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Paul Jay
If there is a bigger necessary lockdown, if the pandemic, not isn't, well, first of all, it's already the depression is already pretty deep and not recovering that quickly. But the scientists I'm reading, epidemiologists and such think that we're really at the beginning of another big wave that might even be worse than the previous one. Even Foushee has said that. Some are saying the only way, and this might if Biden's president be what's put to him, the only way of really dealing with this is maybe another two-month national shutdown and mask regulation, and such.
How much financial support can the Fed do? Right now, the politics is kind of paralyzed, but how big can it go? Are there limits, economic limits to how much money the Fed can pump into the economy? What are the political limits might we see now? They might change, I guess, depending on the outcome of the election. Mark, you go first.
Mark Blyth
It's not that I'm a science skeptic on this, but I think that what we tend to do is take whatever the public health authorities say at a given moment and project it forward. As the fox, forgetting that basically everyone revises that opinion on what's going on every two weeks. So I don't think that that's a good thing. The most interesting thing for me just now is the fact that Andy Haldane, who's the chief economist of the Bank of England and all run very smart person, is actually very bullish on the recovery for a host of reasons, in contrast to most of the people around them.
And another really interesting one is, again, the data from Sweden. Sweden has picked up in the U.S. press either to show that we all need to wear masks or, alternatively, to show that you don't need to wear masks. If you actually look at what they're doing and what's happening is very interesting. Their death rates are down to the single digits and are not moving. There's no big spike in death, but there are an infection. And this makes perfect sense. If you think that the goal of a virus is to replicate, it can't be too deadly. They tend to attenuate that effects over time, which is why they could become sort of endogenous to the population and survive in a less deadly form. So I'm very hesitant to say this is what's going to happen, and that's what's going to happen because if we took honestly snapshots of what was the consensus every month since March, the plot charts coming out, that would be massively different all over the place.
So with that in mind, is there any limit to what the Fed can do? Well, also, almost 60 percent of invoicing and 50 percent of global reserves are in dollars, so long as the German and other export-led trade models depend upon the recycling of dollar amounts to the bond markets of the United States. So long as interest rates are at a seven hundred year low, which seems to be a not an aberration, but the real sort of mean revolution in the system, so long as we can't generate inflation to save our lives because we've basically created hyper flexibility in labour markets and product markets on a global scale, then sure, yeah you can just continue.
I mean, you really can. I mean, Sebastian Mallaby has a piece of this in Foreign Affairs. L????w that to two years ago called Magic Money, and I think that he's right. I actually have a piece coming out saying why he's right, but he's not entirely right, because a lot of this has to do with the Fed essentially giving markets of free option every 7 to 10 years and making the problem worse. But nonetheless, can we continue to do this? Absolutely, we totally can do this, so long as there's no inflation in the system, and you're not going to get a very high spike in interest rates. And I can't imagine why you would see either of those. Then you're going to continue to do this, which is part of the reason why half the market is in gold because that's a perfectly rational response to a low inflation, low rate world that you think is fragile.
Rana Faroohar
Yeah, 100 percent. It's so interesting. Two things to say in response to Mark. First of all, if Andy Haldane believes that I'm inclined to believe it, too. I think he's the smartest policymaker around. I can already see the signs of a second wave in New York. I don't know how it's going to play out. And so I'm going to hold off on making a judgment call about that. But let me say a little bit about central banks and what they can and can't do.
I think that if we had a Biden administration, for example, and you had him immediately reaching across the aisle, reaching across the ocean, kind of repairing some of our relationships with allies, basically rolling back some of the really stupid stuff that Trump has done, the end, and also rolling out some kind of reasonable fiscal plan to get us over the next 1 to 2-year hump of COVID, whatever, whatever it is in the U.S., then I think that central banks can probably do a lot. Because you have to realize that it's somewhat about trust in the faith of the, you know, the good faith of the U.S. government and the dollar. And when you have Trump that goes way down, when you have a trade war with China in which we don't have Germany and other European allies that have the same concerns on board, then that goes way down. I think that if we have a volatile environment, then you've got maybe five years for the dollar to be able to act like you have all the privileges of being the global currency. I think if you had smarter governance, you might have another 15 years of being able to have those privileges.
But make no mistake, and this is where I think Americans in particular sometimes get a little arrogant. We always have these conversations like it's just about what we want to do. China has its own plan. It's got its own grand plan, industrial policy. It's rolling out digital RNB. It's got its own sort of trade route that it's trying to develop. It's got its own relationships that it's developing with Middle Eastern oil producers, weakening the dollar oil peg. Europe may come together. The euro may become some kind of more attractive alternative. All these things are now in flux. So you have this, these vectors that have nothing to do with what's happening in the White House. And I think ultimately that will weaken the dollar relative to other currencies. And ultimately, I don't think that's a bad thing, because one of the reasons that we have the dysfunction that we do is that the dollar has this exorbitant privilege and allows us to behave incredibly badly in terms of debt. Wouldn't be a bad thing to crack that. I kind of hope it doesn't happen in 2 to 5 years in some disorderly way.
Paul Jay
There's one truth. I think if one accepts the science, and I think most rational people do, there's nothing more threatening to human society right now than the climate crisis. And with very few years left, apparently to deal with, we're no doubt hitting 1.5, and we're beyond not hitting it. We're maybe beyond not hitting 2 degrees warming above pre-industrial averages. And scientists are saying that if things keep going the way, they are by the end of the century, we could not only be hitting 4, but there's recent predictions of even 7 degrees. I mean, that's an unlivable earth. Even as you approach 2 and 3 degrees, much of the people living in the south have to head north, whether the people of the north want to build walls or not.
The extent of the crisis is critical, and which most people who follow anything know, I don't see any solution to this without US-China collaboration. It's not going to happen through contention if there isn't some serious global agreements on climate and not done in the context and atmosphere of the kind of rhetoric and threats that are going on now. I don't see China isn't going to respond because of threats. And as much as Trump's anti-China hysteria, even Steve Bannon, who I believe is probably still in Trump's ear, is actually called for military confrontation in the South China Sea.
Richard Haas from Foreign Affairs had an article recently where he says that the United States should give up its ambiguity on Taiwan and outright say that if China were ever to use military action towards Taiwan, that the United States will respond militarily. I mean, most people I've talked to that know people like Larry Wilkerson and others don't believe it's true that the United States actually would provoke because every war game they've ever played, Wilkerson says, ends a nuclear war. They've never played a war game that starts conventional and doesn't end nuclear.
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