will take our first detailed look at the 2020 presidential race. >> he makes big-screen magic... >> he was indeed a genius. he had the eye. >> ...but his heart belongs to this tiny stage. >> they're spectacular, down to the finest detail. >> this was the place where he poured all of his love. [ woman vocalizing ] >> so how did these guys inherit his life's work? >> i was a senior in high school, and i was looking for a job that i wouldn't hate. >> you feel like you might be sitting on a gold mine? >> must their show go on? >> it would be...over. >> it would be gone. everything would be dismantled and somewhere in a dumpster. >> or will the fat lady sing? [ operatic singing ] [ door creaks ] [ wind howls ] [ thunder rumbles ]