 My name is Sam Schraden. I'm the associate director of the Economic Growth Program here at the New America Foundation And I'm joined by Liaquat Ahmed the author of Lords of Finance the bankers that broke the world truly one of the most Fantastic descriptions of the Great Depression And we're here to talk about the situation in Europe and and the global central banks So thank you for joining us show So my first question is last week at our Economic Growth Symposium. You mentioned a plan B That global central banks could be much more activist in helping to resolve the crisis Could you go into a little bit more detail what you think the global central banks should really do? Well, let me put it in context The session we had last week was talking about More aggressive fiscal policy right to get demand growing in all of the major economies And I argued the problem seems to be twofold one That's just not politically viable And secondly in places in Europe That's just not feasible because of because of budget problems and borrowing problems So as a plan B and it really is a plan B I advocated just much more aggressive monetary policy, right and the thought behind that really was Sort of my knowledge of what happened in the 1930s, right? So how does that inform? Well, you know most people have this sort of view or The sort of common view is that what got us out of the Great Depression was the New Deal, right and Aggressive policies by Roosevelt. That was just not true Fiscal policy played very little role. What did play a role was just very aggressive Monetary policy, so that's what I'm advocating, right and so what does In how does the ECB play into that so specifically to the ECB in the eurozone crisis? What should the ECB be doing differently than it's doing now? What role does it play? Well, the ECB first of all has been wrong-footed throughout this whole crisis I mean don't forget in 2008 in the middle of 2008. They were tightening, right? They were tightening earlier this year, so, you know, they are not exactly pointing in the right direction, right? So not only are they not doing enough. They were pointing in the wrong direction But here what I I basically my view is that the ECB is Not acting As the lender of last resort Which it should do now it is acting as the lender of last resort to the banking system So either we have to be clear about that it is providing massive amounts of liquidity to the European banking system Right, but lender of last resort is actually a much wider concept It is that the central bank should be the adult in the room and That when everyone is heading for the doors the central bank is supposed to sit there and say let's not panic and I'm gonna into we are going to intervene to stabilize markets That was the origin of lender of last resort and that's that is what the ECB should be doing So what we have at the moment in Europe part of what we have is a Massive panic in the government bond market, right and it's creating a downward spiral where government bonds Interest rates are going up on government bonds Which is raising the risk of defaults because interest burden interest payments will be higher Which is then driving interest rates even higher and so the into the ECB needs to intervene selectively. I'm not saying they should intervene in every case, right to stabilize Those situations such as France Such as Italy in my view Where the market is overreacting so some people say that That the ECB needs to play the lender of last resort Mervin King said You know, he actually doesn't know if that's the case because at at its origin the eurozone crisis is a balance of payments Situation where you have peripheral economies that are not competitive versus the core European economies So what's in terms of it does play this backstopping rule? Let's say it plays the lender of last resort and then buy some of this debt But how do you resolve that kind of longer term? Balance of payments issue between the very competitive core Europe and the peripheral economies that just can't okay I mean Europe there's a lot going on There's a financial crisis and there's an economic crisis, right the ECB can help with the financial crisis Okay on the competitiveness problem, right? essentially what has to happen is that the Southern European countries have to find a way of reducing their labor costs, right? And that can be done through a combination of restructuring and actually outright nominal wage reductions Those things are going to take time, right and What the ECB needs to do is so the financial intervention is designed to buy time, right? the second thing is that Germany is a is a case of very successful Economic restructuring during the 1990s and 2000s Germany got its wage cost down But it did it in an environment Where there was global growth and there was high demand for its products Right and the only way that Italy and Spain and these guys are going to be able to get their costs down and restore competitiveness is therefore if if they're in some sense guaranteed markets and Two things need to happen to guarantee the markets one Countries in surplus within Europe like Germany, right need to follow expansionary fiscal policies and secondly the ECB has to create a Have a more expansionary monetary policy, so it creates a more buoyant demand climate Okay, so we've covered the we've covered the European situation what they need to do and competitiveness and what the ECB needs to do Can you quickly just to sum up what should the United States be doing? What's the role of the Federal Reserve in Europe? should should we be doing anything more than we're doing now and I'm going to tack on one more question Do you think the Fed should engage in more activist monetary policy at home? Some people have suggested that they they start buying mortgage-backed securities again. Do you think that? Does that help support Europe as well? Well, I mean I think the Fed needs to focus on the US economy and the US economy actually to somewhat To a lot of people surprised right is holding up a lot better in the second half of this year than many people thought nevertheless in Unemployment above 9% I mean if if the same number of people were looking for jobs as In 2007 unemployment would be 12% So if we restored all of the people who dropped out of the labor program So unemployment is a very serious problem, right? It stems from lack of demand and anything we can do to stimulate demand is going to help deal with the unemployment problem Okay, great. We've covered a lot of ground very much. Thank you for joining us. Thank you. Okay