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BookmarkGlobalization on different countries. What do you make of what europe is going through? We just heard Mario Draghi saying they have the situation under control. Disinflation is here, deflation is not far off. I have been bullish on europe and the euro for a long time. I think Mario Draghi actually knows what he is doing. He has the right mindset. There are cyclical problems and structural problems. The world today is in a depression, which is a structural problem. The u.s., china, and japan have not made structural changes — you’re a. Mario Draghi has provided accommodation to allow structural changes but he has not made monetary easing an end in itself. The bank of china has printed more money than the federal reserve. Not letting politicians off the hook and doing enough to keep they grow together — keep the euro together. You have a stagnation of lending in europe to the people who want to be productive.
We need to figure out a way to get the productive rid of the ate of the economy up. Credit growth is negative. Draghi has a problem. This points to structural problems. Europe has problems but are moving in the right directions. They have made strides in unified banking relations.
European wide bank deposit insurance. I expect we are a few years away from a true euro bond backed by the full faith and credit of all the members. The european sovereign debt market as a whole is comparable to the u.s. treasury market. If you could have true euro bonds, that would rival the u.s. treasury market.
Tell the germans. What the germans are doing is saying they want to see banking reform and structural reform. When we get it, we will back this euro bond. At that point, the euro is truly a rival for the dollar. The chinese are dying to put capital into europe. The unemployment problem is a problem and an opportunity. No one likes 30% use on employment. On the other hand you have a well educated labor pool with low expectations about how much they should be making. They can come in and drive growth above. Except they all moved to london. We have been having fun with this. Awesome and the — alstom and the french protectionism.
There is a lot of soft economics where people are depressed. When you are unemployed and young, it is more difficult to get back to work. Is this something that investors should think about? For investors it is an opportunity. We are seeing a large investments in auto assembly plants in spain, for example. The labor pool is there. It is one thing if you are a 60-year-old greek bureaucrat you do not want to take a pay cut and would rather throw a smoke bomb at something. If you are a 25-year-old spaniard and you have a college degree and you are offered an entry-level position with training and advancement, you will take that job. That is the opportunity. Many chinese and other capital with educated youth labor and an improved business environment, this is a recipe for investment and exports. What is the growth rate for the euro zone and the u.s.? the long-term growth rate is about 3%. europe?
Europe and the U.S., it is the combination of population growth and productivity. Add the two together and that is the growth rate. In the short run, europe could grow above trend because you can bring all the labor. It has not. It could end it is leading in that direction. The u.s. is not making structural reforms. We’re moving in the opposite direction and adding taxes and burdens and regulatory costs to the economy. Europe is trying to remove them. It is a slow process. Of the four major zones — europe, u.s., japan, china, europe is the only one that has stepped up to the plate. They have suffered in the short run but they are well-positioned for the long run.
China and the U.S. are trying to solve it with liquidity solutions but you cannot solve a structural problem with liquidity. ”the death of money” argues it is a number of things that come together and we could have financial warfare and market collapse. The markets are merrily going along for are we in a fictitious world? I had breakfast with some ceos this morning. Privately, they will say bank covenants are gone, cost of funds is very close to zero. They have more leverage than they have ever had. The New York stock exchange has greater leverage. This is a bubble that is being supported by zero interest rates and high leverage. Stocks should be higher by the end of the year based on the federal — in the long run, this is a bubble. When they pop it ends very badly. It is being floated by zero interest rates and leverage. You buy bubbles, that is what Soros and everybody else says.
Give us a sense of the duration of the bubble. Yellen sounds dovish. I expect a positive and the paper later this year. This could run into 2015. the problem is the scale of it. In 2008 all we heard about was too big to fail. The five biggest banks in the U.S. today are bigger than 2008 and have a larger percentage of assets. Their derivatives books are bigger. Hole thing is bigger. Risk is an exponential thing. This is what we are up against. It could start anywhere. We had not even touched on china. A house of cards?
Give us a sense of the duration of the bubble. Yellen sounds dovish. I expect a positive and the paper later this year. This could run into 2015.
I have a whole chapter in the book on china. The wealth management projects are a ponzi. The chairman of the bank of china said they are a ponzi. The money is going into real estate. If you are a state owned enterprise and you produce steel or glass or any components for construction, you just want to build buildings. I have seen the ghost cities. Completely empty. People say they will fill up in the years ahead, no they will not. The migration from the countryside is largely over. It is a town of obsolescence. You have to occupy and maintain a building. This is wasted investment.
If you adjusted china’s gdp for what is wasted, it would be lower. These ghost towns we have reported on on bloomberg. Great to have you on the program, author of “the death of money.”
