 Llyfrin ar y cyfrifwyr ydw i, rhaid i'r ffordd gyda'r cyfrifwyr a dyn nhw'n ei dweud o y cyfrifwyr yma. Fe'n rhai cyfrifwyr ar gyfer yn cyfrifwyr yma, mae'n olygu'r gweithio'r cyfrifwyr yn y cyfrifwyr yn cyfrifwyr yma, mae'n olygu'r cyfrifwyr yn cyfrifwyr yr oedd yn cyfrifwyr. Mae'n ddweud o'r cyfrifwyr yma sy'n ddweud o'r cyfrifwyr am ymgylcheddau newyddol hefyd ac yn y Llyfrin. Mae'r dwylo'n gobeithio wych yn angen i gael yw'r myfweith wahanol yn y rhan o'n pryddreig iawn ac'i swyddwch gydag y mahau'r cyfryngor iawn, ac rydyn ni'n teidelio'n gael o'r padd o'r ddweud ac nhw o'ch bod nhw'n trafio'n gwmnasol y ffordd o'r ddweud i ddechrau yma. Yw'r rhan o'n myfweith yn cyfrifio, ac mae'r porwogaeth CBC, oherwydd mae'n clywodd a'r cyfrifio yn amlwgr yn y bwylltol. Rhyw unrhyw ddweud y cyfnod o'r mach, ac o'r gyfrannu i fy llun oedd wrth yn ymlaen. Fi yw'n dweud, mae'r ffnogau yw'r gyrhau, heb fel mae'n dweud warniaeth gyrhaf, mae gennym i ychydig addill o'r cyflwyno global. Mae ydw i'n dwi'n dus i'r cyflwyno global ar yr edrych oherwydd wybodau y myl efo'r rhan o'r peir ydwyll yn ysgrifennu ar y glosbeth ar y cyflwyno. Cyflawn o'r 2008, lle y cryys yn sgwrs yng ngyllte, byth yn èl an suspended in the private sectors of the economy. We really haven't managed to get rid of debt. We've just shifted it from the private to the public sector or from the private sector in some developed economies to developing economies, and in particular China. I think we are at a stage where the burden of that debt and the difficulties of escape from the deleveraging attempts that comes out of that, means that there are some very strong deflationary effects round the world, added to by labour market effects. I'm struck by the fact that arby economics, which I support, I think it is the right thing to do, it really is not yet delivering the increase in inflation that it said it would. I'm very struck by the fact that China slowdown is significant. I don't think it's going to produce a financial crisis, but I do think it's going to produce a significant slowdown in both China growth and China inflation. I see that the latest figures on the surveys for manufacturing growth are down. If you look at the producer's price index, the retail price index all of those are signaling down in China and I think people sometimes don't pay enough attention to China and realise what a depressive effect that that is. I think all of that was creating a context in Europe where the outlook for Europe was undoubtedly very slow growth and very low inflation and it's against that context that we've seen the ECB measures. Mae'n ddweud y gallai rhai ddweud. Mae'n ddweud yn olygu'r cymdeithasol wedi'u gweld yma'ch byd. Rwy'n credu bod yn ddweud ymlight mae'r ddweud eich eu cynnwys ffwrdd o'r cyflwynt fyddgylchol ymlaen. A yna, byddwn yn bwysig i'r cyfeiri, Mae'r ystyried i'r cyfw�edd yw'r environment ond mae yw meddwl hwyl o'r cyfwyrn sy'n arddangos oedd ddefnyddio'r gweithio fel ddweud cyflwynt y bydwch yn ei ddechrau'r economiad. Mae'n dweud cyflwynt y bydd y cwyrnodau yw'r mecan sy'n eu rhaglenu a'r oeddennig mewn cyffredinol. Felly mae'r cyfwyrn sy'n ymddangos oedd y byn oedd y bydwch, y swydd, y ddain, o'r wneud i'r ddweud y rhan o'r eu cyfnodau o'r euro, o'i gwybod i'r rhan o'r dweud o'r rhan o'r dweud. We have Japan would like, again, part of its transmission mechanism, of its extreme QE, to be a somewhat weaker Yen, but you then have the Koreans worried if the Yen goes down too much against the one. And if you talk to Chinese policymakers, they say, well, one of the things that they could do to offset a bigger than required or desired slowdown in China is it might be good if the renminbi went down. Now not everybody can go down. There's a lot of people around the world faced with relatively deflationary times, slow growth, low inflation, believe that part of the transmission mechanism to escape from those problems is a low currency. And that can't be true for everybody. So I think we are in an environment where that means that the one currency of the country, which is robustly growing, the U.S. is likely to go up. But I think that will also place a bit of a headwind against how fast the U.S. develops, in a sense some of the deflationary and low growth from other countries will create a headwind to the U.S. through the appreciation of the currency. All of which says to me that we are still in an environment with interest rates around the world where they are staying lower for longer than even people have woken up to now. I think the only country where we're going to see an increase this year is the U.S. And I suspect that that will be very mild. But overall, we're still in deep, potentially deflationary times in which a whole load of different countries around the world would rather like their currency to go down as part of the solution to that. But they can't do it. It sounds like the new normal is currency volatility. I don't know how much volatility it is. I mean, interestingly, if you compare the volatility that we've seen recently, it's nothing like as much as we used to have in the early 80s. I mean, I remember first time I went to lived in the U.S. in 1981. It was absolutely wonderful. It was $247 to the pound. And four years later in 1985, there were $1.05 to the pound. And then that, of course, produced the famous plaza record, which was trying to place a limit on the decline of the dollar. And then we had the dramatic appreciation of the dollar. Then we had the appreciation of the yen, which was seen as part of the cause of the 1990 crisis. So actually, although we seem to have a world of there are movements, there are very significant short-term spikes as people change policy. As we saw with the Swiss franc. But what is intriguing about the modern world, a very significant financial crisis in the 2000s and 80s, we have not seen the enormous swings in exchange rates, which were part of the pattern of the 1980s. We'll take questions from the floor for Arlie. OK, so let's just develop that for a moment longer and look about resilience as well because it's something you've talked about before in the past. Are our institutions resilience enough now to withstand any further movements? Bearing in mind, you may think that volatility won't be something we need to be too concerned about. Well, I think the major financial institutions of the world are much more resilient than they were six years ago because of the very significant increases in capital and liquidity position which were enforced by the regulation of Basel III and regulation of derivatives markets, et cetera. So I think we went through a crisis and I remember people like Jean-Claude Trichet at the time saying one of the surprising things of the 2008 crisis was foreign exchange was the dog that didn't bark. I mean, you know, it played no role in the crisis. Nobody ended up as a bankrupt bank because they lost money on the foreign exchange markets. And I think actually we have a more resilient system in its absolute core of, you know, the big systemically important financial institutions. So I would be very surprised if volatility in foreign exchange markets is a major driver of problems within the financial system itself. I mean, obviously it may wipe out relatively peripheral players as we saw with some of these retail forex brokers which are either in trouble and one actually went bankrupt earlier this week. I think what we should be more worried about actually may be not financial institution volatility but some exposures of large corporates, et cetera. What we know is that we have significant numbers of corporates in emerging markets which took advantage of the opportunity of very low dollar rates to take out debt in dollars. And obviously if they have both an appreciation of the dollar and an increase in the interest rate and if those dollars are not matched by dollar export receipts or naturally arising dollar revenues but they've been taking simply a position which I think many of them have. It's been a carry trade of, you know, borrow the dollar and invest either in local financial instruments or in businesses with local currency revenue streams. I think that's where we should look for some of the stresses that will come this year with the appreciation of the dollar and some increase, I don't expect a dramatic increase but some increase of dollar interest rates. I expect it more in some subsets of the corporate markets particularly in emerging countries who've borrowed dollars and have unhedged positions. That's where I think we'll see a major stress. Go back to the landscape you painted at the beginning of this conversation with almost all the major currencies looking to depreciate in value. As you quite rightly say, not everybody can do that. Who will be the winners and losers? Well, I don't know who will be the winners and losers. Well, I think the answer is some currencies will tend to appreciate versus the dollar. I mean, we've seen, of course, quite a significant downshift in the euro against the dollar that was occurring in any case because of expectations of future interest rate movements that has been reinforced by the QE programme and I suspect it will tend to be reinforced this year as and when the Federal Reserve takes its first steps towards interest rate increases. I think other ones are more difficult to predict but it's clearly one of the hoped for transmission mechanisms of the Bank of Japan's huge QQE programme that they will keep the yen low. I would be, you know, I always find these things very difficult to predict. I mean, my overall assumption would be that on the whole, the yen and the euro, maybe also the renminbi, the one sterling will all most likely go down against the dollar. But of course, if they all go down simultaneously against the dollar, then the stimulative effect of that on their economies is somewhat muted because, yes, they're getting an improved competitive position versus American competitors but Japanese are not getting an improved competitive position against German nor German against Japanese. So, I think I would be very wary of suggesting that one knows within the relative ranking of all the different economies which would quite like somewhat weaker currencies, which will be more or less weak. But the crucial point is, you know, if they all go down by an equal amount against the dollar, then the stimulative effect on their economies, you know, is more limited than if one of them was able to go down against all the currency, all the other currencies in the world, which I think is much more difficult to achieve. And just to stay with that scenario for a moment longer, what should be the priority of American policymakers? Well, I think the priority of American policymakers, and in particular the Fed, should be to meet their dual mandate. That's what they're legally required to do, and I think that's appropriate for them to do. And I think we now know that the US has fairly robust growth, both in output and in employment. My own gut feel is that this may take longer to translate into inflationary pressures than some people are imagining, because if you actually look at the employment rate of the US economy, despite the good jobs growth of last year, 2.5 million or so new jobs, the employment rate is still well down on where it was in 2000. And so I suspect that as we tend to get an employment increase, more people will be brought back into the labour market. I think also there are many aspects of industry and service activity today, which can be automated, and at the first time of wages going up, some of that will be offset by automation. So my own gut feel is that the feed-through of a robust US economy to any inflationary pressures, whether in prices or in the labour market in wages, will be relatively slow. And my suspicion, therefore, is that that will be reflected appropriately in a relatively slow pace of the increase in interest rates. I would anticipate that sometime in the middle of the year as the markets anticipate, there will be an increase in US policy interest rate, the Fed funds rate. But because I think there is probably more slack there because of the lower employment rate, because of the headwind of an appreciating currency, and because in an environment where the rest of the world is growing slower, there's only so far that the US can grow, my anticipation is that I would not expect a rapid return to high rates of inflation. And therefore, I think the path of the increase of interest rates that the Federal Reserve will introduce will be pretty gradual. And by 2017, we may still be looking at US interest rates, which are more like 2.5% than anything higher than that. Can I have a microphone here for the adjustment on the front row, please? Graham, we know you, but our audience don't. So please give us your full name and tell us where you're from. Hi, I'm Graham Manuel from Financial News in London. At the banking panel on Wednesday morning, I think the three big bankers that you had there, they all seemed pretty pleased at the way the currency markets had handled the shop moves last week, even though I think on one day there was more than 10 billion traded, which is an extraordinary volume. The market I think that they were concerned about as causing a huge potential dislocation and potentially leading institutions to fail was the bond market and how that would react to potential rate rises in the US because of the lack of liquidity. FX markets, as we know, are incredibly liquid. They work very well. It was the bond market that we were worried about. As a former regulator, what are your thoughts on that? Well, first of all, I do agree that the FX market works very well. It has very well-developed ways of doing settlement, taking away settlement risk. Of course, they were put in place several decades ago after the great problems which occurred with the Hirstat failure, et cetera. So technically, it's a market that works well. It's also a deep and liquid market. It can be volatile, but people are able to position within it and to lay off risk. And as I said, I mean, I don't think we have in those markets people taking huge risks within the banking system itself, within the trading books of the banking system, which are suddenly going to crystallise into losses if one of them has gone the wrong way. I think, as we saw last week with the Swiss rank, there's a whole load of individual retail investors who've been encouraged by retail brokers to take positions who've suffered large losses. But I think the more professional players at the core of the market have been more cautious. As for the bond markets, my personal belief is that this issue of the withdrawal of liquidity may be somewhat overplayed. The argument is that a combination of the higher trading book capital that we have, and also the Volcker rule, means that it is more difficult and more expensive to be a market maker and take positions in the bond markets and therefore to be a natural counterparty. The reason why I'm always a little bit wary of those arguments that we desperately need more liquidity in the bond markets is, of course, back in 2007, we thought we had lots of liquidity in bond markets and securities markets, and then when we needed it, it wasn't there. Liquidity tends to be a fickle thing. I'm not... I don't think we should overreact to some of the events which occurred, you know, the spikes which occurred in October. And I mean, we shall see. But there is no inherent reason why a world in which the US gradually returns to, let us say, 2% interest rates while the rest of the world is pretty much stuck at zero. There's no inherent reason why that is also a more volatile world if it is anticipated. And I think it is anticipated. And broadly speaking, I believe that the path of US policy rates and of long yields will probably be pretty much what the market expects it to be at the moment, which is some sort of take-off in the middle of this year and then a very slow increase thereafter. And if there aren't unexpected events, if simply the market evolves in line with what the swaps curve says we should expect, I think we somewhat overstate the idea that there is an inherent problem of a world in which there is a differential of interest rates between major currencies. Let's remember that throughout the 1990s and 2000s, we had an environment where US interest rates were typically about 5% and Japanese interest rates were typically about zero. It didn't produce, you know, disruptive volatility in either US or Japanese government bonds. So I accept the argument that there has been less liquidity in major bonds, but I'm not absolutely convinced that this is a major risk to the financial system. And I'm not convinced that the mere fact that we return to a world in which one currency, you know, has a higher interest rate than another, necessarily implies that there must be a high level of volatility. If you look at the volatility events of the last couple of years, some of them, the ones in last October, seem to have been a set of technical causes that we don't really understand, but it was pretty much a one-day wonder. The famous Taper Tramper, a Taper tantrum of early 2013, May 2013, was because the market didn't anticipate it and slightly odd that they didn't anticipate it, but, you know, Ben Bernanke's words for whatever reason surprised them. I don't personally think that what the Fed does this year will surprise us. I think it will be pretty much what the market anticipates. What? Hillary. Is this working? Hillary Jaffee, I'm from Business Day in South Africa. I wonder if you could spell out some of the implications of what you are saying for emerging markets and particularly who might be the winners and losers within the emerging market universe? Well, I think clearly the slowdown in the Chinese economy, which is essentially because the maturing and the ending of a credit and asset price boom and an infrastructure and property boom is already to the disadvantage of the major commodity producers. And, you know, we don't need to speculate whether that's occurred, that has occurred. I mean, the key fact which I think a lot of people were ignoring till about six months ago and is now expressed in the commodity prices and along with supply factors in the price of oil is that after 2009, China kept the economy going with an enormous credit boom which drove the investment rate up from 40% of GDP to 50% of GDP. This investment was fundamentally in infrastructure, in railways, in property, in convention centres, sports stadia, museums, you know, every city in China saying that it was going to put itself on the map as the city that people wanted to go to. And, you know, it kept the Chinese economy going, but it was a particular form of stimulus. It was a stimulus which we can define essentially as a concrete pouring stimulus. And, you know, some people have calculated that China poured more concrete in five years than America did in the whole of the 20th century. I'm not quite sure whether anybody's actually checked that fact or whether it's become an urban myth that we repeat, but it's certainly poured a hell of a lot of concrete. And if you pour a hell of a lot of concrete and you build a lot of buildings, you consume a lot of coal, you consume a lot of oil, you consume a lot of energy, you consume a lot of steel, you consume a lot of iron ore. And what happened during 2014 and the second half of 2014 is a very significant slowing of that, which we're seeing in falls in industrial production, falls in steel production, and a sign that the Chinese government, although they want to maintain an adequate rate of growth, realise that they've got to switch off this machine before it just has too high a level of leverage and too much wasted investment. But switching off a machine like that, there's no easy way to do it. You will end up, you know, producing very major reductions in commodity prices. And we've seen that in the oil price, which is also, of course, driven by the shale revolution, but we've seen dramatic falls in iron ore, in coal, in copper. So the easy thing to say, and it's obvious already, that what has occurred has been bad for the major commodity producers and that includes, to a degree, South Africa, it includes Brazil among the developed countries, of course it includes the Australian economy, which has slowed down very significantly. So that's clearly a straightforward bit of what has occurred. I think outside that, in the export manufacturing sectors of a developing economies, of course it tends to be then much more specific to their specific competitive advantage. But overall, you know, the demand from Europe, you know, has not been developing rapidly, the demand from Japan has not been developing rapidly. So we have, in addition to a very clear and very strong commodity price fall, which then drives down the currencies of the big commodity producers, we have a more generalised fall, which we have seen in the significant downgrades of world economic growth, which have come both from the World Bank and the IMF within the last week. OK, thank you. Great, you have another question. I think we can fit one more in. One more in, OK? Hi, it's my experience that most currency forecasts are wrong. Do you agree, and why is it that it's such a difficult market for experts to forecast? Most currency experts, forecasts by experts are indeed wrong, and I'm pretty sure mine would be. I've managed to keep them sufficiently general that I hope they might be directionally correct, but you may say I noticed I very carefully did not avoid being clear about all the different bilateral pairs, because if I knew how to do that, I'd be trading away and making myself a fortune, and I've never worked out how to do that. So why are they so wrong? And you're quite right that even the huge swings, which I described back in the 1980s, not many people saw before they occurred. I think two things. One, it's inherently difficult to be sure about the shifts of relative to performance that change the fundamentals, but even more important, foreign exchange markets have a tendency once they start moving in one direction to exaggerate the fundamentals, but because that is a process essentially internal to the market, internal to self-reinforcing expectations, internal to the weight of money which is being put against at positions one way or the other, those sort of things in markets are inherently difficult to predict. So in an environment where if it is believed that a currency is going to go up, and if it is believed that it is going to increase its interest rates, you basically have a set of carry trades of people borrowing the currencies which are going to depreciate, which are often also the currencies where the interest rates are very low and putting money into the apprecating currency. That because it's not a fundamental real economic phenomenon like how much oil the world produces or what's happening to manufacturing bad hitness. It's something which has some strong self-reinforcing features and it's strongly delivered, determined by expectations and exuberance, et cetera. So that can drive very significant divergences, movements in currencies which are far bigger than you would logically say were driven by the fundamental economics. So I do return to the point I made earlier that relative to the size of the oscillations that we saw in the 80s and 90s, we have not seen those recently. It's in the 80s and 90s that we really saw self-reinforcing trends which were way beyond what was required. I returned to the point that between 1981 and 1985, the numbers of dollars to the pound went from 247 to 105. First of all, the pound had soared against the dollar between 1979 and 81 and then it went all the way back. And it's really very, very difficult to explain that fluctuation or the dollar-yen fluctuations of the 1980s on the basis of any theory of competitive advantage or relative inflation rates, et cetera. There are strong self-reinforcing tendencies, but if anything, they seem to be less than they were back in the 1980s and 90s. Well, I think all financial markets are subject to irrational exuberance. I personally do not believe in the efficient market theory. I think we are staring both in equity markets and in foreign exchange markets and in many markets the fact that they can overshoot rational equilibrium levels and go to extremes from which they come back. I mean, I think that is a generalized proposition which has been well explained by people like Robert Schiller about the way that markets work. And I think that is just a central fact of the way that markets work across the world. We see that continually in equity markets. And as I say, we used to see that much more in foreign exchange markets than we have seen over the last several years. So, low inflation, low interest rates likely to stay with us as are the poor predictive powers of forex experts. Thank you very much indeed, Lord Turner. Thank you all to our audience here, both here and online. We'll see you back for another issue briefing shortly. Thank you.