tv After Words CSPAN February 17, 2016 1:36am-2:36am EST
falling victims to pay day loans. they put themselves into a whole they cannot get out. they live from paycheck to paycheck but the purpose for each time the so how would it incurred rage those people or be a way to help to manage their money. then is not the person i would trust but maybe they would.
so i will is a that in two parts. lengthy it isn't necessarily a lack of education or for the huge old management and they don't know how to manage i don't have these vigil skills in the filing is paycheck to paycheck and i would have more. so when i talk to people they express a higher awareness of the interesting and fees. i am not saying they're not educated because they didn't know what they're giddy in to -- getting into oblivion paycheck to paycheck but
going back through the 18 ted that came up from people's mattresses that yielded stockings. the data is hard to measure but it shows there is a lot of money not to index -- jan dates so it ends up bid cash if you have cash in your wallet is gone. so i have a a place to say if so they have small savings through a the post office and learned they just have more savers. a culture of sadie eggs in just purred space bore them the united states.
>> a lot of the largest base from the brink of collapse giving money to latin america and they cannot pay it back in the 80 simile require them to have more equity capital. the money does the call said defaults pitches it comes of the shareholders' capital. write-up until the crisis you see equity raising but of course, they have to share the profit. that did they migrated away from banks that is now
called a shadow bank and the balance sheet investment fund procrastinate consequence has said the cave safer in did the the time of the crisis aware how potentially dangerous it was. but to be observed in natural disasters we have one after another disaster. the earthquake in japan in this tells you that if we put the total price up there you see the largest lakes. there is a lot of concern with the concept of global
warming and there is a scientific consensus a warming client can contribute to but said the recent his they put to more will fall on the coast they do that for the same reason if you're close to water to help the transportation links lake amsterdam and tokyo so close to though water and people like to live next to water.
had big greeted the storm hit now we would be more costly than the little call. but this is an interesting picture. of the lower bid had is built on top of landfill and that is true for a lot of cities to put that in such productive places. that is the original allied of lower manhattan and everything else is landfill. that blue area was flooded by a superstar santayana's you can see how closely they match ted the york city was basically inevitable it would be flooded from double-digit was founded.
because new york city gets more prosperous that another hurricane where it comes along to be even more damaging. york is the unique location lorraine a very large hurricane could hit the city in such a way to do eban's damage. -- even its damage university o wisconsin-madison. university o it is 20 minutes. >> professor menzie chinn, your book, "lost decades," how big is the u.s. debt?
>> professor we mean by own? >> guest: well the u.s. debt is something like $14 trillion and about 7% of gdp. that is giving you a little perspective. it tells you it is an unprecedented amount in post-war history at least. who is is owed to? most of it is owed to other americans. sometimes you can think of that has we are borrowing from ourselves. a sizable junk is owed to foreigners and that would be the chinese and various oil exporters. >> host: how do you quantify debt? what is considered u.s. debt? >> guest: that is a complicated question. most of the numbers you hear are debt owed by the u.s. government. so that is actually the number i threw out. there is a lot of other debt
including debt by households to banks, corporations to other corporations and to financial institutions. if i were to add up all of the debt it would be double counting. in fact, most of the time, as ec economist we talk about the net debt, and that works out to something like at the moment 25% of the gdp. that is a lot. but in and of itself it is not as problematic as certain times. the question isn't net debt. but the fact at certain times some corporations and some households get into trouble and they are unable to pay their debt and become insolvent and that ripples through the economy saying there is a $1 here but owed over here and it washes out.
institutions and households count on having assets and they loaned money to somebody and can't get it back. corporations and firms have borrowed money and can't pay it back. and that results in a real debt crisis >> host: let's talk about public debt. the $14 trillion of public debt; does that include future social security and medicare payments and things like that? >> guest: no, just the outstanding amount of treasury out there. what i will do is net out what is owed between accounts within the u.s. federal government. so it is really just what is the debt that is outstanding that is being held by the public. >> host: profester chinn, what is a treasury? >> guest: that is the liability of the federal government directly issued by the federal
government. >> host: do i own treasuries? >> guest: if you invest in a pension firm. i don't have, i think, anything. typically we don't unless we, you know, you have it in some ira that is invested in some other fund. maybe a savings bond would be the closest think a lot of us have seen. >> host: does the university of wisconsin have treasury? >> guest: that is a good question. probab probably. not the university itself but the retirement system the employees are invested in. >> host: we say the chinese are buying our debt. what does that mean? >> guest: well the way to think about it is the chinese were exporting a lot more than importing. they would, as a country, earn proceeds, and most in the form
dollars. they exported stuff to the world and most of the goods are invoiced in dollars. if they are earning more from exports than spending on imported they will have a pile of foreign exchange accumulati g accumulating. you can get it in currency but that gets you zero interest. so typically it is held in the form of treasuries. when you hear someone saying the chinese have treasuries they are saying they are holding dollar assets mostly in the form of treasuries because treasuries are the safest assets in the world in a way because we have not defaulted on treasuries in a long time and they are easy to get in and out of. that is they are highly liquid. it is the ideal form in which to save in. that is why the chinese and many
oil exporters like saudi arabia and kuwait wouldn't have their foreign exchange reserves in treasuries. >> host: as an economist is that a bad thing for the united states? >> guest: i don't think it is bad china holds them but i think it would be bad if the rest of the world keeps accumulating treasuries at a rapid pace because it means the united states is accumulating the debt at a rapid pace. one of the big author earth shaking things you don't hear about is china is running down its pile of foreign reserves. that is a sharp break with what happened over the last 15 years. we are getting in some sense what we wanted. the u.s. government with the share of gdp and accumulating
debt at a rapid pace and the united states isn't by as many tryin treasuries and then the price of treasuries will be lower and that is the thing with higher interest rates. so many offsets going on at the same time. but if emerging market countries, including china and oil exporters, tend to accumulate further treasuries that will put pressure on the interest rates. and interest rates have been unnaturally low. >> the title of the book is lost decades. what happened in 2008 that empoup -- empowered that ripple. >> guest: that is a good
question. my key author and i want to put forward to all of the acronyms and other terms flying around there is one single underlying story repeated throughout history and that is for whatever reason governments encourage or on their own push through increased borrowing. sometimes it is in the belief times are different and we can manage the increased borrowing in an efficient way and a safe way. so allen greenspan in the mid-2000s said we are all borrowing much more but in essence we are smarter than we used to be and we have computers to manage risk and new theories about how to deal with risks and new derivatives that can help us manage risk. the idea we can borrow more is
not as scary as it used to be. that is a dangerous idea. and a particularly dangerous idea because you get into trouble when you borrow a lot and the environment changes. and a lot of the environment looked like it was going to be repaid easily isn't. that is essentially 2008. it is the household borrowed because they thought the prices would keep going up so it made sense to borrow. the banks loaned and they also borrowed. financial institutions borrowed. and they were able to evade regulations because they were outdated with respect to how much you had to reserve in terms of capital. you had financial deregulation and that is the direct governmental interventions. you had the government embarking on a spending free after the 2001 tax cut.
we cut taxes in 2003 and that encouraged more borrowing. and we have the financial innovation. and that led to an increase in borrowing and that led to disparity until it didn't work and people said let's reassess this. the securities we issued. i don't think they are worth as much as we thought or regulators thought and the whole system starts unraveling in reverse. >> the political response to 2008, ben bernanke, henry pulson, president bush, and obama, did they get right? >> guest: i think once the crisis unfolded. ben bernanke and the federal reserve acted correctly. and that is no small measure due to the part tha bernanke's
doctoral thesis had to do with the great depression and he worked out a new interpretation why the great depression was so severe. he talked about the credit influences and that you really have to rescue the financial system to make sure lending continues. so i give him a lot of credit for saving things. the bush administration pushed through a small stimulus package in 2008 and that probably helped a bit. but in terms of fiscal policy, tarp, which was the bank bailout was incredibly important. it reassured people that the banking system was going to continue. tarp was a recapitalization of the banking system.
the banks had been holding lots of assets that suddenly were less valuable than they were originally thought. if that happened sufficient the banks are insolvent and shutdown or continue like zombie banks as they did in japan for a while. so you need somebody to come in to provide funds to make those banks solvent. that is what the u.s. government did. if it hadn't, then i would think that, you know, the financial system would grounded to a halt eventually. it would not have immediately but it would have stopped lending and you cannot run an economy without a financial system that is working. >> host: professor chinn, are recessions and economic downfalls natural occurrences? >> guest: i think so because they will hit economies that push them down or up and cycles will occur. you don't want a system that is
mechanical. you hear about people saying at the moment this recovery is unnaturally long and longer than average so it must, by definition, come to an end. my view would be at some time either the federal reserve acts in a way that tips the economy into a recession or some shock strikes that forces the feds hands or a combination from over seas causes the jump. what will the federal reserve reserve do is one question? will it slow the economy down? the other question is if the federal reserve is not the thing that participates this recession is it the combination of world events? that would be a new event. most of the time, i think we think about the united states as
moving along its own path and not being driven by external influences. if this is a new case where china and china slow down precipitates a greater slowdown in the east asian industry and that translates to the united states that would be effective. >> host: has the legislation of 2008 important for stabilization of the economy? >> guest: so i think there are many aspects of the legislative response. the first one, the first big wan was the araa, the american recovery and reinvestment act implemented in 2009. that was a big counter cycle
move. i would say that is one thing that pushed the economy in the right direction. that was early on and most affects of that have petered out. but i think that mitigated a lot of the pain and suffering that could have occurred. the other legislation that was passed, i think, have more long-lasting implications and that includes the dodd-frank legislation regarding the bank of legislation. so that is important over the longer term in so far as it really -- it reduces the incentives for banks to over over-leverage. that is borrow up lots amounts and only putting in shareholders money and borrowing up with the short term financial market instruments which are the two
things that got the system in trouble before. with implementation of dodd-frank and international banking that you actually made the banking system a lot more stable. there still remains some holes in the regulation of the international financial system. i would say one of the things is we fix problems in the sectors where we see the problems. it is likely the next problem we see is somewhere we didn't xe expect it or apply regulations. we were thinking about 2008 that it wasn't the main line banks that were the big problem. they were regulated in the 1930s in response to the great depression. but we wound up with problems in the shadow financial system because individuals, firms, banks and other financial institutions worked their way
around those regulations or to use the term of financial innovation they innovated a way around the regulations. so we put in a set of regulations now that i think made the system safer for a period of time. more robust and more stable. but people are going to look around for a way of evading the regulations so they can get a higher rate of return and impose the risks upon the greater financial system. that is the hazard that regulators keep on having to try to keep up with those who are trying to evade the regulations. >> is that the message you want people who read "lost decades" to take away? >> guest: that is exactly one of them. you cannot just say we had this one big crisis and we fixed things and we move on. history repeats with examples where individuals, households,
firms, banks all want to leverage up because that is a way of making higher return. they want to leverage up and borrow a lot. there is a tendency because it induces, in the short term at least, a period of growth and returns so there is also incentive to say there is no trouble or problem at this point. if i am a politician it will land in somebody else's lap in the future. if i am a household you might say i will get out before everything crashes. or there is a tendency to say times are different now. we are just smarter. we are more nimble than we used to and the old rules don't apply. our main point is the old rules to a large extend do apply. if you try to borrow a lot and leverage a lot some correction will come around and a lot of pain is going to be inflicted upon many times innocent
bystanders. >> host: what are you teaching the university of wisconsin and what do you want students to leave with? >> guest: i teach economic and an international mack -- macro course to people getting their doctoral. i want them to keep alert. analyze why things are the way they are. why is it that concern people in positions of management in financial firms say what they say versus what people in policy positions would say versus what
journalist would say. using their mind what is being stated or argued rather than taking for granted that somebody says something and because they look aathorative. >> host: why can a small country like greece affect our giant economy here in the united states? >> guest: that is an interesting question. the construction market leading up to 2008. people would say construction of housing accounts for a small portion of the gdp so how can it affect the rest of the economy? interconnections matter we have
learned. in particular, in the case of housing it wasn't just the actual act of building houses but people sold assets involved in building houses and assets were derivatives and derived on the bases of housing prices. on the case of greece, lots of private individuals had assets issued by there greek government or by greece and private individuals. so those holdings lose value as you think they are less able to play. there is a big ramification for people's portfolio and perception of net wealth. the euro was built upon the concept that no government could
default and every government was going to embark upon a path of sustainable finances. so the fact a country would get into trouble and would have to be bailed out, which is against -- you know that is written out of the charter for the euro zone. that forced the reassessment of what is possible. it is not just greece. but greece signals what could happen to the other countries. por portugul, italy, ireland and other countries. the signal greece gives about whether those countries could face a significant problem and what it means for the stability of the single european currency. >> host: you are watching booktv