Raw Transcript: Global Debt Bubble About To Trigger Financial Crisis Warns Former Central Banker | William White

the hegeimon is gone. We should not assume that we we will necessarily have a smooth transition to whatever is going to come next. During these downturns, you get a migration of debt from the private sector to the public sector. The really unprecedented record levels of US G government debt to GDP, inflation might be the only answer. I'm very pleased to welcome to the show Dr. William White. He is the uh senior fellow of the CD How Institute and uh he was previously uh head of the monetary and economic department of the bank of international settlements BIS. Previously also served um on uh senior positions with uh the Bank of England. Have you served as an economist and also um an economist at the Bank of Canada? Uh Dr. White has been warning of the next financial crisis, what that may look like, and how to best prepare for it. We're here to get his take on the direction of the economy today. Uh, Bill, it's good to see you. Thank you for joining us. It's an honor to host you today. Thank you for being here. No, it's a great pleasure to be here. I'm very pleased to talk to you and your um and your audience. Thank you. I want to start by uh addressing this article that you wrote for uh I believe the Financial Times. I'll just pull it up here. This was back in 2018 and I'll just summarize it for the audience. I won't read the whole thing. Start preparing for the next financial crisis. Now, uh, continuing on the current monetary path is ineffective and increasingly dangerous, but any reversal also involves great risks. It follows that the odds of another crisis blowing up to continue to rise. Now, back then there was the Zerb zero interest rate policy that has since been reversed. um you didn't p predict the pandemic, but that was a major crisis that shocked financial markets and the real economy alike. But more or less, since you wrote the article in 2018, um how would you evaluate the direction of advanced economies, are we closer to this financial crisis that you warned about several years ago or have been warning about throughout your career? Well, yeah, I I think um I think it has been getting cumulatively worse. Um, one of the underlying problems has always been sort of credit finance debt and leverage. And uh we've had a system really for the last 30 or 40 years which has uh basically tried to provide safety nets for downturns um which has prevented debts from actually being liquidated. uh so that every crisis that you have or any cycle that you have uh debts are building up in the upturns but they're never sort of reversed in the downturns by an equal manner. So the fact is that debt levels have been growing steadily uh and the implication is that the crisis associated with debts and leverage and we've had two or three of them now in recent decades uh is that they tend to become more and more serious with time because the underlying problems in the economy are getting aggravated over time. Um so if you think about public sector debt uh you know it always go it always the deficits always go up during the downturns but you never see the surpluses uh materialize in equal magnitude in the upturns and so the upshot is that the debt levels just keep going up and up. And in the private sector side, it's much the same. Um, but aggravated by the problem that a lot of that debt now is outside of debt owed to banks. It's debt owed to unrelated financial institutions, private credit, whatever. So, in a certain sense, we we have no sense actually of who owns the debt or who's lent the debt. And therefore, I think the vulnerabilities have been getting getting larger. Um and of course the stock market is something that uh that everybody's concerned about now. It's just a a symptom of the underlying problem. But uh the stock market today as you're well aware uh you know has been rising steadily and um it's highly highly concentrated in a small number of firms most of them associated with AI and concentration is another thing along with leverage always make people feel edgy. the so to to your remark about uh the rising debt levels being a concern. Do you think by the way the US just clocked in $ 38 trillion of debt recently this rising debt was that a result of zero interest rate policies uh or would that have come naturally regardless of where the monetary policy would have been? No, I think um it certainly owes a great deal to easy money. Um if you say to a politician or anybody else for that matter that you can borrow money basically at no cost it's a tremendous temptation uh and of course people have this unfortunate tendency I think that's human nature to extrapolate current positions into into perspective positions. So you think you can borrow the money easily today and you sort of say to yourself, well I can borrow money easily today and this will go on forever. Why would you ever want to put yourself through the through the the pain of any kind of restraint? So I think it has made a material contribution uh to the expanding uh fiscal deficit. There's this trend of ddollarization that I want to explore with you in a little bit more detail later. Uh but since you're bringing this up, it just came to my mind. the trend of ddollarization. Do you think that has anything to do with the fact that interest rates have risen over the last few years and uh we have to be aware of the fact that emerging markets economies have typically in the past borrowed money using dollars because it is cheaper than the local currency but it is now significantly more expensive than it was maybe a few years ago bills. So the the ddollarization effort that eastern countries like China and the and Russia have led now the Trump administration wants to reverse that. I wonder if that's one of the reasons why they want to lower the interest rates so other people can want to borrow with the dollar. No, I I think um I think in fact the the the relatively higher interest rates in the United States um really ought to have been supporting the dollar. Um and the the odd thing about it, of course, is that in the course of the last year or so, uh that in spite of those relatively higher interest rates, the dollar's not got stronger, it's got weaker. And I suspect that the underlying reason for that is that people well there's a lot of reasons not least of which was the treatment of Russian assets during the Ukrainian Russia Ukrainian war. Um but I think um people have started to worry more and more um about the robustness of the US dollar over time and the likelihood that the deficits and the really unprecedented record levels of US G government debt to GDP um are heralding um a period of fiscal dominance in which inflation that might be the only answer. And if you were in that set of circumstances and you thought that the dollar would go down in consequence, I think you'd probably try to get out in advance. So I suspect and that's one of the worries is that the US debt and of course Trump's attack on the Fed and the independence of the Fed have made people worry much more about a future debt dynamic that could well be inflationary in the United States. So I don't want any part of it and I'm I'm out of here. 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You're you moved across the pond. But let's um let's address the crux of this particular article here. An intended an unintended consequence of regulatory reforms has been to reduce market liquidity. Even the absence of inflationary pressures, financial markets themselves might react in a disorderly way to signal uh to signals of stronger growth, sovereign bond yields um in advanced economies are at historically low levels where they were in 2018 and are ripe for a reversal. Well, this is rather appreciient because they did reverse. Bond yields in the long end of the curve are much higher now than they were in 2018. So, what's next? Well, one of the one of the points I guess that I' I'd make is that we should not assume that there'll be any that we we will necessarily have a smooth transition to whatever is going to come next. Uh I believe that the economy is a kind of complex adaptive system. uh and it's a kind of system that is subject to tipping points just like the climate and and many other complex systems in both nature and society and so you can get very sudden movements and I guess my principal concern at the moment is that one of the principal movements might might in might involve the the bond vigilantes coming back and that you could have a sudden rise in bond prices uh that would cause a lot of problems elsewhere. where um and one of the other sort of hobby horses of mine at the moment is is trying to point out the fact that the future is likely to be more inflationary than the past because all of the big driving secular forces that that were leading inflation down for many years. Virtually every one of those forces is now going into reverse. you know so that the future is inherently going to be much more inflationary than the past and the kind of forces that I'm talking about is the demographics you know we had many many years for example where you had the baby boomers and the advanced markets uh you had um urbanization in China hundreds of millions of people coming into the the global market system the labor coming into the global market system all the demographics has turned around uh not just in the advanced market economies uh but also in China in Korea in Japan you know the working age populations are going down virtually everywhere so that's going to be a big hit to sort of productive potential um we had years and years of globalization and China and Eastern Europe coming into global markets forcing prices down that's all going into reverse now with a del globalized ization and particularly the this ter the tariff wars which I totally fail to understand but as I see them developing excuse me I see is causing significant problems with implications for prices uh we have climate change you know we had decades where people wrongly didn't worry about the use of fossil fuels so there was no impediment to increasing ing energy supply. Now that's all disappearing. You know, you've got a carbon budget. You people having either to protect themselves against climate change or take steps to mitigate climate change. Those things are going to be enormously expensive. Um we have corporations that used to worry solely about making profit, shareholder, you know, shareholder value. that's sort of quietly morphing into not efficiency but resilience. Okay. Having to change your your supply chains just aside from the the deglobalization just the recognition that having a totally efficient supply chain where you you've got single producers of all the things that you're that you're putting together is a very dangerous way to run your business. You know that ca that came out of co basically. So there's all sorts of these forces that are moving in an inflationary direction and that of course is going to be another significant force um um pushing bond yields higher. So there's a lot of factors out there. And then you get to the you get to the final thing which is if you've got a government that's got huge debts and in a way has no other way of dealing with them, you know, debt restructuring is not exactly ideal. Austerity is not ideal. The politically expedient way of dealing with it is through is through inflation. And it's something we've seen forever. And so I suspect um that that's the kind of future we have awaiting for us. Not that not only that the underlying factors are more inflationary, but that indebted governments see still more inflation as a way to deal with those problems. What what are the immediate effects of rising debt on the markets themselves? What the the ultimate concern is that the government will at one point no longer be able to service uh interest costs and one of many things could happen. The worst case being a default perhaps the bond vigilantes will step in. Uh but you will see significant movement in not just the bond markets but also the equity markets if in fact um risk-f free debt is no longer risk- free. But that is the worst case scenario. What are the steps that are more likely to happen to that the economy will take before we get there? Well, I think you know I've been wrestling that David. I've been wrestling this with for ages and ages but in complex systems um there's no there's no equilibrium. Uh at best I could say there are multiple equilibria. That is to say you could tell a lot of stories. One story that I can tell is that as interest rates rise um you will have private corporations in particular who are overextended um whether through incompetence or fraud or whatever I'm thinking and you know um that kind of thing. Um, one possibility is you could have a kind of uh private sector problem which when you think about it would be deflationary. So that you know private institutions would start off stop offering credit companies would go belly up uh because they couldn't afford private ser private sector de uh private sector debt service. Um I see that as a plausible near-term response. And so what that would mean is you'd have a kind of deflationary outcome. But then you have to think about the next step that a deflate if you get into a deflationary situation the government which has already got huge debts virtually all of the the the major western countries do perhaps with Germany and Switzerland as exceptions. um in that kind of deflationary environment the debt service becomes even becomes even more burdensome. Uh so if you just if you think about a simple recession, tax revenues go way down, deficits go way up, deficits get bigger, not smaller. And so again, the government's faced with that kind of circumstance, I think we'll be much more inclined to open the spigots to start offering more and more guarantees for private credit to keep everything going. And you have a repeat of what we've seen repeatedly in the past is that during these downturns, you get a migration of debt from the private sector to the public sector. Okay? And when that happens, then the pressure is on for still more monetary accommodation. And so you get a kind of shift from an inflationary outcome, sorry, from a deflationary outcome to an inflationary outcome. And um as you know from looking at the experience of countries in Latin America uh often times when the inflation starts to turn it can turn in a dime. Um and it can go up very sharply even as real output is going down. So we've got this kind of nearterm what's the word? Our near-term fixation tells us that the short-term Phillips curve is always alive and well and that if you get a deflation that it's going to lead to dis sorry if you get a recession or a deep recession it's going to lead to disinflation. That is not necessarily true. So I'm I'm worried about these stages and the fact that they can change quite quickly. Uh and we're not really used to think most people are not used to thinking about these um phase transitions a bit like ice to water and it can happen in these complex systems. Well, could it work in theory though, Bill, where sovereign nations are not private entities and individuals? If I were to be uh overburdened with debt and cannot pay it off, I would file for bankruptcy. But a nation state could simply print more money and issue more debt to cover existing maturing debt. This in the old days of course when countries I mean if you read um uh Rogoff and Reinhardt you this time is different. Uh they make the point that sort of prior to World War II um the way out for most indebted highly indebted advanced countries was to default. And um after World War II they before World War before World War II they were on the gold standard or something akin to the gold standard. So you couldn't you you you you couldn't print your way out. Okay? You couldn't print your way out so you defaulted. But since the war and the return to fiat currencies people have been able to inflate their way out and that's what they've chosen to do. And I dare say that when the chips are down, that'll be uh what they'll do again. Is it possible though that GDP will keep up with a rising debt such that the debt to GDP level will remain constant and this will become more manageable? Um certainly one of the one of the solutions to the government debt overhang problem um is often touted as faster growth. Okay. But the question then becomes, well, what do you need to do to get faster growth when you know that the debt overhang problem, you know, it's like your credit cards at the limit that that it is fundamentally anti- anti-spending, anti- anti-growth. So the question is, can you make the supply side changes that are big enough? And people talk about AI, it's possible. Um, but it's betting on a it's a it's betting on a hope. It's not betting on a a sure thing. Um, you've got supply side reforms. I worked at the OECD for many years and um they had a publication called going for growth which is all about supply side reforms that countries could make that would significantly increase their potential growth. Um those reforms have been slowing and slowing and slowing and uh you see it almost everywhere in the western world. It's referred to in the UK here as the blog uh or sorry the blob in the United States. They've got a different word for it. But what it really comes down to is there are so many vested interests now and people wanting to do the the the right thing and each fighting for their position in such a way that nothing happens, right? Because there's always somebody whose ox is going to get gored by a supply side reform. And so supply side changes are becoming more and more difficult. So I can see certainly see a place for it. But I do remind you that productivity growth, you know, total factor productivity growth has been declining for decades, certainly ever since the crisis, the the great financial crisis. The World Bank and the IMF are medium-term projections are all for still slower growth going forward. So to bet on that is um is a hope and I hope that and I and I trust that hope will materialize, but it might not. You're economist for both the Bank of Canada and the Bank of England. If you were working for another central bank of the G7 country today, let's use a Federal Reserve as an example. What would your suggestion be? On the one hand, lower interest rates could help the government uh issue uh debt uh going forward of of lower in of lower interest costs. However, like you mentioned earlier, it could exacerbate the inflation problem especially when fiscal dominance is at front and center and could, you know, we don't need lower interest rates when uh there's no austerity is the argument here. So, how would you balance that? Well, I think that um the the the central bank should realize and the government should realize that they have in fact been kicking the can down the road uh through using lower interest rates to stimulate the economy whenever there has been any kind of a downturn or even a threat of a downturn. But the way in which they've done it by encouraging that debt accumulation is making things making the underlying circumstances worse and worse. So at any stage um one could say you are making things worse stop doing it. The problem is that each cycle we go through, going back to the first thing I said in this conversation, if you treat the problem of excess debt, you treat it by issuing still more debt. Okay? What you know is that this path must stop at some time, but at each moment in time, it's gotten worse from the previous cycle. So your incentive to kick it down the road one more time is even greater than it was the last time. Do do you follow me? So you're constantly incited to do more of the same. And even with the knowledge that you're just making things worse. So at a certain point and we may actually be at that point um you can't do it anymore and then you have to do something else. What needs to what what needs to happen to force both uh uh central banks and governments to implement monetary and fiscal policies to dramatically not just reduce the debt but to cut the growth of the debt. Uh you know basically for example right Germany went through a period of austerity because they needed to. what would need to happen before we also see here in the west right now a similar measure of austerity implemented. You have to remember that the the defining historical moment in Germany was a hyperinflation that followed World War I. Okay? And that has left an indelible mark in the Germans. And so when people start saying the problem, you know, we've got a um a problem, they immediately cast it in terms of inflation's coming back. We got to do something about it. In the United States in particular, and by extension many of the other Western countries, the defining historical moment was the Great Depression. And so that's what they're always out there worried about. So getting people now to make forgetting forgetting about the severity of the debt problem and how there might be a really nearterm concern to do something about it even thinking in terms of reducing the deficit is enormously difficult to sell. Uh I'm thinking about do you remember Jean Pierre Yner who was the head of the European Commission for a while and also I think president of Luxembourg but he had a wonderful line what he said was of course we know what to do of course we governments know what to do what we don't know is how to get reelected after we do it and you can see this you can see this virtually everywhere you know in the United States where there's this kind of antipathy towards any kind of tax increase, you know, even down to not having a vat because a vat would be communist. Um, starve the beast. Um, so getting the ordinary person on side to say we really have got to cut back on things we can't afford in order to pay for the things that we absolutely have to have. Um, that in itself is going to be very difficult. So I'm thinkress for a moment here and since you brought brought that up in terms of political favor we we we have here um society in certain pockets of the US or other parts of G7 wanting more democratic socialist policies. Um as you're aware Zohan Mani was just elected in New York City. his platform runs on the promise of free buses, free state-run grocery stores, um higher minimum wage. Uh they'll be taxing the rich to finance some of these endeavors. Uh but this was overwhelming popular policy platform and he won outright. So people want this bill. What what what are the effects of this being adopted on a wider scale? Well, I mean, this is one of the one of the the worries that goes back to what I was talking about before is that we're already at a point where not just governments but sort of the society as a whole is uh in a way living beyond its means. And uh if we have movements that are going to move us even further in that direction, then of course it's increasing the dangers that I've been talking about since this interview began. So that sort of really worries me. Um, it does not worry me that people are concerned about the decadesl long accumulation of both income and wealth by the top 1% or 10% of the population. It seems to me there's no doubt that the distribution of income and wealth uh is one that is not exactly socially optimal and might well not be sustainable. Having said that, okay, uh if we try collectively to live beyond our means, um I fear that we have the dangers of inflation that I'm talking about um becoming even more dangerous than I had previously implied. Uh one of the things that when I talk about um living beyond our means uh one of the things that I am concerned about is levels of consumption whether it's government supported consumption or whether it's private consumption relative to investment uh which in many countries um the infrastructure has been governments have allowed the infrastructure to get worse and worse you know falling bridges in Baltimore and Montreal and um and so we got the infrastructure problems we have to deal with. We've got the climate problem that is going to take massive investment whether it's adaptation or mitigation. Um we have um new supply lines that we need in light of deglobalization and all the rest of it. we've got increased investment in defense in order to ensure our our political uh security. So if you start saying things like um our potential growth is is being held back by many of the reforms that didn't take place and by the changes in objective circumstances like the population growth rate and climate and whatever. And so our aggregate supply as it were is limited. But on the aggregate demand side we really do need significantly higher levels of investment. Then the only conclusion you can come to right is consumption has to be squeezed. And it has to be squeezed not because one sort of wants to do bad things to the consumer. It's because without the investment those levels of consumption are simply not sustainable. So to me there's a lot of arithmetic here and I think it was Winston Churchill who said at one point uh one cannot argue with arithmetic. One cannot argue with the obvious facts of the case. Bill, I'd like to draw your attention to Canada now and use Canada as a as a point of reference or example for our next part of the conversation. So, this this is a chart that was published by Reuters. Um, it was discussing actually the BIS's warning of mounting uh debt and the disconnect between mounting debt and stocks, which we've already discussed. But take a look at this chart here. Um, it highlights the uh debt the GDP levels of um several G7 countries, Canada, France, Germany, Japan, Italy, Britain, and the United States. So you can see that Canada's um G debt to GDP exploded throughout the '90s and continue rising beyond its peers significantly beyond its peers throughout the 2000s. It's forecasted to stabilize somewhat. Um, coincidentally, and I'm not saying this is a causation, but if you were to look at studies done on Canadian productivity versus the US, the Canadian productivity, which had here in blue line, for example, was outpacing the growth of the productivity in the US up until about the early 2000s, in which case at what time at which time that reversed coincidentally with the rise in the skyrocketing rise of debt in Canada? Is there a relationship? And more broadly, why has Canada's debt risen so so much in the last couple of decades? Well, um, two two things. One, I haven't seen this chart before, and it actually surprises me, uh, because I guess I thought um that the Canadian debt situation was actually relatively favorable compared to others. But if this is what the numbers say, I presume this is this is um all government debt and I presume it's gross government debt. Uh I think net government debt, those numbers are actually quite different. But anyway, let's go back to these these charts and with my sort of statement, one has to be a bit careful about which numbers you're talking about. But certainly in terms of the productivity growth rates um yeah they have fallen behind the United States um I know Bill Robson at the CD how has been going on for ages and ages about the absence of investment in Canada. Um that is very low relative to the United States. um that would I mean you normally think in terms of productivity levels being related to the amount of investment particularly sort of in you know embedded technical indogenous technical change and all this kind of stuff um so that certainly would be playing a part you know it's it's the the difficulty that the Italians have had you know when you think about the European counterparts that um the problem in Italy has not been sort of governed profit per se it's been the fact that the economy has been stag pregnant for years. Um so that yeah that's certainly playing a part. Um most of this as I understand it is is um provincial level debt and I know that some of the provinces have been a bit more um um what's the word improvident perhaps than than others. But again, as I as I I said earlier on, when you're in an environment where the interest rates are very low and it looks as if your debt service is totally manageable, um there's a great temptation to say, well, like, you know, let's it's easier to add on to the debt uh through running deficits and giving people what they actually think they need or in many cases do actually need uh because you don't think you've got a problem. But as I say it's it's a it's a tipping point problem that if you do these um these calculations about debt sustainability you know which is the primary surplus over GDP is equal to R minus G * debt over G and E you know so that it's the relationship between R the interest rate and G the growth rate of the economy that's absolutely central as long as you have the interest rate low enough you you have no problem at all or no perceived problem. But what people don't spend enough time thinking about is but what if the rates have to go up and then all of a sudden you've got a big problem. Well, correct me if I'm wrong, but I believe in 2003 or early in the early 2000s, you had urged uh Fetcher Greenspan uh at the time to raise interest rates at a time of credit expansion, at a time of boom, and your and your rationale at the time was that during times of boom, the government or the banks in particular need to prepare for downturns. Would you make a similar suggestion to Fetcher Powell today? I was calling for leaning against the wind. Um, at a time when it seemed to me um that we at at a time when issues of fiscal dominance and and financial dominance, i.e. can't raise interest rates because the private sector can't take the hit. Those things were not a big problem and I didn't want them to become a big problem and so leaning against the wind. I mean this is a kind of Austrian hyekian sort of approach to things that it goes back decades and decades that the problem the problem isn't in the downturn. The downturns are materialization of the problems that got the problems that were building up during during the upturn. So you have to attack the upturn and make sure it doesn't get out of hand particularly in terms of credit driven and leveraged debt. So that's what I was doing then. Today the problems that I wanted to to to mitigate or to reduce those problems are now really out there. And um if you have a situation where how can one say where the debt levels both public and private are are dangerously high then having still higher interest rates to lean against them might be the trigger that triggers the downturn that you were really trying to avoid. Do you follow me? economy really can't handle higher interest rates. That's that's the that's the problem at this point is you're okay you you can't this is what at the BIS we used to refer to as the debt trap which was you can't raise interest rates because the economy can't take the hit you know you're back into a debt deflation world like Irving Fisher in the 1930s so you can't raise interest rates we had a terrible problem um but you can't lower interest rates either because it just simply makes worse the problem that you're facing which is a problem of excessive debt. So you're you're sort of caught like a rabbit in the headlights and you have to turn to some more fundamental answer to the problem than the use of macroeconomic tools. Well, the the other issue is geoph geopolitical in nature. Is this the end of globalization as we know it? I believe you said in another interview on another channel and I quote, "It's a total mess in terms of international cooperation. I don't think I've in my 50 years in this business, I don't think I've ever seen it worse. I believe you're referring to international trade. Uh some might agree with you. What is the future of international cooperation in the future of globalization? Well, I my my my view at the moment is the China US conflict is really the the major game in town and that the world has profoundly changed that the heimon is gone. Uh I'm not quite sure what's going to replace it, but it is clear that the dominant position that the US had over everything really is it's finished. And one way to characterize it at the moment I think is that China is really sort of the major power in terms of the real economy and particularly manufacturer of goods. U that that's basically where the power lies. The US has still got financial dominance. Uh everything is still basically done in dollars. And I guess what I would foresee because neither of these countries is going away um is that they're going to continue sniping away at each other for the foreseeable future. And so that the Chinese will try to exploit their control over real things to the detriment of the United States. So they'll say, you know, they'll play the the the rare earths thing, uh, pharmaceuticals thing, all of the areas where they basically are monopoly producers of stuff that everybody else needs. And the US is going to try to and of course the Chinese will try to undermine uh the the the still dominant position of the US in the financial sphere and you know they're doing all sorts of things that lead one should you to believe that they're sort of going to be trying to do that. Um the US will do the very opposite. They'll try to shore up their financial dominance. um they'll try to sort of undo the Chinese monopoly of production over things. So um you know uh President Trump now increasingly turning to foreign countries saying we want foreign direct investment in the United States. We want you to promise to do 20 billion in this area and that area. Um so that's sort of what I see coming down the road. And um this is not going to be a world in which it's going to be easy to find a cooperative solution that is to everybody's benefit. Um it could happen but um frankly I would be very surprised. Well Scott Bestend is warning us of us of a permanent decoupling between China and the US. Well he said China and the rest of the world but uh let's just take China and the US. I wonder though the um old uh Ricardian theories of comparative advantage, do those still apply today? Meaning if people should trade with one another because you're better at making one particular good versus somebody else making um something else better and that so you should trade given your comparative advantage. But if Trump wants to bring manufacturing onshore and like you said, China makes everyone's goods and they just make everything. Do people still need to trade to increase everyone's standards of living? Yeah, I I I believe they I believe they do. Um Okay. I mean the the comparative advantage in the old days, I mean people people are really thinking about resource allocations. Um but today I mean when you think about countries like Korea, Singapore, Hong Kong, Taiwan, I mean these countries had nothing, right? have nothing in terms of material resources and they've created sort of progress through ingenuity. But interestingly enough, virtually all of them that ingenuity showed up in the form of um increased exports, you know, a kind of internationally led development program. Um, so I do think that, um, if we find ourselves in a situation where there's material impediments to trade, um, that it certainly is not going to do anybody any any any good. Um, and I fear that's that's how it seems to be how it seems to be developing. There's an odd thing though, something you said that uh just sparked a sparked a thought in my mind. You know, the idea that everybody in the Western world is going to get together with America and basically uh duke it out with China and uh and whoever goes into the Chinese block. Um two things against that. I mean, one of them is the US has been bending over backwards to antagonize everybody, not least its closest ally, Canada. Um, and there's increasing talk, I mean, as I read it anyway, of the the the battle lines are going to get drawn not between China and the rest of the world, but between the United States and the rest of the world that if the US doesn't want to play, okay, in terms of tariffs, in terms of climate change, um, world health for that matter, doesn't want to be part of a global community, well, then they can go their own way and everybody else will do deals amongst themselves and uh we're seeing more and more attention being paid to that range of territory and in that situation where does Canada's allegiance lie I think Canada by by gift of geography has but little choice to uh to to stay in the US block for an extended period of time but clearly I mean there's some issues um climate for example, um tariffs where Canada obviously doesn't uh doesn't want to be part of the the US um dominated group. Um but I think for a period of time as prime minister in the government knows is that you're you're wedded to the US. Um if you start what's another thing about complex systems they're always sort of path dependent. So you start from where you are. You can't start from anywhere else. And Canada starts with what 75% of its exports still going to the US. Yes. And in that situation Bill where the rest of the world starts trading amongst themselves independent of the US what then is a global deacto unit of account or currency? people will continue to use the the US dollar I think for uh I mean this this issue has been debated so many times you know is this is this the end of dollar dominance we've called we've you know it's the boy that cries wolf we've we've we've called the end so many times and it continues and I think now with things like stable coin and uh the US pushing of that particular sort of um um approach to digitalization that that's going to be another thing that will sort of help the old regime to continue. Um having said that I think the the Chinese again what what do I know? Um but the the way in which they have taken big steps to reduce Chinese to reduce their holdings of US dollars and to increase their holdings of gold. uh you you hear people talking about the possibility that what the Chinese may be trying to do is setting up an alternative uh currency system based more on the on the remimi not the sort of the brick currencies more generally but on the remimi uh that would essentially be gold backed and then you'd be back to breton woods before the dissolution of breton woods but with the remimi at the center so Um, and I think that's not something that's going to happen overnight, but um, I've heard people talk about, um, if things go sour with the dollar increasingly, and not least because people are objecting to the weaponification of the dollar, which of course have been going on for decades now, uh, with Russia just the latest example of it. um that the Chinese will be ready to with plan B as it were, you know, to fill in fill in the gap. Well, the people have been speculating whe whether or not the BRICS countries will unify to make their own currency. Uh they've denied it. Uh they even in recent summits um they uh they have rejected the the this idea of coming up with a bricks unified currency. I wonder though if if China will spearhead some sort of movement to have their own euro area with other BRICS members at some point um and and have a common currency in that capacity. Do you ever see a second euro area in the Far East? Is that is that something in the realm of you know possibility here? Does that make sense? Well, I I see I see a range of possibilities. Um I'm reminded of a conversation that took place many years ago at the G10 in Paris when I was when I was there and it was all about the idea of um tra trade barriers and you know euro had turn the euro had turned itself into a kind of at the time sort of fortress as it were with a common external tariff etc etc and the question came up about whether Southeast Asia would do the same and I remember the Japanese delegate sort of come out with a great many reasons why this wasn't going to happen, you know, sort of practical reasons. And then his final final comment was, oh, and don't forget the war that there were still sort of so many people who in Asia who had um you know, bad memories of the Japanese occupation during the war. Well, I think the current situation is there are still many many um what's the word um international problems in Southeast Asia. I mean these people are these cultures are widely diverse and many of them have huge historical um memories of um conflicts with their with their neighbors, you know. So I'm thinking about Cambodia and Burma and uh or um Myanmar um you know Japan with all the others uh China and India I mean even in Southeast Asia the the people that might be sort of part of a bricksled area um maybe maybe more willing to work together but getting in bed together is different is a different thing, right? Well, I I just on that note, uh let's talk about the Euro zone itself. I've heard from a few people, some people even living in the U uh in Europe that uh it is rather fragile this alliance right now, especially considering how Germany is in a recession. And you brought up climate change earlier. uh Germany's auto sector is in is basically at war with environmental regulators uh because people just aren't buying electric vehicles and and and they're they're at serious risk of of being overrun and potentially even going bankrupt some of these companies. So what what is the future of well I know I brought up a few things here but how how how do we as a governing uh body here? I'm talking about the European Union. Uh implement climate fighting solutions while not hurting something as powerful and important as let's say the German auto industry that employs maybe 10% of the population overall and contributes to a significant part of European GDP. Germany made a lot of bad bets. Um, one of them was um, excessive reliance on Russia for cheap gas. Another one was excessive reliance on China for export markets. And I guess the third one is excessive reliance on the US for security and defense. And all of this stuff is coming unstuck. So there's no doubt that they've got some significant problems going forward. And you're quite right to um point out the fact that um climate change is perceived um by many people as being costly and certainly for the car companies um they were slow off the mark and uh now I think are um basically trying to well I mean it's perfectly natural. I mean, if if they're all geared up or still excessively geared up to produce um petrol engines, then clearly they they've got a disadvantage. And um the um the the the Chinese model of of innovation and produ and production is in fact one that works on the government provides guidance as to industries that they want to support and that includes EVs and you know automobile companies and solar and all the stuff associated with climate change and these various companies then fight themselves to the death, which they're doing at the moment, which means everybody's losing money, okay? As they fight to the death until finally two or three companies wind up getting market dominance and then spread that dominance through the rest of the world. And that's what the that's what the German and all the European car makers are confronted with at the moment that uh the the Chinese automobile industry is producing cars in a way that makes them extremely competitive and um maybe a controversial thought. Why don't we lower the tariffs or eliminate the tariffs on Chinese cars altogether? import the cheaper Chinese EVs and that would reduce emissions globally significantly if people will want to buy them. Let's, you know, that's a big if. I'm I'm assuming there's demand for these cars. Yes, car companies will be put maybe out of business, but we we fix the overall issue here of of of lower emissions. Well, what do you think? I think overall it's it's it's it maybe again it's sort of back to the debt problem as well. is that you you can't have solutions that what's the word? If if you're worried about tomorrow and your solution demands killing the patient today, well, there's no point worrying about tomorrow, you know. So that I think whatever kind of solution we find to these problems, there's got to be one that is sort of that that uses time to minimize the costs of adjustment. That it's it's the rapidity of the just of the adjustment that causes the problem. In any event, um I dare say that any nation, however, um however, um concerned about the world's welfare, including through climate change, is not going to destroy itself in the interest of helping everybody else. So uh in ger in Germany I I suspect what will happen is that they will raise tariffs on on on EVs and it will not help the climate change thing. Um but having said that we're we're we've always been confronted I mean you even think about sort of solar okay or wind where you know western companies were making the running on these things for a long period of time the Danes particularly in terms of uh uh wind power and then along came the Chinese with production that was subsidized in various ways and this competition model that encouraged innovation and now we all have a big problem. And on the one hand, we say, well, just let in the cheaper stuff. It's good for the it's good for the climate change. Indeed, it is. But, you know, that is the dilemma. I want to finish our conversation on changes to uh major asset classes given everything we've discussed so far. So, the US dollar, let's um segue into the dollar. DXY has been lower this year. Um it stabilized uh somewhat since uh since the liberation day tariffs were announced in April. What is the future of the dollar? Uh can we continue to see weakness uh or strength ahead? Well, let me go back again to complex adaptive systems. In complex adaptive systems, forecasting is literally impossible. Okay, so what I'm going to tell you is it's it's impos it's an impossible task. Um, with respect to currencies, I think it's a particularly difficult because the the the who who used this phrase, it's the who's the dirtiest shirt in the laundry is what it comes down to that virtually all of these countries other than Germany, which of course through the euro is now subject to the problems associated with France and other countries, okay? Got big debt problems. um all of these countries share the same problem. So I've been sort of wrestling this for ages because when you think about the fiscal dominance story and you sort of try to use a a Latin American um currency problem as an example at a certain point people see the writing on the wall. Okay, fiscal dominance, inflation situation's going to get worse. I'm out of here. But the question is, when everybody's in the same situation and everybody's the dirty shirt in the laundry, where do you run to? Okay. And I suspect that in part explains the massive increase in the price of gold. You know, people are saying, I don't, you know, plague in all your houses. I'm going to go into something totally different. So, um, I really don't know. I mean at the moment I think that the what's the word that the that the the the shock the shock to the the the shock hit to trust on the US side might be greater than it is elsewhere that you know people just never thought about the dollar being really at risk and and once that sort thought hits the market, you know, and starts to to to to to grow. Um, they they may have a vulnerability excess of trust in the future turning into a realistic assessment of of the future value of the dollar. That may be bigger in the case of the dollar than others. But, you know, what do I know? the the the this is the long-term chart of the US 10-year yield uh structural bull market for bonds in the last 45 years as you're aware. Uh they have reached uh the bond market has reached an inflection point around uh 2020. I I wonder if you think that there's structural macro forces at play that will uh propel bond yields much higher such that we have um a return of of of this uh of much higher yields as was seen in the late '7s and 1980. Now, actually, if you see that this chart kind of goes back to the 1930s, um the long-term bond yield is close to where uh it was back in the 60s and before. So, it it does seem to go in these multi-deade cycles here. Yeah. Yeah. I think the um I think the room for nominal yields to go higher is probably greater than people anticipate. um particularly all of the thoughts that I was giving you about perspective inflationary pressures, secular pressures towards inflation and the fact that the governments want it. I'm not saying they want it in itself, but they see its usefulness as a means of dealing with a a debt service overhang problem that they can't otherwise handle. So, um, I I suspect that there's more room on the upside than people people currently anticipate. Very good. Thank you. Again, I go back to my point about complexity. Who knows? Who can say? I want to finish off this final question here. Uh I what what what are you looking forward to uh in terms of future economic developments or technological developments uh that will that may have the best potential let's put it this way to increase our standards of living uh to increase labor productivity and potentially even increase real wages. Well, I mean AI is the obvious candidate. Um but um as many people have pointed out the um previous technological revolutions. You know you think about steam, railways, electricity, these things totally transformed our lives. Uh rates of growth of productivity uh human welfare. AI might well do the same, but uh it's not going to happen overnight and um it will take probably a decade or two before we get the full benefits. But um my big my big worry even on that front is that um like you know like the internet boom at the beginning of the 1980s is that um there will be so much investment that goes into it uh that doesn't have a near-term payoff and therefore results in big problems for the companies that are at the forefront of the revolution. we might have some um dangerous sort of um um disinflationary problems before we get to the other ones and before we get to the increase in real output that uh this thing might be capable of over time. Well, this is actually um subject of great debate whether or not technology, especially AI, is long-term disinflationary um depending on how you see it would impact the labor force and and ultimately output. Uh and I I wonder if this will offset your worries for higher inflation going forward. We'll end it here. Well, it could could well be. There's a lot of um a lot of forces in play. A lot of forces in play. William, thank you so much for your time today. Where can we learn more about you and potentially follow your work? Well, everything everything that I do that's um in the public domain is up on my website and it's um very simple. It's www. williamwhite.ca. You you you lucked out on that domain. That's a great uh that's a great URL domain. So, please check out uh uh the website. I'll put the link down below. Follow Bill there. Thank you so much, Bill. I I enjoyed our talk. I hope you can come on the show and visit us again. Thank you. Well, it was it was a pleasure, David. Thank you very much for asking me. Thank you for watching. Don't forget to like and subscribe.