Kenneth Rogoff, former IMF chief economist HARDtalk


Kenneth Rogoff, former IMF chief economist

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is time for HARDtalk. After months of applying sticking

:00:08.:00:11.

plasters to the ailing global economy, have world leaders finally

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come up with an effective long-term treatment? In the Eurozone, there's

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talk of a two trillion euro stabilisation fund and a managed

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default for Greece. In the US, the Obama administration says it has

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:00:36.:00:39.

plans to deliver job creation and deficit reduction. My guest is Ken

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Rogoff, a former chief economist at the IMF. Is it too late to avert a

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:00:57.:01:18.

prolonged contraction in the Welcome to HARDtalk. Thank you.

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You're a chess grandmaster as well as an economist. Do you think world

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leaders have made the right moves to avert imminent economic

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disaster? I am still very nervous about how this will unfold. There

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are many moves the Europeans Herve but do they have the political will

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and support to execute them? 80% of Germans are against the euro right

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now. That is not a very easy thing to go against. Easy to your view

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that everything we are now seeing in terms of a crisis of economic

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confidence hinges on what happens next in the Eurozone? I think it is

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acutely Europe. It is also fair to say the United States has slowed

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down even more than people had anticipated and there is policy

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paralysis here in the United States also. That is not quite as urgent

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but it is also weighing on investors' minds and people are

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wondering when they will be growth again. In the UK when politicians

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like the Prime Minister David Cameron used the analogy of staring

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down a barrel and when George Osborne says that Eurozone leaders

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have just six weeks to save the euro, does this inflated rhetoric

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help or hinder? I do not think it is inflated rhetoric. I think we

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are approaching what we had in 2008 and urgent action is needed,

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particularly in Europe. They seem to be just waiting for things to

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unfold and have a disorderly default in Europe. I do not think

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it is hyperbole. It is a very nervous moment and that needs to be

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communicated - not just two leaders but to the public, especially in

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Germany. We have decided that Europe is the key for the moment.

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What exactly is on the table in the Eurozone? We are talking about a

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managed defaults in Greece. Do you think They should have happened a

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long time ago? It absolutely should have happened a long time ago. It

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has been a farce that they have not had Greece going to significant

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default already. It will not be able to pay its debts. The reason

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they have hesitated is they do not know what to do next because after

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Greece there is Portugal, Ireland, Spain, Italy... They cannot agree

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on a plant so they have kept Greece on life-support, just giving it

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money. It is not going to keep up because the Greek public does not

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want to put up with one austerity measure after the other and five or

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six years of recession to be in default anyway. That must be

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settled. You say they keep giving Greece

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money and I assume you mean European leaders but let us not

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forget that the IMF is involved in the progressive bailout strategy as

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well and you were Chief Economist there for three years. Do you think

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the IMF has got this wrong? There is no question that until

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relatively recently the IMF has been willing to go along with

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whatever you reported -- Europe wanted. It went even further than

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that. By any one year ago, it was insisting that it was impossible

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that Greece could default as an advanced country despite the fact

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that this time is different. In my book I showed that Greece was in

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default every other year after independence. The IMF has recently

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been retreating and started to realise that it cannot keep saying,

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whatever Europe once. There needs to be tough love coming from the

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IMF. This is fast-moving and it is hard to know which way it will go.

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If you use the phrase tough love, how far should it go? The message

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from European leaders is that if they can Engineer the managed

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defaults and get the angry creditors to take a haircut of 50

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or 60% then Greece can stay in the euro and survive and thrive in the

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long-term. I'm struggling to see how that can be the case. The Greek

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economy will still be a zombie economy. There is no prospect of it

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escaping from long-term austerity measures. Where are all growth come

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from? How can it thrive in the Eurozone? It is very difficult. It

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is in a tough position either way. I think Greece will not end up in

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the Eurozone. I think whoever is left will be in a tighter bond, a

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tighter fiscal and regulatory union than they are now. It will be very

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hard to keep Greece in it. I think the real problem is that it will do

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fault but that the Europe -- that the Europeans will say we will

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protect Portugal and everybody else. Countries are way past the normal

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limit of what the people will tolerate in terms of repaying

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foreign debt. Portugal is in that category. Ireland has done many

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great things but they are still in trouble. There is panic in the

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banking system. They're thinking Italy and Spain that maybe it is a

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solvency problem but mostly it is a panic. The Europeans want to

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protect everything. Until recently they said it was unimaginable that

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Greece would default! You are a respected economist with a lot of

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experience in international financial crisis. Are you telling

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me that the two trillion euros mooted as the benchmark price

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stability fund will not do it in terms of putting a firewall a round

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Portugal or Italy? Italy is an enormous economy and his national

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debt is about the same as the German GDP.

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Two trillion euros is a very good idea and would be very helpful. It

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will buy time. I think three or four trillion Europe might

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ultimately be needed. You make it sound easy. Where on earth do we

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get a three trillion or Fort William from in Europe? -- four

:09:03.:09:13.
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trillion. Unita the overwhelming force to prevent the banks falling.

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They need resources at that level, not that amount of cash itself. How

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long can Greasby in austerity? It is the same thing for Portugal and

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Ireland. That is the difference. You need to forgive some of the

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debts and write them off. The NAB over time they can grow again.

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Perhaps some of them will need to leave the Eurozone. What worries me

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with the plan is that they have not made the top decisions. It will be

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unstable politically as long as they have not decided where at the

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debt cannot realistically be paid. I understand your distinction. But

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I want to push you in the wake one cannot push elected politicians.

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Which countries do you ultimately believe will have to leave the

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:10:26.:10:31.

Eurozone? -- of the wave. -- the way. We must see structured debt

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reduction in Ireland, Portugal and Greece and perhaps in Spain. States

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and cities default in the US all the time and they do not leave the

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:10:54.:10:56.

US. But what I think we will see is that these defaulting countries

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will leave the Eurozone ended has to be fixed. There must be more

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revenue-sharing and a tighter fiscal unit. They may wonder which

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countries that are currently they can really justify having a

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stronger integration. Some of the newer entrants such as Estonia are

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also emerging markets that a strong right now but who knows what

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problems lie ahead? So your message is that the German people have to

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suck this up and recognise that they will be the guarantors of

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sovereign debt across the periphery of the European Union? They will

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pay the price for years to come. am afraid that is absolutely right.

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The endgame has the German people doing that. Life in Germany is

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still pretty good. It is hard for the everyday German to feel the

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risk of what is going on. I think it is similar in Italy. But the

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system must change. They must have a tighter fiscal union and they

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must try to sensibly provides support. You cannot just guarantee

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everything. If they go to Portugal and say, or borrow more money, they

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need to have some of the debt forgiven. They have not reached

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:12:36.:12:41.

that recognition outside of Greece. To use a British phrase, get your

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fingers out and get real! The Germans really resented because

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they are looking at the political management of the US economy and

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say, who are you to lecture last? It is a fair point. -- lecture us.

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It certainly is. The debacle there has undermined confidence. You

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wonder who is in charge. The Republicans have been weekend. The

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President has been weakened. They were talking about shutting down

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the government again! I enjoy seeing you smile but this is no

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laughing matter! The IMF and just gave us their latest survey and

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call it a dangerous phase for the world but they downgrade growth

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prospects in the US for this year and next. What do you think is

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going to happen in the US economy? Do you believe that a double dip

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long-term recession is inevitable now? Not inevitable but I do not

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think we left the downturn. We are still in 2008. You cannot even

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think of this as a recession. Output per person is no we knew

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where it started, up much less getting back to trend. Unemployment

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has not fallen below 9%. It is in a deep recession in the US and with

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it grows at 1% or falls at 1% in the short-term, we need to see four

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or 5% growth. You mentioned the IMF forecast. It was exceptionally dark.

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:14:49.:14:54.

US growth was forecast eight. Down You look at the numbers coming in

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and the IMF have had growth forecast going down to 1.5 % in the

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US. What do you think it might be? We have entered a phase of this

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queer, suddenly, after the last few months, that is a best guess. The

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rest has become very a symmetric. It would have been that slow growth

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for many years but could be better, could be worth. -- worse. Now we

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are hoping it stays at that level. There is a lack of confidence.

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Businesses are freezing up. The economy is not falling but it is

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not rising. The Federal Reserve has not stepped in yet. There is a risk

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that there will be dramatic tightening instead of a gradual

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tightening. It is a very disconcerting moment. There is no

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order way to put its. I can feel your concern. It is easy to sit as

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a renowned economist at Harvard University and tell me how the

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economy is misfiring but it is not so easy to tell me how to fix the

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problem. Barack Obama has started a new initiative and is committed to

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reducing the death of -- deficit, what of the measures that you think

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need to be taken? I think a piece of the President's plan is not

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particularly controversial. That is extending the tax cuts to low-

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income workers. If you pull them back, that is quite a tightening in

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the economy. I would look at this is a patient with a high fever. You

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are giving them I'd be Provan or aspirin to stop them going in to

:16:48.:16:58.
:16:58.:17:05.

fever. -- Ibuprofen. They are fighting the 1970s. It is like

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something that Japan had in the 1930s. It is a mask which year

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scenario than the thought. Just to be clear, but what you mean about

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that, you mean more quantitative easing? Printing more dollars? That

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is inviting inflation in the United States. Exactly. I would like a

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better form of quantitative easing where they make good form that we

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will have to tolerate higher inflation for a file. Bedford mean

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having a law a dust -- it would mean having a law adjusted

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interested. It could mean changing the value of housing so the market

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clears quicker. It would be a slight help to people who have got

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loans, outstanding debt. Four-5% inflation is certainly not a

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problem. All of the things that are usually wrong with it would be

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beneficial. I would like to see it in Europe. Central bankers are very

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reluctant. I find it truly fascinating that you say you want

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to see inflation take-off and the United States. It drives you former

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allies on the republican side absolutely nuts. They say that that

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sort of attitude, quantitative easing, inviting the write-down of

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mortgage debt, it is simply undermining the dollar and this

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fundamentally unfair because it hurts those who are prudent savers.

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You used to be a force for inflation. What has happened to

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you? I wrote a paper 25 years ago about why it was a good idea to

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have an independent central bank, why there should be tougher than

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average -- they should be tougher on inflation, absolutely, I think

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it is very important. We are facing a once and 75 year, once and 100 g

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of downturn -- once in 100 you downturn. There has to be a safety

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method from things like this happen. We do not what is going to happen.

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You have got to pick your poison. I would like to see some debt

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forgiveness with mortgages. It is very difficult in the American

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psyche K. It seems quite unfair. Even if you did that, and you have

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ruffled feathers in the conservative side of politics, even

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if you did all that, is there not a much deeper problem that there are

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global imbalances in the economy and organisations like the United

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States can only really get their growth going if they see creditor

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nations and great exporters like the Germans and Chinese

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fundamentally changing the nature of their economies so that the US

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can start selling them goods. That is not going to happen. No, it is

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not. We do need to see that. I don't think it is something that is

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going to happen quickly. The Chinese cannot easily balance their

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economy. Frankly, the Germans cannot either. Are you sure about

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that. Is that not giving them a bit of a pass? Surely the Germans could

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take some short term measures to boost demand inside Germany and

:20:41.:20:45.

that would make a big difference to the rest of the eurozone and

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probably to the United States, to. What I would most like to see is a

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to have a higher inflation rate in Europe. That would put pressure on

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everyone else's wages apart from the Germans. I think the Germans

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are reluctant to have a big bang fiscal stimulus because they know

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their guaranteeing everything. Nobody is kidding themselves, they

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know that. If you look at Germany's credit rating, they are and a very

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tight spot -- paid sports. They cannot go too far. -- they are in a

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very tight spot. Systems are not working. They would like to make

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good investments and get a higher interest rate but they do not see

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progress in having Europe move towards greater integration and

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they are very concerned. You have referred to were concrete

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contractions. You are saying we are seeing the greatest contraction

:21:51.:22:01.

since the 30s. How long is it going to last in your view? What I found

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in my booking 2009, I spoke about the great contraction then, things

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like unemployment can get worse for up to four-five years, that can

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take the same amount of time of output per person to get out we

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started. You typically start seeing the out -- the end of this after

:22:24.:22:30.

seven years. I have been saying for a long time that you have to worry

:22:30.:22:34.

about The Vics death -- decade, not just the next six months. You have

:22:34.:22:42.

to look at competitiveness, finding ways to reduce debt, this is not a

:22:42.:22:48.

magic bullet because it is a difficult situation. This has

:22:48.:22:52.

happened in other countries and it does end. Is that not perhaps a bit

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complacent? You are seeing it is worse than people have realised but

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perhaps it is a cycle comparable to the 1930s cycle. What of this is a

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crisis of growth orientated capitalism and that actually we

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could never go back to the way we were in the 1980s and 1990s?

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There is an undercurrent of the growth of Asia. That is hurting

:23:18.:23:23.

manufacturing jobs all the world. I do not see that. I think the world

:23:23.:23:27.

continues to have long-term growth prospects. They are certainly

:23:27.:23:33.

things in the system that effect this, inequality has grown too much,

:23:33.:23:37.

that needs to be addressed. Commodity resource based freshers

:23:37.:23:43.

are beginning to look g to look than cyclical. They are definitely

:23:44.:23:49.

not cyclical. We are seeing a rise in metals, gold, that is because of

:23:49.:23:53.

the growth in Asia. You're absolutely right, this integration

:23:53.:23:58.

of people into the world workforce is having a big effect. The ageing

:23:58.:24:03.

population is having a big effect. There are a lot of challenges. It

:24:03.:24:07.

is not as bad as what we're facing right now, we're facing a debt

:24:07.:24:16.

problem, a debt crisis. 100 years, who knows? I think we're definitely

:24:16.:24:21.

in a very difficult situation at the moment. We know that we both

:24:21.:24:26.

want be around. But for now, thank you very much. Thank you for being

:24:26.:24:36.
:24:36.:24:53.

How low. Over the last few days, we have been talking about things

:24:53.:25:00.

warming up. -- hello there. Yesterday, we had temperatures of

:25:00.:25:05.

27 degrees in France. This is where the warm water demand is going to

:25:05.:25:12.

come from through the week. -- the warm air. Temperatures in the low

:25:12.:25:18.

20s. That trend starts to happen through the course of the day-to-

:25:18.:25:28.
:25:28.:25:29.

day, particularly through southern areas. -- the day today. Those

:25:29.:25:34.

co coill slowly improve. First thing this morning, and the

:25:34.:25:44.
:25:44.:25:46.

South, a cloudy start to the day. Misty, foggy, low cloud. Cloudy and

:25:46.:25:50.

misty through southern Wales but for the north-east it will be dry

:25:50.:25:56.

and bright as we head through the day. Into Noy. Into Noland, after a

:25:56.:26:04.

damp night, the sky will Brighton. Lighter, patchy rain in the north-

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east. We start the day on a cloudy, enjoyed first thing for Yorkshire

:26:10.:26:14.

and Lincolnshire. That is how we look first thing on Tuesday. Slowly

:26:14.:26:17.

the weather will change. The rain across Scotland will ease through

:26:17.:26:20.

the afternoon. Not as heavy with the wind moving as well. In the

:26:20.:26:24.

south, the cloud breaks up with mist and fog clearing away from the

:26:24.:26:27.

coast. Highs of 23 degrees this afternoon. Overnight, a similar

:26:27.:26:36.

performance will happen yet again in the south-west. A bit of low

:26:36.:26:40.

cloud and a bit of mist and fog. Not as extensive as the night just

:26:40.:26:43.

gone. It is going to be a much milder night, 14-15 degrees. For

:26:44.:26:47.

Wednesday, this is the set-up for the next of the week, north-western

:26:47.:26:51.

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