 I can report right at this moment here that there is a coordinated 50 basis point global rate cut We made the diagnosis that this was big. This was serious If we wanted to do more we certainly could do it and the amount of bills which is out there is increasing all the time There's a sense out there that both quantitative easing or asset purchasing come completely far in new Unstranged kind of thing Quite the contrary. This is just monetary policy DCB is ready to do whatever it takes to preserve the euro and Believe me, it will be enough. I think whatever actions we take have to be one way We can't sort of bring it down then bring it up many central banks in Asia have Titan Monetary policy the committee decided starting next month to modestly reduce the pace at which it is increasing the size of the Federal Reserve's balance sheet for the first time in a long time You don't have to be an optimist to see the glasses half full Is it premature for us to describe this crisis as now being over the recovery is is there But it's weak. It's modest. I have always consulted closely with Janet. She fully supports what we did today I would like to see monetary policy first and foremost Directed toward achieving those goals Congress has given us So welcome everybody to this live CNBC debate on the future of monetary policy We're coming to you from the Congress Center in Davos at the World Economic Forum the Fed has Really thrown a rock in the pond in some senses when it comes to the monetary policy outlook by Announcing the start of tapering the world is beginning to ask questions about the normalization process for monetary policy and Interest rates But is it the Fed alone who can head off down this road towards the exit or are there other central banks now that can also Start to think about normalization and if that is the case What are the consequences for other economies around the world? What does that mean for the way we think about the next phase of monetary policy? I'm Jeff cut more welcome to this debate over the next hour Let me introduce our panel to you and I'd like to start with the UK Chancellor George Osborne who appointed Mark Carney to the Bank of England Understanding if you want any UK team to deliver you need to put a foreign manager in charge And now the UK has falling inflation falling unemployment and clear evidence of a growth pickup Bank of Japan Governor Harahiko Koroda if Prime Minister Arbe is firing the arrows Then Mr. Koroda is sharpening the tips and picking out the targets Former US Treasury Secretary Larry Summers who had us all dashing back to our post war textbooks to understand Why secular stagnation means the challenge for central banks and governments Remains to reverse years of underinvestment in people and infrastructure Alexander Tombeany governor of the central bank of Brazil no doubt pleased to see his program of Interest rate rises appears to be slowing inflation in Brazil But like any good defender in this World Cup year won't rest until that threat has been soundly Defeated and I want to wrap up with Thomas Jordan. Thomas heads up the Swiss National Bank He has warned about the risk of central banks having very large Balance sheets now. That's a message that will resonate with the 26 cantons That are members of the bank who will not get a payout this year because of the fall in the gold price Ladies and gentlemen, this is our panel for our live debate So mr. Osborne, I had another question for you, but within the last 24 hours Your appointed central bank governor has led us down the road to thinking that forward guidance Now changes in significance for the UK and that this seven percent unemployment Threshold may not be as important to markets as we were led to believe Firstly, can I ask you? What is your take on what mr. Carmie has said as his boss and Secondly, if if that now means that forward guidance and the way we understand it has changed What has forward guidance achieved for the UK economy? Well, first of all, I'm not his boss. I appointed him, but Mark is of course independent and he's part of an independent monetary policy committee And as the finance minister on the panel, I need to start with that health warning that The decisions on monetary policy are for the MPC, but I've made these two observations me first I make a general observation. We're talking here and you've set up this debate as a debate about exit from exceptionally supportive monetary policy, you know that in itself is a mark of Success that is a mark of a number of economies that have started to see the recovery takeoff And we're not in the kind of gloomy debate that I remember here at Davos and elsewhere a year ago And that points to a second observation I make which is monetary policy works The exceptionally supported monetary policy in the United Kingdom the US Japan and elsewhere there has worked And I think confounded some of those who said it was never going to work And we needed a whole range of other things now in the United Kingdom. The only reason we're now discussing what happens Is because unemployment is folding rapidly and that's 7.1 7.1 percent The forward guidance that the MPC Issued first of all sets as a threshold 7% not 7.1 percent. So we are not there yet And second, you know, they made it very clear mark made it very clear in the last 24 hours It is not a trigger for action It is a threshold and he's clear That there's not in his words not a need for an immediate rise in interest rates And the MPC will do some further analysis and work and they've got an inflation report in February But you know, we're only again having this discussion because there is a recovery underway because unemployment is falling Well, I have you here if I can just focus on the UK for a moment Take on board everything that you say But there will be those who look at the composition of that growth and say look the savings rate has fallen The housing market has been reignited, but we haven't seen a rapid increase in exports We haven't seen a dramatic rise in productivity This is bubbly growth that the UK is experiencing the UK is still not an economy that is in good balance Well, I'm the first to say the job is not done. It's not even half done There is a lot of the recovery has been supported by the consumer But it is income-generated consumption rather than debt-fueled consumption I think a big challenge for policymakers in the UK now is to try and see a handover to business investment and exports as key components of economic recovery and when you when you mentioned the housing market and other things like that You know, maybe we can discuss this later You know, I think one of the interesting things about the United Kingdom at the moment is we have a perhaps the most formalized and innovative macro prudential regime where we've created a financial policy committee in the Bank of England and Mark and his team at the bank have a whole range of tools. They don't just have interest rates They now have a whole range of macro tools including capital weights and the like and if they see a problem in housing and Mark's clear, you know, he doesn't see a problem today But if they see a problem in housing, they've got a range of quite subtle and targeted tools And that is part of a very radical change to the monetary policy framework, which we have created in the United Kingdom So you're sleeping easy at night Well, I there's a huge amount to be done to recover the damage of the great recession and to make sure We don't make the mistakes of the past have a more balanced UK and indeed Western Economic growth story. Mr. Corroder if I can come to you Mr. Arbe came here and made a wonderful speech about how Japan now has broken through this ceiling of Deflation and that we can expect better things from the Japanese economy But the economists I know who watch your economy are scratching their head about the sales tax now it seems you're heading off in one direction trying to stimulate demand and the government Through the introduction of another sales tax appears to be taking us in a different direction Is there a contradiction and should we fear that the introduction of the sales tax later this year will have the same outcome as previous attempts to introduce a sales tax My short answer is sales tax hike does not create any additional sort of Problem to the Japanese economy Why because when we? Decided and introduced the new monetary policy framework last April That is the so-called quantitative and quite active monetary easing To for instance double monetary base in two years double the amount of Government bond held by the Bank of Japan in two years and so on so forth at that time already the law to raise sales tax in two stages had been Approved by the diet so When we decided the new monetary framework we did take into account the Temporary negative impact of such tax hike on the economy and we introduced the new monetary policy framework QQE To overcome the 15 year long deflation and also overcome potential negative impact of tax increase or whatever kind of shocks likely to affect the Japanese economy and after nine months of Implementing the QQE the economy is on track Currently economy is growing close to 3% and even after the sales tax hike in two stages takes Takes place takes place This year as well as mid next year the economy will continue to grow Maybe around 1.5 or 1.5 percent, which is well above the Japanese economy's Medium-term potential growth which is below 1% so as I said at the outset we know the tax hike in two stages and we introduced very substantial monetary easing and We at this stage and we say no Additional negative impact both coming from Japan, but will it be reversed rapidly if it does appear to have a dragon on demand? Is there the prospect that it could be reversed quickly if there is a dragon as you can imagine whenever sales tax is raised before the time Household may increase spending and after sales tax is raised Household may reduce spending We will see such kind of Rise and fall of consumption around the time of of tax increase, but those Phenomenon we have already taken account. Okay, and also the government has Introduced various measures to ameliorate mitigate the impact on the economy since you are now the swing price setter for the JGP Am I going to make money in JGP's this year? Do I have to take some pain for the Japanese government's sake of course Investment is is is decision by by investors At this stage as I said the QQ is on track and consumer price inflation excluding fresh food has already reached 1.2 percent and Consumer price inflation excluding all foodstuff and energy items also Has reached 0.6 percent So we are on sort of halfway towards 2 percent inflation target Despite these These development the long-term interest rate for instance 10-year JGP interest rate still remain around 0.6 percent What was I thinking seeking investment advice from a central banker? Let me let me move on We'll have more chance to talk about this Mr. Kuroda, but I do want to move on Larry Summers I think you intrigued and fascinated the world at the end of last year by bringing back this idea of secular stagnation If you look at 2013, what did the S&P deliver about? 30% just off that but I don't see many headlines on new roads built in America or new bridges built So on that basis, what actually did QE achieve? Oh Look, we are in a very different situation Than we were just four years ago If you looked at the fall of 2008 in the winter of 2009 they were worse by Almost any measure than the fall of 1929 and the winter of 1930 and for all the various challenges We are going to discuss the forthcoming for the last four years have been nothing like the 1929 to 1933 period that is a tribute to the quality of policy and leadership Around the world, I believe President Obama made an important contribution But there were major steps taken in many other parts of the world that were crucial And I think it's a particular thing worth highlighting sort of a dog that didn't bark If anyone had described how serious the economic problems were going to be People would have expected much more of an outbreak of protectionism Than we've seen in the world and while there are certainly problems We didn't see it over the last four years. I might give our British friends Credit for the London summit in March of 2009 where that principle was established All of that said Recovery has certainly not been Everything most of us hoped it would be The u.s. Economy for example has gained essentially nothing On previous estimates of its potential Our growth has only been sufficient to keep up with population growth And normal productivity Growth and performance hasn't been that good In other parts of the industrial world And that is what has led me To a deep concern about the nature of structural changes In the industrial world Part of it is the consequences of long-term recession Less capital investment People who've been out of work for two years have a very difficult time coming back To work what economists refer to as hysteresis effects Part of it is a Concern about our ability to have Sound growth That is also financially Sustainable given the current structure of our economies I look back and again i'm somewhat a prisoner of the u.s. Experience At our expansion Before this crisis Between say 2003 and 2006 We did grow in an adequate rate the unemployment rate did come down But there was no inflation There was no overheating And that was in the face of A massive credit bubble Huge erosion of credit standards And entirely unsustainable behavior in the housing market And so the question arises Are we capable without more structural spur to spending? Of having a expansion that is both robust And sufficiently bubble-free To be sustainable well, let me and that's why i've emphasized That's why i have said so much so often in the united states That we need to promote Public Investment well, let's come back to that in just a moment because i want to pick up on the point you made there What opportunity to do that when it looks as though we're about to head into another round of head banging in the us political scene as we Bang our heads against this debt ceiling. I mean it seems that that's flaring up again Are you optimistic or pessimistic that there will be a more sensible resolution of the debate this time round? We will not see the kind of brinkmanship. We've seen uh in the past I am very i'm very optimistic that the political actors in the united states have learned that that does not serve Any of their purposes? What i'm less optimistic about Is that we will move beyond? a focus on The budget deficit To the other deficits that i believe are holding back our country the public investment uh Deficit i mean most of the people in this room have been to kennedy airport And i would just ask you the question If a moment when we can borrow money for 30 years In the three percent range in a currency we print ourselves And the construction unemployment rate is in double digits If that is not the moment to fix kennedy airport When will that moment ever come? And you laugh you laugh and it's at one level funny But at another level it is tragic That we are bequeathing to our children a deficit in the form of massive deferred maintenance on our infrastructure We lead the world In the life sciences at a moment of unprecedented promise in the life sciences And we are spending 25 less On research in the life sciences Then we were five years ago. Okay, that is a deficit with huge human consequences as well And so i think our concept of deficits needs to move beyond just the accumulation of financial debt To the other deficits we bequeath to our children's generation. Excellent. Um governor tombini. Let me let me come to you. Um Lady fortune seems to have favored the developed world through this recent phase of the recovery from the crisis On top of concerns about At the fiscal position of a number of companies the fragile five that we constantly hear about We have tapering. We have a sell-off in emerging currencies overnight Particular concerns about argentina. You are brazil not argentina But to a certain extent people will sell brazil on the basis of the same story How concerned are you that your efforts at the moment to manage inflation And growth in the brazilian economy get swept up In this stampede for the exit because people are worried that tapering is a bad story for the emerging world Thank you. Jeff. I think brazil the central bank of brazil was one of the first to say that at the end of the day The beginning of tapering is a net positive for the global economy For international trade therefore for emerging markets including brazil So when we go through the normalization process We will have a positive for for a country like brazil So we should not get confused in the process That this change in relative prices that has happened since the beginning of talks about normalization This is part of the process. I mean it's important to have changing relative prices We move forward to make sure that the normalization global financial conditions work for everyone for the emerging markets but also for the advanced economies And brazil has responded To this new global financial condition in a very classical way We have tightening policies Of course we were tightening before the discussion began because we are addressing Domestic issues. We're fighting inflation But this is part of the adjustment and we are doing that We also have in brazil exchange rate flexibility And the rail has moved since the beginning So this is part of the the process and the third leg of this classical response Is the fact that we accumulated buffers over the years to allow us to sort of smooth out the process Of changing the relative price without having major impacts in the real economy We are doing that. It's working. You mentioned in the beginning that inflation is coming down. Yes from the peak And just after we started the tightening process We have been able to lower inflation by one full percentage point. So we still need To move forward in this direction But it's working, of course the weakening of the rail during the process Militates against The whole thing but the latest figures that we see from inflation At least give us the The response that monetary policy like Mr. Osborne just said works also in brazil. So let me ask you in a low return world Where you have interest rates at 10 percent Supporting the real and the real is still being sold Do you worry that the rest of the world misunderstands the robustness of the brazilian economy? Or is there another story that we need to discuss? I think there was one of the The currencies that appreciate the most during the sort of the uh When the incentives were being put forward in the advanced economies So now the change relative price is part of the process So I don't think there is misunderstanding. We're able to do that in a in a way That will benefit the economy after all So and we have the buffers. I was just saying we use part of the buffers Sort of to smooth out the process, but the exchange rate has moved and I think this is This is normally understanding is part of the the whole adjusting process Governor Jordan, if I can come to you here You have stood out. I think In many senses As taking a different tack to the Anglo-Saxon Central banks You have said that you don't think forward guidance is necessarily the appropriate tool to manage Markets expectations about interest rates. Why is that the case? What's wrong with forward guidance? Well, there's nothing wrong with forward guidance I just said that in fact every country has to choose a concept That really is appropriate for the situation of the country itself In our case, I believe you have to have a simple concept The exchange rate is really at the moment at the center of this concept And you have to be careful not to have too many conditions with forward guidance in order not to confuse markets So that was uh, is this is is this the trap that other central banks may have now got themselves into? He looks pointedly at George Osborne Well, I do not comment here on all the central banks policy I just would like to raise a point with respect to the swiss national bank. So we are in a complex situation Switzerland and especially the swiss franc remains a safe haven currency So we had this massive appreciation and we had to introduce the minimum exchange rate And there we need a very simple and very clear policy So clear message to the market is absolutely essential for the success of such a policy Now I'm a a man of a small brain and a simple mind, but if you set a target ceiling on the Swiss euro or the euro swissie as it's generally referred to Isn't that a former forward guidance? Because you've basically told the market that this is where it where it goes And you're not going to breach it because we will take you on in the marketplace if you try Well, everything is a question about definition So you can interpret also this as a forward guidance. We say In fact, the minimum exchange rate remains as long as necessary We have to ensure adequate monetary conditions and for the time being of course, this is the minimum exchange rate You've also talked about the risks of having inflated central bank balance sheets And obviously in the introduction I mentioned that you won't be paying out to the cantons Is it possible? Do you think Without very strong growth that central banks are going to be able to work off Some of this accumulated debt that sits on balance sheets now Well, the size of the balance sheet is the consequence of monetary policy So central banks should not worry too much about the size of the balance sheet So in our case, we have to ensure adequate monetary conditions If an increase of the balance sheet is necessary, this is the case And we should accept it Also, we do not have The goal or even the mandate to provide profit to the government But rather to ensure the adequate monetary conditions And if there are some changes at the gold price or other asset prices And if that leads to a situation where a central bank makes losses That should not be the reason to change monetary policy The focus should really be on having adequate conditions in order to fulfill the mandate Right, so that was my quickfire round Let's move into the conversation at large And Mr Gerardo, I want to start with that point Because how worried or aware are you of balance sheet risk in the Japanese context Because you seem to have been very aggressively getting engaged in purchasing treasuries First of all, as Chancellor Osborne indicated or argued Normalization or exiting from non-conventional or whatever monetary policies Means success of the policy Now, as I said before, our new monetary policy framework So-called QQE started just nine months ago And at that time we declared that we Aim at achieving 2% inflation target basically in two years' time Time-wise, we are only halfway And also inflation rate-wise, I mean 1.2% inflation still only halfway There's a long way to go So at this stage for Japan, it's somewhat premature To discuss in concrete terms how to exit How to normalize the current monetary policy When the 2% difference target is achieved or approached However, I can assure you that That we have of course been discussing various options Possibilities and so on and so forth And we have been carefully watching how other central banks including Federal Reserve Have been managing normalization process By the way, I think Federal Reserve has managed Normalization process very well Tapering of decision has not disrupted the market at all So, as I said, for Japan It's premature to discuss in concrete terms Normalization exiting from the QQE But I can assure you that we are careful and we will manage Such normalization process smoothly And without disrupting the market or without creating any Balanced problem for financial systems As well as the central bank Well, you're very generous to the Federal Reserve Because I think it was second time round ultimately, wasn't it? Because they blinked when they had the first opportunity to begin tapering back But Larry Summers, as you look at the US economy There are still question marks about the strength and sustainability of this rebound And whether the Federal Reserve has actually embarked a little too early On this process of tapering Because inevitably the money markets then begin to reprice The cost of money in the money markets themselves I know the Fed continually tells us this is about tapering It's not about raising interest rates But inevitably people are going to draw their own conclusion here So I wonder if you could just give us the benefit of your thought Of whether this process has started too soon And whether we might actually see it reversed this year If growth turns out to be weaker than anticipated You know, I think all central banks Always are data dependent And the Federal Reserve has certainly made clear That its trajectory of policy will be data dependent And certainly the range of variation we've seen In unemployment in both the United States and the UK Favorable range in both cases Reminds us that historical relationships in economics Are way short of ironclad laws And that policy inevitably will involve discretion In response to events I think the Federal Reserve has been right In emphasizing in recent years That the bias of policy at a time when unemployment Is above any reasonable expectation And inflation is below any reasonable target level Has to be towards expansion I think that's been the correct animating judgment For monetary policy I think the judgment that not all the expansionary impulse Can prudently come from monetary policy And therefore it's appropriate to avoid excessive Fiscal contraction And therefore it's appropriate to find ways Of supporting investment-led recovery In both the housing and the business sectors I think those have been appropriate areas Of emphasis by the Federal Reserve system Would I preclude the possibility of a slowdown? No, but that's because experience teaches that Precluding possibilities is always a mistake With respect to formulating economic policy I think we are reminded by events Of just how great the uncertainties are Can I stop you on that? I think that's a neat point Just to end the point that you were making I want to bring this to you Chancellor Osborne Recently you've talked about an increase of the minimum wage In the UK and you've made the point That companies should not expect to make profits From the welfare system in the UK Now we've talked a lot here About how much money is on company balance sheets And in a sense we wouldn't need such aggressive QE If companies themselves were willing To put that money back into the economy Why when we have almost reached the Bank of England's Threshold on unemployment And clearly most measures of growth For the economy are improving Do we not see the confidence in the business community To start investing? Well I'd make a couple of points here First of all where I agree with what Larry Summers was saying earlier Is that I think there is an infrastructure deficit And countries like the UK and the US should be investing In science and life sciences as the example he gave I would say first of all when it comes to public investment And public infrastructure projects I would just say there's no free lunch You have to make tough decisions elsewhere In your budget on entitlements in the case of the UK In order to deal with that deficit The UK still has one of the higher deficits And I think you can address Larry's point Of what Western countries need to be doing Investing in infrastructure, investing in science Making structural changes But not do it at the expense of credible fiscal policy And without credible fiscal policy As many countries close to the United Kingdom Learned in recent years Your monetary policy becomes completely ineffective And your market rates go up and the like So I don't disagree with the outcome that Larry talks about I just think that you've got to make the hard choices If you're the finance minister about how you're going to pay for it That brings the second point because it's relating It comes to your question Ultimately businesses will invest when they have confidence In the future prospects of that economy And confidence that their investment is going to generate a return Understandably, particularly in the European continent Where we had a near death experience With one of the world's largest currencies, the euro People have been very risk averse And companies, company boards would much rather sit on the cash Now one of the things we've got to do Is convince businesses that we've got credible frameworks Whether in monetary policy, fiscal policy and the like That we're making supply side reforms to things like planning So you can actually see those investments go ahead And I think then the investment will flow And I think ultimately you can't force a company in a free market To make an investment But you can do everything you can to create the conditions In which that investment makes good business sense And when I said right at the beginning That what I want to see in the UK And I think this would apply to other Western economies Is a hand over to investment to exports That is precisely the challenge for policymaking Create the framework in which those things can happen But just to come back to this Businessmen don't invest because they don't have confidence Absolutely So what is it that they're scared of? Is it that they don't believe the policy framework That the Bank of England has laid out to achieve its targets And now we see this little wobble on forward guidance Or are they concerned about the longevity of your own government And the fact that you may not be around to follow through On some of the fiscal policy that you've implemented Well I have a very strong interest in the survival of my government The um No no I think uh You know first of all on full guidance you keep saying You know things like um the wobble and to quote you You know I don't I think that's being unfair Well we thought it was a very important policy tool And now we learn it's just one of many And we don't need to worry so much about the threshold I think you're being unfair to the Bank of England You know they they set a threshold of unemployment And thanks to the success of policy Both Bank of England policy and government policy Unemployment is falling very quickly and so people are talking about What comes next as I say that's a kind of challenge of success Rather than a problem or a failure if you like Second I think business investment you know there is evidence And you know we have an independent forecaster in the United Kingdom That is forecasting an increase in business investment You know I think you are beginning to see investment You're certainly in the UK seeing huge inward investment You know countries like China and Chinese businesses Are choosing the UK as the go to destination in the west of investment I think that's because they do see political stability You know a credible monetary and macro prudential framework A credible fiscal policy absolutely central And an effort to undertake supply side reform So you know for example we're a country saying Yes let's build nuclear power stations Plenty of other governments in the world Don't want to take on that challenge We're prepared to we're saying yes to fracking In the United Kingdom because we've seen what it's done in the US And indeed in other places There are plenty of other western governments That don't want to touch fracking because it's too hot to handle You know I think we're prepared to take the difficult decisions That will allow the investment to flow Larry Summers I just wanted to for a moment If you want to come back on that and talk about where that Because the point you've been making all the way through here Is actually the money isn't going where it needs to go Look I think the chancellor and I are in complete agreement On the importance of stimulating private investment And creating a more enabling environment for private investment And if that's got many structural aspects I suspect everybody on this panel would agree I think the chancellor and I are I'm glad to see Very much in agreement on the importance of public investment I think within the American context I think that the right investment strategies are actually win win win That by growing the economy they grow the tax base Which collects more revenue and substantially pays for themselves And look we're going to fix Kennedy airport someday And so making that investment today removes a future fiscal burden So I see much less need to impose on to impose cutbacks On people who are very vulnerable right now in the American context Then the chancellor sees in the Europe in the British context Of course I would I would I would recognize you've not been a fan of UK austerity And that's on the record It is a fair comment that I have that is that is that is an entirely fair comment I think that I think I think the diff I think the difference would be that The chancellor highlights the similarities and the risks associated with the other countries in Europe And I would see Europe's difficulties and those increases in bond yields As centrally related to the fixed exchange rate The absence of a central bank And the uncertainties that would be created if for example a US state Were to pursue a massive fiscal expansion And so my way of thinking about this would be quite different I've been very gratified to see the growth in Britain in the last in the last month On the other hand if you look if you compare for example the United States and Britain It was a long time ago that we exceeded several years A couple of years ago that we exceeded our previous peak GDP That's something that is still being sought in Britain And so I think it does need to be recognized We did have a much deeper fall in GDP And for a banking sector that is the same size as the US is But in an economy of fifth or a sixth the size You know the impact of the financial crisis was even greater In the United Kingdom than it was in in the States So you know the great recession in the UK Was had an even greater effect And we were one of the worst affected of any of the major western economies Yeah and that's part of the reason why the deeper the value you're in The more rapidly you are able to grow But despite the best efforts of our moderator George We probably have a common interest in stressing our points of agreement Rather than our points of disagreement And I think they are the importance of generating demand through increased investment I want to move on They are also just one thing Very critical Also what in the Japanese context is called, and I suspect Mr. Karota would agree here The third arrow policies of structural reform And I want to bring this in because so far the message I have received is That central banks are like the fire brigade They turn up, they put out the fire And then gradually they pull away as they've damped down the flames And then the construction team comes in supported in part by the government And rebuilds the house after the fire damage Now if that is correct There's something I misunderstand about the Japanese experience Because the way that you tried to deal with your crisis Many years ago was to send the builders in first Even knowing that the flames were still there Licking up the sides of the building And that didn't seem to work And of course that phrase roads to nowhere Bridges to nowhere became very relevant So is Japan's monetary policy tactic different? And if it's different, what does that do in terms of helping a Shaper understanding of the future for monetary policy? I understand our Prime Minister Abe Delivered his speech Arguing that so-called Abenomics have been successful Abenomics consist of Monetary easing Fiscal flexible fiscal policy I don't want to just revisit this I'd like to just focus on going forward Structural reforms Now the government has already started fiscal consolidation And it made quite clear that the government Ames at halving Primary deficit by 2015 And completely eliminate primary deficit by 2020 And the fiscal program is on track And actually this year So let's just get the point of differentiation here So you disagree with Larry Summers actually Because the government can fiscally consolidate While the central bank stimulates So you do not need the kind of construction Or investment in education that Larry's talking about You have to see the Japanese government fiscal policy In greater detail The Japanese fiscal policy consists of two parts In the short run The government provides stimulus Through public investment and tax credit and so on and so forth But at the same time In the medium to long run The government is determined to consolidate Fiscal position Reducing and eventually eliminating the primary deficit by 2020 So the second allow so-called flexible fiscal policy I think has been successful I mean initially providing fiscal stimulus And always starting fiscal consolidation process Looking at the economy is on track And to borrow a phrase To borrow a phrase from a famous economist In the long run we're all dead So if you're saying in the long run That fiscal consolidation takes place This is a bait and switch The Japanese government needs the confidence of the markets To consistently drive down treasury prices here And maintain stability even as it stimulates So my question really is Are you rock solid in your belief That the market will continue to buy the story you're selling Or is it only the fact that you have such significant domestic holdings That you don't need to think about what foreign market participants do with JGBs Again, I mean I don't really disagree With rally summers or chancellor of the phone I mean in the short run The government can provide fiscal stimulus But in the medium to long run They must consolidate fiscal position And the Japanese fiscal position is in a serious situation So that the government has already started fiscal consolidation And this fiscal consolidation program Must be as you are reading Must be credible Otherwise certainly Market could at any time reduce holding of JGBs Raising long-term interest rate in Japan and so forth So the government has a credible fiscal consolidation program And so far so far the program is on track Excellent, thank you I want to move on and I want to talk a little bit about bubbles Because inevitably now we're talking about exits A lot of this is to do with making sure that we keep a lid on bubbles Or we head them off or burst them before they become a serious problem Again, knowing the experience that we've all come through Governor Jordan if I can just start with Or President Jordan if I can start with you on this Because you have used other tools to try to reign in Excessive property market speculation And this has not been the big hammer of interest rates This has been about bank capital buffers And that's been a way of trying to micromanage the property market Where we do see now in some economies Quite bubbly behavior in terms of price rises I think the UK was 8% Was it the price rise across the UK? Much higher in London of course Parts of the US High double digits So how do we head off the bubbles before they start? Do we have to look to things like macro Prudential tools like this Given what we know about the weakness of the banking sector We're encouraging the banks to lend at the meantime We're also using tools like this to reign in their activity Well macro prudential tools become very important Chancellor Osborn already alluded to that a minute ago In Switzerland as well we built up a concept strategy for macro prudential Now every country is a little bit different And in our situation you have very low rates And for a couple of years you have now a very strong housing market With also mortgage growth that is above average Above nominal GDP growth And given the fact that monetary policy The key interest rate tool is not available You have to use a complementary instrument And these aren't the macro prudential tools And now we used not for the first time We already used that a year ago And now we increased the counter cyclical capital buffer to 2% The hope is that that will have two impacts One is making the banking system stronger And on the other hand also have the incentive Not to provide as much mortgage credit as in the past So to make mortgages relatively more expensive Vis-a-vis other credit But every country is a little bit in a different situation If you do not have a housing bubble And you have a credit crunch Then obviously the macro prudential tools are not necessary So you have to really make a judgement on the overall situation Whether they make sense or not Chancellor Osborne we're going to see some of these tools Implemented in the UK in the near future i.e. this year Given that you've already pulled back on some of the funding For lending programs directed at the housing market Is it time now given where we are in house price inflation To start dampening down the animal spirits Well that is a call for our financial policy committee In the Bank of England and we've created This is a brand new arrangement And they have already started some of that process So you just alluded to our funding for lending scheme Which was helped to bring bank spreads down They have withdrawn that scheme for future mortgages But they also did something else in December Which didn't get a huge amount of press But they tightened up mortgage approval standards as well So they've got a whole range of tools And I think inevitably and I'm not complaining about this It's just a fact of life everyone in the UK and here They're focused on interest rate moves And I can see that But actually there are a whole other range of tools That the Bank of England has now And I think one of the lessons of the crisis Has been you do need to bring all these things together As we have done into the central bank You know we have bank regulation now in the central bank We have macro prudential tools in the central bank And of course we have monetary policy in the central bank Ultimately the attempt to separate those functions out Fell down during the crisis So that coordination exists and I think Rather immodestly I think the Bank of England And the macro prudential framework in the UK Is second to none I think we have led the world in that innovation And I think the value of that will be seen as the recovery picks up So you've mentioned this many times The size of the toolbox and the many tools available I just want to be very clear here Is this the reply if you like To those scribblers overnight Who were talking about the forward I brought this up I'll bring this up again No apologies That forward guidance is actually a significant failure I mean you've seen the copy as the same as I have Is this your message to them You just want to reject that I completely reject that forward guidance is a failure I think what the Bank of England has done Is provided clear communication Supportive monetary policy That has assisted alongside the government's efforts A very strong now set of data in the United Kingdom You did take our job creation numbers They were in the US They are equivalent in the US to 500 or 600,000 jobs a month We have had a rapid fall in unemployment I can't see that that's a failure of economic policymaking in the UK And I think it's sustainable Precisely because We have both the credible monetary framework But it sits alongside a credible fiscal framework Which comes down to the difficult decisions Does the quality of those jobs matter though I mean it's does the quality of those jobs matter I mean there's a lot of talk that those jobs are For estate agents or in other service sector positions That maybe are not or not perceived by economists To be as productive for the long run growth of the UK I think you're being a bit unfair on estate agents But actually rather encouragingly in the United Kingdom We're now seeing manufacturing for the first time Pretty much in my lifetime Starting to grow and good jobs being created there Of course I want to make sure that In as much as these things are within my power That there are good jobs to be able to have good careers I took the I said what I said about the minimum wage Precisely because I thought that the economy Was in a state where we could afford To see the real value of the minimum wage restored Precise decisions for our low pay commission But these things are all You're only able to even have this discussion If you've got a recovering economy And you've taken the difficult decisions that get you there Mr Tombeini let me bring you in Do you think Brazil has taken the difficult decisions Stubborn inflation sets you out from Most of the other representatives that we have on the panel In terms of your economy Do you think the tough structural decisions Have actually been made to make your monetary tools work Well I think as I said before Jeff We are close to full employment as we speak So going forward we need to develop new Source of growth for Brazil And we see some rebalancing as we speak From the supply side we see some more Better conditions for manufacturing in Brazil Unit labour cost has been reduced by 10% last year Including the price of energy through the payroll tax deductions And also through the moving of the Brazilian exchange rate So 2% growth in the third quarter is good enough No it's not good enough I mean I think we have to do more going forward And I think the government has a wide range of supply side agenda We have a huge program of revamping infrastructure in Brazil We have now six international airports on the construction We have big games coming up We have a lot of emphasis on education going forward So I think the agenda should be one pro-growth Supply side agenda And I think the agenda is very well Organizing this direction So going forward I think this is it But let me just talk a little bit about Microprudential Because microprudential we have deployed those tools in Brazil And we were able to sort of bring credit growth To a sustainable level in the last couple of years We have been able to reduce anxiety In some important areas of the credit growth market Using microprudential But microprudential should be used for financial stability purposes We have to separate microprudential from monetary policy As far as monetary stability is concerned going forward It's hard to believe the hour is nearly over But I just have a last opportunity to run along this panel Every year this event sets the agenda I think in terms of risks and rewards Anticipated for full year 2014 in this case Conspicuous by their absence on this panel Is a representative from the European Central Bank And perhaps someone from the Bank of China To areas of the world that are seen as threats If you like to stability through 2014 Since they're not here we can talk freely about them So if I could perhaps just run along the panel here And ask you to think about those two parts of the world And whether they represent challenges to the exit That we've talked about here And a normalisation of strategy Chancellor Osborne can I start with you? Well I would say the main external risk for the United Kingdom Is still the very weak economies on the continent Not universally weak but there are still far too many of them And I think the big challenge this year is What can we do to try and alleviate pretty desperate situations In some of those Eurozone economies Well the ECB could start buying aggressively on the market Couldn't it? And pursue QE Do you recommend they follow that strategy? I'm not going to talk about what the ECB should do But that remains a tragedy The levels of unemployment and youth unemployment In some of our near neighbours And of course has a big impact on us Because they're big export markets for us In China I mean I was there fairly recently I think the challenge I'd say there is There's a lot of good talk there about economic reform And they had their plenum And as much as we can gather committed themselves To a set of economic reforms I think we all just now want to see that Delivered by the new Chinese government Okay Mr Krota I think the Eurozone economy has bottomed out And this year it could grow 1% plus something like that And next year economic growth can accelerate So although some economists in the Eurozone Argued that there is a danger of the zone going into deflation I don't think it's likely And partly because the economy is picking up And partly because inflation expectations Are fairly well anchored around 2% Now China again I don't think Chinese economy has any big risks In the short run this year, next year Because the government policymakers Do understand the need to reform The economic system including the financial system But at the same time they do understand The need to maintain Relatively high growth 7.5% or something like that Well let's move this along the panel Larry Summers if I can ask you to be brief You don't have to cite these two as your greatest threat for 2014 But feel free to pick out something else if you choose to Can I ask you a comment? Europe and China certainly face a full set of challenges I worry about macro-prudential complacency Governments that have never successfully forecast a recession a year in advance That missed the 2007 financial crisis That missed the 1987 stock market crash That missed the Latin American debt crisis And missed much more I worry about how well macro-prudential can really work Though it's an attempt worth making And I think much greater emphasis Needs to be placed on making a system That is safe for ignorance and error And that means emphasis on capital requirements That means emphasis on liquidity That means emphasis on strengthening the robustness of the system Excellent The last time we had a great emphasis on macro-prudential It was Spain's counter-cyclical capital requirements That we're going to protect against the Spanish real estate bubble That didn't work so well Mr. Tombeini briefly Yeah, I think one issue that hasn't been discussed so much lately Is the fact that this exit is unsynchronized this time around You see some more advancement in the area In the US and the UK But then when you look at Japan and Europe You don't see synchronicity going forward Which is good from one perspective So we don't have a vacuum cleaner In terms of resources being sort of attracted to the advanced world I mean, you have areas still in the unconventional mode But on the other hand, you might have more volatility In the exchange rate since those moves don't seem to be Synchronized going forward Mr. John Well, obviously for us, Europe will be key But that was already mentioned Another key risk is really financial markets So when suddenly we have a loss of confidence again With big flows in and out the safe havens That obviously will put us again in a very difficult situation It's been a great pleasure to have you all with us here For this live CNBC conversation I hope you've enjoyed it And can we show our appreciation for our panelists please