 for it to get here this year. So let us begin. It is about the next financial crisis that will not happen. As we began to put this panel together, it just got better and better and more wonderful. And I'm not going to go through all their bios because that will take precious time. Ann Richards is with us. She has a wonderful concession in her analysis of finance and investment. I call her the mathematician. We enjoy so much having her with us on Bloomberg Surveillance. And I was just thrilled that Ann could find the time to be with us today. Jess Staley runs a bank. He's said the most intelligent thing I've heard up the valley so far, which, jeez, it feels like 2006. We'll get to that in a moment. We have another banker with us, Mr. Corbett. Now, I've got it out of the way. All I wanted to know from Mr. Corbett, who's a real football, that there's guys, EI played football. He was like the real deal. So all we talked about was Patriots, Eagles, which I think has lost in translation at Davos. We got that out of the way. We are honored to have Fang Xinghai with us from China. Thank you so much for attending today with your work in Shanghai over the years and now, of course, in Beijing. David Rubenstein is with us and Ken Rogoff, who were with me last year. And thank you so much for, again, being with us with different views. I always would start with Ann Richards. But because of his acclaim on financial crisis, may I start with Dr. Rogoff first? Your book, which was my book of the year last year, The Curse of Cash, I hear a new edition, The Curse of Bitcoin. Will that move sales? It was the last quarter of the book, actually. Yeah, it was. And this is an important note, because it was my most courageous book ever and that can receive serious criticism and threat from his book. It's not just about the beginning of the book. It's about negative interest rates and it's about all the upward maple. Well, if we have another financial crisis, there really isn't a plan A, even, of what central banks would do. So I think it's something we need to talk about. Let's talk right now about the acclaim of your work with Carmen Reinhardt. This time is different. Do you feel that now that this time is different? I mean, I don't. I feel we're still coming out of the last financial crisis. A deep systemic financial crisis, like we experienced, has a long afterlife. And taking eight to 10 years to fully recover is not unusual. And I must say, a lot of the talk about secular stagnation, things will never be good again, conflates genuine issues like demographics, productivity, with the financial crisis. And so I'm actually, I'm not going to tell you there's not going to be another financial crisis sales of my book would collapse. But I'm kind of optimistic going forward about where the world economy is at the moment. We can talk about could there be a financial crisis, of course. Could there be a recession? Absolutely. But I actually think we're at the tail end of the last one in a pretty typical trajectory. What was the number one lesson we learned coming out of this crisis? Oh, boy. I'd leave it to the answer. I'm going to ask that, too. I've only got like three questions today. But from where you sit, I mean, in the middle of your book, you go into this whole thing on the Spanish. The Spanish are out of the collapse of Spain. And it was longer than 10 years. Yeah, I mean, certainly the theme this time is different as people convince themselves is different, that everything's going to go to the moon forever, and it never does. And particularly when you see debt rising at an aggressive pace, you should look out for that. And the current environment, interest rates are really low. And so you can say debt levels are high around the world, but not compared to the interest rates that we have. So I'd actually throw out the biggest risk to the global economies that were probably in an inflection point where the tightening of labor markets, tightening of demand, could get inflation, could get investment, which we haven't had. And then if something pushed up real interest rates, it's not my baseline case. I just want to assure everyone. But we don't really know why they went down so much. They're phenomenal lows. And if they went up, the places that weren't enjoying as much growth and had a lot of debt, Italy, Japan, for example, some emerging markets, they could have a lot of problems. I certainly see China as a place where they're at an earlier stage of this. They didn't have the financial crisis. They did a great job. But they do have a lot of the characteristics of a typical financial crisis building up. Some of the themes to speak to our panelists about. And I thought you had a very important perspective in the room about our collective memories and the number of people in the financial business that really have not enjoyed how you get into a crisis. What would you say to the young crew who haven't enjoyed 2007 or some of the moments of 2008 and 2009? Well, I think what Ken said is absolutely right and it's not even a plan A. So we have far fewer tools to deal with any event that happens. And by the way, it will happen somewhere where none of us are looking. It never happens where you're looking. It always happens somewhere else. And I think if you look at what's changed, what's shifted over the last 10 years, we really have had 10 years without any form of credit cycle. So we've now got a whole bunch of people who've never gone through a default cycle. And financial crisis are pretty simple. They always start with somebody borrowing short lending long, a bit of leverage in there, and a default. So absolutely. So we know that the elements will be there. We just don't know what the triggers are. And when you look at some of the new structures that haven't been through that tried and tested process, around, for example, structured leverage DTS or peer-to-peer lending. New things, which are good developments in many senses, but they've not been through the rigor in the way a bank or two or 300-year-old bank has. It's kind of figured out how it manages a credit cycle through that period. We've got a lot of things that are now big operators in the markets that we don't really know how we'll respond to the next one. So I think if you've got a look for where the kernels are for what will happen when eventually we go over the top and we start to go down the other side, it's in those sorts of things. It will be the unexpected places that have not been through this stuff before. As you figure out who to go to next among two major banks, Mr. Corbett and Mr. Staley, I'm just going to be polite and go B as before C. Is that right, Jess Staley? So many of the things. Corbett before S. Well, that's true. That as well. I'll go with the bank names today. When you look at the resurrection of Barclays that you're trying to manage right now, and if you look at how you're trying to steal the bank for the future, you've mentioned to me that you do see the asset size. James McIntosh in the journal today has a fabulous chart on the non-correlation of stocks and bonds as well. How do you look at the markets and tie that into where we are now as we get ready for whatever the crisis is down the road? Well, I do feel it's a little bit like 2006 where we're all talking about whether we've solved the riddle of economic crises. I take some comfort in Ken's saying he doesn't see it imminently on the edge. But given asset valuations, given that we've got 4% global economic growth, it seems like we're in a pretty good place right now economically. But we've got a monetary policy, which still seems like it's in the remnants of a depression era. And I think we have very little capacity in the capital markets to deal with the real move in interest rates. What I would also say is I do think that the banks are in such a different position than they were in 2006, 2007. If there is going to be another financial crisis, my bet is most crises are where we run into something that was totally obvious, but we all missed it. So 2008 was triple A securities or cash, need no capital. I think that got wrong. 2009 was a Eurozone bar where it was a Unizone credit. We sort of got that one wrong. There's something out there in the capital markets, given where equity markets are at a whole time high and volatility is at an all time low. That's not a sustainable proposition. I don't think it's going to come from the banks. And I guess the finally for me is we just got done with our stress test with the Bank of England and Mike goes to the same process with the Fed. When I look at the stress test, and what we clearly focus on is how does Barclays do coming out of that, the real issue, take the stress that our regulators are putting these banks through and apply that stress to the rest of the economy. And I think given where debt levels are, given our exposure to low interest rates, if we do have another economic cycle, which I would argue we will, I think the capital markets will be tested. Michael Spencer wrote an essay seven years ago, I think, on type one and type two regulation. You can't see what you're supposed to see, but you can see things that are a distraction. It was not that it was confusing, but Jess goes right to it, we have stress tests. Do you believe in stress tests? Does stress tests keep you from a financial crisis? Or are they a gimmick? I don't think we've done a lot, actually, with the conventional banking system, but that pushes a lot of the problems into the shadow banking system. And that could be where we see the next problem come from. Stress tests were a good idea, but they're not perfect. And you know that. Microcorbit, when you look at banks, they're a different kind of bank than they were at the beginning of the last financial crisis. You speak of resiliency, but you mentioned to me a word which I'm hearing. It's almost maybe my phrase for Davos this year. Maybe it's Davos Scales Up. We need scale. Michael Nathanson in media with Moffat Nathanson the other day told me we are going to have scale in media like we have with Fox and Disney, and we can maybe address that later on, David Rubenstein. Tell us about scale in banking to try to avoid the agony of the next financial crisis. Sure. If you think about where, or some of the lessons that came out of the last crisis, and one of the challenges was, is that we had a global banking business model where everyone or most big banks were seeking or trying to execute against similar plans. Be everything to everybody, the financial supermarket. You remember 0607, that was the talk, that was the rage. I think what's different today is coming out of the crisis what you've seen banks do in many ways is go back to their basics or go back to the areas that they believe they've got a competitive advantage. And that competitive advantage is oftentimes steeped in scale. And we think of scale and whether scale's in your market's business or your banking business or your lending business. In today's age of slower growth and more regulation. If you don't have scale, the odds are you can't buy it. You're not seeing big banks get bigger through acquisition. You've got to build it. And in slower growth, that's tougher to do. And so what we've seen is the industry in many ways pull back to areas of strength, areas of scale. And you've ended up with very different business models which in itself is far more resilient. So we can use different examples of firms out there in terms of how they change. But when we look at city as an example, I can tell you the things that we're not today. We're not an insurance company. We're not an asset manager. We're not a hedge fund. We're not any of those things. We're simply a bank and a bank that operates globally. And that's the scale that we've pulled back to. And as you can go around and look at Justice Bank and look at other banks, and you can see the divergence of business models. And I think that's quite powerful in terms of what it means for resiliency for the system. Within that, do you day to day have a better knowledge of your global bank? How do you keep track within the scale? How do you coordinate your global bank if you have bigger and bigger scale? I mean, endless conference calls doesn't do it. Endless travel doesn't do it. How are the communications going to exist within a given institution if we all decide to scale up? Well, if you think in many ways of what's going on in the world, and in particular on the institutional side. And Anne's business and others are great examples of it. Is their scaling as well? So it's not that we're necessarily covering more clients. We're not. We're actually covering less. It's not that we're entering more countries or doing more things. We're just doing more with what we have and using the benefits of scale against that. So we're not adding complexity. In fact, we've taken complexity out of the bank and out of the system. I want to turn to a little bit of politics here. And I think this is so important for you and I were talking. And you brilliantly said that you would like to respond to what is clearly part of the Western zeitgeist in this January of 2018. And it's not that it's about China or it's China's fault, but that China's a number one risk. We enjoyed with Bloomberg Surveillance working with Ian Bremmer and Eurasia Group early in the year. And they did place China is the number one risk of the number that they had through their annual review. You take a real issue of that. Why is China not a risk? Well, before I answer your question, let me say since I'm the only regulator here, I think as regulator you have to always stay alert on any financial risk that's coming up. And although the economy is doing quite well globally, but we cannot be complacent. And in terms of financial risk, I think every crisis is almost seemed to be associated with some kind of asset bubble. It could be that, it could be equity, it could be something else. And so this is the sign that we should look around. Are there any asset bubbles in any major economies? And if you find some emerging asset bubble, then as a regulator, you've got to do something about it. So this is my opening statement. But to answer your question, since the Chinese economy is so large, so if something bad happens to the Chinese economy, the rest of the world will be affected. So the concern about China, in that sense, is justified. We realized that we have some problems quite some years ago. And the problem is mainly with a lot of debt. And we have too much debt in our system. What we use, the macro in debt in this ratio, whatever you use, it's a non-financial sector that divided by GDP has been rising all the time. It's now 250%. So we realized that some time ago. And we began to take actions two years ago. And the good news at this point is that that ratio, for the first time, pletured in the last quarter of last year, it did not rise. And furthermore, M2 divided by GDP is also not rising. And M2, the gross rate of M2 in China last year was only 8.2%, which is almost 2% lower than nominal GDP gross rate. So you can see the effect of taking these tightening actions. Now, since the macro debt level is so high, so people will still be worried about the consequences of something happens to the financial system. And I can tell you, in the Chinese system, if something bad happens to certain small financial institutions, what we will do, and this is the lesson we learned from the US financial crisis, what we will do is that we will move very swiftly to contain that risk, to make sure that whatever panic caused by this small institution does not spread into the entire system quickly. And if you can contain that risk and make sure that panic does not spread, then the entire financial system will be OK. And the way that we move swiftly in China is that I'm almost sure that if something like that happens, the central bank in China will come in immediately. Some of the larger, healthy financial institutions will be brought in to take care of that small institution immediately so that these interbank lending does not freeze and the system can still function. Now, this is something that the Chinese government always does very well, because our system can function really quickly. But of course, if the larger problem is so big, then even if we can move swiftly, we will not be able to deal with the bigger risk in the system. So that is why moving earlier to contain the scale of the entire system, the risk of the entire system is so important. And as I said, we've made some progress in that area as well. One thing I noticed here, and I left David Rubenstein for last because I think he can provide us with a terrific perspective of not only finance and economics and investment, but bring it over to our geopolitics as well. I was thunderstruck by Richard Edelman's trust barometer released yesterday. Every year it's different. I think it's an incredibly important document. And the fracture is the word of the moment here. We're fractured. Craig Ips article today in the journal. We're fractured within our nations. And it really shows, as you mentioned to me earlier, the geopolitical mix that we're in as we speak to bankers and managers of money, and of course, an esteemed academic. That speaks to me, David Rubenstein, of exogenous shocks out there that get us to the next crisis. Well, the most exogenous shock I'm worried about the moment is these lights. They're very hot. Yes, they are. We do the surveillance dab, which is like this. I hope they're getting vitamin D into me, at least something. I'll get something out of this. But if any of us thinks that's what it is, these lights are very, very hot. OK, so global warming is coming here. He's such a TV star. You just get right to the TV. Thank you so much for your program, and Bloomberg this year. Well, thank you very much for the plug. So right now, the biggest concern I have is that most people think there's no problem of a likely recession this year, or maybe even early next year. Generally, when people are very happy and confident, something wrong happens, as you know, from your own research. So I am nervous that the conventional wisdom is that we have no recession problems around the world. Everybody's doing quite well. As John Kenneth Galbraith, a former Harvard faculty member, famously said, the conventional wisdom is usually wrong. And it might be in this case. So what would produce a recession this year? I'm not saying it will happen, but what is the thing that I most worry about? Well, I do worry that governments maybe have a little bit too much debt. And maybe they have too much entitlement programs that they're not ultimately going to be able to honor. And at some point, people will wake up and say, the US government has $20 trillion of debt and unfunded liabilities that are hard to fathom about their being actually paid. But leaving it out of sight, and people don't worry about for a while, I worry about geopolitical things that we can't anticipate, the so-called black swans. So an unanticipated 9-11-type event somewhere in the Western world, a dirty bomb goes off somewhere, Russia decides to invade someplace. The Middle East gets hot again in certain parts that are not yet hot. Maybe there's some more hot disputes between Saudi Arabia and Iran. We don't know. Maybe something between China and Japan. So you never know what's going to happen or it could be a pandemic. So I think when everybody's complacent, that's usually when you have to be nervous. Now, your earlier question, what was the lesson of the last recession? Buy your own debt back at a discount. Those people that bought their own debt back at a discount made great fortunes. And if you can't buy your own debt back at a discount, hold on, hold on, hold on. Don't give back the keys to the banks because eventually the economy will come back. And if you hold on, you'll make a lot of money. And the people that made the most money out of the last recession and private equity lease were the people that bought their own debt back or managed to keep the banks away and held on to the assets until the economy came back. My heart is taking notes on this. That's what happened. Great fortunes were made and great reputations were made by holding on to assets or buying your own debt back at a discount. So when the economy starts going this way, don't run for the fences, be there and hang around the hoop because you're gonna buy some things at great discounts. Within this, and again, we welcome all of you. We're streaming with the World Economic Forum website and a top link as well. And again, I thank Bloomberg for their commitment to this event on Bloomberg Radio and Television worldwide. So we've gone around once and I can go eight or nine different ways. Jess, I want you to lead it off here with a more open discussion about the things on your mind. I wanna keep this open as we look at the crisis that Ken Rogoff wrote about. Jess, expand further, please. Well, again, I think, as we've all sort of talked about, it all seems so rosy at 4% global economic growth. And I think we saw the economic calamity when we missed the last financial crisis and the damage that was done globally. And I do think one thing that is different this time that we need to utilize is I think the connectivity and the collaboration between regulators and academics and private equity firms and investment firms and banks is at a whole other level than it was pre-crisis. You go back to 2005, 2006, a bank would meet with the Fed maybe once every quarter. Today we have the Bank of England and the PRA and the FCA, they're in the bank every day. Did the British do this better? Did they have a more focused, I'm gonna call it simpler format? I think in both sides of the Atlantic, the degree of integration or work between the regulators and the banking community, not only to fix what happened last time, but now I think as most of the corrections through bank regulations have occurred, it really is we need to work collaboratively with our regulators to avoid the next crisis. On one level, pre-2008 and 2009, the regulators were there just to bear witness. And if something went wrong, they would use their abilities to bring the big bank in or do something in order to try to course correct the economy real time. Today, the political body have told the regulators, I want you to regulate the system through stress tests or whatnot, so you avoid the next financial crisis. My some almost 40 years career in finance, we've never avoided the next financial crisis. And so what I think is incumbent upon banks and asset management firms and academics is to work collaboratively with regulators in order to try to avoid the next financial crisis because rightly so the political costs that the banks have endured because of what happened 10 years ago, it's been very high. So I do think we all need to sit down in forums like this, and even though it's all rosy and whatnot and say what could we be missing? What could be happening in the non-banking financial market, whether it's levels of debt, whether it's how much short interest is there in volatility, how much are we building structured notes around the world that are basically trying to enhance yield by selling volatility, which at this level is a very smart thing to do. If this thing turns, hold on to your hand. Are you worried about that? Are you worried about the present game? Absolutely. You're not worried about this, right at Citibank? I mean, if you look at the dampened volatility that's out there and everybody's playing to play it, is it 2000, is it 2006? You have to pay attention to it again. You think of where we are today. We went through a government shutdown over the weekend and the market's up. So you go through these events and you've got to ask the question. And the challenge is, I think, from the asset management or from the investing side is along the way, you sold Brexit, you bought it back high. If you sold President Trump's election, you bought it back higher. And so I think people stopped selling. And so there's a numbness out there or there's an ambivalence out there that's concerning because when the next turn comes and it will come, it's likely to be more violent than it would otherwise be if we let some pressure off along the way. As you mentioned, the new bank, if you will, with the media, with all we do about FIC and we're worried about trading in jobs, do you see a new trading process in banks as we go to the next financial crisis? Is fixed income currency commodities, is it going to be something different for the bank than it is now or certainly different than what it was in 2006? Well, one of the things, Tom, we've stopped talking about because the central banks have largely taken on the role of being the significant liquidity provider, but bank balance sheets today around the globe are much smaller in terms of their dedicated capital and risk-taking tolerance to pre-crisis. So when the great science fair project ends around QE, and we're talking potentially maybe later this year. Can I steal that? I've never used that. I love that, the science fair project. And we see maybe the Bank of England start to pull liquidity to tighten. Maybe sometime early next year we see the Bank of Japan and things start to change. What's liquidity going to look and feel like? We don't know because it hasn't really been tested post-crisis. Your course, this spring at Harvard, is science fair 401, something like that. How's all this going to end? This wonderful banking experience. Chairman Powell has some challenges as this governor, current, and others. I mean, I think the core thing is just said, if interest rates rise faster than the market's expecting, because inflation could come on us suddenly. I think U.S. inflation will exceed 2% this year. And we may start seeing it elsewhere. We may already be seeing it in China, I don't know. And if they start tightening faster than markets expect, how are capital markets going to take it? I want to mention something about what David said about geopolitical risk. I normally say when we're reaching to try to think of what could go wrong and we're pointing to geopolitical risk, things are pretty good because you're really racking your brains to try to think of what's wrong. I have to say we haven't had President Trump before. And so that sort of, I think, introduces a certain randomness that you have to mention. I got 32 minutes into the panel before we mentioned the T-word. Thank you. We don't have to dwell on it. I mean, I'm sort of torn between a crisis in China and an artificial crisis in the United States as being the biggest risk. And the stock market, by the way, I don't think an equity market collapse is nearly as bad as a debt crisis. It's not pleasant, but it's not nearly as bad as a debt crisis. But I have to say it is not hard to imagine. A stock price collapse, I think the stock prices are built on the high growth, but very much the low interest rates. And I don't know how everything from art and Bitcoin to stock prices will react as interest rates go up. You've been listening to this discussion. I'm sorry, I've ignored you. And you're the one that has to sit and actually make investment decisions and choose around these mix of issues. How has your decision making changed at M&G as we've come out of this crisis? I think that the listening to all of that conversation, if we're talking really about a financial crisis, rather than just an equity market correction, which could be quite a severe correction, then I think you have to look at what is systemic. What is actually a systemic problem? And I think listening to this conversation, there's one thing which is potential systemic risk, which hasn't been mentioned at all. I don't really buy the geopolitical argument, because geopolitical stuff happens all the time. It has to be something which happens, which fundamentally changes the way people react to events rather than the event itself. So it's got to change the animal spirit in some way. And the evidence points to the fact that there's relatively few, relatively seldom about the geopolitical stuff. We've not talked about technology. We've not talked about the systemic risk potentially from the cloud. We've not talked about the fact that we all have businesses which are absolutely reliant on a very small number of people who provide the pipes that affect what we all put our businesses through. So if you were to ask me what could happen at systemic out there, I'd say there's a technology thing out there that we're all somewhat blind to, which will be kind of interesting to think how markets would respond to that if none of us could actually trade for one or two or three days or so. I think the other thing which has changed fundamentally this time around, I think the point about the banks being smaller and less systemically risky, I think is absolutely right in terms of the balance sheet. But the thing that has become more connected is, as you say, regulation. And there is a certain systemic risk from regulation. If all regulators are effectively looking at the same sorts of things in their stress tests, if all big insurance companies are sort of regulated by the same rules, likewise banks, the one thing you can be sure of is that the scenario which tips up isn't one of the ones that featured on anybody's stress test because it never happens like that. So I think there are systemic challenges out there that maybe none of us are looking at the right place for it. So what do you do when you try and make investment decisions against that? You try and look right through to the fundamentals. And you find stuff that behaves differently through the cycle, but even if, at the moment, it's stress, it might all behave in the same time. I want to come back to David. You have geopolitical events. They can't affect the economy. So when Saddam Hussein invaded Kuwait, it had a serious effect on the US economy. When 9-11 occurred in the United States, it had a serious effect on the economy. So I think it's unfair to say, if you have a major geopolitical event that's unanticipated, the economy will just move on as if nothing happened. So we can't anticipate these events. I hope none of these things happen. But I think you can't and you can't prepare for it. But when they happen, you should expect that the economy will act differently because people won't spend as much. People will be nervous. And right now, people are in the mood of saying, well, something is going to happen. I don't know what it is going to be. And so if something bad were to happen in the geopolitical sense, I think it will frighten people a bit. And they will pull back from capital expenditures or other kinds of things. We just don't know what it will be. I do think that it's harder, though, to figure out what's going to cause the recession than to figure out how to make money from it. And people who are good investors, and presumably people who are watching us are trying to figure out how to take advantage of this, the best way to take advantage of this is wait for things to settle down a bit and then probably buy. Not necessarily trying to hit the bottom is never possible. But when you recognize that there are fundamental strengths in an economy and you do make investments along those lines, the geopolitical events will ultimately go away and the economy will come back. And economies always come back. So again, the people that made the greatest fortunes in the last recession and other recessions were people who bought things near the bottom and rode them to the top. And I suspect that's what's going to happen again. Last year, we had President Xi speaking here. And I've said this many times on air, literally this valley came to a stop. Professor Rogov mentions our guest coming Thursday and Friday, the president of the United States. You serve President Carter. What will you anticipate from President Trump within the new international relations that is upon this valley? And the idea here is the Washington consensus, where is it? Fareed Zakaria's post-American world, where is it? Do you see a regime that the president can address in international relations that the president can address? When it was announced that President Trump was coming, I think jaws dropped because this wasn't seen as his crowd. This is the center of the globalization movement and he hasn't been seen as the biggest supporter of globalization. So he's coming here, I think, either to do one or two things. Either to say he was right and globalization isn't such a great thing. And we ought to accommodate his views and change our views. Or he's going to say he's been misinterpreted a bit and he actually believes in some of the things that people here believe in and that he may have not communicated adequately, but actually he believes in many of the things here. I don't know which message he's going to have, but I suspect it's a message that's been carefully thought through and he wouldn't have come without some message that he wants to give that presumably makes a fair amount of sense. What is the message of China one year on from the historic moment with President Xi last year? It is so interesting to see the different themes in my world that we see every day at Bloomberg. But what is this, not the simple message, but what is the theme you see day to day from your home in Shanghai and working now in Beijing? I mean, China obviously needs a global trading system for its own economy. And China also realizes that as its economy grows bigger and bigger, China needs to open up more to the international competition. And that's what President Xi said last year here that China would do. And that's something China is doing. So for example, in the financial service sector, when President Trump visited China last November, we announced that the financial sector would be opened up in a very big way. And the details are coming out very soon. So we continue to see globalization, a worldwide trading investment system is good for China and it's a system that China wants to help strengthen. What does China need from America if we have an administration and a president so distrustful of China? We talk about, and we see this with Mr. Macron, without question the most quoted I've seen in the first two days of Davos has been Mr. Macron and has many travels of recently. But what does China need from the United States from where you sit as part of the government? We just want a normal relation with the United States. Good luck. We think. The professor said that, not me. In that regard, let me say, I think that President Trump and I'm not part of his administration. I'm not speaking for him. Really? But I suspect that he saw when Xi Jinping came here last year, he was widely seen as having made a very impressive speech talking about the importance of globalization and for a communist leader to come and kind of capture the world economic forum was quite impressive. I think Trump recognizes that if he comes here and makes an articulate speech, he can reassert the US presidency as being perhaps the most important position in the world. Right now, you have two people who are vying to be the most important persons in the world. President China, President of the United States. I think the President of the United States would like to regain some of the luster that maybe he lost a bit in the first year in the perception of the people around the world. And by speaking here, I think he feels he can probably regain that luster. How did politics play into your research within the many papers, the esteemed papers that you and Carmen Reinhardt did? Did this discussion fold into it, or are you removed from the geopolitics that David speaks of? Well, I mean, a lot of it's in human nature, not so much geopolitics. And it doesn't necessarily matter. The left or the right, you can have financial crises either way. But after a financial crisis, this fracturing is very typical, the polarization. There are papers on that, economists and political scientists. Maybe it will ameliorate, get less after a while if growth continues. There are other factors. So I mean, that's something, I think, that's hardly because of the financial crisis. Two or two bankers. And I say this with great cheer. I believe we have legislation, a tax cut legislation. And the IMF clearly says it is a cyclical plus plus. And maybe it'll be longer. How will you adapt and adjust, Mike Corbett, an American bank to this legislation? Is it a one-off that benefits us with growth to keep us away from a financial crisis? Or can it really have a long-term structural benefit that truly changes banking and changes your business? I think it has the ability to have a long term. We haven't seen it yet. We don't know yet. We don't know yet. We don't know yet. And when you think about the US economy and the demographics of the economy, $17, $18 trillion economy, two-thirds consumer. And we can look at the consumer in the US. We can look at the consumer most places. But the consumer in the US is very important. And when we look at employment, when we look at housing, when we look at savings, all those, in pretty good shape. Yet we had an economy that was growing 2.1, 2.2%. So what's the catalyst? And I would say not just as you travel in the US, but you travel around the world. And you have conversation with business. You say, tell me about your business. What's your business feel like? And time and time again, we're kind of eking it out on top line. Managing the heck out of expenses. We're being tough on CapEx and hiring and investment. And maybe this is the catalyst. It's what we call maybe it's the catalyst that takes us from optimism to confidence. That's right, Ron. Just daily, number one, well, please go ahead. Do you have an observation? So Barclays is a British bank. Really? Whose strategy is to be a transatlantic consumer and wholesale bank basically anchored in New York and London? And I think this tax cut aligned with another of other measures taken by the US Treasury and to a certain extent by the Fed. As a global bank, we want to have a regulatory environment and a tax environment that is as equalized as we can. And I think to a certain extent, one of the good things that the G20 did post-financial crisis as they re-regulated the financial industry, they basically kept it the regulatory environment equivalent, whether you are in Brussels or London or New York or Beijing. Recognizing that a functioning global capital markets without barriers to flows of capital is the best for a bank. Are we doing better now with that? Well, I think we have preserved the regulatory equivalency broadly speaking around the world. I think there's a question of whether that covenant, if you will, between countries is holding right now. And there are positive and minus to this. The United States has made a very bold move of dramatically decreasing its corporate taxes. That has a real economic impact to the benefit of Barclays shareholders and the city shareholders. What does it mean competitively with other countries? And how will other jurisdictions respond to a dramatic drop in corporate tax rates? I think what you're likely to see is other companies saying, countries saying, well, if the US can have this big tax cut, maybe we'll have one as well, and kind of a race to the bottom. Now, one of the things people may not realize is when we have these tax cuts in the United States, they're based on 10-year projections of what revenues are going to be or costs are going to be. And we really don't know. So what you often do is you say this is going to give you a very good benefit in years 1, 2, and 3, and we'll make up for it in years 7, 8, 9. But year 7, 8, 9 don't really come along anytime soon. So we really don't know what the impact is going to be. But I think right now, the companies are going to, I think, provide bigger dividends. They're going to do stock buybacks. They're going to make more M&A acquisitions. And I think the amount of cash in the United States will probably inflate the economy a bit. David Rubenstein, do you believe in trickle-down economics? That's all great for the haves. Do you believe in trickle-down economics? That's a leading question. Like, do you hit your, you know? No, no, but you grew up in Baltimore, the son of a postal worker. You grew up basic. Do you believe in trickle-down economics? Well, I do not want to say believe in trickle-down economics. I do believe that when you have a tax cut of this amount, and much of it goes to the middle class as well, it will have some beneficial effect. I don't think it's only a trickle-down effect, but this tax cut. Jess, you mentioned you're a British bank. My number one observation for a week in London is, wow, continued change, continued enthusiasm in London. And the message I heard interview after interview, including Jim O'Neill, was just beginning to really diffuse across the United Kingdom. Do you see that at Barclays coming out of the unique financial crisis of the United Kingdom, Northern Rock, and the rest of it, and how all of you had to adapt? Is it a better United Kingdom, even with the soap opera known as Brexit going on? Well, again, I do think that the Bank of England has done quite a good job managing the transformation of the financial industry post the financial crisis. And we've seen reasonably strong economic growth, somewhat weaker recently. But like all these countries, a little bit going back to what Anne was talking about vis-a-vis technology, one of the things I think is playing well to the United Kingdom right now is technology. I've said this in a couple of forums. Perhaps the biggest economic event immediately, post Brexit, was a decision of Google to make London, their second largest center for technology development, and put 7,000 engineers in the middle of London. I think the UK has got an outstanding academic base. I think it's in the forefront of a lot of what's happening in technology. And there's not a business or an industry in the world now that's not deeply impacted by technology. And so if we can keep the borders open to the best and the brightest and use that academic footprint to allow a Barclays to be in the forefront of mobile banking and digital safety and whatnot, that's a good thing for the UK. That means the biggest story of 2017 in terms of the economy. Europe, many people thought was dead and gone years ago and was going to be really a weak sister compared to the United States. And when you had Brexit, that made people think even more so. That would be the case. And despite Brexit, the problems in Spain, the problems in a weaker in German government, a new French government, Europe has done quite well economically. Prices are a little bit lower. And so it's a very attractive place to invest. Just get a third runway, Heathrow. That'll do. I just want to echo second what Anne said about technology. Let's face it, we don't understand it. And it's grown in importance. It's infused all our lives. And the idea that something could happen that had a systemic effect, a first systemic technology crisis, not that far away. And what's interesting here is Professor Rogoff told that to me in a radio booth. I remember this conversation pushing 15 years ago, 14 years ago. And yet, Anne, as you mentioned, technology has become so many different things and so embedded in our life. I remember at Davos, at these meetings, the uproar over cell phones. Well, wait, we can't have these in the building. We can. And then, of course, the next year, every executive had them going and had three assistants to tell them what to do with it. When we say technology in 2019, in 2020, what do you mean? Well, to tell you about it, it's the interconnectivity. So the amount of stuff that we all put, the amount of data, the amount of transactions and processing, the amount of stuff that we put into a shared space, for example, in the cloud is just kind of interesting. All of our businesses would stop if, for some reason, that most of us don't understand, because we don't really understand what the cloud is, let's be honest. And you're not talking here about one or two days or five days or six days. You're talking about something more systemic, as you mentioned. I'm just posing the question. What could potentially cause a systemic risk? The answer is if, for whatever reason, we had the inability to access Wi-Fi-based systems, cloud-based systems, just really simple stuff like that. So just I'm hypothesizing. And the answer is nobody really knows the answer to that question. How would our businesses all work in a world where suddenly the cell phones went down simultaneously? How would your disaster recovery procedures work? Have you all got your satellite phones tucked back at your hotel room? Maybe you do. But it's an interesting hypothesis. No, and I think every year there seems to be a change at these meetings. I want to again say welcome to all of the top link at the World Economic Forum. And of course, we're streaming across the World Economic Forum site. We're thrilled with that. And thanks to Bloomberg for their commitment on Bloomberg Radio and Television today to this panel. I'm going to go for five more minutes and go to Funger if I could. And then we'll open to questions. And I will say, Dr. Frenkel, you get the first question, so you better be ready. As well, Jacob Frenkel with us, and we'll lead with this question here in a moment. How's Bitcoin? You're in the heart of it, aren't you? We in China? Yeah, in China. But if we look at China, if we look at Korea, and we look at 19th, Ken told me Tom go along at 19,000. But when you look at Bitcoin, you have had to live it as a regulator in China. Well, in China, it's the central bank that has to deal with Bitcoin. It's not the securities regulator. That's fine. You're in the meetings. Give us the experience of this. Our attitude is that this is something that is in whose real value to the economy still has to be proven. So in that sense, we do not want them to get too big, too widely traded in China. And that is why the central bank has actually ordered the closure of trading of Bitcoin in China, which I support wholeheartedly. But let me just add one thing. Mr. Rubenstein talked about how to make money in a financial crisis. I want to say something to the clouds, maybe here or over the internet, who had a bet short on China. If they bet that China would somehow have a financial collapse, and during the collapse they could make some money, I can tell them that they're going to be wrong again. Because the nature of the Chinese system actually prevents a financial collapse from happening. As I explained, we always move quickly to contain the risk. But of course, as the government moves to intervene, there's always a cost. It's not costless. The cost could be more government money spent on things that should not be spent. It could be a slow economic growth in the coming year. It could be a further unequal income distribution in the society, and so forth. So that's why I agree very much with Jess. You said that nowadays regulators work much closer with financial institutions to prevent such a situation from happening. And that is something what we are doing. And I want to give you a chart. You have charts? Excuse me. We're doing radio. Come on. What do you got? US stock market. To say something about the United States. As I said, regulators should always have to watch out for asset bubble. And this is a chart about oil's equity market. There's something called cyclically adjusted price earning ratios in the US stock market. And is the vectors, the arrows going up? Yeah. From the lower left to the lower right. And it's only lower than December 1999. It's much, or it's higher than September. David Ruiz, I know you want to talk about this. I want to say this. And there's a risk there. If a Chinese economy collapse is not good, I don't think it's going to happen. People have been predicting it for 10 years, and every year they've been wrong. And that's in part because the Chinese government can move much more quickly. The US government is so diffused, it can't really get a fact together. I don't really think that's something to worry about. The biggest thing I worry about increasingly is something that we haven't talked about. And it's not global warming. It's a phenomenon that I've noticed recently. It's the increase in gravity. As I've gotten older, I've noticed that things sag more. And I've noticed that my ability to jump for basketball is less. So I think that gravity and the earth is getting much stronger. And that's something we should worry about. Particularly people my age, you should worry much more about gravity than anything else. OK. Would you like to speak about gravity? And my daughter's been working on gravitational waves, and she's found some around you, David. That was actually a handle in it. But this brings up an appointment to go to the professor. If we go back to Newtonian mechanics, f equals g mm over r squared, does the math work? Or did you learn, as Olivier Blanchard studied at the IMF, that the models didn't work? Richard Clare does d s g e. Are you still a believer in Obstfeld Rogoff or Krugman Rogoff? Or is there a new math involved as we go to the next crisis? Well, I think the models failed miserably, not just in predicting the crisis, which we don't really think we'd be good at anyway. But they failed in predicting what would happen afterwards. It was much more fruitful to look at a historical example. Going back to the high level of the stock market, interest rates are really low. I think it's easily half the story of why stock prices are maybe so high, maybe three quarters of it. If interest rates go up even modestly halfway towards their normal level, you will see a collapse in the stock market. I mean, real interest rates inflation adjusted. And I don't know what will take place right now. The biggest worry I would have for the stock market is that the technology unicorns, when they try to go public, if they go public at a lower valuation than their last private round, that's going to begin to make people very nervous. And we've already seen that happen. We're just beginning to see that. We're already seeing that now. Well, I agree. We're beginning to see it now. Would you say that will be a theme for the next 24 months where we see it? And I get to see more of that. Interest rate is one risk to the US equity market. Another risk is regulation. And when you see the president tweets about every high of the stock market and takes pride in that, unavoidably, it will have an impact on the regulators. The regulators may not move as quick or as adamantly as they should. And that can cause another risk. That's a very good point, that even though the financial regulation has changed and is better, it's enforced by people. And we've systematically seen the regulators change. And that's changed the implementation of regulators. They're independent, I thought. Oh, well, I mean, that's on theory. I want to go back to gravity. I stayed in a hotel in London that was the height of early maybe Suido Edwardian banking. It was the Midland Bank building of 1924 down by Manchin House and down by our glorious new office. And it was built as a monument, Jess, to what was before them. What's the monument we're doing now that we did in 2006, as you brilliantly stated earlier, or for that matter, in 1997 before the substantial crisis of 1998, what's the monument in financial system architecture now that you think is most monument-like and we need to avoid? I was going to take it from another side. Again, what I think we can't forget is that the beginnings of finance, what finance really did, going back a couple centuries ago and very much in the UK, was really to democratize economic growth. Finance was the means by which wealth could be transferred from a diverse population, not to just a family member who inherited a big farm, but rather just to an innovator or an entrepreneur that had a new idea. And so finance allowed for the funding of someone who got an idea of building a car or building a railroad. And we obviously went through a dramatic period in 2008 and 2009 in the aftermath of the financial crisis. But I think Citibank does an extraordinary job of it. People like Carlisle and the investments that they make, we shouldn't lose sight of the value of finance in providing for global economic growth and that it does provide a very central function that benefits everybody. One of the things I think we haven't talked about is that Samuel Huntington used to talk about the clash of civilizations. Now it's a clash of technologies. The Chinese large technology companies, are they going to be able to take their technologies outside of China and really dominate the world? Or the American companies going to take their technologies, Facebook, Google, and so forth and dominate the world? And it's going to be a big fight between the Chinese technology companies, the American technology companies for global supremacy outside of their core countries. And that's where you're going to see a big clash. Michael, please. What I would say when we think of your question, what's the monument to financial services today? What I love about the monument is it's not physical. It's digital. It's not a building. It's not the infrastructure of that. But the fact that finance today is about inclusion and getting to more people in the world and making that easier. And clearly technology digital is pushing that. The pain points that are coming out of people's lives. So we talk about people's proclivity to use technology. But when you think a lot of it there, there's some that's disruptive. Most has actually been life enhancing, where you can get your balance online. You can spend online. You can borrow online. You can do those things. And we're putting more time back in your life. And so when you think of that monument, I think it's the push towards digital. OK, we're going to go to questions. I want to make clear we're on television worldwide and radio. And as you get up, please try to avoid diving in front of the cameras or making faces and hand movements and that. I am honored to have as a first questioner today, Jacob Frenkel, who is Ken Rogov knows, did original research in Chicago years ago on foreign exchange and economics. He served as governor of the Bank of Israel and of course holds court with James Diamond over at JP Morgan now. Dr. Frenkel, an observation please and a question for our good panel. Thank you. Thank you very much. We are celebrating quite a few anniversaries this season, the 10th anniversary of the crisis that you have been talking about, the 20th anniversary of the Asian financial crisis, the Russian default, the 30th anniversary or so of the debt crisis of Latin America, and the 30th anniversary of my own presence here in Davos. Invariably, in all of these events, the conclusion that you started with, namely, that a debt problem is a much more serious than an equity problem is common. But there are always two questions which you always, Tom, have asked. Number one, where is the risk today? And number two, is it being priced properly? Because if we know the risk and it is being priced properly, it has a very different dimension. Now, in order to price it properly, that's where transparency comes in. That's where regulations come in, et cetera. So you were asking about the future. Where is the risk? And if we know the risk, is it being priced properly? And that's when we will know if we need to fast and are we pricing particularly in the short-term paper market? Do we have confidence we're pricing risk properly now? I was addicted to LIBOR or OIS for years and other games of measurement. Do we price risk in the short-term paper market better? Are we smarter? It has to be a risk. I mean, we are in this unprecedented monetary experiment science fair. It's going to turn around. It's not the QE, the low levels of interest rates as they reflate and who knows what's going to happen. And on transparency, China's done a phenomenal job. But when I hear this time is different, China's different, even though it looks the same, you have to wonder. I've asked you this before, and I'll get to Mr. Corbett. The idea of how much of our debt is still at a negative nominal rate and with the oddities of real rates, do you have confidence we can unwind from a negative interest rate to something more normal, nominally, and real? Confidence? No. But I'm actually more worried not about the unwinding. But if we did have a significant recession, it could happen. David gave reasons. Ann gave reasons. Jess gave reasons. And if it did happen, there isn't a plan A. I mean, they've done so much already. I mean, there'd be a big fiscal stimulus. There'd be more quantitative easing. I don't think either would work as well as it did last time. Jacob Frankl, should Mario Draghi act sooner? Should he do something on Thursday at the ECB meeting? Do we have a microphone for him? Does he need to act quicker to begin to unwind? Mario Draghi is doing a great job. That was a banker's answer for you. The Europeans should take out key man insurance on him. Because when he goes, you know, a real giant will have gone because he's done an incredible job. Can you mention the European expansion that's there? Let's go back to something Ken Bay barely touched on. March 4th, I believe it is the Italian election as well. Ken, I've noticed per capita growth in Italy actually finally percolating up. Is it all boats rising? Is the boom of Macron's France or Merkel's maybe Challenge Germany? Is that lifting all boats? Is it supposed to work? Again, like David Rubinstein said, Europe's been a phenomenal story this year. It's the most surprising thing of why global growth is so good and it's benefited Italy. But it's also true that even in the salad days of European growth, Italy didn't grow so well. When I look at their political system, which I won't claim to begin to understand, it doesn't look like it's sorting itself out. I don't even know if we'll see Berlusconi again. And you have to worry about the long term. And they do have a lot of debt. And if the rest of the world inflates interest rates, Italy could not keep up. M&G, did you capture the boom in Europe? And you look back with all of your strategists and analysts, did you feel like you saw Europe as a value and were able to capture that? And then how do you recapitulate that as we are in these good times? Look, Europe, we were fortunate to be on that trend early. And it was unexpectedly partly because the political noise dominated the headlines and neglected the fact that if you're coming off such a low base, you don't need that much of a percentage change to have a meaningful difference to what's going on, because anything's better than nothing in a peculiar sense. So I think Europe continues to muddle through on the political side. So I think, but going into today and looking at annualizing the games we've made so far this year and thinking, can you really believe that? And that's more generally, that's not Europe particularly. Can that really carry on through all of this year? Clearly not. So the smart money is taking some risk off the table. They're starting taking all the risk off the table. It's taking some risk off the table. If going back to what Ken said, if interest rates go up meaningfully over the next 12 months, there will be a bunch of people who have borrowed money from potentially people around this table or in the room who will not be able to pay it back. Those people are out there. And the markets are not in aggregate pricing that. So that's a sort of very simplicity. That doesn't mean that every company that's ever borrowed money is not going to be able to pay it back. Of course not. But there are some. There's very little margin. There's about $4 to $6 trillion in emerging market corporate debt that's dollar denominated. And if the dollar were to rise above where it is now, it's actually a fairly low point. That could cause big problems for a lot of those companies paying that back because they're not going to be able to earn it in their local currency. We haven't mentioned three countries that have really surprising economies of late. One is Brazil, which has been in a five-year recession. But it's coming back from the debt. And I think you can buy very inexpensive things now. And I think it's a pretty good economy. We haven't mentioned India. India has been booming at a higher rate, actually, growth rate than China last couple of years. And Modi has really done an enormous job of getting foreign capital into that country. And really back from the debt as well as Russia. Russia, because oil prices are coming back, and gas prices are coming back, I do think that Russian economy should not be written off as much as it was. And then to circle back here in our final minutes, and David, I'll go to you again on this, and please open it up to the panel, we have a president of the United States coming here who looks at India, I would suggest, is distant and removed from his discourse and analysis, and is focused on Russia in a completely different way than conventional world economic foreign manners. What do you want to hear from him as you look at Brazil, India, and Russia doing better? He doesn't want to talk about those countries, does he? I think what he wants, again, I don't speak for him, but what I think he wants to convey is that he's not this ogre that he's been portrayed. He does want to work with other countries. He wants to set the rules a little bit different than I have been, but I don't think he's coming here to castigate people. I don't think that's his mission. I think his mission is to come here and say, I can work with you, but you've got to work somewhat in terms. Please write a comment on this, please. I think most likely he will come here to castigate people, because he's a politician, remember? He comes here to play politics, not to convey some kind of new economic agenda of his administration to the rest of the world, because there's no economic agenda there, or at least no internationalist economic agenda. But I just want to start. I think people working on his remarks and stuff, but they're not working on a castigation speech. This is just not bad. I just want to respond to Professor Rogoff's point that is China different at this time. Actually, in China, we don't view China as different, because we openly admit that we have too much debt, right? And that is why we have a new phrase in China. It's called the gray rhino. I mean, we all know about black swan, right? And in China, we have a new phrase called gray rhino, referring to the risk that everybody sees it, but you don't tackle it. You can get used to it, and then the risk finally explodes. So these things, we have a problem. What I was trying to say is that the resolution of the problem, the manner of the resolution of the problem in China will be different from a lot of other countries. From your academics at Stanford and going back to Hayek, how do we clear markets? And do we clear them the same in just Ailey's London or Michael Corbett's New York? How do you clear those markets in China? I mean, it's a combination of market clearance by itself, as well as government intervention. And that's always the case in China. You cannot in all believe that. Is the will of this government different than the recent and previous governments? If anything, I think the will of this government is even stronger to help clear the market sooner rather than later. I want to follow up on something President Trump might say, because I think he's going to address this group and say, well, I understand a lot of you may not like me, but if you look at your wallets, you should love me. And the danger, I think, is what Fang said, is that if the stock market starts going down, will he pressure the Federal Reserve to keep interest rates low, even if inflation's rising? Will he pressure regulators to do things to juice the economy and turn what should be an equity market correction if one comes into something much deeper? He might try to take some credit for the economy doing well around the world. He would say, look what I've done in the United States, and what I've done has been used by other economies and governments, and I suspect he'll try to take some credit, rightly or wrongly, for what's going on around the world. Well, I think I would say I do hope that the World Economic Forum this week stays focused on an issue that's been a focus the last couple of years, which is income inequality, and that all that's going on doesn't take our eye off of that challenge, because it still exists. Let's leave it there. It has been an interesting moment. Again, to our audience here, I want to say thank you so much across the World Economic Forum, and thank you again to Bloomberg and Bloomberg Radio, Bloomberg Television for their coverage of this event. But I really want to thank, and I've never done this in 14 years, this audience for fighting through the snow. And it's just extraordinary, the snow, and we're all out there today, and some of you, and some real hardship. Thank you so much for coming today, and thank you to Marjo on the World Economic Forum.